As filed with the Securities and Exchange Commission on February 28,
2000
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. 25
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 25
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:
[X] 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)
[ ] 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
SMALL CAP FUND
INTERNATIONAL EQUITY FUND
MID CAP FUND
GROWHT FUND
GROWTH AND INCOME FUND
GOVERNMENT FUND
MUNICIPAL BOND FUND
SELECT SMALL CAP PORTFOLIO
SELECT MID CAP PORTFOLIO
SELECT GROWTH PORTFOLIO
SELECT GROWTH AND INCOME PORTFOLIO
SELECT GOVERNMENT PORTFOLIO
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following pages and
Documents:
Front Cover
Contents Page
Part A - Prospectuses
<PAGE>
The Concert
Investment Series(R)
[GRAPHIC]
Combined Prospectus
FEBRUARY 28, 2000
CLASS A SHARES, CLASS B SHARES AND CLASS 1 SHARES
Small Cap Fund
International Equity Fund
Mid Cap Fund
Growth Fund
Growth and Income Fund
Government Fund
Municipal Bond Fund
The Securities and Exchange Commission has
[SB] Smith Barney
not approved or disapproved these securities or
[MF] Mutual Funds
determined whether this prospectus is accurate
or complete. Any statement to the contrary is a
crime.
<PAGE>
Contents
<TABLE>
<S> <C>
Investments, risks and performance
- --------------------------------------------------
Small Cap Fund 2
- --------------------------------------------------
International Equity Fund 4
- --------------------------------------------------
Mid Cap Fund 6
- --------------------------------------------------
Growth Fund 8
- --------------------------------------------------
Growth and Income Fund 10
- --------------------------------------------------
Government Fund 12
- --------------------------------------------------
Municipal Bond Fund 14
- --------------------------------------------------
More on the Funds' Investments 16
- --------------------------------------------------
Management 17
- --------------------------------------------------
Choosing a Share Class to Buy 18
- --------------------------------------------------
Sales Charges:
- --------------------------------------------------
Class A Sales Charge 19
- --------------------------------------------------
Class B Sales Charge 20
- --------------------------------------------------
Class 1 Sales Charge 21
- --------------------------------------------------
Buying Shares and Exchanging Shares 22
- --------------------------------------------------
Redeeming Shares 23
- --------------------------------------------------
Other Things to Know about Share Transactions 24
- --------------------------------------------------
Dividends, Distributions and Taxes 25
- --------------------------------------------------
Financial Highlights 26
- --------------------------------------------------
</TABLE>
About the manager
The funds' investment manager is SSB Citi Fund Management LLC,
an affiliate of
Salomon Smith Barney Inc. The manager selects the funds'
investments and
oversees their operations. The manager and Salomon Smith
Barney are subsidiar-
ies of Citigroup Inc. Citigroup businesses provide a broad
range of financial
services.
About mutual fund risks
An investment in any of the funds is not a bank deposit and is
not insured or
guaranteed by the FDIC or any other government agency.
1
The Concert Investment Series Prospectus
<PAGE>
Small Cap Fund
Investment objective
The fund seeks capital appreciation.
Key investments
The fund invests in common stocks of small sized companies
considered by the
manager to be "emerging growth" companies. These are primarily
domestic compa-
nies, 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 20% 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
. Small cap 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 a small cap
company is unsuc-
cessful, the company does not meet earnings expectations or
other events de-
press the value of the company's stock
Compared to large, established companies, small cap companies
are more likely
to have limited product lines, limited capital resources and
less experienced
management. In addition, securities of small cap 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 small cap
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
The Concert Investment Series Prospectus
<PAGE>
Small Cap Fund,
continued
Risk return bar chart
- --------------------------------------------------------------
- ------------------
This bar chart indicates the risks of investing in the fund by
showing the per-
formance of the fund's Class A shares for each of the past 4
calendar years.
Class 1 and B shares would have different performance due to
their different
expenses.
Past performance does not necessarily indicate how the fund
will perform in the
future.
Quarterly returns: Highest: 25.10% in 4th quarter 1998;
Lowest: (20.66)% in 3rd
quarter 1998
The performance information in the bar chart does not reflect
sales charges,
which would reduce your return.
[CHART]
Percentage Total Returns for Class A shares
1996 15.17%
1997 20.87%
1998 8.43%
1999 41.22%
Calendar years ended December 31
Risk return table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Average annual total returns for periods ended
December 31,
1999
--------------------------------------------
- ----------------
<S> <C> <C>
<C>
Class Inception Date 1 Year
Since Inception
--------------------------------------------
- ----------------
1 08/08/96 29.61%
18.03%
--------------------------------------------
- ----------------
A 02/21/95 34.18%
23.00%
--------------------------------------------
- ----------------
B 02/21/95 35.17%
23.28%
--------------------------------------------
- ----------------
Russell 2000 Stock Index n/a 21.26%
16.61%*
--------------------------------------------
- ----------------
</TABLE>
This table in-
dicates the
risks of
investing in
the fund by
comparing the
average annual
total return of
each class for
the periods
shown to that
of the Russell
2000 Stock In-
dex, an unman-
aged index of
smaller capi-
talization
stocks.
* The index comparison begins on 2/28/95.
This table as-
sumes the impo-
sition of the
maximum sales
charge applica-
ble to the
class, the re-
demption of
shares at the
end of the pe-
riod, and the
reinvestment of
distributions
and dividends.
Fee table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Shareholder fees (paid directly from
your investment) Class
1 Class A Class B
--------------------------------------------
- -----------------
<S> <C>
<C> <C>
Maximum sales charge (load) imposed on
purchases (as a % of offering price) 8.50%
5.00% None
--------------------------------------------
- -----------------
Maximum deferred sales charge (load)
(as a % of the lower of net asset value
at purchase or redemption) None
None* 5.00%
--------------------------------------------
- -----------------
Annual fund operating expenses (paid by
the fund as % of net assets)
--------------------------------------------
- -----------------
Management fee 0.65%
0.65% 0.65%
--------------------------------------------
- -----------------
Distribution and service (12b-1) fee 0.00%
0.25% 1.00%
--------------------------------------------
- -----------------
Other expenses 0.60%
0.65% 0.66%
--------------------------------------------
- -----------------
Total annual fund operating expenses 1.25%
1.55% 2.31%
--------------------------------------------
- -----------------
</TABLE>
This table sets
forth the fees
and expenses
you will pay if
you invest in
shares of the
fund.
* You may buy Class A shares in amounts of
$500,000 or more
at net asset value (without an initial
sales charge) but
if you redeem those shares within 12
months of purchase
you will pay a deferred sales charge of
1.00%.
Example
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Number of years you own
your shares 1 Year* 3 Years* 5
Years* 10 Years*
--------------------------------------------
- --------------
<S> <C> <C> <C>
<C>
Class 1 (with or without
redemption) $967 $1,213
$1,478 $2,233
--------------------------------------------
- --------------
Class A (with or without
redemption) $650 $ 965
$1,302 $2,253
--------------------------------------------
- --------------
Class B (assuming
redemption at end of
period) $734 $1,021
$1,335 $2,456
--------------------------------------------
- --------------
Class B (assuming no
redemption) $234 $ 721
$1,235 $2,456
--------------------------------------------
- --------------
</TABLE>
This example
helps you com-
pare the costs
of investing in
the fund with
those of other
mutual funds.
Your actual
costs may be
higher or low-
er.
* The example assumes:
. You invest $10,000 for the period shown
. You reinvest all distributions and
dividends without a
sales charge
. The fund's operating expenses remain the
same
. Your investment has a 5% return each year
. Conversion of Class B shares to Class A
shares after 8
years
The Concert Investment Series Prospectus
3
<PAGE>
International Equity Fund
Investment objective
The fund seeks total return on its assets from growth of
capital and income.
Key investments
The fund invests principally in a diversified portfolio of
equity securities of
established non-U.S. issuers.
How the manager selects the fund's investments
By spreading the fund's investments across many international
markets, the man-
ager seeks to reduce volatility compared to investing in a
single region. Un-
like global mutual funds which may allocate a substantial
portion of assets to
the U.S. markets, the fund invests substantially all of its
assets in countries
outside of the U.S.
The manager emphasizes individual security selection while
diversifying the
fund's investments across regions and countries, which can
help to reduce risk.
While the manager selects investments primarily for their
capital appreciation
potential, some investments have an income component as well.
Companies in
which the fund invests may have large, mid-size or small
market capitalizations
and may operate in any market sector. In selecting individual
companies for in-
vestment, the manager looks for:
. Above average earnings growth
. High relative return on invested capital
. Experienced and effective management
. Effective research, product development and marketing
. Competitive advantages
. Strong financial condition or stable or improving credit
quality
Depending on the manager's assessment of overseas potential
for long-term
growth, the fund's emphasis among foreign markets (including
emerging markets)
and types of issuers may vary. In allocating assets among
countries and re-
gions, the manager evaluates:
. Economic stability and favorable prospects for economic
growth
. Low or decelerating inflation, creating a favorable
environment for securi-
ties markets
. Stable governments with policies that encourage economic
growth, equity in-
vestment and development of securities markets
. Currency stability
. The range of individual investment opportunities
Principal risks of investing in the fund
Many foreign countries in which the fund invests have markets
that are less
liquid and more volatile than markets in the U.S.
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:
. Foreign securities prices decline
. Adverse governmental action or political, economic or market
instability af-
fects a foreign country or region
. The currency in which a security is priced declines in value
relative to the
U.S. dollar
. The manager's judgment about the attractiveness, value or
potential apprecia-
tion of a particular security proves to be incorrect
In some foreign countries, there is also less information
available about for-
eign issuers and markets because of less rigorous accounting
and regulatory
standards than in the U.S. Currency fluctuations could erase
investment gains
or add to investment losses. The risk of investing in foreign
securities is
greater for emerging markets. In Europe, Economic and Monetary
Union (EMU) and
the introduction of a single currency began in 1999. There are
significant po-
litical and economic risks associated with EMU, which may
increase the volatil-
ity of the fund's European securities and present valuation
problems.
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 total return
potential of inter-
national markets
. Currently have exposure to U.S. stock markets and wish to
diversify your in-
vestment portfolio by adding non-U.S. stocks that may not
move in tandem with
U.S. stocks
. Are willing to accept the risks of investing in the stock
market and the spe-
cial risks of investing in foreign securities, including
emerging market se-
curities
4
The Concert Investment Series Prospectus
<PAGE>
International Equity Fund,
continued
Risk return bar chart
- --------------------------------------------------------------
- ------------------
This bar chart indicates the risks of investing in the fund by
showing the per-
formance of the fund's Class A shares for each of the past 4
calendar years.
Class 1 and B shares would have different performance due to
their different
expenses.
Past performance does not necessarily indicate how the fund
will perform in the
future.
Quarterly Returns: Highest: 77.26% in 4th quarter 1999;
Lowest: (20.43)% in 3rd
quarter 1998
The performance information in the chart does not reflect
sales charges, which
would reduce your return.
Percent Total Return for Class A shares
1996 17.59%
1997 5.10%
1998 22.47%
1999 130.79%
Calendar years ended December 31
Risk return table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Average annual total returns for periods ended
December 31, 1999
--------------------------------------------
- ---------------------
<S> <C> <C>
<C>
Class Inception Date 1
Year Since Inception
--------------------------------------------
- ---------------------
1 08/08/96
111.94% 36.70%
--------------------------------------------
- ---------------------
A 02/21/95
119.27% 33.45%
--------------------------------------------
- ---------------------
B 02/21/95
124.17% 33.82%
--------------------------------------------
- ---------------------
Morgan Stanley EAFE Index n/a
26.96% 14.27%*
--------------------------------------------
- ---------------------
</TABLE>
This table in-
dicates the
risks of in-
vesting in the
fund by compar-
ing the average
annual total
return of each
class for the
periods shown
to that of the
Morgan Stanley
Capital Inter-
national EAFE
Index, an un-
managed index
of
international
stocks.
* The index comparison begins on 02/28/95.
This table as-
sumes the impo-
sition of the
maximum sales
charge applica-
ble to the
class, the re-
demption of
shares at the
end of the
period, and the
reinvestment of
distributions
and dividends.
Fee table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Shareholder fees (paid directly from
your investment) Class
1 Class A Class B
--------------------------------------------
- -----------------
<S> <C>
<C> <C>
Maximum sales charge (load) imposed on
purchases (as a % of offering price) 8.50%
5.00% None
--------------------------------------------
- -----------------
Maximum deferred sales charge (load)
(as a % of the lower of net asset value
at purchase or redemption) None
None* 5.00%
--------------------------------------------
- -----------------
Annual fund operating expenses (paid by
the fund as % of net assets)
--------------------------------------------
- -----------------
Management fee 1.00%
1.00% 1.00%
--------------------------------------------
- -----------------
Distribution and service (12b-1) fee 0.00%
0.25% 1.00%
--------------------------------------------
- -----------------
Other expenses 0.68%
0.83% 0.79%
--------------------------------------------
- -----------------
Total annual fund operating expenses 1.68%
2.08% 2.79%
--------------------------------------------
- -----------------
</TABLE>
This table sets
forth the fees
and expenses
you will pay if
you invest in
shares of the
fund.
* You may buy Class A shares in amounts of
$500,000 or more
at net asset value (without an initial
sales charge) but
if you redeem those shares within 12
months of purchase
you will pay a deferred sales charge of
1.00%.
Example
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Number of years you own
your shares 1 Year* 3 Years* 5
Years* 10 Years*
--------------------------------------------
- --------------
<S> <C> <C> <C>
<C>
Class 1 (with or without
redemption) $1,006 $1,335
$1,685 $2,668
--------------------------------------------
- --------------
Class A (with or without
redemption) $ 700 $1,119
$1,563 $2,790
--------------------------------------------
- --------------
Class B (assuming
redemption at end of
period) $ 782 $1,165
$1,574 $2,949
--------------------------------------------
- --------------
Class B (assuming no
redemption) $ 282 $ 865
$1,474 $2,949
--------------------------------------------
- --------------
</TABLE>
This example
helps you com-
pare the costs
of investing in
the fund with
those of other
mutual funds.
Your actual
costs may be
higher or low-
er.
* The example assumes:
. You invest $10,000 for the period shown
. You reinvest all distributions and
dividends without a
sales charge
. The fund's operating expenses remain the
same
. Your investment has a 5% return each year
. Conversion of Class B shares to Class A
shares after 8
years
The Concert Investment Series Prospectus
5
<PAGE>
Mid Cap Fund
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 & Poor's
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 overvalued compared to stocks with
similar fundamen-
tal characteristics. The manager's quantitative valuations
determine whether
and when the fund will purchase and sell stocks that it
identifies through fun-
damental 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
6
The Concert Investment Series Prospectus
<PAGE>
Mid Cap Fund,
continued
Performance
- --------------------------------------------------------------
- ------------------
Because this fund commenced operations on March 15, 1999, the
Fund does not yet
have a sufficient operating history to generate the
performance information
which other funds show in bar and table form in this location
of the Prospec-
tus.
Fee table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Shareholder fees (paid directly from
your investment) Class
1 Class A Class B
--------------------------------------------
- -----------------
<S> <C>
<C> <C>
Maximum sales charge (load) imposed on
purchases (as a % of offering price)
8.50% 5.00% None
--------------------------------------------
- -----------------
Maximum deferred sales charge (load)
(as a % of the lower of net asset value
at purchase or redemption)
None None* 5.00%
--------------------------------------------
- -----------------
Annual fund operating expenses (paid by
the fund as % of net assets)
--------------------------------------------
- -----------------
Management fee
0.75% 0.75% 0.75%
--------------------------------------------
- -----------------
Distribution and service (12b-1) fee
0.00% 0.25% 1.00%
--------------------------------------------
- -----------------
Other expenses
1.13% 1.12% 1.13%
--------------------------------------------
- -----------------
Total annual fund operating expenses
1.88% 2.12% 2.88%
--------------------------------------------
- -----------------
Management fee waiver/1/
(0.64)% (0.64)% (0.64)%
--------------------------------------------
- -----------------
Net annual operating expenses
1.24% 1.48% 2.24%
--------------------------------------------
- -----------------
</TABLE>
This table sets
forth the fees
and expenses
you will pay if
you invest in
shares of the
fund.
* You may buy Class A shares in amounts of
$500,000 or more
at net asset value (without an initial
sales charge)but if
you redeem those shares within 12 months
of purchase you
will pay a deferred sales charge of 1.00%.
/1/Management has agreed to qive a portion
of its Management
fee for all classes. The actual Management
fee was 0.11%
and is currently in effect. Management may
discontinue or
modify this Management fee waiver without
the approval of
the fund's trustees.
Example
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Number of years you own
your shares 1 Year* 3 Years* 5
Years* 10 Years*
--------------------------------------------
- ----------------
<S> <C> <C> <C>
<C>
Class 1 (with or without
redemption) $1,025 $1,391
$1,780 $2,864
--------------------------------------------
- ----------------
Class A (with or without
redemption) $ 704 $1,131
$1,582 $2,763
--------------------------------------------
- ----------------
Class B (assuming
redemption at end of
period) $ 791 $1,192
$1,618 $3,204
--------------------------------------------
- ----------------
Class B (assuming no
redemption) $ 291 $ 892
$1,518 $3,204
--------------------------------------------
- ----------------
</TABLE>
This example
helps you com-
pare the costs
of investing in
the fund with
those of other
mutual funds.
Your actual
costs may be
higher or low-
er.
* The example assumes:
. You invest $10,000 for the period shown
. You reinvest all distributions and
dividends without a
sales charge
. The fund's operating expenses remain the
same
. Your investment has a 5% return each year
. Conversion of Class B shares to Class A
shares after 8
years
The Concert Investment Series Prospectus
7
<PAGE>
Growth Fund
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
8
The Concert Investment Series Prospectus
<PAGE>
Growth Fund,
continued
Risk return bar chart
- --------------------------------------------------------------
- ------------------
This bar chart indicates the risks of investing in the fund by
showing the per-
formance of the fund's Class 1 shares for each of the past 10
calendar years.
Class A and B shares would have different performance due to
their different
expenses.
Past performance does not necessarily indicate how the fund
will perform in the
future.
Quarterly returns: Highest: 23.52% in 4th quarter 1998;
Lowest: (15.74)% in 3rd
quarter 1990
The performance information in the chart does not reflect
sales charges, which
would reduce your return.
[CHART]
Percent Total Return for Class 1 shares
1990 -3.41%
1991 38.59%
1992 7.13%
1993 9.37%
1994 -2.29%
1995 32.84%
1996 18.89%
1997 27.70%
1998 28.50%
1999 29.05%
Calendar years ended December 31
Risk return table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Average annual total returns for
periods ended December 31, 1999
--------------------------------------------
- ----------------
<S> <C> <C> <C> <C>
<C>
Class Inception Date 1 Year 5 Years 10 Years
Since Inception
--------------------------------------------
- ----------------
1 04/14/87 18.10% 25.08% 16.71%
14.68%
--------------------------------------------
- ----------------
A 08/18/96 22.29% n/a n/a
27.15%
--------------------------------------------
- ----------------
B 08/18/96 22.74% n/a n/a
27.81%
--------------------------------------------
- ----------------
S&P 500
Index n/a 21.03% 28.54% 18.19%
16.79%*
--------------------------------------------
- ----------------
</TABLE>
This table in-
dicates the
risks of
investing in
the fund by
comparing the
average annual
total return of
each class for
the periods
shown to that
of the Standard
& Poor's 500
Index, an un-
managed index
of common
stocks.
This table as- *The index comparison begins on 4/30/87.
sumes the impo-
sition of the
maximum sales
charge applica-
ble to the
class, the re-
demption of
shares at the
end of the pe-
riod, and the
reinvestment of
distributions
and dividends.
Fee table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Shareholder fees (paid directly from
your investment) Class
1 Class A Class B
--------------------------------------------
- -----------------
<S> <C>
<C> <C>
Maximum sales charge (load) imposed on
purchases (as a % of offering price) 8.50%
5.00% None
--------------------------------------------
- -----------------
Maximum deferred sales charge (load)
(as a % of the lower of net asset value
at purchase or redemption) None
None* 5.00%
--------------------------------------------
- -----------------
Annual fund operating expenses (paid by
the fund as % of net assets)
--------------------------------------------
- -----------------
Management fee 0.65%
0.65% 0.65%
--------------------------------------------
- -----------------
Distribution and service (12b-1) fee 0.00%
0.25% 1.00%
--------------------------------------------
- -----------------
Other expenses 0.11%
0.11% 0.11%
--------------------------------------------
- -----------------
Total annual fund operating expenses 0.76%
1.01% 1.76%
--------------------------------------------
- -----------------
</TABLE>
This table sets
forth the fees
and expenses
you will pay if
you invest in
shares of the
fund.
* You may buy Class A shares in amounts of
$500,000 or more
at net asset value (without an initial
sales charge)but if
you redeem those shares within 12 months
of purchase you
will pay a deferred sales charge of 1.00%.
Example
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Number of years you own
your shares 1 Year* 3 Years* 5
Years* 10 Years*
--------------------------------------------
- --------------
<S> <C> <C> <C>
<C>
Class 1 (with or without
redemption) $921 $1,072
$1,236 $1,712
--------------------------------------------
- --------------
Class A (with or without
redemption) $598 $ 805
$1,030 $1,674
--------------------------------------------
- --------------
Class B (assuming
redemption at end of
period) $679 $ 854
$1,054 $1,875
--------------------------------------------
- --------------
Class B (assuming no
redemption) $179 $ 554 $
954 $1,875
--------------------------------------------
- --------------
</TABLE>
This example
helps you com-
pare the costs
of investing in
the fund with
those of other
mutual funds.
Your actual
costs may be
higher or low-
er.
* The example assumes:
. You invest $10,000 for the period shown
. You reinvest all distributions and
dividends without a
sales charge
. The fund's operating expenses remain the
same
. Your investment has a 5% return each year
. Conversion of Class B shares to Class A
shares after 8
years
The Concert Investment Series Prospectus
9
<PAGE>
Growth and Income Fund
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
10
The Concert Investment Series Prospectus
<PAGE>
Growth and Income Fund,
continued
Risk return bar chart
- --------------------------------------------------------------
- ------------------
This bar chart indicates the risks of investing in the fund by
showing the per-
formance of the fund's Class 1 shares for each of the past 10
calendar years.
Class A and B shares would have different performance due to
their different
expenses.
Past performance does not necessarily indicate how the fund
will perform in the
future.
Quarterly returns: Highest: 19.51% in 4th quarter 1998;
Lowest: (14.06)% in 3rd
quarter 1990
The performance information in the chart does not reflect
sales charges, which
would reduce your return.
Percent Total Return for Class 1 shares
1990 -3.10%
1991 31.30%
1992 7.33%
1993 9.40%
1994 -3.17%
1995 36.57%
1996 17.93%
1997 24.47%
1998 19.32%
1999 16.77%
Calendar years ended December 31
Risk return table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Average annual total returns for
periods ended December 31, 1999
--------------------------------------------
- ----------------
<S> <C> <C> <C> <C>
<C>
Class Inception Date 1 Year 5 Years 10 Years
Since Inception
--------------------------------------------
- ----------------
1 08/08/86 6.87% 20.64% 13.97%
12.54%
--------------------------------------------
- ----------------
A 08/18/96 10.60% n/a n/a
20.32%
--------------------------------------------
- ----------------
B 08/18/96 10.67% n/a n/a
20.85%
--------------------------------------------
- ----------------
S&P 500
Index n/a 21.03% 28.54% 18.19%
17.23%*
--------------------------------------------
- ----------------
</TABLE>
This table in-
dicates the
risks of
investing in
the fund by
comparing the
average annual
total return of
each class for
the periods
shown to that
of the Standard
& Poor's 500
Index, an un-
managed index
of common
stocks.
This table as- *The index comparison begins on 8/31/86.
sumes the impo-
sition of the
maximum sales
charge applica-
ble to the
class, the re-
demption of
shares at the
end of the pe-
riod, and the
reinvestment of
distributions
and dividends.
Fee table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Shareholder fees (paid directly from
your investment) Class
1 Class A Class B
--------------------------------------------
- -----------------
<S> <C>
<C> <C>
Maximum sales charge (load) imposed on
purchases (as a % of offering price) 8.50%
5.00% None
--------------------------------------------
- -----------------
Maximum deferred sales charge (load)
(as a % of the lower of net asset value
at purchase or redemption) None
None* 5.00%
--------------------------------------------
- -----------------
Annual fund operating expenses (paid by
the fund as % of net assets)
--------------------------------------------
- -----------------
Management fee 0.65%
0.65% 0.65%
--------------------------------------------
- -----------------
Distribution and service (12b-1) fee 0.00%
0.25% 1.00%
--------------------------------------------
- -----------------
Other expenses 0.19%
0.22% 0.22%
--------------------------------------------
- -----------------
Total annual fund operating expenses 0.84%
1.12% 1.87%
--------------------------------------------
- -----------------
</TABLE>
This table sets
forth the fees
and expenses
you will pay if
you invest in
shares of the
fund.
* You may buy Class A shares in amounts of
$500,000 or more
at net asset value (without an initial
sales charge)but if
you redeem those shares within 12 months
of purchase you
will pay a deferred sales charge of 1.00%.
Example
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Number of years you own
your shares 1 Year* 3 Years* 5
Years* 10 Years*
--------------------------------------------
- --------------
<S> <C> <C> <C>
<C>
Class 1 (with or without
redemption) $928 $1095
$1276 $1799
--------------------------------------------
- --------------
Class A (with or without
redemption) $608 $ 838
$1086 $1795
--------------------------------------------
- --------------
Class B (assuming
redemption at end of
period) $690 $ 888
$1111 $1995
--------------------------------------------
- --------------
Class B (assuming no
redemption) $190 $ 588
$1011 $1995
--------------------------------------------
- --------------
</TABLE>
This example
helps you com-
pare the costs
of investing in
the fund with
those of other
mutual funds.
Your actual
costs may be
higher or low-
er.
* The example assumes:
. You invest $10,000 for the period shown
. You reinvest all distributions and
dividends without a
sales charge
. The fund's operating expenses remain the
same
. Your investment has a 5% return each year
. Conversion of Class B shares to Class A
shares after 8
years
The Concert Investment Series Prospectus
11
<PAGE>
Government Fund
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
12
The Concert Investment Series Prospectus
<PAGE>
Government Fund,
continued
Risk return bar chart
- --------------------------------------------------------------
- ------------------
This bar chart indicates the risks of investing in the fund by
showing the per-
formance of the fund's Class 1 shares for each of the past 10
calendar years.
Class A and B shares would have different performance due to
their different
expenses.
Past performance does not necessarily indicate how the fund
will perform in the
future.
Quarterly returns: Highest: 5.92% in 3rd quarter 1991; Lowest:
(3.45)% in 1st
quarter 1994.
The performance information in the chart does not reflect
sales charges, which
would reduce your return.
[CHART]
Percent Total Return for Class 1 shares
1990 8.09%
1991 15.44%
1992 6.79%
1993 8.18%
1994 -4.54%
1995 16.97%
1996 2.09%
1997 9.68%
1998 6.26%
1999 -4.71%
Calendar years ended December 31
Risk return table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Average annual total returns for periods
ended December 31, 1999
--------------------------------------------
- ---------------------
<S> <C> <C> <C> <C>
<C>
Class Inception Date 1 Year 5 Years 10
Years Since Inception
--------------------------------------------
- ---------------------
1 04/14/87 (11.16)% 4.34%
5.46% 5.94%
--------------------------------------------
- ---------------------
A 08/08/96 (9.42)% n/a
n/a 2.52%
--------------------------------------------
- ---------------------
B 08/08/96 (9.77)% n/a
n/a 2.69%
--------------------------------------------
- ---------------------
Lehman
Brothers
Government
Index n/a (2.23)% 7.44%
6.27% 7.85%*
--------------------------------------------
- ---------------------
</TABLE>
This table in-
dicates the
risks of in-
vesting in the
fund by compar-
ing the average
annual total
return of each
class for the
periods shown
to that of the
Lehman Brothers
Government In-
dex, an unman-
aged index of
U.S. government
securities.
This table as-
sumes the impo-
sition of the
maximum sales
charge applica-
ble to the
class, the re-
demption of
shares at the
end of the pe-
riod, and the
reinvestment of
distributions
and dividends.
* The index comparison begins on 4/30/87.
Fee table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Shareholder fees (paid directly from
your investment) Class
1 Class A Class B
--------------------------------------------
- -----------------
<S> <C>
<C> <C>
Maximum sales charge (load) imposed on
purchases (as a % of offering price) 6.75%
4.50% None
--------------------------------------------
- -----------------
Maximum deferred sales charge (load)
(as a % of the lower of net asset value
at purchase or redemption) None
None* 4.50%
--------------------------------------------
- -----------------
Annual fund operating expenses (paid by
the fund as % of net assets)
--------------------------------------------
- -----------------
Management fee 0.60%
0.60% 0.60%
--------------------------------------------
- -----------------
Distribution and service (12b-1) fee 0.00%
0.25% 1.00%
--------------------------------------------
- -----------------
Other expenses 0.29%
0.40% 0.34%
--------------------------------------------
- -----------------
Total annual fund operating expenses 0.89%
1.25% 1.94%
--------------------------------------------
- -----------------
</TABLE>
This table sets
forth the fees
and expenses
you will pay if
you invest in
shares of the
fund.
* You may buy Class A shares in amounts of
$500,000 or more
at net asset value (without an initial
sales charge)but if
you redeem those shares within 12 months
of purchase you
will pay a deferred sales charge of 1.00%.
Example
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Number of years you own
your shares 1 Year* 3 Years* 5
Years* 10 Years*
--------------------------------------------
- --------------
<S> <C> <C> <C>
<C>
Class 1 (with or without
redemption) $760 $940
$1,135 $1,697
--------------------------------------------
- --------------
Class A (with or without
redemption) $572 $829
$1,105 $1,893
--------------------------------------------
- --------------
Class B (assuming
redemption at end of
period) $647 $909
$1,147 $2,085
--------------------------------------------
- --------------
Class B (assuming no
redemption) $197 $609
$1,047 $2,085
--------------------------------------------
- --------------
</TABLE>
This example
helps you com-
pare the costs
of investing in
the fund with
those of other
mutual funds.
Your actual
costs may be
higher or low-
er.
* The example assumes:
. You invest $10,000 for the period shown
. You reinvest all distributions and
dividends without a
sales charge
. The fund's operating expenses remain the
same
. Your investment has a 5% return each year
. Conversion of Class B shares to Class A
shares after 8
years
The Concert Investment Series Prospectus
13
<PAGE>
Municipal Bond Fund
Investment objective
The fund seeks as high a level of current interest income
exempt from federal
income tax as is consistent with the preservation of capital.
Key investments
The fund invests in a diversified portfolio consisting
principally of tax ex-
empt municipal bonds, which are obligations issued by or on
behalf of states,
territories or possessions of the United States and the
District of Columbia
and their political subdivisions, agencies and
instrumentalities. Tax exempt
means that the bonds pay interest that is excluded from gross
income for fed-
eral income tax purposes.
The fund invests principally in municipal bonds rated at the
time of purchase
within the three highest grades by nationally recognized bond
rating services,
or, if unrated, of equivalent quality. The fund may also
invest up to 25% in
lower rated municipal bonds that have speculative
characteristics.
How the manager selects the fund's investments
The manager selects securities primarily by identifying
undervalued sectors and
individual securities, while also selecting securities that it
believes will
benefit from changes in relative interest rates. In selecting
individual secu-
rities, the manager:
. Uses fundamental credit analysis to estimate the relative
value and attrac-
tiveness of various securities and sectors and to exploit
inefficiencies in
the municipal bond market
. Actively trades among various sectors, such as insured,
general obligation,
revenue and housing, based on their apparent relative values
. Identifies individual securities with the most potential for
added value,
such as those involving unusual situations, new issuers, the
potential for
credit upgrades, unique structural characteristics or
innovative features
. Considers a security's maturity in light of the outlook for
the issuer and
its sector
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 rise, causing the value of the fund's
portfolio generally to
decline
. Municipal bonds fall out of favor with investors
. Unfavorable legislation affects the tax-exempt status of
municipal bonds
. The manager's judgment about the attractiveness, value or
income potential of
a particular bond proves to be incorrect
. The issuer of a 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 bonds, which are
considered speculative be-
cause they have a higher risk of issuer default, are subject
to greater price
volatility and may be illiquid
It is possible that some of the fund's income and gains may be
subject to
federal taxation. The fund may realize taxable gains on the
sale of its
securities. In addition, distributions of the fund's income
and gains will be
subject to state taxation.
Who may want to invest in the fund
The fund may be an appropriate investment if you:
. Are in a high tax bracket and seeking income that is exempt
from federal tax-
ation
. Currently have exposure to equity securities and taxable
fixed income securi-
ties and wish to broaden your investment portfolio
. Are willing to accept the risks of investing in municipal
bonds, including
interest rate risk and credit risk
14
The Concert Investment Series Prospectus
<PAGE>
Municipal Bond Fund,
continued
Risk return bar chart
- --------------------------------------------------------------
- ------------------
This bar chart indicates the risks of investing in the fund by
showing the per-
formance of the fund's Class 1 shares for each of the past 10
calendar years.
Class A and B shares would have different performance due to
their different
expenses.
Past performance does not necessarily indicate how the fund
will perform in the
future.
The performance information in the chart does not reflect
sales charges, which
would reduce your return.
Quarterly returns: Highest: 5.95% in 1st quarter 1995; Lowest:
(4.04)% in 1st
quarter 1994
[CHART]
Percent Total Return for Class 1 shares
1990 5.77%
1991 11.29%
1992 8.51%
1993 11.17%
1994 -4.27%
1995 16.58%
1996 3.99%
1997 8.97%
1998 5.40%
1999 -4.65%
Calendar years ended December 31
Risk return table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Average annual total returns for periods
ended December 31, 1999
--------------------------------------------
- -----------------------
<S> <C> <C> <C>
<C> <C>
Class Inception Date 1 Year 5 Years
10 Years Since Inception
--------------------------------------------
- -----------------------
1 07/13/88 (9.15)% 4.80%
5.57% 6.04%
--------------------------------------------
- -----------------------
A 08/18/96 (9.20)% n/a
n/a 1.82%
--------------------------------------------
- -----------------------
B 08/18/96 (9.63)% n/a
n/a 1.93%
--------------------------------------------
- -----------------------
Lehman
Brothers
Municipal
Bond Index n/a (2.06)% 6.91%
6.89% 7.31%*
--------------------------------------------
- -----------------------
</TABLE>
This table in-
dicates the
risks of in-
vesting in the
fund by compar-
ing the average
annual total
return of each
class for the
periods shown
to that of the
Lehman Brothers
Municipal Bond
Index, an un-
managed index
of municipal
bonds.
This table as-
sumes the impo-
sition of the
maximum sales
charge applica-
ble to the
class, the re-
demption of
shares at the
end of the pe-
riod, and the
reinvestment of
distributions
and dividends.
* The index comparison begins on 7/31/88.
Fee table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Shareholder fees (paid directly from
your investment) Class
1 Class A Class B
--------------------------------------------
- -----------------
<S> <C>
<C> <C>
Maximum sales charge (load) imposed on
purchases (as a % of offering price) 4.75%
4.50% None
--------------------------------------------
- -----------------
Maximum deferred sales charge (load)
(as a % of the lower of net asset value
at purchase or redemption) None
None* 4.50%
--------------------------------------------
- -----------------
Annual fund operating expenses (paid by
the fund as % of net assets)
--------------------------------------------
- -----------------
Management fee 0.60%
0.60% 0.60%
--------------------------------------------
- -----------------
Distribution and service (12b-1) fee 0.00%
0.25% 1.00%
--------------------------------------------
- -----------------
Other expenses 0.35%
0.33% 0.33%
--------------------------------------------
- -----------------
Total annual fund operating expenses 0.95%
1.18% 1.93%
--------------------------------------------
- -----------------
</TABLE>
This table sets
forth the fees
and expenses
you will pay if
you invest in
shares of the
fund.
* You may buy Class A shares in amounts of
$500,000 or more
at net asset value (without an initial
sales charge)but if
you redeem those shares within 12 months
of purchase you
will pay a deferred sales charge of 1.00%.
Example
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Number of years you
own your shares 1 Year* 3 Years* 5
Years* 10 Years*
--------------------------------------------
- -----------
<S> <C> <C> <C>
<C>
Class 1 $567 $763 $
976 $1,586
--------------------------------------------
- -----------
Class A $565 $808
$1,070 $1,817
--------------------------------------------
- -----------
Class B (Assuming
redemption at end of
period) $646 $906
$1,142 $2,059
--------------------------------------------
- -----------
Class B (Assuming no
redemption) $196 $606
$1,042 $2,059
--------------------------------------------
- -----------
</TABLE>
This example
helps you com-
pare the costs
of investing in
the fund with
those of other
mutual funds.
Your actual
costs may be
higher or low-
er.
* The example assumes:
. You invest $10,000 for the period shown
. You reinvest all distributions and
dividends without a
sales charge
. The fund's operating expenses remain the
same
. Your investment has a 5% return each year
. Conversion of Class B shares to Class A
shares after 8
years
The Concert Investment Series Prospectus
15
<PAGE>
More on the Funds' 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 funds except Government Fund and Municipal Bond Fund
International Equity Fund invests at least 65% of its assets
in equity securi-
ties of foreign issuers, including those in emerging market
countries. Small
Cap 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
securities, in-
cluding 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 Funds
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 Funds
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 Funds Except International Equity Fund and Mid Cap Fund
Each fund, except International Equity Fund and Mid Cap Fund,
will not purchase
any securities issued by a company primarily engaged in the
manufacture of al-
cohol or tobacco.
Goals/Policies
All Funds
Each fund's goal and investment policies generally may be
changed by the trust-
ees without shareholder approval.
16
The Concert Investment Series Prospectus
<PAGE>
Management
Smith Barney Mutual Funds, which includes the Concert
Investment Series, offers
a distinct family of fund choices tailored to help meet the
varying needs of
large and small 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>
Small Cap Sandip Bhagat 1997 investment officer
of the manager and pres-
ident of
Travelers
Investment Management Company, an
affiliate of the
manager
- --------------------------------------------------------------
- -------------------------
International Equity Jeffrey Russell 1997 investment officer
of the manager and man-
aging director of
Salomon Smith Barney
James Conheady 1997 investment officer
of the manager and man-
aging director of
Salomon Smith Barney
- --------------------------------------------------------------
- -------------------------
Mid Cap Larry Weissman 1997 investment officer
of the manager and man-
Growth 1999 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
- --------------------------------------------------------------
- -------------------------
Municipal Bond Joseph P. Deane 1997 investment officer
of the manager and man-
aging director of
Salomon Smith Barney
- --------------------------------------------------------------
- -------------------------
</TABLE>
Management fees
Management fees paid during the fiscal year ended october 31,
1999
(as % of average daily net assets)
<TABLE>
<CAPTION>
Small
Cap International Mid Cap Growth Growth and
Government Municipal
Fund Equity Fund Fund Fund Income Fund
Fund Fund
- --------------------------------------------------------------
- -----------
<S> <C> <C> <C> <C> <C>
<C>
0.65% 1.00% 0.11% 0.65% 0.65% 0.60%
0.60%
- --------------------------------------------------------------
- -----------
</TABLE>
Distributor
CFBDS, Inc. serves as the funds' distributor. PFS Investments
sells shares of
the funds to members of the public.
Distribution plans
The funds each have adopted Rule 12b-1 distribution plans for
their Class A and
B shares. Under each plan, the fund pays distribution and
service fees. These
fees are an ongoing expense and over time, may cost you more
than other types
of sales charges.
Year 2000 issue
As the year 2000 began, there were few problems caused by the
inability of cer-
tain computer systems to tell the difference between the year
2000 and the year
1900 (commonly known as the "Year 2000" issue). It is still
possible that some
computer systems could malfunction in the future because of
the Year 2000 issue
or as a result of actions taken to address the Year 2000
issue. Fund management
does not anticipate that its services or those of the funds'
other service
providers will be adversely affected, but fund management will
continue to mon-
itor the situation. If malfunctions related to the Year 2000
issue do arise,
the fund and its investments could be negatively affected.
17
The Concert Investment Series Prospectus
<PAGE>
Choosing a Share Class to Buy
Share classes
- --------------------------------------------------------------
- ------------------
You can choose between Class A shares and Class B shares. If
you, or your
spouse or minor children, already own Class 1 shares of a
fund, you may also be
eligible to purchase additional Class 1 shares. The classes
have different
sales charges and expenses, allowing you to choose the class
that best meets
your needs. When choosing which class of shares to buy, you
should consider:
.How much you plan to invest .The expenses paid by each
class
.How long you expect to own the shares
.Whether you qualify for any
reduction or
waiver of sales charges
Investment minimums
- --------------------------------------------------------------
- ------------------
Minimum initial
and additional
investment
amounts vary
depending on the
class of shares
you buy and the
nature of your
investment
account.
<TABLE>
<CAPTION>
Initial Investment
Additional Investments
Classes A and B
All Classes
--------------------------------------------
- --------------------
<S> <C>
<C>
General $1,000
$50
--------------------------------------------
- --------------------
Individual Retirement
Accounts, Self Employed
Retirement Plans,
Uniform Gift to Minor
Accounts $ 250
$50
--------------------------------------------
- --------------------
Qualified Retirement
Plans $ 25
$25
--------------------------------------------
- --------------------
Systematic Investment
Plans $ 25
$25
--------------------------------------------
- --------------------
</TABLE>
Qualified Retirement Plans are qualified
under Section
403(b)(7) or Section 401(a) of the Internal
Revenue Code,
including 401(k) plans
Comparing classes
- --------------------------------------------------------------
- ------------------
Your PFS Investments Registered Representative can help you
decide which class
meets your goals. Your PFS Investments Registered
Representative may receive
different compensation depending upon which class you choose.
Key Features Class A Class B Class
1
.Initial sales . No initial . Only
avail-
charge sales charge able
to eli-
. Deferred
gible Class 1
. You may qual- sales charge
shareholders
ify for re- declines over
.Higher initial
duction or time sales
charge
waiver of
.Lowest annual
initial sales . Convert to
expenses
charge over Class A
time shares after
eight years
. Lower annual
expenses than . Highest an-
Class B nual expenses
shares
Initial Sales Charge
None Up to
8.50%,
Up to 5%, re-
reduced for
duced for large large
purchases
purchases and
waived for cer-
tain investors.
No charge for
purchases of
$500,000 or
more, or for
certain invest-
ors
Deferred Sales Charge
None, except Up to 5% None
for purchases charged when
of $500,000 or you redeem
more -- 1% if shares. The
you redeem charge is re-
within 1 year duced over time
of purchase and there is no
deferred sales
charge after 6
years
Annual 12b-1 Fees 0.25% of aver- 1% of average None
age daily net daily net as-
assets sets
Exchangeable Into*Class A shares Class B shares Class
1 shares
of Concert and of Concert and of
Concert
certain Smith certain Smith funds
that of-
Barney mutual Barney mutual fer
Class 1
funds funds shares
and
Class
A shares
of
other Con-
cert
and cer-
tain
Smith
Barney
mutual
funds
*Ask your PFS Investments Registered Representative about
funds available for
exchange.
18
The Concert Investment Series Prospectus
<PAGE>
Class A Sales Charge
Class A sales charge
You buy Class A shares at the offering price, which is the net
asset value plus
a sales charge. You pay a lower sales charge as the size of
your investment in-
creases to certain levels called breakpoints. You do not pay a
sales charge on
the fund's distributions or dividends that you reinvest in
additional Class A
shares.
To learn more about the accumulation and combination
privileges, letters of in-
tent, additional waivers for certain investors and other
options to reduce your
sales charge, ask your PFS Investments Registered
Representative or consult the
Statement of Additional Information (SAI).
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
For Small Cap Fund,
International Equity Fund, Mid
Cap
Fund, Growth Fund and Growth
and For Municipal Bond Fund and
Income Fund
Government Fund
- --------------------------------------------------------------
- -------------------------------------------------------------
Sales Charge as Sales Charge as Sales Charge as
Sales Charge as %
% of Net Amount % of Offering % of Net Amount
Amount of Investment of Offering Price
Invested Price Invested
- --------------------------------------------------------------
- -------------------------------------------------------------
<S> <C>
<C> <C> <C>
Less than $25,000 5.00%
5.26% 4.50% 4.71%
- --------------------------------------------------------------
- -------------------------------------------------------------
$25,000 but less than
$50,000 4.00
4.17 4.00 4.17
- --------------------------------------------------------------
- -------------------------------------------------------------
$50,000 but less than
$100,000 3.50
3.63 3.50 3.63
- --------------------------------------------------------------
- -------------------------------------------------------------
$100,000 but less than
$250,000 3.00
3.09 2.50 2.56
- --------------------------------------------------------------
- -------------------------------------------------------------
$250,000 but less than
$500,000 2.00
2.04 1.50 1.52
- --------------------------------------------------------------
- -------------------------------------------------------------
$500,000 or more* -0-
- -0- -0- -0-
- --------------------------------------------------------------
- -------------------------------------------------------------
</TABLE>
*You do not pay an initial sales charge when you buy $500,000
or more of Class
A shares. However, if you redeem these Class A shares within
one year of pur-
chase, you will pay a deferred sales charge of 1%.
Qualifying for reduced Class A sales charges
There are several ways you can combine multiple purchases of
Class A shares of
Concert funds and certain other Smith Barney funds to take
advantage of the
breakpoints in the sales charge schedule.
. Accumulation privilege--lets you add the current value of
Class A shares of
Concert funds and certain other Smith Barney funds already
owned by you or
members of your immediate family (and for which you paid a
sales charge) to
the amount of your next purchase of Class A shares for
purposes of calculat-
ing the sales charge. Certain trustees and fiduciaries may
be entitled to
combine accounts in determining their sales charge.
. Combination privilege--lets you combine current value of
Class A shares owned
by your immediate family (your spouse and minor children) or
accounts with
the same social security number with the amount of your next
purchase of
Class A shares for purposes of calculating the initial sales
charge. Certain
trustees and fiduciaries may be entitled to combine accounts
in determining
their sales charge.
. Letter of intent--lets you purchase Class A shares of one or
more Concert
funds and certain other Smith Barney funds over a 13-month
period and pay the
same sales charge, if any, as if all shares had been
purchased at once. You
may include purchases on which you paid a sales charge made
within 90 days
before you sign the letter.
Waivers for certain Class A investors
Class A initial sales charges are waived for certain types of
investors, in-
cluding:
. Employees of members of the NASD
. 403(b) or 401(k) retirement plans, if certain conditions are
met
. Investors who purchased through a PFS Investments Registered
Representative
with proceeds from a prior mutual fund redemption, if
certain conditions are
met
. Investors who redeemed Class A shares of Concert funds or
certain other Smith
Barney funds in the past 60 days, if your PFS Investments
Registered Repre-
sentative is notified
. Participants in the PFS Primerica Corporation Savings and
Retirement Plan
19
The Concert Investment Series Prospectus
<PAGE>
Class B Sales Charge
Class B deferred sales charge
You buy Class B shares at net asset value without paying an
initial sales
charge. However, if you redeem your Class B shares within six
years of pur-
chase, you will pay a deferred sales charge.
The deferred sales charge decreases as the number of years
since your purchase
increases.
If you want to learn more about additional deferred sales
charges and waivers
of deferred sales charges, contact your PFS Investments
Registered Representa-
tive or consult the SAI.
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Year After Purchase
- --------------------------------------------------------------
- -------------
Deferred Sales Charge for: 1st 2nd 3rd 4th 5th
6th through 8th
- --------------------------------------------------------------
- -------------
<S> <C> <C> <C> <C> <C>
<C>
Government Fund and
Municipal Fund 4.50% 4.00% 3.00% 2.00% 1.00%
- -0-
- --------------------------------------------------------------
- -------------
All other funds 5.00% 4.00% 3.00% 2.00% 1.00%
- -0-
- --------------------------------------------------------------
- -------------
</TABLE>
Calculation of deferred sales charge
The deferred sales charge is based on the net asset value at
the time of pur-
chase or redemption, whichever is less, and therefore you do
not pay a sales
charge on amounts representing appreciation. In addition, you
do not pay a de-
ferred sales charge on shares exchanged for shares of another
Concert or eligi-
ble Smith Barney mutual fund, shares representing reinvested
distributions and
dividends or shares no longer subject to the deferred sales
charge.
Shares are redeemed in this order:
. Shares that represent appreciation
. Shares representing reinvested distributions and dividends
. Shares that are not subject to the deferred sales charge
. Class B shares held longest
Deferred sales charges are not imposed at the time you
exchange shares for
shares of another fund.
Each time you place a request to sell shares, the fund will
first sell any
shares in your account that are not subject to a deferred
sales charge and then
the shares in your account that have been held the longest.
Deferred sales charge waivers
The deferred sales charge for each share class will generally
be waived:
. To make payments through certain systematic withdrawal plans
. To make certain distributions from a retirement plan
. For involuntary redemptions of small account balances
. For 12 months following the death or disability of a
shareholder
Class B conversion
After 8 years, Class B shares automatically convert into Class
A shares. This
helps you because Class A shares have lower annual expenses.
Your Class B
shares will convert to Class A shares as follows:
- --------------------------------------------------------------
- ------------------
Shares Issued at Initial Purchase
- --------------------------------------------------------------
- ------------------
. Eight years after the date of purchase
Shares Issued on Reinvestment of Distribution and Dividends
- --------------------------------------------------------------
- ------------------
. In same proportion that the number of Class B shares
converting is to total
Class B shares you own (excluding shares issued as a
dividend)
Shares Issued upon Exchange from Another Fund
- --------------------------------------------------------------
- ------------------
. On the date the shares originally acquired would have
converted into Class A
shares
- --------------------------------------------------------------
- ------------------
20
The Concert Investment Series Prospectus
<PAGE>
Class 1 Sales Charge
Class 1 sales charge
Class 1 shares are offered to eligible Class 1 shareholders at
the next deter-
mined net asset value plus a sales charge. You do not pay a
sales charge on a
fund's distributions or dividends that you reinvest in
additional Class 1
shares.
You pay a lower sales charge as the size of your investment
increases to cer-
tain levels called breakpoints. As described in these tables,
the Class 1
breakpoints vary by fund.
Small Cap, International Equity, Mid Cap, Growth and Growth
and Income Funds
<TABLE>
- --------------------------------------------------------------
- -----------------
<CAPTION>
sales charge as
sales charge as
Amount of investment % of offering price % of
net amount invested
- --------------------------------------------------------------
- -----------------
<S> <C> <C>
Less than $10,000 8.50%
9.29%
- --------------------------------------------------------------
- -----------------
$10,000 but less than
$25,000 7.75%
8.40%
- --------------------------------------------------------------
- -----------------
$25,000 but less than
$50,000 6.00%
6.38%
- --------------------------------------------------------------
- -----------------
$50,000 but less than
$100,000 4.50%
4.71%
- --------------------------------------------------------------
- -----------------
$100,000 but less than
$250,000 3.50%
3.63%
- --------------------------------------------------------------
- -----------------
$250,000 but less than
$400,000 2.50%
2.56%
- --------------------------------------------------------------
- -----------------
$400,000 but less than
$600,000 2.00%
2.04%
- --------------------------------------------------------------
- -----------------
$600,000 but less than $5,000,000 1.00%
1.01%
- --------------------------------------------------------------
- -----------------
$5,000,000 or more 0.25%
0.25%
</TABLE>
- --------------------------------------------------------------
- ------------------
Government Fund
<TABLE>
- --------------------------------------------------------------
- -------------------
<CAPTION>
sales charge as
sales charge as
Amount of investment % of offering price % of
net amount invested
- --------------------------------------------------------------
- -------------------
<S> <C> <C>
Less than $25,000 6.75%
7.24%
- --------------------------------------------------------------
- -------------------
$25,000 but less than
$50,000 5.75%
6.10%
- --------------------------------------------------------------
- -------------------
$50,000 but less than
$100,000 4.25%
4.44%
- --------------------------------------------------------------
- -------------------
$100,000 but less than
$250,000 3.50%
3.63%
- --------------------------------------------------------------
- -------------------
$250,000 but less than
$500,000 2.50%
2.56%
- --------------------------------------------------------------
- -------------------
$500,000 but less than $1,000,000 2.00%
2.04%
- --------------------------------------------------------------
- -------------------
$1,000,000 but less than $2,500,000 1.00%
1.01%
- --------------------------------------------------------------
- -------------------
$2,500,000 but less than $5,000,000 0.50%
0.50%
- --------------------------------------------------------------
- -------------------
$5,000,000 or more 0.25%
0.25%
</TABLE>
- --------------------------------------------------------------
- ------------------
Municipal Bond Fund
<TABLE>
- --------------------------------------------------------------
- -------------------
<CAPTION>
sales charge as
sales charge as
Amount of investment % of offering price % of
net amount invested
- --------------------------------------------------------------
- -------------------
<S> <C> <C>
Less than $100,000 4.75%
4.99%
- --------------------------------------------------------------
- -------------------
$100,000 but less than
$250,000 3.75%
3.90%
- --------------------------------------------------------------
- -------------------
$250,000 but less than
$500,000 3.00%
3.09%
- --------------------------------------------------------------
- -------------------
$500,000 but less than $1,000,000 2.00%
2.04%
- --------------------------------------------------------------
- -------------------
$1,000,000 but less than $2,500,000 1.00%
1.01%
- --------------------------------------------------------------
- -------------------
$2,500,000 but less than $5,000,000 0.50%
0.50%
- --------------------------------------------------------------
- -------------------
$5,000,000 or more 0.25%
0.25%
- --------------------------------------------------------------
- -------------------
</TABLE>
21
The Concert Investment Series Prospectus
<PAGE>
Buying Shares and Exchanging Shares
Buying shares by mail
. Initial purchases of shares of each fund must be made
through a PFS Invest-
ments Registered Representative by completing the
appropriate application.
The completed application should be forwarded to PFS
Shareholder Services.
. Subsequent investments may be sent by mail directly to PFS
Shareholder Serv-
ices, or, if you elect telephone purchases on your account
application you
may call PFS Shareholder Services and request a purchase
through a transfer
from your bank account. Telephone purchases can be made
between 9:00 a.m. and
6:00 p.m. eastern time on any day the New York Stock
Exchange is open. Pur-
chase orders received after the close of regular trading on
the Exchange are
priced at the net asset value next determined. The minimum
telephone invest-
ment is $250 and the maximum is $10,000. You will be charged
a fee if you
have insufficient funds to complete the investment.
. The address and telephone number of PFS Shareholder Services
is: 3100 Breck-
inridge Blvd., Bldg. 200 Duluth, Georgia 30099-0062 (800)
544-5445
. You may also reach PFS Shareholder Services by calling (800)
544-7278 for
Spanish speaking representatives or (800) 824-1721 for the
TDD Line for the
Hearing Impaired.
. Checks drawn on foreign banks must be payable in U.S.
dollars and have the
routing number of the U.S. bank encoded on the check.
Buying shares by wire
Initial purchases of shares for $10,000 may be made by wire
order from your
bank account. Contact PFS Shareholder Services for details. In
addition, once
an account is open, you may make additional wire orders
through your PFS In-
vestments Representative.
Systematic investment plan
You may authorize PFS Shareholder Services to automatically
transfer funds on a
monthly basis from a regular bank account or other financial
institution to buy
shares of a fund.
. Amounts transferred must be at least $25 monthly.
. If you do not have sufficient funds in your bank account on
a transfer date,
PFS Shareholder Services may charge you a fee.
For more information, contact your PFS Investments Registered
Representative or
consult the SAI.
Exchange privilege
You should contact your PFS Investments Registered
Representative to exchange
into other eligible Concert and certain Smith Barney mutual
funds. Be sure to
read the prospectus of the Concert or Smith Barney fund you
are exchanging in-
to. An exchange is a taxable transaction.
. You may exchange shares only for shares of the same class of
another eligible
Concert or Smith Barney mutual fund. Some funds may not be
offered in your
state of residence. Not all Smith Barney funds offer all
classes.
. You must meet the minimum investment amount for each fund.
. If you hold share certificates, the transfer agent must
receive the certifi-
cates endorsed for transfer or with signed stock powers
before the exchange
is effective.
. Your fund may suspend or terminate your exchange privilege
if you engage in
an excessive pattern of exchanges.
. Your shares will not be subject to an initial sales charge
at the time of the
exchange. Your deferred sales charge (if any) will continue
to be measured
from the date of your original purchase. If the fund that
you exchange into
has a higher deferred sales charge, you will be subject to
that charge. If
you exchange again to a fund with a lower charge, the sales
charge will not
be reduced.
. You may exchange shares by telephone if you elect telephone
exchanges on your
account application. Telephone exchanges are subject to the
same limitations
as telephone redemptions.
To learn more about the exchange privileges and the Concert
and Smith Barney
mutual funds that you may be eligible to exchange into,
contact your PFS In-
vestments Registered Representative or consult the SAI.
22
The Concert Investment Series Prospectus
<PAGE>
Redeeming Shares
Redemptions by mail
Generally, a properly completed Redemption Form with any
required signature
guarantee is all that is required for a redemption. In some
cases, however,
other documents may be necessary.
You may redeem some or all of your shares by sending a
Redemption Form or other
written request in proper form to PFS Shareholder Services,
3100 Breckinridge
Blvd., Bldg. 200, Duluth, Georgia 30099-0062. You may also
reach PFS Share-
holder Services by calling (800) 544-5445 or (800) 544-7278
for Spanish speak-
ing representatives or (800) 824-1721 for the TDD Line for the
Hearing Im-
paired. The written request for redemption must be in good
order. This means
that you have provided the following information. Your request
will not be
processed without this information.
. Name of the fund
. Account number
. Dollar amount or number of shares to redeem
. Signature of each owner exactly as account is registered
. Other documentation required by PFS Shareholder Services
To be in good order, your request must include a signature
guarantee if:
. The proceeds of the redemption exceed $50,000
. The proceeds are not paid to the record owner(s) at the
record address
. The shareholder(s) has had an address change in the past 45
days
. The shareholder(s) is a corporation, sole proprietor,
partnership, trust or
fiduciary
You can obtain a signature guarantee from most banks, dealers,
brokers, credit
unions and federal savings and loans, but not from a notary
public.
In all cases, your redemption price is the net asset value
next determined af-
ter your request is received in good order. Redemption
proceeds normally will
be sent within three days. However, if you recently purchased
your shares by
check, your redemption proceeds will not be sent to you until
your original
check clears, which may take up to 15 days. Any request that
your redemption
proceeds be sent to a destination other than your bank account
or address of
record must be in writing and must include signature
guarantees.
Redemptions by telephone
You may redeem shares by telephone if you elect the telephone
redemption option
on your account application. This is available only for
redemptions of $50,000
or less, and the proceeds must be mailed to your address of
record. In addi-
tion, you must be able to provide proper identification
information. You may
not redeem by telephone if your address has changed within the
past 45 days or
if your shares are in certificate form. Telephone redemption
requests may be
made by calling PFS Shareholder Services at (800) 544-5445
between 9:00 a.m.
and 6:00 p.m. eastern time on any day the New York Stock
Exchange is open. If
telephone redemptions are not available for any reason, you
may use the Fund's
regular redemption procedure described above.
Payment of redemption proceeds
Whether you redeem by mail or telephone, your redemption
proceeds can be sent
by check to your address of record or by wire transfer to a
bank account desig-
nated on your application.
Automatic cash withdrawal plan
You can arrange for the automatic redemption of a portion of
your shares on a
monthly or quarterly basis. To qualify you must own shares of
the fund with a
value of at least $10,000 ($5,000 for retirement accounts) and
each automatic
redemption must be at least $50. If your shares are subject to
a deferred sales
charge, the sales charge will be waived if your automatic
payments are equal to
or less the 1% per month of the value of your shares subject
to a deferred
sales charge. The following conditions apply:
. Shares may not be represented by certificates
. All dividends and distributions must be reinvested
. You can establish a withdrawal plan for a retirement account
only if you are
eligible to receive distributions from the account
23
The Concert Investment Series Prospectus
<PAGE>
Other Things to Know about Share Transactions
Small account balances
If your account falls below $500 due to redemption of fund
shares, the fund may
ask you to bring your account up to the minimum requirement.
If your account is
still below $500 after 60 days, the fund may close your
account and send you
the redemption proceeds.
Share certificates
Upon written request, a share certificate will be issued if
the request has
been signed by all registered owners.
Share price
You may buy, exchange or redeem fund shares at the net asset
value, adjusted
for any applicable sales charge, next determined after receipt
of your request
in good order. Each fund's net asset value is the value of its
assets minus its
liabilities. Net asset value is calculated separately for each
class of shares.
Each fund calculates its net asset value every day the New
York Stock Exchange
is open. The Exchange is closed on certain holidays listed in
the SAI. This
calculation is done at 4:00 p.m., Eastern time, or when
regular trading closes
on the Exchange, if earlier.
The funds generally value their securities based on market
prices or quota-
tions. The funds' currency conversions are done when the
London stock exchange
closes, which is 12 noon Eastern time. When market prices or
quotations are not
available, or when the manager believes they are unreliable or
that the value
of a security has been materially affected by events occurring
after a foreign
exchange closes, the funds may price those securities at fair
value. Fair value
is determined in accordance with procedures approved by the
funds' board. A
fund that uses fair value to price securities may value those
securities higher
or lower than another fund that uses market quotations to
price the same secu-
rities.
International markets may be open on days when U.S. markets
are closed and the
value of foreign securities owned by a fund could change on
days when you can-
not buy or redeem shares.
In order to buy, redeem or exchange shares at that day's
price, you must place
your order with PFS before the New York Stock Exchange closes.
If the New York
Stock Exchange closes early, you must place your order prior
to the actual
closing time. Otherwise, you will receive the next business
day's price.
Salomon Smith Barney or members of the funds' selling group
must transmit all
orders to buy, exchange or redeem shares to the funds' agent
before the agent's
close of business.
Important addresses
Manager:
SSB Citi Fund Management LLC
388 Greenwich Street, MF2
New York, New York 10013
Shareholder Services:
PFS Shareholder Services
3100 Breckinridge Blvd., Bldg. 200
Duluth, Georgia 30099-0062
(800) 544-5445
24
The Concert Investment Series Prospectus
<PAGE>
Dividends, Distributions and Taxes
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 funds normally pay dividends and distribute capital gains,
if any, as fol-
lows:
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Income Capital
Distributions
Dividend Gain
Mostly
Fund Distributions Distributions
From
- --------------------------------------------------------------
- ---------------------
<S> <C> <C>
<C>
Small Cap Annually Annually
Gain
- --------------------------------------------------------------
- ---------------------
International Equity Annually Annually
Gain
- --------------------------------------------------------------
- ---------------------
Mid Cap Annually Annually
Gain
- --------------------------------------------------------------
- ---------------------
Growth Annually Annually
Gain
- --------------------------------------------------------------
- ---------------------
Growth and Income Quarterly Annually
Both
- --------------------------------------------------------------
- ---------------------
Government Monthly Annually
Income
- --------------------------------------------------------------
- ---------------------
Municipal Bond Monthly Annually
Income
- --------------------------------------------------------------
- ---------------------
</TABLE>
The funds may pay additional distributions and dividends at
other times if nec-
essary for a fund to avoid a federal tax. Capital gains
distributions and divi-
dends are reinvested in additional fund shares of the same
class that you hold.
You do not pay a sales charge on reinvested distributions or
dividends. Alter-
natively, you can instruct your PFS Investments Registered
Representative or
PFS to have your distributions and/or dividends paid in cash.
You can change
your choice at any time to be effective as of the next
distribution or divi-
dend, except that any change given to the transfer agent less
than five days
before the payment date will not be effective until the next
distribution or
dividend is made.
Taxes
In general, redeeming shares, exchanging shares and receiving
distributions
(whether in cash or additional shares) are all taxable events.
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Transaction Federal Income Tax Status
- -------------------------------------------------
<S> <C>
Redemption or Usually capital gain or loss;
exchange long-term only if shares
of shares owned more than one year
- -------------------------------------------------
Long-term capital Long-term capital gain
gain
distributions
- -------------------------------------------------
Short-term Ordinary income
capital gain
distributions
- -------------------------------------------------
Dividends Ordinary income (for all funds
except Municipal Bond
Fund)*
- -------------------------------------------------
</TABLE>
* Municipal Bond Fund intends to distribute the interest it
earns on tax-exempt
municipal bonds as "exempt-interest" dividends, which are
excludable from gross
income for federal income tax purposes but may be subject to
state and local
income tax. Its distributions from other sources, if any,
would be taxable as
described above.
Long-term capital gain distributions are taxable to you as
long-term capital
gain regardless of how long you have owned your shares. You
may want to avoid
buying shares when a fund is about to declare a long-term
capital gain distri-
bution or a taxable dividend, because it will be taxable to
you even though it
may actually be a return of a portion of your investment.
After the end of each year, the funds will provide you with
information about
the distributions and dividends that you received and any
redemptions of shares
during the previous year. If you do not provide a fund with
your correct tax-
payer identification number and any required certifications,
you may be subject
to back-up withholding of 31% of your distributions, dividends
(other than ex-
empt-interest dividends), and redemption proceeds. Because
each shareholder's
circumstances are different and special tax rules may apply,
you should consult
with your tax adviser about your investment in a fund and your
receipt of divi-
dends, distributions or redemption proceeds.
25
The Concert Investment Series Prospectus
<PAGE>
Financial Highlights
For a Share of Each Class of Beneficial
The financial Interest Outstanding Throughout Each
highlights ta- Year:
bles are in-
tended to help Small Cap Fund
you understand --------------------------------------------
- -----------------
the performance
of each class
for the past
five years (or
since inception
if less than
five years).
Certain infor-
mation reflects
financial re-
sults for a
single share.
Total returns
represent the
rate that a
shareholder
would have
earned (or
lost) on a fund
share assuming
reinvestment of
all dividends
and distribu-
tions. The in-
formation in
the following
tables was au-
dited by Ernst
& Young LLP,
independent au-
ditors, whose
report, along
with the fund's
financial
statements is
included in the
annual report
(available upon
request).
<TABLE>
<CAPTION>
Class 1 Shares
August 8, 1996
(Commencement
Year Ended Year Ended Year Ended of Distribution)
to
October 31,
1999(1) October 31, 1998* October 31, 1997 October 31, 1996
-----------------------------------------------
- --------------------------------------------------------------
<S> <C>
<C> <C> <C>
Net Asset Value, Beginning of
Period
$ 20.28 $ 22.15 $18.59 $17.89
-----------------------------------------------
- --------------------------------------------------------------
Income (loss) from operations
Net investment loss
(0.13) (0.12) (0.08) (0.02)
-----------------------------------------------
- --------------------------------------------------------------
Net realized and unrealized gain
6.71 (1.54) 3.64 0.72
-----------------------------------------------
- --------------------------------------------------------------
Total income from operations
6.58 (1.66) 3.56 0.70
-----------------------------------------------
- --------------------------------------------------------------
Less Distributions From:
Net investment income
- -- -- -- --
Net realized gain
(1.53) (0.21) -- --
-----------------------------------------------
- --------------------------------------------------------------
Total Distributions
(1.53) (0.21) -- --
-----------------------------------------------
- --------------------------------------------------------------
Net Asset Value, End of Period $
25.33 $20.28 $22.15 $18.59
-----------------------------------------------
- --------------------------------------------------------------
Total Return
33.42% (7.52)% 19.15% 3.91%(2)
-----------------------------------------------
- --------------------------------------------------------------
Net Assets, End of Period
(millions)
$9 $7 $6 $1
-----------------------------------------------
- --------------------------------------------------------------
Ratio of expenses to average net
assets
1.25% 1.26% 1.39% 1.74%+
-----------------------------------------------
- --------------------------------------------------------------
Ratio of net investment loss to
average net assets
(0.58)% (0.60)% (0.63)% (1.09)%+
-----------------------------------------------
- --------------------------------------------------------------
Portfolio Turnover
115% 80% 100% 80%
-----------------------------------------------
- --------------------------------------------------------------
</TABLE>
(1) Net investment income (loss) has been
calculated using
the monthly average shares method.
(2) Total return is not annualized as it may
not be repre-
sentative of the total return for the
year.
+ Annualized.
* Effective December 31, 1997 SSB Citi
Fund Management LLC
(successor to SSBC Fund Management Inc.,
formerly known
as Mutual Management Corp.), replaced
Van Kampen
American Capital Asset Management as the
Fund Manager.
<TABLE>
<CAPTION>
Class A Shares
February 21, 1995
Year Ended Year
Ended Year Ended Year Ended (Commencement of
October 31, October
31, October 31, October 31, Investment Operations)
1999(1)
1998(3) 1997 1996 to October 31, 1995(1)
--------------------------------------------
- -------------------------------------------------
<S> <C> <C>
<C> <C> <C>
Net Asset Value,
Beginning of Period $ 20.15
$22.08 $18.57 $15.12 $11.81
--------------------------------------------
- -------------------------------------------------
Income (loss) from
operations
Net investment loss (0.20)
(0.17) (0.15) (0.18) (0.24)
Net realized and
unrealized gain 6.66
(1.55) 3.66 3.63 3.55
--------------------------------------------
- -------------------------------------------------
Total income from
operations 6.46
(1.72) 3.51 3.45 3.31
--------------------------------------------
- -------------------------------------------------
Less Distributions From:
Net investment income -- -
- - -- -- --
Net realized gain (1.53)
(0.21) -- -- --
--------------------------------------------
- -------------------------------------------------
Total Distributions (1.53)
(0.21) -- -- --
--------------------------------------------
- -------------------------------------------------
Net Asset Value, End of
Period $ 25.08
$20.15 $22.08 $18.57 $15.12
--------------------------------------------
- -------------------------------------------------
Total Return 33.02%
(7.81)% 18.90% 22.82% 28.11%(2)
--------------------------------------------
- -------------------------------------------------
Net Assets, End of
Period (millions) $ 138
$108 $101 $52 $16
--------------------------------------------
- -------------------------------------------------
Ratio of expenses to
average net assets* 1.55%
1.43% 1.69% 2.21% 2.75%+
--------------------------------------------
- -------------------------------------------------
Ratio of net investment
loss to average net
assets* (0.88)%
(0.80)% (0.92)% (1.52)% (1.65)%+
--------------------------------------------
- -------------------------------------------------
Portfolio Turnover 115%
80% 100% 80% 83%
--------------------------------------------
- -------------------------------------------------
* If certain expenses
had not been waived or
reimbursed by the
Fund's former manager,
total return would
have been lower and
the ratios would have
been as follows:
--------------------------------------------
- -------------------------------------------------
Ratio of expenses to
average net assets N/A
N/A N/A N/A 3.37%+
--------------------------------------------
- -------------------------------------------------
Ratio of net investment
loss to average net
assets N/A
N/A N/A N/A (2.27%)+
--------------------------------------------
- -------------------------------------------------
</TABLE>
(1) Net investment income (loss) has been
calculated using
the monthly average share method.
(2) Total return is not annualized, as it
may not be repre-
sentative of the total return for the
year.
(3) Effective December 31, 1997 SSB Citi
Fund Management LLC
(successor to SSBC Fund Management
Inc.), formerly known
as Mutual Management Corp., replaced Van
Kampen American
Capital Asset Management as the Fund
Manager.
+ Annualized.
N/A=Not Applicable
26
The Concert Investment Series Prospectus
<PAGE>
Financial Highlights,
continued
Small Cap Fund
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Class B Shares
February 21, 1995
(Commencement
Year Ended
Year Ended Year Ended Year Ended of Investment
October 31,
October 31, October 31, October 31, Operations) to
1999(1)
1998(3) 1997 1996 October 31, 1995(1)
- --------------------------------------------------------------
- -----------------------------------------------------
<S> <C>
<C> <C> <C> <C>
Net Asset Value, Beginning of Period $19.60
$21.63 $18.34 $15.04 $11.81
- --------------------------------------------------------------
- -----------------------------------------------------
Income (loss) from operations
Net investment loss (0.37)
(0.30) (0.27) (0.27) (0.35)
Net realized and unrealized gain 6.46
(1.52) 3.56 3.57 3.58
- --------------------------------------------------------------
- -----------------------------------------------------
Total income from operations 6.09
(1.82) 3.29 3.30 3.23
- --------------------------------------------------------------
- -----------------------------------------------------
Less Distributions From:
Net investment income --
- -- -- -- --
Net realized gain (1.53)
(0.21) -- -- --
- --------------------------------------------------------------
- -----------------------------------------------------
Total Distributions (1.53)
(0.21) -- -- --
- --------------------------------------------------------------
- -----------------------------------------------------
Net Asset Value, End of Period $24.16
$19.60 $21.63 $18.34 $15.04
- --------------------------------------------------------------
- -----------------------------------------------------
Total Return 32.00%
(8.45)% 17.94% 21.94% 27.43%(2)
- --------------------------------------------------------------
- -----------------------------------------------------
Net Assets, End of Period (millions) $129
$91 $80 $39 $11
- --------------------------------------------------------------
- -----------------------------------------------------
Ratio of expenses to average net assets* 2.31%
2.18% 2.44% 2.96% 3.49%+
- --------------------------------------------------------------
- -----------------------------------------------------
Ratio of net investment loss to average net
assets* (1.63)%
(1.55)% (1.67)% (2.27)% (2.45)%+
- --------------------------------------------------------------
- -----------------------------------------------------
Portfolio Turnover 115%
80% 100% 80% 83%
- --------------------------------------------------------------
- -----------------------------------------------------
* If certain expenses had not been waived or
reimbursed by the Fund's former manager,
total return would have been lower and the
ratios would have been as follows:
- --------------------------------------------------------------
- -----------------------------------------------------
Ratio of expenses to average net assets N/A
N/A N/A N/A 4.11%+
- --------------------------------------------------------------
- -----------------------------------------------------
Ratio of net investment loss to
average net assets N/A
N/A N/A N/A (3.07%)+
- --------------------------------------------------------------
- -----------------------------------------------------
</TABLE>
(1) Net investment income (loss) has been calculated using the
monthly average
share method.
(2) Total return is not annualized, as it may not be
representative of the
total return for the year.
(3) Effective December 31, 1997 SSB Citi Fund Management LLC
(successor to SSBC
Fund Management Inc., formerly known as Mutual Management
Corp.), replaced
Van Kampen American Capital Asset Management as the Fund
Manager.
+ Annualized.
N/A=Not Applicable
27
The Concert Investment Series Prospectus
<PAGE>
International Equity Fund
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Class 1 Shares Year
August 8, 1996
Ended Year Ended Year Ended
(Commencement
October 31, October 31, October 31,
of Distribution) to
1999(1) 1998(3) 1997
October 31, 1996(1)
- --------------------------------------------------------------
- -------------------
<S> <C> <C> <C>
<C>
Net Asset Value,
Beginning of Period $19.06 $18.16 $16.52
$ 16.00
- --------------------------------------------------------------
- -------------------
Income (loss) from
operations
Net investment loss (0.28) (0.21) (0.17)
(0.03)
Net realized and
unrealized gain 13.79 1.11 1.81
0.55
- --------------------------------------------------------------
- -------------------
Total income from
operations 13.51 0.90 1.64
0.52
- --------------------------------------------------------------
- -------------------
Less Distributions From:
Net investment income -- -- --
- --
- --------------------------------------------------------------
- -------------------
Total Distributions -- -- --
- --
- --------------------------------------------------------------
- -------------------
Net Asset Value, End of
Period $32.57 $19.06 $18.16
$16.52
- --------------------------------------------------------------
- -------------------
Total Return 70.88% 4.96% 9.99%
3.25%(2)
- --------------------------------------------------------------
- -------------------
Net Assets, End of
Period (millions) $4 $2 $2
$0.2
- --------------------------------------------------------------
- -------------------
Ratio of expenses to
average net assets* 1.68% 1.79% 2.26%
2.50%+
- --------------------------------------------------------------
- -------------------
Ratio of net investment
loss to average net
assets* (1.12)% (0.99)% (1.24)%
(1.31)%+
- --------------------------------------------------------------
- -------------------
Portfolio Turnover 50% 63% 57%
78%
- --------------------------------------------------------------
- -------------------
* If certain expenses
had not been waived or
reimbursed by the
Fund's former manager,
total return would
have been lower and
the ratios would have
been as follows:
- --------------------------------------------------------------
- -------------------
Ratio of expenses to
average net assets N/A N/A N/A
3.87%+
- --------------------------------------------------------------
- -------------------
Ratio of net investment
loss to average net
assets N/A N/A N/A
(2.67)+
- --------------------------------------------------------------
- -------------------
</TABLE>
(1) Net investment income (loss) has been calculated using the
monthly average
share method.
(2) Total return is not annualized, as it may not be
representative of the
total return for the year.
(3) Effective December 31, 1997 SSB Citi Fund Management LLC
(successor to SSBC
Fund Management Inc., formerly known as Mutual Management
Corp.), replaced
Van Kampen American Capital Asset Management as the Fund
Manager.
N/A=Not Applicable
+ Annualized.
<TABLE>
<CAPTION>
Class A Shares
February 21, 1995
Year
(Commencement
Ended Year Ended Year Ended
Year Ended of Investment
October 31, October 31, October 31,
October 31, Operations) to
1999 1998(4) 1997
1996 October 31, 1995(1)
- --------------------------------------------------------------
- -------------------------------
<S> <C> <C> <C>
<C> <C>
Net Asset Value,
Beginning of Period $18.94 $18.14 $16.54
$13.86 $11.81
- --------------------------------------------------------------
- -------------------------------
Income (loss) from
operations
Net investment loss (0.37) (0.27) (0.26)
(0.19) (0.14)
Net realized and
unrealized gain 13.67 1.07 1.86
2.87 2.19
- --------------------------------------------------------------
- -------------------------------
Total income from
operations 13.30 0.80 1.60
2.68 2.05
- --------------------------------------------------------------
- -------------------------------
Less Distributions From:
Net investment income -- -- --
- -- --
- --------------------------------------------------------------
- -------------------------------
Total Distributions -- -- --
- -- --
- --------------------------------------------------------------
- -------------------------------
Net Asset Value, End of
Period $32.24 $18.94 $18.14
$16.54 $13.86
- --------------------------------------------------------------
- -------------------------------
Total Return 70.22% 4.41% 9.74%
19.34% 16.28%(3)
- --------------------------------------------------------------
- -------------------------------
Net Assets, End of
Period (millions) $38 $20 $17
$10 $7
- --------------------------------------------------------------
- -------------------------------
Ratio of expenses to
average net assets* 2.08% 2.25% 2.56%
2.75% 3.64%+
- --------------------------------------------------------------
- -------------------------------
Ratio of net investment
loss to average net
assets* (1.53)% (1.46)% (1.59)%
(1.56)% (1.40)%+
- --------------------------------------------------------------
- -------------------------------
Portfolio Turnover 50% 63% 57%
78% 17%
- --------------------------------------------------------------
- -------------------------------
* If certain expenses
had not been waived or
reimbursed by the
Fund's former manager,
Total Return would
have been lower and
the ratios would have
been as follows:
- --------------------------------------------------------------
- -------------------------------
Ratio of expenses to
average net assets N/A N/A N/A
4.12% 5.97%+
- --------------------------------------------------------------
- -------------------------------
Ratio of net investment
loss to average net
assets N/A N/A N/A
(2.92) (3.73)+
- --------------------------------------------------------------
- -------------------------------
</TABLE>
(1) Net investment loss has been calculated using the monthly
average share
method.
(2) Total return is not annualized, as it may not be
representative of the
total return for the year.
(3) Total return from March 17, 1995 (date the Fund's
Investment strategy was
implemented) through October 31, 1995 without
annualization.
(4) Effective December 31, 1997 SSB Citi Fund Management LLC
(successor to SSBC
Fund Management Inc., formerly known as Mutual Management
Corp.), replaced
Van Kampen American Capital Asset Management as the Fund
Manager.
N/A=Not Applicable
+ Annualized.
The Concert Investment Series Prospectus
28
<PAGE>
Financial Highlights,
continued
International Equity Fund, continued
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Class B Shares
February 21, 1995
(Commencement
Year Ended Year Ended Year Ended
Year Ended of Investment
October 31, October 31, October 31,
October 31, Operations) to
1999(1) 1998(4) 1997
1996 October 31, 1995(1)
- --------------------------------------------------------------
- -------------------------------
<S> <C> <C> <C>
<C> <C>
Net Asset Value,
Beginning of Period $18.44 $17.81 $16.36
$13.79 $11.81
- --------------------------------------------------------------
- -------------------------------
Income (loss) from
operations
Net investment loss (0.53) (0.39) (0.32)
(0.26) (0.21)
Net realized and
unrealized gain 13.25 1.02 1.77
2.83 2.19
- --------------------------------------------------------------
- -------------------------------
Total income from
operations 12.72 0.63 1.45
2.57 1.98
- --------------------------------------------------------------
- -------------------------------
Less Distributions From:
Net investment income -- -- --
- -- --
- --------------------------------------------------------------
- -------------------------------
Total Distributions -- -- --
- -- --
- --------------------------------------------------------------
- -------------------------------
Net Asset Value, End of
Period $31.16 $18.44 $17.81
$16.36 $13.79
- --------------------------------------------------------------
- -------------------------------
Total Return 68.98% 3.54% 8.93%
18.64% 15.69(3)
- --------------------------------------------------------------
- -------------------------------
Net Assets, End of
Period (millions) $41 $18 $13
$8 $2
- --------------------------------------------------------------
- -------------------------------
Ratio of expenses to
average net assets* 2.79% 3.11% 3.30%
3.50% 4.33%+
- --------------------------------------------------------------
- -------------------------------
Ratio of net investment
loss to average net
assets* (2.26)% (2.32)% (2.34)%
(2.31)% (2.80)%+
- --------------------------------------------------------------
- -------------------------------
Portfolio Turnover 50% 63% 57%
78% 17%(2)
- --------------------------------------------------------------
- -------------------------------
* If certain expenses
had not been waived or
reimbursed by the
fund's former manager,
Total Return would
have been lower and
the ratios would have
been as follows:
- --------------------------------------------------------------
- -------------------------------
Ratio of expenses to
average net assets N/A N/A N/A
4.87% 6.67%+
- --------------------------------------------------------------
- -------------------------------
Ratio of net investment
loss to average net
assets N/A N/A N/A
(3.67)% (5.13)%+
- --------------------------------------------------------------
- -------------------------------
</TABLE>
(1) Net investment loss has been calculated using the monthly
average share
method.
(2) Not annualized.
(3) Total return is not annualized, as it may not be
representative of the
total return for the year.
(4) Effective December 31, 1997 SSB Citi Fund Management LLC
(successor to SSBC
Fund Management Inc., formerly known as Mutual Management
Corp.), replaced
Van Kampen American Capital Asset Management as the fund
Manager.
N/A=Not Applicable
+ Annualized.
29
The Concert Investment Series Prospectus
<PAGE>
<TABLE>
<CAPTION>
Mid Cap Fund Period Ended
October 31, 1999
- --------------------------------------------------------------
- -----------------
Class 1(1)(2) Class
A(2)(3) Class B(1)(2)
- --------------------------------------------------------------
- -----------------
<S> <C> <C>
<C>
Net Asset Value, Beginning of Period $11.44 $
11.40 $11.44
- --------------------------------------------------------------
- -----------------
Income (loss) from operations
Net investment income (loss)(4) 0.02
0.01 (0.05)
Net realized and unrealized gain 0.57
0.60 0.58
- --------------------------------------------------------------
- -----------------
Total income from operations++ 0.59
0.61 0.53
- --------------------------------------------------------------
- -----------------
Less distributions from:
Net investment income --
- -- --
- --------------------------------------------------------------
- -----------------
Total distributions --
- -- --
- --------------------------------------------------------------
- -----------------
Net Asset Value, End of Period $12.03 $
12.01 $11.97
- --------------------------------------------------------------
- -----------------
Total Return++ 5.16%
5.35% 4.63%
- --------------------------------------------------------------
- -----------------
Net Assets, End of Period (000s) $741
$10,194 $16,955
- --------------------------------------------------------------
- -----------------
Ratios to Average Net Assets+:
Expenses(4) 1.24%
1.48% 2.24%
Net investment income (loss) 0.32%
0.08% (0.68)%
- --------------------------------------------------------------
- -----------------
Portfolio Turnover Rate 47%
47% 47%
- --------------------------------------------------------------
- -----------------
</TABLE>
(1) For the period from March 16, 1999 (inception date) to
October 31, 1999.
(2) Net investment income (loss) has been calculated using the
monthly average
shares method.
(3) For the period from March 15, 1999 (inception date) to
October 31, 1999.
(4) The Adviser has waived a portion of its fees for the
period ended October
31, 1999. If such fees were not waived, the per share
effect on net
investment income (loss) and the expense ratios would have
been as follows:
<TABLE>
<CAPTION>
Expense Ratios
Net Investment Income (Loss) Without Fee
Waiver
Per Share Decrease and Reimbursement
--------------------------------------------------------
- -
<S> <C> <C>
Class 1 $0.05 1.88%+
--------------------------------------------------------
- -
Class A 0.04 2.12+
--------------------------------------------------------
- -
Class B 0.04 2.88+
--------------------------------------------------------
- -
</TABLE>
++Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
30
The Concert Investment Series Prospectus
<PAGE>
Growth Fund
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Class 1 Shares Year Ended
October 31
- --------------------------------------------------------------
- ----------------
1999(1) 1998*
1997 1996 1995
- --------------------------------------------------------------
- ----------------
<S> <C> <C> <C>
<C> <C>
Net Asset Value, Beginning of Year $19.59 $20.94
$17.98 $17.46 $15.31
- --------------------------------------------------------------
- ----------------
Income from operations
Net investment income 0.08 0.13
0.17 .19 0.16
Net realized and unrealized gain 6.62 2.10
4.33 2.91 3.18
- --------------------------------------------------------------
- ----------------
Total income from operations 6.70 2.23
4.50 3.10 3.34
- --------------------------------------------------------------
- ----------------
Less distributions from:
Net investment income (0.11) (0.17)
(0.18) (0.18) (0.16)
Net realized gains (1.82) (3.41)
(1.36) (2.40) (1.03)
- --------------------------------------------------------------
- ----------------
Total distributions 1.93 (3.58)
(1.54) (2.58) (1.19)
- --------------------------------------------------------------
- ----------------
Net Asset Value, End of Year $24.36 $19.59
$20.94 $17.98 $17.46
- --------------------------------------------------------------
- ----------------
Total Return 35.60% 12.54%
26.93% 19.94% 24.01%
- --------------------------------------------------------------
- ----------------
Net Assets, End of Year (millions) $4,475 $3,657
$3,547 $3,005 $2,612
- --------------------------------------------------------------
- ----------------
Ratio of expenses to average net assets 0.76% 0.78%
0.88% 0.93% 1.00%
Ratio of net investment income to average
net assets 0.34 0.63
0.86 1.08 1.04
- --------------------------------------------------------------
- ----------------
Portfolio Turnover 37% 113%
165% 202% 230%
- --------------------------------------------------------------
- ----------------
</TABLE>
(1) Net investment income has been calculated using the
monthly average shares
method.
* Effective December 31, 1997 SSB Citi Fund Management LLC
(successor to SSBC
Fund Management Inc., formerly known as Mutual Management
Corp.), replaced
Van Kampen American Capital Asset Management as the fund
Manager.
<TABLE>
<CAPTION>
Class A Shares
Class B Shares
------------------------------------
- ------------ ------------------------------------------------
Period Period
Year Ended Year Ended Year Ended
Ended Year Ended Year Ended Year Ended Ended
October 31, October 31, October 31,
October 31, October 31, October 31, October 31, October 31,
1999(1) 1998* 1997
1996(2) 1999(1) 1998* 1997 1996(2)
- --------------------------------------------------------------
- -------------------------------------------------------------
<S> <C> <C> <C>
<C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $19.54 $20.89 $17.96
$16.63 $19.37 $20.75 $17.93 $16.63
- --------------------------------------------------------------
- -------------------------------------------------------------
Income (loss) from
operations
Net investment income
(loss) 0.02 0.05 0.15
0.02 (0.14) (0.11) 0.01 (0.01)
Net realized and
unrealized gain 6.60 2.13 4.30
1.31 6.54 2.14 4.28 1.31
- --------------------------------------------------------------
- -------------------------------------------------------------
Total from investment
operations 6.62 2.18 4.45
1.33 6.40 2.03 4.29 1.30
- --------------------------------------------------------------
- -------------------------------------------------------------
Less distributions from:
Net investment income (0.05) (0.12) (0.16)
- -- -- -- (0.11) --
Net realized gains (1.82) (3.41) (1.36)
- -- (1.82) (3.41) (1.36) --
- --------------------------------------------------------------
- -------------------------------------------------------------
Total distributions (1.87) (3.53) (1.52)
- -- (1.82) (3.41) (1.47) --
- --------------------------------------------------------------
- -------------------------------------------------------------
Net Asset Value, End of
Period $24.29 $19.54 $20.89
$17.96 $23.95 $19.37 $20.75 $17.93
- --------------------------------------------------------------
- -------------------------------------------------------------
Total Return 35.24% 12.27% 26.65%
8.00%(3) 34.31% 11.43% 25.66% 7.82%(3)
- --------------------------------------------------------------
- -------------------------------------------------------------
Net Assets, End of
Period (millions) $344 $180 $109
$49 $357 $182 $126 $74
- --------------------------------------------------------------
- -------------------------------------------------------------
Ratio of expenses to
average net assets 1.01% 1.02% 1.13%
1.17% 1.76% 1.75% 1.88% 1.93%
Ratio of net investment
income (loss) to
average net assets 0.09 0.38 0.57
0.46 (0.65) (0.35) (0.16) (0.29)
- --------------------------------------------------------------
- -------------------------------------------------------------
Portfolio Turnover 37% 113% 165%
202%(3) 37% 113% 165% 202%(3)
- --------------------------------------------------------------
- -------------------------------------------------------------
</TABLE>
(1) Net investment income has been calculated using the
monthly average shares
method.
(2) Class A and Class B shares commenced distribution on
August 18, 1996.
(3) Not annualized.
* Effective December 31, 1997 SSB Citi Fund Management LLC
(succeccor to SSBC
Fund Management Inc., formerly known as Mutual Management
Corp.), replaced
Van Kampen American Capital Asset Management as the fund
Manager.
31
The Concert Investment Series Prospectus
<PAGE>
Financial Highlights,
continued
Growth And Income Fund
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Class 1 Shares Year Ended
October 31
- --------------------------------------------------------------
- ----------------
1999(1) 1998*
1997 1996 1995
- --------------------------------------------------------------
- ----------------
<S> <C> <C> <C>
<C> <C>
Net Asset Value, Beginning of Year $18.53 $20.10
$18.11 $16.95 $15.77
- --------------------------------------------------------------
- ----------------
Income (loss) from operations
Net investment income 0.09 0.18
0.24 0.31 0.36
Net realized and unrealized gain/loss 3.60 1.70
4.23 2.94 2.72
- --------------------------------------------------------------
- ----------------
Total income from operations 3.69 1.88
4.47 3.25 3.08
- --------------------------------------------------------------
- ----------------
Less Distributions From:
Net investment income (0.08) (0.20)
(0.30) (0.34) (0.30)
Net realized gains (0.78) (3.25)
(2.18) (1.75) (1.60)
- --------------------------------------------------------------
- ----------------
Total distributions (0.86) (3.45)
(2.48) (2.09) (1.90)
- --------------------------------------------------------------
- ----------------
Net Asset Value, End of Year $21.36 $18.53
$20.10 $18.11 $16.95
- --------------------------------------------------------------
- ----------------
Total Return(1) 20.27% 10.90%
27.35% 20.58% 22.45%
- --------------------------------------------------------------
- ----------------
Net Assets, End of Year (millions) $1,122 $1,079
$1,097 $943 $828
- --------------------------------------------------------------
- ----------------
Ratio of expenses to average net assets 0.84% 0.83%
0.88% 0.91% 0.96%
- --------------------------------------------------------------
- ----------------
Ratio of net investment income to average
net assets 0.43 0.90%
1.25% 1.78% 2.27%
- --------------------------------------------------------------
- ----------------
Portfolio Turnover 53% 34%
93% 121% 117%
- --------------------------------------------------------------
- ----------------
</TABLE>
(1) Net investment income (loss) has been calculated using the
monthly average
shares method.
* Effective December 31, 1997 SSB Citi Fund Management LLC
(successor to SSBC
Fund Management Inc., formerly known as Mutual Management
Corp.), replaced
Van Kampen American Capital Asset Management as the Fund
Manager.
<TABLE>
<CAPTION>
Class A Shares
Class B Shares
------------------------------------
- ----------- -----------------------------------------------
Period Period
Year Ended Year Ended Year Ended
Ended Year Ended Year Ended Year Ended Ended
October 31, October 31, October 31,
October 31, October 31, October 31, October 31, October 31,
1999(1) 1998* 1997
1996(2) 1999(1) 1998* 1997 1996(2)
- --------------------------------------------------------------
- -----------------------------------------------------------
<S> <C> <C> <C>
<C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $18.53 $20.10 $18.11
$17.19 $18.48 $20.07 $18.09 $17.19
- --------------------------------------------------------------
- -----------------------------------------------------------
Income (loss) from
operations
Net investment income 0.03 (0.02) 0.20
0.07 (0.12) (0.01) 0.06 0.04
Net realized and
unrealized gain 3.60 1.85 4.22
0.91 3.58 1.71 4.22 0.90
- --------------------------------------------------------------
- -----------------------------------------------------------
Total income from
operations 3.63 1.83 4.42
0.98 3.46 1.70 4.28 0.94
- --------------------------------------------------------------
- -----------------------------------------------------------
Less Distributions From:
Net investment income (0.03) (0.15) (0.25)
(0.06) -- (0.04) (0.12) (0.04)
Net realized gains (0.78) (3.25) (2.18)
- -0- (0.78) (3.25) (2.18) -0-
- --------------------------------------------------------------
- -----------------------------------------------------------
Total distributions (0.81) (3.40) (2.43)
(0.06) (0.78) (3.29) (2.30) (0.04)
- --------------------------------------------------------------
- -----------------------------------------------------------
Net Asset Value, End of
Period $21.35 $18.53 $20.10
$18.11 $21.16 $18.48 $20.07 $18.09
- --------------------------------------------------------------
- -----------------------------------------------------------
Total Return 19.93% 10.63% 27.04%
5.72%(3) 19.03% 9.85% 26.08% 5.49%(3)
- --------------------------------------------------------------
- -----------------------------------------------------------
Net Assets, End of
Period (millions) $181 $124 $80
$33 $208 $137 $99 $52
- --------------------------------------------------------------
- -----------------------------------------------------------
Ratio of expenses to
average net assets 1.12% 1.07% 1.12%
1.16%+ 1.87% 1.81% 1.88% 1.91%+
- --------------------------------------------------------------
- -----------------------------------------------------------
Ratio of net investment
income to average net
assets 0.15 0.63% 0.96%
1.78%+ (0.60) (0.09)% 0.22% 1.05%
- --------------------------------------------------------------
- -----------------------------------------------------------
Portfolio Turnover 53% 34% 93%
121% 53% 34% 93% 121%
- --------------------------------------------------------------
- -----------------------------------------------------------
</TABLE>
(1) Net investment income (loss) has been calculated using the
monthly average
shares method.
(2) Class A and Class B shares commenced distribution on
August 18, 1996.
(3) Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized
* Effective December 31, 1997 SSB Citi Fund Management LLC
(successor to SSBC
Fund Management Inc., formerly known as Mutual Management
Corp.), replaced
Van Kampen American Capital Asset Management as the Fund
Manager.
32
The Concert Investment Series Prospectus
<PAGE>
Government Fund
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Class 1 Shares Year Ended
October 31
- --------------------------------------------------------------
- ----------------
1999(1) 1998*
1997 1996 1995
- --------------------------------------------------------------
- ----------------
<S> <C> <C> <C>
<C> <C>
Net Asset Value, Beginning of Year $10.66 $10.58
$10.40 $10.67 $9.99
- --------------------------------------------------------------
- ----------------
Income (loss) from operations:
Net investment income 0.54 0.65
0.69 0.70 0.70
Net realized and unrealized gain/loss (0.87) 0.10
0.17 (0.25) 0.68
- --------------------------------------------------------------
- ----------------
Total income from operations (0.33) 0.75
0.86 0.45 1.38
- --------------------------------------------------------------
- ----------------
Less Distributions From:
Net investment income (0.54) (0.67)
(0.68) (0.72) (0.70)
Capital (0.05) --
- -- -- --
- --------------------------------------------------------------
- ----------------
Total distributions (0.59) (0.67)
(0.68) (0.72) (0.70)
- --------------------------------------------------------------
- ----------------
Net Asset Value, End of Year $9.74 $10.66
$10.58 $10.40 $10.67
- --------------------------------------------------------------
- ----------------
Total Return (3.16)% 7.29%
8.56% 4.58% 14.27%
- --------------------------------------------------------------
- ----------------
Net Assets, at End of Year (millions) $160 $209
$241 $287 $329
- --------------------------------------------------------------
- ----------------
Ratio of expenses to average net assets 0.89% 0.88%
0.90% 0.84% 0.83%
- --------------------------------------------------------------
- ----------------
Ratio of net investment income to average
net assets 5.28 6.11
6.69 6.79 6.84
- --------------------------------------------------------------
- ----------------
Portfolio Turnover 201% 141%
104% 276% 214%
- --------------------------------------------------------------
- ----------------
</TABLE>
(1) Net investment income (loss) has been calculated using the
monthly average
shares method.
* Effective December 31, 1997 SSB Citi Fund Management LLC
(successor to SSBC
Fund Management Inc., formerly known as Mutual Management
Corp.), replaced
Van Kampen American Capital Asset Management as the Fund
Manager.
<TABLE>
<CAPTION>
Class A Shares
Class B Shares
---------------------------------------
- --------- ------------------------------------------------
Year Ended Year Ended Year Ended
Period Ended Year Ended Year Ended Year Ended Period Ended
October 31, October 31, October 31,
October 31, October 31, October 31, October 31, October 31,
1999(1) 1998* 1997
1996(2) 1999(1) 1998* 1997 1996(2)
- --------------------------------------------------------------
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
Net Asset Value,
Beginning of Period $10.66 $10.58 $10.41
$10.32 $10.66 $10.58 $10.41 $10.32
- --------------------------------------------------------------
- ----------------------------------------------------------
Income (loss) from
operations:
Net investment income 0.50 0.62 0.66
0.15 0.43 0.54 0.59 0.14
Net realized and
unrealized gain (0.87) 0.10 0.17
0.09 (0.87) 0.10 0.17 0.09
- --------------------------------------------------------------
- ----------------------------------------------------------
Total income from
operations 0.37 0.72 0.83
0.24 (0.44) 0.64 0.76 0.23
- --------------------------------------------------------------
- ----------------------------------------------------------
Less distributions
from:
Net investment income (0.51) (0.64) (0.66)
(0.15) (0.43) (0.56) (0.59) (0.14)
Capital (0.05) -- --
- -- (0.05) -- -- --
- --------------------------------------------------------------
- ----------------------------------------------------------
Total Distributions (0.56) (0.64) (0.66)
(0.15) (0.48) (0.56) (0.59) (0.14)
- --------------------------------------------------------------
- ----------------------------------------------------------
Net Asset Value, End
of Period $9.73 $10.66 $10.58
$10.41 $9.74 $10.66 $10.58 $10.41
- --------------------------------------------------------------
- ----------------------------------------------------------
Total Return (3.51)% 7.00% 8.35%
2.36%(3) (4.17)% 6.20% 7.55% 2.18%(3)
- --------------------------------------------------------------
- ----------------------------------------------------------
Net Assets, End of
Period (millions) $23 $17 $14
$11 $17 $14 $12 $14
- --------------------------------------------------------------
- ----------------------------------------------------------
Ratio of expenses to
average net assets 1.25% 1.12% 1.15%
1.09% 1.94% 1.87% 1.90% 1.84%
- --------------------------------------------------------------
- ----------------------------------------------------------
Ratio of net
investment income to
average net assets 4.96% 5.78% 6.44%
6.50%+ 4.27% 5.04% 5.69% 5.74%+
- --------------------------------------------------------------
- ----------------------------------------------------------
Portfolio Turnover 201% 141% 104%
276%(3) 201% 141% 104% 276%(3)
- --------------------------------------------------------------
- ----------------------------------------------------------
</TABLE>
(1) Net investment income (loss) has been calculated using the
monthly average
shares method.
(2) Class A and Class B shares commenced distribution on
August 8, 1996.
(3) Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized
* Effective December 31, 1997 SSB Citi Fund Management LLC
(successor to SSBC
Fund Management Inc., formerly known as Mutual Management
Corp.), replaced
Van Kampen American Capital Asset Management as the Fund
Manager.
33
The Concert Investment Series Prospectus
<PAGE>
Financial Highlights,
continued
Municipal Bond Fund
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Class 1 Shares Year Ended
October 31
- --------------------------------------------------------------
- ----------------
1999(1) 1998* 1997
1996 1995 1994
- --------------------------------------------------------------
- ----------------
<S> <C> <C> <C> <C>
<C> <C>
Net Asset Value, Beginning of
Period $ 14.41 $14.21 $13.83
$13.77 $12.89 $14.07
- --------------------------------------------------------------
- ----------------
Income (loss) from operations:
Net investment income 0.66 0.68 0.69
0.70 0.74 0.71
Net realized and unrealized gain
(loss) (1.25) 0.31 0.39
0.11 0.87 (1.18)
- --------------------------------------------------------------
- ----------------
Total income from operations (0.59) 0.99 1.08
0.81 1.61 (0.47)
- --------------------------------------------------------------
- ----------------
Less Distributions From:
Net investment income (0.69) (0.66) (0.66)
(0.71) (0.73) (0.71)
Net realized gains (0.23) (0.13) (0.04)
(0.04) -- --
- --------------------------------------------------------------
- ----------------
Total distributions (0.92) (0.79) (0.70)
(0.75) (0.73) (0.71)
- --------------------------------------------------------------
- ----------------
Net Asset Value, End of Period $ 12.90 $14.41 $14.21
$13.83 $13.77 $12.89
- --------------------------------------------------------------
- ----------------
Total Return (4.34)% 7.20% 8.04%
6.09% 12.72% (3.38%)
- --------------------------------------------------------------
- ----------------
Net Assets, End of Period
(millions) $75 $94 $104
$119 $119 $112
- --------------------------------------------------------------
- ----------------
Ratio of expenses to average net
assets 0.95% 1.01% 0.98%
1.05% 0.96% 0.99%
- --------------------------------------------------------------
- ----------------
Ratio of net investment income to
average net assets 4.77% 4.77% 4.93%
5.13% 5.58% 5.27%
- --------------------------------------------------------------
- ----------------
Portfolio Turnover 38% 28% 50%
80% 49% 4%
- --------------------------------------------------------------
- ----------------
</TABLE>
(1) Net investment income (loss) has been calculated using the
monthly average
shares method.
* Effective December 31, 1997 SSB Citi Fund Management LLC
(successor to SSBC
Fund Management Inc., formerly known as Mutual Management
Corp.), replaced
Van Kampen American Capital Asset Management as the Fund
Manager.
<TABLE>
<CAPTION>
Class A Shares
Class B Shares
---------------------------------------
- --------- ------------------------------------------------
Year Ended Year Ended Year Ended
Period Ended Year Ended Year Ended Year Ended Period Ended
October 31, October 31, October 31,
October 31, October 31, October 31, October 31, October 31,
1999(1) 1998* 1997
1996(3) 1999(1) 1998* 1997 1996(3)
- --------------------------------------------------------------
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
Net Asset Value,
Beginning of Period $14.41 $14.21 $13.83
$13.78 $14.39 $14.20 $13.82 $13.78
- --------------------------------------------------------------
- ----------------------------------------------------------
Income (loss) from
operations:
Net investment income 0.63 0.62 0.65
0.11 0.52 0.51 0.54 0.09
Net realized and
unrealized gain
(loss) (1.26) 0.34 0.40
0.04 (1.25) 0.33 0.40 0.04
- --------------------------------------------------------------
- ----------------------------------------------------------
Total income (loss)
from operations (0.63) 0.96 1.05
0.15 (0.73) 0.84 0.94 0.13
- --------------------------------------------------------------
- ----------------------------------------------------------
Less Distributions
From:
Net investments
income (0.65) (0.63) (0.63)
(0.10) (0.55) (0.52) (0.52) (0.09)
Net realized gains (0.23) (0.13) (0.04)
- -- (0.23) (0.13) (0.04) --
- --------------------------------------------------------------
- ----------------------------------------------------------
Total distributions (0.88) (0.76) (0.67)
(0.10) (0.78) (0.65) (0.56) (0.09)
- --------------------------------------------------------------
- ----------------------------------------------------------
Net Asset Value, End
of Period $12.90 $14.41 $14.21
$13.83 $12.88 $14.39 $14.20 $13.82
- --------------------------------------------------------------
- ----------------------------------------------------------
Total Return (4.58)% 6.93% 7.77%
1.12%(2) (5.30)% 6.10% 6.98% 0.93%(2)
- --------------------------------------------------------------
- ----------------------------------------------------------
Net Assets, End of
Period (millions) $34 $16 $9
$2 $8 $6 $3 $1
- --------------------------------------------------------------
- ----------------------------------------------------------
Ratio of expenses to
average net assets 1.18% 1.23% 1.19%
1.30%+ 1.93% 1.95% 1.94% 2.05%+
- --------------------------------------------------------------
- ----------------------------------------------------------
Ratio of net
investment income to
average net assets 4.54% 4.44% 4.79%
4.82%+ 3.79% 3.67% 4.04% 4.06%+
- --------------------------------------------------------------
- ----------------------------------------------------------
Portfolio Turnover 38% 28% 50%
80% 38% 28% 50% 80%(2)
- --------------------------------------------------------------
- ----------------------------------------------------------
</TABLE>
(1) Net investment income (loss) has been calculated using the
monthly average
shares method.
(2) Total return is not annualized, as it may not be
representative of the
total return for the year.
(3) Class A and Class B shares commenced distribution on
August 18, 1996.
+ Annualized.
* Effective December 31, 1997 SSB Citi Fund Management LLC
(successor to SSBC
Fund Management Inc., formerly known as Mutual Management
Corp.), replaced
Van Kampen American Capital Asset Management as the Fund
Manager.
34
The Concert Investment Series Prospectus
<PAGE>
The Concert Investment Series(R)
Growth and Income Fund
Small Cap Fund
International Equity Fund Government Fund
Mid Cap Fund Municipal Bond Fund
Growth Fund
- --------------------------------------------------------------
- ------------------
Additional Information about the
Funds
Shareholder Reports.
Annual and semiannual reports to
shareholders provide additional
information about the funds' in-
vestments. These reports discuss
the market conditions and invest-
ment strategies that signifi-
cantly affected each fund's per-
formance during its last fiscal
year.
Statement of Additional Information.
The combined statement of addi-
tional information provides more
detailed information about each
fund. It is incorporated by ref-
erence into this combined pro-
spectus.
How to Obtain Additional
Information.
. You may obtain shareholder re-
ports and the statement of ad-
ditional information without
charge, by contacting PFS
Shareholder Services, by call-
ing 1-800-544-5445 or writing
the funds at 3100 Breckinridge
Blvd., Bldg. 200, Duluth, Geor-
gia 30099-0062
. Information about the Funds
(including the SAI) can be re-
viewed and copied at the Secu-
rities and Exchange Commis-
sion's ("Commission") Public
Reference Room in Washington,
D.C. In addition, information
on the operation of the Public
Reference Room may be obtained
by calling the Commission at 1-
202-942-8090. Reports and other
information about the Fund are
available on the EDGAR Database
on the Commission's Internet
site at http://www.sec.gov.
Copies of this information may
be obtained for a duplicating
fee by electronic request at
the following E-mail address:
[email protected], or by writ-
ing the Commission's Public
Reference Section, Washington,
D.C. 20549-0102.
If someone provides you with information about the funds that
is not in this
prospectus, you should not rely upon that information. Neither
the funds nor
the distributor is offering to sell shares of the funds to any
person to whom
the funds may not lawfully sell their shares.
(Investment Company Act file no. 811-05018)
SB-1G 2.00
<PAGE>
the Concert
- -------------------
Investment Series(R)
Prospectus
February 28, 2000
Class A Shares and Class B Shares
Small Cap Fund
International Equity Fund
Mid Cap Fund
Growth Fund
Growth and Income Fund
Government Fund
Municipal Bond Fund
[GRAPHIC]
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.
- --------------------------------------------------------------
- ------------
INVESTMENT PRODUCT: NOT FDIC INSURED * NO BANK GUARANTEE * MAY
LOSE VALUE
- --------------------------------------------------------------
- ------------
<PAGE>
Contents
<TABLE>
<S> <C>
Investments, risks and performance:
- --------------------------------------------------
Small Cap Fund 2
- --------------------------------------------------
International Equity Fund 4
- --------------------------------------------------
Mid Cap Fund 6
- --------------------------------------------------
Growth Fund 8
- --------------------------------------------------
Growth and Income Fund 10
- --------------------------------------------------
Government Fund 12
- --------------------------------------------------
Municipal Bond Fund 14
- --------------------------------------------------
More on the Funds' Investments 16
- --------------------------------------------------
Management 17
- --------------------------------------------------
Choosing a Share Class to Buy 18
- --------------------------------------------------
Sales Charges:
- --------------------------------------------------
Class A Sales Charge 19
- --------------------------------------------------
Class B Sales Charge 20
- --------------------------------------------------
Buying Shares and Exchanging Shares 21
- --------------------------------------------------
Redeeming Shares 22
- --------------------------------------------------
Other Things to Know about Share Transactions 23
- --------------------------------------------------
Dividends, Distributions and Taxes 24
- --------------------------------------------------
Financial Highlights 25
- --------------------------------------------------
</TABLE>
About the manager
The funds' investment manager is SSB Citi Fund Management LLC,
an affiliate of
Salomon Smith Barney Inc. The manager selects the funds'
investments and
oversees their operations. The manager and Salomon Smith
Barney are subsidiar-
ies of Citigroup Inc. Citigroup businesses provide a broad
range of financial
services.
About mutual fund risks
An investment in any of the funds is not a bank deposit and is
not insured or
guaranteed by the FDIC or any other government agency and may
lose value.
1
The Concert Investment Series Prospectus
<PAGE>
Small Cap Fund
Investment objective
The fund seeks capital appreciation.
Key investments
The fund invests in common stocks of small sized companies
considered by the
manager to be "emerging growth" companies. These are primarily
domestic compa-
nies, 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 20% 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
. Small cap 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 a small cap
company is unsuc-
cessful, the company does not meet earnings expectations or
other events de-
press the value of the company's stock
Compared to large, established companies, small cap companies
are more likely
to have limited product lines, limited capital resources and
less experienced
management. In addition, securities of small cap 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 small cap
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
The Concert Investment Series Prospectus
<PAGE>
Small Cap Fund,
continued
Risk return bar chart
- --------------------------------------------------------------
- ------------------
This bar chart indicates the risks of investing in the fund by
showing the per-
formance of the fund's Class A shares for each of the past 4
calendar years.
Class B shares would have different performance due to their
different ex-
penses.
Past performance does not necessarily indicate how the fund
will perform in the
future.
Quarterly returns: Highest: 25.10% in 4th quarter 1998;
Lowest: (20.66)% in 3rd
quarter 1998
The performance information in the bar chart does not reflect
sales charges,
which would reduce your return.
[BAR CHART]
Percentage Total Returns for Class A shares
96 15.17%
97 20.87%
98 8.43%
99 41.22%
Calendar years ended December 31
Risk return table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Average annual total returns for periods ended
December 31,
1999
--------------------------------------------
- ---------------------
<S> <C>
<C>
Since Inception
Class 1 Year
February 21, 1995
--------------------------------------------
- ---------------------
A 34.18%
23.00%
--------------------------------------------
- ---------------------
B 35.17%
23.28%
--------------------------------------------
- ---------------------
Russell 2000 Stock Index 21.26%
16.61%*
--------------------------------------------
- ---------------------
</TABLE>
This table in-
dicates the
risks of
investing in
the fund by
comparing the
average annual
total return of
each class for
the periods
shown to that
of the Russell
2000 Stock In-
dex, an unman-
aged index of
smaller capi-
talization
stocks.
* The index comparison begins on 2/28/95.
This table as-
sumes the impo-
sition of the
maximum sales
charge applica-
ble to the
class, the re-
demption of
shares at the
end of the pe-
riod, and the
reinvestment of
distributions
and dividends.
Fee table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Shareholder fees (paid directly from your
investment)
Class A Class B
--------------------------------------------
- -------------
<S>
<C> <C>
Maximum sales charge (load) imposed on
purchases (as a % of offering price)
5.00% None
--------------------------------------------
- -------------
Maximum deferred sales charge (load)
(as a % of the lower of net asset value at
purchase or redemption)
None* 5.00%
--------------------------------------------
- -------------
Annual fund operating expenses (paid by the
fund as % of net assets)
--------------------------------------------
- -------------
Management fee
0.65% 0.65%
--------------------------------------------
- -------------
Distribution and service (12b-1) fee
0.25% 1.00%
--------------------------------------------
- -------------
Other expenses
0.65% 0.66%
--------------------------------------------
- -------------
Total annual fund operating expenses
1.55% 2.31%
--------------------------------------------
- -------------
</TABLE>
This table sets
forth the fees
and expenses
you will pay if
you invest in
shares of the
fund.
* You may buy Class A shares in amounts of
$500,000 or more
at net asset value (without an initial
sales charge) but
if you redeem those shares within 12
months of purchase
you will pay a deferred sales charge of
1.00%.
Example
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Number of years you own your
shares* 1 Year 3 Years
5 Years 10 Years
--------------------------------------------
- -----------------
<S> <C> <C>
<C> <C>
Class A (with or without
redemption) $650 $ 965
$1,302 $2,253
--------------------------------------------
- -----------------
Class B (assuming redemption at
end of period) $734 $1,021
$1,335 $2,456
--------------------------------------------
- -----------------
Class B (assuming no
redemption) $234 $ 721
$1,235 $2,456
--------------------------------------------
- -----------------
</TABLE>
This example
helps you com-
pare the costs
of investing in
the fund with
those of other
mutual funds.
Your actual
costs may be
higher or low-
er.
* The example assumes:
. You invest $10,000 for the period shown
. You reinvest all distributions and
dividends without a
sales charge
. The fund's operating expenses remain the
same
. Your investment has a 5% return each year
. Conversion of Class B shares to Class A
shares after 8
years
The Concert Investment Series Prospectus
3
<PAGE>
International Equity Fund
Investment objective
The fund seeks total return on its assets from growth of
capital and income.
Key investments
The fund invests principally in a diversified portfolio of
equity securities of
established non-U.S. issuers.
How the manager selects the fund's investments
By spreading the fund's investments across many international
markets, the man-
ager seeks to reduce volatility compared to investing in a
single region. Un-
like global mutual funds which may allocate a substantial
portion of assets to
the U.S. markets, the fund invests substantially all of its
assets in countries
outside of the U.S.
The manager emphasizes individual security selection while
diversifying the
fund's investments across regions and countries, which can
help to reduce risk.
While the manager selects investments primarily for their
capital appreciation
potential, some investments have an income component as well.
Companies in
which the fund invests may have large, mid-size or small
market capitalizations
and may operate in any market sector. In selecting individual
companies for in-
vestment, the manager looks for:
. Above average earnings growth
. High relative return on invested capital
. Experienced and effective management
. Effective research, product development and marketing
. Competitive advantages
. Strong financial condition or stable or improving credit
quality
Depending on the manager's assessment of overseas potential
for long-term
growth, the fund's emphasis among foreign markets (including
emerging markets)
and types of issuers may vary. In allocating assets among
countries and re-
gions, the manager evaluates:
. Economic stability and favorable prospects for economic
growth
. Low or decelerating inflation, creating a favorable
environment for securi-
ties markets
. Stable governments with policies that encourage economic
growth, equity in-
vestment and development of securities markets
. Currency stability
. The range of individual investment opportunities
Principal risks of investing in the fund
Many foreign countries in which the fund invests have markets
that are less
liquid and more volatile than markets in the U.S.
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:
. Foreign securities prices decline
. Adverse governmental action or political, economic or market
instability af-
fects a foreign country or region
. The currency in which a security is priced declines in value
relative to the
U.S. dollar
. The manager's judgment about the attractiveness, value or
potential apprecia-
tion of a particular security proves to be incorrect
In some foreign countries, there is also less information
available about for-
eign issuers and markets because of less rigorous accounting
and regulatory
standards than in the U.S. Currency fluctuations could erase
investment gains
or add to investment losses. The risk of investing in foreign
securities is
greater for emerging markets. In Europe, Economic and Monetary
Union (EMU) and
the introduction of a single currency began in 1999. There are
significant po-
litical and economic risks associated with EMU, which may
increase the volatil-
ity of the fund's European securities and present valuation
problems.
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 total return
potential of inter-
national markets
. Currently have exposure to U.S. stock markets and wish to
diversify your in-
vestment portfolio by adding non-U.S. stocks that may not
move in tandem with
U.S. stocks
. Are willing to accept the risks of investing in the stock
market and the spe-
cial risks of investing in foreign securities, including
emerging market se-
curities
4
The Concert Investment Series Prospectus
<PAGE>
International Equity Fund,
continued
Risk return bar chart
- --------------------------------------------------------------
- ------------------
This bar chart indicates the risks of investing in the fund by
showing the per-
formance of the fund's Class A shares for each of the past 4
calendar years.
Class B shares would have different performance due to their
different ex-
penses.
Past performance does not necessarily indicate how the fund
will perform in the
future.
Quarterly Returns: Highest: 77.26% in 4th quarter 1999;
Lowest: (20.43)% in 3rd
quarter 1998
The performance information in the chart does not reflect
sales charges, which
would reduce your return.
[BAR CHART]
Percent Total Return for Class A shares
96 17.59%
97 5.10%
98 22.47%
99 130.79%
Calendar years ended December 31
Risk return table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Average annual total returns for periods ended
December 31,
1999
--------------------------------------------
- -------------------------
<S> <C>
<C>
Since Inception
Class 1 Year
February 21, 1995
--------------------------------------------
- -------------------------
A 119.27%
33.45%
--------------------------------------------
- -------------------------
B 124.17%
33.82%
--------------------------------------------
- -------------------------
MSCI EAFE Index 29.96%
14.27%*
--------------------------------------------
- -------------------------
</TABLE>
This table in-
dicates the
risks of in-
vesting in the
fund by compar-
ing the average
annual total
return of each
class for the
periods shown
to that of the
Morgan Stanley
Capital Inter-
national EAFE
Index ("MSCI
EAFE" Index),
an unmanaged
index of
international
stocks.
* The index comparison begins on 2/28/95.
This table as-
sumes the impo-
sition of the
maximum sales
charge applica-
ble to the
class, the re-
demption of
shares at the
end of the
period, and the
reinvestment of
distributions
and dividends.
Fee table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Shareholder fees (paid directly from your
investment)
Class A Class B
--------------------------------------------
- -------------
<S>
<C> <C>
Maximum sales charge (load) imposed on
purchases (as a % of offering price)
5.00% None
--------------------------------------------
- -------------
Maximum deferred sales charge (load)
(as a % of the lower of net asset value at
purchase or redemption)
None* 5.00%
--------------------------------------------
- -------------
Annual fund operating expenses (paid by the
fund as % of net assets)
--------------------------------------------
- -------------
Management fee
1.00% 1.00%
--------------------------------------------
- -------------
Distribution and service (12b-1) fee
0.25% 1.00%
--------------------------------------------
- -------------
Other expenses
0.83% 0.79%
--------------------------------------------
- -------------
Total annual fund operating expenses
2.08% 2.79%
--------------------------------------------
- -------------
</TABLE>
This table sets
forth the fees
and expenses
you will pay if
you invest in
shares of the
fund.
* You may buy Class A shares in amounts of
$500,000 or more
at net asset value (without an initial
sales charge) but
if you redeem those shares within 12
months of purchase
you will pay a deferred sales charge of
1.00%.
Example
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Number of years you own your
shares* 1 Year 3 Years
5 Years 10 Years
--------------------------------------------
- -----------------
<S> <C> <C>
<C> <C>
Class A (with or without
redemption) $700 $1,119
$1,563 $2,790
--------------------------------------------
- -----------------
Class B (assuming redemption at
end of period) $782 $1,165
$1,574 $2,949
--------------------------------------------
- -----------------
Class B (assuming no
redemption) $282 $ 865
$1,474 $2,949
--------------------------------------------
- -----------------
</TABLE>
This example
helps you com-
pare the costs
of investing in
the fund with
those of other
mutual funds.
Your actual
costs may be
higher or low-
er.
* The example assumes:
. You invest $10,000 for the period shown
. You reinvest all distributions and
dividends without a
sales charge
. The fund's operating expenses remain the
same
. Your investment has a 5% return each year
. Conversion of Class B shares to Class A
shares after 8
years
The Concert Investment Series Prospectus
5
<PAGE>
Mid Cap Fund
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 & Poor's
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 overvalued compared to stocks with
similar fundamen-
tal characteristics. The manager's quantitative valuations
determine whether
and when the fund will purchase and sell stocks that it
identifies through fun-
damental 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
6
The Concert Investment Series Prospectus
<PAGE>
Mid Cap Fund,
continued
Performance
- --------------------------------------------------------------
- ------------------
Because this fund commenced operations on March 15, 1999, the
fund does not yet
have a sufficient operating history to generate the
performance information
which other funds show in bar and table form in this location
of the prospec-
tus.
Fee table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Shareholder fees (paid directly from your
investment)
Class A Class B
--------------------------------------------
- -------------
<S>
<C> <C>
Maximum sales charge (load) imposed on
purchases (as a % of offering price)
5.00 % None
--------------------------------------------
- -------------
Maximum deferred sales charge (load)
(as a % of the lower of net asset value at
purchase or redemption)
None* 5.00 %
--------------------------------------------
- -------------
Annual fund operating expenses (paid by the
fund as % of net assets)
--------------------------------------------
- -------------
Management fee
0.75 % 0.75 %
--------------------------------------------
- -------------
Distribution and service (12b-1) fee
0.25 % 1.00 %
--------------------------------------------
- -------------
Other expenses
1.12 % 1.13 %
--------------------------------------------
- -------------
Total annual fund operating expenses
2.12 % 2.88 %
--------------------------------------------
- -------------
Management fee waiver/1/
(0.64)% (0.64)%
--------------------------------------------
- -------------
Net annual operating expenses
1.48 % 2.24 %
--------------------------------------------
- -------------
</TABLE>
This table sets
forth the fees
and expenses
you will pay if
you invest in
shares of the
fund.
* You may buy Class A shares in amounts of
$500,000 or more
at net asset value (without an initial
sales charge)but if
you redeem those shares within 12 months
of purchase you
will pay a deferred sales charge of 1.00%.
/1/Management has agreed to waive a portion
of its manage-
ment fee for all classes. The actual
management fee was
0.11% and is currently in effect.
Management may discon-
tinue or modify this management fee waiver
without the ap-
proval of the fund's trustees.
Example
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Number of years you own your
shares* 1 Year 3 Years
5 Years 10 Years
--------------------------------------------
- -----------------
<S> <C> <C>
<C> <C>
Class A (with or without
redemption) $704 $1,131
$1,582 $2,763
--------------------------------------------
- -----------------
Class B (assuming redemption at
end of period) $791 $1,192
$1,618 $3,204
--------------------------------------------
- -----------------
Class B (assuming no
redemption) $291 $ 892
$1,518 $3,204
--------------------------------------------
- -----------------
</TABLE>
This example
helps you com-
pare the costs
of investing in
the fund with
those of other
mutual funds.
Your actual
costs may be
higher or low-
er.
* The example assumes:
. You invest $10,000 for the period shown
. You reinvest all distributions and
dividends without a
sales charge
. The fund's operating expenses remain the
same
. Your investment has a 5% return each year
. Conversion of Class B shares to Class A
shares after 8
years
The Concert Investment Series Prospectus
7
<PAGE>
Growth Fund
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
8
The Concert Investment Series Prospectus
<PAGE>
Growth Fund,
continued
Risk return bar chart
- --------------------------------------------------------------
- ------------------
This bar chart indicates the risks of investing in the fund by
showing the per-
formance of the fund's Class A shares for each of the past 3
calendar years.
Class B shares would have different performance due to their
different ex-
penses.
Past performance does not necessarily indicate how the fund
will perform in the
future.
Quarterly returns: Highest: 23.38% in 4th quarter 1998;
Lowest: (11.70)% in 3rd
quarter 1998
The performance information in the chart does not reflect
sales charges, which
would reduce your return.
[BAR CHART]
Percent Total Return for Class A shares
97 27.35%
98 28.15%
99 27.74%
Calendar years ended December 31
Risk return table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Average annual total returns for periods ended
December 31,
1999
--------------------------------------------
- -----------------------------
<S> <C>
<C>
Since Inception
Class 1 Year
August 18, 1996
--------------------------------------------
- -----------------------------
A 22.29%
27.15%
--------------------------------------------
- -----------------------------
B 22.74%
27.81%
--------------------------------------------
- -----------------------------
S&P 500 Index 21.03%
17.23%*
--------------------------------------------
- -----------------------------
</TABLE>
This table in-
dicates the
risks of
investing in
the fund by
comparing the
average annual
total return of
each class for
the periods
shown to that
of the Standard
& Poor's 500
Index, an un-
managed index
of common
stocks.
*The index comparison begins on 8/31/96.
This table as-
sumes the impo-
sition of the
maximum sales
charge applica-
ble to the
class, the re-
demption of
shares at the
end of the pe-
riod, and the
reinvestment of
distributions
and dividends.
Fee table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Shareholder fees (paid directly from your
investment)
Class A Class B
--------------------------------------------
- -------------
<S>
<C> <C>
Maximum sales charge (load) imposed on
purchases (as a % of offering price)
5.00% None
--------------------------------------------
- -------------
Maximum deferred sales charge (load)
(as a % of the lower of net asset value at
purchase or redemption)
None* 5.00%
--------------------------------------------
- -------------
Annual fund operating expenses (paid by the
fund as % of net assets)
--------------------------------------------
- -------------
Management fee
0.65% 0.65%
--------------------------------------------
- -------------
Distribution and service (12b-1) fee
0.25% 1.00%
--------------------------------------------
- -------------
Other expenses
0.11% 0.11%
--------------------------------------------
- -------------
Total annual fund operating expenses
1.01% 1.76%
--------------------------------------------
- -------------
</TABLE>
This table sets
forth the fees
and expenses
you will pay if
you invest in
shares of the
fund.
* You may buy Class A shares in amounts of
$500,000 or more
at net asset value (without an initial
sales charge)but if
you redeem those shares within 12 months
of purchase you
will pay a deferred sales charge of 1.00%.
Example
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Number of years you own your
shares* 1 Year 3 Years
5 Years 10 Years
--------------------------------------------
- -----------------
<S> <C> <C>
<C> <C>
Class A (with or without
redemption) $598 $805
$1,030 $1,674
--------------------------------------------
- -----------------
Class B (assuming redemption at
end of period) $679 $854
$1,054 $1,875
--------------------------------------------
- -----------------
Class B (assuming no
redemption) $179 $554
$ 954 $1,875
--------------------------------------------
- -----------------
</TABLE>
This example
helps you com-
pare the costs
of investing in
the fund with
those of other
mutual funds.
Your actual
costs may be
higher or low-
er.
* The example assumes:
. You invest $10,000 for the period shown
. You reinvest all distributions and
dividends without a
sales charge
. The fund's operating expenses remain the
same
. Your investment has a 5% return each year
. Conversion of Class B shares to Class A
shares after 8
years
The Concert Investment Series Prospectus
9
<PAGE>
Growth and Income Fund
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
10
The Concert Investment Series Prospectus
<PAGE>
Growth and Income Fund,
continued
Risk return bar chart
- --------------------------------------------------------------
- ------------------
This bar chart indicates the risks of investing in the fund by
showing the per-
formance of the fund's Class A shares for each of the past 3
calendar years.
Class B shares would have different performance due to their
different ex-
penses.
Past performance does not necessarily indicate how the fund
will perform in the
future.
Quarterly returns: Highest: 19.44% in 4th quarter 1998;
Lowest: (12.38)% in 3rd
quarter 1998
The performance information in the chart does not reflect
sales charges, which
would reduce your return.
[BAR CHART]
Percent Total Return for Class A shares
97 24.18%
98 19.03%
99 16.24%
Calendar years ended December 31
Risk return table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Average annual total returns for periods
ended December 31, 1999
----------------------------------------
<S> <C> <C> <C>
Since Inception
Class 1 Year August 18, 1996
----------------------------------------
A 10.60% 20.32%
----------------------------------------
B 10.67% 20.85%
----------------------------------------
S&P 500 Index 21.03% 17.23%*
----------------------------------------
</TABLE>
This table in-
dicates the
risks of
investing in
the fund by
comparing the
average annual
total return of
each class for
the periods
shown to that
of the Standard
& Poor's 500
Index, an un-
managed index
of common
stocks.
*The index comparison begins on 8/31/96.
This table as-
sumes the impo-
sition of the
maximum sales
charge applica-
ble to the
class, the re-
demption of
shares at the
end of the pe-
riod, and the
reinvestment of
distributions
and dividends.
Fee table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Shareholder fees (paid directly from your
investment)
Class A Class B
--------------------------------------------
- -------------
<S>
<C> <C>
Maximum sales charge (load) imposed on
purchases (as a % of offering price)
5.00% None
--------------------------------------------
- -------------
Maximum deferred sales charge (load)
(as a % of the lower of net asset value at
purchase or redemption)
None* 5.00%
--------------------------------------------
- -------------
Annual fund operating expenses (paid by the
fund as % of net assets)
--------------------------------------------
- -------------
Management fee
0.65% 0.65%
--------------------------------------------
- -------------
Distribution and service (12b-1) fee
0.25% 1.00%
--------------------------------------------
- -------------
Other expenses
0.22% 0.22%
--------------------------------------------
- -------------
Total annual fund operating expenses
1.12% 1.87%
--------------------------------------------
- -------------
</TABLE>
This table sets
forth the fees
and expenses
you will pay if
you invest in
shares of the
fund.
* You may buy Class A shares in amounts of
$500,000 or more
at net asset value (without an initial
sales charge)but if
you redeem those shares within 12 months
of purchase you
will pay a deferred sales charge of 1.00%.
Example
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Number of years you own your
shares* 1 Year 3 Years
5 Years 10 Years
--------------------------------------------
- -----------------
<S> <C> <C>
<C> <C>
Class A (with or without
redemption) $608 $838
$1,086 $1,795
--------------------------------------------
- -----------------
Class B (assuming redemption at
end of period) $690 $888
$1,111 $1,995
--------------------------------------------
- -----------------
Class B (assuming no
redemption) $190 $588
$1,011 $1,995
--------------------------------------------
- -----------------
</TABLE>
This example
helps you com-
pare the costs
of investing in
the fund with
those of other
mutual funds.
Your actual
costs may be
higher or low-
er.
* The example assumes:
. You invest $10,000 for the period shown
. You reinvest all distributions and
dividends without a
sales charge
. The fund's operating expenses remain the
same
. Your investment has a 5% return each year
. Conversion of Class B shares to Class A
shares after 8
years
The Concert Investment Series Prospectus
11
<PAGE>
Government Fund
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
12
The Concert Investment Series Prospectus
<PAGE>
Government Fund,
continued
Risk return bar chart
- --------------------------------------------------------------
- ------------------
This bar chart indicates the risks of investing in the fund by
showing the per-
formance of the fund's Class A shares for each of the past 3
calendar years.
Class B shares would have different performance due to their
different ex-
penses.
Past performance does not necessarily indicate how the fund
will perform in the
future.
Quarterly returns: Highest: 3.57% in 2nd quarter 1997; Lowest:
(2.13)% in 1st
quarter 1999.
The performance information in the chart does not reflect
sales charges, which
would reduce your return.
[BAR CHART]
Percent Total Return for Class A shares
97 9.46%
98 5.97%
99 -5.15%
Calendar years ended December 31
Risk return table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Average annual total returns for periods ended
December 31,
1999
--------------------------------------------
- -------------------
<S> <C>
<C>
Since Inception
Class 1 Year
August 8, 1996
--------------------------------------------
- -------------------
A (9.42)%
2.52%
--------------------------------------------
- -------------------
B (9.77)%
2.69%
--------------------------------------------
- -------------------
Lehman Brothers Government Index (2.23)%
6.45%*
--------------------------------------------
- -------------------
</TABLE>
This table in-
dicates the
risks of in-
vesting in the
fund by compar-
ing the average
annual total
return of each
class for the
periods shown
to that of the
Lehman Brothers
Government In-
dex, an unman-
aged index of
U.S. government
securities.
* The index comparison begins on 8/31/96.
This table as-
sumes the impo-
sition of the
maximum sales
charge applica-
ble to the
class, the re-
demption of
shares at the
end of the pe-
riod, and the
reinvestment of
distributions
and dividends.
Fee table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Shareholder fees (paid directly from your
investment)
Class A Class B
--------------------------------------------
- -------------
<S>
<C> <C>
Maximum sales charge (load) imposed on
purchases (as a % of offering price)
4.50% None
--------------------------------------------
- -------------
Maximum deferred sales charge (load)
(as a % of the lower of net asset value at
purchase or redemption)
None* 4.50%
--------------------------------------------
- -------------
Annual fund operating expenses (paid by the
fund as % of net assets)
--------------------------------------------
- -------------
Management fee
0.60% 0.60%
--------------------------------------------
- -------------
Distribution and service (12b-1) fee
0.25% 1.00%
--------------------------------------------
- -------------
Other expenses
0.40% 0.34%
--------------------------------------------
- -------------
Total annual fund operating expenses
1.25% 1.94%
--------------------------------------------
- -------------
</TABLE>
This table sets
forth the fees
and expenses
you will pay if
you invest in
shares of the
fund.
* You may buy Class A shares in amounts of
$500,000 or more
at net asset value (without an initial
sales charge)but if
you redeem those shares within 12 months
of purchase you
will pay a deferred sales charge of 1.00%.
Example
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Number of years you own your
shares* 1 Year 3 Years
5 Years 10 Years
--------------------------------------------
- -----------------
<S> <C> <C>
<C> <C>
Class A (with or without
redemption) $572 $829
$1,105 $1,893
--------------------------------------------
- -----------------
Class B (assuming redemption at
end of period) $647 $909
$1,147 $2,085
--------------------------------------------
- -----------------
Class B (assuming no
redemption) $197 $609
$1,047 $2,085
--------------------------------------------
- -----------------
</TABLE>
This example
helps you com-
pare the costs
of investing in
the fund with
those of other
mutual funds.
Your actual
costs may be
higher or low-
er.
* The example assumes:
. You invest $10,000 for the period shown
. You reinvest all distributions and
dividends without a
sales charge
. The fund's operating expenses remain the
same
. Your investment has a 5% return each year
. Conversion of Class B shares to Class A
shares after 8
years
The Concert Investment Series Prospectus
13
<PAGE>
Municipal Bond Fund
Investment objective
The fund seeks as high a level of current interest income
exempt from federal
income tax as is consistent with the preservation of capital.
Key investments
The fund invests in a diversified portfolio consisting
principally of tax ex-
empt municipal bonds, which are obligations issued by or on
behalf of states,
territories or possessions of the United States and the
District of Columbia
and their political subdivisions, agencies and
instrumentalities. Tax exempt
means that the bonds pay interest that is excluded from gross
income for fed-
eral income tax purposes.
The fund invests principally in municipal bonds rated at the
time of purchase
within the three highest grades by nationally recognized bond
rating services,
or, if unrated, of equivalent quality. The fund may also
invest up to 25% in
lower rated municipal bonds that have speculative
characteristics.
How the manager selects the fund's investments
The manager selects securities primarily by identifying
undervalued sectors and
individual securities, while also selecting securities that it
believes will
benefit from changes in relative interest rates. In selecting
individual secu-
rities, the manager:
. Uses fundamental credit analysis to estimate the relative
value and attrac-
tiveness of various securities and sectors and to exploit
inefficiencies in
the municipal bond market
. Actively trades among various sectors, such as insured,
general obligation,
revenue and housing, based on their apparent relative values
. Identifies individual securities with the most potential for
added value,
such as those involving unusual situations, new issuers, the
potential for
credit upgrades, unique structural characteristics or
innovative features
. Considers a security's maturity in light of the outlook for
the issuer and
its sector
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 rise, causing the value of the fund's
portfolio generally to
decline
. Municipal bonds fall out of favor with investors
. Unfavorable legislation affects the tax-exempt status of
municipal bonds
. The manager's judgment about the attractiveness, value or
income potential of
a particular bond proves to be incorrect
. The issuer of a 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 bonds, which are
considered speculative be-
cause they have a higher risk of issuer default, are subject
to greater price
volatility and may be illiquid
It is possible that some of the fund's income and gains may be
subject to
federal taxation. The fund may realize taxable gains on the
sale of its
securities. In addition, distributions of the fund's income
and gains will be
subject to state taxation.
Who may want to invest in the fund
The fund may be an appropriate investment if you:
. Are in a high tax bracket and seeking income that is exempt
from federal tax-
ation
. Currently have exposure to equity securities and taxable
fixed income securi-
ties and wish to broaden your investment portfolio
. Are willing to accept the risks of investing in municipal
bonds, including
interest rate risk and credit risk
14
The Concert Investment Series Prospectus
<PAGE>
Municipal Bond Fund,
continued
Risk return bar chart
- --------------------------------------------------------------
- ------------------
This bar chart indicates the risks of investing in the fund by
showing the per-
formance of the fund's Class A shares for each of the past 3
calendar years.
Class B shares would have different performance due to their
different ex-
penses.
Past performance does not necessarily indicate how the fund
will perform in the
future.
Quarterly returns: Highest: 3.29% in 2nd quarter 1997; Lowest:
(2.33)% in 2nd
quarter 1999
The performance information in the chart does not reflect
sales charges, which
would reduce your return.
[BAR CHART]
Percent Total Return for Class A shares
97 8.77%
98 5.14%
99 -4.89%
Calendar years ended December 31
Risk return table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Average annual total returns for periods ended
December 31,
1999
--------------------------------------------
- -------------------------
<S> <C>
<C>
Since Inception
Class 1 Year
August 18, 1996
--------------------------------------------
- -------------------------
A (9.20)%
1.82%
--------------------------------------------
- -------------------------
B (9.63)%
1.93%
--------------------------------------------
- -------------------------
Lehman Brothers
Municipal Bond Index (2.06)%
5.21%*
--------------------------------------------
- -------------------------
</TABLE>
This table in-
dicates the
risks of in-
vesting in the
fund by compar-
ing the average
annual total
return of each
class for the
periods shown
to that of the
Lehman Brothers
Municipal Bond
Index, an un-
managed index
of municipal
bonds.
* The index comparison begins on 8/31/96.
This table as-
sumes the impo-
sition of the
maximum sales
charge applica-
ble to the
class, the re-
demption of
shares at the
end of the pe-
riod, and the
reinvestment of
distributions
and dividends.
Fee table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Shareholder fees (paid directly from your
investment)
Class A Class B
--------------------------------------------
- -------------
<S>
<C> <C>
Maximum sales charge (load) imposed on
purchases (as a % of offering price)
4.50% None
--------------------------------------------
- -------------
Maximum deferred sales charge (load)
(as a % of the lower of net asset value at
purchase or redemption)
None* 4.50%
--------------------------------------------
- -------------
Annual fund operating expenses (paid by the
fund as % of net assets)
--------------------------------------------
- -------------
Management fee
0.60% 0.60%
--------------------------------------------
- -------------
Distribution and service (12b-1) fee
0.25% 1.00%
--------------------------------------------
- -------------
Other expenses
0.33% 0.33%
--------------------------------------------
- -------------
Total annual fund operating expenses
1.18% 1.93%
--------------------------------------------
- -------------
</TABLE>
This table sets
forth the fees
and expenses
you will pay if
you invest in
shares of the
fund.
* You may buy Class A shares in amounts of
$500,000 or more
at net asset value (without an initial
sales charge)but if
you redeem those shares within 12 months
of purchase you
will pay a deferred sales charge of 1.00%.
Example
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Number of years you own your
shares* 1 Year 3 Years
5 Years 10 Years
--------------------------------------------
- -----------------
<S> <C> <C>
<C> <C>
Class A $565 $808
$1,070 $1,817
--------------------------------------------
- -----------------
Class B (Assuming redemption at
end of period) $646 $906
$1,142 $2,059
--------------------------------------------
- -----------------
Class B (Assuming no
redemption) $196 $606
$1,042 $2,059
--------------------------------------------
- -----------------
</TABLE>
This example
helps you com-
pare the costs
of investing in
the fund with
those of other
mutual funds.
Your actual
costs may be
higher or low-
er.
* The example assumes:
. You invest $10,000 for the period shown
. You reinvest all distributions and
dividends without a
sales charge
. The fund's operating expenses remain the
same
. Your investment has a 5% return each year
. Conversion of Class B shares to Class A
shares after 8
years
The Concert Investment Series Prospectus
15
<PAGE>
More on the Funds' 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 funds except Government Fund and Municipal Bond Fund
International Equity Fund invests at least 65% of its assets
in equity securi-
ties of foreign issuers, including those in emerging market
countries. Small
Cap 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
securities, in-
cluding 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 Funds
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 Funds
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 Funds Except International Equity Fund and Mid Cap Fund
Each fund, except International Equity Fund and Mid Cap Fund,
will not purchase
any securities issued by a company primarily engaged in the
manufacture of al-
cohol or tobacco.
Goals/Policies
All Funds
Each fund's goal and investment policies generally may be
changed by the
trustees without shareholder approval.
16
The Concert Investment Series 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>
Small Cap Sandip Bhagat 1997 investment officer
of the manager and pres-
ident of
Travelers
Investment Management Company, an
affiliate of the
manager
- --------------------------------------------------------------
- -------------------------
International Equity Jeffrey Russell 1997 investment officer
of the manager and man-
aging director of
Salomon Smith Barney
James Conheady 1997 investment officer
of the manager and man-
aging director of
Salomon Smith Barney
- --------------------------------------------------------------
- -------------------------
Mid Cap Larry Weissman 1997 investment officer
of the manager and man-
Growth 1999 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
- --------------------------------------------------------------
- -------------------------
Municipal Bond Joseph P. Deane 1997 investment officer
of the manager and man-
aging director of
Salomon Smith Barney
- --------------------------------------------------------------
- -------------------------
</TABLE>
Management fees
Management fees paid during the fiscal year ended october 31,
1999
(as % of average daily net assets)
<TABLE>
<CAPTION>
Small
Cap International Mid Cap Growth Growth and
Government Municipal
Fund Equity Fund Fund Fund Income Fund
Fund Fund
- --------------------------------------------------------------
- ------------
<S> <C> <C> <C> <C> <C>
<C>
0.65% 1.00% 0.11% [0.65%] [0.65%] 0.60%
0.60%
- --------------------------------------------------------------
- ------------
</TABLE>
Distributor
CFBDS, Inc. serves as the funds' distributor. Broker-dealers
and financial
institutions (called Service Agents) that have entered into a
dealer agreement
with the distributor sell shares of the funds to the public.
Distribution plans
The funds each have adopted Rule 12b-1 distribution plans for
their Class A and
B shares. Under each plan, the fund pays distribution and
service fees. These
fees are an ongoing expense and over time, may cost you more
than other types
of sales charges.
Year 2000 issue
As the year 2000 began, there were few problems caused by the
inability of cer-
tain computer systems to tell the difference between the year
2000 and the year
1900 (commonly known as the "Year 2000" issue). It is still
possible that some
computer systems could malfunction in the future because of
the Year 2000 issue
or as a result of actions taken to address the Year 2000
issue. Fund management
does not anticipate that its services or those of the funds'
other service
providers will be adversely affected, but Fund management will
continue to mon-
itor the situation. If malfunctions related to the Year 2000
issue do arise,
the fund and its investments could be negatively affected.
17
The Concert Investment Series Prospectus
<PAGE>
Choosing a Share Class to Buy
Share classes
- --------------------------------------------------------------
- ------------------
You can choose between Class A shares and Class B shares. The
classes have dif-
ferent sales charges and expenses, allowing you to choose the
class that best
meets your needs. When choosing which class of shares to buy,
you should con-
sider:
.How much you plan to invest .The expenses paid by each
class
.How long you expect to own the shares
.Whether you qualify for any
reduction or
waiver of sales charges
Comparing classes
- --------------------------------------------------------------
- ------------------
Your account representative may receive different compensation
depending upon
which class you choose.
Key Features Class A Class B
. No initial
sales
.Initial sales charge charge
. Deferred sales
charge
. You may qualify for declines over
time
reduction or waiver
of initial sales . Convert to
Class A
charge over time shares after
eight
years
. Higher annual
ex-
. Lower annual ex- penses
penses
Initial Sales Charge
None
Up to 5%, reduced for
large purchases and
waived for certain
investors. No charge
for purchases of
$500,000 or more, or
for certain investors
Deferred Sales Charge
None, except for pur- Up to 5% charged
when
chases of $500,000 or you redeem
shares. The
more -- 1% if you re- charge is reduced
over
deem within 1 year of time and there is
no
purchase deferred sales
charge
after 6 years
Annual 12b-1 Fees 0.25% of average 1% of average
daily net
daily net assets assets
Exchangeable Into
Class A shares of Class B shares of
cer-
certain Concert brand tain Concert
brand
funds and funds and
CitiFunds SM
CitiFunds SM Cash Re- Cash Reserves
serves
18
The Concert Investment Series Prospectus
<PAGE>
Class A Sales Charge
Class A sales charge
You buy Class A shares at the offering price, which is the net
asset value plus
a sales charge. You pay a lower sales charge as the size of
your investment in-
creases to certain levels called breakpoints. You do not pay a
sales charge on
the funds' distributions or dividends that you reinvest in
additional Class A
shares.
To learn more about the accumulation privilege, letters of
intent, additional
waivers for certain investors and other options to reduce your
sales charge,
ask your Service Agent or consult the Statement of Additional
Information
(SAI).
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
For Small Cap Fund,
International Equity Fund, Mid
Cap
Fund, Growth Fund and Growth
and For Municipal Bond Fund and
Income Fund
Government Fund
- --------------------------------------------------------------
- -------------------------------------------------------------
Sales Charge as Sales Charge as Sales Charge as
Sales Charge as %
% of Net Amount % of Offering % of Net Amount
Amount of Investment of Offering Price
Invested Price Invested
- --------------------------------------------------------------
- -------------------------------------------------------------
<S> <C>
<C> <C> <C>
Less than $25,000 5.00%
5.26% 4.50% 4.71%
- --------------------------------------------------------------
- -------------------------------------------------------------
$25,000 but less than
$50,000 4.00
4.17 4.00 4.17
- --------------------------------------------------------------
- -------------------------------------------------------------
$50,000 but less than
$100,000 3.50
3.63 3.50 3.63
- --------------------------------------------------------------
- -------------------------------------------------------------
$100,000 but less than
$250,000 3.00
3.09 2.50 2.56
- --------------------------------------------------------------
- -------------------------------------------------------------
$250,000 but less than
$500,000 2.00
2.04 1.50 1.52
- --------------------------------------------------------------
- -------------------------------------------------------------
$500,000 or more* -0-
- -0- -0- -0-
- --------------------------------------------------------------
- -------------------------------------------------------------
</TABLE>
*You do not pay an initial sales charge when you buy $500,000
or more of Class
A shares. However, if you redeem these Class A shares within
one year of pur-
chase, you will pay a deferred sales charge of 1%.
Qualifying for reduced Class A sales charges
There are several ways you can combine multiple purchases of
Class A shares of
Concert brand funds to take advantage of the breakpoints in
the sales charge
schedule.
. Accumulation privilege--lets you add the current value of
Class A shares of
the funds already owned by you or members of your immediate
family (and for
which you paid a sales charge) to the amount of your next
purchase of Class A
shares for purposes of calculating the sales charge. Certain
trustees and fi-
duciaries may be entitled to combine accounts in determining
their sales
charge.
. Letter of intent--lets you purchase Class A shares of one or
more funds over
a 13-month period and pay the same sales charge, if any, as
if all shares had
been purchased at once. You may include purchases on which
you paid a sales
charge made within 90 days before you sign the letter.
Waivers for certain Class A investors
Class A initial sales charges are waived for certain types of
investors, in-
cluding:
. Employees of members of the NASD
. 403(b) or 401(k) retirement plans, if certain conditions are
met
. Investors who purchased through a financial professional
with proceeds from a
prior mutual fund redemption, if certain conditions are met
. Investors who redeemed Class A shares of Concert brand funds
in the past 60
days, if your financial professional is notified
. Employees and retired employees of Citigroup and its
affiliates, the distrib-
utor and its affiliates, any Service Agent and its
affiliates and certain
other fund service providers (including immediate families
of any of the
foregoing)
. Accounts for which a Citigroup affiliate performs investment
advisory serv-
ices or charges fees for acting as custodian.
. Other waivers may apply. Please consult the SAI for a
complete list.
19
The Concert Investment Series Prospectus
<PAGE>
Class B Sales Charge
Class B deferred sales charge
You buy Class B shares at net asset value without paying an
initial sales
charge. However, if you redeem your Class B shares within six
years of pur-
chase, you will pay a deferred sales charge.
The deferred sales charge decreases as the number of years
since your purchase
increases.
If you want to learn more about additional deferred sales
charges and waivers
of deferred sales charges, contact your Service Agent or
consult the SAI.
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Year After Purchase
- --------------------------------------------------------------
- -------------
Deferred Sales Charge for: 1st 2nd 3rd 4th 5th
6th through 8th
- --------------------------------------------------------------
- -------------
<S> <C> <C> <C> <C> <C>
<C>
Government Fund and
Municipal Fund 4.50% 4.00% 3.00% 2.00% 1.00%
- -0-
- --------------------------------------------------------------
- -------------
All other funds 5.00% 4.00% 3.00% 2.00% 1.00%
- -0-
- --------------------------------------------------------------
- -------------
</TABLE>
Calculation of deferred sales charge
The deferred sales charge is based on the net asset value at
the time of pur-
chase or redemption, whichever is less, and therefore you do
not pay a sales
charge on amounts representing appreciation. In addition, you
do not pay a de-
ferred sales charge on shares exchanged for shares of another
Concert brand
fund or CitiFunds SM Cash Reserves, shares representing
reinvested distribu-
tions and dividends or shares no longer subject to the
deferred sales charge.
Shares are redeemed in this order:
. Shares that represent appreciation
. Shares representing reinvested distributions and dividends
. Shares that are not subject to the deferred sales charge
. Class B shares held longest
Each time you place a request to sell shares, the fund will
first sell any
shares in your account that are not subject to a deferred
sales and then the
shares in your account that have been held the longest.
Deferred sales charge waivers
The deferred sales charge for each share class will generally
be waived:
. To make payments through certain systematic withdrawal plans
. To make certain distributions from a retirement plan
. For involuntary redemptions of small account balances
. For 12 months following the death or disability of a
shareholder
Other waivers may apply. Please consult the SAI for a complete
list.
Class B conversion
After 8 years, Class B shares automatically convert into Class
A shares. This
helps you because Class A shares have lower annual expenses.
Your Class B
shares will convert to Class A shares as follows:
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Shares
Issued at
Initial
Purchase
- -------------------------
<S> <C> <C> <C>
.Eight years after the
date of purchase
<CAPTION>
Shares
Issued on
Reinvestment
of
Distribution
and
Dividends
- -------------------------
<S> <C> <C> <C>
.In same proportion that
the number of Class B
shares converting is to
total Class B shares
you own (excluding
shares issued as a
dividend)
<CAPTION>
Shares
Issued upon
Exchange
from Another
Fund
- -------------------------
<S> <C> <C> <C>
.On the date the shares
originally acquired
would have converted
into Class A shares
- -------------------------
</TABLE>
20
The Concert Investment Series Prospectus
<PAGE>
Buying Shares and Exchanging Shares
How to buy shares
. Shares of the funds may be purchased from the distributor or
your Service
Agent that has entered into a service agreement with the
distributor concern-
ing the funds. Please specify whether you are purchasing
Class A or Class B
shares. If you fail to specify, Class A shares will be
purchased for your ac-
count.
. Your Service Agent will not transmit your purchase order for
fund shares un-
til it receives the purchase price in federal or other
immediately available
funds. If you pay by check, the Service Agent transmits the
order when the
check clears.
. If you are a customer of a Service Agent, your Service Agent
will establish
and maintain your account and be the shareholder of record.
If you wish to
transfer your account, you may transfer it to another
financial institution.
For more information, contact your Service Agent or consult
the SAI.
Exchanges
You may exchange fund shares for shares of certain Concert
brand funds or of
CitiFunds SM Cash Reserves. Shareholders exchanging into
another fund should
read that fund's prospectus describing the shares being
acquired for more in-
formation. An exchange is a taxable transaction.
. You may place exchange orders through the transfer agent or,
if you are a
customer of a Service Agent, through your Service Agent. You
may place ex-
change orders by telephone if your account application
permits. The transfer
agent or your Service Agent can provide you with more
information, including
a prospectus for another Concert brand fund or for CitiFunds
SM Cash Reserves
so that it may be acquired through an exchange.
. You must meet the minimum investment amount for each fund.
. Your fund may suspend or terminate your exchange privilege
if you engage in
an excessive pattern of exchanges.
. Your shares will not be subject to an initial sales charge
at the time of the
exchange. Your deferred sales charge (if any) will continue
to be measured
from the date of your original purchase. If the fund that
you exchange into
has a higher deferred sales charge, you will be subject to
that charge. If
you exchange again to a fund with a lower charge, the sales
charge will not
be reduced.
To learn more about the exchange privileges, contact your
Service Agent or con-
sult the SAI.
21
The Concert Investment Series Prospectus
<PAGE>
Redeeming Shares
How to redeem shares
. You may sell (redeem) your shares on any business day. In
all cases, your re-
demption price is the net asset value next determined after
your request is
received in good order.
. You may make redemption requests in writing through the
transfer agent or, if
you are a customer of a Service Agent, through your Service
Agent. If your
account application permits, you may also make redemption
requests by calling
the transfer agent or, if you are a customer of a Service
Agent, your Service
Agent. Your Service Agent is responsible for promptly
submitting redemption
requests to the transfer agent. You are responsible for
making sure your re-
demption request is in proper form.
. The funds have an automatic redemption plan which allows you
to automatically
withdraw a specific dollar amount from your account on a
regular basis. You
must have at least $10,000 in your account to participate in
this program.
Under the plan, if your shares are subject to a deferred
sales charge, you
may only withdraw up to 10% of the value of your account in
any year, but you
will not be subject to a deferred sales charge on the shares
withdrawn under
the plan. For more information, please contact your Service
Agent.
. If you own both Class A and Class B shares, and want to sell
shares, you
should specify which class of shares you wish to sell. If
you fail to speci-
fy, Class A shares will be redeemed first.
22
The Concert Investment Series Prospectus
<PAGE>
Other Things to Know about Share Transactions
Share price
You may buy, exchange or redeem fund shares at the net asset
value, adjusted
for any applicable sales charge, next determined after receipt
of your request
in good order. Each fund's net asset value is the value of its
assets minus its
liabilities. Net asset value is calculated separately for each
class of shares.
Each fund calculates its net asset value every day the New
York Stock Exchange
is open. The Exchange is closed on certain holidays listed in
the SAI. This
calculation is done at 4:00 p.m., Eastern time, or when
regular trading closes
on the Exchange, if earlier.
The funds generally value their securities based on market
prices or quota-
tions. The funds' currency conversions are done when the
London stock exchange
closes, which is 12 noon, Eastern time. When market prices or
quotations are
not available, or when the manager believes they are
unreliable or that the
value of a security has been materially affected by events
occurring after a
foreign exchange closes, the funds may price those securities
at fair value.
Fair value is determined in accordance with procedures
approved by the funds'
board. A fund that uses fair value to price securities may
value those securi-
ties higher or lower than another fund that uses market
quotations to price the
same securities.
International markets may be open on days when U.S. markets
are closed and the
value of foreign securities owned by a fund could change on
days when you can-
not buy or redeem shares.
In order to buy, redeem or exchange shares at that day's
price, you must place
your order with your Service Agent before the New York Stock
Exchange closes.
If the Exchange closes early, you must place your order prior
to the actual
closing time. Otherwise, you will receive the next business
day's price.
Your Service Agent and other members of the funds' selling
group must transmit
all orders to buy, exchange or redeem shares to the funds'
transfer agent be-
fore the transfer agent's close of business.
Important address
Manager:
SSB Citi Fund Management LLC
388 Greenwich Street, MF2
New York, New York 10013
23
The Concert Investment Series Prospectus
<PAGE>
Dividends, Distributions and Taxes
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 funds normally pay dividends and distribute capital gains,
if any, as fol-
lows:
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Income Capital
Distributions
Dividend Gain
Mostly
Fund Distributions Distributions
From
- --------------------------------------------------------------
- ---------------------
<S> <C> <C>
<C>
Small Cap Annually Annually
Gain
- --------------------------------------------------------------
- ---------------------
International Equity Annually Annually
Gain
- --------------------------------------------------------------
- ---------------------
Mid Cap Annually Annually
Gain
- --------------------------------------------------------------
- ---------------------
Growth Annually Annually
Gain
- --------------------------------------------------------------
- ---------------------
Growth and Income Quarterly Annually
Both
- --------------------------------------------------------------
- ---------------------
Government Monthly Annually
Income
- --------------------------------------------------------------
- ---------------------
Municipal Bond Monthly Annually
Income
- --------------------------------------------------------------
- ---------------------
</TABLE>
The funds may pay additional distributions and dividends at
other times if nec-
essary for a fund to avoid a federal tax. Capital gains
distributions and divi-
dends are reinvested in additional fund shares of the same
class that you hold.
You do not pay a sales charge on reinvested distributions or
dividends. Alter-
natively, you can instruct your Service Agent or the transfer
agent to have
your distributions and/or dividends paid in cash. You can
change your choice at
any time to be effective as of the next distribution or
dividend, except that
any change given to the transfer agent less than five days
before the payment
date will not be effective until the next distribution or
dividend is made.
Taxes
In general, redeeming shares, exchanging shares and receiving
distributions
(whether in cash or additional shares) are all taxable events.
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Transaction Federal Income Tax Status
- -------------------------------------------------
<S> <C>
Redemption or Usually capital gain or loss;
exchange long-term only if shares
of shares owned more than one year
- -------------------------------------------------
Long-term capital Long-term capital gain
gain
distributions
- -------------------------------------------------
Short-term Ordinary income
capital gain
distributions
- -------------------------------------------------
Dividends Ordinary income (for all funds
except Municipal Bond
Fund)*
- -------------------------------------------------
</TABLE>
* Municipal Bond Fund intends to distribute the interest it
earns on tax-exempt
municipal bonds as "exempt-interest" dividends, which are
excludable from gross
income for federal income tax purposes but may be subject to
state and local
income tax. Its distributions from other sources, if any,
would be taxable as
described above.
Long-term capital gain distributions are taxable to you as
long-term capital
gain regardless of how long you have owned your shares. You
may want to avoid
buying shares when a fund is about to declare a long-term
capital gain distri-
bution or a taxable dividend, because it will be taxable to
you even though it
may actually be a return of a portion of your investment.
After the end of each year, the funds will provide you with
information about
the distributions and dividends that you received and any
redemptions of shares
during the previous year. If you do not provide a fund with
your correct tax-
payer identification number and any required certifications,
you may be subject
to back-up withholding of 31% of your distributions, dividends
(other than ex-
empt-interest dividends), and redemption proceeds. Because
each shareholder's
circumstances are different and special tax rules may apply,
you should consult
with your tax adviser about your investment in a fund and your
receipt of divi-
dends, distributions or redemption proceeds.
24
The Concert Investment Series Prospectus
<PAGE>
Financial Highlights
For a Share of Beneficial Interest
The financial Outstanding Throughout Each Year:
highlights ta-
bles are in-
tended to help
you understand
the performance
of the Class A
and Class B
shares for the
past five years
(or since in-
ception if less
than five
years). Certain
information re-
flects finan-
cial results
for a single
share. Total
returns repre-
sent the rate
that a share-
holder would
have earned (or
lost) on a fund
share assuming
reinvestment of
all dividends
and distribu-
tions. The in-
formation in
the following
tables was au-
dited by Ernst
& Young LLP,
independent au-
ditors, whose
report, along
with the fund's
financial
statements is
included in the
annual report
(available upon
request).
Small Cap Fund
--------------------------------------------
- -----------------
<TABLE>
<CAPTION>
Class A Shares
February 21, 1995
Year Ended Year
Ended Year Ended Year Ended (Commencement of
October 31, October
31, October 31, October 31, Investment Operations)
1999(1)
1998* 1997 1996 to October 31, 1995(1)
--------------------------------------------
- -------------------------------------------------
<S> <C> <C>
<C> <C> <C>
Net Asset Value,
Beginning of Period $20.15
$22.08 $18.57 $15.12 $11.81
--------------------------------------------
- -------------------------------------------------
Income (loss) from
operations
Net investment loss (0.20)
(0.17) (0.15) (0.18) (0.24)
Net realized and
unrealized gain 6.66
(1.55) 3.66 3.63 3.55
--------------------------------------------
- -------------------------------------------------
Total income from
operations 6.46
(1.72) 3.51 3.45 3.31
--------------------------------------------
- -------------------------------------------------
Less Distributions From:
Net investment income --
- -- -- -- --
Net realized gain (1.53)
(0.21) -- -- --
--------------------------------------------
- -------------------------------------------------
Total Distributions (1.53)
(0.21) -- -- --
--------------------------------------------
- -------------------------------------------------
Net Asset Value, End of
Period $25.08
$20.15 $22.08 $18.57 $15.12
--------------------------------------------
- -------------------------------------------------
Total Return 33.02%
(7.81)% 18.90% 22.82% 28.11%(2)
--------------------------------------------
- -------------------------------------------------
Net Assets, End of
Period (millions) $138
$108 $101 $52 $16
--------------------------------------------
- -------------------------------------------------
Ratio of expenses to
average net assets* 1.55%
1.43% 1.69% 2.21% 2.75%+
--------------------------------------------
- -------------------------------------------------
Ratio of net investment
loss to average net
assets* (0.88)%
(0.80)% (0.92)% (1.52)% (1.65)+
--------------------------------------------
- -------------------------------------------------
Portfolio Turnover 115%
80% 100% 80% 83%(3)
--------------------------------------------
- -------------------------------------------------
* If certain expenses
had not been waived or
reimbursed by the
Fund's former manager,
total return would
have been lower and
the ratios would have
been as follows:
--------------------------------------------
- -------------------------------------------------
Ratio of expenses to
average net assets N/A
N/A N/A N/A 3.37%+
--------------------------------------------
- -------------------------------------------------
Ratio of net investment
loss to average net
assets N/A
N/A N/A N/A (2.27%)+
--------------------------------------------
- -------------------------------------------------
</TABLE>
(1) Net investment loss has been calculated
using the
monthly average share method.
(2) Total return from March 17, 1995 (date
the Fund's in-
vestment strategy was implemented)
through October 31,
1995 is not annualized, as it may not be
representative
of the total return for the year.
(3) Not annualized.
+ Annualized.
N/A=Not Applicable
* Effective December 31, 1997, SSB Citi
Fund Management
LLC (successor to SSBC Fund Management
Inc.), formerly
known as Mutual Management Corp.,
replaced Van Kampen
American Capital Asset Management as the
Fund Manager.
25
<PAGE>
Financial Highlights,
continued
Small Cap Fund
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Class B Shares
February 21, 1995
(Commencement
of Investment
Year Ended Year
Ended Year Ended Year Ended Operations) to
October 31, 1999(1) October 31,
1998(4) October 31, 1997 October 31, 1996 October 31, 1995(1)
- --------------------------------------------------------------
- ---------------------------------------------------------
<S> <C> <C>
<C> <C> <C>
Net Asset Value,
Beginning of Period $19.60
$21.63 $18.34 $15.04 $11.81
- --------------------------------------------------------------
- ---------------------------------------------------------
Income (loss) from
operations
Net investment loss (0.37)
(0.30) (0.27) (0.27) (0.35)
Net realized and
unrealized gain 6.46
(1.52) 3.56 3.57 3.58
- --------------------------------------------------------------
- ---------------------------------------------------------
Total income from
operations 6.09
(1.82) 3.29 3.30 3.23
- --------------------------------------------------------------
- ---------------------------------------------------------
Less Distributions From:
Net investment income --
- -- -- -- --
Net realized gain (1.53)
(0.21) -- -- --
- --------------------------------------------------------------
- ---------------------------------------------------------
Total Distributions (1.53)
(0.21) -- -- --
- --------------------------------------------------------------
- ---------------------------------------------------------
Net Asset Value, End of
Period $24.16
$19.60 $21.63 $18.34 $15.04
- --------------------------------------------------------------
- ---------------------------------------------------------
Total Return 32.00%
(8.45)% 17.94% 21.94% 27.43%(2)
- --------------------------------------------------------------
- ---------------------------------------------------------
Net Assets, End of
Period (millions) $129
$91 $80 $39 $11
- --------------------------------------------------------------
- ---------------------------------------------------------
Ratio of expenses to
average net assets* 2.31%
2.18% 2.44% 2.96% 3.49%+
- --------------------------------------------------------------
- ---------------------------------------------------------
Ratio of net investment
loss to average net
assets* (1.63)%
(1.55)% (1.67)% (2.27)% (2.45)%+
- --------------------------------------------------------------
- ---------------------------------------------------------
Portfolio Turnover 115%
80% 100% 80% 83%(3)
- --------------------------------------------------------------
- ---------------------------------------------------------
* If certain expenses
had not been waived or
reimbursed by the
Fund's former manager,
total return would
have been lower and
the ratios would have
been as follows:
- --------------------------------------------------------------
- ---------------------------------------------------------
Ratio of expenses to
average net assets N/A
N/A N/A N/A 4.11%+
- --------------------------------------------------------------
- ---------------------------------------------------------
Ratio of net investment
loss to average net
assets N/A
N/A N/A N/A (3.07%)+
- --------------------------------------------------------------
- ---------------------------------------------------------
</TABLE>
(1) Net investment loss has been calculated using the monthly
average share
method.
(2) Total return from March 17, 1995 (date the Fund's
Investment strategy was
implemented) through October 31, 1995 is not annualized as
it may not be
representative of the total return for the year.
(3) Not annualized.
(4) Effective December 31, 1997 SSB Citi Fund Management LLC
(successor to SSBC
Fund Management Inc., formerly known as Mutual Management
Corp.), replaced
Van Kampen American Capital Asset Management as the Fund
Manager.
+ Annualized.
N/A=Not Applicable
26
The Concert Investment Series Prospectus
<PAGE>
International Equity Fund
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Class A Shares
February 21, 1995
(Commencement
Year Ended Year Ended Year Ended
Year Ended of Investment
October 31, October 31, October 31,
October 31, Operations) to
1999(1) 1998(4) 1997
1996 October 31, 1995(1)
- --------------------------------------------------------------
- -------------------------------
<S> <C> <C> <C>
<C> <C>
Net Asset Value,
Beginning of Period $18.94 $18.14 $16.54
$13.86 $11.81
- --------------------------------------------------------------
- -------------------------------
Income (loss) from
operations
Net investment loss (0.37) (0.27) (0.26)
(0.19) (0.14)
Net realized and
unrealized gain 13.67 1.07 1.86
2.87 2.19
- --------------------------------------------------------------
- -------------------------------
Total income from
operations 13.30 0.80 1.60
2.68 2.05
- --------------------------------------------------------------
- -------------------------------
Less Distributions From:
Net investment income -- -- --
- -- --
- --------------------------------------------------------------
- -------------------------------
Total Distributions -- -- --
- -- --
- --------------------------------------------------------------
- -------------------------------
Net Asset Value, End of
Period $32.24 $18.94 $18.14
$16.54 $13.86
- --------------------------------------------------------------
- -------------------------------
Total Return 70.22% 4.41% 9.74%
19.34% 16.28%(3)
- --------------------------------------------------------------
- -------------------------------
Net Assets, End of
Period (millions) $38 $20 $17
$10 $7
- --------------------------------------------------------------
- -------------------------------
Ratio of expenses to
average net assets* 2.08% 2.25% 2.56%
2.75% 3.64%+
- --------------------------------------------------------------
- -------------------------------
Ratio of net investment
loss to average net
assets* (1.53)% (1.46)% (1.59)%
(1.56)% (1.40)%+
- --------------------------------------------------------------
- -------------------------------
Portfolio Turnover 50% 63% 57%
78% 17%(2)
- --------------------------------------------------------------
- -------------------------------
* If certain expenses
had not been waived or
reimbursed by the
Fund's former manager,
Total Return would
have been lower and
the ratios would have
been as follows:
- --------------------------------------------------------------
- -------------------------------
Ratio of expenses to
average net assets N/A N/A N/A
4.12% 5.97%+
- --------------------------------------------------------------
- -------------------------------
Ratio of net investment
loss to average net
assets N/A N/A N/A
(2.92) (3.73)+
- --------------------------------------------------------------
- -------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class B Shares
February 21, 1995
(Commencement
Year Ended Year Ended Year Ended
Year Ended of Investment
October 31, October 31, October 31,
October 31, Operations) to
1999(1) 1998(4) 1997
1996 October 31, 1995(1)
- --------------------------------------------------------------
- -------------------------------
<S> <C> <C> <C>
<C> <C>
Net Asset Value,
Beginning of Period $18.44 $17.81 $16.36
$13.79 $11.81
- --------------------------------------------------------------
- -------------------------------
Income (loss) from
operations
Net investment loss (0.53) (0.39) (0.32)
(0.26) (0.21)
Net realized and
unrealized gain 13.25 1.02 1.77
2.83 2.19
- --------------------------------------------------------------
- -------------------------------
Total income from
operations 12.72 0.63 1.45
2.57 1.98
- --------------------------------------------------------------
- -------------------------------
Less Distributions From:
Net investment income -- -- --
- -- --
- --------------------------------------------------------------
- -------------------------------
Total Distributions -- -- --
- -- --
- --------------------------------------------------------------
- -------------------------------
Net Asset Value, End of
Period $31.16 $18.44 $17.81
$16.36 $13.79
- --------------------------------------------------------------
- -------------------------------
Total Return 68.98% 3.54% 8.93%
18.64% 15.69(3)
- --------------------------------------------------------------
- -------------------------------
Net Assets, End of
Period (millions) $41 $18 $13
$8 $2
- --------------------------------------------------------------
- -------------------------------
Ratio of expenses to
average net assets* 2.79% 3.11% 3.30%
3.50% 4.33%+
- --------------------------------------------------------------
- -------------------------------
Ratio of net investment
loss to average net
assets* (2.26)% (2.32)% (2.34)%
(2.31)% (2.80)%+
- --------------------------------------------------------------
- -------------------------------
Portfolio Turnover 50% 63% 57%
78% 17%(2)
- --------------------------------------------------------------
- -------------------------------
* If certain expenses
had not been waived or
reimbursed by the
fund's former manager,
Total Return would
have been lower and
the ratios would have
been as follows:
- --------------------------------------------------------------
- -------------------------------
Ratio of expenses to
average net assets N/A N/A N/A
4.87% 6.67%+
- --------------------------------------------------------------
- -------------------------------
Ratio of net investment
loss to average net
assets N/A N/A N/A
(3.67)% (5.13)%+
- --------------------------------------------------------------
- -------------------------------
</TABLE>
(1) Net investment loss has been calculated using the monthly
average share
method.
(2) Not annualized.
(3) Total return from March 17, 1995 (date the fund's
investment strategy was
implemented) through October 31, 1995 is not annualized,
as it may not be
representative of the total return for the year.
(4) Effective December 31, 1997 SSB Citi Fund Management LLC
(successor to SSBC
Fund Management Inc., formerly known as Mutual Management
Corp.), replaced
Van Kampen American Capital Asset Management as the fund
Manager.
N/A=Not Applicable
+ Annualized.
The Concert Investment Series Prospectus
27
<PAGE>
Financial Highlights,
continued
Mid Cap Fund
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Period Ended
October 31, 1999
------------------------
- -----------------
Class A Shares(2)(3)
Class B Shares(1)(2)
- --------------------------------------------------------------
- -----------------
<S> <C> <C>
Net Asset Value, Beginning of Period $11.40
$11.44
- --------------------------------------------------------------
- -----------------
Income (loss) from operations
Net investment income (loss)(4) 0.01
(0.05)
Net realized and unrealized gain 0.60
0.58
- --------------------------------------------------------------
- -----------------
Total income from operations 0.61
0.53
- --------------------------------------------------------------
- -----------------
Less distributions from:
Net investment income --
- --
- --------------------------------------------------------------
- -----------------
Total distributions --
- --
- --------------------------------------------------------------
- -----------------
Net Asset Value, End of Period $12.01
$11.97
- --------------------------------------------------------------
- -----------------
Total Return* 5.35%
4.63%
- --------------------------------------------------------------
- -----------------
Net Assets, End of Period (millions) $10
$17
- --------------------------------------------------------------
- -----------------
Ratio to average net assets+:
Expenses(4) 1.48%
2.24%
Net investment income (loss) 0.08%
(0.68)%
- --------------------------------------------------------------
- -----------------
Portfolio Turnover Rate 47%
47%
- --------------------------------------------------------------
- -----------------
</TABLE>
(1) For the period from March 16, 1999 (inception date) to
October 31, 1999.
(2) Net investment income (loss) has been calculated using the
monthly average
shares method.
(3) For the period from March 15, 1999 (inception date) to
October 31, 1999.
(4) The Advisor has waived a portion of its fees for the
period ended October
31, 1999. If such fees were not waived, the per share
effect on net
investment income (loss) and the expense ratios would have
been as follows:
<TABLE>
<CAPTION>
Expense Ratios
Net Investment Income (Loss) Without Fee
Waiver
Per Share Decrease and Reimbursement
---------------------------- -----------------
- -
<S> <C> <C>
Class A 0.04+
2.12+
Class B 0.04+
2.88+
</TABLE>
* Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
Growth Fund
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Class A Shares
Class B Shares
------------------------------------
- ----------- -----------------------------------------------
Period Period
Year Ended Year Ended Year Ended
Ended Year Ended Year Ended Year Ended Ended
October 31, October 31, October 31,
October 31, October 31, October 31, October 31, October 31,
1999(1) 1998* 1997
1996(2) 1999(1) 1998* 1997 1996(2)
- --------------------------------------------------------------
- -----------------------------------------------------------
<S> <C> <C> <C>
<C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $19.54 $20.89 $17.96
$16.63 $19.37 $20.75 $17.93 $16.63
- --------------------------------------------------------------
- -----------------------------------------------------------
Income (loss) from
operations
Net investment income
(loss) 0.02 0.05 0.15
0.02 (0.14) (0.11) 0.01 (0.01)
Net realized and
unrealized gain 6.60 2.13 4.30
1.31 6.54 2.14 4.28 1.31
- --------------------------------------------------------------
- -----------------------------------------------------------
Total income from
operations 6.62 2.18 4.45
1.33 6.40 2.03 4.29 1.30
- --------------------------------------------------------------
- -----------------------------------------------------------
Less distributions from:
Net investment income (0.05) (0.12) (0.16)
- -- -- -- (0.11) --
Net realized gains (1.82) (3.41) (1.36)
- -- (1.82) (3.41) (1.36) --
- --------------------------------------------------------------
- -----------------------------------------------------------
Total distributions (1.87) (3.53) (1.52)
- -- (1.82) (3.41) (1.47) --
- --------------------------------------------------------------
- -----------------------------------------------------------
Net Asset Value, End of
Period $24.29 $19.54 $20.89
$17.96 $ 23.95 $ 19.37 $20.75 $17.93
- --------------------------------------------------------------
- -----------------------------------------------------------
Total Return 35.24% 12.27% 26.65%
8.00%(3) 34.31% 11.43% 25.66% 7.82%(3)
- --------------------------------------------------------------
- -----------------------------------------------------------
Net Assets, End of
Period (millions) $344 $180 $109
$49 $357 $182 $126 $74
- --------------------------------------------------------------
- -----------------------------------------------------------
Ratio of expenses to
average net assets 1.01% 1.02% 1.13%
1.17%+ 1.76% 1.75% 1.88% 1.93%+
Ratio of net investment
income (loss) to
average net assets 0.09% 0.38% 0.57%
0.46%+ (0.65)% (0.35)% (0.16)% (0.29)%+
- --------------------------------------------------------------
- -----------------------------------------------------------
Portfolio Turnover 37% 113% 165%
202%(3) 37% 113% 165% 202%(3)
- --------------------------------------------------------------
- -----------------------------------------------------------
</TABLE>
(1) Net investment income (loss) has been calculated using the
monthly average
shares method.
(2) Class A and Class B shares commenced distribution on
August 18, 1996.
(3) Not annualized.
+ Annualized
* Effective December 31, 1997 SSB Citi Fund Management LLC
(successor to SSBC
Fund Management Inc., formerly known as Mutual Management
Corp.), replaced
Van Kampen American Capital Asset Management as the Fund
Manager.
28
The Concert Investment Series Prospectus
<PAGE>
Growth And Income Fund
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Class A Shares
Class B Shares
------------------------------------
- ----------- -----------------------------------------------
Period Period
Year Ended Year Ended Year Ended
Ended Year Ended Year Ended Year Ended Ended
October 31, October 31, October 31,
October 31, October 31, October 31, October 31, October 31,
1999(1) 1998* 1997
1996(2) 1999(1) 1998* 1997 1996(2)
- --------------------------------------------------------------
- -----------------------------------------------------------
<S> <C> <C> <C>
<C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $18.53 $20.10 $18.11
$17.19 $18.48 $20.07 $18.09 $17.19
- --------------------------------------------------------------
- -----------------------------------------------------------
Income (loss) from
operations
Net investment income
(loss) 0.03 (0.02) 0.20
0.07 (0.12) (0.01) 0.06 0.04
Net realized and
unrealized gain 3.60 1.85 4.22
0.91 3.58 1.71 4.22 0.90
- --------------------------------------------------------------
- -----------------------------------------------------------
Total income from
operations 3.63 1.83 4.42
0.98 3.46 1.70 4.28 0.94
- --------------------------------------------------------------
- -----------------------------------------------------------
Less distributions from:
Net investment income (0.03) (0.15) (0.25)
(0.06) -- (0.04) (0.12) (0.04)
Net realized gains (0.78) (3.25) (2.18)
- -- (0.78) (3.25) (2.18) --
- --------------------------------------------------------------
- -----------------------------------------------------------
Total distributions (0.81) (3.40) (2.43)
(0.06) (0.78) (3.29) (2.30) (0.04)
- --------------------------------------------------------------
- -----------------------------------------------------------
Net Asset Value, End of
Period $21.35 $18.53 $20.10
$18.11 $21.16 $18.48 $20.07 $18.09
- --------------------------------------------------------------
- -----------------------------------------------------------
Total Return 19.93% 10.63% 27.04%
5.72%(3) 19.03% 9.85% 26.08% 5.49%(3)
- --------------------------------------------------------------
- -----------------------------------------------------------
Net Assets, End of
Period (millions) $181 $124 $80
$33 $208 $137 $99 $52
- --------------------------------------------------------------
- -----------------------------------------------------------
Ratio of expenses to
average net assets 1.12% 1.07% 1.12%
1.16%+ 1.87% 1.81% 1.88% 1.91%+
- --------------------------------------------------------------
- -----------------------------------------------------------
Ratio of net investment
income to average net
assets 0.15% 0.63% 0.96%
1.78%+ (0.60)% (0.09)% 0.22% 1.05%+
- --------------------------------------------------------------
- -----------------------------------------------------------
Portfolio Turnover 53% 34% 93%
121% 53% 34% 93% 121%
- --------------------------------------------------------------
- -----------------------------------------------------------
</TABLE>
Government Fund
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Class A Shares
Class B Shares
---------------------------------------
- --------- ------------------------------------------------
Year Ended Year Ended Year Ended
Period Ended Year Ended Year Ended Year Ended Period Ended
October 31, October 31, October 31,
October 31, October 31, October 31, October 31, October 31,
1999(1) 1998* 1997
1996(2) 1999(1) 1998* 1997 1996(3)
- --------------------------------------------------------------
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
Net Asset Value,
Beginning of Period $10.66 $10.58 $10.41
$10.32 $10.66 $10.58 $10.41 $10.32
- --------------------------------------------------------------
- ----------------------------------------------------------
Income (loss) from
operations:
Net investment income 0.50 0.62 0.66
0.15 0.43 0.54 0.59 0.14
Net realized and
unrealized
gain (loss) (0.87) 0.10 0.17
0.09 (0.87) 0.10 0.17 0.09
- --------------------------------------------------------------
- ----------------------------------------------------------
Total income (loss)
from operations (0.37) 0.72 0.83
0.24 (0.44) 0.64 0.76 0.23
- --------------------------------------------------------------
- ----------------------------------------------------------
Less distributions
from:
Net investment income (0.51) (0.64) (0.66)
(0.15) (0.43) (0.56) (0.59) (0.14)
Capital (0.05) -- --
- -- (0.05) -- -- --
- --------------------------------------------------------------
- ----------------------------------------------------------
Total Distributions (0.56) (0.64) (0.66)
(0.15) (0.48) (0.56) (0.59) (0.14)
- --------------------------------------------------------------
- ----------------------------------------------------------
Net Asset Value, End
of Period $9.73 $10.66 $10.58
$10.41 $9.74 $10.66 $10.58 $10.41
- --------------------------------------------------------------
- ----------------------------------------------------------
Total Return (3.51)% 7.00% 8.35%
2.36%(3) (4.17)% 6.20% 7.55% 2.18%(3)
- --------------------------------------------------------------
- ----------------------------------------------------------
Net Assets, End of
Period (millions) $23 $17 $14
$11 $17 $14 $12 $14
- --------------------------------------------------------------
- ----------------------------------------------------------
Ratio of expenses to
average net assets 1.25% 1.12% 1.15%
1.09%+ 1.94% 1.87% 1.90% 1.84%+
- --------------------------------------------------------------
- ----------------------------------------------------------
Ratio of net
investment income to
average net assets 4.96% 5.78% 6.44%
6.50%+ 4.27% 5.04% 5.69% 5.74%+
- --------------------------------------------------------------
- ----------------------------------------------------------
Portfolio Turnover 201% 141% 104%
276%(3) 201% 141% 104% 276%(3)
- --------------------------------------------------------------
- ----------------------------------------------------------
</TABLE>
(1) Net investment income (loss) has been calculated using the
monthly average
shares method.
(2) Class A and Class B shares commenced distribution on
August 18, 1996.
(3) Not annualized.
+ Annualized
* Effective December 31, 1997 SSB Citi Fund Management LLC
(successor to SSBC
Fund Management Inc., formerly known as Mutual Management
Corp.), replaced
Van Kampen American Capital Asset Management as the Fund
Manager.
29
The Concert Investment Series Prospectus
<PAGE>
Financial Highlights,
continued
Municipal Bond Fund
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Class A Shares
Class B Shares
---------------------------------------
- --------- ------------------------------------------------
Year Ended Year Ended Year Ended
Period Ended Year Ended Year Ended Year Ended Period Ended
October 31, October 31, October 31,
October 31, October 31, October 31, October 31, October 31,
1999(1) 1998* 1997
1996(3) 1999(1) 1998* 1997 1996(3)
- --------------------------------------------------------------
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
Net Asset Value,
Beginning of Period $14.41 $14.21 $13.83
$13.78 $14.39 $14.20 $13.82 $13.78
- --------------------------------------------------------------
- ----------------------------------------------------------
Income (loss) from
operations:
Net investment income 0.63 0.62 0.65
0.11 0.52 0.51 0.54 0.09
Net realized and
unrealized gain
(loss) (1.26) 0.34 0.40
0.04 (1.25) 0.33 0.40 0.04
- --------------------------------------------------------------
- ----------------------------------------------------------
Total income (loss)
from operations (0.63) 0.96 1.05
0.15 (0.73) 0.84 0.94 0.13
- --------------------------------------------------------------
- ----------------------------------------------------------
Less distributions
from:
Net investment income (0.65) (0.63) (0.63)
(0.10) (0.55) (0.52) (0.52) (0.09)
Net realized gains (0.23) (0.13) (0.04)
- -- (0.23) (0.13) (0.04) --
- --------------------------------------------------------------
- ----------------------------------------------------------
Total distributions (0.88) (0.76) (0.67)
(0.10) (0.78) (0.65) (0.56) (0.09)
- --------------------------------------------------------------
- ----------------------------------------------------------
Net Asset Value, End
of Period $12.90 $14.41 $14.21
$13.83 $12.88 $14.39 $14.20 $13.82
- --------------------------------------------------------------
- ----------------------------------------------------------
Total Return (4.58)% 6.93% 7.77%
1.12%(2) (5.30)% 6.10% 6.98% 0.93%(2)
- --------------------------------------------------------------
- ----------------------------------------------------------
Net Assets, End of
Period (millions) $34 $16 $9
$2 $8 $6 $3 $1
- --------------------------------------------------------------
- ----------------------------------------------------------
Ratio of expenses to
average net assets 1.18% 1.23% 1.19%
1.30%+ 1.93% 1.95% 1.94% 2.05%+
- --------------------------------------------------------------
- ----------------------------------------------------------
Ratio of net
investment income to
average net assets 4.54% 4.44% 4.79%
4.82%+ 3.79% 3.67% 4.04% 4.06%+
- --------------------------------------------------------------
- ----------------------------------------------------------
Portfolio Turnover 38% 28% 50%
80% 38% 28% 50% 80%
- --------------------------------------------------------------
- ----------------------------------------------------------
</TABLE>
(1) Net investment income has been calculated using the months
average shares
method.
(2) Not annualized. Total return is not annualized, as it may
not be
representative of the total return for the year.
(3) Class A and Class B shares commenced distribution on
August 18, 1996.
+ Annualized.
* Effective December 31, 1997 SSB Citi Fund Management LLC
(successor to SSBC
Fund Management Inc., formerly known as Mutual Management
Corp.), replaced
Van Kampen American Capital Asset Management as the Fund
Manager.
30
The Concert Investment Series Prospectus
<PAGE>
The Concert Investment Series(R)
Growth and Income Fund
Small Cap Fund
International Equity Fund Government Fund
Mid Cap Fund Municipal Bond Fund
Growth Fund
- --------------------------------------------------------------
- ------------------
Additional Information about the
Funds
Shareholder Reports.
Annual and semiannual reports to
shareholders provide additional
information about the funds' in-
vestments. These reports discuss
the market conditions and invest-
ment strategies that signifi-
cantly affected each fund's per-
formance during its last fiscal
year.
Statement of Additional Information.
The combined statement of addi-
tional information provides more
detailed information about each
fund. It is incorporated by ref-
erence into this combined pro-
spectus.
How to Obtain Additional
Information.
. You may obtain shareholder re-
ports and the statement of ad-
ditional information without
charge by calling your Service
Agent or 1-800-625-4554.
. Information about the Funds
(including the SAI) can be re-
viewed and copied at the Secu-
rities and Exchange Commis-
sion's ("Commission") Public
Reference Room in Washington,
D.C. In addition, information
on the operation of the Public
Reference Room may be obtained
by calling the Commission at 1-
202-942-8090. Reports and other
information about the Fund are
available on the EDGAR Database
on the Commission's Internet
site at http://www.sec.gov.
Copies of this information may
be obtained for a duplicating
fee by electronic request at
the following E-mail address:
[email protected], or by writ-
ing the Commission's Public
Reference Section, Washington,
D.C. 20549-0102.
If someone provides you with information about the funds that
is not in this
prospectus, you should not rely upon that information. Neither
the funds nor
the distributor is offering to sell shares of the funds to any
person to whom
the funds may not lawfully sell their shares.
(Investment Company Act file no. 811-05018)
CIS-P 2/00
Small Cap Portfolio
Mid Cap Portfolio
Growth Portfolio
Growth and Income
Portfolio
Government Portfolio
[GRAPHIC]
Concert Investment Series(R)
- --------------------------------------------------------------
- ------------------
Prospectus
FEBRUARY 28, 2000
SELECT PORTFOLIOS
Shares of each portfolio are offered to
insurance company separate accounts which [LOGO] Smith
Barney
fund certain variable annuity and variable Mutual
Funds
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.
<PAGE>
Contents
<TABLE>
<S> <C>
Investments, risks and performance
- ----------------------------------------
Select Small Cap 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
- ----------------------------------------
Financial Highlights 17
- ----------------------------------------
</TABLE>
About the manager
The funds' investment manager is SSB Citi Fund Management LLC,
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 provide a broad
range of finan-
cial services.
1
Concert Investment Series--Select Portfolios
<PAGE>
Select Small Cap Portfolio
Investment objective
The fund seeks capital appreciation.
Key investments
The fund invests in common stocks of small sized companies
considered by the
manager to be "emerging growth" companies. These are primarily
domestic compa-
nies, 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 20% 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
. Small cap 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 a small cap
company is unsuc-
cessful, the company does not meet earnings expectations or
other events de-
press the value of the company's stock
Compared to large, established companies, small cap companies
are more likely
to have limited product lines, limited capital resources and
less experienced
management. In addition, securities of small cap 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 small cap
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 Small Cap Portfolio,
continued
Performance
- --------------------------------------------------------------
- ------------------
Because this portfolio commenced operations on September 15,
1999, the portfo-
lio does not yet have a sufficient operating history to
generate the perfor-
mance information which other funds show in bar and table form
in this location
of the prospectus.
Fee table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Shareholder fees (paid directly from your
investment)
--------------------------------------------
- ----------------
<S>
<C>
Maximum sales charge (load) imposed on
purchases (as a
% of offering price)
None
--------------------------------------------
- ----------------
Maximum deferred sales charge (load)
(as a % of the lower of net asset value at
purchase or
redemption)
None
--------------------------------------------
- ----------------
Annual portfolio operating expenses (paid by
the fund
as % of net assets)
--------------------------------------------
- ----------------
Management fee
0.75%
--------------------------------------------
- ----------------
Distribution and service (12b-1) fees
None
--------------------------------------------
- ----------------
Other expenses
3.63%
--------------------------------------------
- ----------------
Total annual portfolio operating expenses
4.38%
--------------------------------------------
- ----------------
Management fee waiver and expense
reimbursement* (3.38)%
--------------------------------------------
- ----------------
Net annual portfolio operating expenses
1.00%
--------------------------------------------
- ----------------
</TABLE>
The table sets
forth the fees
and expenses
you will pay if
you invest in
shares of the
portfolio.
* Management has agreed to waive the
management fee and re-
imburse certain expenses in order to cap
total annual
portfolio expenses to 1.00% for the
portfolio's shares.
Management may not discontinue or modify
this cap without
the approval of the portfolio's trustees.
As a result of
this expense cap, the net annual operating
expenses of the
portfolio will not exceed 1.00% for the
portfolio's
shares.
Example
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Number
of
years
you
own
your 3
shares 1 year* years*
----------------------------
<S> <C> <C> <C> <C>
$439 $1,326
----------------------------
</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
.You redeem all of your shares at the end of
the period
.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
3
<PAGE>
Select 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
capitalizations of the companies included in the Standard &
Poor's 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 equity 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 overvalued compared to stocks with
similar fundamen-
tal characteristics. The manager's quantitative valuations
determine whether
and when the fund will purchase and sell stocks that it
identifies through fun-
damental 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.
Investments in securities of foreign issuers involve greater
risks than those
of domestic issuers, such risks may include:
. Foreign markets may have less volume, liquidity and
government supervision
. Imposition of exchange controls or other restrictions on
investments and ad-
verse government actions
. Changes in foreign currency rates relative to the U.S.
dollar will affect the
U.S. dollar value of the fund's assets
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
Performance
- --------------------------------------------------------------
- ------------------
Because this portfolio commenced
operations on September 15, 1999,
the portfolio does not yet have a
sufficient operating history to
generate the performance informa-
tion which other funds show in
bar and table form in this loca-
tion of the prospectus.
Fee table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Shareholder fees (paid directly from your
investment)
--------------------------------------------
- ----------------
<S>
<C>
Maximum sales charge (load) imposed on
purchases (as a
% of offering price)
None
--------------------------------------------
- ----------------
Maximum deferred sales charge (load)
(as a % of the lower of net asset value at
purchase or
redemption)
None
--------------------------------------------
- ----------------
Annual portfolio operating expenses (paid by
the fund
as % of net assets)
--------------------------------------------
- ----------------
Management fee
0.75%
--------------------------------------------
- ----------------
Distribution and service (12b-1) fees
None
--------------------------------------------
- ----------------
Other expenses
4.60%
--------------------------------------------
- ----------------
Total annual portfolio operating expenses
5.35%
--------------------------------------------
- ----------------
Management Fee Waiver and Expense
Reimbursiment* (4.40)%
--------------------------------------------
- ----------------
Net annual portfolio operating expenses
0.95%
--------------------------------------------
- ----------------
</TABLE>
The table sets
forth the fees
and expenses
you will pay if
you invest in
shares of the
portfolio.
* Management has agreed to waive the
management fee and re-
imburse certain expenses in order to cap
total annual
portfolio expenses to 0.95% for the
portfolio's shares.
Management may not discontinue or modify
this cap without
the approval of the portfolio's trustees.
As a result of
this expense cap, the net annual operating
expenses of the
portfolio will not exceed 0.95% for the
portfolio's
shares.
Example
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Number
of
years
you
own
your
shares 1 year* 3 years*
------------------------------
<S> <C> <C> <C> <C>
$534 $1,597
------------------------------
</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
.You redeem all of your shares at the end of
the period
.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
5
<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. Frequent trading also increases transaction costs,
which could de-
tract 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
Performance
- --------------------------------------------------------------
- ------------------
Because this portfolio commenced operations on September 15,
1999, the portfo-
lio does not yet have a sufficient operating history to
generate the perfor-
mance information which other funds show in bar and table form
in this location
of the prospectus.
Fee table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Shareholder fees (paid directly from your
investment)
--------------------------------------------
- ----------------
<S>
<C>
Maximum sales charge (load) imposed on
purchases (as a
% of offering price)
None
--------------------------------------------
- ----------------
Maximum deferred sales charge (load)
(as a % of the lower of net asset value at
purchase or
redemption)
None
--------------------------------------------
- ----------------
Annual portfolio operating expenses (paid by
the fund
as % of net assets)
--------------------------------------------
- ----------------
Management fee
0.75%
--------------------------------------------
- ----------------
Distribution and service (12b-1) fees
None
--------------------------------------------
- ----------------
Other expenses
4.25%
--------------------------------------------
- ----------------
Total annual portfolio operating expenses
5.00%
--------------------------------------------
- ----------------
Management fee waiver and expense
reimbursement* (4.05)%
--------------------------------------------
- ----------------
Net annual portfolio operating expenses
0.95%
--------------------------------------------
- ----------------
</TABLE>
The table sets
forth the fees
and expenses
you will pay if
you invest in
shares of the
portfolio.
* Management has agreed to waive the
management fee and re-
imburse certain expenses in order to cap
total annual
portfolio expenses to 0.95% for the
portfolio's shares.
Management may not discontinue or modify
this cap without
the approval of the portfolio's trustees.
As a result of
this expense cap, the net annual operating
expenses of the
portfolio will not exceed 0.95% for the
portfolio's
shares.
Example
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Number
of
years
you
own
your
shares 1 year* 3 years*
----------------------
<S> <C> <C>
$500 $1,500
----------------------
</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
.You redeem all of your shares at the end of
the period
.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
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. Frequent trading also increases transaction costs,
which could de-
tract 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
Performance
- --------------------------------------------------------------
- ------------------
Because this portfolio commenced operations on September 15,
1999, the portfo-
lio does not yet have a sufficient operating history to
generate the perfor-
mance information which other funds show in bar and table form
in this location
of the prospectus.
Fee table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Shareholder fees (paid directly from your
investment)
--------------------------------------------
- -----------------
<S>
<C>
Maximum sales charge (load) imposed on
purchases (as a %
of offering price)
None
--------------------------------------------
- -----------------
Maximum deferred sales charge (load)
(as a % of the lower of net asset value at
purchase or
redemption)
None
--------------------------------------------
- -----------------
Annual portfolio operating expenses (paid by
the fund as
% of net assets)
--------------------------------------------
- -----------------
Management fee
0.75%
--------------------------------------------
- -----------------
Distribution and service (12b-1) fees
None
--------------------------------------------
- -----------------
Other expenses
4.47%
--------------------------------------------
- -----------------
Total annual portfolio operating expenses
5.22%
--------------------------------------------
- -----------------
Management fee waiver and expense
reimbursement* (4.27)
--------------------------------------------
- -----------------
Net annual portfolio operating expenses
0.95%
--------------------------------------------
- -----------------
</TABLE>
The table sets
forth the fees
and expenses
you will pay if
you invest in
shares of the
portfolio.
* Management has agreed to waive the
management fee and re-
imburse certain expenses in order to cap
total annual
portfolio expenses to 0.95% for the
portfolio's shares.
Management may not discontinue or modify
this cap without
the approval of the portfolio's trustees.
As a result of
this expense cap, the net annual operating
expenses of the
portfolio will not exceed 0.95% for the
portfolio's
shares.
Example
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Number
of
years
you
own
your
shares 1 year* 3 years*
----------------------
<S> <C> <C>
$521 $1,561
----------------------
</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
.You redeem all of your shares at the end of
the period
.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
9
<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
Performance
- --------------------------------------------------------------
- ------------------
Because this portfolio commenced operations on September 15,
1999, the portfo-
lio does not yet have a sufficient operating history to
generate the perfor-
mance information which other funds show in bar and table form
in this location
of the prospectus.
Fee table
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Shareholder fees (paid directly from your
investment)
--------------------------------------------
- ----------------
<S>
<C>
Maximum sales charge (load) imposed on
purchases (as a
% of offering price)
None
--------------------------------------------
- ----------------
Maximum deferred sales charge (load) (as a % of
the
lower of net asset value at purchase or
redemption) None
--------------------------------------------
- ----------------
Annual portfolio operating expenses (paid by
the fund
as % of net assets)
--------------------------------------------
- ----------------
Management fee
0.60%
--------------------------------------------
- ----------------
Distribution and service (12b-1) fees
None
--------------------------------------------
- ----------------
Other expenses
3.13%
--------------------------------------------
- ----------------
Total annual portfolio operating expenses
3.73%
--------------------------------------------
- ----------------
Management fee waiver and expense
reimbursement* (2.93)%
--------------------------------------------
- ----------------
Net annual portfolio operating expenses
0.80%
--------------------------------------------
- ----------------
</TABLE>
The table sets
forth the fees
and expenses
you will pay if
you invest in
shares of the
portfolio.
* Management has agreed to waive the
management fee and re-
imburse certain expenses in order to cap
total annual
portfolio expenses to 0.80% for the
portfolio's shares.
Management may not discontinue or modify
this cap without
the approval of the portfolio's trustees.
As a result of
this expense cap, the net annual operating
expenses of the
portfolio will not exceed 0.80% for the
portfolio's
shares.
Example
- --------------------------------------------------------------
- ------------------
<TABLE>
<CAPTION>
Number
of
years
you
own
your
shares 1 year* 3 years*
----------------------
<S> <C> <C>
$375 $1,140
----------------------
</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
.You redeem all of your shares at the end of
the period
.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
11
<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
Small Cap 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 securities,
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.
Master/feeder option
Each of the funds may in the future seek to achieve its
investment objective by
investing all of its net assets in another investment company
having the same
investment objective and substantially the same investment
policies and
restrictions as those applicable to the fund. Shareholders of
such a fund will
be given at least 30 days prior notice of any such investment.
Concert Investment Series--Select Portfolios Prospectus
12
<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>
Select Small Cap Sandip Bhagat 1999
investment officer of the manager and pres-
ident
of
Travelers Investment Management Company, an
affiliate of the manager
- --------------------------------------------------------------
- -------------------------------------
Select Mid Cap and Select Growth Larry Weissman 1999
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
- --------------------------------------------------------------
- -------------------------------------
Select Growth and Income R. Jay Gerken 1999
investment officer of the manager and man-
aging
director of Salomon Smith Barney
- --------------------------------------------------------------
- -------------------------------------
Select Government James E. Conroy 1999
investment officer of the manager and man-
aging
director of Salomon Smith Barney
- --------------------------------------------------------------
- -------------------------------------
</TABLE>
Management fees
For its services, the manager receives a fee during the
portfolios' fiscal year
equal on an annual basis to 0.75% of the Select Small Cap,
Select MidCap, Se-
lect Growth and Select Growth and Income Portfolios' average
daily net assets
and 0.60% of the Select Government Portfolio's average daily
net assets.
Distributor
The portfolios have entered into an agreement with CFBDS, Inc.
to distribute
the portfolios' shares.
Year 2000 issue
As the year 2000 began, there were few problems caused by the
inability of
certain computer systems to tell the difference between the
year 2000 and the
year 1900 (commonly known as the "Year 2000" issue). It is
still possible that
some computer systems could malfunction in the future because
of the Year 2000
issue or as a result of actions taken to address the Year 2000
issue. Fund
management does not anticipate that its services or those of
the Fund's other
service providers will be adversely affected, but Fund
management will continue
to monitor the situation. If malfunctions related to the Year
2000 issue do
arise, the Fund and its investments could be negatively
affected.
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>
Select Small Cap Annually Annually
Gain
- --------------------------------------------------------------
- --------------------
Select Mid Cap Annually Annually
Gain
- --------------------------------------------------------------
- --------------------
Select Growth Annually Annually
Gain
- --------------------------------------------------------------
- --------------------
Select Growth and Income Annually Annually
Both
- --------------------------------------------------------------
- --------------------
Select Government Annually 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. The price of each portfolio's shares is based on each
portfolio's respec-
tive net asset value. 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).
Each portfolio, with the exception of the Government
Portfolio, may invest in
securities issued by foreign issuers; such securities may
trade on weekends or
other days on which a portfolio does not price its shares and
thus the value of
the portfolio's shares may change on days when you will not be
able to purchase
or redeem the portfolio's shares. The value of each underlying
fund is the
fund's net asset value at the time of computation.
The portfolios generally value their securities based on
market prices or quo-
tations. When reliable market prices or quotations are not
readily available,
the portfolios may price those securities at fair value. Fair
value is deter-
mined in accordance with procedures approved by the
portfolios' board. 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 matu-
rity of 60 days or less are valued 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>
Financial Highlights
The financial
highlights ta-
bles are in-
tended to help
you understand
the performance
of each class
for the past
five years (or
since inception
if less than
five years).
Certain infor-
mation reflects
financial re-
sults for a
single share.
Total returns
represent the
rate that a
shareholder
would have
earned (or
lost) on a fund
share assuming
reinvestment of
all dividends
and distribu-
tions. The in-
formation in
the following
tables was au-
dited by Ernst
& Young LLP,
independent au-
ditors, whose
report, along
with the fund's
financial
statements are
included in the
annual report
(available upon
request).
For a share of each class of beneficial
interest outstanding throughout the period
ended October 31:
<TABLE>
<CAPTION>
Select Small Cap Portfolio
--------------------------------------------
- ---------------------------------------------------------
1999(1)
--------------------------------------------
- ---------------------------------------------------------
<S> <C>
<C>
Net Asset Value, Beginning of Period
$10.00
--------------------------------------------
- ---------------------------------------------------------
Income (Loss) From Operations:
Net investment income(2)
0.05
--------------------------------------------
- ---------------------------------------------------------
Net realized and unrealized loss
(0.13)
--------------------------------------------
- ---------------------------------------------------------
Total Loss From Operations
(0.08)
--------------------------------------------
- ----------------------------------------------------------
Less Distributions From:
Net investment income
- --
--------------------------------------------
- ---------------------------------------------------------
Total Distributions
- --
--------------------------------------------
- ---------------------------------------------------------
Net Asset Value, End of Period
$9.92
--------------------------------------------
- ---------------------------------------------------------
Total Return++
(0.80)%
--------------------------------------------
- ---------------------------------------------------------
Net Assets, End of Period (000s)
$4,963
--------------------------------------------
- ---------------------------------------------------------
Ratios To Average Net Assets+:
Expenses(2)
1.00%
Net investment income
3.96
--------------------------------------------
- ---------------------------------------------------------
Portfolio Turnover Rate
0%
--------------------------------------------
- ---------------------------------------------------------
</TABLE>
(1) For the period from September 15, 1999
(commencement of
operations) to October 31, 1999.
(2) The Manager has agreed to waive all of
its fees for the
period ended October 31, 1999. The
Manager also reim-
bursed expenses of $15,763 for the
period ended October
31, 1999. If such fees were not waived
and expenses not
reimbursed, the per share effect on net
investment in-
come would have been a decrease of $0.04
and the expense
ratio would have been 4.38%
(annualized). As a result of
a voluntary expense limitation, the
expense ratios will
not exceed 1.00%.
++ Total return is not annualized, as it
may not be repre-
sentative of the total return for the
year.
+ Annualized.
17
<PAGE>
Financial Highlights,
continued
For a share of each class of beneficial interest outstanding
throughout the pe-
riod ended October 31:
Select Mid Cap Portfolio
<TABLE>
- ---------------------------------------------
<CAPTION>
1999(1)
- ---------------------------------------------
<S> <C>
Net Asset Value, Beginning of Period $10.00
- ---------------------------------------------
Income From Operations:
Net investment income(2) 0.01
Net realized and unrealized gain 0.10
- ---------------------------------------------
Total Income From Operations 0.11
- ---------------------------------------------
Less Distributions From:
Net investment income --
- ---------------------------------------------
Total Distributions --
- ---------------------------------------------
Net Asset Value, End of Period $10.11
- ---------------------------------------------
Total Return++ 1.10%
- ---------------------------------------------
Net Assets, End of Period (000s) $3,032
- ---------------------------------------------
Ratios to Average Net Assets+:
Expenses(2) 0.95%
Net investment income 1.00
- ---------------------------------------------
Portfolio Turnover Rate 8%
- ---------------------------------------------
</TABLE>
Select Growth Portfolio
<TABLE>
- ---------------------------------------------
<CAPTION>
1999(1)
- ---------------------------------------------
<S> <C>
Net Asset Value, Beginning of Period $10.00
- ---------------------------------------------
Income From Operations:
Net investment income(3) 0.01
Net realized and unrealized gain 0.50
- ---------------------------------------------
Total Income From Operations 0.51
- ---------------------------------------------
Less Distributions From:
Net investment income --
- ---------------------------------------------
Total Distributions --
- ---------------------------------------------
Net Asset Value, End of Period $10.51
- ---------------------------------------------
Total Return++ 5.10%
- ---------------------------------------------
Net Assets, End of Period (000s) $5,274
- ---------------------------------------------
Ratios to Average Net Assets+:
Expenses(3) 0.95%
Net investment income 0.67
- ---------------------------------------------
Portfolio Turnover Rate 6%
- ---------------------------------------------
</TABLE>
(1) For the period from September 15, 1999 (commencement of
operations) to Oc-
tober 31, 1999.
(2) For the Select Mid Cap Portfolio, the Manager has agreed
to waive all of
its management fees for the period ended October 31, 1999.
The Manager has
also reimbursed expenses of $13,182 for the period ended
October 31, 1999.
If such fees were not waived and expenses not reimbursed,
the per share ef-
fect on net investment income would have been a decrease
of $0.05 and the
expense ratio would have been 5.35% (annualized). As a
result of a volun-
tary expense limitation, the expense ratio will not exceed
0.95%.
(3) For the Select Growth Portfolio, the Manager has agreed to
waive all of its
management fees for the period ended October 31, 1999. The
Manager has also
reimbursed expenses of $20,272 for the period ended
October 31, 1999. If
such fees were not waived and expenses not reimbursed, the
per share effect
on net investment income would have been a decrease of
$0.05 and the ex-
pense ratio would have been 5.00% (annualized). As a
result of a voluntary
expense limitation, the expense ratio will not exceed
0.95%.
++Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
18
The Concert Investment Series--Select Portfolios
<PAGE>
For a share of each class of beneficial interest outstanding
throughout the pe-
riod ended October 31:
Select Growth and Income Portfolio
<TABLE>
- ---------------------------------------------
<CAPTION>
1999(1)
- ---------------------------------------------
<S> <C>
Net Asset Value, Beginning of Period $10.00
- ---------------------------------------------
Income From Operations:
Net investment income(2) 0.01
Net realized and unrealized gain 0.09
- ---------------------------------------------
Total Income From Operations 0.10
- ---------------------------------------------
Less Distributions From:
Net investment income --
- ---------------------------------------------
Total Distributions --
- ---------------------------------------------
Net Asset Value, End of Period $10.10
- ---------------------------------------------
Total Return++ 1.00%
- ---------------------------------------------
Net Assets, End of Period (000s) $3,045
- ---------------------------------------------
Ratios to Average Net Assets+:
Expenses(2) 0.95%
Net investment income 0.69
- ---------------------------------------------
Portfolio Turnover Rate 1%
- ---------------------------------------------
</TABLE>
Select Government Portfolio
<TABLE>
- ------------------------------------------------
<CAPTION>
1999(1)
- ------------------------------------------------
<S> <C>
Net Asset Value, Beginning of Period $10.00
- ------------------------------------------------
Income (Loss) From Operations:
Net investment income(3) 0.05
Net realized and unrealized gain (loss) 0.08
- ------------------------------------------------
Total Income (Loss) From Operations 0.13
- ------------------------------------------------
Less Distributions From:
Net investment income --
- ------------------------------------------------
Total Distributions --
- ------------------------------------------------
Net Asset Value, End of Period $10.13
- ------------------------------------------------
Total Return++ 1.30%
- ------------------------------------------------
Net Assets, End of Period (000s) $5,066
- ------------------------------------------------
Ratios to Average Net Assets+:
Expenses(3) 0.80%
Net investment income 4.36
- ------------------------------------------------
Portfolio Turnover Rate 0%
- ------------------------------------------------
</TABLE>
(1) For the period from September 15, 1999 (commencement of
operations) to Oc-
tober 31, 1999.
(2) For the Select Growth and Income Portfolio, the Manager
has agreed to waive
all of its management fees for the period ended October
31, 1999. The Man-
ager has also reimbursed expenses of $12,636 for the
period ended October
31, 1999. If such fees were not waived and expenses not
reimbursed, the per
share effect on net investment income would have been a
decrease of $0.05
and the expense ration would have been 5.22% (annualized).
As a result of a
voluntary expense limitation, the expense ratio will not
exceed 0.95%.
(3) For the Select Government Portfolio, the Manager has
agreed to waive all of
its management fees for the period ended October 31, 1999.
The Manager has
also reimbursed expenses of $14,291 for the period ended
October 31, 1999.
If such fees were not waived and expenses not reimbursed,
the per share ef-
fect on net investment income would have been a decrease
of $0.04 and the
expense ratio would have been 3.73% (annualized). As a
result of a volun-
tary expense limitation, the expense ratio will not exceed
0.80%.
++Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
19
The Concert Investment Series--Select Portfolios
<PAGE>
Concert Investment Series(R)
Select Portfolios
Growth and Income
Portfolio
Small Cap 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
registered representative, by calling the portfolios at 1-800-
451-2010, or by
writing to the portfolios at Smith Barney Mutual Funds, 388
Greenwich Street,
MF2, New York, New York 10013.
Visit Our Web Site
Our web site is located at www.smithbarney.com
Information about the Funds (including the SAI) can be
reviewed and copied at
the Securities and Exchange Commission's ("Commission") Public
Reference Room
in Washington, D.C. In addition, information on the operation
of the Public
Reference Room may be obtained by calling the Commission at 1-
202-942-8090. Re-
ports and other information about the Fund are available on
the EDGAR Database
on the Commission's Internet site at http://www.sec.gov.
Copies of this infor-
mation may be obtained for a duplicating fee by electronic
request at the fol-
lowing E-mail address: [email protected], or by writing the
Commission's Pub-
lic Reference Section, Washington, D.C. 20549-0102.
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 2/00
Part B - Statements of Additional Information
STATEMENT OF ADDITIONAL INFORMATION
CONCERT INVESTMENT SERIES(r)
388 Greenwich Street
New York, NY 10013
February 28, 2000
Concert Investment Series(r) (the "Trust") is a diversified,
open-end management investment company with twelve separate
funds,
seven of which are discussed herein: the Small Cap Fund
(formerly
Emerging Growth Fund), the International Equity Fund, the Mid
Cap
Fund, the Growth Fund, the Growth and Income Fund, the
Government
Fund and the Municipal Bond Fund (collectively, the "Funds").
Each Fund is in effect a separate fund issuing its own shares.
This Statement of Additional Information (this "SAI") is not a
Prospectus but contains information in addition to and more
detailed than that set forth in the current Prospectuses of
the
Trust dated February 28, 2000, and should be read in
conjunction
with a Prospectus.
For purchases through PFS Investments Inc.:
A Prospectus dated February 28, 2000 may be obtained without
charge by writing PFS Shareholder Services at 3100
Breckinridge
Boulevard, Bldg. 200, Duluth, Georgia 30099-0001. PFS
customers
may call Customer Service at (800) 625-4554 for information
about
the Funds.
For purchases through Citibank Investment Services or other
Service Agents:
A Prospectus dated February 28, 2000, may be obtained without
charge from your financial professional or by calling (800)
625-
4554.
TABLE OF CONTENTS
Page
General Information 2
Goals and Investment Policies 2
Investment Practices 8
Risk Factors 20
Investment Restrictions 24
Trustees and Officers 28
Investment Advisory Agreements 30
Distributor 33
Portfolio Turnover 34
Distribution Plans 34
Portfolio Transactions and Brokerage 36
Determination of Net Asset Value 40
Purchase and Redemption of Shares 41
Exchange Privilege 51
Distributions and Federal Taxes 54
Other Information 58
Appendix A - Ratings of Municipal Bonds, Notes and Commercial
Paper 63
GENERAL INFORMATION tc "General Information"
SSB Citi Fund Management LLC, a limited liability company
("SSB
Citi" or the "manager") formed on September 21, 1999,
successor
to SSBC Fund Management Inc. (which was incorporated on March
12,
1968), 388 Greenwich Street, New York, NY 10013, renders
investment management advice to investment companies with
aggregate assets under management in excess of $127 billion as
of
January 31, 2000. The manager is an affiliate of Salomon
Smith
Barney Inc. ("Salomon Smith Barney"). The manager and Salomon
Smith Barney are subsidiaries of Citigroup Inc. ("Citigroup"),
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
funds'
shares.
Shares of the funds (each, a "Fund" and collectively, the
"Funds")
of Concert Investment Series(r) (the "Trust") are offered for
sale
by PFS Investments Inc. ("PFS Investments") and other broker-
dealers or financial institutions that have entered into a
dealer
agreement with the Distributor (collectively, "Other Service
Agents"). Shares of the funds sold through PFS Investments
are
held in accounts of PFS Shareholder Services, and are referred
to
as "PFS Accounts" in this SAI. Shares sold through Other
Service
Agents are held in accounts of PFPC Global Fund Services
("PFPC"),
a sub-transfer agent of the Trust (a "Sub-Transfer Agent"),
and
are referred to as "Other Accounts" in this SAI.
PFS Investments is an indirect wholly-owned subsidiary of
Citigroup. PFS Shareholder Services, Inc., another sub-
transfer
agent of the Trust (a "Sub-Transfer Agent") performs services
for
PFS Accounts as sub-transfer agent, and is a subsidiary of PFS
Services, Inc., an affiliate of Primerica Financial Services,
Inc.
("Primerica Financial").
For PFS Accounts, a Prospectus dated February 28, 2000
relating to
the Class 1, Class A and Class B shares of the Trust (as
amended
from time to time, the "PFS Prospectus") sets forth important
information relevant to shareholders purchasing through PFS
Investments and/or holding their shares through PFS Accounts
and
is the relevant Prospectus.
For Other Accounts, a Prospectus dated February 28, 2000,
relating
to the Class A and Class B shares of the Trust (as amended
from
time to time, the "Additional Prospectus") sets forth
important
information relevant to shareholders purchasing through Other
Service Agents and/or holding their shares through Other
Accounts.
The PFS Prospectus and the Additional Prospectus are sometimes
referred to generically in this SAI as the "Prospectus." Such
references to the Prospectus in this SAI should be understood
as
references to the relevant Prospectus for a particular
shareholder.
Two classes of shares are offered to PFS Accounts and Other
Accounts (collectively, "All Accounts"): Class A shares and
Class
B shares. In addition, Class 1 shares are offered only to
"Eligible Class 1 Purchasers" through PFS Accounts.
("Eligible
Class 1 Purchasers" consist of previously established Class 1
shareholders or members of a family unit comprised of a
husband,
wife and minor children, and Class 1 shareholders of a fund
exchanging their Class 1 shares for those of another fund.)
Each
class of shares represents an interest in the same portfolio
of
securities of the relevant Fund.
GOALS AND INVESTMENT POLICIES tc "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
Funds
can be expected to affect the return of each Fund and the
degree
of market and financial risk to which each Fund is subject.
The
goal and investment policies, the percentage limitations, and
the
kinds of securities in which each Fund may invest are
generally
not fundamental policies and therefore may be changed by the
Trustees without shareholder approval. Although each Fund has
a
different goal which it pursues through separate investment
policies, each Fund, except the International Equity Fund and
the
Mid Cap Fund, will not purchase any securities issued by any
company primarily engaged in the manufacture of alcohol or
tobacco.
Each of the Funds 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 Fund takes
a
temporary defensive position, it may be unable to achieve its
investment objective.
Small Cap Fund
Small Cap Fund seeks capital appreciation by investing in a
portfolio of securities consisting principally of common
stocks of
small 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 Fund invests at least 65% of its
total assets in common stocks of small 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. Small
Cap
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 Fund 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 Fund 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 Fund 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 Fund
may
invest up to 20% of its total assets in securities of foreign
issuers.
International Equity Fund
International Equity Fund seeks total return on its assets
from
growth of capital and income. The Fund seeks to achieve its
goal
by investing at least 65% of its assets in a diversified
portfolio
of equity securities of established non-United States issuers.
In seeking to achieve its goal, the Fund presently expects to
invest at least 65% and substantially all of its assets in
common
stocks of established non-United States companies which in the
opinion of the manager have potential for growth of capital.
However, there is no requirement that the Fund invest
exclusively
in common stocks or other equity securities and, if deemed
advisable, the Fund may invest up to 35% of its assets in
bonds,
notes and other debt securities (including securities issued
in
the Eurocurrency markets or obligations of the United States
or
foreign governments and their political subdivisions). When
the
manager believes that the return on debt securities will equal
or
exceed the return on common stocks, the Fund may, in seeking
its
goal of total return, substantially increase its holdings (up
to a
maximum of 35% of its assets) in such debt securities. In
determining whether the Fund will be invested for capital
appreciation or for income or any combination of both, the
manager
regularly analyzes a broad range of international equity and
fixed
income markets in order to assess the degree of risk and level
of
return that could be expected from each market.
The Fund generally invests its assets broadly among countries
and
normally has represented in the portfolio business activities
in
not less than three foreign countries. The Fund normally
invests
at least 65% of its assets in companies organized or
governments
located in any area of the world other than the United States,
such as the Far East (e.g., Japan, Hong Kong, Singapore,
Malaysia), Western Europe (e.g., United Kingdom, Germany, The
Netherlands, France, Italy, Switzerland), Eastern Europe
(e.g.,
Hungary, Poland, The Czech Republic and certain countries of
the
former Soviet Union), Central and South America (e.g., Mexico,
Chile and Venezuela), Australia, Canada and such other areas
and
countries as the manager may determine from time to time.
Allocation of the Fund's investments will depend upon the
relative
attractiveness of the international markets and particular
issuers. Concentration of the Fund's assets in one or a few
countries or currencies will subject the Fund to greater risks
than if the Fund's assets were not geographically
concentrated.
It is expected that portfolio securities will ordinarily be
traded
on a stock exchange or other market in the country in which
the
issuer is principally based, but may also be traded on markets
in
other countries including, in many cases, the United States
securities exchanges and over-the-counter markets.
To the extent that the Fund's assets are not otherwise
invested as
described above, the assets may be held in cash, in any
currency,
or invested in United States as well as foreign high quality
money
market instruments and equivalents.
Mid Cap Fund
Mid Cap Fund seeks long-term growth of capital. The Fund
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 Fund's investment. The size of the companies in
the
Index changes with market conditions and the composition of
the
Index. As of February 18, 2000, the largest market
capitalization
of a company in the Index was $44.8 billion and the smallest
market capitalization was $0.15 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 Fund 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 Fund's
investment.
The Fund 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 Fund 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 Fund's
expenses and to meet redemption requests. It is the policy of
the
Fund to be as fully invested in equity securities as
practicable
at all times.
Consistent with its investment objective and policies
described
above, the Fund may invest up to 25% of its total assets in
foreign securities, including both direct investments and
investments made through depository receipts. The Fund 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.
Growth Fund
Growth Fund 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 Fund 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
Fund
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 Fund, 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 Fund may also invest up
to
20% of its total assets in securities of foreign issuers and
in
investment companies. Since the Fund may take substantial
risks
in seeking its goal of capital appreciation, it is not
suitable
for investors unable or unwilling to assume such risks.
Growth and Income Fund
Growth and Income Fund 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 Fund 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 Fund 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
Fund, 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 Fund 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 Fund 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 Fund 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 Fund
may
also invest up to 20% of its total assets in securities of
foreign
issuers and in investment companies. The Fund may engage in
portfolio management strategies and techniques involving
options,
futures contracts and options on futures.
Government Fund
Government Fund seeks high current return consistent with
preservation of capital. The Fund 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 Fund may enter into repurchase agreements with domestic
banks
or broker-dealers deemed creditworthy by the manager solely
for
purposes of investing the Fund's cash reserves or when the
Fund is
in a temporary defensive posture. The Fund 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 Fund may also write
secured put options and enter into closing or offsetting
purchase
transactions with respect to such options. The Fund may write
both listed and over-the-counter options.
The Fund seeks to obtain a high current return from the
following
sources:
? interest paid on the Fund'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 Fund 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 Fund's investment
objective will be achieved.
The Fund 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 Fund 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 Fund'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 Fund.
The Fund 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 Fund'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 Fund reduces its potential for capital appreciation on
debt
securities if interest rates decline. Thus, if market prices
of
debt securities increase, the Fund 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 Fund's total return and not to
"enhance"
monthly distributions. During periods when the Fund has
capital
loss carryforwards, any capital gains generated from such
transactions will be retained in the Fund. The purchase and
sale
of options may result in a high portfolio turnover rate.
Municipal Bond Fund
Municipal Bond Fund seeks as high a level of current interest
income exempt from federal income tax as is consistent with
the
preservation of capital.
The Fund seeks to achieve its objective by investing in a
diversified portfolio of obligations issued by or on behalf of
states, territories or possessions of the United States and
the
District of Columbia and their political subdivisions,
agencies
and instrumentalities, the interest from which, in the opinion
of
bond counsel for the issuer, is exempt from federal income tax
("Municipal Bonds"). It is a fundamental policy of the Fund
under
normal conditions to invest at least 80% of its assets in
Municipal Bonds which are considered tax-exempt. The Fund does
not
independently evaluate the tax-exempt status of the Municipal
Bonds in which it invests. The Fund invests principally in
Municipal Bonds rated at the time of purchase within the three
highest grades assigned by Moody's, S&P or another nationally
recognized statistical rating organization ("NRSRO"). Ratings
at
the time of purchase determine which securities may be
acquired,
and a subsequent reduction in rating does not require the Fund
to
dispose of a security. At least 75% of the Fund's total assets
will be invested in Municipal Bonds rated within the highest
three
categories by an NRSRO, i.e., rated ''A'' or higher. The Fund
may
invest up to 25% of its total assets in Municipal Bonds rated
in
the fourth highest category by an NRSRO (e.g. those rated
''Baa''
by Moody's or ''BBB'' by S&P) or any non-rated Municipal Bonds
having characteristics similar to Municipal Bonds so rated.
Municipal Bonds rated in the fourth highest category are still
considered "investment grade," but may have speculative
characteristics so that changes in economic conditions or
other
circumstances are more likely to lead to a weakened capacity
to
make principal and interest payments than in the case of
higher
grade Municipal Bonds. The market prices of Municipal Bonds
generally fluctuate with changes in interest rates so that the
value of investments in such securities can be expected to
decrease as interest rates rise and increase as interest rates
fall. Because investment in lower rated securities involves
greater investment risks, achievement of the Fund's goal may
be
more dependent on the manager's credit analysis than would be
the
case if the Fund invested only in higher rated securities.
Non-
rated Municipal Bonds are not necessarily of lower quality
than
rated Municipal Bonds, but the market for rated Municipal
Bonds is
often broader. The Fund may seek to hedge against changes in
interest rates through transactions in listed futures
contracts
related to U.S. Government securities, Municipal Bonds or to
an
index of Municipal Bonds, and options on such contracts.
"Municipal Bonds" include debt obligations issued to obtain
funds
for various public purposes, including construction of a wide
range of public facilities, refunding of outstanding
obligations
and obtaining funds for general operating expenses and loans
to
other public institutions and facilities. In addition,
certain
types of industrial development obligations are issued by or
on
behalf of public authorities to finance various privately-
operated
facilities. Such obligations are included within the term
Municipal Bonds if the interest paid thereon is exempt from
federal income tax. Municipal Bonds also include short-term
tax-exempt municipal obligations such as tax anticipation
notes,
bond anticipation notes, revenue anticipation notes, and
variable
rate demand notes.
The two principal classifications of Municipal Bonds are
"general
obligations" and "revenue" or "special obligations." General
obligations are secured by the issuer's pledge of full faith,
credit, and taxing power for the payment of principal and
interest. Revenue or special obligations are payable only
from
the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special
excise tax or from other specific revenue sources such as the
user
of the facility being financed. Industrial development bonds,
including pollution control bonds, are revenue bonds and do
not
constitute the pledge of the credit or taxing power of the
issuer
of such bonds. The payment of the principal and interest on
such
industrial revenue bonds depends solely on the ability of the
user
of the facilities financed by the bonds to meet its financial
obligations and the pledge, if any, of real and personal
property
so financed as security for such payment. The Fund's
portfolio
may also include "moral obligation" bonds which are normally
issued by special purpose public authorities. If an issuer of
moral obligation bonds is unable to meet its obligations, the
repayment of such bonds becomes a moral commitment but not a
legal
obligation of the state or municipality which is the issuer of
the
bonds.
On a temporary basis, due to market conditions, the Fund may
invest in Municipal Notes. These securities include demand
notes
and short-term municipal obligations (such as tax anticipation
notes, revenue anticipation notes, construction loan notes and
short-term discount notes) and tax-exempt commercial paper,
provided that such obligations have the requisite ratings, as
described above. Demand notes are obligations which normally
have
a stated maturity in excess of one year, but permit any holder
to
demand payment of principal plus accrued interest upon a
specified
number of days' notice. Frequently, such obligations are
secured
by letters of credit or other credit support arrangement
provided
by banks. The issuer of such notes normally has a
corresponding
right, after a given period, to prepay at its discretion the
outstanding principal of the note plus accrued interest upon a
specified number of days' notice to the noteholders. The
interest
rate on a demand note may be based on a known lending rate,
such
as a bank's prime rate, and may be adjusted when such rate
changes, or the interest rate on a demand note may be a market
rate that is adjusted at specified intervals. Participation
interests in variable rate demand notes will be purchased only
if,
in the opinion of counsel, interest income on such interest
will
be tax-exempt when distributed as dividends to shareholders.
Yields on Municipal Bonds are dependent on a variety of
factors,
including the general condition of the municipal bond market,
the
size of a particular offering, the maturity of the obligation,
and
the rating of the issue. The ability of the Fund to achieve
its
investment objective is dependent on the continuing ability of
the
issuers of the Municipal Bonds in which the Fund invests to
meet
their obligations for the payment of interest and principal
when
due. Furthermore, the rights of holders of Municipal Bonds and
the
obligations of the issuers of such Municipal Bonds may be
subject
to applicable bankruptcy, insolvency and similar laws and
court
decisions affecting the rights of creditors generally, and
such
laws, if any, which may be enacted by Congress or state
legislatures imposing a moratorium on the payment of principal
and
interest or imposing other constraints or conditions on the
payments of interest and principal on Municipal Bonds.
The Fund may invest up to 10% of its net assets in illiquid
securities. These securities may include Municipal Bonds
issued in
limited offerings under which the Fund represents that it is
purchasing for investment purposes only ("restricted
securities"),
repurchase agreements maturing in more than seven days, and
other
securities subject to legal or contractual restrictions on
resale.
Municipal Bonds that are restricted securities generally may
be
resold only in a privately negotiated transaction or to one or
more other institutional investors. Restricted securities
generally must be sold at a discount from the market price of
unrestricted securities of the same issuer. Investments in
restricted securities are not readily marketable without some
time
delay. Such limitations could result in the Fund's inability
to
realize a favorable price upon disposition, and in some cases
might make disposition of such securities at the time desired
by
the Fund impossible. The 10% limitation applies at the time
the
purchase commitment is made.
Variations in the quality and maturity of the Fund's portfolio
investments can be expected to affect the Fund's yield and the
degree of market and financial risk to which the Fund is
subject.
Generally, Municipal Bonds with longer maturities tend to
produce
higher yields and are subject to greater market fluctuations
as a
result of changes in interest rates than Municipal Bonds with
shorter maturities and lower yields. The market value of
Municipal
Bonds generally rises when interest rates decline and falls
when
interest rates rise. It is also generally the case that lower
rated Municipal Bonds provide a higher yield than higher rated
Municipal Bonds of similar maturity, but are subject to
greater
risk. The Fund is not limited as to the maturities of the
Municipal Bonds in which it invests. Such securities may have
remaining maturities of up to 30 years or more.
The Fund considers investments in Municipal Bonds not to be
subject to any concentration policy and may invest a
relatively
high percentage of its assets in Municipal Bonds issued by
entities having similar characteristics. The issuers may be
located in the same geographic area or may pay their interest
obligations from revenue of similar projects such as
hospitals,
utility systems and housing finance agencies. This may make
the
Fund's investments more susceptible to similar economic,
political
or regulatory occurrences. As the similarity in issuers
increases,
the potential for fluctuation in the Fund's per share net
asset
value also increases. The Fund may invest more than 25% of its
total assets in industrial development revenue bonds, but it
does
not intend to invest more than 25% of its assets in industrial
development revenue bonds issued for companies in the same
industry or state. Sizeable investments in such obligations
could
involve an increased risk to the Fund should any of such
issuers
of any such related projects or facilities experience
financial
difficulties.
Interest on certain "private-activity bonds" issued after
August
7, 1986, is an item of tax preference subject to the
alternative
minimum tax on individuals and corporations. The Fund will not
purchase any private activity bonds subject to the alternative
minimum tax.
The taxable securities in which the Municipal Bond Fund may
invest
as temporary investments include U.S. Government securities,
domestic bank certificates of deposit and repurchase
agreements.
The Fund may not invest in a certificate of deposit issued by
a
commercial bank unless the bank is organized and operating in
the
United States and has total assets of at least $500 million
and is
a member of the Federal Deposit Insurance Corporation.
INVESTMENT PRACTICES
This section contains a discussion of certain investment
practices. The Funds 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 Funds except Government Fund and Municipal
Bond
Fund). Each Fund 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 Funds except
Government Fund and Municipal Bond Fund). Each Fund 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 Funds except Government Fund and Municipal Bond
Fund). Each Fund may purchase warrants. Warrants acquired by
a
Fund 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 Fund'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 Funds except Government Fund and Municipal Bond
Fund).
Each Fund 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 (All Funds except
Government
Fund and Municipal Bond Fund). The Small Cap Fund and the
International Equity Fund may each invest up to 15% of their
net
assets , the Mid Cap Fund may invest up to 10% of its net
assets,
and the Growth Fund, the Growth and Income Fund, the
Government
Fund and the Municipal Bond Fund may each invest up to 5% of
their
net assets in restricted securities and other 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 Fund 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 Fund'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 Fund
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.
Notwithstanding the foregoing, the Small Cap Fund and the
International Equity Fund will not invest more than 10% of
each
Fund's net assets in restricted securities; restricted
securities
eligible for resale pursuant to Rule 144A are not included
within
this limitation.
Securities of Foreign Issuers (All Funds except Government
Fund
and Municipal Fund). The International Equity Fund invests at
least 65% of its total assets in the equity securities of
foreign
issuers and the Small Cap Fund, the Growth Fund and the Growth
and
Income Fund may invest up to 20% of the value of their total
assets and the Mid Cap Fund 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 Fund 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 Fund may
invest in ADRs through both sponsored and unsponsored
arrangements.
The Small Cap Fund, the International Equity Fund, the Mid Cap
Fund, the Growth Fund and the Growth and Income Fund 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 Funds). Each Fund 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 Funds). The U.S. Government
securities in which the Funds 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 Fund). The Government
Fund 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 Fund), 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 Fund's higher yielding securities might be
converted
to cash, and the Fund 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 Fund buys mortgage-related securities at a
premium, mortgage foreclosures or mortgage prepayments may
result
in a loss to the Fund 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 Fund 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 Fund 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 Fund
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 Fund). The Fund 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 Fund 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 Fund 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 Fund owns
or
has the right to acquire. In either circumstance, the Fund
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
Fund'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 Fund
forgoes or reduces the potential for both gain and loss in the
security which is being hedged by the Forward Commitment sale.
The Fund 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
Fund may reinvest the proceeds in another Forward Commitment.
The
Fund'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 Fund relies on the other
party to complete the transaction; should the other party fail
to
do so, the Fund might lose a purchase or sale opportunity that
could be more advantageous than alternative opportunities at
the
time of the failure.
The Fund 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 Fund's custodian in
an
aggregate amount equal to the amount of its commitment as long
as
the obligation to purchase or sell continues.
Variable Rate Demand Notes (MunicipalBond Fund). The Fund
may
invest in variable rate demand notes (''VRDNs'') which are
tax-
exempt obligations which contain a floating or variable
interest
rate adjustment formula and which are subject to an
unconditional
right of demand to receive payment of the principal balance
plus
accrued interest either at any time or at specified intervals
not
exceeding one year and in either case upon no more than seven
days' notice. The interest rates are adjustable at intervals
ranging from daily (''floating rate'') to up to one year to
some
prevailing market rate for similar investments, such
adjustment
formula being calculated to maintain the market value of the
VRDN
at approximately the par value of the VRDN upon the adjustment
date. The adjustments are typically based upon the prime rate
of a
bank or some other appropriate interest rate adjustment index.
The Fund may also invest in VRDNs in the form of participation
interests (''Participating VRDNs'') in variable rate tax-
exempt
obligations held by a financial institution, typically a
commercial bank (''institution''). Participating VRDNs provide
the
Fund with a specified undivided interest (up to 100%) in the
underlying obligation and the right to demand payment of the
unpaid principal balance plus accrued interest on the
Participating VRDNs from the institution upon a specified
number
of days' notice, not to exceed seven days. The Fund has an
undivided interest in the underlying obligation and thus
participates on the same basis as the institution in such
obligation except that the institution typically retains fees
out
of the interest paid on the obligation for servicing the
obligation and issuing the repurchase commitment.
Stand-by Commitments (Municipal Bond Fund). The Fund may
acquire
stand-by commitments with respect to Municipal Bonds held by
it.
Under a stand-by commitment, a bank or dealer from which
Municipal
Bonds are acquired agrees to purchase from the Fund, at the
Fund's
option, the Municipal Bonds at a specified price. Such
commitments
are sometimes called ''liquidity puts.''
The amount payable to the Fund upon its exercise of a stand-by
commitment is normally (i) the Fund's acquisition cost of the
Municipal Bonds (excluding any accrued interest which the Fund
paid on their acquisition), less any amortized market premium
or
plus any amortized market or original issue discount during
the
period the Fund owned the securities, plus (ii) all interest
accrued on the securities since the last interest payment date
during that period. Stand-by commitments generally can be
acquired
when the remaining maturity of the underlying Municipal Bond
is
greater than one year, and are exercisable by the Fund at any
time
before the maturity of such obligations.
The Fund's right to exercise stand-by commitments is
unconditional
and unqualified. A stand-by commitment generally is not
transferable by the Fund, although the Fund can sell the
underlying Municipal Bonds to a third party at any time.
The Fund expects that stand-by commitments will generally be
available without the payment of any direct or indirect
consideration. However, if necessary or advisable, the Fund
may
pay for a stand-by commitment either separately in cash or by
paying a higher price for portfolio securities which are
acquired
subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount
paid in either manner for outstanding stand-by commitments
held in
the Fund will not exceed one-half of one percent of the value
of
the Fund's total asses calculated immediately after each
stand-by
commitment is acquired. The Fund intends to enter into stand-
by
commitments only with banks and dealers which, in the
manager's
opinion, present minimal credit risks.
The Fund expects to acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise
its
rights thereunder for trading purposes. The acquisition of a
stand-by commitment would not affect the valuation of the
underlying Municipal Bonds which would continue to be valued
in
accordance with the method of valuation employed by the Fund.
Stand-by commitments acquired by the Fund would be valued at
zero
in determining net asset value. Where the Fund paid any
consideration directly or indirectly for a stand-by
commitment,
the cost would be reflected as unrealized depreciation for the
period during which the commitment was held by the Fund.
Delayed Delivery and When-Issued Securities (MunicipalBond
Fund).
Municipal Bonds may at times be purchased or sold on a
''delayed
delivery'' or a ''when issued'' basis. These transactions
arise
when securities are purchased or sold by the Fund with payment
and
delivery taking place in the future, often a month or more
after
the purchase. The payment obligation and the interest rate are
each fixed at the time the Fund enters into the commitment.
The
Fund will only make commitments to purchase such securities
with
the intention of actually acquiring the securities, but the
Fund
may sell these securities prior to settlement date if it is
deemed
advisable. Purchasing Municipal Bonds on a when-issued basis
involves the risk that the yields available in the market when
the
delivery takes place may actually be higher than those
obtained in
the transaction itself; if yields so increase, the value of
the
when-issued obligation will generally decrease. The Fund
maintains
a separate account at its custodian bank consisting of
appropriate
securities as required by the 1940 Act (valued on a daily
basis)
equal to all times to the amount of any when-issued
commitment.
Short-Term Investments (All Funds). In certain circumstances
the
Funds 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 Fund is investing in short-term
investments as a temporary defensive posture, the applicable
Fund's investment objective may not be achieved.
Commercial Paper (All Funds). 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 Funds 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. Each Fund therefore,
may
not invest in a master demand note, if as a result more than
5%
(15% in the case of the Small Cap Fund and the International
Equity Fund) (10% in the case of the Mid Cap Fund) of the
value of
the Fund's total assets would be invested in such notes and
other
illiquid securities.
Commercial Bank Obligations (International Equity Fund). For
the
purposes of the International Equity Fund's investment
policies
with respect to bank obligations, obligations of foreign
branches
of U.S. banks and of foreign banks may be general obligations
of
the parent bank in addition to the issuing bank, or may be
limited
by the terms of a specific obligation and by government
regulation. As with investment in foreign securities in
general,
investments in the obligations of foreign branches of U.S.
banks
and of foreign banks may subject the International Equity Fund
to
investment risks that are different in some respects from
those of
investments in obligations of domestic issuers. Although the
Fund
will typically acquire obligations issued and supported by the
credit of U.S. or foreign banks having total assets at the
time of
purchase in excess of U.S. $1 billion (or the equivalent
thereof),
this U.S. $1 billion figure is not a fundamental investment
policy
or restriction of the International Equity Fund. For
calculation
purposes with respect to the U.S. $1 billion figure, the
assets of
a bank will be deemed to include the assets of its U.S. and
non-U.S. branches.
DERIVATIVE INSTRUMENTS
Options, Futures Contracts and Related Options (All Funds)
Selling Call and Put Options (Small Cap Fund, International
Equity
Fund, Mid Cap Fund, Growth Fund, Growth and Income Fund and
Government Fund). 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
Fund'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. Small Cap Fund, International Equity Fund,
Growth Fund and Growth and Income Fund sell call options only
on a
covered basis. Government Fund sells call options either on a
covered basis, or for cross-hedging purposes. A call option
is
covered if the Fund owns or has the right to acquire the
underlying securities subject to the call option at all times
during the option period. Thus, Government Fund may sell
options
on U.S. Government securities or forward commitments of such
securities. An option is for cross-hedging purposes (relative
to
Government Fund only) to hedge against a security which the
Fund
owns or has the right to acquire. In such circumstances,
Government Fund maintains in a segregated account with the
Fund'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 Fund sells put options only
on a
secured basis, which means that, at all times during the
option
period, the Fund 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 Fund generally sells put options when the
manager wishes to purchase the underlying security for the
Fund'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 Fund 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 Fund. The Fund 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 Fund would also realize
a
gain if an option it has sold lapses unexercised. A Fund may
sell
options that are listed on an exchange as well as options that
are
traded over-the-counter. A Fund 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 Fund 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 Fund 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 Fund loses the potential for gain
on
the underlying security above the exercise price while the
option
is outstanding; by writing a put option a Fund 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
Fund
may be able to write.
Purchasing Call and Put Options (Small Cap Fund, International
Equity Fund, Mid Cap Fund, Growth Fund, Growth and Income Fund
and
Government Fund). A Fund 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 funds will purchase
call options covering a much larger quantity of such security
than
could be purchased directly. By purchasing call options, a
Fund
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 Fund 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
Fund'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 Fund's
volatility by increasing the impact of changes in the market
price
of the underlying securities on the Fund's net asset value.
The
Funds may purchase either listed or over-the-counter options.
Options on Stock Indexes (Small Cap Fund, International Equity
Fund, Mid Cap Fund, Growth Fund and Growth and Income Fund).
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 Fund 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
Fund 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 ( International Equity Fund and Mid
Cap
Fund). The Fund 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 Fund'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 Fund 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 Funds). Each Fund 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 Funds 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 municipal bond futures contract is an agreement pursuant to
which two parties agree to take and make delivery of an amount
of
cash equal to a specified dollar amount times the differences
between The Bond Buyer Municipal Bond Index value at the close
of
the last trading day of the contract and the price at which
the
futures contract is originally struck.
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.
International Equity Fund may enter into futures contracts for
non-hedging purposes, subject to applicable law.
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 Fund 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 funds 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 Fund 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 Fund purchases a futures contract and the
price of the underlying security or index rises, that position
increases in value, and the Fund receives from the broker a
variation margin payment equal to that increase in value.
Conversely, where the Fund purchases a futures contract and
the
value of the underlying security or index declines, the
position
is less valuable, and the Fund is required to make a variation
margin payment to the broker.
At any time prior to expiration of the futures contract, the
Fund
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
Fund,
and the Fund realizes a loss or a gain.
When a Fund 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
Fund
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 Fund 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 Fund's securities ("defensive hedge"). To the
extent
that the Fund'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 Fund
of a
market decline and, by so doing, provides an alternative to
the
liquidation of securities positions in the Fund with attendant
transaction costs.
For example, if Government Fund 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 Fund's securities
declined
during the period the contracts were outstanding, the value of
the
Fund's futures contracts should increase, thereby protecting
the
Fund 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
Fund
engages in transactions in listed options, futures or related
options, the Fund 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 Fund, the Fund could experience a loss
of
all or part of the value of the option. Transactions are
entered
into by a Fund only with brokers or financial institutions
deemed
creditworthy by the manager.
Each Fund'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 Fund owns, or futures contracts will be
purchased to protect a Fund against an increase in the price
of
securities of currencies it has committed to purchase or
expects
to purchase. International Equity Fund may also enter into
futures transactions for non-hedging purposes, subject to
applicable law.
A Fund pays commissions on futures contracts and options
transactions.
Options on Futures Contracts (All Funds). A Fund 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 Fund is subject to initial
margin
and maintenance requirements similar to those applicable to
futures contracts. In addition, net option premiums received
by a
Fund 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 Fund 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
(International
Equity Fund and Mid Cap Fund). 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
Fund 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 Fund engages in forward currency
transactions in anticipation of, or to protect itself against
fluctuations in exchange rates. The Fund 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 Fund 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 Fund
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 Fund may not
always be able to enter into foreign currency forward
contracts at
attractive prices and this will limit the Fund's ability to
use
such contract to hedge or cross-hedge its assets. Also, with
regard to the Fund'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 Fund's cross-hedges and the movements in the
exchange rates of foreign currencies in which the Fund'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 Fund, however, may enter into forward contracts with
deposit
requirements or commissions.
A put option on currency gives the Fund, 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 Fund, as purchaser, the right (but not the
obligation) to purchase a specified amount of currency at the
exercise price until its expiration. The Fund 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 Fund 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 Fund anticipates purchasing
securities.
The Fund'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 Fund 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 Fund 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 Fund 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 Fund 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.
Interest Rate Transactions (International Equity Fund).
Among
the hedging transactions into which the Fund may enter are
interest rate swaps and the purchase or sale of interest rate
caps
and floors. The Fund expects to enter into these transactions
primarily to preserve a return or spread on a particular
investment or portion of its portfolio or to protect against
any
increase in the price of securities the Fund anticipates
purchasing at a later date. The Fund intends to use these
transactions as a hedge and not as a speculative investment.
The
Fund will not sell interest rate caps or floors that it does
not
own. Interest rate swaps involve the exchange by the Fund
with
another party of their respective commitments to pay or
receive
interest, e.g., an exchange of floating rate payments for
fixed
rate payments. The purchase of an interest rate cap entitles
the
purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest
on a
notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the
purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest
on a
notional principal amount from the party selling such interest
rate floor.
The Fund may enter into interest rate swaps, caps and floors
on
either an asset-based or liability-based basis, depending on
whether it is hedging its assets or its liabilities, and will
usually enter into interest rate swaps on a net basis, i.e.,
the
two payment streams are netted but, with the Fund receiving or
paying, as the case may be, only the net amount of the two
payments. Inasmuch as these hedging transactions are entered
into
for good faith hedging purposes, the manager and the Fund
believe
such obligations do not constitute senior securities and,
accordingly will not treat them as being subject to its
borrowing
restrictions. The net amount of the excess, if any, of the
Fund's
obligations over its entitlements with respect to each
interest
rate swap will be accrued on a daily basis and an amount of
cash
or liquid securities having an aggregate net asset value at
least
equal to the accrued excess will be maintained in a segregated
account by a custodian that satisfies the requirements of the
1940
Act. The Fund will not enter into any interest rate swap, cap
or
floor transaction unless the unsecured senior debt or the
claims-paying ability of the other party thereto is rated in
the
highest rating category of at least one nationally recognized
rating organization at the time of entering into such
transaction.
If there is a default by the other party to such a
transaction,
the Fund will have contractual remedies pursuant to the
agreements
related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as
agents
utilizing swap documentation. As a result, the swap market
has
become relatively liquid. Caps and floors are more recent
innovations for which standardized documentation has not yet
been
developed and, accordingly, they are less liquid than swaps.
New options and futures contracts and various combinations
thereof
continue to be developed and the Fund may invest in any such
options and contracts as may be developed to the extent
consistent
with its investment objective and regulatory requirements
applicable to investment companies.
Use of Segregated and Other Special Accounts (All Funds).
Use of
many hedging and other strategic transactions including
currency
and market index transactions by the Fund will require, among
other things, that the Fund segregate cash, liquid securities
or
other assets with its Custodian, or a designated sub-
custodian, to
the extent the Fund'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 Fund 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 Fund, for example,
will
require the Fund 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 Fund on an index will
require the Fund 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 Fund will require the Fund
to
segregate liquid securities equal to the exercise price.
Except
when the Fund 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 Fund to
buy or
sell a foreign currency will generally require the Fund to
hold an
amount of that currency, liquid securities denominated in that
currency equal to the Fund's obligations or to segregate
liquid
securities equal to the amount of the Fund's obligations.
OTC options entered into by the Fund, 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 Fund will not be
required to do so. As a result, when the Fund 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 Fund other than those described above
generally settle with physical delivery, and the Fund 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 Fund 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 Fund 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 Fund'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 Fund 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
Fund 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 Fund. Moreover, instead of segregating
assets if it holds a futures contract or forward contract, the
Fund 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 Funds). Each Fund 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 Fund) 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 Fund 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 Fund 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 Fund 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 Fund 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 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 funds 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 Fund than would be available to
a
Fund 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 (International Equity Fund, Mid
Cap
Fund and Government Fund). International Equity Fund and Mid
Cap
Fund may invest in reverse repurchase agreements.
International
Equity Fund does not currently intend to commit more than 5%
of
its net assets to reverse repurchase agreements. The Funds
may
enter into 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
and
are considered to be borrowings by the Fund and are subject to
the
borrowing limitations set forth under "Investment
Restrictions."
Since the proceeds of reverse repurchase agreements are
invested,
this would introduce the speculative factor known as
"leverage."
The securities purchased with the funds obtained from the
agreement and securities collateralizing the agreement will
have
maturity dates no later than the repayment date. Generally,
the
effect of such a transaction is that the Fund can recover all
or
most of the cash invested in the portfolio securities involved
during the term of the reverse repurchase agreement, while in
many
cases it will be able to keep some of the interest income
associated with those securities. Such transactions are only
advantageous if the Fund has an opportunity to earn a greater
rate
of interest on the cash derived from the transaction than the
interest cost of obtaining that cash. Opportunities to
realize
earnings from the use of the proceeds equal to or greater than
the
interest required to be paid may not always be available, and
the
Fund intends to use the reverse repurchase technique only when
the
manager believes it will be advantageous to the Fund. The use
of
reverse repurchase agreements may exaggerate any interim
increase
or decrease in the value of the Fund's assets. The Fund's
custodian bank will maintain a separate account for the Fund
with
securities having a value equal to or greater than such
commitments.
Short Sales against the Box (Small Cap Fund, International
Equity
Fund, Mid Cap Fund, Growth Fund and Growth and Income Fund).
Each Fund 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 Fund contemporaneously owns or has the
right
to obtain at no added cost securities identical to those sold
short. In a short sale, the Fund does not immediately deliver
the
securities sold and does not receive the proceeds from the
sale.
The Fund 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. The Fund may not make short sales or
maintain a short position if to do so would cause more than
25% of
its total assets, taken at market value, to be held as
collateral
for such sales.
To secure its obligation to deliver the securities sold short,
the
Fund 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 Fund 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 Fund,
because
the Fund may want to continue to receive interest and dividend
payments on securities in its portfolio that are convertible
into
the securities sold short. However, the Fund will not purchase
and
deliver new securities to satisfy its short order if such
purchase
and sale would cause the Fund to derive more than 30% of its
gross
income from the sale of securities held for less than three
months.
Leverage (International Equity Fund). The Fund may borrow
from
banks, on a secured or unsecured basis, up to 25% of the value
of
its assets. If the Fund borrows and uses the proceeds to make
additional investments, income and appreciation from such
investments will improve its performance if they exceed the
associated borrowing costs but impair its performance if they
are
less than such borrowing costs. This speculative factor is
known
as ''leverage.'' Leverage creates an opportunity for
increased
returns to shareholders of the Fund but, at the same time,
creates
special risk considerations. For example, leverage may
exaggerate
changes in the net asset value of the Fund's shares and in the
Fund's yield. Although the principal or stated value of such
borrowings will be fixed, the Fund's assets may change in
value
during the time the borrowing is outstanding. Leverage will
create
interest or dividend expenses for the Fund which can exceed
the
income from the assets retained. To the extent the income or
other
gain derived from securities purchased with borrowed funds
exceed
the interest or dividends the Fund will have to pay in respect
thereof, the Fund's net income or other gain will be greater
than
if leverage had not been used. Conversely, if the income or
other
gain from the incremental assets is not sufficient to cover
the
cost of leverage, the net income or other gain of the Fund
will be
less than if leverage had not been used. If the amount of
income
from the incremental securities is insufficient to cover the
cost
of borrowing, securities might have to be liquidated to obtain
required funds. Depending on market or other conditions, such
liquidations could be disadvantageous to the Fund.
Loans of Portfolio Securities (All Funds). Each of the Funds
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 Fund and is marked to market daily. While
such securities are on loan, the borrower is required to pay
the
Fund any income accruing thereon. Furthermore, the Fund may
invest the cash collateral in portfolio securities thereby
increasing the return to the Fund as well as increasing the
market
risk to the Fund. A Fund 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 Fund believe that lending securities is in the best
interests
of the Fund'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 Fund 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
Fund and its shareholders, but any gain can be realized only
if
the borrower does not default. Each Fund may pay reasonable
finders', administrative and custodial fees in connection with
a
loan.
RISK FACTORS tc "Risk Factors"
General. Investors should realize that risk of loss is
inherent
in the ownership of any securities and that each Fund'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 Funds 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 Fund 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 Fund 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 Fund 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 Fund, 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 (those
companies
that have market capitalizations in the lowest 20% of all
publicly
traded U.S. 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 Fund of
small
company securities in order to meet redemptions may require
the
Fund 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 Fund 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 Fund
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
Fund may be subject to foreign withholding taxes, which would
reduce the Fund's total return on such investments and the
amounts
available for distributions by the Fund 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 Fund are not invested and no return is earned thereon.
The
inability of each Fund to make intended security purchases due
to
settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in
losses to the Fund due to subsequent declines in value of the
portfolio security or, if the Fund 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 Fund 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
Fund 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 Fund 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 Fund's investments are denominated
relative to the U.S. dollar will affect the Fund'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 Fund's securities are quoted would reduce the Fund'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 Fund'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 Fund 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 Fund 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 Fund'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 Fund 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 Fund,
including an investment in conventional securities, reflects
an
implicit prediction about future changes in the value of that
investment. Every Fund investment also involves a risk that
the
portfolio manager's expectations will be wrong. Transactions
in
derivative instruments often enable a Fund to take investment
positions that more precisely reflect the portfolio manager's
expectations concerning the future performance of the various
investments available to the Fund. 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 Fund in order to
achieve an average portfolio volatility that is within the
expected range for that type of Fund.
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 Funds are not readily
marketable and are subject to a Fund'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 Fund's portfolio is
reviewed and analyzed by the Fund's portfolio manager to
assess
the risk and reward of each such instrument in relation the
Fund'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 Fund 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
Fund,
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
Fund
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 Fund assets.
Furthermore, in the case of a Futures Contract purchase, in
order
to be certain that each Fund has sufficient assets to satisfy
its
obligations under a Futures Contract, the Fund 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). (International Equity Fund
Fund) EMU began on January 1, 1999 when 11 European countries
adopted a single currency -- the Euro. EMU may create new
economic opportunities for investors, such as lower interest
rates, easier cross-border mergers, acquisitions and similar
restructurings, more efficient distribution and product
packaging
and greater competition. 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 within the Euro zone. EMU
and
the introduction of the Euro, however, present unique risks
and
uncertainties for investors in EMU-participating countries,
including: (i) monetary and economic union on this scale has
never before been attempted; (ii) there is uncertainty whether
participating countries will remain committed to EMU in the
face
of changing economic conditions; (iii) instability within EMU
may
increase the volatility of European markets and may adversely
affect the prices of securities of European issuers in the
fund's
portfolio; (iv) there is uncertainty concerning the
fluctuation of
the Euro relative to non-Euro currencies during the transition
period from January 1, 1999 to December 31, 2000, and beyond;
and
(v) there is no assurance that interest rate, tax and labor
regimes of EMU-participating countries will converge over
time.
These and other factors may cause market disruption and could
adversely affect European securities and currencies held by
the
fund.
Year 2000. As the year 2000 began, there were few problems
caused
by the inability of certain computer systems to tell the
difference between the year 2000 and the year 1900 (commonly
known
as the "Year 2000" issue). It is still possible that some
computer systems could malfunction in the future because of
the
Year 2000 issue or as a result of actions taken to address the
Year 2000 issue. The manager does not anticipate that its
services or those of the funds' other service providers will
be
adversely affected, but the manager will continue to monitor
the
situation. If malfunctions related to the Year 2000 issue do
arise, the Funds and their investments could be negatively
affected.
Portfolio Turnover. Each Fund 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 Fund and the Government Fund may
experience a high rate of portfolio turnover. This may occur,
for
example, if the Fund 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 Fund, the Government Fund and the
Municipal Bond Fund are not expected to exceed 400%; and the
annual turnover rates of the Small Cap Fund, the International
Equity Fund and the Growth and Income Fund 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 Fund 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 tc "Investment Restrictions"
Each Fund has adopted the following restrictions which may not
be
changed with respect to any Fund without approval by the vote
of a
majority of such Fund's outstanding voting shares, which is
defined by the 1940 Act as the lesser of (i) 67% or more of
the
voting securities present at a meeting, if the holders of more
than 50% of the outstanding voting securities of the Fund are
present or represented by proxy; or (ii) more than 50% of the
Fund's outstanding voting securities. The percentage
limitations
need only be met at the time the investment is made or after
relevant action is taken.
The following restrictions apply to all Funds except Mid Cap
Fund:
A Fund shall not:
1. Lend money except by the purchase of bonds or other debt
obligations of types commonly offered publicly or privately
and
purchased by financial institutions, including investments in
repurchase agreements. A Fund will not invest in repurchase
agreements maturing in more than seven days (unless subject to
a
demand feature) if any such investment, together with any
illiquid
securities (including securities which are subject to legal or
contractual restrictions on resale) held by the Fund, exceeds
10%
of the market or other fair value of its total net assets (15%
in
the case of Small Cap Fund and International Equity Fund);
provided, however, that with respect to Small Cap Fund,
International Equity Fund, Growth Fund, Growth and Income Fund
and
Municipal Bond Fund, illiquid securities shall exclude shares
of
other open-end investment companies owned by the Fund but
include
the Fund's pro rata portion of the securities and other assets
owned by any such company. See "Repurchase Agreements";
2. Underwrite securities of other companies, except insofar
as a
Fund might be deemed to be an underwriter for purposes of the
Securities Act of 1933 (the "1933 Act") in the resale of any
securities owned by the Fund;
3. Lend its portfolio securities in excess of 10% (15% in the
case of Small Cap Fund and International Equity Fund) of its
total
assets, both taken at market value, provided that any loans
shall
be in accordance with the guidelines established for such
loans by
the Trustees as described under "Loans of Portfolio
Securities,"
including the maintenance of collateral from the borrower
equal at
all times to the current market value of the securities
loaned;
4. With respect to 75% of its assets, invest more than 5% of
its
assets in the securities of any one issuer (except obligations
of
the U.S. Government, its agencies or instrumentalities and
repurchase agreements secured thereby) or purchase more than
10%
of the outstanding voting securities of any one issuer.
Neither
limitation shall apply to the acquisition of shares of other
open-end investment companies by Small Cap Fund, International
Equity Fund, Growth Fund, Growth and Income Fund and Municipal
Bond Fund, to the extent permitted by rule or order of the SEC
exempting them from the limitations imposed by Section
12(d)(1) of
the 1940 Act;
5. Invest more than 25% of the value of its total assets in
securities of issuers in any particular industry; provided,
however, that with respect to Small Cap Fund, International
Equity
Fund, Growth Fund, Growth and Income Fund and Municipal Bond
Fund,
this limitation shall exclude shares of other open-end
investment
companies owned by the Fund but include the Fund's pro rata
portion of the securities and other assets owned by any such
company. (This does not restrict any of the Funds from
investing
in obligations of the U.S. Government and repurchase
agreements
secured thereby); and
6. With respect to all Funds other than Small Cap Fund and
International Equity Fund, borrow in excess of 10% of the
market
or other fair value of its total assets, or pledge its assets
to
an extent greater than 5% of the market or other fair value of
its
total assets, provided that so long as any borrowing exceeds
5% of
the value of the Fund's total assets, the Fund shall not
purchase
portfolio securities. Any such borrowings shall be from banks
and
shall be undertaken only as a temporary measure for
extraordinary
or emergency purposes. With respect to Small Cap Fund, borrow
money except temporarily from banks to facilitate payment of
redemption requests and then only in amounts not exceeding 33
1/3%
of its net assets, or pledge more than 10% of its net assets
in
connection with permissible borrowings or purchase additional
securities when money borrowed exceeds 5% of its net assets.
With
respect to International Equity Fund, borrow money from banks
on a
secured or unsecured basis, in excess of 25% of the value of
its
total assets. Deposits in escrow in connection with the
writing
of covered call or secured put options, or in connection with
the
purchase or sale of forward contracts, futures contracts,
foreign
currency futures and related options, are not deemed to be a
pledge or other encumbrance. This restriction shall not
prevent
International Equity Fund from entering into reverse
repurchase
agreements, provided that reverse repurchase agreements and
any
transactions constituting borrowing by the Fund may not exceed
33 1/3% of the Fund's net assets. International Equity Fund
may
not mortgage or pledge its assets except to secure borrowings
permitted under this restriction.
The following restrictions apply to Growth Fund, Growth and
Income
Fund, Government Fund and Municipal Bond Fund:
Each of these Funds shall not:
1. Make any investment in real estate, commodities or
commodities
contracts, or warrants except that Growth Fund, Growth and
Income
Fund, Government Fund and Municipal Bond Fund may engage in
transactions in futures and related options, Government Fund
may
purchase or sell securities which are secured by real estate,
and
Growth Fund may acquire warrants or other rights to subscribe
to
securities of companies issuing such warrants or rights, or of
parents or subsidiaries of such companies, although Growth
Fund
may not invest more than 5% of its net assets in such
securities
valued at the lower of cost or market, nor more than 2% of its
net
assets in such securities (valued on such basis) which are not
listed on the New York or American Stock Exchanges (warrants
and
rights represent options, usually for a specified period of
time,
to purchase a particular security at a specified price from
the
issuer). Warrants or rights acquired in units or attached to
other securities are not subject to the foregoing limitations;
2. Purchase securities on margin, except that a Fund may
obtain
such short-term credits as may be necessary for the clearance
of
purchases and sales of securities. The deposit or payment by
a
Fund of an initial or variation margin in connection with
futures
contracts or related option transactions is not considered the
purchase of a security on margin;
3. Invest in securities of any company if any officer or
trustee
of the Trust or of the manager owns more than 1/2 of 1% of the
outstanding securities of such company, and such officers and
trustees own more than 5% of the outstanding securities of
such
issuer;
4. Invest in oil or other mineral leases, rights or royalty
contracts or exploration or development programs, except that
Growth Fund and Growth and Income Fund, may invest in the
securities of companies which invest in or sponsor such
programs;
5. Invest in companies for the purpose of acquiring control
or
management thereof;
6. Invest in the securities of other open-end investment
companies, or invest in the securities of closed-end
investment
companies except through purchase in the open market in a
transaction involving no commission or profit to a sponsor or
dealer (other than the customary brokers commission) or as
part of
a merger, consolidation or other acquisition, except that
Growth
Fund, Growth and Income Fund and Municipal Bond Fund may
acquire
shares of other open-end investment companies to the extent
permitted by rule or order of the SEC exempting them from the
limitations imposed by Section 12(d)(1) of the 1940 Act;
7. Purchase a restricted security or a security for which
market
quotations are not readily available if as a result of such
purchase more than 5% of the Fund's assets would be invested
in
such securities; provided, however, that with respect to
Growth
Fund, Growth and Income Fund and Municipal Bond Fund, this
limitation shall exclude shares of other open-end investment
companies owned by the Fund but include the Fund's pro rata
portion of the securities and other assets owned by any such
company. Illiquid securities include securities subject to
legal
or contractual restrictions on resale, which include
repurchase
agreements which have a maturity of longer than seven days.
This
policy does not apply to restricted securities eligible for
resale
pursuant to Rule 144A under the 1933 Act which the Trustees or
the
manager under Board approved guidelines may determine are
liquid
nor does it apply to other securities for which,
notwithstanding
legal or contractual restrictions on resale, a liquid market
exists;
8. Invest more than 5% of its assets in companies having a
record
together with predecessors, of less than three years'
continuous
operation, except that Growth Fund, Growth and Income Fund and
Municipal Bond Fund, may acquire shares of other open-end
investment companies to the extent permitted by rule or order
of
the SEC exempting them from the limitations imposed by
Section 12(d)(1) of the 1940 Act;
9. Engage in option writing for speculative purposes or
purchase
call or put options on securities if, as a result, more than
5% of
its net assets of the Fund would be invested in premiums on
such
options; and
10. Purchase any security issued by any company deriving more
than 25% of its gross revenues from the manufacture of alcohol
or
tobacco.
The Trust has adopted additional investment restrictions, with
respect to the above referenced Funds, which may be changed by
the
Trustees without a vote of shareholders, as follows:
The Trust shall not make short sales of securities unless at
the
time of sale a Fund owns or has the right to acquire at no
additional cost securities identical to those sold short;
provided
that this prohibition does not apply to the writing of options
or
the sale of forward contracts, futures, foreign currency
futures
or related options.
Foreign Investments. Growth Fund and Growth and Income Fund
may
not invest in the securities of a foreign issuer if, at the
time
of acquisition, more than 20% of the value of the Fund's total
assets would be invested in such securities.
Futures Contracts and Options. In addition, Growth Fund and
Growth and Income Fund may not write, purchase or sell puts,
calls
or combinations thereof, except that each Fund may (a) write
covered call options with respect to any part or all of its
portfolio securities, write secured put options, or enter into
closing purchase transactions with respect to such options,
(b) purchase and sell put options to the extent that the
premiums
paid for all such options do not exceed 10% of its total
assets
and only if the Fund owns the securities covered by the put
option
at the time of purchase, and (c) engage in futures contracts
and
related options transactions as described herein. Growth Fund
and
Growth and Income Fund may purchase put and call options which
are
purchased on an exchange in other markets, or currencies and,
as
developed from time to time, various futures contracts on
market
indices and other instruments. Purchasing options may
increase
investment flexibility and improve total return, but also
risks
loss of the option premium if an asset the Fund has the option
to
buy declines in value.
Government Fund may not write, purchase or sell puts, calls or
combinations thereof, except that the Fund may (a) write
covered
or fully collateralized call options, write secured put
options,
and enter into closing or offsetting purchase transactions
with
respect to such options, (b) purchase and sell options to the
extent that the premiums paid for all such options owned at
any
time do not exceed 10% of its total assets, and (c) engage in
futures contracts and related options transactions as
described
herein.
Municipal Bond Fund may engage in futures contracts and
related
options as described herein.
The following restrictions apply to Small Cap Fund and
International Equity Fund:
A Fund shall not:
1. Make any investment in real estate, commodities or
commodities
contracts, except that each Fund may engage in transactions in
forward commitments, futures contracts, foreign currency
futures
and related options and may purchase or sell securities which
are
secured by real estate or interests therein; or issued by
companies; including real estate investment trusts, which
invest
in real estate or interests therein; and International Equity
Fund
may engage in currency transactions; and
2. Issue senior securities, as defined in the 1940 Act,
except
that this restriction shall not be deemed to prohibit a Fund
from
(i) making and collateralizing any permitted borrowings,
(ii) making any permitted loans of its portfolio securities,
or
(iii) entering into repurchase agreements, utilizing options,
futures contracts and foreign currency futures and options
thereon, forward contracts, forward commitments and other
investment strategies and instruments that would be considered
"senior securities" but for the maintenance by the Fund of a
segregated account with its custodian or some other form of
"cover."
The Trust has adopted additional investment restrictions with
respect to Small Cap Fund and International Equity Fund, which
may
be changed by the Trustees without a vote of shareholders.
These
restrictions provide that a Fund shall not:
1. Purchase securities on margin, except that a Fund may
obtain
such short-term credits as may be necessary for the clearance
of
purchases and sales of securities. The deposit or payment by
a
Fund of an initial or variation margin in connection with
forward
contracts, futures contracts, foreign currency futures or
related
option transactions is not considered the purchase of a
security
on margin;
2. Invest in securities of any company if any officer or
trustee
of the Trust or of the manager owns more than 1/2 of 1% of
the
outstanding securities of such company, and such officers and
trustees own more than 5% of the outstanding securities of
such
issuer;
3. Invest in oil or other mineral leases, rights or royalty
contracts or exploration or development programs, except that
Small Cap Fund and International Equity Fund may invest in the
securities of companies which invest in or sponsor such
programs;
4. Invest in companies for the purpose of acquiring control
or
management thereof;
5. Invest in the securities of other open-end investment
companies, or invest in the securities of closed-end
investment
companies except through purchase in the open market in a
transaction involving no commission or profit to a sponsor or
dealer (other than the customary brokers commission) or as
part of
a merger, consolidation or other acquisition, except that
Small
Cap Fund and International Equity Fund, may acquire shares of
other open-end investment companies to the extent permitted by
rule or order of the SEC exempting them from the limitations
imposed by Section 12(d)(1) of the 1940 Act;
6. Purchase an illiquid security if, as a result of such
purchase, more than 15% of the Fund's net assets would be
invested
in such securities; provided, however, that with respect to
Small
Cap Fund and International Equity Fund, this limitation shall
exclude shares of other open-end investment companies owned by
the
Fund but include the Fund's pro rata portion of the securities
and
other assets owned by any such company. Illiquid securities
include securities subject to legal or contractual
restrictions on
resale, which include repurchase agreements which have a
maturity
of longer than seven days. This policy does not apply to
restricted securities eligible for resale pursuant to Rule
144A
under the 1933 Act which the Trustees or the manager or
Subadviser
under Board-approved guidelines, may determine are liquid nor
does
it apply to other securities for which, notwithstanding legal
or
contractual restrictions on resale, a liquid market exists;
7. Except for International Equity Fund, purchase any
security
issued by any company deriving more than 25% of its gross
revenues
from the manufacture of alcohol or tobacco;
8. Make short sales of securities, unless at the time of sale
a
Fund owns or has the right to acquire at no additional cost
securities identical to those sold short; provided that this
prohibition does not apply to the writing of options or the
sale
of forward contracts, futures, foreign currency futures or
related
options; and
9. Invest more than 5% of its net assets in warrants or
rights
valued at the lower of cost or market, nor more than 2% of its
net
assets in warrants or rights (valued on such basis) which are
not
listed on the New York or American Stock Exchanges. Warrants
or
rights acquired in units or attached to other securities are
not
subject to the foregoing limitations.
Foreign Investments for Funds Other than the International
Equity
Fund. Small Cap Fund may not invest in the securities of a
foreign issuer if, at the time of acquisition, more than 20%
of
the value of the Fund's total assets would be invested in such
securities.
Futures Contracts and Options. In addition, Small Cap Fund
and
International Equity Fund may purchase put and call options
which
are purchased on an exchange in other markets, or currencies
and,
as developed from time to time, various futures contracts on
market indices and other instruments. Purchasing options may
increase investment flexibility and improve total return, but
also
risks loss of the option premium if an asset the Fund has the
option to buy declines in value.
The following restrictions apply only to the Mid Cap Fund:
The Fund has adopted the following investment restrictions for
the
protection of shareholders. Restrictions 1 through 7 below
cannot
be changed without approval by the holders of a majority of
the
outstanding shares of the Fund, defined as the lesser of (a)
67%
or more of the Fund's shares present at a meeting, if the
holders
of more than 50% of the outstanding shares are present in
person
or by proxy or (b) more than 50% of the Fund's outstanding
shares.
The remaining restrictions may be changed by the Fund's Board
of
Trustees at any time. In accordance with these restrictions,
the
Fund will not:
1. Invest in a manner that would cause it to fail to be a
"diversified company" under the 1940 Act and the rules,
regulations and orders thereunder.
2. Issue "senior securities" as defined in the 1940 Act,
and the
rules, regulations and orders thereunder, except as permitted
under the 1940 Act and the rules, regulations and orders
thereunder.
3. Invest more than 25% of its total assets in securities,
the
issuers of which conduct their principal business activities
in
the same industry. For purposes of this limitation, securities
of
the U.S. government (including its agencies and
instumentalities)
and securities of state or municipal governments and their
political subdivisions are not considered to be issued by
members
of any industry.
4. Borrow money, except that (a) the Fund may borrow from
banks
for temporary or emergency (not leveraging) purposes,
including
the meeting of redemption requests which might otherwise
require
the untimely disposition of securities, and (b) the Fund may,
to
the extent consistent with its investment policies, enter
into
reverse repurchase agreements, forward roll transactions and
similar investment strategies and techniques. To the extent
that
it engages in transactions described in (a) and (b), the Fund
will be limited so that no more than 33 1/3% of the value of
its
total assets (including the amount borrowed), valued at the
lesser of cost or market, less liabilities (not including the
amount borrowed) valued at the time the borrowing is made, is
derived from such transactions.
5. Make loans. This restriction does not apply to: (a) the
purchase of debt obligations in which the Fund may invest
consistent with its investment objective and policies; (b)
repurchase agreements; and (c) loans of its portfolio
securities,
to the fullest extent permitted under the 1940 Act.
6. Engage in the business of underwriting securities issued
by
other persons, except to the extent that the Fund may
technically
be deemed to be an underwriter under the Securities Act of
1933,
as amended, in disposing of portfolio securities.
7. Purchase or sell real estate, real estate mortgages,
commodities or commodity contracts, but this restriction shall
not
prevent the Fund from: (a) investing in securities of issuers
engaged in the real estate business or the 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
Funds' investment objective and policies); or (d) investing in
real estate investment trust securities.
8. Purchase any 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 Fund 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.
9. Invest in oil, gas or other mineral exploration or
development
programs.
10. 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.
11. Invest for the purpose of exercising control of
management.
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 tc "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); 62.
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; 61.
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; 52.
HEATH B. McLENDON,* Trustee. Managing Director of Salomon
Smith
Barney; President and Chairman of 71 investment companies
associated with Citigroup, President and Director of the
manager
and Travelers Investment Adviser, Inc. ("TIA"); 66.
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; 58.
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; 57.
*Denotes a Trustee that is an "interested person" of the Trust
within the meaning of the 1940 Act.
OFFICERS
Heath B. McLendon, President and Chief Executive Officer (See
description under "Trustees"). His address is 7 World Trade
Center, New York, New York 10048.
Lewis E. Daidone, Senior Vice President and Treasurer (Age
42).
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 or Executive Vice
President
and Treasurer of 61 investment companies associated with
Citigroup. His address is 388 Greenwich Street, New York, New
York 10013.
Sandip A. Bhagat, Vice President and Investment Officer (Age
39).
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
48).
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
52).
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 48).
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
42).
Managing Director of Salomon Smith Barney; Mr. Russell is Vice
President and Investment Officer of six other Smith Barney
Mutual
Funds. His address is 7 World Trade Center, New York, New
York
10048.
Larry Weissman, Vice President and Investment Officer; (Age 38
).
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 49). Managing Director of
Salomon Smith Barney; Secretary of 61 investment companies
associated with Citigroup; General Counsel and Secretary of
the
manager and TIA. Her address is 388 Greenwich Street, New
York,
New York 10013.
Paul A. Brook, Controller (Age 46). Managing Director of
Salomon
Smith Barney; Controller or Assistant Treasurer of 43
investment
companies affiliated with Citigroup since 1998; Prior to 1998
Managing Director of AMT Capital Services Inc.; Prior to 1997,
Partner with Ernst & Young LLP.
As of February 14, 2000, 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 February 14, 2000, 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
The Funds pay each of the Trustees who is not a director,
officer
or employee of the manager or any of its affiliates an annual
fee
of $48,000 plus $2000 for each Board of Trustees meeting
attended,
$1000 for each Committee meeting attended (each Committee
chairman
is paid an additional $300 for each Committee meeting
attended),
$1000 for each telephonic Board meeting in which participated
(unless such meeting is for information purposes only in which
case $100 is paid). In addition, the Funds will reimburse
these
trustees for travel and out-of-pocket expenses incurred in
connection with Board of Trustees meetings. For the fiscal
year
ended October 31, 1999, such expenses totaled $14, 367.50.
Information regarding compensation paid by the Funds to the
Trustees is set forth below. The compensation shown for the
Funds
is for the fiscal year ended October 31, 1999. 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:
SM = Small Cap Fund
MC = Mid Cap Fund
INT = International Equity Fund
G = Growth Fund
G/I = Growth and Income Fund
GVT = Government Fund
MB = Municipal Bond Fund
Name
SM MC(2) INT
G G/I GVT
MB
Retirem
ent
Benefit
s
Accrued
as Part
of Fund
Expense
s
(1)
Total
Compen-
sation
Paid From
Trust
and Fund
Complex
Dr. Donald M.
Carlton
$2,59
9
$79
$551
$37,85
6
$12,03
0
$1,81
3
$1,02
8
- -
$56,000
Dr. A. Benton
Cocanougher
$2,64
3
$85
$560
$38,53
2
$11,69
3
$2,39
5
$1,04
7
- -
$57,000
Stephen Randolph
Gross
$2,71
1
$85
$574
$39,92
0
$12,12
2
$2,46
2
$1,08
1
- -
$59,000
Heath B. McLendon*
- -
- -
- -
- -
- -
- -
- -
- -
- -
Dr. Alan G. Merten
$2,64
3
$85
$560
$38,53
2
$11,69
3
$2,39
5
$1,04
7
- -
$56,000
Dr. R. Richardson
Pettit
$2,71
1
$85
$574
$39,92
0
$11,69
3
$2,46
2
$1,08
1
- -
$59,000
*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 1999 fiscal
year were $15,901, $0, $0, $1,124,006, $304,766, $88,194, and
$37,951, for the Small Cap Fund, Mid Cap 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) Amounts reflect compensation received from March 15,
1999,
the date of inception for the Mid Cap Fund.
INVESTMENT ADVISORY AGREEMENTS tc "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 Fund (each, an "Advisory
Agreement"
and together, the "Advisory Agreements"). An investment
advisory
agreement with the manager and the Trust, on behalf of each
Fund
had been approved by the Board of Trustees of the Trust at a
meeting held on June 14, 1999 and by shareholders of each Fund
at
a meeting held on December 18, 1997. 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 Fund'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 Fund. 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.
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 Small Cap Fund, Growth Fund and Growth and Income Fund
(calculated separately for each Fund), 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 Fund, 0.75% of the Fund's average daily net
assets.
? For International Equity Fund, 1.00% of the Fund's average
daily net assets.
? For the Government Fund, 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 Fund's average daily net assets in excess of $5 billion.
? For the Municipal Bond Fund, 0.60% of the first $1 billion;
0.55% of the next $1 billion; 0.50% of the next $1 billion;
and
0.45% of the Fund's average daily net assets in excess
of $3 billion.
The manager may, from time to time, agree to waive its
investment
advisory fees or any portion thereof or elect to reimburse a
Fund
for ordinary business expenses in excess of an agreed upon
amount.
The average daily net assets of each Fund are determined by
taking
the average of all of the determinations of net asset value of
such Fund 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.
The following table shows expenses paid under the relevant
investment advisory agreement during the fiscal year periods
ended
October 31, 1999, 1998 and 1997.
Small
Cap
Internatio
nal Equity
Growth
Growth &
Income
Governmen
t
Municipa
l Bond
Mid Cap
October 31, 1999
Accounting
Services
- -
- -
- -
- -
- -
- -
- -
Gross Advisory
Fees
$1,632,814
$545,582
$26,462,
719
$9,381,4
62
$1,320,70
2
$719,565
$73,778*
October 31, 1998
Accounting
Services
- -
- -
- -
- -
- -
- -
- -
Gross Advisory
Fees
$1,354,479
$376,585
$23,343,
634
$8,627,1
08
$1,523,61
3
$687,628
- -
October 31, 1997
Accounting
Services
$37,198
$21,601
$420,043
$161,748
$55,786
$39,999
- -
Gross Advisory
Fees
904,959
267,897
20,533,5
44
7,574,20
9
1,702,968
704,693
- -
________________
*Had the manager not waived the management fee and reimbursed
certain expenses in order to cap total annual fund expenses,
the
Gross Advisory Fees for the Mid Cap Fund would have been
$137,240.
For the fiscal year ended October 31, 1997 and for the period
from
November 1, 1997 to December 31, 1997, amounts paid by the
Funds
under the relevant investment advisory agreements were paid to
Van
Kampen American Capital Asset Management Inc. ("VKAC"). VKAC
served as the Trust's investment adviser until December 31,
1997,
when the SSB Citi replaced VKAC as the manager of each Fund.
Prior to December 31, 1997, SSB Citi acted as the Sub-Adviser
to
International Equity Fund.
Each Fund'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 Fund 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 Fund'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.
Management's discussion and analysis and additional
performance
information regarding the Funds during the fiscal year ended
October 31, 1999 is included in the Annual Report dated
October
31, 1999. For PFS Accounts, a copy of the Annual Report may be
obtained upon request and without charge from a PFS
Investments
Registered Representative or by writing or calling the Trust
at
the address or phone number listed on page one. For Other
Accounts, you may request a copy from you financial
professional
or call (800) 625-4554.
Code of Ethics. Pursuant to Rule 17j-1 of the 1940 Act, the
Funds, their investment advisers and principal underwriter
have
adopted codes of ethics that permit personnel to invest in
securities for their own accounts, including securities that
may
be purchased or held by the funds. All personnel must place
the
interests of clients first and avoid activities, interests and
relationships that might interfere with the duty to make
decisions
in the best interests of the clients. All personal securities
transactions by employees must adhere to the requirements of
the
codes and must be conducted in such a manner as to avoid any
actual or potential conflict of interest, the appearance of
such a
conflict, or the abuse of an employee's position of trust and
responsibility.
DISTRIBUTOR tc "Distributor"
CFBDS, Inc., located at 21 Milk Street, Boston MA 02109-5408
(the
"Distributor"), distributes shares of the Funds 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. Prior
to
October 8, 1998, PFS Distributors, Inc. acted as Distributor.
The Distributor may be deemed to be an underwriter for
purposes of
the Securities Act of 1933. From time to time, the
Distributor,
or PFS Distributors, Inc. or any Other Service Agent
(collectively, "Service Agents"), or any of their affiliates,
may
also pay for certain non-cash sales incentives provided to PFS
Investments registered representatives or, as applicable,
other
financial professionals (collectively, "Financial
Professionals").
Such incentives do not have any effect on the net amount
invested.
In addition to the reallowances from the applicable public
offering price described above, Service Agents may, from time
to
time, pay or allow additional reallowances or promotional
incentives, in the form of cash or other compensation to
Financial
Professionals that sell shares of each Fund.
The Distributor may make payments for distribution and/or
shareholder servicing activities out of its past profits and
other
available sources. The Distributor may also make payments for
marketing, promotional or related expenses to dealers. The
amount
of these payments is determined by the distributor and may
vary.
Citigroup and its affiliates may make similar payments under
similar arrangements.
The Distributor acts as the principal underwriter of the
shares of
the Trust pursuant to a written agreement for the Funds
("Underwriting Agreement"). The Distributor has entered into
a
selling agreement with PFS Distributors, Inc. on behalf of PFS
Investments (collectively, "PFS") and with one or more Other
Service Agents giving the Service Agents the right to sell
shares
of each Fund of the Trust on behalf of the Distributor. 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 Fund 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.
Initial Sales Charges - Class A and Class 1.
The following table shows commissions paid as initial sales
charges on Class A and Class 1 shares, amounts retained by the
Distributor and amounts received by PFS Investments during the
periods ended October 31, 1999, 1998, and 1997. Prior to
October
8, 1998, PFS Distributors, Inc. acted as Distributor, and
prior to
the date of this SAI, PFS was the sole Service Agent.
Small
Cap
Mid Cap
Interna
- -tional
Equity
Growth
Growth
&
Income
Govern-
ment
Munici-
pal
October 31, 1999
Total Underwriting
Commissions
$1,205,
157
$20,066
$221,11
3
$13,988,
680
$4,069,
851
$541,65
9
$671,77
8
Amount Retained By
Distributor
120,632
3,328
16,578
2,082,11
5
509,045
57,170
38,485
Amount Received By PFS
Investments
1,034,5
25
16,738
204,535
11,906,5
65
3,560,8
05
414,489
633,293
October 31, 1998
Total Underwriting
Commissions*
$3,282,
907
- -
$490,02
7
$17,475,
434
$6,769,
989
$732,99
2
$810,57
5
Amount Retained By
Distributor
187,397
- -
21,062
2,349,25
5
656,152
67,974
79,312
Amount Received By PFS
Investments
3,095,5
10
- -
468,965
15,126,1
79
6,113,8
37
665,018
731,263
October 31, 1997
Total Underwriting
Commissions
$3,846,
082
- -
$608,72
6
$18,002,
508
$6,979,
966
$808,85
8
$487,30
3
Amount Retained By
Distributor
251,247
- -
37,018
2,787,42
3
825,118
98,702
87,157
Amount Received By PFS
Investments
3,594,8
35
- -
571,708
15,215,0
88
6,154,8
48
710,156
400,146
*For the period November 1, 1997 through October 7, 1998 and
for
the period October 8, 1998 through October 31, 1998, the
commissions were as follows:
Name of Fund
11/01/97
through
10/07/98+
10/08/98
through
10/31/98++
Growth
$16,442,770
$1,032,664
Growth & Income
$6,490,528
$279,461
Small Cap
$3,169,461
$113,446
International Equity
$471,895
$18,132
Government
$694,243
$38,749
Municipal Bond
$745,848
$64,727
+The entire amount was paid to PFS Distributors, Inc.
++ The following amounts were paid to PFS Distributors, Inc.:
$929,398, $251,515, $102,101, $16,319, $34,874 and $58,254,
for
the above listed funds, respectively.
PORTFOLIO TURNOVER tc "Portfolio Turnover"
The portfolio turnover rate may vary greatly from year to year
as
well as within a year. For the 1997, 1998 and 1999 fiscal
years,
each Fund's portfolio turnover rates were:
Fiscal
Year
Ended
10/31
Small Cap
Mid Cap
Internatio
nal Equity
Growth
Growth &
Income
Government
Municipal
Bond
1999
115%
47%
50%
37%
53%
201%
38%
1998
80%
- -
63%
113%
34%
141%
28%
1997
100%
- -
57%
165%
93%
104%
50%
DISTRIBUTION PLANS tc "Distribution Plans"
Rule 12b-1 adopted by the SEC under the 1940 Act permits an
investment company to directly or indirectly pay expenses
associated with the distribution of its shares (''distribution
expenses'') and servicing its shareholders in accordance with
a
plan adopted by the investment company's board of directors
and
approved by its shareholders. Pursuant to such Rule, the Trust
has
adopted two Distribution Plans (hereinafter referred to as the
''Class A Plan'' and the ''Class B Plan'') for its Class A
shares
and Class B shares, respectively. The Rules of Conduct of the
National Association of Securities Dealers, Inc. (''NASD
Rules'')
limit the annual distribution costs and service fees that a
mutual
fund may impose on a class of shares. The NASD Rules also
limit
the aggregate amount which a Fund may pay for such
distribution
costs.
Under the Class A Plan, each Fund pays PFS Distributors, Inc.
and
Salomon Smith Barney, as administrative agents for PFS
Accounts
and Other Accounts, respectively (the "Administrative Agents")
0.25% per annum of its average daily net assets attributable
to
such class of shares as a service fee. The service fee is
intended
to cover shareholder and account maintenance services provided
to
Class A shareholders of each Fund by Financial Professionals.
Under the Class B Plan, Class B shares of each Fund are
subject to
a combined annual distribution fee and service fee at the rate
of
1.00% of a Fund's aggregate average daily net assets
attributable
to such class of shares, which fees are paid to the
Administrative
Agents. Payments are made by each Fund under the Class B Plan
of
0.25% per annum, and distribution fee payments of 0.75% per
annum,
of the aggregate average daily net assets attributable to
Class B
shares. The distribution fee payments are used as
compensation
for sales and promotional activities and marketing of the
Class B
shares. The expenditures under the Class B Plan may consist
of
sales commissions to Financial Professionals for selling Class
B
shares, compensation, sales incentives and payments to sales
and
marketing personnel, and the payment of expenses incurred in
its
sales and promotional activities, including advertising
expenditures related to the Class B shares of a Fund and the
costs
of preparing and distributing promotional materials with
respect
to such Class B shares.
The Distributor is entitled to receive the proceeds of the
initial
sales charge, if any, paid upon the purchase of Class A
shares,
and said amount is paid to Financial Professionals. PFS and
Salomon Smith Barney are entitled to receive the contingent
deferred sales charge paid upon certain redemptions of Class B
shares directly from the Fund, for PFS Accounts and other
Accounts, respectively, for any of the distribution and
service
expenses described above.
During the period they are in effect, the Class A Plan and the
Class B Plan obligate each Fund to pay fees as compensation
for
service (and for the Class B Plan, distribution) activities,
not
as reimbursement for specific expenses incurred. Thus, even
if
such expenses exceed service or distribution fees paid by any
Fund, the Fund will not be obligated to pay more than those
fees
and, if expenses are less than such fees, the Administrative
Agents may retain the full fees and realize a profit. Each
Fund
will pay the applicable service fees and distribution fees
until
either the applicable Plan is terminated or not renewed. In
that
event, expenses in excess of service fees and distribution
fees
received or accrued through the termination date will be the
sole
responsibility of and not obligations of a Fund. In their
annual
consideration of the continuation of each Fund's Plans, the
Trustees will review each Plan and the corresponding expenses
for
each class separately.
Actual distribution expenditures incurred by the
Administrative
Agents and Service Agents under the Class B Plan for any given
year are expected to exceed the fees received by them form the
Funds pursuant to the Class B Plan and pursuant to contingent
deferred sales charges. Such excess will not be carried
forward in
future years. If the Class B Plan is terminated or is not
continued, the Fund would not be contractually obligated and
has
no liability to pay for any expenses incurred that have not
previously reimbursed by the Fund or recovered through
contingent
deferred sales charges.
In reporting amounts expended under the Plans to the Trustees,
expenses attributable to the sale of both Class A and Class B
shares will be allocated to each class based on the ratio of
sales
of Class A and Class B shares to the sales of both classes of
shares. The service fees paid by the Class A shares will not
be
used to subsidize the sale of Class B shares; similarly, the
service fees, if any, and distribution fees paid by the Class
B
shares will not be used to subsidize the sale of Class A
shares.
As required by Rule 12b-1 under the 1940 Act, each Plan and
the
forms of related service agreements were approved by the Board
of
Trustees, including a majority of the Trustees who are not
interested persons (as defined in the 1940 Act) of the Trust
and
who have no direct or indirect financial interest in the
operation
of the Plans or in any agreements related to each Plan
("Independent Trustees"). In doing so, the Board of Trustees
determined that there is a reasonable likelihood that each
Plan
will benefit the Trust and its shareholders.
Each Plan requires that the Trustees be provided at least
quarterly with a written report of the amounts expended
pursuant
to each Plan and the purposes for which such expenditures were
made. Unless sooner terminated in accordance with its terms,
the
Plans continue in effect so long as such continuance is
specifically approved at least annually by the Trustees,
including
a majority of Independent Trustees.
Each Plan may be terminated by vote of a majority of the
Independent Trustees, or by vote of a majority of the
outstanding
voting shares of the relevant class, for any Fund. Any change
in
any of the Plans that would materially increase the
distribution
or service expenses borne by a class of a Fund requires
shareholder approval by the relevant class; otherwise, it may
be
amended by a majority of the Trustees, including a majority of
the
Independent Trustees, by vote cast in person at a meeting
called
for the purpose of voting upon such amendment. So long as a
Plan
is in effect, the selection or nomination of any additional
Independent Trustees is committed to the discretion of the
Independent Trustees.
For the fiscal year ended October 31, 1999, the aggregate
expenses
for the Small Cap Fund under the Fund's Class A Plan were
$319,921
or 0.25%, respectively, of the Class A shares' average net
assets.
For the fiscal year ended October 31, 1999, the Fund's
aggregate
expenses under the Class B Plan were $1,145,992 or 1.00% of
the
Class B shares' average net assets. Such expenses include
$277,184 for commissions and transaction fees and $851,583 for
fees paid for servicing Class B shareholders and administering
the
Class B Plan.
For the fiscal year ended October 31, 1999, the aggregate
expenses
for the Mid Cap Fund under the Fund's Class A Plan were $9,530
or
0.25%, respectively, of the Class A shares' average net
assets.
For the fiscal year ended October 31, 1999, the Fund's
aggregate
expenses under the Class B Plan were $57,514 or 1.00% of the
Class B shares' average net assets. Such expenses included
$3,846
for commissions and transaction fees and $11,537 for fees paid
for
servicing Class B shareholders and administering the Class B
Plan.
For the fiscal year ended October 31, 1999, the aggregate
expenses
for the International Equity Fund under the Fund's Class A
Plan
were $65,440 or 0.25%, respectively, of the Class A shares'
average net assets. For the fiscal year ended October 31,
1999,
the Fund's aggregate expenses under the Class B Plan were
$256,597
or 1.00% of the Class B shares' average net assets. Such
expenses
included $57,908 for commissions and transaction fees and
$173,664
for fees paid for servicing Class B shareholders and
administering
the Class B Plan.
For the fiscal year ended October 31, 1999, the aggregate
expenses
for the Growth Fund under the Class A Plan were $659,586 or
0.25%,
respectively, of the Class A shares' average net assets. For
the
fiscal year ended October 31, 1999, the Fund's aggregate
expenses
under the Class B Plan were $2,669,544 or 1.00% of the Class B
shares' average net assets. Such expenses included $618,460
for
commissions and transaction fees and $1,855,380 for fees paid
for
servicing Class B shareholders and administering the Class B
Plan.
For the fiscal year ended October 31, 1999, the aggregate
expenses
for the Growth and Income Fund under the Fund's Class A Plan
were
$394,715 or 0.25%, respectively, of the Class A shares'
average
net assets. For the fiscal year ended October 31, 1999, the
Fund's aggregate expenses under the Class B Plan were
$1,751,910
or 1.00% of the Class B shares' average net assets. Such
expenses
included $416,008 for commissions and transaction and
$1,248,025
for fees paid for servicing Class B shareholders and
administering
the Class B Plan.
For the fiscal year ended October 31, 1999, the aggregate
expenses
for the Government Fund under the Fund's Class A Plan were
$50,584
or 0.25%, respectively, of the Class A shares' average net
assets.
For the fiscal year ended October 31, 1999, the Fund's
aggregate
expenses under the Class B Plan were $156,434 or 1.00% of the
Class B shares' average net assets. Such expenses included
$34,991 for commissions and transaction fees and $104,972 for
fees
paid for servicing Class B shareholders and administering the
Class B Plan.
For the fiscal year ended October 31, 1999, the aggregate
expenses
for the Municipal Bond Fund under the Fund's Class A Plan were
$65,278 or 0.25%, respectively, of the Class A shares' average
net
assets. For the fiscal year ended October 31, 1999, the
Fund's
aggregate expenses under the Class B Plan were $74,117 or
1.00% of
the Class B shares' average net assets. Such expenses
included
$15,916 for commissions and transaction fees and $47,749 for
fees
paid to for servicing Class B shareholders and administering
the
Class B Plan.
The Distributor and/or Service Agents bear the cost of
printing
(but not typesetting) prospectuses used in connection with
this
offering and the cost and expense of supplemental sales
literature, promotion and advertising. The Trust pays all
expenses attributable to the registrations of its shares under
federal and state blue sky laws, including registration and
filing
fees, the cost of preparation of the prospectuses, related
legal
and auditing expenses, and the cost of printing prospectuses
for
current shareholders.
For the fiscal year ended October 31, 1999, the Distributor
and/or
Service Agents incurred the following distribution expenses
for
the funds:
Fund Name
Advertis
ing
Printing
and
Mailing
of
Prospectu
ses
Support
Service
s
Financial
Profession
als
Intere
st
Expens
e
Total
Small Cap
$3,258
$17,777
- -
$403,133
$280,9
24
$705,092
Mid Cap
$174
$1,092
- -
$37,540
$7,317
$46,123
Internatio
nal
Equity
$699
$3,833
- -
$95,916
$53,64
3
$154,091
Growth
$8,551
$47,829
- -
$990,174
$450,9
89
$1,497,5
43
Growth and
Income
$5,387
$29,720
- -
$609,161
$364,0
02
$1,008,2
70
Government
$381
$2,126
- -
$57,522
$46,84
2
$106,871
Municipal
$372
$2,038
- -
$43,524
$16,49
7
$62,431
The Distributor and/or Service Agents will pay for the
printing,
at printer's overrun cost, of prospectuses and periodic
reports
after they have been prepared, set in type and mailed to
shareholders, and will also pay the cost of distributing such
copies used in connection with the offering to prospective
investors and will also pay for supplementary sales literature
and
other promotional costs. Such expenses incurred by the
Distributor and/or Service Agents are distribution expenses
within
the meaning of the Plans and may be paid from amounts received
by
the Distributor and/or Service Agents from the Trust under the
Plans.
PORTFOLIO TRANSACTIONS AND BROKERAGE tc "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
business 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 Fund 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, 1999, the Trust directed the
payment
of $347,989 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 Funds 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 Funds. In the opinion of the manager, the
benefits from research services to the Funds 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 Funds will not be disproportionate
to
the benefits received by the Funds 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 Funds 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 Funds. 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 Fund the total
brokerage
commissions paid.
Fiscal
Year
Ended
10/31
Small Cap
Mid Cap
Internationa
l Equity
Growth
Growth &
Income
Governmen
t
Municipal
Bond
1999
$468,173
$22,328
$163,053
$2,767,64
8
$587,368
- -
- -
1998
$348,867
- -
$142,261
$8,191,23
7
$1,123,715
- -
- -
1997
$185,242
- -
$115,016
$10,105,4
82
$2,428,087
$140,190
- -
The Funds 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. For the periods
covered below (including those prior to December 31, 1997,
when
the manager assumed investment advisory responsibilities from
VKAC), Smith Barney and Robinson Humphrey were affiliated with
PFS
Distributors, Inc., which was the Distributor prior to October
8,
1998. As of October 31, 1996, Morgan Stanley Group Inc.
("Morgan
Stanley") became an affiliate of VKAC and as of May 31, 1997,
Dean
Witter Discover & Co. ("Dean Witter") also became an affiliate
of
VKAC. Effective December 31, 1997, Morgan Stanley and Dean
Witter
were no longer affiliated with the manager or the Distributor
(or
its predecessor). The Board of Trustees has adopted
procedures
designed to ensure that commissions paid to an affiliated
broker
on any transaction would be comparable to that payable to a
non-affiliated broker in a similar transaction.
The Funds paid the following commissions to affiliated brokers
during the periods shown:
Robinson Smith
Fiscal 1999 Commissions Humphrey Barney
Small Cap $7,110 $99,800
Mid Cap - $240
International Equity - $6,872
Growth $3,000 $120,692
Growth & Income - $42,940
Government - -
Municipal Bond - -
Fiscal 1999 Percentage
Small Cap 1.52% 21.32%
Mid Cap - 1.07%
International Equity - 4.21%
Growth 0.11% 4.36%
Growth & Income - 7.31%
Government - -
Municipal Bond - -
Percentage of Transactions with
Affiliates to Total Transactions
Robinson Smith
Humphrey Barney
Small Cap 1.20% 14.23%
Mid Cap - 0.64%
International Equity - 3.56%
Growth 0.10% 2.84%
Growth & Income - 5.98%
Government - -
Municipal Bond - -
Robinson Smith
Fiscal 1998 Commissions Humphrey Barney
Small Cap $12,679 $29,294
International Equity -0- 9,442
Growth 34,230 363,234
Growth & Income 3,300 99,771
Government - -
Municipal Bond - -
Fiscal 1998 Percentage
Small Cap 3.63% 8.40%
International Equity N/A 6.60%
Growth 0.42% 4.43%
Growth & Income 0.29% 8.88%
Government - -
Municipal Bond - -
Percentage of Transactions with
Affiliates to Total Transactions
Robinson Smith
Humphrey Barney
Small Cap 3.81% 6.31%
International Equity - 7.30%
Growth 0.52% 3.94%
Growth & Income 0.15% 9.12%
Government - -
Municipal Bond - -
Robinson Smith Morgan
Dean
Fiscal 1997 Commissions Humphrey Barney
Stanley Witter
Small Cap - - - -
International Equity - - $9,368
-
Growth $4,500 $327,320
20,688
$17,100
Growth & Income - 90,639 375
-
Government - 27,848 -
-
Municipal Bond - - -
-
Fiscal 1997 Percentage
Small Cap - - - -
International Equity - - 8.14%
-
Growth 0.04% 3.24% 0.20%
0.17%
Growth & Income - 3.73% 0.02% -
Government - 19.86% -
-
Municipal Bond - - -
-
Percentage of Transactions with
Affiliates to Total Transactions
Small Cap - - - -
International Equity - - 1.43%
-
Growth - 0.04% -
0.28%
Growth & Income - - - -
Government - 2.34% - -
Municipal Bond - - -
-
DETERMINATION OF NET ASSET VALUE tc "Determination of Net
Asset
Value"
The assets attributable to the Class A, Class B and Class 1
shares
of each Fund reflect the value of separate interests in a
single
portfolio of securities. The net asset value of each class
will
be determined separately by subtracting the expenses and
liabilities allocated to that class. The net asset value of
the
shares of each Fund 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 Fund'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 Fund's net asset value
may
be significantly affected by such trading on days when a
shareholder has no access to the Funds.
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.
Municipal Bonds are valued by an independent pricing service.
When, in the judgment of the service, quoted bid prices for
investments are readily available and are representative of
the
bid side of the market, these investments are valued at such
quoted bid prices (as obtained by the service from dealers in
such
securities). Other investments are carried at fair value as
determined by the service, based on methods which include
consideration of: yields or prices of municipal bonds of
comparable quality, coupon, maturity and type; indications as
to
values from dealers; and general market conditions. The
service
may employ electronic data processing techniques and/or a
matrix
system to determine valuations. Any assets which are not
valued
by the Service would be valued at fair value using methods
determined in good faith by the Trustees.
PURCHASE AND REDEMPTION OF SHARES tc "Purchase and Redemption
of
Shares"
Alternative Purchase Arrangements. Each Fund offers two
Classes
of shares to investors purchasing through PFS Accounts and
Other
Accounts. Class A shares are sold to investors with an
initial
sales charge and Class B shares are sold without an initial
sales
charge but are subject to a contingent deferred sales charge
("CDSC") payable upon certain redemptions. In addition, the
Funds
offer Class 1 shares only to Eligible Class 1 Purchasers
through
PFS Accounts.
In deciding which Class of Fund shares to purchase, investors
should consider the following factors, as well as any other
relevant facts and circumstances:
Intended Holding Period. The decision as to which Class of
shares
is more beneficial to an investor depends on the amount and
intended duration of his or her investment. Shareholders who
are
planning to establish a program of regular investment may wish
to
consider Class A shares; as the investment accumulates
shareholders may qualify for reduced sales charges and the
shares
are subject to lower ongoing expenses over the term of the
investment. As an alternative, Class B shares are sold
without
any initial sales charge so the entire purchase price is
immediately invested in a Fund. Any investment return on
these
additional invested amounts may partially or wholly offset the
higher annual expenses of this Class. Because a Fund's future
return cannot be predicted, however, there can be no assurance
that this would be the case.
Reduced or No Initial Sales Charge. The initial sales charge
on
Class A shares may be waived for certain eligible purchasers,
and
the entire purchase price will be immediately invested in a
Fund.
In addition, Class A share purchases of $500,000 or more will
be
made at net asset value with no initial sales charge, but will
be
subject to a CDSC of 1.00% on redemptions made within 12
months of
purchase. The $500,000 investment may be met by adding the
purchase to the net asset value of all Class A shares offered
with
a sales charge held in funds listed below under "Exchange
Privilege." Class A share purchases also may be eligible for
a
reduced initial sales charge. Because the ongoing expenses of
Class A shares may be lower than those for Class B shares,
purchasers eligible to purchase Class A shares at net asset
value
or at a value or at a reduced sales charge should consider
doing
so.
Financial Professionals may receive different compensation for
selling different Classes of shares. Investors should
understand
that the purpose of the CDSC on the Class B shares is the same
as
that of the initial sales charge on the Class A shares.
How to Purchase Shares. The procedures for purchasing shares
varies according to whether you purchase through a PFS Account
or
Other Account:
PFS ACCOUNTS
Initial purchases of shares of each Fund must be made through
a
PFS Investments Registered Representative by completing the
appropriate application. The completed application should be
forwarded to the Sub-Transfer Agent, 3100 Breckinridge Blvd.,
Bldg. 200, Duluth, Georgia 30099-0062. Checks drawn on foreign
banks must be payable in U.S. dollars and have the routing
number
of the U.S. bank encoded on the check. Subsequent investments
may
be sent directly to the Sub-Transfer Agent. In processing
applications and investments, the Sub-Transfer Agent acts as
agent
for the investor and for PFS Investments and also as agent for
the
Distributor, in accordance with the terms of the Prospectus.
If
the Sub-Transfer Agent ceases to act as such, a successor
company
named by the Trust will act in the same capacity so long as
the
account remains open.
Shares purchased will be held in the shareholder's account by
the
Sub-Transfer Agent. Share certificates are issued only upon a
shareholder's written request to the Sub-Transfer Agent. A
shareholder who has insufficient funds to complete any
purchase,
will be charged a fee of $27.50 per returned purchase by PFS
or
the Sub-Transfer Agent.
Investors in Class A and Class B shares may open an account by
making an initial investment of at least $1,000 for each
account
in each Class (except for Systematic Investment Plan
accounts), or
$250 for an IRA or a Self-Employed Retirement Plan in a Fund.
Subsequent investments of at least $50 may be made for each
Class.
For participants in retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Code, the minimum initial
investment requirement for Class A and Class B shares and the
subsequent investment requirement for each Class in a Fund is
$25.
For each Fund's Systematic Investment Plan, the minimum
initial
investment requirement for Class A and Class B shares and the
subsequent investment requirement for each Class is $25. There
are
no minimum investment requirements in Class A shares for
employees
of Citigroup and its subsidiaries, including Salomon Smith
Barney,
Directors or Trustees of any of the Smith Barney Mutual Funds,
and
their spouses and children. The Trust reserves the right to
waive
or change minimums, to decline any order to purchase its
shares
and to suspend the offering of shares from time to time.
Purchase
orders received by the Sub-Transfer Agent or Sub-Transfer
Agent
prior to the close of regular trading on the NYSE, on any day
a
Fund calculates its net asset value, are priced according to
the
net asset value determined on that day.
Upon completion of certain automated systems, initial
purchases of
Fund shares may be made by wire. The minimum investment that
can
be made by wire is $10,000. Before sending the wire, the PFS
Investments Inc. Registered Representative must contact the
Sub-
Transfer Agent at (800) 665-8677 to obtain proper wire
instructions. Once an account is open, a shareholder may make
additional investments by wire. The shareholder should
contact
the Sub-Transfer Agent at (800) 544-5445 to obtain proper wire
instructions.
Upon completion of certain automated systems, shareholders who
establish telephone transaction authority on their account and
supply bank account information may make additions to their
accounts at any time. Shareholders should contact the Sub-
Transfer Agent at (800) 544-5445 between 9:00 a.m. and 6:00
p.m.
eastern time any day that the NYSE is open. If a shareholder
does
not wish to allow telephone subsequent investments by any
person
in his account, he should decline the telephone transaction
option
on the account application. The minimum telephone subsequent
investment is $250 and can be up to a maximum of $10,000. By
requesting a subsequent purchase by telephone, you authorize
the
Sub-Transfer agent to transfer funds from the bank account
provided for the amount of the purchase. A shareholder who
has
insufficient funds to complete the transfer will be charged a
fee
of up to $27.50 by PFS or the Sub-Transfer Agent. A
shareholder
who places a stop payment on a transfer or the transfer is
returned because the account has been closed, will also be
charged
a fee of up to $27.50 by PFS or the Sub-Transfer Agent.
Subsequent investments by telephone may not be available if
the
shareholder cannot reach the Sub-Transfer Agent whether
because
all telephone lines are busy or for any other reason; in such
case, a shareholder would have to use the Fund's regular
subsequent investment procedure described above.
OTHER ACCOUNTS
Each Service Agent has agreed to transmit to its customers who
are
shareholders of the Fund appropriate prior written disclosure
of
any fees that it may charge them directly. Each Service Agent
is
responsible for transmitting promptly orders of its customers.
Your Service agent is the shareholder of record for the shares
of
the Fund you own.
Investors may be able to establish new accounts in the fund
under
one of several tax-sheltered plans. Such plans include IRAs,
Keogh or Corporate Profit-Sharing and Money-Purchase Plans,
403(b)
Custodian Accounts, and certain other qualified pension and
profit-sharing plans. Investors should consult with their
Service
Agent and their tax and retirement advisers.
Systematic Investment Plan. Shareholders may make additions
to
their accounts at any time by purchasing shares through a
service
known as the Systematic Investment Plan. Under the Systematic
Investment Plan, the Sub-Transfer Agent or Service Agent is
authorized through preauthorized transfers of $25 or more to
charge the regular bank account or other financial institution
indicated by the shareholder on a monthly basis to provide
systematic additions to the shareholder's Fund account. For
PFS
Accounts, a shareholder who has insufficient funds to complete
the
transfer will be charged a fee of up to $25, and a shareholder
who
places a stop payment on a transfer or the transfer is
returned
because the account has been closed, will also be charged a
fee of
$25.
Initial Sales Charge Alternative - Class A Shares. The sales
charges applicable to purchases of Class A shares of the Small
Cap
Fund, International Equity Fund, Mid Cap Fund, Growth Fund and
Growth and Income Fund are as follows:
Sales Charge
Dealers'
Reallowance as % of
Offering Price
Amount of
Investment
% of
Offering Price
% of
Amount Invested
Less than $ 25,000
5.00%
5.26%
4.50%
$ 25,000 - 49,999
4.00
4.17
3.60
50,000 - 99,999
3.50
3.63
3.15
100,000 - 249,999
3.00
3.09
2.70
250,000 - 499,999
2.00
2.04
1.80
500,000 and over
*
*
*
The sales charges applicable to purchases of Class A shares of
Government Fund and Municipal Fund are as follows:
Sales Charge
Dealers'
Reallowance as % of
Offering Price
Amount of
Investment
% of
Offering Price
% of
Amount Invested
Less than $ 25,000
4.50%
4.71%
4.05%
$ 25,000 - 49,999
4.00
4.17
3.60
50,000 - 99,999
3.50
3.63
3.15
100,000 - 249,999
2.50
2.56
2.25
250,000 - 499,999
1.50
1.52
1.35
500,000 and over
*
*
*
* Purchases of Class A shares of $500,000 or more will be
made at
net asset value without any initial sales charge, but will be
subject to a CDSC of 1.00% on redemptions made within 12
months of
purchase. The CDSC on Class A shares is payable to the
Administrative Agent, which in turn pays Service Agent to
compensate their Financial Professionals whose clients make
purchases of $500,000 or more. The CDSC is waived in the same
circumstances in which the CDSC applicable to Class B shares
is
waived. See ''Deferred Sales Charge Alternatives'' and
''Waivers
of CDSC.''
Members of the selling group may receive up to 90% of the
sales
charge and may be deemed to be underwriters of the Fund as
defined
in the Securities Act of 1933, as amended. The reduced sales
charges shown above apply to the aggregate of purchases of
Class A
Shares of a Fund made at one time by ''any person'', which
includes an individual and his or her immediate family, or a
trustee or other fiduciary of a single trust estate or single
fiduciary account.
Initial Sales Charge Waivers. The initial sales charge does
not
apply to Class A shares acquired through the reinvestment of
dividends and capital gains distributions.
PFS ACCOUNTS
Purchases of Class A shares through PFS Accounts may be made
at
net asset value without a sales charge in the following
circumstances:
(a) sales to Board Members and employees of Citigroup and its
subsidiaries;
(b) sales to Board Members of the Smith Barney Mutual Funds or
any
other mutual funds for which members of Citigroup act as
investment advisor, administrator or service agent (including
retired Board Members); the immediate families of such persons
(including the surviving spouse of a deceased Board Member);
and to a pension, profit-sharing or other benefit plan for
such
persons;
(c) sales to employees of member firms of the National
Association
of Securities Dealers, Inc., provided such sales are made upon
the assurance of the purchaser that the purchase is made for
investment purposes and that the securities will not be resold
except through redemption or repurchase;
(d) issuance to any other investment company to effect the
combination of such company with the Fund by merger,
acquisition of assets or otherwise;
(e) purchases by shareholders who have redeemed Class A shares
in a
Fund (or Class A shares of another fund of the Smith Barney
Mutual Funds that are sold with a maximum sales charge equal
to
or greater than the maximum sales charge of the Fund) and who
wish to reinvest their redemption proceeds in the Fund,
provided the reinvestment is made within 60 calendar days of
the redemption;
(f) purchases by accounts managed by registered investment
advisory
subsidiaries of Citigroup;
(g) sales through Financial Professionals of Service Agents
where
the amounts invested represent the redemption proceeds from
other investment companies, on the condition that (i) the
redemption has occurred no more than 60 days prior to the
purchase of the shares, (ii) the shareholder paid an initial
sales charge on such redeemed shares and (iii) the shares
redeemed were not subject to a deferred sales charge;
(h) direct rollovers by plan participants of distributions
from a
401(k) plan enrolled in the Salomon Smith Barney 401(k)
Program
(note: subsequent investments will be subject to the
applicable
sales charge);
(i) purchases by separate accounts used to fund certain
unregistered variable annuity contracts; and
(j) purchases by investors participating in a Salomon Smith
Barney
fee based arrangement.
PFS may pay its Registered Representatives an amount equal to
0.40% of the amount invested if the purchase represents
redemption
proceeds from an investment company distributed by an entity
other
than PFS Investments. In order to obtain such discounts, the
purchaser must provide sufficient information at the time of
purchase to permit verification that the purchase would
qualify
for the elimination of the sales charge.
In addition, Class A shares of the Funds may be purchased at
net
asset value by the PFS Primerica Corporation Savings and
Retirement Plan (the ''Primerica Plan'') for its participants,
subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended (''ERISA''). Class A shares
so
purchased are purchased for investment purposes and may not be
resold except by redemption or repurchase by or on behalf of
the
Primerica Plan. Class A shares are also offered at net asset
value
to accounts opened for shareholders by PFS Investments
Registered
Representatives where the amounts invested represent the
redemption proceeds from investment companies distributed by
an
entity other than PFS, if such redemption has occurred no more
than 60 days prior to the purchase of shares of the Trust, and
the
shareholder paid an initial sales charge and was not subject
to a
deferred sales charge on the redeemed account. Class A shares
are
offered at net asset value to such persons because of
anticipated
economies in sales efforts and sales related expenses. The
Trust
may terminate, or amend the terms of, offering shares of the
Trust
at net asset value to such persons at any time. PFS may pay
PFS
Investments Registered Representatives through whom purchases
are
made at net asset value an amount equal to 0.40% of the amount
invested if the purchase represents redemption proceeds from
an
investment company distributed by an entity other than PFS.
Contact the Sub-Transfer Agent at (800) 544-5445 for further
information and appropriate forms.
OTHER ACCOUNTS
In certain circumstances, the initial sales charge imposed on
purchases of Class A shares through Other Accounts, and the
CDSC
imposed upon sales of Class A or Class B shares through Other
Accounts, are waived. Waivers are generally instituted in
order to
promote good will with persons or entities with which Citibank
or
the Distributor or their affiliates have business
relationships,
or because the sales effort, if any, involved in making such
sales
is negligible, or, in the case of certain CDSC waivers,
because
the circumstances surrounding the sale of Fund shares were not
foreseeable or voluntary. These sales charge waivers may be
modified or discontinued at any time.
Class A shares may be purchased through Other Accounts without
a
sales charge by:
(a) tax exempt organizations under Section 501(c)(3-13) of the
Internal Revenue Code;
(b) trust accounts for which Citibank, N.A or any subsidiary
or
affiliate of Citibank acts as trustee and exercises
discretionary investment management authority;
(c) accounts for which Citibank or any subsidiary or affiliate
of
Citibank performs investment advisory services or charges fees
for acting as custodian;
(d) directors or trustees (and their immediate families), and
retired directors and trustees (and their immediate families),
of any investment company for which Citibank or any subsidiary
or affiliate of Citibank serves as the investment adviser or
as
a service agent;
(e) employees of Citibank and its affiliates, CFBDS, Inc. and
its
affiliates or any Service Agent and its affiliates (including
immediate families of any of the foregoing), and retired
employees of Citibank and its affiliates or CFBDS, Inc. and
its
affiliates (including immediate families of the foregoing);
(f) investors participating in a fee-based or promotional
arrangement sponsored or advised by Citibank or its
affiliates;
(g) investors participating in a rewards program that offers
Fund
shares as an investment option based on an investor's balances
in selected Citigroup Inc. products and services;
(h) employees of members of the National Association of
Securities
Dealers, Inc., provided that such sales are made upon the
assurance of the purchaser that the purchase is made for
investment purposes and that the securities will not be resold
except through redemption or repurchase;
(i) separate accounts used to fund certain unregistered
variable
annuity contracts;
(j) direct rollovers by plan participants from a 401(k) plan
offered to Citigroup employees;
(k) shareholder accounts established through a reorganization
or
similar form of business combination approved by a Fund's
Board
of Trustees or by the Board of Trustees of any other CitiFund
or mutual fund managed or advised by Citibank (all of such
funds being referred to herein as CitiFunds) the terms of
which
entitle those shareholders to purchase shares of a Fund or any
other CitiFund at net asset value without a sales charge;
(l) employee benefit plans qualified under Section 401 of the
Internal Revenue Code, including salary reduction plans
qualified under Section 401(k) of the Code, subject to minimum
requirements as may be established by CFBDS, Inc. with respect
to the amount of purchase; currently, the amount invested by
the qualified plan in a Fund or in any combination of
CitiFunds
must total a minimum of $1 million;
(m) accounts associated with Copeland Retirement Programs;
(n) investors purchasing $500,000 or more of Class A shares;
in
determining whether a contingent deferred sales charge on
Class
A shares is payable, see "Deferred Sales Charge Alternatives"
below in this section;
(o) subject to appropriate documentation, investors where the
amount invested represents redemption proceeds from a mutual
fund (other than a Concert Investment Series(r) Fund), if:
- - the redeemed shares were subject to an initial sales
charge or a deferred sales charge (whether or not actually
imposed), and
- - the redemption has occurred no more than 60 days prior to
the purchase of Class A shares of the Fund;
(p) an investor who has a business relationship with an
investment
consultant or other registered representative who joined a
broker-dealer which has a sales agreement with CFBDS, Inc.
from
another investment firm within six months prior to the date of
purchase by the investor, if:
- - the investor redeems shares of another mutual fund sold
through the investment firm that previously employed that
investment consultant or other registered representative,
and either paid an initial sales charge or was at some time
subject to, but did not actually pay, a deferred sales
charge or redemption fee with respect to the redemption
proceeds
- - the redemption is made within 60 days prior to the
investment in a Fund, and
- - the net asset value of the shares of the Fund sold to that
investor without a sales charge does not exceed the proceeds
of the redemption.
Volume Discounts. The "Amount of Investment'' referred to in
the
sales charge table set forth above under "Initial Sales Charge
Alternative-Class A Shares'' includes the purchase of Class A
shares in a Fund and, in the case of PFS Accounts, of certain
other Concert and Smith Barney mutual funds. A person
eligible
for a volume discount includes: an individual; members of a
family
unit comprising a husband, wife and minor children; a trustee
or
other fiduciary purchasing for a single fiduciary account
including pension, profit-sharing and other employee benefit
trusts qualified under Section 401(a) of the Code; or multiple
custodial accounts where more than one beneficiary is involved
if
purchases are made by salary reduction and/or payroll
deduction
for qualified and nonqualified accounts and transmitted by a
common employer entity. Employer entity for payroll deduction
accounts may include trade and craft associations and any
other
similar organizations.
PFS ACCOUNTS
Cumulative Purchase Discount. The reduced sales load
reflected in
the sales charge tables applies to purchases of Class A and
Class
1 shares of the various Funds. An aggregate investment
includes
all shares of all of the Funds (and any other eligible funds,
as
described above), plus the shares being purchased. The
current
offering price is used to determine the value of all such
shares.
The same reduction is applicable to purchases under a Letter
of
Intent as described below. PFS Investments must notify the
Distributor at the time an order is placed for a purchase
which
would qualify for the reduced charge on the basis of previous
purchases. Similar notification must be given in writing when
such an order is placed by mail. The reduced sales charge
will
not be applied if such notification is not furnished at the
time
of the order. The reduced sales charge will also not be
applied
unless the records of the Distributor or the Sub-Transfer
Agent
confirm the investor's representations concerning his
holdings.
OTHER ACCOUNTS
Reduced Sales Charge Plan. A qualified group may purchase
shares
as a single purchaser under the reduced sales charge plan. The
purchases by the group are lumped together and the sales
charge is
based on the lump sum. A qualified group
must:
(a) have been in existence for more than six months;
(b) have a purpose other than acquiring Fund shares at a
discount;
(c) satisfy uniform criteria that enable CFBDS, Inc. to
realize
economies of scale in its costs of distributing shares;
(d) have more than ten members;
(e) be available to arrange for group meetings between
representatives of the Funds and the members;
(f) agree to include sales and other materials related to the
Funds
in its publications and mailings to members at reduced or no
cost to the distributor; and
(g) seek to arrange for payroll deduction or other bulk
transmission of investments to the Funds.
Letter of Intent. A Letter of Intent for amounts of $50,000
or
more for PFS Accounts, and $25,000 or more for other Accounts,
provides an opportunity for an investor to obtain a reduced
sales
charge by aggregating investments over a 13-month period,
provided
that the investor refers to such Letter when placing orders.
For
purposes of a Letter of Intent, the ''Amount of Investment''
as
referred to in the preceding sales charge table includes
purchases
of all Class A shares of each Fund and, in the case of PFS
Accounts, other Smith Barney Mutual Funds, offered with a
sales
charge over a 13-month period based on the total amount of
intended purchases plus all Class A and Class 1 shares
previously
purchased and still owned. An alternative is to compute the
13-
month period starting up to 90 days before the date of
execution
of a Letter of Intent. Each investment made during the period
receives the reduced sales charge applicable to the total
amount
of the investment goal. If the goal is not achieved within the
period, the investor must pay the difference between the sales
charges applicable to the purchases made and the charges
previously paid, or an appropriate number of escrowed shares
will
be redeemed. Please contact your Service Agent to obtain a
Letter
of Intent application.
PFS ACCOUNTS
A Letter of Intent applies to purchases of Class A shares of
all
Funds and Class 1 shares of all Funds. When an investor
submits a
Letter of Intent to attain an investment goal within a 13-
month
period, the Sub-Transfer Agent escrows shares totaling 5% of
the
dollar amount of the Letter of Intent in the name of the
investor.
The Letter of Intent does not obligate the investor to
purchase
the indicated amount. In the event the Letter of Intent goal
is
not achieved within the 13-month period, the investor is
required
to pay the difference between the sales charge otherwise
applicable to the purchases made during this period and the
sales
charge actually paid. Such payment may be made directly to
the
Service Agent or, if not paid, the Service Agent will
liquidate
sufficient escrow shares to obtain such difference. If the
goal
is exceeded in an amount which qualifies for a lower sales
charge,
a price adjustment is made at the end of the 13-month period
by
refunding to the investor the amount of excess sales
commissions,
if any, paid during the 13-month period.
OTHER ACCOUNTS
Subject to acceptance by CFBDS, Inc., the Funds' distributor,
and
the conditions mentioned below, each purchase under a letter
of
intent will be made at a public offering price applicable to a
single transaction of the dollar amount specified in the
letter of
intent.
(a) The shareholder or, if the shareholder is a customer of a
Service Agent, his or her Service Agent must inform CFBDS that
the letter of intent is in effect each time shares are
purchased;
(b) The shareholder makes no commitment to purchase additional
shares, but if his or her purchases within 13 months plus the
value of shares credited toward completion of the letter of
intent do not total the sum specified, an increased sales
charge will apply as described below;
(c) A purchase not originally made pursuant to a letter of
intent
may be included under a subsequent letter of intent executed
within 90 days of the purchase if CFBDS is informed in writing
of this intent within the 90-day period;
(d) The value of shares of a Fund presently held, at cost or
maximum offering price (whichever is higher), on the date of
the first purchase under the letter of intent, may be included
as a credit toward the completion of the letter, but the
reduced sales charge applicable to the amount covered by the
letter is applied only to new purchases;
(e) Instructions for issuance of shares in the name of a
person
other than the person signing the letter of intent must be
accompanied by a written statement from the Sub-Transfer Agent
or a Service Agent stating that the shares were paid for by
the
person signing the letter;
(f) Neither income dividends nor capital gains distributions
taken
in additional shares will apply toward the completion of the
letter of intent; and
(g) The value of any shares redeemed or otherwise disposed of
by
the purchaser prior to termination or completion of the letter
of intent are deducted from the total purchases made under the
letter of intent.
If the investment specified in the letter of intent is not
completed (either prior to or by the end of the 13-month
period),
the Sub-Transfer Agent will redeem, within 20 days of the
expiration of the letter of intent, an appropriate number of
the
shares in order to realize the difference between the reduced
sales charge that would apply if the investment under the
letter
of intent had been completed and the sales charge that would
normally apply to the number of shares actually purchased. By
completing and signing the letter of intent, the shareholder
irrevocably grants a power of attorney to the Sub-Transfer
Agent
to redeem any or all shares purchased under the letter of
intent,
with full power of substitution.
Deferred Sales Charge Alternatives. CDSC Shares are sold at
net
asset value next determined without an initial sales charge so
that the full amount of an investor's purchase payment may be
immediately invested in a Fund. A CDSC, however, may be
imposed on
certain redemptions of these shares. "CDSC Shares" are: (i)
Class
B shares and (ii) Class A shares that were purchased without
an
initial sales charge but subject to a CDSC. Any applicable
CDSC
will be assessed on an amount equal to the lesser of the
original
cost of the shares being redeemed or their net asset value at
the
time of redemption. CDSC Shares that are redeemed will not be
subject to a CDSC to the extent that the value of such shares
represents: (a) capital appreciation of Fund assets; (b)
reinvestment of dividends or capital gain distributions; (c)
with
respect to Class B shares, shares redeemed more than five
years
after their purchase; or (d) with respect to Class A shares
that
are CDSC Shares, shares redeemed more than 12 months after
their
purchase.
Class A shares that are CDSC Shares are subject to a 1.00%
CDSC if
redeemed within 12 months of purchase. In circumstances in
which
the CDSC is imposed on Class B shares, the amount of the
charge
will depend on the number of years since the shareholder made
the
purchase payment from which the amount is being redeemed.
Solely
for purposes of determining the number of years since a
purchase
payment, all purchase payments made during a month will be
aggregated and deemed to have been made on the last day of the
preceding statement month. The following table sets forth the
rates of the charge for redemptions of Class B shares by
shareholders.
Years Since Purchase
Payment Was Made
CDSC Applicable to
Small Cap Fund, Mid
Cap Fund,
International Equity
Fund, Growth Fund and
Growth and Income Fund
CDSC Applicable to
Government Fund and
Municipal Fund
First
5.00%
4.50%
Second
4.00
4.00
Third
3.00
3.00
Fourth
2.00
2.00
Fifth
1.00
1.00
Sixth and thereafter
0.00
0.00
Class B Conversion Feature. Class B shares will convert
automatically to Class A shares eight years after the date on
which they were purchased and thereafter will no longer be
subject
to any distribution fees. There will also be converted at that
time such proportion of Class B shares acquired through the
reinvestment of dividends and distributions ("Class B Dividend
Shares") owned by the shareholder as the total number of his
or
her Class B shares converting at the time bears to the total
number of outstanding Class B shares (other than Class B
Dividend
Shares) owned by the shareholder. Because the per share net
asset
value of the Class A shares may be higher than that of the
Class B
shares at the time of conversion, a shareholder may receive
fewer
Class A shares than the number of Class B shares converted,
although the dollar value will be the same.
Class B shares of a Fund purchased in PFS Accounts prior to
December 31, 1997 and subsequently redeemed will remain
subject to
the CDSC at the rates applicable at the time of purchase.
In determining the applicability of any CDSC or the conversion
feature described above, it will be assumed that a redemption
is
made first of shares representing capital appreciation, next
of
shares representing the reinvestment of dividends and capital
gain
distributions and finally of other shares held by the
shareholder
for the longest period of time. The length of time that CDSC
Shares acquired through an exchange have been held will be
calculated from the date that the shares exchanged were
initially
acquired, and Fund shares being redeemed will be considered to
represent, as applicable, capital appreciation or dividend and
capital gain distribution reinvestments in such other funds.
For
Federal income tax purposes, the amount of the CDSC will
reduce
the gain or increase the loss, as the case may be, on the
amount
realized on redemption.
To provide an example, assume an investor purchased 100 Class
B
shares at $10 per share for a cost of $1,000. Subsequently,
the
investor acquired 5 additional shares through dividend
reinvestment. During the fifteenth month after the purchase,
the
investor decided to redeem $500 of his or her investment.
Assuming
at the time of the redemption the net asset value had
appreciated
to $12 per share, the value of the investor's shares would be
$1,260 (105 shares at $12 per share). The CDSC would not be
applied to the amount that represents appreciation ($200) and
the
value of the reinvested dividend shares ($60). Therefore, $240
of
the $500 redemption proceeds ($500 minus $260) would be
charged at
a rate of 4.00% (the applicable rate for Class B shares) for a
total deferred sales charge of $9.60.
For the year ended October 31, 1999, CDSCs paid for Class B
shares
were approximately:
Fund CDSC
Small Cap: $510,297
Mid Cap: $6,541
Government: $113,375
Growth: $767,965
Growth and Income: $639,210
International Equity: $68,326
Municipal Bond: $55,804
Waiver of CDSC.
PFS ACCOUNTS
For PFS Accounts, the CDSC generally is waived on exchanges
and on
redemptions of Class A and Class B shares in the circumstances
described below:
(a) Redemption Upon Disability or Death
The Trust may waive the CDSC on redemptions following the
death or
disability of a Class A or Class B shareholder. An individual
will be considered disabled for this purpose if he or she
meets
the definition thereof in Section 72(m)(7) of the Code, which
in
pertinent part defines a person as disabled if such person "is
unable to engage in any substantial gainful activity by reason
of
any medically determinable physical or mental impairment which
can
be expected to result in death or to be of long-continued and
indefinite duration." While the Trust does not specifically
adopt
the balance of the Code's definition which pertains to
furnishing
the Secretary of Treasury with such proof as he or she may
require, the Sub-Transfer Agent will require satisfactory
proof of
death or disability before it determines to waive the CDSC.
In cases of disability or death, the CDSC may be waived where
the
decedent or disabled person is either an individual
shareholder or
owns the shares as a joint tenant with right of survivorship
or is
the beneficial owner of a custodial or fiduciary account, and
where the redemption is made within one year of the death or
initial determination of disability. This waiver of the CDSC
applies to a total or partial redemption, but only to
redemptions
of shares held at the time of the death or initial
determination
of disability.
(b) Redemption in Connection with Certain Distributions from
Retirement Plans
The Trust may waive the CDSC when a total or partial
redemption is
made in connection with certain distributions from Retirement
Plans. The charge may be waived upon the tax-free rollover or
transfer of assets to another Retirement Plan invested in one
or
more of the Funds; in such event, as described below, the Fund
will "tack" the period for which the original shares were held
on
to the holding period of the shares acquired in the transfer
or
rollover for purposes of determining what, if any, CDSC is
applicable in the event that such acquired shares are redeemed
following the transfer or rollover. The charge also may be
waived
on any redemption which results from the return of an excess
contribution pursuant to Section 408(d)(4) or (5) of the Code,
the
return of excess deferral amounts pursuant to Code Section
401(k)(8) or 402(g)(2), or from the death or disability of the
employee (see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In
addition, the charge may be waived on any minimum distribution
required to be distributed in accordance with Code
Section 401(a)(9).
The Trust does not intend to waive the CDSC for any
distributions
from IRAs or other Retirement Plans not specifically described
above.
(c) Redemption Pursuant to the Trust's Systematic Withdrawal
Plan
A shareholder may elect to participate in a systematic
withdrawal
plan ("Plan") with respect to the shareholder's investment in
a
Fund. Under the Plan, a dollar amount of a participating
shareholder's investment in the Fund will be redeemed
systematically by the Fund on a periodic basis, and the
proceeds
mailed to the shareholder. The amount to be redeemed and
frequency of the systematic withdrawals will be specified by
the
shareholder upon his or her election to participate in the
Plan.
The CDSC may be waived on redemptions made under the Plan.
The amount of the shareholder's investment in a Fund at the
time
the election to participate in the Plan is made with respect
to
the Fund is hereinafter referred to as the "initial account
balance." The amount to be systematically redeemed from such
Fund
without the imposition of a CDSC may not exceed a maximum of
12%
annually of the shareholder's initial account balance. The
Trust
reserves the right to change the terms and conditions of the
Plan
and the ability to offer the Plan.
(d) Involuntary Redemptions of Shares in Accounts that Do Not
Have the Required Minimum Balance
The Trust reserves the right to redeem shareholder accounts
with
balances of less than a specified dollar amount as set forth
in
the Prospectus. Prior to such redemptions, shareholders will
be
notified in writing and allowed a specified period of time to
purchase additional shares to bring the account up to the
required
minimum balance. Any involuntary redemption may only occur if
the
shareholder account is less than the amount specified in the
Prospectus due to shareholder redemptions. The Trust may
waive
the CDSC upon such involuntary redemption.
(e) Redemption by manager
The Trust may waive the CDSC when a total or partial
redemption is
made by the manager with respect to its investments in a Fund.
OTHER ACCOUNTS
See "Initial Sales Charge Waivers-Other Accounts". There is
no
CDSC on shares representing capital appreciation or on shares
acquired through reinvestment of dividends or capital gains
distributions.
The CDSC will be waived for Other Accounts in connection with:
(a) a total or partial redemption made within one year of the
death
of the shareholder; this waiver is available where the
deceased
shareholder is either the sole shareholder or owns the shares
with his or her spouse as a joint tenant with right of
survivorship, and applies only to redemption of shares held at
the time of death;
(b) a lump sum or other distribution in the case of an
Individual
Retirement Account (IRA), a self-employed individual
retirement
plan (Keogh Plan) or a custodian account under Section 403(b)
of the Internal Revenue Code, in each case following
attainment
of age 59 1/2;
(c) a total or partial redemption resulting from any
distribution
following retirement in the case of a tax-qualified retirement
plan;
(d) a redemption resulting from a tax-free return of an excess
contribution to an IRA; and
(e) redemptions made under a Fund's Systematic Withdrawal
Plan.
Purchases of Class 1 Shares. Class 1 shares are offered only
through PFS Accounts, and only to Eligible Class 1 Purchasers,
at
the next determined net asset value plus a sales charge, as
set
forth below.
Small Cap Fund, International Equity Fund, Mid Cap Fund,
Growth
Fund and Growth and Income Fund
Size of Investment
As % of
Net Amount
Invested
As % of
Offering
Price
Reallowed to
PFS
(as a % of
Offering
Price)*
Less than $10,000
9.29%
8.50%
7.00%
$ 10,000 but less than
$ 25,000
8.40%
7.75%
6.25%
$ 25,000 but less than
$ 50,000
6.38%
6.00%
5.00%
$ 50,000 but less than
$ 100,000
4.71%
4.50%
3.75%
$ 100,000 but less than
$ 250,000
3.63%
3.50%
3.00%
$ 250,000 but less than
$ 400,000
2.56%
2.50%
2.00%
$ 400,000 but less than
$ 600,000
2.04%
2.00%
1.60%
$ 600,000 but less than
$5,000,000
1.01%
1.00%
0.75%
$5,000,000 or more
0.25%
0.25%
0.20%
Government Fund
Size of Investment
As % of
Net Amount
Invested
As % of
Offering
Price
Reallowed to
PFS
(as a % of
Offering
Price)*
Less than $25,000
7.24%
6.75%
6.00%
$ 25,000 but less than
$ 50,000
6.10%
5.75%
5.00%
$ 50,000 but less than
$ 100,000
4.44%
4.25%
3.50%
$ 100,000 but less than
$ 250,000
3.63%
3.50%
2.75%
$ 250,000 but less than
$ 500,000
2.56%
2.50%
2.00%
$ 500,000 but less than
$1,000,000
2.04%
2.00%
1.60%
$1,000,000 but less than
$2,500,000
1.01%
1.00%
0.75%
$2,500,000 but less than
$5,000,000
0.50%
0.50%
0.40%
$5,000,000 or more
0.25%
0.25%
0.20%
Municipal Bond Fund
Size of Investment
As % of
Net Amount
Invested
As % of
Offering
Price
Reallowed
to PFS (as
a % of
Offering
Price)*
Less than $100,000
4.99%
4.75%
4.25%
$ 100,000 but less than
$ 250,000
3.90%
3.75%
3.25%
$ 250,000 but less than
$ 500,000
3.09%
3.00%
2.50%
$ 500,000 but less than
$1,000,000
2.04%
2.00%
1.60%
$1,000,000 but less than
$2,500,000
1.01%
1.00%
0.75%
$2,500,000 but less than
$5,000,000
0.50%
0.50%
0.40%
$5,000,000 or more
0.25%
0.25%
0.20%
* Additionally, PFS Distributors, Inc. pays to PFS
Investments a
promotional fee calculated as a percentage of the sales charge
reallowed to PFS. The percentage used in the calculation is
3%.
The Distributor may be deemed to be an underwriter for
purposes of
the Securities Act of 1933. From time to time, Service Agents
or
their affiliates may also pay for certain non-cash sales
incentives provided to financial professionals. Such
incentives do
not have any effect on the net amount invested. In addition to
the
reallowances from the applicable public offering price
described
above, Service Agents may, from time to time, pay or allow
additional reallowances or promotional incentives, in the form
of
cash or other compensation to financial professionals that
sell
shares of the Trust.
Class 1 shares may be purchased at net asset value by the
Primerica Plan for Eligible Class 1 Purchasers participating
in
the Primerica Plan, subject to the provisions of ERISA. Shares
so
purchased are purchased for investment purposes and may not be
resold except by redemption or repurchase by or on behalf of
the
Primerica Plan. Class 1 Shares are also offered at net asset
value
to accounts opened for shareholders by PFS Investments
Registered
Representatives where the amounts invested represent the
redemption proceeds from investment companies distributed by
an
entity other than the Distributor, if such redemption has
occurred
no more than 60 days prior to the purchase of shares of the
Trust
and the shareholder paid an initial sales charge and was not
subject to a deferred sales charge on the redeemed account.
Shares
are offered at net asset value to such persons because of
anticipated economies in sales efforts and sales related
expenses.
The Trust may terminate, or amend the terms of, offering
shares of
the Trust at net asset value to such persons at any time. PFS
may
pay PFS Investment Registered Representatives through whom
purchases are made at net asset value an amount equal to 0.40%
of
the amount invested if the purchase represents redemption
proceeds
from an investment company distributed by an entity other than
the
Distributor. Contact the Sub-Transfer Agent at (800) 544-5445
for
further information and appropriate forms.
Investors purchasing Class 1 shares may under certain
circumstances be entitled to reduced sales charges. The
circumstances under which such investors may pay reduced sales
charges are the same as those described above under
''Purchases of
Shares-''Volume Discounts'' and ''Letter of Intent.''
EXCHANGE PRIVILEGE tc "Exchange Privilege"
Exchange privilege - General.
Class A Exchanges. Class A shareholders of each Fund who wish
to
exchange all or a portion of their shares for Class A shares
in
any funds eligible for the exchange privilege may do so
without
imposition of any charge.
Class B Exchanges. In the event a Class B shareholder wishes
to
exchange all or a portion of his or her shares into any of the
funds imposing a higher CDSC than that imposed by the Fund
then
owned, the exchanged Class B shares will be subject to the
higher
applicable CDSC. Upon an exchange, the new Class B shares will
be
deemed to have been purchased on the same date as the Class B
shares of the Fund that have been exchanged.
PFS ACCOUNTS
For PFS Accounts, shares of each class of a Fund may be
exchanged
at the net asset value next determined for shares of the same
class in the other Funds of the Trust and in the following
funds,
to the extent shares are offered for sale in the shareholder's
state of residence. Exchanges of Class 1 shares into a fund
that
does not offer Class 1 shares may be made for Class A shares
of
such fund. Exchanges are subject to minimum investment
requirements and all shares are subject to the other
requirements
of the fund into which exchanges are made.
- -Concert Peachtree Growth Fund
- -Concert Social Awareness Fund
- -Smith Barney Appreciation Fund Inc.
- -Smith Barney Concert Allocation Series Inc.-Balanced
Portfolio
- -Smith Barney Concert Allocation Series Inc.-Conservative
Portfolio
- -Smith Barney Concert Allocation Series Inc.- Growth
Portfolio
- -Smith Barney Concert Allocation Series Inc.-High Growth
Portfolio
- -Smith Barney Concert Allocation Series Inc.-Income
Portfolio
- -Smith Barney Investment Grade Bond Fund
- -*Smith Barney Money Funds, Inc.-Cash Portfolio
- -**Smith Barney Exchange Reserve Fund
* Available for exchange with Class A shares of a Fund.
** Available for exchange with Class B shares of a Fund.
Shareholders who establish telephone transaction authorization
on
their account may request an exchange by telephone. If a
shareholder does not wish to allow telephone exchanges by any
person in his account, he should decline the telephone
transaction
option on the account application. Redemption procedures
discussed
below are also applicable for exchanging shares, and exchanges
will be made upon receipt of all supporting documents in
proper
form. Exchanges between funds involving exact registrations
do
not require a signature guarantee.
OTHER ACCOUNTS
For Other Accounts, Class A and Class B shares of a Fund may
be
exchanged for shares of the same class in any other Fund of
the
Trust, or for shares of the same class of CitiFunds Cash
Reserves.
Additional Information Regarding the Exchange Privilege.
Although the exchange privilege is an important benefit,
excessive
exchange transactions can be detrimental to a Fund's
performance
and its shareholders. The Trust may determine that a pattern
of
frequent exchanges is excessive and contrary to the best
interests
of each Fund's other shareholders. In this event, the Trust
may,
at its discretion, decide to limit additional purchases and/or
exchanges by the shareholder. Upon such a determination by the
Trust, the Trust will provide notice in writing or by
telephone to
the shareholder at least 15 days prior to suspending the
exchange
privilege and during the 15 day period the shareholder will be
required to (a) redeem his or her shares in the Fund or (b)
remain
invested in the Fund or exchange into any of the other funds
eligible for the exchange privilege, and the shareholder would
be
expected to maintain such investment for a significant period
of
time. All relevant factors will be considered in determining
what
constitutes an abusive pattern of exchanges.
By use of the exchange privilege, the investor authorizes the
Sub-
Transfer Agent to act on written exchange instructions from
any
person representing himself to be the investor or the agent of
the
investor and believed by the Sub-Transfer Agent to be genuine.
The Sub-Transfer Agent's records of such instructions are
binding.
For purposes of determining the sales charge rate previously
paid
on Class A (and for PFS Accounts, Class 1 shares) of a Fund,
all
sales charges paid on the exchanged security and on any
security
previously exchanged for such security or for any of its
predecessors shall be included. If the exchanged security was
acquired through reinvestment, that security is deemed to have
been sold with a sales charge rate equal to the rate
previously
paid on the security on which the dividend or distribution was
paid. If a shareholder exchanges less than all of his
securities,
the security upon which the highest sales charge rate was
previously paid is deemed exchanged first.
Exchange requests received on a business day prior to the time
shares of a Fund involved in the request are priced will be
processed on the date of receipt. "Processing" a request
means
that shares in a fund from which the shareholder is
withdrawing an
investment will be redeemed at the net asset value per share
next
determined on the date of receipt. Shares of the new fund
into
which the shareholder is investing will also normally be
purchased
at the net asset value per share next determined on the date
of
receipt. Exchange requests received on a business day after
the
time shares of the Funds involved in the request are priced
will
be processed on the next business day in the manner described
above.
Redemption procedures discussed below are also applicable for
exchanging shares, and exchanges will be made upon receipt of
all
supporting documents in proper form. If the account
registration
of the shares of the fund being acquired is identical to the
registration of the shares of the fund exchanged, no signature
guarantee is required. An exchange involves a redemption of
shares, which is a taxable transaction. Before exchanging
shares,
investors should read the current prospectus describing the
shares
to be acquired. Each Fund reserves the right to modify or
discontinue exchange privileges upon 60 days' prior notice to
shareholders.
REDEMPTION OF SHARES
Redemption-General. In all cases, the redemption price is the
net
asset value per share of the Fund next determined after the
request for redemption is received in proper form by the Sub-
Transfer Agent (in the case of PFS Accounts, the Sub-Transfer
Agent). Payment for shares redeemed will be made by check
mailed
within three days after acceptance by the Sub-Transfer Agent
(in
the case of PFS Accounts, the Sub-Transfer Agent) of the
request
and any other necessary documents in proper order. Such
payment
may be postponed or the right of redemption suspended as
provided
by the rules of the SEC. If the shares to be redeemed have
been
recently purchased by check or draft, the Sub-Transfer Agent
(in
the case of PFS Accounts, the Sub-Transfer Agent) may hold the
payment of the proceeds until the purchase check or draft has
cleared, usually a period of up to 15 days. A redemption of
shares is a taxable transaction for the shareholder.
The Trust may suspend the right of redemption or postpone the
date
of payment for shares of a Fund more than seven days during
any
period when (a) trading in the markets a Fund normally
utilizes is
restricted, or an emergency, as defined by the rules and
regulations of the SEC exists making disposal of the Fund's
investments or determination of its net asset value not
reasonably
practicable; (b) the New York Stock Exchange is closed (other
than
customary weekend and holiday closings); or (c) the SEC has by
order permitted such suspension.
PFS ACCOUNTS
Shareholders may redeem for cash some or all of their shares
of a
Fund at any time by sending a written request in proper form
directly to the Sub-Transfer Agent, PFS Shareholder Services,
at
3100 Breckinridge Blvd, Bldg. 200, Duluth, Georgia 30099-0062.
If
you should have any questions concerning how to redeem your
account after reviewing the information below, please contact
the
Sub-Transfer Agent at (800) 544-5445, Spanish-speaking
representatives (800) 544-7278 or TDD Line for the Hearing
Impaired (800) 824-1721.
The request for redemption must be signed by all persons in
whose
names the shares are registered. Signatures must conform
exactly
to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not paid to the record
owner(s) at the record address, if the shareholder(s) has had
an
address change in the past 45 days, or if the shareholder(s)
is a
corporation, sole proprietor, partnership, trust or fiduciary,
signature(s) must be guaranteed by one of the following: a
bank or
trust company; a broker-dealer; a credit union; a national
securities exchange, registered securities association or
clearing
agency; a savings and loan association; or a federal savings
bank.
Generally, a properly completed Redemption Form with any
required
signature guarantee is all that is required for a redemption.
In
some cases, however, other documents may be necessary. For
example, in the case of shareholders holding certificates, the
certificates for the shares being redeemed must accompany the
redemption request. Additional documentary evidence of
authority
is also required by the Sub-Transfer Agent in the event
redemption
is requested by a corporation, partnership, trust, fiduciary,
executor or administrator. Additionally, if a shareholder
requests
a redemption from a Retirement Plan account (IRA, SEP or
403(b)(7)), such request must state whether or not federal
income
tax is to be withheld from the proceeds of the redemption
check.
A shareholder may utilize the Sub-Transfer Agent's Telephone
Redemption service to redeem his or her account as long as
they
have authorized the telephone redemption option. If a
shareholder
does not wish to allow telephone redemptions by any person in
his
account, he should decline the telephone transaction option on
the
account application. The telephone redemption option can be
used
only if: (a) the redemption proceeds are to be mailed to the
address of record and there has been no change of address of
record within the preceding 45 days; (b) the shares to be
redeemed
are not in certificate form; (c); the person requesting the
redemption can provide proper identification information; and
(d)
the proceeds of the redemption do not exceed $50,000.
403(b)(7)
accounts and accounts not registered in the name of
individual(s)
are not eligible for the telephone redemption option.
Telephone
redemption requests can be made by contacting the Sub-Transfer
Agent at (800) 544-5445 between 9:00 a.m. and 6:00 p.m.
eastern
time any day that the NYSE is open. Telephone redemption may
not
be available if the shareholder cannot reach the Sub-Transfer
Agent whether because all telephone lines are busy or for any
other reason; in such case, a shareholder would have to use
the
Fund's regular redemption procedure described above.
A shareholder may utilize the Sub-Transfer Agent's FAX to
redeem
the shareholder's account as long as a signature guarantee or
other documentary evidence is not required. Redemption
requests
should be properly signed by all owners of the account and
faxed
to the Sub-Transfer Agent at (800) 554-2374. Facsimile
redemptions
may not be available if the shareholder cannot reach the Sub-
Transfer Agent by FAX, whether because all telephone lines are
busy or for any other reason; in such case, a shareholder
would
have to use the Fund's regular redemption procedure described
above. Facsimile redemptions received by the Sub-Transfer
Agent
prior to 4:00 p.m. Eastern time on a regular business day will
be
processed at the net asset value per share determined that
day.
After following the redemption guidelines stated in the
Prospectus
and SAI, a shareholder may elect to have the redemption
proceeds
transferred via Wire or ACH directly to the shareholder's bank
account of record (defined as a currently established pre-
authorized draft on the shareholder's account included with
the
application or with no changes within the previous 30 days) as
long as the bank account is registered in the same name(s) as
the
account with the Fund. Redemption proceeds can be sent by
check
to the address of record or by wire transfer to a bank account
designated on the application. A shareholder will be charged
a
$25 service fee for wire transfers and a nominal service fee
for
transfers made directly to the shareholder's bank by the
Automated
Clearing House (ACH). If the proceeds are not to be
transferred
to the bank account of record or mailed to the registered
owner,
the request must be submitted in writing and a signature
guarantee
will be required from all shareholders. Redemption proceeds
will
normally be sent to the designated bank account on the next
business day following the redemption, and should ordinarily
be
credited to the shareholder's bank account by his/her bank
within
48 to 72 hours for wire transfers and 72 to 96 hours for ACH
transfers.
OTHER ACCOUNTS
Each Service Agent has agreed to transmit to its customers who
are
shareholders of the Fund appropriate prior written disclosure
of
any fees that it may charge them directly. Each Service Agent
is
responsible for transmitting promptly orders for its
customers.
Shareholders may redeem or exchange Fund shares by telephone,
if
their account applications so permit, by calling the Sub-
Transfer
Agent or, if they are customers of a Service Agent, their
Service
Agent. During periods of drastic economic or market changes or
severe weather or other emergencies, shareholders may
experience
difficulties implementing a telephone exchange or redemption.
In
such an event, another method of instruction, such as a
written
request sent via an overnight delivery service, should be
considered. The Fund, the sub-transfer agent and each Service
Agent will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These
procedures may include recording of the telephone instructions
and
verification of a caller's identity by asking for his or her
name,
address, telephone, Social Security number, and account
number. If
these or other reasonable procedures are not followed, the
Fund,
the sub-transfer agent or the Service Agent may be liable for
any
losses to a shareholder due to unauthorized or fraudulent
instructions. Otherwise, the shareholder will bear all risk of
loss relating to a redemption or exchange by telephone.
Automatic Cash Withdrawal Plan. Each Fund offers
shareholders an
automatic cash withdrawal plan, under which shareholders who
own
shares with a value of at least $10,000 may elect to receive
cash
payments of a specified amount.
PFS ACCOUNTS
For PFS Accounts, the amount of each withdrawal must be at
least
$50 monthly or quarterly. Retirement plan accounts are
eligible
for automatic cash withdrawal plans only where the shareholder
is
eligible to receive qualified distributions and has an account
value of at least $5,000. The withdrawal plan will be carried
over
on exchanges between funds or Classes of a Fund. The Trust
reserves the right to involuntarily liquidate any
shareholder's
account in a Fund if the aggregate net asset value of the
shares
held in that Fund account is less than $500. (If a shareholder
has
more than one account in a Fund, each account must satisfy the
minimum account size.) The Trust, however, will not redeem
shares
based solely on market reductions in net asset value. Before
the
Trust exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to
the
minimum to avoid involuntary liquidation. Any applicable CDSC
will not be waived on amounts withdrawn by a shareholder that
exceed 1.00% per month of the value of the shareholder's
shares
subject to the CDSC at the time the withdrawal plan commences.
For
further information regarding the automatic cash withdrawal
plan,
shareholders should contact the Sub-Transfer Agent.
OTHER ACCOUNTS
For shareholders who hold shares through Other Accounts, there
is
a limit of one withdrawal per month under the plan.
If you redeem Class A or Class B shares under the plan that
are
subject to a CDSC, you are not subject to any CDSC applicable
to
the shares redeemed, but the maximum amount that you can
redeem
under the Plan in any year is limited to 10% of the average
daily
balance in your account. You may receive your withdrawals by
check, or have the monies transferred directly into your bank
account. Or you may direct that payments be made directly to a
third party. To participate in the plan, you must complete
the
appropriate forms provided by your Service Agent.
Additional Purchase and Sale Information.
PFS ACCOUNTS
Neither the Series or its agents will be liable for following
instructions communicated by telephone that are reasonably
believed to be genuine. The Series reserves the right to
suspend,
modify or discontinue the telephone redemption and exchange
program or to impose a charge for this service at any time
following at least seven (7) days prior notice to
shareholders.
Check Writing Privilege. This option is available for non-
retirement plan accounts that are not subject to a contingent
deferred sales charge in the Concert Investment Series(r)
Government
Fund, Concert Investment Series(r) Municipal Bond Fund (A
Shares and
Class 1 Shares only). Checks must be written for at least
$250.
Each book of 10 check costs $7.50 which will be deducted form
your
account balance.
OTHER ACCOUNTS
Each Service Agent has agreed to transmit to its customers who
are
shareholders of a Fund appropriate prior written disclosure of
any
fees that it may charge them directly. Each Service Agent is
responsible for transmitting promptly orders of its customers.
Investors may be able to establish new accounts in the Funds
under
one of several tax-sheltered plans. Such plans include IRAs,
Keogh or Corporate Profit-Sharing and Money-Purchase Plans,
403(b)
Custodian Accounts, and certain other qualified pension and
profit-sharing plans. Investors should consult with their
Service
Agent and their tax and retirement advisers.
Shareholders may redeem or exchange Fund shares by telephone,
if
their account applications so permit, by calling the sub-
transfer
agent or, if they are customers of a Service Agent, their
Service
Agent. During periods of drastic economic or market changes or
severe weather or other emergencies, shareholders may
experience
difficulties implementing a telephone exchange or redemption.
In
such an event, another method of instruction, such as a
written
request sent via an overnight delivery service, should be
considered. The Funds, the sub-transfer agent and each Service
Agent will employ reasonable procedures to confirm that
instructions communicated
by telephone are genuine. These procedures may include
recording
of the telephone instructions and verification of a caller's
identity by asking for his or her name, address, telephone,
Social
Security number, and account number. If these or other
reasonable
procedures are not followed, the Funds, the sub-transfer agent
or
the Service Agent may be liable for any losses to a
shareholder
due to unauthorized or fraudulent instructions. Otherwise,
the
shareholder will bear all risk of loss relating to a
redemption or
exchange by telephone.
DISTRIBUTIONS AND FEDERAL TAXES tc "Dividends, Distributions
and
Federal Taxes"
Small Cap Fund, International Equity Fund, Mid Cap Fund and
Growth
Fund distribute dividends and capital gains annually; Growth
and
Income Fund declares and pays dividends quarterly. Government
Fund and Municipal Bond Fund declare and distribute dividends
monthly. The per share dividends on Class B shares of each
Fund
will be lower than the per share dividends on Class A and
Class 1
shares as a result of the distribution fees and incremental
transfer agency fees, if any, applicable to the Class B
shares.
Each Fund intends similarly to distribute to shareholders any
taxable net realized capital gains (the excess of net long-
term
capital gain over net short-term capital loss). Taxable net
realized capital gains are the excess, if any, of the Fund's
total
profits on the sale of securities and certain other
transactions
during the year over its total losses on such sales and
transactions, including capital losses carried forward from
prior
years in accordance with the tax laws. Such capital gains, if
any, are distributed at least once a year. All income
dividends
and capital gains distributions are reinvested in shares of a
Fund
at net asset value without sales charge on the record date,
except
that any shareholder may otherwise instruct the shareholder
service agent in writing and receive cash. Shareholders are
informed as to the sources of distributions at the time of
payment.
Each Fund intends to qualify as a "regulated investment
company"
under Subchapter M of the Code by complying with certain
requirements regarding the sources and distribution of its
income
and the diversification of its assets. By so qualifying, a
Fund
will not be subject to federal income tax on amounts paid by
it as
dividends and distributions to shareholders in compliance with
the
Code's timing and other requirements. If any Fund were to fail
to
qualify as a regulated investment company under the Code, all
of
its income (without deduction for income dividends or capital
gain
distributions paid to shareholders) would be subject to tax at
corporate rates. A Fund will be subject to a nondeductible, 4%
federal excise tax if it fails to meet certain distribution
requirements with respect to each calendar year, generally
applicable to its ordinary (taxable) income for that year and
the
excess of its capital gains over its capital losses for the
one-
year period ended on October 31 of that year. The Funds intend
generally to make distributions sufficient to avoid or
minimize
any liability for the excise tax. Each Fund expects to be
treated
as a separate entity for purposes of determining its federal
tax
treatment.
Municipal Bond Fund
The Code permits a regulated investment company whose assets
consist primarily of tax-exempt Municipal Bonds to pass
through to
its investors, tax-exempt, net interest income as "exempt-
interest
dividends". In order for Municipal Bond Fund to be eligible to
pay
exempt-interest dividends during any taxable year, at the
close of
each fiscal quarter, at least 50% of the aggregate value of
the
Fund's assets must consist of obligations that pay interest
exempt
from taxation under Section 103(a) of the Code. In addition,
the
Fund must distribute at least (i) 90% of the excess of its
tax-
exempt interest income over certain disallowed deductions, and
(ii) 90% of its "investment company taxable net income" (i.e.,
its
ordinary taxable income and the excess, if any, of its net
short-term capital gain over any net long-term capital loss)
recognized by the Fund during the taxable year.
Not later than 60 days after the close of its taxable year,
Municipal Bond Fund will notify its shareholders of the
portion of
the dividends paid by the Fund to the shareholders for the
taxable
year which constitutes exempt-interest dividends. The
aggregate
amount of dividends so designated cannot exceed, however, the
excess of the amount of interest exempt from tax under Section
103
of the Code received by the Fund during the year over any
amounts
disallowed as deductions under Sections 265 and 171(a)(2) of
the
Code. Since the percentage of dividends which are
"exempt-interest" dividends is determined on an average annual
method for the fiscal year, the percentage of income
designated as
tax-exempt for any particular dividend may be substantially
different from the percentage of the Fund's income that was
tax-exempt during the period covered by the dividend.
Shareholders
are required to report their receipt of tax-exempt interest,
including exempt-interest dividends, on their Federal income
tax
returns.
Although exempt-interest dividends generally may be treated by
Municipal Bond Fund's shareholders as items of interest
excluded
from their gross income, each shareholder is advised to
consult
his or her tax adviser with respect to whether exempt-interest
dividends retain this exclusion if the shareholder should be
treated as a "substantial user" or a "related person" with
respect
to any of the tax-exempt obligations held by the Fund.
Interest on indebtedness incurred by a shareholder to purchase
or
carry shares of Municipal Bond Fund is not deductible for
federal
income tax purposes. If a shareholder receives an exempt-
interest
dividend any capital loss on the sale or exchange of the
shares
with respect to which the dividend is received will be
disallowed
to the extent of the amount of such exempt-interest dividend
if
the shares are not held for more than six months.
Although Municipal Bond Fund does not intend to acquire bonds
the
interest on which is a specific item of tax preference for
alternative minimum tax purposes, its exempt-interest
dividends
may nevertheless result in or increase a corporate
shareholder's
liability for the corporate alternative minimum tax, because
tax-
exempt interest, including exempt-interest dividends that are
not
items of tax preference, is taken into account in determining
a
corporation's potential liability for this tax.
The Code also requires a shareholder who receives exempt-
interest
dividends to, in some cases, treat as taxable income a portion
of
certain otherwise non-taxable social security or railroad
retirement benefits.
Shareholders should also consider, in determining when to
redeem
any shares of Municipal Bond Fund, that the Fund declares and
distributes its exempt-interest dividends monthly. The net
asset
value of shares redeemed shortly before the end of a month
will
include tax-exempt interest accrued for that month but not yet
declared as an exempt-interest dividend. The amount of the
redemption proceeds attributable to this accrued tax-exempt
interest will not be treated as tax-exempt interest, but
instead
will be part of the shareholder's redemption proceeds
potentially
subject to taxation.
If, during any taxable year, Municipal Bond Fund realizes net
capital gains (the excess of net long-term capital gain over
net
short-term capital loss) from the sale or other disposition of
Municipal Bonds or other assets, the Fund will have no tax
liability with respect to such gains if they are distributed
to
shareholders. Distributions designated as capital gain
dividends
are taxable to shareholders as long-term capital gains,
regardless
of how long a shareholder has held his or her shares. Not
later
than 60 days after the close of the Fund's taxable year, the
Fund
will send to its shareholders a written notice designating the
amount of any distributions made during the year which
constitute
capital gain.
While Municipal Bond Fund expects that a major portion of its
investment income will constitute tax-exempt interest, a
portion
may consist of "investment company taxable income" and "net
capital gain". For example, income or gains from certain
taxable
investments or transactions, including sales of securities,
options and futures transactions, repurchase agreements,
securities lending, the recognition of accrued market
discount,
and the disposition of rights to when-issued securities prior
to
issuance, are included in investment company taxable income or
net
capital gain. Distributions of investment company taxable
income
are taxable as ordinary income, and distributions of net
capital
gain are taxable as long-term capital gains.
All Funds
Dividends from net investment income and any excess of net
short-term capital gain over net long-term capital loss are
taxable to shareholders as ordinary income. A portion of
dividends taxable as ordinary income paid by Small Cap Fund,
International Equity Fund, Mid Cap Fund, Growth Fund and
Growth
and Income Fund may qualify for the 70% dividends received
deduction for corporations. Qualifying dividends include only
dividends attributable to dividends a Fund receives from U.S.
domestic corporations with respect to stock for which the Fund
satisfies applicable holding period requirements.
The portion of the dividends received from a Fund which
qualifies
for the dividends-received deduction for corporations will be
reduced to the extent that the Fund holds dividend-paying
stock
for less than 46 days (91 days for certain preferred stock).
The
Fund's holding period requirement must be satisfied separately
for
each dividend during a prescribed period before and after the
ex-
dividend date and will not include any period during which the
Fund has reduced its risk of loss from holding the stock by
purchasing an option to sell, granting an option to buy, or
entering into a short sale of substantially identical stock or
securities, such as securities convertible into the stock. The
holding period for stock may also be reduced if the Fund
diminishes its risk of loss by holding one or more positions
in
substantially similar or related property. The dividends-
received
deduction will be allowed only with respect to dividends on
Fund
shares for which a corporate shareholder satisfies the same
holding period rules applicable to the Fund.
Receipt of dividends that qualify for the dividends-received
reduction may increase a corporate shareholder's liability, if
any, for the alternative minimum tax. Such a shareholder
should
also consult its tax adviser regarding the possibility that
its
federal tax basis in its Fund shares may be reduced by the
receipt
of "extraordinary dividends" from the Fund and, to the extent
such
basis would be reduced below zero, current recognition of
income
would be required.
For federal income tax purposes, dividends declared by a Fund
in
October, November or December as of a record date in such a
month
and which are actually paid in January of the following year
will
be treated as if they were paid on December 31 of the year in
which they are declared. These dividends will be taxable to
shareholders as if actually received on December 31 rather
than in
the year in which shareholders actually receive the dividends.
A capital gain dividend (i.e., a dividend from the excess of a
Fund's net long-term capital gain over its net short-term
capital
loss) received after the purchase of the shares of any of the
Funds reduces the net asset value of the shares by the amount
of
the distribution and will nevertheless be subject to income
taxes.
The same is true of dividends treated as ordinary income, as
described above. Investors may therefore wish to avoid
purchasing
Fund shares shortly before an anticipated dividend (other than
an
exempt-interest dividend from Municipal Bond Fund) or capital
gain
dividend in order to avoid being taxed on a distribution that
is
economically a return of a portion of the purchase price.
These
capital gain dividends are taxable to shareholders as long-
term
capital gains, regardless of how long the shareholder has held
Fund shares. Any loss on the sale of Fund shares held for six
months or less is treated as a long-term capital loss to the
extent of any capital gain dividend paid on such shares. All
dividends and distributions are taxable to the shareholder in
the
same manner whether or not reinvested in shares. Shareholders
are
notified annually by the Fund as to the federal tax status of
dividends and distributions paid by the Fund.
If shares of a Fund purchased subject to a sales charge are
sold
or exchanged within 90 days of acquisition, and shares of the
same
or another mutual fund are acquired, to the extent the sales
charge on the initial purchase is reduced or waived on the
subsequent acquisition, the sales charge may not be used to
determine the basis in the disposed shares for purposes of
determining gain or loss. To the extent the sales charge is
not
allowed in determining gain or loss on the initial shares, it
is
capitalized in the basis of the subsequent shares.
Additionally,
any loss realized on a redemption or exchange of Fund shares
may
be disallowed under "wash sale" rules to the extent the shares
disposed of are replaced with other shares of the same Fund
within
a period of 61 days, beginning 30 days before and ending 30
days
after such disposition, such as pursuant to reinvestment of
dividends in Fund shares.
Periodic withdrawals under the systematic withdrawal plan
involve
redemptions of shares, which may result in tax liability for
the
redeeming shareholder. Additionally, any redemption of shares
is a
potentially taxable transaction, even if a reinvestment
privilege
is later exercised.
Dividends to shareholders who are non-resident aliens may be
subject to a United States withholding tax at a rate of up to
30%
under existing provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding
or a
withholding exemption is provided under applicable treaty
laws.
Non-resident shareholders are urged to consult their own tax
advisers concerning the applicability of the United States
withholding tax.
Dividends and capital gains distributions may also be subject
to
state and local taxes. Shareholders are urged to consult
their
attorneys or tax advisers regarding specific questions as to
federal, state or local taxes.
Back-up Withholding. Each Fund is required to withhold and
remit
to the United States Treasury 31% of (i) reportable taxable
dividends and distributions and (ii) the proceeds of any
redemptions of Fund shares with respect to any shareholder who
is
not exempt from withholding and who fails to furnish the Fund
with
a correct taxpayer identification number, who fails to report
fully dividend or interest income or who fails to certify to
the
Trust that he has provided a correct taxpayer identification
number and that he is not subject to withholding. (An
individual's taxpayer identification number is his or her
social
security number.) The 31% "Back-up withholding tax" is not an
additional tax and may be credited against a taxpayer's
regular
federal income tax liability.
The Code includes special rules applicable to certain listed
options (excluding equity options as defined in the Code),
futures
contracts, and options on futures contracts which a Fund may
write, purchase or sell. Such options and contracts are
generally
classified as Section 1256 contracts under the Code. The
character of gain or loss resulting from the sale,
disposition,
closing out, expiration or other termination of Section 1256
contracts is generally treated as long-term capital gain or
loss
to the extent of 60 percent thereof and short-term capital
gain or
loss to the extent of 40 percent thereof ("60/40 gain or
loss").
Such contracts, when held by the Fund at the end of a fiscal
year,
generally are required to be treated as sold at market value
on
the last day of such fiscal year for federal income tax
purposes
("marked-to-market"). Over-the-counter options, equity
options,
and certain other options or future contracts are not
classified
as Section 1256 contracts and are not subject to the
mark-to-market rule or to 60/40 gain or loss treatment. Any
gains
or losses from transactions in over-the-counter options
generally
constitute short-term capital gains or losses. If
over-the-counter call options written, or over-the-counter put
options purchased, by a Fund are exercised, the gain or loss
realized on the sale of the underlying securities may be
either
short-term or long-term, depending on the holding period of
the
securities. In determining the amount of gain or loss, the
sales
proceeds are reduced by the premium paid for over-the-counter
puts
or increased by the premium received for over-the-counter
calls.
Certain transactions in options, futures contracts, or options
on
futures contracts may constitute "straddles" which are defined
in
the Code as offsetting positions with respect to personal
property. A straddle in which at least one (but not all) of
the
positions are Section 1256 contracts is a "mixed straddle"
under
the Code if certain conditions are met.
The Code generally provides with respect to straddles (i)
"loss
deferral" rules which may postpone recognition for tax
purposes of
losses from certain closing purchase transactions or other
dispositions of a position in the straddle to the extent of
unrealized gains in the offsetting position, (ii) "wash sale"
rules which may postpone recognition for tax purposes of
losses
where a position is sold and a new offsetting position is
acquired
within a prescribed period and (iii) "short sale" rules which
may
terminate the holding period of securities owned by the Fund
when
offsetting positions are established and which may convert
certain
losses from short-term to long-term.
The Code provides that certain elections may be made for mixed
straddles that can alter the character of the capital gain or
loss
recognized upon disposition of positions which form part of a
straddle. Certain other elections are also provided in the
Code.
No determination has been reached to make any of these
elections.
The effect of the tax rules described above with respect to
options and futures contracts may be to change the amount,
timing
and character of a Fund's income, gains and losses and
therefore
of its distributions to shareholders.
These rules also generally apply to options, futures and
forward
contracts relating to foreign currency, except that (1)
options,
futures and forward contracts on certain foreign currencies
are
not governed by Section 1256, (2) gains and losses on foreign
currency forward contracts are generally treated as ordinary
income and losses, and (3) gains and losses on a Fund's
foreign
currency options and futures contracts that are not governed
by
Section 1256, if any, are generally treated as ordinary income
and
loss.
Additionally, under the Code gains or losses attributable to
fluctuations in exchange rates between the time a Fund accrues
income or receivables or expenses or other liabilities
denominated
in a foreign currency and the time the Fund actually collects
such
income or pays such liabilities, are treated as ordinary
income or
ordinary loss. Similarly, gains or losses on the disposition
of
debt securities denominated in foreign currency, to the extent
attributable to fluctuations in exchange rates between the
acquisition and disposition dates, are treated as ordinary
income
or loss.
If a Fund purchases shares in certain foreign investment
entities,
referred to as "passive foreign investment companies," the
Fund
itself may be subject to U.S. federal income tax and an
additional
charge in the nature of interest on a portion of any "excess
distribution" from such company or gain from the disposition
of
such shares, even if the distribution or gain is distributed
by
the Fund to its shareholders in a manner that satisfies the
distribution requirements referred to above. If a Fund were
able
and elected to treat a passive foreign investment company as a
"qualified electing fund," in lieu of the treatment described
above, the Fund would be required each year to include in
income,
and distribute to shareholders in accordance with the
distribution
requirements described above, the Fund's pro rata share of the
ordinary earnings and net capital gains of the company,
whether or
not actually received by the Fund. A Fund generally should be
able to make an alternative election to mark these investments
to
market annually, resulting in the recognition of ordinary
income
(rather than capital gain) or ordinary loss, subject to
limitations on the ability to use any such loss.
A Fund may be required to treat amounts as taxable income or
gain,
subject to the distribution requirements referred to above,
even
though no corresponding amounts of cash are received
concurrently,
as a result of (1) mark to market, constructive sale or other
rules applicable to passive foreign investment companies,
partnerships or trusts in which the Fund invests or to certain
options, futures, forward contracts, or "appreciated financial
positions" or (2) the inability to obtain cash distributions
or
other amounts due to currency controls or restrictions on
repatriation imposed by a foreign country with respect to the
Fund's investments in issuers in such country or (3) tax rules
applicable to debt obligations acquired with "original issue
discount," including zero-coupon or deferred payment bonds and
pay-in-kind debt obligations, or to market discount if an
election
is made with respect to such market discount. A Fund may
therefore be required to obtain cash to be used to satisfy
these
distribution requirements by selling portfolio securities at
times
that it might not otherwise be desirable to do so or borrowing
the
necessary cash, thereby incurring interest expenses.
Dividends or other income (including, in some cases, capital
gains) received by a Fund from sources within foreign
countries
may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes in some
cases.
If eligible, the International Equity Fund will determine
whether
to make an election to treat any qualified foreign income
taxes
paid by it as paid by its shareholders. In determining whether
to
make this election, the Fund will take into consideration such
factors as the amount of foreign taxes paid and the
administrative
costs associated with making the election. If the election is
made, shareholders of the Fund would be required to include
their
respective pro rata portions of such qualified foreign taxes
in
computing their taxable income and would then generally be
entitled to credit such amounts against their United States
federal income taxes due, if any, provided that certain
holding
period requirements are satisfied, or to include such amounts
in
their itemized deductions, if any. For any year for which it
makes such an election, the International Equity Fund will
report
to its shareholders (shortly after the close of its fiscal
year)
the amount per share of such foreign taxes that must be
included
in the shareholder's gross income and will be potentially
available as a credit or deduction, subject to the limitations
generally applicable under the Code. The other Funds will not
qualify to make this election, and consequently their
shareholders
will not report on their own tax returns their shares of the
foreign taxes paid by these Funds.
Municipal Bond Fund may acquire an option to "put" specified
portfolio securities to banks or municipal bond dealers from
whom
the securities are purchased. See "Investment Practices -
Stand-By Commitments." The Fund has been advised by its legal
counsel that it will be treated for federal income tax
purposes as
the owner of the Municipal Securities acquired subject to the
put;
and the interest on the Municipal Securities will be tax-
exempt to
the Fund. Counsel has pointed out that although the Internal
Revenue Service has issued a favorable published ruling on a
similar but not identical situation, it could reach a
different
conclusion from that of counsel. Counsel has also advised the
Fund that the Internal Revenue Service presently will not
ordinarily issue private letter rulings regarding the
ownership of
securities subject to stand-by commitments.
The foregoing is a general and abbreviated summary of the
applicable provisions of the Code and Treasury Regulations
presently in effect, and no attempt is made to describe
special
tax rules that may be applicable to certain categories of
shareholders, such as tax-exempt or tax-deferred entities or
retirement plans, insurance companies, and financial
institutions.
For the complete provisions, reference should be made to the
pertinent Code sections and the Treasury Regulations
promulgated
thereunder. The Code and these Treasury Regulations are
subject
to change by legislative or administrative action either
prospectively or retroactively.
OTHER INFORMATION tc "Other Information"
Performance Information
From time to time a Fund may include its total return, average
annual total return, yield and current dividend return in
advertisements and/or other types of sales literature. These
figures are computed separately for Class 1, Class A and Class
B
shares of each Fund. These figures are based on historical
earnings and are not intended to indicate future performance.
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.
The average annual total return (computed in the manner
described
in the Prospectus) and yield for each Fund are shown in the
table
below. These results are based on historical earnings and
asset
value fluctuations and are not intended to indicate future
performance. Such information should be considered in light
of
each Fund's investment objectives and policies as well as the
risks incurred in each Fund's investment practices.
Class 1
Class
A Class B
Shares
Shares
Shares
Small Cap Fund
i) total return for one year period ended 22.10%
26.37% 27.00%
10/31/99
total return since inception
(based on inception date of 2/21/95) --
18.04% 18.33%
total return since inception
(based on inception date of 8/08/96) 10.93%
-- --
Mid Cap Fund
i) total return since inception
(based on inception date of 3/15/99) (3.76)%
0.08% (0.37)%
International Equity Fund
i) total return for one year period ended
10/31/99 56.36%
61.69% 63.98%
ii) total return since inception
(based on inception date of 3/17/95) --
22.62% 22.98%
iii) total return since inception
(based on inception date of 8/08/96) 21.23%
-- --
Growth Fund
i) total return for one year period ended
10/31/99 24.07%
28.47% 29.31%
ii) total return for five year period ended
10/31/99 21.40%
-- --
iii) Total return for the ten year period ended
10/31/99 15.73%
-- --
iv) total return since inception
(based on inception date of 4/14/87) 13.78%
-- --
v) total return since inception
(based on inception date of 8/18/96) --
23.94% 24.63%
Growth and Income Fund
i) total return for one year period ended
10/31/99 10.05%
13.90% 14.03%
ii) total return for five year period ended
10/31/99 18.08%
-- --
iii) total return for ten year period ended
10/31/99 13.67%
-- --
iv) total return since inception
(based on inception date of 4/14/87) 12.06%
-- --
v) total return since inception
(based on inception date of 8/18/96) --
18.75% 19.32%
Class 1
Class
A Class B
Shares
Shares
Shares
Government Fund
i) total return for one year period ended
10/31/99 (9.68)%
(7.83)% (8.29)%
ii) total return for five year period ended
10/31/99 4.69% --
--
iii) total return for ten year period ended
10/31/99 5.67% --
--
iv) total return since inception
(based on inception date of 4/14/87) 6.11%
-- --
v) total return since inception
(based on inception date of 8/08/96) --
3.04% 3.22%
vi) yield 6.52% 6.46%
6.00%
Municipal Bond Fund
i) total return for one year period ended
10/31/99 (8.89)%
(8.88)% (9.33)%
ii) total return for five year period ended
10/31/99 4.77% --
--
iii) total return for ten year period ended
10/31/99 5.75% --
--
iv) total return since inception
(based on inception date of 7/13/88) 6.12%
-- --
v) total return since inception
(based on inception date of 8/18/96) --
2.34% 2.02%
vi) yield 4.86% 4.63%
4.09%
vii) tax equivalent yield* 7.05%
6.71%
11.73%
* The Fund's equivalent taxable 30-day yield for a Class is
computed by dividing that portion of the Class' 30-day yield
which
is tax-exempt by one minus a stated income tax rate and adding
the
product to that portion, if any, of the Class' yield that is
not
tax-exempt. The tax equivalent yield assumes the payment of
Federal income taxes at a rate of 31%.
The yield for Class A and Class B shares is not fixed and will
fluctuate in response to prevailing interest rates and the
market
value of portfolio securities, and as a function of the type
of
securities owned by the Fund, portfolio maturity and the
Fund's
expenses.
Yield and total return for the Government Fund and the
Municipal
Bond Fund are computed separately for each class of shares.
The Funds may illustrate in advertising materials the use of a
Payroll Deduction Plan as a convenient way for business owners
to
help their employees set up either IRA or voluntary mutual
fund
accounts. The Funds may illustrate in advertising materials
retirement planning through employee contributions and/or
salary
reductions. Such advertising material will illustrate that
employees may have the opportunity to save for retirement and
reduce taxes by electing to defer a portion of their salary
into a
special mutual fund IRA account. The Funds may illustrate in
advertising materials that Uniform Gift to Minors Act accounts
may
be used as a vehicle for saving for a child's financial
future.
Such illustrations will include statements to the effect that
upon
reaching the age of majority, such custodial accounts become
the
child's property.
Shareholder Services
Uniform Gifts to Minors Act. The Trust recognizes the
importance
to a child of establishing a savings and investment plan early
in
life for education and other purposes when the child becomes
older. The advantages of regular investment with interest or
earnings compounding over a number of years are great. In
addition, taxes on these earnings are assessed against the
income
of the child rather than the donor, usually at a lower
bracket.
Investors wishing to establish a UGMA account should call
their
Financial Professiona for an application. Individuals
desiring to
open an account under UGMA are also advised to consult with a
tax
adviser before establishing the account.
Individual Retirement Account. Any individual who has
compensation or earned income from employment or self-
employment
and who is under age 70 1/2 may establish an IRA. The
limitation
on an individual's annual contribution to an IRA is the lesser
of
100% of compensation or $2,000.
The Small Business Job Protection Act of 1996 changed the
eligibility requirements for participants in Individual
Retirement
Accounts ("IRAs"). Under these new provisions, if you or your
spouse have earned income, each of you may establish an IRA
and
make maximum annual contributions equal to the lesser of
earned
income or $2,000. As a result of this legislation, married
couples where one spouse is non-working may now contribute a
total
of $4,000 annually to their IRAs.
The Taxpayer Relief Act of 1997 changed the requirements for
determining whether or not you are eligible to make a
deductible
IRA contribution. Under the new rules effective beginning
January
1, 1998, if you are considered an active participant in an
employer-sponsored retirement plan, you may still be eligible
for
a full or partial deduction depending upon your combined
adjusted
gross income ("AGI"). For married couples filing jointly for
1998
a full deduction is permitted if your combined AGI is $50,000
or
less ($30,000 for unmarried individuals); a partial deduction
will
be allowed when AGI is between $50,000-$60,000 ($30,000-
$40,000
for an unmarried individual); and no deduction is available
when
AGI is above $60,000 ($40,000 for an unmarried individual).
However, if you are married and your spouse is covered by an
employer-sponsored retirement plan, but you are not, you will
be
eligible for a full deduction if your combined AGI is $150,000
or
less. A partial deduction is permitted if your combined AGI
is
between $150,000-160,000, and no deduction is permitted when
AGI
is above $160,000.
The rules applicable to so-called "Roth IRAs" differ from
those
described above.
In addition, any individual, regardless of age, may establish
a
rollover IRA to receive an eligible rollover distribution from
an
employer-sponsored plan.
Simplified Employee Pension Plan (SEP) and Salary Reduction
Simplified Employee Pension Plan (SARSEP). A SEP/SARSEP is a
means for an employer to provide retirement contributions to
IRAs
for all employees, without the complicated reporting and
record
keeping involved in a qualified plan. Employees covered by a
SEP/SARSEP can use the same IRA to receive their own allowable
IRA
contribution.
Section 403(b)(7) Plan. Employees of certain exempt
organizations
and schools can have a portion of their compensation set
aside,
and income taxes attributable to such portion deferred, in a
Section 403(b)(7) plan. Teachers, school administrators,
ministers, employees of hospitals, libraries, community
chests,
funds, foundations, and many others may be eligible. The
employer
must be an organization described in Section 501(c)(3) of the
Internal Revenue Code and must be exempt from tax under
Section 501(a) of the Code. In addition, any employee of most
public educational institutions is eligible if his employer is
a
state or a political subdivision of a state, or any agency or
instrumentality of either. The employee is not taxed on the
amount set aside or the earnings thereon until the funds are
withdrawn, normally at retirement.
Sub-Transfer Agent
PFPC Global Fund Services is located at Exchange Place,
Boston,
Massachusetts 02109. The Trust has engaged the services of
PFS
Shareholder Services as the Sub-Transfer Agent for PFS
Accounts.
The Sub-Transfer Agent is located at 3100 Breckinridge Blvd.,
Bldg
200, Duluth, Georgia 30099-0062.
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 Fund other than International
Equity Fund. Chase Manhattan Bank, located at Chase Metrotech
Center, Brooklyn, NY 11245 serves as Custodian for
International
Equity Fund.
Shareholder Reports
Semi-annual statements are furnished to shareholders, and
annually
such statements are audited by the independent accountants.
PFS ACCOUNTS
An Account Transcript is available at a shareholder's request,
which identifies every financial transaction in an account
since
it was opened. To defray administrative expenses involved with
providing multiple years worth of information, there is a $15
charge for each Account Transcript requested. Additional
copies
of tax forms are available at the shareholder's request. A $10
fee
for each tax form will be assessed.
Additional information regarding the Sub-Transfer Agent's
services
may be obtained by contacting the Client Services Department
at
(800) 544-5445.
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 Class A, Class B and Class 1 shares of
beneficial interest of $.01 par value, in the Funds. Shares
issued
are fully paid, non-assessable and have no preemptive or
conversion rights. In the event of liquidation of any Fund,
shareholders of such Fund are entitled to share pro rata in
the
net assets of the Fund 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(r).
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 Fund 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 Fund are borne solely by that class, and each
class
of shares of each Fund has exclusive voting rights with
respect to
provisions of the Plan which pertains to that class of each
Fund.
All shares have equal voting rights, except that only shares
of
the respective Fund are entitled to vote on matters concerning
only that Fund. 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 February 14, 2000, no person was known to own
beneficially
or of record as much as five percent of the outstanding shares
of
any Fund of the Trust.
PFS Investments acts as custodian for certain employee benefit
plans and individual retirement accounts.
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 Fund. 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 Fund would seek alternative means for
obtaining these services. The Fund 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,
1999, is incorporated herein by reference in its entirety.
APPENDIX A
RATINGS OF MUNICIPAL BONDS, NOTES AND COMMERCIAL PAPER tc
"Appendix A - Ratings of Municipal 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.
G: legal\funds\cis\2000\secdocs\SAI 2000
61
87
Statement of Additional Information
Concert Investment Series(r)
388 Greenwich Street
New York, NY 10013
February 28, 2000
Select Small Cap
Portfolio
Select Growth and Income
Portfolio
Select Mid Cap Portfolio
Select Government
Portfolio
Select Growth Portfolio
Concert Investment Series(r) (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 February 28,
2000 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 Trust 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 6
Risk Factors 20
Investment Restrictions 25
Trustees and Officers 27
Investment Advisory Agreements 29
Distributor 31
Portfolio Turnover 32
Portfolio Transactions and Brokerage 32
Determination of Net Asset Value 34
Taxes 33
Performance 34
Additional Information about Portfolios 35
Financial Statements 37
Appendix A - Ratings of Bonds, Notes and Commercial Paper A-
1
GENERAL INFORMATION
SSB Citi Fund Management LLC, a limited liability company
formed
September 21, 1999 ("SSB Citi" or the "manager"), successor to
SSBC Fund
Management Inc. (which was incorporated on March 12, 1968),
388
Greenwich Street, New York, NY 10013, renders investment
management
advice to investment companies with aggregate assets under
management in
excess of $127 billion as of January 31, 2000. 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 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 Small Cap Portfolio
Select Small Cap Portfolio (formerly known as Select Emerging
Growth
Portfolio) seeks capital appreciation by investing in a
portfolio of
securities consisting principally of common stocks of small
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 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. Small Cap 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 Small Cap 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 Small Cap 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 INSTRUMENTS
Options, Futures Contracts and Related Options (All
Portfolios)
Selling Call and Put Options (Small Cap 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. Small Cap 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 funds 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 funds 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 (Small Cap 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 (those
companies that
have market capitalizations in the lowest 20% of all publicly
traded
U.S. 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
(except the
Government 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 to 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 began on January 1,
1999 when 11
European countries adopted a single currency -- the Euro. EMU
may
create new economic opportunities for investors, such as lower
interest
rates, easier cross-border mergers, acquisitions and similar
restructurings, more efficient distribution and product
packaging and
greater competition. 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 within the Euro zone. EMU and the introduction of the
Euro,
however, present unique risks and uncertainties for investors
in EMU-
participating countries, including: (i) monetary and economic
union on
this scale has never before been attempted; (ii) there is
uncertainty
whether participating countries will remain committed to EMU
in the face
of changing economic conditions; (iii) instability within EMU
may
increase the volatility of European markets and may adversely
affect the
prices of securities of European issuers held by the
Portfolios; (iv)
there is uncertainty concerning the fluctuation of the Euro
relative to
non-Euro currencies during the transition period from January
1, 1999 to
December 31, 2000, and beyond; and (v) there is no assurance
that
interest rate, tax and labor regimes of EMU-participating
countries will
converge over time. These and other factors may cause market
disruption
and could adversely affect European securities and currencies
held by
the Portfolios.
Year 2000. As the year 2000 began, there were few problems
caused by the
inability of certain computer systems to tell the difference
between the
year 2000 and the year 1900 (commonly known as the "Year 2000"
issue).
It is still possible that some computer systems could
malfunction in the
future because of the Year 2000 issue or as a result of
actions taken to
address the Year 2000 issue. The manager does not anticipate
that its
services or those of the Portfolios' other service providers
will be
adversely affected, but the manager will continue to monitor
the
situation. If malfunctions related to the Year 2000 issue do
arise, the
Portfolios and their investments could be negatively affected.
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 and the
Government
Portfolio are not expected to exceed 400%; and the annual
turnover rates
of the Small Cap Portfolio, the Mid Cap 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); 62.
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;
61.
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; 52.
HEATH B. McLENDON,* Trustee. Managing Director of Salomon
Smith Barney;
President and Chairman of 71 investment companies associated
with
Citigroup, President and Director of the manager and Travelers
Investment Adviser, Inc. ("TIA"); 66.
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; 58.
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; 57.
_______________
* Denotes a Trustee that is an "interested person" of the
Trust within
the meaning of the 1940 Act.
OFFICERS
Heath B. McLendon, President and Chief Executive Officer (See
description under "Trustees"). His address is 7 World Trade
Center, New
York, New York 10048.
Lewis E. Daidone, Senior Vice President and Treasurer (Age
42).
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 or Executive Vice President and
Treasurer of 61
investment companies associated with Citigroup. His address
is 388
Greenwich Street, New York, New York 10013.
Sandip A. Bhagat, Vice President and Investment Officer (Age
39).
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
48).
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
52).
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 48).
Managing
Director of Salomon Smith Barney; Mr. Gerken is Vice President
and
Investment Officer of three Smith Barney Mutual Funds. His
address is
388 Greenwich Street, New York, New York 10013.
Jeffrey Russell, Vice President and Investment Officer (Age
42).
Managing Director of Salomon Smith Barney; Mr. Russell is Vice
President
and Investment Officer of seven Smith Barney Mutual Funds.
His address
is 7 World Trade Center, New York, New York 10048.
Larry Weissman, Vice President and Investment Officer; (Age
38).
Managing Director of Salomon Smith Barney. Prior to October
1997,
Portfolio Manager of Newberger & Berman LLC. His address is
388
Greenwich Street, New York, New York 10013.
Christina T. Sydor, Secretary (Age 49). Managing Director of
Salomon
Smith Barney; General Counsel and Secretary of the manager and
TIA.
Ms. Sydor serves as Secretary of 61 investment companies
associated with
Citigroup. Her address is 388 Greenwich Street, New York, New
York
10013.
Paul A. Brook, Controller (Age 46). Managing Director of
Salomon Smith
Barney; Controller or Assistant Treasurer of 43 investment
companies
associated with Citigroup since 1998; Prior to 1998 Managing
Director of
AMT Capital Services Inc.; Prior to 1997, Partner with Ernst &
Young
LLP.
As of February 14, 2000, the Trustees and officers of the
Trust as a
group own less than one percent of the outstanding shares of
each
Portfolio of the Trust. As of February 14, 2000, 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 Portfolio 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 fiscal year ended October 31, 1999. 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.
The Portfolios pay each of the Trustees who is not a director,
officer
or employee of the manager or any of its affiliates an annual
fee of
$48,000 plus $2000 for each Board of Trustees meeting
attended, $1000
for each Committee meeting attended (each Committee chairman
is paid an
additional $300 for each Committee meeting attended), $1000
for each
telephonic Board meeting in which each Trustee participated
(unless such
meeting is for information purposes only in which case $100 is
paid).
In addition, the Portfolios will reimburse these directors for
travel
and out-of-pocket expenses incurred in connection with Board
of
Directors meetings. For the fiscal year ended October 31,
1999, such
expenses totaled $14,367.50.
Legend:
SM = Small Cap Fund
MC = Mid Cap Fund
G = Growth Fund
G/I = Growth and Income Fund
GVT = Government Fund
Name
SM
MC(2)
G
G/I
GVT
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
$2,599
$79
$37,85
6
$12,03
0
$1,81
3
- -
$56,000
Dr. A. Benton
Cocanougher
$2,643
$85
$38,53
2
$11,69
3
$2,39
5
- -
$57,000
Stephen Randolph
Gross
$2,711
$85
$39,92
0
$12,12
2
$2,46
2
- -
$59,000
Heath B. McLendon*
- -
- -
- -
- -
- -
- -
- -
Dr. Alan G. Merten
$2,643
$85
$38,53
2
$11,69
3
$2,39
5
- -
$56,000
Dr. R. Richardson
Pettit
$2,711
$85
$39,92
0
$11,69
3
$2,46
2
- -
$59,000
*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 1999
fiscal year were $15,901, $0, $1,124,006, $304,766, and
$88,194 for the
Small Cap Fund, Mid Cap Fund, Growth Fund, Growth and Income
Fund, and
Government, respectively. Because the amount of retirement
benefits an
individual Trustee will receive is based upon the time of
retirement, an
exact amount of accrual is not known for any individual;
however, each
fund accrues an amount based upon actuarial assumptions meant
to provide
retirement benefits for all of its Trustees. The amount of
benefits to
be paid upon retirement is therefore not currently
determinable for any
current Trustee.
(2) Totals reflect compensation received from March 15,
1999, the date
of inception for the Mid Cap Fund.
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 June
14, 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.
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 Small Cap Portfolio, Growth and Income Portfolio, Mid
Cap
Portfolio, and Growth Portfolio (calculated separately for
each
Portfolio), 0.75% of the Portfolio's average daily net assets.
? For the Government Portfolio, 0.60% of the Portfolio's
average daily
net assets.
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.
The following table shows expenses paid under the relevant
investment
advisory agreement during the fiscal year ended October 31,
1999. The
Portfolios were not in existence for prior fiscal years.
Select
Small
Cap
Select Mid
Cap
Select
Growth
Select
Growth &
Income
Select
Governmen
t
October 31, 1999
Gross Advisory
Fees*
$4,490
$2,674
$4,582
$2,689
$3,709
*Had the manager not waived the management fee and reimbursed
certain
expenses in order to cap total annual portfolio expenses, the
Gross
Advisory Fees would have been: $20,253, $15,856, $24,854,
$15,325 and
$18,000 for the Select Small Cap, Select Mid Cap, Select
Growth, Select
Growth and Income and Select Government Portfolios,
respectively.
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.
Code of Ethics. Pursuant to Rule 17j-1 of the 1940 Act, the
Portfolios,
their investment advisers and principal underwriter have
adopted codes
of ethics that permit personnel to invest in securities for
their own
accounts, including securities that may be purchased or held
by the
Portfolios. All personnel must place the interests of clients
first and
avoid activities, interests and relationships that might
interfere with
the duty to make decisions in the best interests of the
clients. All
personal securities transactions by employees must adhere to
the
requirements of the codes and must be conducted in such a
manner as to
avoid any actual or potential conflict of interest, the
appearance of
such a conflict, or the abuse of an employee's position of
trust and
responsibility.
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. For the period September 15, 1999, to
October 31,
1999, each Portfolio's portfolio turnover rates were:
Period
Ended
10/31
Select
Small Cap
Select Mid
Cap
Select
Growth
Select
Growth &
Income
Select
Government
1999
0%
8%
6%
1%
0%
The portfolio turnover rates are not annualized.
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, 1999, the
Trust
directed no brokerage commissions to brokers because of
research
services provided to the Trust's Portfolios.
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 the total
brokerage
commissions paid.
Fiscal
Year
Ended
10/31
Select
Small Cap
Select Mid
Cap
Select
Growth
Select
Growth &
Income
Select
Governmen
t
1999
$5,455
$1,691
$2,258
$1,571
- -
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.
The Portfolios paid the following commissions to affiliated
brokers
during the periods shown:
Robinson Smith
Fiscal 1999 Commissions Humphrey Barney
Select Small Cap - -
Select Growth - -
Select Growth & Income - -
Select Government - -
Fiscal 1999 Percentage
Select Small Cap - -
Select Growth - -
Select Growth & Income - -
Select Government - -
Percentage of Transactions with
Affiliates to Total Transactions
Robinson Smith
Humphrey Barney
Select Small Cap - -
Select Growth - -
Select Growth & Income - -
Select Government - -
Each Portfolio paid no brokerage commissions prior to 1999.
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 which 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 holds 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.
The average annual total return (computed in the manner
described in the
Prospectus) and yield (if applicable) for each Portfolio are
shown in
the table below. These results are based on historical
earnings and
asset value fluctuations and are not intended to indicate
future
performance. Such information should be considered in light
of each
Portfolio's investment objectives and policies as well as the
risks
incurred in each Portfolio's investment practices.
Select
Small
Cap
Select Mid
Cap
Select
Growth
Select
Growth &
Income
Select
Governmen
t
Total Return
since inception
(based on
inception date
of 9/15/99)
(0.8)%
1.1%
5.1%
1.00%
1.30%
Yield
- --
- --
- --
- --
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 shareholder meeting of the Trust, 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
PFPC Global Fund Services is located at 101 Federal Street,
Boston,
Massachusetts 02110.
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 auditors.
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.
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(r).
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 February 14, 2000, 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, 1999, 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.
21
\\AMDCVA002\GROUP\Fund
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A-4
37
A-
Part C - Other Information
Signature Page
Exhibits
<PAGE>
Part A
PROSPECTUSES
Part B
STATEMENTS OF ADDITIONAL INFORMATION
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 filed
herewith.
(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 is filed herewith.
(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 - SSB Citi Fund Management LLC, successor to SSBC
Fund Management Inc. and formerly known as Mutual Management Corp.
("SSB Citi").
SSB Citi, 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. SSB Citi
is a wholly owned subsidiary of Salomon Smith Barney
Holdings Inc., which in turn is a wholly owned subsidiary
of Citigroup Inc. SSB Citi 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 SSB Citi 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 SSB Citi
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 SSB Citi 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. 25 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 28th day of February,
2000.
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 February 28, 2000
Heath B. McLendon (Chief Executive
Officer)
/s/ Lewis E. Daidone Senior Vice President February 28, 2000
Lewis E. Daidone and Treasurer (Chief
Financial and
Accounting Officer)
/s/ Donald M. Carlton* Trustee February 28, 2000
Donald M. Carlton
/s/ A. Benton Cocanougher* Trustee February 28, 2000
A. Benton Cocanougher
/s/ Stephen R. Gross* Trustee February 28, 2000
Stephen R. Gross
/s/ Alan G. Merten* Trustee February 28, 2000
Alan G. Merten
/s/ R. Richardson Pettit* Trustee February 28, 2000
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
j. Consent of Independent Auditors
n. Financial Data Schedules
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions
"Independent
Auditors" and "Financial
Highlights" and to the use of our reports
dated December 15, 1999, on the Concert Investment Series
(comprising,
respectively, the Emerging Growth Fund, Government Fund, Growth
Fund,
Growth and Income Fund, International Equity Fund, Mid Cap Fund,
Municipal Bond Fund, Select Emerging Growth Portfolio, Select
Government Portfolio, Select Growth Portfolio, Select Growth and
Income
Portfolio and Select Mid Cap Portfolio) which is incorporated by
reference in this Registration Statement
(Form N-1A No. 33-11716 and 811-5018) of the Concert Investment
Series.
ERNST & YOUNG LLP
New York, New York
February 24, 2000
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> CONCERT INVESTMENT SERIES
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<CIK> 0000810271
<NAME> CONCERT INVESTMENT SERIES
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<NAME> CONCERT INVESTMENT SERIES
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> CONCERT INVESTMENT SERIES
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<CIK> 0000810271
<NAME> CONCERT INVESTMENT SERIES
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<NAME> MID CAP FUND. CLASS A
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000810271
<NAME> CONCERT INVESTMENT SERIES
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<CIK> 0000810271
<NAME> CONCERT INVESTMENT SERIES
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<NAME> MUNICIPAL BOND FUND. CLASS A
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<NAME> CONCERT INVESTMENT SERIES
<SERIES>
<NUMBER> 6
<NAME> MUNICIPAL BOND FUND. CLASS B
<S> <C>
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<NAME> CONCERT INVESTMENT SERIES
<SERIES>
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<NAME> SELECT EMERGING GROWTH PORTFOLIO
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<CIK> 0000810271
<NAME> CONCERT INVESTMENT SERIES
<SERIES>
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<NAME> SELECT GOVERNMENT PORTFOLIO
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<NAME> CONCERT INVESTMENT SERIES
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<NAME> SELECT GROWTH AND INCOME PORTFOLIO
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<NAME> SELECT MID CAP PORTFOLIO
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