Registration No. 33-40603
811-6310
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. _____
Post-Effective Amendment No. 9
X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 12
X
SMITH BARNEY SERIES FUND
(Exact name of Registrant as Specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code:
(212) 723-9218
Christina T. Sydor, Esq.
Secretary
Smith Barney Series Fund
Exchange Place
Boston, Massachusetts 02109
(Name and Address of Agent of Service)
Approximate Date of Proposed Public Offering:
As soon as possible after this Post-Effective Amendment
becomes effective.
It is proposed that this filing will become effective:
____ immediately upon filing pursuant to Rule 485(b)
on __________ pursuant to Rule 485(b)
60 days after filing pursuant to Rule 485(a)
X on April 29, 1995 pursuant to Rule 485(a)
___________________________________________________________________________
_________
The Registrant has previously filed a declaration of indefinite
registration of its shares pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. Registrant's Rule 24f-2 Notice for
the fiscal year ended December 31, 1994 was filed on February 24, 1995.
SMITH BARNEY SERIES FUND
FORM N-IA
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
Part A.
Item No.
Prospectus Caption
1. Cover Page
Cover Page
2. Synopsis
Synopsis
3. Condensed Financial
Information
Financial Highlights;
The Portfolios' Performance
4. General Description of
Registrant
Cover Page; Investment Goals and
Policies of the Portfolios;
Additional Investments; Certain
Investments and Guidelines;
Special Considerations and Risk
Factors; Additional Information;
Appendix
5. Management of the Fund
Management of the Fund; Portfolio
Management; Custodian and Transfer
Agent; Distributor
6. Capital Stock and Other
Securities
Additional Information; Dividends
and Taxes
7. Purchase of Securities Being
Offered
Net Asset Value; Cover Page; How
to Use the Fund; Distributor
8. Redemption or Repurchase
How to Use the Fund
9. Pending Legal Proceedings
Not Applicable
Part B
Item No.
Statement of
Additional Information Caption
10. Cover Page
Cover Page
11. Table of Contents
Contents
12. General Information and
History
Additional Information;
Distributor
13. Investment Objectives and
Policies
Investment Goals and Policies of
the Portfolios
14. Management of the Fund
Management of the Fund
15. Control Persons and Principal
Holders of Securities
Management of the Fund
16. Investment Advisory and Other
Services
Management of the Fund;
Distributor
17. Brokerage Allocation and
Other Practices
Investment Goals and Policies --
Portfolio Transactions
18. Capital Stock and Other
Securities
Net Asset Value; Performance Data
19. Purchase, Redemption and
Pricing of
Securities Being Offered
Purchase of Shares; Redemption of
Shares
20. Tax Status
Taxes
21. Underwriters
Management of the Fund
22. Calculations of Performance
Data
Performance Data
23. Financial Statements
Financial Statements
Smith Barney
Series Fund
Prospectus dated April 29, 1995
Smith Barney Series Fund (the "Fund") is a diversified, open-end
management investment company - a mutual fund - with ten portfolios (the
"Portfolios"), each with separate goals and investment policies:
The Money Market Portfolio's goal is maximum current income to the extent
consistent with the preservation of capital and the maintenance of
liquidity. This Portfolio will invest in high quality short-term money
market instruments.
The Intermediate High Grade Portfolio's goal is to provide as high a level
of current income as is consistent with the protection of capital. This
Portfolio will invest in high quality intermediate-term U.S. government
securities and corporate bonds of U.S. issuers.
The Diversified Strategic Income Portfolio's goal is high current income.
This Portfolio will invest primarily in three types of fixed-income
securities - U.S. government and mortgage securities, foreign government
bonds and corporate bonds rated below investment grade.
The Equity Income Portfolio's primary goal is current income, with a
secondary goal of long-term capital appreciation. This Portfolio will
invest primarily in dividend-paying common stocks, concentrating in
securities of companies in the utility industry.
The Equity Index Portfolio's goal is to provide investment results that,
before deduction of operating expenses, match the price and yield
performance of U.S. publicly traded common stocks, as measured by the
Standard & Poor's Daily Price Index of 500 Common Stocks (the "S&P 500").
This Portfolio will invest in the common stocks of companies represented in
the S&P 500.
The Growth & Income Portfolio's goal is income and long-term capital
growth. This Portfolio will invest in dividend-paying equity securities
meeting certain specified investment criteria.
The Appreciation Portfolio's goal is long-term appreciation of capital.
This Portfolio will invest primarily in equity securities.
The Total Return Portfolio's goal is to provide shareholders with total
return, consisting of long-term capital appreciation and income. This
Portfolio will invest primarily in a diversified portfolio of dividend-
paying common stocks.
The International Equity Portfolio's goal is to provide total return on its
assets from growth of capital and income. This Portfolio will invest in
equity securities of established non-United States issuers.
The Emerging Growth Portfolio's goal is capital appreciation. This
Portfolio will invest primarily in common stocks of small and medium sized
companies considered to be emerging growth companies by its investment
adviser.
There can be no guarantee that the Portfolios' goals will be achieved since
any investment involves risks. An investment in the Money Market Portfolio
is neither insured nor guaranteed by the United States government. Although
the Money Market Portfolio will seek to maintain a stable net asset value
of $1.00 per share, there can be no assurance that the Portfolio will be
able to do so. Discussions of the investments each Portfolio will make, and
their related risks, are found in the sections of this Prospectus entitled
- -Investment Goals and Policies of the Portfolios," "Additional Investments"
and "Special Considerations" and in the Appendix to this Prospectus.
This Prospectus sets forth briefly certain information about the Fund and
each of the Portfolios that you should know before investing. Additional
information about the Fund and the Portfolios has been filed with the
Securities and Exchange Commission (the "SEC") in a document entitled
"Statement of Additional Information," dated April 29, 1995, as amended or
supplemented from time to time, which is available upon request and without
charge by calling or writing the Fund at the telephone number or address
set forth below or by contacting a Smith Barney Financial Consultant.
The Fund is responsible only for statements that are included in this
Prospectus, the Statement of Additional Information or in authorized sales
material. The Statement of Additional Information is incorporated by
reference into this Prospectus in its entirety. You cannot buy shares of
the Fund directly. You can invest in the Fund by buying a Symphony Annuity
(the "Annuity"), either as an individual flexible premium deferred annuity
contract from IDS Life Insurance Company ("IDS Life") or a certificate
evidencing your interest in a master group flexible premium deferred
annuity from IDS Life Insurance Company of New York ("IDS Life of New
York").
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS OF THE ANNUITY,
ISSUED BY IDS LIFE OR IDS LIFE OF NEW YORK. BOTH PROSPECTUSES SHOULD BE
READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Smith Barney Series Fund
388 Greenwich Street
New York, New York 10013
Annuity Owner Inquiries: (800) 422-3542 or (800) 724-0705 in New York}}}
Smith Barney Series Fund
2
3
Smith Barney Series Fund
3
Contents}}}
3
Synopsis 3
Expenses of the Portfolios 5
Investment Goals and Policies of the Portfolios 9
Additional Investments 15
Certain Investment Guidelines 16
Special Considerations and Risk Factors 17
Portfolio Transactions. 21
Net Asset Value 21
How to Use the Fund 22
Dividends and Taxes 23
Management of the Fund 24
Portfolio Management 25
Custodian and Transfer Agent 26
Distributor 26
Additional Information 26
The Portfolios' Performance 27
Appendix 28
Synopsis
The Fund
The Fund is a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), which currently offers a selection of ten Portfolios. See
"Investment Goals and Policies of the Portfolios" and "Additional
Information."
Management
The organizations that perform services for the Fund are listed below and
are described more fully under Management of the Fund.
Name Service
Travelers Investment Management Company Investment Adviser to the
Equity Index Portfolio
("TIM")
Smith Barney Mutual Funds Management Inc. Investment Adviser to the
Money Market Portfolio, the
(" SBMFM ") Intermediate High Grade Portfolio, the
Diversified Strategic Income Portfolio, the Equity Income Portfolio, the
Growth
& Income Portfolio, the Appreciation Portfolio, the Total Return Portfolio
and the International Equity Portfolio and Administrator to each Portfolio
American Capital Asset Management, Inc. Investment Adviser to the
Emerging Growth Portfolio
("American Capital")
Smith Barney Global Capital Management, Inc. Sub-Investment
Adviser to the Diversified Strategic
("Global Capital Management") Income Portfolio
The Boston Company Advisors, Inc. Sub-Administrator to each
Portfolio
("Boston Advisors")
Name Service
Smith Barney Inc. Distributor
("Smith Barney")
Boston Safe Deposit and Trust Company Custodian
("Boston Safe")
The Shareholder Services Group, Inc. ("TSSG"), Transfer and Dividend
Paying Agent
a subsidiary of First Data Corporation
The Portfolios pay their respective investment advisers an aggregate fee at
annual rates of the value of the relevant Portfolio's average net assets as
follows: Money Market Portfolio 0.30%; Intermediate High Grade Portfolio
0.40%; Diversified Strategic Income Portfolio 0.45%; Equity Income
Portfolio 0.45%; Equity Index Portfolio 0.40%; Growth & Income Portfolio
0.45%; Appreciation Portfolio 0.55%; Total Return Portfolio 0.55%;
International Equity Portfolio 0.85%; and Emerging Growth Portfolio 0.75%.
Global Capital Management, as sub-investment adviser to the Diversified
Strategic Income Portfolio, is paid a fee by SBMFM , the
Portfolio's investment adviser, at the annual rate of 0.15% of the value of
the Portfolio's average net assets. SBMFM , as
administrator of the Portfolios, is paid a fee at the annual rate of 0.20%
of the value of each Portfolio's average net assets. Boston Advisors is
paid a portion of the administration fee paid by the Fund to SBMFM
at a rate agreed upon from time to time between Boston Advisors
and SBMFM . The aggregate management fees paid by the
Appreciation, Total Return, International Equity and Emerging Growth
Portfolios are higher than those fees paid by most other investment
companies, but not necessarily higher than those paid by funds with similar
investment objectives and policies. See "Management of the Fund."
Buying Shares
You cannot buy shares of the Fund directly. You can invest by buying an
Annuity, from IDS Life or IDS Life of New York. You can direct the
allocation of part or all of your net purchase payment to one or more of
the ten subaccounts (the "Subaccounts") of the IDS Life Account SBS or IDS
Life of New York Account SBS (the "Variable Account"). Each Subaccount
invests only in a single Portfolio of the Fund. In the future, the Fund may
establish additional portfolios or offer its shares to the holders of other
separate accounts established by IDS Life or IDS Life of New York, or other
insurance companies. See "How to Use the Fund."
Redeeming Shares
Shares may be redeemed as described in the Annuity prospectus. See "How to
Use the Fund."
Special Considerations
Investors in the Fund should be aware of the following general
observations: The market value of fixed-income securities, which constitute
a major part of the investments of several Portfolios, may vary inversely
in response to changes in prevailing interest rates. The non-publicly
traded and illiquid securities, and the floating and variable rate demand
notes, which certain Portfolios may hold, may have to be sold at lower
prices, or may remain unsold, when the Portfolios desire to dispose of
them. The mortgage-related securities, including government stripped
mortgage-backed securities, in which certain Portfolios may invest, are
sensitive to changes in interest rates and to prepayment of the mortgages.
The foreign securities, including securities of developing countries, in
which several Portfolios may invest, may be subject to certain risks in
addition to those inherent in U.S. investments. The medium-, lower- and
unrated securities and the securities of unseasoned issuers that certain
Portfolios may hold, some of which have speculative characteristics, may be
subject to greater market fluctuation and risk of loss of income or
principal than higher-rated securities. Emerging growth companies, such as
those in which the Emerging Growth Portfolio may invest, may involve
certain special risks. Emerging growth companies often have limited product
lines, markets, or financial resources, and 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. The
Equity Income Portfolio's concentration policy may involve greater risk and
market fluctuation than if it invested in a broader range of securities.
One or more Portfolios may make certain investments and employ certain
investment techniques that involve other risks, including entering into
repurchase agreements, lending portfolio securities and entering into
futures contracts and related options as hedges. These risks and those
associated with when-issued and delayed delivery transactions, put and call
options, covered option writing, short sales against the box, forward roll
transactions, currency exchange transactions, options on foreign
currencies, interest rate and other hedging transactions and reverse
repurchase agreements, are described under Investment Goals and Policies of
the Portfolios, Special Considerations and in the Appendix to this
Prospectus.
Expenses of the Portfolios
Each Portfolio will bear its own expenses. Operating expenses for each
Portfolio generally will consist of all costs not specifically borne by its
investment adviser, sub-investment adviser, administrator and/or sub-
administrator or the Fund's distributor, including organizational costs,
investment advisory and administration fees, fees for necessary
professional and brokerage services, fees for any pricing service, the
costs of regulatory compliance and costs associated with maintaining legal
existence and shareholder relations. From time to time, the investment
adviser, the sub-investment adviser and/or the administrator of a Portfolio
may waive all or a portion of the fees payable to it by the Portfolio,
thereby reducing the expenses of the Portfolio. A detailed description of
the expenses involved in investing in the Annuity and the Portfolios is
included in the Annuity prospectus.
Financial Highlights
The following information with respect to the years ended December 31,
1994. 1993, 1992 and 1991, respectively, have been audited by Coopers &
Lybrand L.L.P., independent accountants, whose report thereon appears in
the Fund's Annual Report dated December 31, 1994, which if not included
with this prospectus, may be obtained without charge. This information
should be read in conjunction with the financial statements and related
notes that also appear in the Fund's Annual Report which is incorporated by
reference into the Statement of Additional Information.
3
4
Smith Barney Series Fund}}}
4
5
Smith Barney Series Fund
5
6
Financial Highlights For the Year ended December 31, 1993#
Diversified
Money Intermediate Strategic Equity Equity
Growth Emerging Total International
Market High Grade Income Income Index &
Income Appreciation Growth Return Equity
Portfolio Portfolio Portfolio Portfolio Portfolio
Portfolio Portfolio Portfolio* Portfolio* Portfolio*
Net asset value, beginning of period $1.000 $10.29
$9.61 $10.90 $11.27 $10.68 $11.13 $10.00
$10.00 $10.00
Income from investment operations:
Net investment income** 0.023 0.55 0.70 0.53 0.20 0.30
0.15 0.01 0.01 0.00 ***
Net realized and unrealized
gain loss on investments 0.26 0.47 0.60 0.71
0.67 0.63 0.40 0.29 0.05
Total from investment operations 0.023 0.81 1.17 1.13
0.91 0.97 0.78 0.41 0.30 0.05
Less distributions:
Dividends from net investment income (0.023) (0.36)
(0.61) (0.47) (0.16) (0.26) (0.11)
Distributions from capital gains (.05) (.04) (.01)
(0.12)
Distributions in excess of realized gains (.05)
(.02)
Distributions from capital (.01)
Total distributions (0.023) (0.41) (0.71)
(0.48) (0.28) (0.28) (0.11) 0.00 0.00 0.00
Net asset value, end of period $1.000 $10.69
$10.07 $11.55 $11.90 $11.37 $11.80 $10.41
$10.30 $10.05
Total return 2.37% 8.00% 12.56% 10.41% 8.66%
9.09% 7.03% 4.10% 3.00% .50%
Ratios to average net asset/
supplemental data:
Net assets, end of period (000's) $3,703 $9,859
$43,244 $60,160 $8,842 $25,549 $77,843 $2,257
$2,777 $5,867
Ratio of operating expenses to
average net assets 0.75% 0.85% 1.00% 0.87% 1.00% 1.00%
1.01% 1.05% 0.85% 1.08%
Ratio of net investment income to
average net assets 2.34% 5.25% 7.14% 4.54% 1.77% 2.68%
1.35% 1.37% 1.93% (0.51)
Portfolio turnover rate % 139% 94% 4% 1% 78% 33%
0% 0% 0%
# The per share amounts have been calculated using the monthly
average shares method, which more appropriately presents per share data for
this year since use of the undistributed method did not accord the results
of operations.
* The Portfolios commenced operations on December 3, 1993.
** Net investment income before waiver of fees and reimbursement
of expenses by investment adviser and/or custodian and/or transfer agents
and IDS were: $0.009, $0.50, $0.70, N/A, $0.10, $0.29, N/A, $(0.05),
$(0.01), and $(0.02), respectively, for the Money Market Portfolio,
Intermediate High Grade Portfolio, Diversified Strategic Income Portfolio,
Equity Income Portfolio, Equity Index Portfolio, Growth & Income Portfolio,
Appreciation Portfolio, Emerging Growth Portfolio, Total Return Portfolio
and International Equity Portfolio.
*** Amount represents less than $0.01.
Total return represents aggregate total return for the period
indicated and does not reflect any applicable sales charge.
Operating expense ratios before fees waived and expenses
reimbursed by the affiliated agents were: 2.15%, 1.36%, 1.02%, N/A, 1.88%;
1.01%; N/A; 9.99%; 4.14%; and 2.96%, respectively, for the Money Market
Portfolio, Intermediate High Grade Portfolio, Diversified Strategic Income
Portfolio, Equity Index Portfolio, Growth & Income Portfolio, Appreciation
Portfolio, Emerging Growth Portfolio, Total Return Portfolio and
International Equity Portfolio.
Financial Highlights continue on the next page.
6
Smith Barney Series Fund
6
#
7
Smith Barney Series Fund
7
Financial Highlights (continued) For the Year Ended December 31, 1992
Diversified
Money Intermediate Strategic Equity Equity
Growth
Market High Grade Income Income Index &
Income Appreciation
Portfolio Portfolio Portfolio Portfolio Portfolio
Portfolio Portfolio
Net asset value, beginning of year $1.000 $ 10.24 $
10.14 $ 10.20 $10.62 $ 10.15 $ 10.49
Income from investment operations:
Net investment income** 0.027 0.45 0.67 0.45 0.17 0.27
0.11
Net realized and unrealized gain/(loss)
on investments 0.08 (0.53) 0.72 0.55 0.55
0.53
Total from investment operations 0.027 0.53 0.14 1.17
0.72 0.82 0.64
Less distributions:
Dividends from net investment income (0.027) (0.48)
(0.67) (0.47) (0.02) (0.29) (0.00)***
Distributions from net realized capital gains
(0.05)
Distributions from capital
(0.00) ***
Total distributions (0.027) (0.48) (0.67)
(0.47) (0.07) (0.29) 0.00
Net asset value, end of year $1.000 $10.29 $9.61
$10.90 $11.27 $10.68 $11.13
Total return $2.75% 5.28% 1.42% 11.74% 6.74%
8.44% 6.13%
Ratios to average net assets
supplemental data:
Net assets, end of year (000's) $2,108 $3,621
$19,991 $25,985 $4,178 $10,951 $53,450
Ratio of operating expenses to average
net assets 0.75% 0.85% 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of net investment income to average
net assets 2.79% 4.75% 7.70% 4.93% 2.10% 3.06% 1.61%
Portfolio turnover rate 124% 65% 4% 8% 78% 14%
** Net investment income before waiver of fees and reimbursement
of expenses by investment adviser and/or custodian and/or transfer agents
were: $0.013, $0.32, $0.64, $0.43, $0.02, $0.21 and $0.10, respectively.
*** Amount represents less than $0.01.
Operating expense ratios before fees waived and expenses
reimbursed by the affiliated agents were: 2.18%; 2.28%; 1.41%; 1.27%;
2.89%; 1.65%; and 1.16%, respectively.
Total return represents aggregate total return for the period
indicated.
Financial Highlights continue on the next page.
Financial Highlights (continued) For the Period Ended December 31, 1991
Diversified
Money Intermediate Strategic Equity Equity
Growth
Market High Grade Income Income Index &
Income Appreciation
Portfolio* Portfolio* Portfolio* Portfolio*
Portfolio* Portfolio* Portfolio*
Net asset value, beginning of period $1.000 $ 10.00
$ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from investment operations:
Net investment income** 0.005 0.03 0.02 0.02 0.04 0.02
0.01
Net realized and unrealized gain on investments 0.21 0.12
0.18 0.58 0.13 0.48
Total from investment operations 0.005 0.24 0.14 0.20
0.62 0.15 0.49
Less distributions:
Dividends from net investment income (0.005)
Total distributions (0.005)
Net asset value, end of period $1.000 $ 10.24 $
10.14 $ 10.20 $ 10.62 $ 10.15 $ 10.49
Total return 0.53% 2.40% 1.40% 2.00% 6.20% 1.40% 4.90%
Ratios to average net assets/
supplemental data:
Net assets, end of period (000's) $ 830 $ 697 $
3,914 $ 3,900 $ 1,733 $ 1,904 $11,436
Ratio of operating expenses to average
net assets 0.65% 0.80% 0.94% 0.93% 0.98% 0.90% 0.94%
Ratio of net investment income to average
net assets .35% 4.49% 4.57% 4.14% 2.91% 4.14% 3.00%
Portfolio turnover rate % % % % % 3% %
* The Portfolios shown commenced operations on October 16, 1991.
** Net investment income before waiver of fees and reimbursement
of expenses by investment adviser and/or custodian and/or transfer agents
were: $(0.029), $(0.14), $(0.01), $(0.01), $(0.05), $(0.05) and $0.00,
respectively.
Total return represents aggregate total return for the period
indicated.
Annualized operating expense ratios before fees waived and
expenses reimbursed by the affiliated agents were: 21.47%; 26.28%; 7.76%;
8.34%; 7.60%; 20.02%; and 3.64%, respectively.
7
8
Smith Barney Series Fund}}}
8
#}}}
9
Smith Barney Series Fund}}}
9
Investment Goals and Policies of the Portfolios
9
Set forth below is a description of the investment goals and policies of
the ten Portfolios currently offered by the Fund, which consist of one
money market Portfolio, two fixed-income Portfolios and seven equity
Portfolios. The investment goals of a Portfolio may not be changed without
the approval of the holders of a majority (as defined in the Investment
Company Act of 1940, as amended (the "1940 Act") of the outstanding shares
of that Portfolio. There can, of course, be no guarantee that the
Portfolios will achieve their investment goals. Additional information
about investment strategies that one or more of the Portfolios may employ
and investment policies mentioned below appears in the Appendix to this
Prospectus and in the Statement of Additional Information. A description of
the corporate bond and commercial paper rating systems of Standard & Poor's
Corporation ("S&P"), Moody's Investors Service, Inc. ("Moody's") and other
nationally recognized statistical rating organizations ("NRSROs') is also
contained in the Statement of Additional Information.
Money Market Portfolio
Goal - The Money Market Portfolio's goal is maximum current income to the
extent consistent with the preservation of capital and the maintenance of
liquidity.
Investment Policies - In seeking to achieve its goal, the Money Market
Portfolio will invest in short-term money
market instruments, including: securities issued or guaranteed by the U.S.
government, its agencies and instrumentalities ("U.S. government
securities"); repurchase agreements, U.S. and foreign bank time deposits,
certificates of deposit and bankers' acceptances; high-grade commercial
paper of U.S. and foreign issuers and other short-term corporate debt
obligations of such issuers that are comparable in priority and security to
such instruments, including variable rate and floating rate instruments.
Except when maintaining a temporary defensive position, the Portfolio
intends to invest more than 25% of its assets in short-term bank
instruments. The Portfolio will invest in money market instruments that are
determined by SBMFM to present minimal credit risks and which at
the time of purchase are considered to be Eligible Securities, as defined
by the SEC.
The Portfolio will invest only in securities that are purchased with and
payable in U.S. dollars and that have (or, pursuant to regulations adopted
by the SEC, are deemed to have) remaining maturities of 13 months or less
at the date of purchase by the Portfolio. The Portfolio will maintain a
dollar-weighted average portfolio maturity of 90 days or less. The
Portfolio will follow these policies to maintain a constant net asset value
of $1.00 per share, although there is no assurance that it can do so on a
continuing basis.
The Bond Portfolios
Intermediate High Grade Portfolio
Goal - The Intermediate High Grade Portfolio's goal is to provide as high a
level of current income as is consistent with the protection of capital.
Investment Policies - The Intermediate High Grade Portfolio will seek to
achieve its goal by investing, under normal circumstances, substantially
all but not less than 65% of its assets in U.S. government securities and
high-grade corporate bonds of U.S. issuers (i.e., bonds rated within the
two highest rating categories by Moody's or S&P or, if not rated, believed
by SBMFM to be of comparable quality).
Under normal market conditions, the average weighted maturity of the
Portfolio's assets will be between three and ten years. The portion of the
Portfolio's assets not invested in intermediate-term U.S. government
securities and U.S. corporate bonds may be invested in short-term U.S.
government and corporate obligations, convertible securities and preferred
stock that is not convertible into common stock. The Portfolio may not hold
securities rated lower than Baa by Moody's or BBB by S&P or unrated
securities deemed to be comparable to securities rated below investment-
grade. The Portfolio may invest up to 10% of its total assets in government
stripped mortgage-backed securities and may invest in floating or variable
rate demand notes.
Diversified Strategic Income Portfolio
Goal - The Diversified Strategic Income Portfolio's goal is high current
income.
Investment Policies - The Diversified Strategic Income Portfolio will seek
to achieve its goal through allocating and reallocating its assets
primarily among three types of fixed-income securities U.S. government and
mortgage related securities, foreign government securities and corporate
securities rated below investment-grade. Under current market conditions,
SBMFM expects to maintain 50% of its assets in government/mortgage
securities, 25% in foreign government securities and 25% of its assets in
high-yield corporate securities. The portions of the Portfolio's assets
invested in each type of security will vary from time to time and, at any
given time, the Portfolio may be entirely invested in a single type of
fixed-income security. Under normal circumstances, substantially all but
not less than 65% of the Portfolio's assets will be invested in fixed-
income securities, including non-convertible preferred stocks.
SBMFM and Global Capital Management will select investments on the
basis of an analysis of economic and market conditions and relative risks
and opportunities of those types of fixed-income securities. In general,
the particular type or types of fixed-income securities selected for
investment by the Portfolio at any given time will be those that, in the
view of its investment advisers, offer the highest income available at the
time, unless the investment adviser believes that such income potential is
not sufficient to justify the higher risks associated with these
securities. The Portfolio generally will invest in intermediate- and long-
term fixed-income securities with the result that, under normal market
conditions, the weighted average maturity of the portfolio's securities is
expected to be between five and twelve years.
Mortgage-related securities in which the Portfolio may invest, which
include mortgage obligations collateralized by mortgage loans or mortgage
pass-through certificates, will be rated no lower than Aa by Moody's or AA
by S&P or, if unrated, will be deemed by SBMFM to be of comparable
quality. Under normal market conditions, the Portfolio's mortgage-related
holdings can be expected to consist primarily of securities issued or
guaranteed by the Government National Mortgage Association ("GNMA"), the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). The Portfolio may invest up to 35% of its
assets in corporate fixed-income securities of U.S. issuers rated Ba or
lower by Moody's or BB or lower by S&P, but not lower than Caa or CCC,
respectively, or in unrated securities deemed by SBMFM and Global
Capital Management to be of comparable quality. Special considerations
arising from investment in lower-rated and unrated securities are described
in "Special Considerations and Risk Factors Medium-, Lower- and Unrated
Securities." The Portfolio may also invest in fixed-income securities
issued by supranational organizations and may engage in transactions in
options, interest rate futures contracts, options on interest rate futures
contracts, forward currency contracts, options on foreign currencies and
foreign currency futures contracts. Up to 5% of the Portfolio's assets may
be invested in developing countries.
The Equity Portfolios
Equity Income Portfolio
Goal - The Equity Income Portfolio's primary goal is current income. Long-
term capital appreciation is a secondary goal.
Investment Policies - The Equity Income Portfolio will seek to achieve its
goals principally through investment in dividend-paying common stocks of
companies whose prospects for dividend growth and capital appreciation are
considered favorable by SBMFM . The Portfolio will normally invest
at least 65% of its assets in equity securities. Under normal
circumstances, the Portfolio will concentrate at least 25% of its assets in
equity and debt securities of companies in the utility industry. A company
will be considered to be in the utility industry if it is principally
engaged (i.e., at least 50% of a company's assets consist of, or gross
income or net profits result from, utility operations or the company is
regulated as a utility by a government agency or authority) in the
manufacture, production, generation, transmission and sale of electric and
gas energy and companies principally engaged in the communications field,
including entities such as telephone, telegraph, satellite, microwave and
other companies regulated by governmental agencies as utilities that
provide communication facilities for the public benefit.
Other types of securities that may be held by the Portfolio when deemed
advisable by SBMFM include investment-
grade debt securities such as bonds, debentures and commercial paper, U.S.
government securities and money market instruments, provided that up to 10%
of the Portfolio's assets may be invested in debt securities rated as low
as B by Moody's or S&P in unrated securities or deemed by SBMFM to
be of comparable quality. When the outlook for common stocks is not
considered promising in the judgment of SBMFM , a substantial
portion of the assets of the Portfolio may be held in these other types of
securities for temporary defensive purposes.
The Portfolio's investments in common stocks will generally be made in
companies that share some of the following characteristics: established
operating histories; above-average current dividend yields relative to the
S&P 500; low price/earnings ratios relative to the S&P 500; and strong
balance sheets and other financial characteristics. The Portfolio may also
invest in securities convertible into or ultimately exchangeable for common
stock (i.e., convertible bonds or convertible preferred stock) and may
purchase common stocks that do not provide current income but which offer
opportunities for capital appreciation and future income. The Portfolio
also may enter into repurchase agreements and reverse repurchase
agreements, borrow money, lend its portfolio securities, write covered
options on securities, purchase options on securities, sell securities
short against the box, purchase and sell securities on a when-issued or
delayed delivery basis and enter into interest rate futures contracts and
related options.
Equity Index Portfolio
Goal - The Equity Index Portfolio's goal is to provide investment results
that, before deduction of operating expenses, match the price and yield
performance of U.S. publicly traded common stocks, as measured by the S&P
500.
Investment Policies - Once the Equity Index Portfolio reaches a sufficient
asset size, it will seek to achieve its goal by owning all 500 stocks in
the S&P 500 in proportion to their actual market capitalization weightings.
The Portfolio will be reviewed daily and will be adjusted, when necessary,
to maintain security weightings as close to those of the S&P 500 as
possible, given the amount of assets in the Portfolio at that time. The
Portfolio may invest up to 5% of its assets in equity securities that are
not included in the S&P 500 if TIM believes such investments will assist
the Portfolio in approximating the return of the S&P 500. The Portfolio may
use up to an additional 5% of its assets to enter into stock index futures
and related options to increase efficiency, may lend portfolio securities
and write covered options to help offset operating expenses, and may
acquire money market instruments. Portfolio turnover is expected to be
lower than for most other investment companies.
No attempt will be made to manage the Portfolio in the traditional sense
using economic, financial and market analysis, nor will the adverse
financial situation of an issuer necessarily result in the elimination of
its securities from the Portfolio, unless the securities are removed from
the S&P 500. From time to time, administrative adjustments may be made in
the Portfolio because of changes in the composition of the S&P 500. The
Portfolio reserves the right to remove an investment from the Portfolio if,
in the opinion of TIM, the merit of the investment has been substantially
impaired by extraordinary events or financial conditions.
The Portfolio will use the S&P 500 as its standard for performance
comparison because the S&P 500 represents approximately 70% of the total
market value of all U.S. common stocks, is well known to investors and is
representative of the performance of publicly traded U.S. common stocks.
Growth & Income Portfolio
Goal - The Growth & Income Portfolio's goal is income and long-term capital
growth.
Investment Policies - The Growth & Income Portfolio will seek to achieve
its goal by investing in income-producing equity securities, including
dividend-paying common stocks, securities that are convertible into common
stocks and warrants. SBMFM has developed quantitative investment
criteria against which prospective investments will be evaluated and will
make buy and sell decisions based on those criteria. Those criteria
establish parameters for suitable investments and deal with such matters as
market capitalization, credit quality, dividend growth, historic earnings,
current yield and industry diversification. The criteria, which may be
changed by SBMFM in light of its experience in managing the
Portfolio or in response to changing market or economic conditions, are
designed to identify companies with consistent dividend-paying histories,
relatively high levels of dividends, the capacity to raise dividends in the
future and the potential for capital appreciation.
Under normal market conditions, the Portfolio will invest substantially all
but not less than 65% of its assets in equity securities. The Portfolio
may invest the remainder of its assets in money market instruments, as well
as in corporate bonds, convertible securities and mortgage-related
securities that are rated investment-grade or are deemed to be of
comparable quality. The Portfolio may enter into repurchase agreements,
lend portfolio securities, enter into interest rate and stock index futures
and related options, purchase or sell securities on a when-issued or
delayed delivery basis and write covered options.
Appreciation Portfolio
Goal - The Appreciation Portfolio's goal is long-term appreciation of
capital.
Investment Policies - The Appreciation Portfolio will attempt to achieve
its goal by investing primarily in equity and equity-related securities
that are believed to afford attractive opportunities for appreciation. For
example, the Portfolio may invest in the securities of companies whose
earnings are expected to increase, companies whose securities prices are
lower than are believed justified in relation to their underlying assets or
earning power or companies in which changes are anticipated that would
result in improved operations or profitability. The Portfolio's investments
will be broadly diversified among different industries. In analyzing
securities for investment, SBMFM will consider many different
factors, including past growth records, management capability, future
earnings prospects and technological innovation, as well as general market
and economic factors that can influence the price of securities.
Under normal market conditions, substantially all but not less than 65% of
the Portfolio's assets will consist of common stocks, but the Portfolio
also may hold securities convertible into common stocks and warrants. When
SBMFM believes that a conservative or defensive investment posture
is warranted or when opportunities for capital appreciation do not appear
attractive, the Portfolio may invest temporarily in debt obligations,
preferred securities or short-term money market instruments. The Portfolio
may from time to time lend its portfolio securities and invest in
securities of non-U.S. issuers in the form of depositary receipts
representing interests in the common stocks of
foreign issuers.
Total Return Portfolio
Goal - The Total Return Portfolio's goal is to provide shareholders with
total return, consisting of long-term capital appreciation and income.
Investment Policies - The Total Return Portfolio will seek to achieve its
goal by investing primarily in a diversified portfolio of dividend-paying
common stocks. The Portfolio may engage in various portfolio strategies
involving options to seek to increase its return and to hedge its portfolio
against movements in the equity markets and interest rates. Because the
Portfolio seeks total return by emphasizing investments in dividend-paying
common stocks, it will not have as much investment flexibility as total
return funds which may pursue their objective by investing in both income
and equity stocks without such an emphasis. The Portfolio also may invest
up to 10% of its assets in medium- or low-rated securities (securities
rated less than investment-grade by Moody's or S&P) or unrated securities
of comparable quality, interest-paying debt securities, such as U.S.
government securities, and other securities, including convertible bonds,
convertible preferred stock and warrants. In addition, the Portfolio will
limit its investments in warrants to 5% of its net assets. The Portfolio
also may lend its portfolio securities and enter into "short sales against
the box."
International Equity Portfolio
Goal - The International Equity Portfolio's goal is to provide a total
return on its assets from growth of capital
and income.
Investment Policies - Under normal market conditions, the Portfolio will
invest at least 65% of its assets in a diversified portfolio of equity
securities consisting of dividend and non-dividend paying common stock,
preferred stock, convertible debt and rights and warrants to such
securities and up to 35% of the Portfolio's assets in bonds, notes and debt
securities (consisting of securities issued in the Euro-currency markets or
obligations of the United States or foreign governments and their political
subdivisions) of established non-United States issuers. Investments may be
made for capital appreciation or for income or any combination of both for
the purpose of achieving a higher overall return than might otherwise be
obtained solely from investing for growth of capital or for income. There
is no limitation on the percentage or amount of the Portfolio's assets
which may be invested for growth or income and, therefore, from time to
time the investment emphasis may be placed solely or primarily on growth of
capital or solely or primarily on income. In seeking to achieve its
objective, the Portfolio presently expects to invest its assets primarily
in common stocks of established non-United States companies which in the
opinion of its investment adviser have potential for growth of capital. In
determining whether the Portfolio will be invested for capital appreciation
or for income or any combination of both, its investment adviser 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 can be expected
from each market.
The Portfolio will generally invest its assets broadly among countries and
will have represented in the portfolio business activities in not less than
three different countries. Except as stated below, the Portfolio will
invest 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., the United Kingdom, Germany, the Netherlands, France, Italy,
Switzerland), Central and South America (e.g., Mexico, Chile and
Venezuela), Australia, Canada and such other areas and countries as its
investment adviser may determine from time to time. The Portfolio may
invest in securities issued by companies formerly party to the Warsaw Pact.
However, under unusual economic or market conditions as determined by its
investment adviser, for defensive purposes the Portfolio may temporarily
invest all or a major portion of its assets in U.S. government securities
or in debt or equity securities of companies incorporated in and having
their principal business activities in the United States. To the extent the
Portfolio's assets are invested for temporary defensive purposes, such
assets will not be invested in a manner designed to achieve the Portfolio's
investment objective.
In determining the appropriate distribution of investments among various
countries and geographic regions, the investment adviser will ordinarily
consider the following factors: prospects for relative economic growth
among countries; expected levels of inflation; government policies
influencing business conditions; the outlook for currency relationships;
and the range of individual investment opportunities available to
international investors. In the future, if any other relevant factors
arise, they will also be considered. In analyzing companies for investment,
the investment adviser ordinarily looks for one or more of the following
characteristics: an above-average earnings growth per share; high return on
invested capital; healthy balance sheet; sound financial and accounting
policies and overall financial strength; strong competitive advantages;
effective research and product development and marketing; efficient
service; pricing flexibility; strength of management; and general operating
characteristics which will enable the company to compete successfully in
its market place. Ordinarily, the Portfolio's investment adviser will not
view a company as being sufficiently well established to be considered for
inclusion in the Portfolio unless the company, together with any
predecessors, has been operating for at least three fiscal years. 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 also may 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 Portfolio's assets are not otherwise invested as
described above, the assets may be held in cash, in any currency, or
invested in U.S. as well as foreign high quality money market instruments
and equivalents.
Emerging Growth Portfolio
Goal - The Emerging Growth Portfolio's goal is to provide capital
appreciation.
Investment Policies - The Emerging Growth Portfolio will seek to invest at
least 65% of its total assets in common stocks of small and medium sized
companies, both domestic and foreign, in the early stages of their life
cycle, that its investment adviser believes have the potential to become
major enterprises. Investments in such companies may offer greater
opportunities for growth of capital than larger, more established
companies, but also may involve certain special risks. Emerging growth
companies often have limited product lines, markets or financial resources,
and they may be dependent upon one or a few key people for management. The
securities of such companies may be subject to more abrupt or erratic
market movements than securities of larger, more established companies or
the market averages in general. While the Portfolio will invest primarily
in common stocks it may invest, to a limited extent, in other securities
such as preferred stocks, convertible securities and warrants.
The Portfolio will not limit its investments to any single group or type of
security. The Portfolio also may 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's primary approach is to seek what its investment adviser
believes to be unusually attractive growth investments on an individual
company basis. The Portfolio may invest in securities that have above
average volatility of price movement. Because prices of common stocks and
other securities fluctuate, the value of an investment in the Portfolio
will vary based upon its investment performance. The Portfolio attempts to
reduce overall exposure to risk from declines in securities prices by
spreading its investments over many different companies in a variety of
industries. There is, however, no assurance that the Portfolio will be
successful in achieving its objective.
The Portfolio may invest up to 20% of its total assets in securities of
foreign issuers. Additionally, the Portfolio may invest up to 15% of the
value of its total assets in restricted securities (i.e., securities which
may not be sold without registration under the Securities Act of 1933) and
in other securities not having readily available market quotations. The
Portfolio may enter into repurchase agreements with domestic banks and
broker-dealers, which involve certain risks.
Additional Investments
Money Market Instruments
The Money Market Portfolio will invest exclusively in money market
instruments. Each of the remaining Portfolios may, as a cash management
tool, hold up to 20%, except that each of the Total Return, Emerging Growth
and International Equity Portfolios may invest up to 35%, of the value of
its total assets in cash and invest in short-term instruments and, for
temporary defensive purposes, may hold cash and invest in short-term
instruments without limitation. Short-term instruments in which the
Portfolios may invest include: U.S. government securities; obligations of
banks having at least $1 billion in assets (including certificates of
deposit, time deposits and bankers' acceptances of U.S. or foreign banks,
U.S. savings and loan associations and similar institutions); commercial
paper rated no lower than A-2 by S&P or Prime-2 by Moody's or the
equivalent from another NRSRO or, if unrated, of an issuer having an
outstanding, unsecured debt issue then rated within the two highest rating
categories; and repurchase agreements with respect to any of the foregoing
entered into with banks and non-bank dealers approved by the Fund's Board
of Trustees.
The Money Market Portfolio will limit its portfolio investments to
securities that the Fund's Board of Trustees determines present minimal
credit risks and which are "Eligible Securities" at the time of acquisition
by the Portfolio. The term Eligible Securities includes securities rated by
the "Requisite NRSROs" in one of the two highest short-term rating
categories, securities of issuers that have received such ratings with
respect to other short-term debt securities and comparable unrated
securities. "Requisite NRSROs" means (a) any two NRSROs that have issued a
rating with respect to a security or class of debt obligations of an
issuer, or (b) one NRSRO, if only one NRSRO has issued such a rating at the
time that the Portfolio acquires the security. Currently, there are six
NRSROs: S&P, Moody's, Fitch Investors Services, Inc., Duff and Phelps
Credit Rating Co., IBCA Limited and its affiliate, IBCA, Inc. and Thomson
Bankwatch. A discussion of the ratings categories of the NRSROs is
contained in the Appendix to the Statement of Additional Information.
The Money Market Portfolio generally may not invest more than 5% of its
total assets in the securities of any one issuer, except for U.S.
government securities. In addition, the Portfolio may not invest more than
5% of its total assets in Eligible Securities that have not received the
highest rating from the Requisite NRSROs and comparable unrated securities
("Second Tier Securities") and may not invest more than 1% of its total
assets in the Second Tier Securities of any one issuer. The Portfolio may
invest more than 5% (but no more than 25%) of the then-current value of the
Portfolio's total assets in the securities of a single issuer for a period
of up to three business days, provided that (a) the securities either are
rated by the Requisite NRSROs in the highest short-term rating category or
are securities of issuers that have received such rating with respect to
other short-term debt securities or are comparable unrated securities, and
(b) the Portfolio does not make more than one such investment at any one
time.
U.S. Government Securities
The U.S. government securities in which the Portfolios may invest include:
direct obligations of the United States Treasury (such as Treasury Bills,
Treasury Notes and Treasury Bonds), and obligations issued by U.S.
government agencies and instrumentalities, including securities that are
supported by the full faith and credit of the United States (such as
certificates issued by GNMA); securities that are supported by the right of
the issuer to borrow from the U.S. Treasury (such as securities of Federal
Home Loan Banks); and securities that are supported only by the credit of
the instrumentality (such as bonds issued by FNMA and FHLMC). Treasury
Bills have maturities of less than one year, Treasury Notes have maturities
of one to ten years and Treasury Bonds generally have maturities of greater
than ten years at the date of issuance.
The Portfolios may invest up to 5% of their net assets in U.S. government
securities for which the principal repayment at maturity, while paid in
U.S. dollars, is determined by reference to the exchange rate between the
U.S. dollar and the currency of one or more foreign countries ("Exchange
Rate-Related Securities"). Exchange Rate-Related Securities are issued in a
variety of forms, depending on the structure of the principal repayment
formula. The principal repayment formula may be structured so that the
security holder will benefit if a particular foreign currency to which the
security is linked is stable or appreciates against the U.S. dollar. In the
alternative, the principal repayment formula may be structured so that the
security holder benefits if the U.S. dollar is stable or appreciates
against the linked foreign currency. Finally, the principal repayment
formula can be a function of more than one currency and, therefore, be
designed in either of the aforementioned forms or a combination of those
forms.
Investments in Exchange Rate-Related Securities entail special risks. There
is the possibility of significant changes in rates of exchange between the
U.S. dollar and any foreign currency to which an Exchange Rate-Related
Security is linked. If currency exchange rates do not move in the direction
or to the extent anticipated at the time of purchase of the security, the
amount of principal repaid at maturity might be significantly below the par
value of the security, which might not be offset by the interest earned by
the Portfolios over the term of the security. The rate of exchange between
the U.S. dollar and other currencies is determined by the forces of supply
and demand in the foreign exchange markets. These forces are affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. The
imposition or modification of foreign exchange controls by the United
States or foreign governments or intervention by central banks also could
affect exchange rates. Finally, there is no assurance that sufficient
trading interest to create a liquid secondary market will exist for
particular Exchange
Rate-Related Securities due to conditions in the debt and foreign currency
markets. Illiquidity in the forward foreign exchange market and the high
volatility of the foreign exchange market may from time to time combine to
make it difficult to sell an Exchange Rate-Related Security prior to
maturity without incurring a significant price loss.
Certain Investment Guidelines
Up to 10% (15% in the case of the International Equity, Emerging Growth and
Total Return Portfolios) of the total assets of any Portfolio may be
invested in securities with contractual or other restrictions on resale and
other instruments that are not readily marketable, including (a) repurchase
agreements with maturities greater than seven days, (b) futures contracts
and related options for which a liquid secondary market does not exist and
(c) time deposits maturing in more than seven calendar days. Each Portfolio
may borrow from banks for temporary or emergency purposes, but not for
leverage, in an amount up to 30% of its assets, and may pledge its assets
to the same extent in connection with such borrowings. Whenever borrowings
from banks exceed 5% of the value of the assets of a Portfolio, the
Portfolio will not make any additional investments. The International
Equity Portfolio may borrow for investment purposes, provided that any
transactions constituting borrowing by the Portfolio may not exceed one-
third of its assets. Except for the limitations on borrowing, the
investment guidelines set forth in this paragraph may be changed at any
time without shareholder consent by vote of the Board of Trustees of the
Fund. A complete list of investment restrictions that identifies additional
restrictions that cannot be changed without the approval of a majority of
an affected Portfolio's outstanding shares is contained in the Statement of
Additional Information.
Special Considerations and Risk Factors
This section describes certain investments of one or more Portfolios and
related risks. Further information concerning investments of the Portfolios
and related risks may be found in the Appendix to this Prospectus and in
the Statement of Additional Information.
Fixed-Income Securities
The market value of fixed-income obligations of the Portfolios will be
affected by general changes in interest rates, which will result in
increases or decreases in the value of fixed-income obligations held by the
Portfolios. The market value of the Portfolios' fixed-income obligations
can be expected to vary inversely in relation to changes in prevailing
interest rates. Investors also should recognize that in periods of
declining interest rates the yield of income-oriented Portfolios will tend
to be somewhat higher than prevailing market rates, and in periods of
rising interest rates these Portfolios' yield will tend to be somewhat
lower. Also, when interest rates are falling, the inflow of net new money
to these Portfolios from the continuous sale of their shares probably will
be invested in instruments producing lower yields than the balance of their
holdings, thereby reducing the Portfolios' current yield. In periods of
rising interest rates the opposite can be expected to occur. In addition,
fixed-income securities in which certain Portfolios may invest may not
yield as high a level of current income as might be achieved by investing
in securities with less liquidity and safety and longer maturities.
Non-Publicly Traded and Illiquid Securities
Each Portfolio may purchase securities that are not publicly traded. The
sale of securities that are not publicly traded is typically restricted
under federal securities laws. As a result, a Portfolio may be forced to
sell these securities at less than fair market value or may not be able to
sell them when its investment adviser believes it desirable to do so. The
Portfolios' investments in illiquid securities are subject to the risk that
should a Portfolio desire to sell any of these securities when a ready
buyer is not available at a price that the Portfolio deems representative
of their value, the value of the Portfolio's net assets could be adversely
affected.
Mortgage-Related Securities
To the extent that a Portfolio purchases mortgage-related securities at a
premium, mortgage foreclosures and prepayments of principal by mortgagors
(which may be made at any time without penalty) may result in some loss of
the Portfolio's principal investment to the extent of the premium paid. The
yield of a Portfolio that invests in mortgage-related securities may be
affected by reinvestment of prepayments at higher or lower rates than the
original investment. In addition, like other debt securities, the values of
mortgage-related securities, including government and government-related
mortgage pools, generally will fluctuate in relation to interest rates.
Government Stripped Mortgage-Backed Securities
The Intermediate High Grade Portfolio may invest up to 10% of its total
assets in government stripped mortgage-backed securities issued and
guaranteed by GNMA, FNMA or FHLMC. These securities represent beneficial
ownership interests in either periodic principal distributions ("principal-
only") or interest distributions ("interest-only") on mortgage-backed
certificates issued by GNMA, FNMA or FHLMC, as the case may be. The
certificates underlying government stripped mortgage-backed securities
represent all or part of the beneficial interest in pools of mortgage
loans.
Investing in government stripped mortgage-backed securities involves the
risks normally associated with investing in mortgage-backed securities
issued by government or government-related entities. See "Mortgage-Related
Securities" above. In addition, the yields on government stripped mortgage-
backed securities are extremely sensitive to the prepayment experience on
the mortgage loans underlying the certificates collateralizing the
securities. If a decline in the level of prevailing interest rates results
in a rate of principal prepayments higher than anticipated, distributions
of principal will be accelerated, thereby reducing the yield to maturity on
interest-only government stripped mortgage-backed securities and increasing
the yield to maturity on principal-only government stripped mortgage-backed
securities. Sufficiently high prepayment rates could result in the
Portfolio not fully recovering its initial investment in an interest-only
government stripped mortgage-backed security. Government stripped mortgage-
backed securities are currently traded in an over-the-counter market
maintained by several large investment banking firms. There can be no
assurance that the Portfolio will be able to effect a trade of a government
stripped mortgage-backed security at a time when it wishes to do so,
although the Portfolio will acquire government stripped mortgage-backed
securities only if a secondary market for the securities exists at the time
of acquisition.
Foreign Securities
Each Portfolio may invest in obligations of companies and governments of
foreign nations, which involve certain risks
in addition to the usual risks inherent in U.S. investments. These risks
include those resulting from revaluation of currencies, future adverse
political and economic developments and the possible imposition of currency
exchange blockages or other foreign governmental laws or restrictions,
reduced availability of public information concerning issuers and the lack
of uniform accounting, auditing and financial reporting standards or of
other regulatory practices and requirements comparable to those applicable
to U.S. companies. The performance of a Portfolio investing in foreign
securities may be adversely affected by fluctuations in value of one or
more foreign currencies relative to the U.S. dollar. Moreover, securities
of many foreign companies may be less liquid and their prices more volatile
than those of securities of comparable U.S. companies. In addition, with
respect to certain foreign countries, there is the possibility of
expropriation, nationalization, confiscatory taxation and limitations on
the use or removal of funds or other assets of a Portfolio, including the
withholding of dividends. Foreign securities may be subject to foreign
government taxes that could reduce the return on such securities. Changes
in foreign currency exchange rates may affect the value of portfolio
securities and the appreciation or depreciation of investments. Investment
in foreign securities also may result in higher expenses due to the cost of
converting foreign currency to U.S. dollars, the payment of fixed brokerage
commissions on foreign exchanges, which generally are higher than
commissions on U.S. exchanges, and the expense of maintaining securities
with foreign custodians.
In addition, the Diversified Strategic Income Portfolio may invest up to 5%
of its total assets in securities traded in markets of developing
countries. A developing country generally is considered to be a country
that is in the initial stages of its industrialization cycle. Investing in
the equity and fixed-income 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.
Medium-, Lower- and Unrated Securities
The Intermediate High Grade, Diversified Strategic Income, Equity Income,
Growth & Income and Total Return Portfolios may invest in medium- or lower-
rated securities and unrated securities of comparable quality. Generally,
these securities offer a higher current yield than is offered by higher-
rated securities, but also will likely have some quality and protective
characteristics that, in the judgment of the rating organizations, are
outweighed by large uncertainties or major risk exposures to adverse
conditions and are predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms
of the obligation. The market values of certain of these securities also
tend to be more sensitive to individual corporate developments and changes
in economic conditions than higher-quality bonds. In addition, medium- and
lower-rated securities and comparable unrated securities generally present
a higher degree of credit risk. Issuers of medium-, lower-rated and
comparable unrated securities are often highly leveraged and may not have
more traditional methods of financing available to them so that their
ability to service their debt obligations during a major economic downturn
or during sustained periods of rising interest rates may be impaired. The
risk of loss due to default by such issuers is significantly greater
because medium- and lower-rated securities and unrated securities generally
are unsecured and frequently are subordinated to the prior payment of
senior indebtedness. In light of these risks, each Portfolio's investment
adviser, in evaluating the creditworthiness of an issue, whether rated or
unrated, will take various factors established by the Fund's Board of
Trustees into consideration, which may include, as applicable, the issuer's
financial resources, its sensitivity to economic conditions and trends, the
operating history of and the community support for the facility financed by
the issue, the ability of the issuer's management and regulatory matters.
The markets in which medium- and lower-rated or comparable unrated
securities are traded generally are more limited than those in which
higher-rated securities are traded. The existence of limited markets for
these securities may restrict the availability of securities for the Fund
to purchase and also may have the effect of limiting the ability of the
Fund to (a) obtain accurate market quotations for purposes of valuing
securities and calculating net asset value and (b) sell securities at their
fair value either to meet redemption requests or to respond to changes in
the economy or the financial markets. The market for medium-, lower-rated
and comparable unrated securities is relatively new and has not fully
weathered a major economic recession. Any such recession, however, would
disrupt severely the market for such securities and adversely affect the
value of such securities, and could adversely affect the ability of the
issuers of such securities to repay principal and pay interest thereon.
Fixed-income securities, including medium-, lower-rated and comparable
unrated securities, frequently have call or buy-back features that permit
their issuers to call or repurchase the securities from their holders, such
as a Portfolio. If an issuer exercises these rights during periods of
declining interest rates, the Portfolio may have to replace the security
with a lower yielding security resulting in a decreased return to the
Portfolio.
The market value of securities in lower rating categories is more volatile
than that of higher quality securities, and the markets in which medium-
and lower-rated or comparable unrated securities are traded are more
limited than those in which higher-rated securities are traded. Adverse
publicity and investor perceptions also may have a negative impact on the
value and liquidity of lower-rated, high yield securities, especially in a
limited trading market.
Subsequent to its purchase by a Portfolio, an issue of securities may cease
to be rated or its rating may be reduced below the minimum required for
purchase by the Portfolio. Neither event will require sale of such
securities by the Portfolio involved, but the Portfolio's investment
adviser will consider such event in its determination of whether the
Portfolio should continue to hold the securities.
Securities that are rated Ba by Moody's or BB by S&P have speculative
characteristics with respect to their capacity to pay interest and repay
principal. Securities that are rated B generally lack characteristics of
the desirable investment and assurance of interest and principal payments
over any long period of time may be small. Securities that are rated Caa or
CCC are of poor standing. These issues may be in default or present
elements of danger with respect to principal or interest.
The Diversified Strategic Income Portfolio's holdings (as rated by S&P) for
the fiscal year ended December 31, 1994 were composed as follows: 0.__%
rated BBB; ____% rated BB; ____% rated B; ____% rated CCC; and 0.__% rated
D. The percentages were calculated on a dollar weighted average basis by
determining monthly the percentage of the Fund's net assets invested in
each rating category and do not necessarily indicate what the composition
of the Portfolio's holdings will be in subsequent years.
Concentration
The Money Market Portfolio will concentrate at least 25% of its assets in
the banking industry and the Equity Income Portfolio will concentrate at
least 25% of its assets in the utility industry, provided that, if, at some
future date, adverse economic conditions prevail in either of those
industries, the relevant Portfolio may temporarily, for defensive purposes,
invest less than 25% of its assets in the affected industry. Because of its
concentration policy, either of these Portfolios may be subject to greater
risk and market fluctuation than a fund that had securities representing a
broader range of investment alternatives. The Money Market and Equity
Income Portfolios' concentration policies are fundamental policies that
cannot be changed without the approval of a majority of the relevant
Portfolio's outstanding voting securities.
Securities of Unseasoned Issuers
The Diversified Strategic Income, Total Return, International Equity and
Emerging Growth Portfolios may invest in securities of unseasoned issuers,
which may have limited marketability and, therefore, may be subject to wide
fluctuations in market value. In addition, certain securities may lack a
significant operating history and may be dependent on products or services
without an established market share.
Floating and Variable Rate Demand Notes
The Money Market Portfolio may acquire floating and variable rate demand
notes of corporate issuers. Although floating and variable rate demand
notes are frequently not rated by credit rating agencies, unrated notes
purchased by the Portfolio will be determined by the Portfolio's investment
adviser to be of comparable quality at the time of purchase to instruments
rated "high quality" (i.e., within the two highest rating Categories) by
any NRSRO. Moreover, while there may be no active secondary market with
respect to a particular floating or variable rate demand note purchased by
the Portfolio, the Portfolio may, upon the notice specified in the note,
demand payment of the principal of and accrued interest on the note at any
time and may resell the note at any time to a third party. The absence of
such an active secondary market, however, could make it difficult for the
Portfolio to dispose of a particular floating or variable rate demand note
in the event the issuer of the note defaulted on its payment obligations,
and the Portfolio could, for this or other reasons, suffer a loss to the
extent of the default.
Leverage
The International Equity Portfolio may borrow from banks, on a secured or
unsecured basis, up to one-third of the value of its assets. If the
Portfolio 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 Portfolio but, at the same time, creates special risk considerations.
For example, leverage may exaggerate changes in the net asset value of the
Portfolio's shares and in the Portfolio's yield. Although the principal or
stated value of such borrowings will be fixed, the Portfolio's assets may
change in value during the time the borrowing is outstanding. Leverage will
create interest or dividend expenses for the Portfolio 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 Portfolio will have to pay in respect thereof, the
Portfolio'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 Portfolio 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 Portfolio.
Portfolio Transactions
All orders for transactions in securities, options, futures contracts and
options on future contracts on behalf of the Portfolios will be placed by
their respective investment advisers with broker-dealers that those
advisers select, including Smith Barney and other affiliated brokers. A
Portfolio may utilize Smith Barney or a Smith Barney-affiliated broker in
connection with a purchase or sale of securities when the Portfolio's
investment adviser believes that the broker's charge for the transaction
does not exceed usual and customary levels. The same standard applies to
the use of Smith Barney or a Smith Barney -affiliated broker as a
commodities broker in connection with entering into futures contracts and
options on futures contracts.
Net Asset Value
The value of an individual share of a Portfolio is the net asset value of
that share. The net asset value per share of each Portfolio will be
calculated separately on each day, Monday through Friday, except on days
when the New York Stock Exchange, Inc. (the "NYSE") is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively. Net asset value
per share of each Portfolio is determined as of the close of regular
trading on the NYSE (currently 4:00 p.m., New York time). The Money Market
Portfolio seeks to maintain its net asset value at $1.00 per share.
Net asset value per share is computed by dividing the value of a
Portfolio's net assets by the total number of its shares outstanding.
Generally, a Portfolio's investments are valued at market value or, in the
absence of a market value with respect to any portfolio securities, at fair
value as determined by or under the direction of the Fund's Board of
Trustees. A security that is primarily traded on a U.S. or foreign exchange
(including securities traded through the National Market System) is valued
at the last sale price on that exchange or, if there were no sales during
the day, at the current quoted bid price. Portfolio securities that are
primarily traded on foreign exchanges are generally valued at the preceding
closing values of such securities on their respective exchanges, except
that when an occurrence subsequent to the time a value was so established
is likely to have changed the value, then the fair value of those
securities will be determined by consideration of other factors by or under
the direction of the Fund's Board of Trustees or its delegates. Over-the-
counter securities that are not traded through the National Market System
and securities listed or traded on certain foreign exchanges whose
operations are similar to the U.S. over-the-counter market are valued on
the basis of the bid price at the close of business on each day. An option
is generally valued at the last sale price or, in the absence of a last
sale price, the last offer price. Investments in U.S. government securities
(other than short-term securities) are valued at the average of the quoted
bid and asked prices in the over-the-counter market. Short-term investments
that mature in 60 days or less are valued at amortized cost when the Fund's
Board of Trustees determines that this constitutes fair value; assets of
the Money Market Portfolio also are valued at amortized cost. The value of
a futures contract equals the unrealized gain or loss on the contract,
which is determined by marking the contract to the current settlement price
for a like contract acquired on the day on which the futures contract is
being valued. A settlement price may not be used if the market makes a
limit move with respect to the security, index or currency underlying the
futures contract. In such event, the futures contract will be valued at a
fair market price to be determined by or under the direction of the Fund's
Board of Trustees. Further information regarding the Fund's valuation
policies is contained in the Statement of
Additional Information.
How to Use the Fund
Investing in the Fund
Shares of the Fund are currently offered to the Variable Account to fund
the Annuity issued by IDS Life or IDS Life of New York. Net purchase
payments for the Annuity are allocated to the Subaccounts, which are
subaccounts of the Variable Account. Each Subaccount purchases shares of a
specified Portfolio of the Fund without a sales charge at the net asset
value per share determined at the close of business on the day of receipt
of the purchase order at the office of TSSG, the Fund's transfer agent. For
further information, see the description provided in the Annuity
prospectus.
Sales Charges and Surrender Charges
The Fund does not assess any sales charge, either when it sells or when it
redeems shares of a Portfolio. However, surrender charges that may be
assessed under the Annuity are described in the Annuity prospectus.
Mortality and expense risk fees and other charges are also described in the
Annuity prospectus.
Redeeming and Exchanging Shares
The Fund will redeem any shares presented by the ten Subaccounts, its sole
shareholders, in response to full or partial surrenders of the Annuity, a
transfer of money from one Subaccount to another or from a Subaccount to a
fixed account offered by IDS Life or IDS Life of New York to Annuity owners
(the "Fixed Account"), by owners of Annuities. Information on how to
transfer funds is described in the Annuity prospectus. Generally, payment
upon redemption will be made within seven days after receiving a valid
redemption request (unless redemption is suspended or payment is delayed as
permitted in accordance with SEC regulations). The Fund will use the net
asset value at the close of trading on the NYSE on the day the notice of
surrender or transfer is received by IDS Life or IDS Life of New York. If
the request arrives at IDS Life or IDS Life of New York after the close of
trading on the NYSE, the shares will be redeemed at the net asset value at
the close of the next business day. The value of any redeemed shares may be
more or less than their original purchase price.
A detailed description of how to surrender the Annuity and transfer money
among Subaccounts, or between a Subaccount and the Fixed Account, is
included in the Annuity prospectus.
Dividends and Taxes
Dividends
Net Investment Income. Dividends and distributions will be automatically
reinvested, without a sales charge, in the shareholder's account at net
asset value in additional shares of the Portfolio that paid the dividend or
distribution, unless the shareholder instructs the Portfolio to pay all
dividends and distributions in cash. The Subaccounts do not intend to elect
to receive cash dividends or distributions. Net investment income,
including dividends on stocks and interest on bonds or other securities the
Fund holds, is distributed to the ten Subaccounts, the sole shareholders of
the Portfolios,
as follows:
monthly for the Money Market (declared daily), Intermediate High Grade,
Diversified Strategic Income, Total Return and Equity Income Portfolios;
quarterly for the Growth & Income Portfolio; and
annually for the Appreciation, Emerging Growth, International Equity and
Equity Index Portfolios.
Capital Gains. Distributions of any net realized capital gains of the
Portfolios will be paid annually shortly after the close of the fiscal year
in which they are earned.
Taxes
In the opinion of counsel to the Fund, each Portfolio will be treated as a
separate taxpayer with the result that, for federal income tax purposes,
the amounts of investment income and capital gains earned will be
determined on a Portfolio-by-Portfolio (rather than on a Fund-wide) basis.
The Fund intends that each Portfolio will separately meet the requirements
for qualification each year as a "regulated investment company" within the
meaning of the Internal Revenue Code of 1986, as amended (the "Code"). In
order to qualify as a regulated investment company, each Portfolio must
meet certain income and diversification tests, including the requirement
that it derive less than 30% of its gross income in each taxable year from
the sale or other disposition of (a) stock or securities held for less than
three months, (b) options, futures or forward contracts (other than
options, futures or forward contracts on foreign currencies) held for less
than three months and (c) foreign currencies (or options, futures or
forward contracts on such foreign currencies) held for less than three
months but only if such currencies (or options, futures or forward
contracts) are not directly related to the Portfolio's principal business
of investing in stock or securities (or options or futures with respect to
stock or securities). As a regulated investment company and provided
certain distribution requirements are met, a Portfolio will not be subject
to federal income tax on its net investment income and net capital gains
that it distributes to the Subaccounts, its shareholders.
Dividends paid by a Portfolio from taxable investment income and
distributions of short-term capital gains will be treated as ordinary
income in the hands of the shareholders for federal income tax purposes,
whether received in cash or reinvested in additional shares. Distributions
of net long-term capital gains will be treated as long-term capital gains
in the hands of the shareholders, if certain notice and designation
requirements are satisfied, whether paid in cash or reinvested in
additional shares, regardless of the length of time the investor has held
shares of the Portfolio. The Fund has been informed by the Variable Account
that it should, for federal income tax purposes, be considered the
shareholder of each of the Portfolios.
To comply with regulations under Section 817(h) of the Code, each Portfolio
will be required to diversify its investments so that on the last day of
each calendar quarter no more than 55% of the value of their assets is
represented by any one investment, no more than 70% is represented by any
two investments, no more than 80% is represented by any three investments
and no more than 90% is represented by any four investments. Generally, all
securities of the same issuer are treated as a single investment. For the
purposes of Section 817(h) of the Code, obligations of the United States
Treasury and each U.S. government agency or, instrumentality are treated as
securities of separate issuers. Compliance with these diversification rules
will limit the ability of the Money Market and Intermediate High Grade
Portfolios, in particular, to invest more than 55% of their assets in
direct obligations of the United States Treasury or to invest primarily in
securities issued by a single agency or instrumentality of the United
States government.
The Treasury Department has indicated that it may issue future
pronouncements addressing the circumstances in which a variable contract
owner's control of the investments of a separate account may cause the
variable contract owner, rather than the insurance company, to be treated
as the owner of the assets held by the separate account. If the variable
contract owner is considered the owner of the securities underlying the
separate account, income and gains produced by those securities would be
included currently in the variable contract owner's gross income. It is not
known what standards will be set forth in such pronouncements or when, if
at all, these pronouncements may be issued.
In the event that rules or regulations are adopted, there can be no
assurance that the Portfolios will be able to operate
as currently described in this Prospectus, or that the Fund will not have
to change the investment goal or investment policies of a Portfolio. While
a Portfolio's investment goal is fundamental and may be changed only by a
vote of a majority of the Portfolio's outstanding shares, the Fund's Board
of Trustees reserves the right to modify the investment policies of a
Portfolio as necessary to prevent any such prospective rules and
regulations from causing an Annuity owner to be considered the owner of the
shares of the Portfolio underlying the Variable Account.
Reference is made to the Annuity prospectus for information regarding the
federal income tax treatment of distributions from the Variable Account to
Annuity owners.
Management of the Fund
Board of Trustees
Overall responsibility for management and supervision of the Fund and the
Portfolios rests with the Fund's Board of Trustees. The Trustees approve
all significant agreements between the Fund and the persons or companies
that furnish services to the Fund and its Portfolios, including agreements
with the investment advisers and sub-investment advisers, administrator
and/or sub-administrator of the Portfolios and with the Fund's custodian,
transfer agent and distributor. The day-to-day operations of the Portfolios
are delegated to the investment advisers and sub-investment advisers and/or
administrator of the Portfolios. The identities and backgrounds of the
Trustees and officers of the Fund, together with certain about them, are
contained in the Statement of Additional Information. By virtue of the
responsibilities assumed by the investment advisers, the sub-investment
advisers and the administrator of the Portfolios, the Fund requires no
employees other than its executive officers, none of whom devotes full time
to the affairs of the Fund.
Investment Advisers and Administrator
Each Portfolio's assets are managed separately. Subject to the supervision
and direction of the Fund's Board of Trustees, the investment adviser of
each Portfolio manages the Portfolio in accordance with the Portfolio's
goal or goals and stated investment policies, makes investment decisions
for the Portfolio, places orders to purchase and sell securities on behalf
of the Portfolio and employs professional portfolio managers and securities
analysts who provide research services to the Portfolio.
SBMFM , located at 388 Greenwich Street, New York, New York 10013,
provides investment advisory and management services to investment
companies affiliated with Smith Barney Holdings Inc. ("Holdings"). Holdings
is a wholly owned subsidiary of The Travelers Inc. ("Travelers"), a
diversified financial services holding company engaged through its
subsidiaries principally in four business segments: Investment Services,
Consumer Finance Services, Life Insurance Services and Property & Casualty
Insurance Services. SBMFM renders investment advice to investment
companies that had aggregate assets under management as of February 28,
1995, in excess of $___ billion.
TIM, located at ___________, provides investment advisory and management
services to investment companies affiliated with Holdings. TIM renders
investment advice to investment companies that had aggregate assets under
management as of February 28, 1995, in excess of $___ billion.
Global Capital Management, located at 10 Piccadilly, London, W1V 9LA
England, is a wholly owned subsidiary of Holdings. Global Capital
Management is responsible for and selects the Portfolios' investments in
foreign securities and selects brokers and dealers that execute the
Portfolios' investments in foreign securities. Global Capital Management
renders investment advice to institutional clients and investment companies
with aggregate assets under management, as of February 28, 1995, in excess
of $__ million.
Boston Advisors, located at One Boston Place, Boston, Massachusetts 02108,
is an indirect wholly owned subsidiary of Mellon Bank Corporation
("Mellon") and serves as sub-administrator to each Portfolio. As
administrator, Boston Advisors calculates the net asset values of all
Portfolios and generally assists in all aspects of the administration and
operation of the Portfolios. Boston Advisors provides investment
management, investment advisory and/or administrative services to
investment companies with aggregate assets under management, as of February
28, 1995, in excess of $____ billion.
American Capital, located at 2800 Post Oak Boulevard, Houston, Texas
77056, is a wholly owned subsidiary of American Capital Management &
Research, Inc., an indirect wholly owned subsidiary of Van Kampen/American
Capital, Inc. American Capital, together with its predecessors, has been in
the investment advisory business since 1926. As of February 28, 1994,
American Capital provides investment advice to investment companies with
aggregate assets under management as of February 28, 1995 in excess of
approximately $17.1 billion.
Portfolio Management
The Intermediate High Grade Portfolio John C. Bianchi is a Vice President
and Investment Officer of the Portfolio. Mr. Bianchi has served as a
Managing Director of Greenwich Street Advisors (formerly Shearson Lehman
Advisors) since October 1989. Prior to that time, Mr. Bianchi served as
Senior Vice President of Bernstein-Macaulay. G. Ruppert Vernon, Jr. has
served as a Vice President of Greenwich Street Advisors since October 1989.
Prior to that time, Mr. Vernon served as an Assistant Vice President of
E.F. Hutton & Company Inc.
The Diversified Strategic Income Portfolio James C. Conroy is a Vice
President and Investment Officer of the Portfolio. Mr. Conroy has served as
a Managing Director of Greenwich Street Advisors since October 1989. Prior
to that time, Mr. Conroy served as a Senior Vice President of Bernstein-
Macaulay. John C. Bianchi is a Vice President and Investment Officer of the
Portfolio.
The Equity Income Portfolio Jack S. Levande is a Vice President and
Investment Officer of the Fund, and a Managing Director of Greenwich Street
Advisors. Prior to October 1989, Mr. Levande was a Senior Vice President of
E.F. Hutton & Company Inc.
The Equity Index Portfolio .
The Growth & Income Portfolio R. Jay Gerken has served as a Managing
Director of Greenwich Street Advisors since October 1989. Prior to that
time, Mr. Gerken served as a Senior Vice President of E.F. Hutton & Company
Inc. George V. Novello has served as a Managing Director of Greenwich
Street Advisors since September 1990. From January 1990 until September
1990, Mr. Novello served as a Senior Vice President of Gruntal Financial
Corp. Prior to that time, he served as a Senior Vice President of McKinley
Allsopp & Co.
The Appreciation Portfolio Harry D. Cohen is currently Managing Director
of Smith Barney. Prior to July 1993, Mr. Cohen served as Executive Vice
President of Shearson Lehman Brothers Inc. ("Shearson
Lehman Brothers").
The Emerging Growth Portfolio Gary Lewis has served as a Portfolio Manager
at American Capital Management for over five years, and as Portfolio
Manager for the American Capital Emerging Growth Fund since April 1989.
The Total Return Portfolio John G. Goode has been President and Chief
Executive Officer of what is now the Davis Skaggs Investment Management
Division of SBMFM since 1989. Since November 1990, Mr. Goode has
also been the Portfolio Manager of the Barney Fundamental Value Fund Inc.
The International Equity Portfolio Jeffrey Russell has been a Managing
Director at Smith Barney since July 1993. From 1990 until July 1993, Mr.
Russell was employed at Smith Barney, Harris Upham & Co. Incorporated,
where he served as Managing Director from 1991 until July 1993. Prior to
1990, Mr. Russell served as Corporate Vice President of Drexel Burnham
Lambert Inc.
Portfolio Management
The Fund's management discussion and analysis, and additional performance
information regarding the Portfolios of the Fund during the fiscal year
ended December 31,1994 is included in the Annual Report dated December
31,1994. A copy of the Annual Report may be obtained upon request without
charge from a Smith Barney Financial Consultant or by writing or calling
the Fund at the address or phone number listed on page one of this
Prospectus.
Custodian and Transfer Agent
Boston Safe, located at One Boston Place, Boston, Massachusetts 02108, acts
as custodian of the Fund's investments generally. Boston Safe is a wholly
owned subsidiary of The Boston Company, Inc. ("TBC").
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and acts as
the Fund's transfer and dividend
paying agent.
Distributor
Smith Barney, a subsidiary of Holdings, located at 388 Greenwich Street,
New York, New York 10013, serves as distributor of the Fund's shares, for
which it receives no separate fee from the Fund. IDS Life or IDS Life of
New York pays Smith Barney for the services it provides and the expenses it
bears in distributing the Annuity, including payment of commissions for
sales. IDS Life or IDS Life of New York will bear certain additional costs
in connection with the offering of the Fund's shares, including the costs
of printing and distributing prospectuses, statements of additional
information and sales literature.
Additional Information
Formation
The Fund was organized on May 13, 1991 under the laws of the Commonwealth
of Massachusetts and is a business entity commonly known as a
"Massachusetts business trust." The Fund is registered with the SEC as a
diversified, open-end management investment company, as defined in the 1940
Act. The Fund commenced operations on October 16, 1991, under the name
Shearson Series Fund. On October 14, 1994, the Fund changed its name to its
current name, Smith Barney Series Fund.
Shares of Beneficial Interest
The Fund offers shares of beneficial interest of separate series with a par
value of $.001 per share. Shares of ten series have been authorized, which
represent the interests in the ten Portfolios described in this Prospectus.
When matters are submitted for shareholder vote, shareholders of each
Portfolio will have one vote for each full share owned and proportionate,
fractional votes for fractional shares held.
For a discussion of the rights of Annuity owners concerning the voting of
shares held by the Subaccounts, please refer to the Annuity prospectus. IDS
Life or IDS Life of New York, on behalf of the Variable Account, will vote
the shares of the Fund held by each of the Subaccounts in accordance with
instructions received from the owners of Annuities having a voting interest
in the relevant Subaccount. IDS Life or IDS Life of New York will vote the
shares of the Fund for which they have voting rights, and will vote the
shares of Annuity holders who have not given voting instructions, in the
same proportion as the votes for which they have received instructions.
Generally, shares of the Fund vote by individual Portfolio on all matters
except (a) matters affecting only the interests of one or more of the
Portfolios, in which case only shares of the affected Portfolio or
Portfolios would be entitled to vote, or (b) when the 1940 Act requires
that shares of the Portfolios be voted in the aggregate. All shares of the
Fund vote together as one series for the election of Trustees. There will
normally be no meetings of shareholders for the purpose of electing
Trustees unless 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. Any Trustee
may be removed from office upon the vote of shareholders holding at least
two-thirds of the Fund's outstanding shares at a meeting called for that
purpose. The Trustees are required to call such a meeting upon the written
request of shareholders holding at least 10% of the Fund's outstanding
shares. In addition, shareholders who meet certain criteria will be
assisted by the Fund in communicating with other shareholders in seeking
the holding of such a meeting.
As of the date of this Prospectus, the Subaccounts owned all of the
remaining outstanding shares of each of the Portfolios, with the exception
of a nominal amount owned by an IDS affiliate.
The Fund sends to each owner of an Annuity a semiannual report and an
audited annual report, each of which includes a list of the investment
securities held by the Portfolios at the end of the period covered. Annuity
owners may make inquiries regarding the Fund and its Portfolios, including
the current performance of the Portfolios, from a Smith Barney Financial
Consultant. Annuity owners can make inquiries regarding their Annuity by
calling (800) 422-3542 or
(800) 724-0705 in New York.
The Portfolios' Performance
Yield
The Money Market Portfolio may, from time to time, include the yield and
effective yield in advertisements or reports to shareholders or prospective
investors. Current yield for the Money Market Portfolio will be based on
income received by a hypothetical investment over a given seven-day period
(less expenses accrued during the period), and then "annualized" (i.e.,
assuming that the seven-day yield would be received for fifty-two weeks,
stated in terms of an annual percentage return on the investment).
"Effective yield" for the Money Market Portfolio will be calculated in a
manner similar to that used to calculate yield, but will reflect the
compounding effect of earnings on reinvested dividends.
For the Diversified Strategic Income Portfolio and the Intermediate High
Grade Portfolio, from time to time, the Fund may advertise the thirty-day
yield. The yield of a Portfolio refers to the income generated by an
investment in such Portfolio over the thirty-day period identified in the
advertisement and is computed by dividing the net investment income per
share earned by the Portfolio during the period by the net asset value per
share on the last day of the period. This income is "annualized" by
assuming that the amount of income is generated each month over a one-year
period and is compounded semiannually. The annualized income is then shown
as a percentage of the net asset value.
Total Return
From time to time, a Portfolio other than the Money Market Portfolio may
advertise its "average annual total return"
over various periods of time. Such total return figure shows the average
percentage change in value of an investment in the Portfolio from the
beginning date of the measuring period to the end of the measuring period.
These figures reflect changes in the price of the Portfolio's shares and
assume that any income dividends and/or capital gains distributions made by
the Portfolio during the period were reinvested in shares of the Portfolio.
Figures will be given for recent one-, five- and ten-year periods (if
applicable), and may be given for other periods as well (such as from
commencement of the Portfolio's operations, or on a year-by-year basis).
When considering average annual total return figures for periods longer
than one year, it is important to note that the relevant Portfolio's annual
total return for any one year in the period might have been greater or less
than the average for the entire period. A Portfolio also may use
"aggregate" total return figures for various periods, representing the
cumulative change in value of an investment in the Portfolio for the
specific period (again reflecting changes in a Portfolio's share prices and
assuming reinvestment of dividends and distributions). Aggregate total
returns may be shown by means of schedules, charts or graphs and may
indicate subtotals of the various components of total return (i.e., change
in value of initial investment, income dividends and capital gains
distributions).
It is important to note that yield and total return figures are based on
historical earnings and are not intended to indicate future performance.
The Statement of Additional Information describes the method used to
determine the Portfolios' yield and total return. Shareholders may make
inquiries regarding a Portfolio, including current yield quotations or
total return figures, to a Smith Barney Financial Consultant.
In reports or other communications to shareholders or in advertising
material, a Portfolio may compare its performance with that of other mutual
funds as listed in the rankings prepared by Lipper Analytical Services,
Inc. or similar independent services that monitor the performance of mutual
funds or with other appropriate indexes of investment securities, such as
the S&P 500, Salomon Brothers World Government Bond Index, Lehman Brothers
Government Bond Index and Lehman Brothers Mortgage-Backed Securities Index,
with the Consumer Price Index, Dow Jones Industrial Average or NASDAQ, or
with investment or savings vehicles. The performance information also may
include evaluations of the Portfolios published by nationally recognized
ranking services and by financial publications that are nationally
recognized, such as Barron's, Business Week, Forbes, Fortune, Institutional
Investor, Investor's Business Daily, Kiplinger's Personal Finance Magazine,
Money, Morningstar Mutual Fund Values, Mutual Fund Forecaster, The New York
Times, Stranger's Investment Advisor, USA Today, U.S. News & World Report
and The Wall Street Journal. Such comparative performance information will
be stated in the same terms in which the comparative data or indices are
stated. Any such advertisement also would include the standard performance
information required by the SEC as described above. For these purposes, the
performance of the Portfolios, as well as the performance of other mutual
funds or indices, do not reflect sales charges, the inclusion of which
would reduce a Portfolio's performance.
A Portfolio may also utilize performance information in hypothetical
illustrations provided in narrative form. These hypotheticals will be
accompanied by the standard performance information required by the SEC as
described above.
Appendix
Certain Investment Strategies
In attempting to achieve its investment goal or goals, a Portfolio may
employ, among others, one or more of the strategies set forth below. More
detailed information concerning these strategies and their related risks is
contained in the Statement of Additional Information.
In the future, the Fund may desire to employ additional investment
strategies, including, in the case of Portfolios not currently authorized
to engage in futures activity, such hedging strategies as entering into
futures contracts and related options. The Fund will do so only upon 60
days' notice to shareholders of the Portfolios involved and in conformity
with its investment restrictions.
Repurchase Agreements. The Money Market Portfolio will enter into
repurchase agreements with respect to U.S. government securities and each
other Portfolio may engage in repurchase agreement transactions on
portfolio securities, in each case with banks which are the issuers of
instruments acceptable for purchase by the Portfolio and with certain
dealers listed on the Federal Reserve Bank of New York's list of reporting
dealers. Under the terms of a typical repurchase agreement, a Portfolio
would acquire an underlying debt obligation for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase, and the Portfolio to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Portfolio's
holding period. This arrangement results in a fixed rate of return that is
not subject to market fluctuations during the Portfolio's holding period.
The value of the underlying securities will be monitored by the relevant
Portfolio's investment adviser to ensure that it at least equals at all
times the total amount of the repurchase obligation, including interest. A
Portfolio bears a risk of loss in the event that the other party to a
repurchase agreement defaults on its obligations and the Portfolio is
delayed or prevented from exercising its rights to dispose of the
collateral securities, including the risk of a possible decline in the
value of the underlying securities during the period while the Portfolio
seeks to assert these rights. Each Portfolio's investment adviser, acting
under the supervision of the Fund's Board of Trustees, reviews on an
ongoing basis the value of the collateral and the creditworthiness of those
banks and dealers with which the Portfolio enters into repurchase
agreements to evaluate potential risks. A repurchase agreement is
considered to be a loan collateralized by the underlying securities under
the 1940 Act.
Lending of Securities. Each Portfolio, other than the Money Market
Portfolio, may lend its portfolio securities to brokers, dealers and other
financial organizations. By lending its securities, a Portfolio can
increase its income by continuing to receive interest on the loaned
securities as well as by either investing the cash collateral in short-term
instruments or obtaining yield in the form of interest paid by the borrower
when U.S. government securities are used as collateral. Loans of portfolio
securities, if and when made, by a Portfolio may not exceed 331/3% of the
Portfolio's total assets, taken at value. Loans of portfolio securities
will be collateralized by cash, letters of credit or U.S. government
securities, which are maintained at all times in an amount equal to the
current market value of the loaned securities. Any gain or loss in the
market price of the securities loaned that might occur during the term of
the loan would be for the account of the Portfolio involved.
Futures and Options on Futures. When deemed advisable by their respective
investment advisers, the Intermediate High Grade, Diversified Strategic
Income, Equity Income, Emerging Growth, International Equity, Total Return
and Growth & Income Portfolios may enter into interest rate futures
contracts; the Equity Index, Emerging Growth, International Equity, Total
Return and Growth & Income Portfolios may enter into stock index futures
contracts; the Diversified Strategic Income, International Equity and
Emerging Growth Portfolios may enter into foreign currency futures
contracts; and each such Portfolio may enter into related options that are
traded on a U.S. exchange or board of trade. These transactions will be
made solely for the purpose of hedging against the effects of changes in
the value of portfolio securities due to anticipated changes in interest
rates, market conditions and currency values, as the case may be. The
Equity Index, Emerging Growth, International Equity and Total Return
Portfolios will enter into futures and options on futures to purchase stock
indices in anticipation of future purchases of securities ("long
positions"). All futures and options contracts will be entered into only
when the transactions are economically appropriate to the reduction of
risks inherent in the management of the Portfolio involved.
An interest rate futures contract provides for the future sale by one party
and the purchase by the other party of a specified amount of a particular
financial instrument (debt security) at a specified price, date, time and
place. Similarly, a foreign currency futures contract provides for the
future sale by one party and the purchase by another party of a certain
amount of a particular currency at a specified price, date, time and place.
Stock index futures contracts are based on indices that reflect the market
value of common stock of the firms included in the indices. An index
futures contract is an agreement pursuant to which two parties agree to
take or make delivery of an amount of cash equal to the difference between
the value of the index at the close of the last trading day of the contract
and the price at which the index contract was originally entered into. An
option on an interest rate, stock index or currency 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 prior to the expiration date of the option.
The use of futures contracts and options on futures contracts as a hedging
device involves several risks. There can be no assurance that there will be
a correlation between price movements in the underlying securities, index
or currency, on the one hand, and price movements in the securities that
are the subject of the hedge, on the other hand. Positions in futures
contracts and options on futures contracts may be closed out only on the
exchange or board of trade on which they were entered into, and there can
be no assurance that an active market will exist for a particular contract
or option at any particular time.
A Portfolio may not enter into futures and options contracts for which
aggregate initial margin deposits and premiums paid for unexpired options
to establish such positions that are not bona fide hedging positions (as
defined by the Commodity Futures Trading Commission) exceed 5% of the fair
market value of the Portfolio's assets, after taking into account
unrealized profits and unrealized losses on futures contracts into which it
has entered. With respect to long positions in futures or options on
futures, a Portfolio will "cover" the position in a manner consistent with
SEC guidance.
When-Issued Securities and Delayed Delivery Transactions. The Intermediate
High Grade, Diversified Strategic Income, Equity Income, Growth & Income,
Total Return, Emerging Growth and International Equity Portfolios may
purchase and sell securities on a when-issued basis, which calls for the
purchase (or sale) of securities at an agreed-upon price on a specified
future date. A Portfolio will enter into a when-issued transaction for the
purpose of acquiring portfolio securities and not for the purpose of
leverage. In such transactions, delivery of the securities occurs beyond
the normal settlement periods, but no payment or delivery is made by, and
no interest accrues to, a Portfolio prior to the actual delivery or payment
by the other party to the transaction. Due to fluctuations in the value of
securities purchased or sold on a when-issued or delayed delivery basis,
the returns obtained on such securities may be higher or lower than the
returns available in the market on the dates when the investments are
actually delivered to the buyers. A Portfolio will establish a segregated
account consisting of cash, U.S. government securities or other high-grade
debt obligations in an amount equal to the amount of its when-issued and
delayed delivery commitments. Placing securities rather than cash in the
segregated account may have a leveraging effect on the Portfolio's net
assets. A Portfolio will not accrue income with respect to a when-issued
security prior to its stated delivery date.
Purchasing Options on Securities and Stock Indices. The Intermediate High
Grade, Diversified Strategic Income, Total Return, Emerging Growth,
International Equity and Equity Income Portfolios may purchase put and call
options that are traded on a U.S. securities exchange, and the Total
Return, Emerging Growth, International Equity and Diversified Strategic
Income Portfolios also may purchase such options on foreign exchanges and
in the over-the-counter market. The Portfolios may utilize up to 10% of
their respective assets to purchase put options on portfolio securities and
may do so at or about the same time that they purchase the underlying
security or at a later time. By buying a put, a Portfolio limits its risk
of loss from a decline in the market value of the underlying security until
the put expires. Any appreciation in the value of and yield otherwise
available from the underlying security, however, will be partially offset
by the amount of the premium paid for the put option and any related
transaction costs. The Portfolios may utilize up to 10% of their respective
assets to purchase call options on portfolio securities. Call options may
be purchased by a Portfolio in order to acquire the underlying securities
for the Portfolio at a price that avoids any additional cost that would
result from a substantial increase in the market value of a security. A
Portfolio also may purchase call options to increase its return to
investors at a time when the call is expected to increase in value due to
anticipated appreciation of the underlying security.
Prior to their expirations, put and call options may be sold in closing
sale transactions (sales by a Portfolio, prior to the exercise of options
that it has purchased, of options of the same series), and profit or loss
from the sale will depend on whether the amount received is more or less
than the premium paid for the option plus the related transaction costs.
The Equity Index, Total Return, Emerging Growth and International Equity
Portfolios may purchase call options on stock indices. The Total Return
Portfolio may also write call options and buy put options on stock indices.
Options on stock indices are similar to options on securities. However,
options on stock indices do not involve the delivery of an underlying
security; rather, the options represent the holder's right to obtain from
the writer in cash a fixed multiple of the amount by which the exercise
price exceeds (in the case of a put) or is less than (in the case of a
call) the closing value of the underlying index on the exercise date.
A stock index measures the movement of a certain group of stocks by
assigning relative values to the common stocks included in the index. In
purchasing put options on a stock index, the Total Return Portfolio seeks
to benefit from a decline in the value of the stocks underlying the index
or seeks to hedge against the risk of loss on securities that it holds. In
purchasing call options on a stock index, the Portfolio seeks to
participate in an advancing market in anticipation of becoming more fully
invested in equity securities.
The advisability of using stock index options to hedge against the risk of
marketwide movements will depend on the extent of diversification of the
stock investments of the Fund and the sensitivity of its stock investments
to factors influencing the underlying index. The effectiveness of
purchasing or writing stock index options as a hedging technique will
depend upon the extent to which price movements in the Portfolio's
securities investments correlate with price movements in the stock index
selected.
Covered Option Writing. The Intermediate High Grade, Diversified Strategic
Income, Equity Income, Equity Index, Total Return, International Equity,
Emerging Growth and Growth & Income Portfolios may write put and call
options on securities. Each Portfolio realizes fees (referred to as
"premiums" for granting the rights evidenced by the options. A put option
embodies the right of its purchaser to compel the writer of the option to
purchase from the option holder an underlying security at a specified price
at any time during the option period. In contrast, a call option embodies
the right of its purchaser to compel the writer of the option to sell to
the option holder an underlying security at a specified price at any time
during the option period. Thus, the purchaser of a put option written by a
Portfolio has the right to compel the Portfolio to purchase from it the
underlying security at the agreed-upon price for a specified time period,
while the purchaser of a call option written by a Portfolio has the right
to purchase from the Portfolio the underlying security owned by the
Portfolio at the agreed-upon price for a specified time period.
Upon the exercise of a put option written by a Portfolio, the Portfolio may
suffer a loss equal to the difference between the price at which the
Portfolio is required to purchase the underlying security plus the premium
received for writing the option and its market value at the time of the
option exercise. Upon the exercise of a call option written by a Portfolio,
the Portfolio may suffer a loss equal to the difference between the
security's market value at the time of the option exercise less the premium
received for writing the option and the Portfolio's acquisition cost of the
security.
The Portfolios with option-writing authority will write only covered
options. Accordingly, whenever a Portfolio writes a call option, it will
continue to own or have the present right to acquire the underlying
security for as long as it remains obligated as the writer of the option.
To support its obligation to purchase the underlying security if a put
option is exercised, a Portfolio that has written a put option will either
(a) deposit with Boston Safe in a segregated account cash, U.S. government
securities or other high grade debt obligations having a value at least
equal to the exercise price of the underlying securities or (b) continue to
own an equivalent number of puts of the same "series" (that is, puts on the
same underlying security having the same exercise prices and expiration
dates as those written by the Portfolio) or an equivalent number of puts of
the same "class" (that is, puts on the same underlying security) with
exercise prices greater than those that it has written (or, if the exercise
prices of the puts that it holds are less than the exercise prices of those
that it has written, it will deposit the difference with Boston Safe in a
segregated account).
A Portfolio may engage in a closing purchase transaction to realize a
profit, to prevent an underlying security from being called or put or, in
the case of a call option, to unfreeze an underlying security (thereby
permitting its sale or the writing of a new option on the security prior to
the outstanding option's expiration). To effect a closing purchase
transaction, a Portfolio would purchase, prior to the holder's exercise of
an option that the Portfolio has written, an option of the same series as
that on which the Portfolio desires to terminate its obligation. The
obligation of a Portfolio under an option that it has written would be
terminated by a closing purchase transaction, but the Portfolio would not
be deemed to own an option as the result of the transaction. There can be
no assurance that a Portfolio will be able to effect closing purchase
transactions at a time when it wishes to do so. To facilitate closing
purchase transactions, however, the Portfolios with option-writing
authority ordinarily will write options only if a secondary market for the
options exists on a U.S. securities exchange or in the over-the-counter
market. The staff of the SEC considers most over-the-counter options to be
illiquid. The ability to terminate options positions established in the
over-the-counter market may be more limited than in the case of exchange-
traded options and also may involve the risk that securities dealers
participating in such transactions would fail to meet their obligations to
the Portfolio involved.
Short Sales Against the Box. The Equity Income, Total Return, International
Equity and Emerging Growth Portfolios may make short sales of common stock
if, at all times when a short position is open, the Portfolio owns the
stock or owns preferred stocks or debt securities convertible or
exchangeable into the shares of common stock sold short. Short sales of
this kind are referred to as short sales "against the box." The broker-
dealer that executes a short sale generally invests cash proceeds of the
sale until they are paid to the Portfolio. Arrangements may be made with
the broker-dealer to obtain a portion of the interest earned by the broker
on the investment of short sale proceeds. The Portfolio will segregate the
common stock or convertible or exchangeable preferred stock or debt
securities in a special account with Boston Safe.
Forward Roll Transactions. In order to enhance current income, the
Intermediate High Grade and Diversified Strategic Income Portfolios may
enter into forward roll transactions with respect to mortgage-related
securities issued by GNMA, FNMA and FHLMC. In a forward roll transaction, a
Portfolio sells a mortgage security to a financial institution, such as a
bank or broker-dealer, and simultaneously agrees to repurchase a similar
security from the institution at a later date at an agreed-upon price. The
mortgage securities that are repurchased will bear the same interest rate
as those sold, but generally will be collateralized by different pools of
mortgages with different prepayment histories than those sold. During the
period between the sale and repurchase, the Portfolio will not be entitled
to receive interest and principal payments on the securities sold. Proceeds
of the sale will be invested in short-term instruments, particularly
repurchase agreements, and the income from these investments, together with
any additional fee income received on the sale, will generate income for
the Portfolio exceeding the yield on the securities sold. Forward roll
transactions involve the risk that the market value of the securities sold
by a Portfolio may decline below the repurchase price of those securities.
At the time a Portfolio enters into a forward roll transaction, it will
place in a segregated custodial account cash, U.S. government securities or
high grade debt obligations having a value equal to the repurchase price
(including accrued interest) and will subsequently monitor the account to
insure that such equivalent value is maintained. Forward roll transactions
are considered to be borrowings by a Portfolio.
Currency Exchange Transactions and Options on Foreign Currencies. The
Diversified Strategic Income, International Equity and Emerging Growth
Portfolios may engage in currency exchange transactions and purchase
exchange-traded put and call options on foreign currencies in order to
protect against uncertainty in the level of future currency exchange rates.
The Portfolio will conduct its currency exchange transactions either on a
spot (i.e., cash) basis at the rate prevailing in the currency exchange
market or through entering into forward contracts to purchase or sell
currencies. The Portfolio's dealings in forward currency exchange and
options on foreign currencies are limited to hedging involving either
specific transactions or portfolio positions. A forward currency contract
involves an obligation to purchase or sell a specific currency for an
agreed-upon price at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties. These contracts
are entered into in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. An
option on a foreign currency gives the purchaser, in return for a premium,
the right to sell, in the case of a put, and buy, in the case of a call,
the underlying currency at a specified price during the term of the option.
Reverse Repurchase Agreements. The Intermediate High Grade, Diversified
Strategic Income, Equity Income and International Equity Portfolios may
enter into reverse repurchase agreement transactions with member banks of
the Federal Reserve System or with certain dealers listed on the Federal
Reserve Bank of New York's list of reporting dealers. A reverse repurchase
agreement, which is considered a borrowing by the Portfolio, involves a
sale by the Portfolio of securities that it holds concurrently with an
agreement by the Portfolio to repurchase the same securities at an agreed-
upon price and date. The Portfolio typically will invest the proceeds of a
reverse repurchase agreement in money market instruments or repurchase
agreements maturing not later than the expiration of the reverse repurchase
agreement. This use of the proceeds is known as leverage. The Portfolio
will enter into a reverse repurchase agreement for leverage purposes only
when the interest income to be earned from the investment of the proceeds
is greater than the interest expense of the transaction. The Portfolio also
may use the proceeds of reverse repurchase agreements to provide liquidity
to meet redemption requests when the sale of the Portfolio's securities is
considered to be disadvantageous. At the time a Portfolio enters into a
reverse repurchase agreement with a broker-dealer (but not a bank), it will
place in a segregated custodial account cash, U.S. government securities or
high grade debt obligations having a value equal to its obligations under
the reverse repurchase agreements.
Index Strategy. The Equity Index Portfolio will invest in the common stocks
of the companies represented in the S&P 500 with the goal of matching,
before deduction of operating expenses, the price and yield performance of
the S&P 500. The S&P 500 is composed of 500 selected common stocks, most of
which are listed on the NYSE. S&P chooses the stocks to be included in the
S&P 500 solely on a statistical basis. The S&P 500 is a trademark of S&P
and inclusion of a stock in the S&P 500 in no way implies an opinion by S&P
as to its attractiveness as an investment. S&P is neither a sponsor nor in
any way affiliated with the Portfolio.
The weightings of stocks in the S&P 500 are based on each stock's relative
total market value; that is, its market price per share times the number of
shares outstanding. The Portfolio's investment adviser generally will
select stocks for the Portfolio in the order of their weightings in the S&P
500, beginning with the heaviest weighted stocks.
The Portfolio's investment adviser expects that, once the Portfolio's
assets reach $25 million, the correlation between
the performance of the Index Portfolio and that of the S&P 500 will be
above .95, with a figure of 1.00 indicating perfect correlation. Perfect
correlation would be achieved when the Portfolio's net asset value per
share increases and decreases in exact proportion to changes in the S&P
500. The Portfolio's ability to replicate the performance of the S&P 500
will depend to some extent on the size of cash flows into and out of the
Portfolio. Investment changes to accommodate these cash flows will be made
to maintain the similarity of the Portfolios' assets to the S&P 500 to the
maximum extent practicable.
Investment in Utility Securities. The Equity Income Portfolio is subject to
risks that are inherent in the utility industry, including difficulty in
obtaining an adequate return on invested capital, difficulty in financing
large construction programs during an inflationary period, restrictions on
operations and increased cost and delays attributable to environmental
considerations and regulation, difficulty in raising capital in adequate
amounts on reasonable terms in periods of high inflation and unsettled
capital markets, increased costs and reduced availability of certain types
of fuel, occasionally reduced availability and high costs of natural gas
for resales, the effects of energy conservation, the effects of a national
energy policy and lengthy delays and greatly increased costs and other
problems associated with the design, construction, licensing, regulation
and operation of nuclear facilities for electric generation, including,
among other considerations, the problems associated with the use of
radioactive materials and the disposal of radioactive wastes. Costs
incurred by utilities, such as fuel costs, are subject to immediate market
action resulting from political or military forces operating in geographic
regions, such as the Persian Gulf, where oil production is concentrated,
while the rates of return of utility companies generally are subject to
review and limitation by state public utility commissions, which results
ordinarily in a lag between costs and return. There are substantial
differences between the regulatory practices and policies of various
jurisdictions, and any given regulatory agency may make major shifts in
policy from time to time. There is no assurance that regulatory authorities
will grant rate increases in the future or that such increases will be
adequate to permit the payment of dividends on common stocks. Additionally,
existing and possible future regulatory legislation may make it even more
difficult for these utilities to obtain adequate relief. Certain of the
issuers of securities in the Portfolio may own or operate nuclear
generating facilities. Governmental authorities may from time to time
review existing policies and impose additional requirements governing the
licensing, construction and operation of nuclear power plants.
Each of the risks referred to above could adversely affect the ability and
inclination of public utilities to declare or pay dividends and the ability
of holders of common stock to realize any value from the assets of the
issuer upon liquidation or bankruptcy. Many, if not all, of the utilities
that are issuers of the securities expected to be included in the Portfolio
have been experiencing one or more of these problems in varying degrees.
Moreover, price disparities within selected utility groups and
discrepancies in relation to averages and indices have occurred frequently
for reasons not directly related to the general movements or price trends
of utility common stocks. Causes of these discrepancies include changes in
the overall demand for and supply of various securities (including the
potentially depressing effect of new stock offerings) and changes in
investment objectives, market expectations or cash requirements of other
purchasers and sellers of securities.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, the
Statement of Additional Information or the Fund's official sales literature
in connection with the offering of the Fund's shares, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund. This Prospectus does not constitute an
offer in any state in which, or to any person to whom, the offer may not
lawfully be made.}}}
9
{{{
#}}}
10
{{{
Smith Barney Series Fund}}}
10
{{{
#}}}
11
{{{
Smith Barney Series Fund}}}
11
{{{
#}}}
12
{{{
Smith Barney Series Fund}}}
12
{{{
#}}}
13
{{{
Smith Barney Series Fund}}}
13
{{{
#}}}
14
{{{
Smith Barney Series Fund}}}
14
{{{
#}}}
15
{{{
Smith Barney Series Fund}}}
15
{{{
#}}}
16
{{{
Smith Barney Series Fund}}}
16
{{{
#}}}
17
{{{
Smith Barney Series Fund}}}
17
{{{
#}}}
18
{{{
Smith Barney Series Fund}}}
18
{{{
#}}}
19
{{{
Smith Barney Series Fund}}}
19
{{{
#}}}
20
{{{
Smith Barney Series Fund}}}
20
{{{
#}}}
21
{{{
Smith Barney Series Fund}}}
21
{{{
#}}}
22
{{{
Smith Barney Series Fund}}}
22
{{{
#}}}
23
{{{
Smith Barney Series Fund}}}
23
{{{
#}}}
24
{{{
Smith Barney Series Fund}}}
24
{{{
#}}}
25
{{{
Smith Barney Series Fund}}}
25
{{{
#}}}
26
{{{
Smith Barney Series Fund}}}
26
{{{
#}}}
27
{{{
Smith Barney Series Fund}}}
27
{{{
#}}}
28
{{{
Smith Barney Series Fund}}}
28
{{{
#}}}
29
{{{
Smith Barney Series Fund}}}
29
{{{
#}}}
30
{{{
Smith Barney Series Fund}}}
30
{{{
#}}}
31
{{{
Smith Barney Series Fund}}}
31
{{{
#}}}
32
{{{
Smith Barney Series Fund}}}
32
{{{
#}}}
33
{{{
Smith Barney Series Fund}}}
33
{{{
#}}}
34
{{{
Symphony
IDS Life Insurance Company
IDS Tower 10
Minneapolis, Minnesota 55440-0010}}}
34
{{{
IN0122 H1 S-6402 H (2/95)}}}
34
{{{
recycled paper with a minimum
of 10% post-consumer waste}}}
SMITH BARNEY SERIES FUND
388 Greenwich Street, New York, New York 10013 (212) 723-9218
STATEMENT OF ADDITIONAL INFORMATION
April 29, 1995
This Statement of Additional Information expands upon and supplements
the information contained in the current Prospectus of Smith Barney
Series Fund (the "Fund"), relating to ten investment portfolios offered by
the Fund (the "Portfolios"), dated April 29, 1995, as amended or
supplemented from time to time, and should be read in conjunction with the
Fund's Prospectus. The Fund's Prospectus may be obtained from a Smith
Barney Financial Consultant or by writing or calling the Fund at
the address or telephone number listed above. This Statement of Additional
Information, although not in itself a prospectus, is incorporated by
reference into the Prospectus in its entirety.
CONTENTS
For ease of reference, the same section headings are used in both the
Prospectus and this Statement of Additional Information, except where shown
below.
Investment Goals and Policies of the Portfolios __
Management of the Fund __
Purchase of Shares (See in the Prospectus
"How to Use the Fund") __
Redemption of Shares (See in the Prospectus "How
to Use the Fund") __
Net Asset Value __
Performance Data (See in the Prospectus "The
Portfolios' Performance") __
Taxes (See in the Prospectus "Dividends and Taxes") __
Custodian and Transfer Agent __
Financial Statements __
Appendix __
INVESTMENT GOALS AND POLICIES OF THE PORTFOLIOS
The Fund's Prospectus discusses the investment goals of each of the
ten Portfolios currently offered by the Fund and the policies to be
employed to achieve those goals. This section contains supplemental
information concerning the types of securities and other instruments in
which the Portfolios may invest, the investment policies and portfolio
strategies that the Portfolios may utilize and certain risks attendant to
such investments, policies and strategies.
United States Government Securities (All Portfolios)
United States government securities include debt obligations of
varying maturities issued or guaranteed by the United States government or
its agencies or instrumentalities ("U.S. government securities"). Direct
obligations of the United States Treasury include a variety of securities
that differ in their interest rates, maturities and dates of issuance.
U.S. government securities include not only direct obligations of the
United States Treasury but also securities issued or guaranteed by the
Federal Housing Administration, Federal Financing Bank, Export-Import Bank
of the United States, Small Business Administration, Government National
Mortgage Association, General Services Administration, Federal Home Loan
Banks, Federal Home Loan Mortgage Corporation, Federal National Mortgage
Association, Maritime Administration, Tennessee Valley Authority,
Resolution Trust Corporation, District of Columbia Armory Board, Student
Loan Marketing Association and various institutions that previously were or
currently are part of the Farm Credit System (which has been undergoing a
reorganization since 1987). Because the United States government is not
obligated by law to provide support to an instrumentality that it sponsors,
a Portfolio will invest in obligations issued by such an instrumentality
only if its investment adviser ("Adviser") determines that the credit risk
with respect to the instrumentality does not make its securities unsuitable
for investment by the Portfolio.
Bank Obligations (All Portfolios)
U.S. commercial banks organized under Federal law are supervised and
examined by the U.S. Comptroller of the Currency and are required to be
members of the Federal Reserve System and to be insured by the Federal
Deposit Insurance Corporation ("FDIC"). U.S. banks organized under state
law are supervised and examined by state banking authorities but are
members of the Federal Reserve System only if they elect to join. Most
state banks are insured by the FDIC (although such insurance may not be of
material benefit to a Portfolio, depending upon the principal amount of
certificates of deposit ("CDs") of each bank held by the Portfolio) and are
subject to Federal examination and to a substantial body of Federal law and
regulation. As a result of government regulations, U.S. branches of U.S.
banks are, among other things, generally required to maintain specified
levels of reserves and are subject to other supervision and regulation
designed to promote financial soundness.
Obligations of foreign branches of U.S. banks and of foreign branches
of foreign banks, such as CDs and time deposits ("TDs"), may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and governmental regulation.
Such obligations are subject to different risks than are those of U.S.
banks or U.S. branches of foreign banks. These risks include foreign
economic and political developments, foreign governmental restrictions that
may adversely affect payment of principal and interest on the obligations,
foreign exchange controls and foreign withholding and other taxes on
interest income. Foreign branches of U.S. banks and foreign branches of
foreign banks are not necessarily subject to the same or similar regulatory
requirements that apply to U.S. banks, such as mandatory reserve
requirements, loan limitations and accounting, auditing and financial
record keeping requirements. In addition, less information may be publicly
available about a foreign branch of a U.S. bank or about a foreign bank
than about a U.S. bank.
Obligations of U.S. branches of foreign banks may be general
obligations of the parent bank, in addition to being general obligations of
the issuing branch, or may be limited by the terms of specific obligations
and by governmental regulation as well as governmental action in the
country in which the foreign bank has its head office. A U.S. branch of a
foreign bank with assets in excess of $1 billion may or may not be subject
to reserve requirements imposed by the Federal Reserve System or by the
state in which the branch is located if the branch is licensed in that
state. In addition, branches licensed by the Comptroller of the Currency
and branches licensed by certain states may or may not be required to (a)
pledge to the regulator, by depositing assets with a designated bank within
the state, an amount of its assets equal to 5% of its total liabilities and
(b) maintain assets within the state in an amount equal to a specified
percentage of the aggregate amount of liabilities of the foreign bank
payable at or through all of its agencies or branches within the state.
The deposits of state branches may not necessarily be insured by the FDIC.
In addition, there may be less publicly available information about a U.S.
branch of a foreign bank than about a U.S. bank.
In view of the foregoing factors associated with the purchase of CDs
and TDs issued by foreign branches of U.S. banks, by U.S. branches of
foreign banks or by foreign branches of foreign banks, the investment
advisers will carefully evaluate such investments on a case-by-case basis.
The Money Market Portfolio will not purchase TDs maturing in more
than seven calendar days and will limit its investment in TDs maturing from
two business days through seven calendar days to 10% of its total assets.
Except when maintaining a temporary defensive position, the Portfolio will
invest more than 25% of its assets in short-term bank instruments of the
types discussed above.
The Money Market Portfolio may purchase a CD issued by a bank,
savings and loan association or similar institution with less than $1
billion in assets (a "Small Issuer CD") so long as (a) the issuer is a
member of the FDIC or Office of Thrift Supervision and is insured by the
Savings Association Insurance Fund ("SAIF"), which is administered by the
FDIC and is backed by the full faith and credit of the U.S. government, and
(b) the principal amount of the Small Issuer CD is fully insured and is no
more than $100,000. The Money Market Portfolio will at any one time hold
only one Small Issuer CD from any one issuer.
Savings and loan associations whose CDs may be purchased by the
Portfolios are supervised by the Office of Thrift Supervision and are
insured by SAIF. As a result, such savings and loan associations are
subject to regulation and examination.
Commercial Paper (All Portfolios)
Commercial paper consists of short-term (usually from 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 a Portfolio,
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. A Portfolio, therefore, may not
invest in a master demand note, if as a result more than 10% of the value
of the Portfolio's total assets would be invested in such notes and other
illiquid securities.
Ratings as Investment Criteria (All Portfolios)
In general, the ratings of Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Corporation ("S&P") and other nationally
recognized statistical rating organizations ("NRSROs") represent the
opinions of these agencies as to the quality of securities that they rate.
Such ratings, however, are relative and subjective and are not absolute
standards of quality and do not evaluate the market value risk of the
securities. These ratings will be used by the Portfolios as initial
criteria for the selection of portfolio securities, but the Portfolios also
will rely upon the independent advice of their respective Advisers to
evaluate potential investments. Among the factors that will be considered
are the long-term ability of the issuer to pay principal and interest and
general economic trends. The Appendix to this Statement of Additional
Information contains further information concerning the ratings of Moody's,
S&P and other NRSROs and their significance.
Subsequent to its purchase by a Portfolio, an issue of securities may
cease to be rated or its rating may be reduced below the minimum required
for purchase by the Portfolio. In addition, it is possible that Moody's,
S&P or another NRSRO might not change its rating of a particular issue to
reflect subsequent events. None of these events will require sale of such
securities by the Portfolio, but the relevant Adviser will consider such
events in its determination of whether the Portfolio should continue to
hold the securities.
In addition, to the extent that the rating given by Moody's, S&P or
another NRSRO changes as a result of changes in such organization or its
rating system, or due to a corporate reorganization of such organization, a
Portfolio will attempt to use comparable ratings as standards for its
investments in accordance with its investment goal and policies.
The Money Market Portfolio is prohibited from purchasing a security
unless that security is (a) rated by at least two NRSROs (such as Moody's
or S&P) with the highest rating assigned to short-term debt securities (or,
if not rated or rated by only one agency, is determined to be of comparable
quality) or (b) rated by at least two NRSROs within the two highest ratings
assigned to short-term debt securities (or, if not rated or rated by only
one agency, is determined to be of comparable quality), and not more than
5% of the assets of the Portfolio will be invested in such securities.
Determinations of comparable quality shall be made in accordance with
procedures established by the Board of Trustees of the Fund.
Reverse Repurchase Agreements ( International Equity Portfolio)
The Fund does not currently intend to commit more than 5% of the
International Equity Portfolio's net assets to reverse repurchase
agreements. The Portfolio 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 have
the characteristics of borrowing. 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 Portfolio 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 Portfolio has an opportunity to
earn a greater rate of interest on the cash derived from the transaction
than the interest cost of obtaining the 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 its Adviser 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 participating Portfolio's assets. The Fund's custodian will maintain a
separate account for the Portfolio with securities having a value equal to
or greater than such commitments.
Lending of Portfolio Securities (Intermediate High Grade, Diversified
Strategic Income, Equity Income, Equity Index, Growth & Income,
Appreciation, Total Return, International Equity and Emerging Growth
Portfolios)
These Portfolios have the ability to lend portfolio securities to
brokers, dealers and other financial organizations. Such loans, if and when
made, may not exceed 331/3% of a Portfolio's total assets, taken at value.
A Portfolio will not lend portfolio securities to Smith Barney Inc. ("Smith
Barney") or its affiliates unless it has applied for and received specific
authority to do so from the Securities and Exchange Commission ("SEC").
Loans of portfolio securities will be collateralized by cash, letters of
credit or U.S. government securities, which will be maintained at all times
in an amount at least equal to the current market value of the loaned
securities. From time to time, a Portfolio may pay a part of the interest
earned from the investment of collateral received for securities loaned to
the borrower and/or a third party that is unaffiliated with the Portfolio
and is acting as a "finder."
By lending its portfolio securities, a Portfolio can increase its
income by continuing to receive interest on the loaned securities as well
as by either investing the cash collateral in short-term instruments or
obtaining yield in the form of interest paid by the borrower when U.S.
government securities are used as collateral. A Portfolio will comply with
the following conditions whenever its portfolio securities are loaned: (a)
the Portfolio must receive at least 100% cash collateral or equivalent
securities from the borrower; (b) the borrower must increase such
collateral whenever the market value of the securities loaned rises above
the level of such collateral; (c) the Portfolio must be able to terminate
the loan at any time; (d) the Portfolio must receive reasonable interest on
the loan, as well as an amount equal to any dividends, interest or other
distributions on the loaned securities, and any increase in market value;
(e) the Portfolio may pay only reasonable custodian fees in connection with
the loan; and (f) voting rights on the loaned securities may pass to the
borrower; however, if a material event adversely affecting the investment
in the loaned securities occurs, the Fund's Board of Trustees must
terminate the loan and regain the right to vote the securities. The risks
in lending portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional collateral or in
the recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. Loans will be made to firms deemed
by each Adviser to be of good standing and will not be made unless, in the
judgment of the relevant Adviser, the consideration to be earned from such
loans would justify the risk.
Hedging Transactions
As described in the Prospectus, certain of the Portfolios may enter
into various types of securities, index and currency futures, options and
related contracts in order to hedge the existing or anticipated value of
its portfolio. Further information about certain of these techniques
follows.
No Portfolio is required to enter into hedging transactions with
regard to its foreign currency-denominated securities and a Portfolio will
not do so unless deemed appropriate by its Adviser. This method of
protecting the value of the Portfolio's securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying
prices of the securities. It simply establishes a rate of exchange which
one can achieve at some future point in time.
A Portfolio will not, however, enter into such transactions in a
manner which would adversely affect its status as an investment company for
Federal securities law or income tax purposes. Each Portfolio will invest
in these instruments only in markets believed by its Adviser to be active
and sufficiently liquid.
Options on Securities (Intermediate High Grade, Diversified Strategic
Income, Equity Income, Equity Index, Growth & Income, Total Return,
International Equity and Emerging Growth Portfolios)
These Portfolios may engage in the writing of covered put and call
options and may enter into closing transactions. The Intermediate High
Grade, Diversified Strategic Income, Equity Income, Total Return,
International Equity and Emerging Growth Portfolios also may purchase put
and call options.
The principal reason for writing covered call options on securities
is to attempt to realize, through the receipt of premiums, a greater return
than would be realized on the securities alone. In return for a premium,
the writer of a covered call option forfeits the right to any appreciation
in the value of the underlying security above the strike price for the life
of the option (or until a closing purchase transaction can be effected).
Nevertheless, the call writer retains the risk of a decline in the price of
the underlying security. Similarly, the principal reason for writing
covered put options is to realize income in the form of premiums. The
writer of a covered put option accepts the risk of a decline in the price
of the underlying security. The size of the premiums that a Portfolio may
receive may be adversely affected as new or existing institutions,
including other investment companies, engage in or increase their option-
writing activities.
Options written by a Portfolio normally will have expiration dates
between one and nine months from the date written. The exercise price of
the options may be below, equal to or above the market values of the
underlying securities at the times the options are written. In the case of
call options, these exercise prices are referred to as "in-the-money," "at-
the-money" and "out-of-the-money," respectively. A Portfolio may write (a)
in-the-money call options when its Adviser expects that the price of the
underlying security will remain flat or decline moderately during the
option period, (b) at-the-money call options when its Adviser expects that
the price of the underlying security will remain flat or advance moderately
during the option period and (c) out-of-the-money call options when its
Adviser expects that the price of the underlying security may increase but
not above a price equal to the sum of the exercise price plus the premiums
received from writing the call option. In any of the preceding situations,
if the market price of the underlying security declines and the security is
sold at this lower price, the amount of any realized loss will be offset
wholly or in part by the premium received. Out-of-the-money, at-the-money
and in-the-money put options (the reverse of call options as to the
relation of exercise price to market price) may be utilized in the same
market environments that such call options are used in equivalent
transactions.
So long as the obligation of a Portfolio as the writer of an option
continues, the Portfolio may be assigned an exercise notice by the broker-
dealer through which the option was sold, requiring the Portfolio to
deliver, in the case of a call, or take delivery of, in the case of a put,
the underlying security against payment of the exercise price. This
obligation terminates when the option expires or the Portfolio effects a
closing purchase transaction. A Portfolio can no longer effect a closing
purchase transaction with respect to an option once it has been assigned an
exercise notice. To secure its obligation to deliver the underlying
security when it writes a call option, or to pay for the underling security
when it writes a put option, a Portfolio will be required to deposit in
escrow the underlying security or other assets in accordance with the rules
of the Options Clearing Corporation ("Clearing Corporation") and of the
securities exchange on which the option is written.
An option position may be closed out only where there exists a
secondary market for an option of the same series on a recognized
securities exchange or in the over-the-counter market. In light of this
fact and current trading conditions, the Intermediate High Grade,
Diversified Strategic Income, Equity Income, Total Return, International
Equity and Emerging Growth Portfolios expect to purchase not only call or
put options issued by the Clearing Corporation, but also options in the
domestic and foreign over-the-counter markets. The Portfolios expect to
write options only on U.S. securities exchanges, except that the
Diversified Strategic Income, Total Return, International Equity and
Emerging Growth Portfolios may write options in the over-the-counter market
and options on U.S. government securities may be written in the over-the-
counter market by each of the Portfolios with option writing authority.
A Portfolio may realize a profit or loss upon entering into a closing
transaction. In cases in which a Portfolio has written an option, it will
realize a profit if the cost of the closing purchase transaction is less
than the premium received upon writing the original option and will incur a
loss if the cost of the closing purchase transaction exceeds the premium
received upon writing the original option. Similarly, when a Portfolio has
purchased an option and engages in a closing sale transaction, whether the
Portfolio realizes a profit or loss will depend upon whether the amount
received in the closing sale transaction is more or less than the premium
that the Portfolio initially paid for the original option plus the related
transaction costs.
Although a Portfolio generally will purchase or write only those
options for which its Adviser believes there is an active secondary market
so as to facilitate closing transactions, there is no assurance that
sufficient trading interest to create a liquid secondary market on a
securities exchange will exist for any particular option or at any
particular time, and for some options no such secondary market may exist.
A liquid secondary market in an option may cease to exist for a variety of
reasons. In the past, for example, higher than anticipated trading
activity or order flow or other unforeseen events have at times rendered
inadequate certain of the facilities of the Clearing Corporation and
securities exchanges and resulted in the institution of special procedures,
such as trading rotations, restrictions on certain types of orders or
trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with
the timely execution of customers' orders, will not recur. In such event,
it might not be possible to effect closing transactions in particular
options. If, as a covered call option writer, a Portfolio is unable to
effect a closing purchase transaction in a secondary market, it will not be
able to sell the underlying security until the option expires or it
delivers the underlying security upon exercise.
Securities exchanges generally have established limitations governing
the maximum number of calls and puts of each class which may be held or
written, or exercised within certain time periods, by an investor or group
of investors acting in concert (regardless of whether the options are
written on the same or different securities exchanges or are held, written
or exercised in one or more accounts or through one or more brokers). It
is possible that the Portfolios and other clients of their respective
Advisers and certain of their affiliates may be considered to be such a
group. A securities exchange may order the liquidation of positions found
to be in violation of these limits and it may impose certain other
sanctions.
In the case of options written by a Portfolio that are deemed covered
by virtue of the Portfolio's holding convertible or exchangeable preferred
stock or debt securities, the time required to convert or exchange and
obtain physical delivery of the underlying common stocks with respect to
which the Portfolio has written options may exceed the time within which
the Portfolio must make delivery in accordance with an exercise notice. In
these instances, a Portfolio may purchase or temporarily borrow the
underlying securities for purposes of physical delivery. By so doing, the
Portfolio will not bear any market risk, because the Portfolio will have
the absolute right to receive from the issuer of the underlying security an
equal number of shares to replace the borrowed stock, but the Portfolio may
incur additional transaction costs or interest expenses in connection with
any such purchase or borrowing.
Additional risks exist with respect to certain of the U.S. government
securities for which a Portfolio may write covered call options. If a
Portfolio writes covered call options on mortgage-backed securities, the
securities that it holds as cover may, because of scheduled amortization or
unscheduled prepayments, cease to be sufficient cover. The Portfolio will
compensate for the decline in the value of the cover by purchasing an
appropriate additional amount of those securities.
Stock Index Options (Equity Index, Total Return, International Equity and
Emerging Growth Portfolios)
The Equity Index, Total Return, International Equity and Emerging
Growth Portfolios may purchase call options on stock indexes listed on U.S.
securities exchanges for the purpose of hedging its portfolio. The Total
Return Portfolio may also write call and buy put options on stock indexes.
A stock index fluctuates with changes in the market values of the stocks
included in the index. Stock index options may be based on a broad market
index such as the New York Stock Exchange Composite Index or a narrower
market index such as the Standard & Poor's Daily Price Index of 500 Common
Stocks ("S&P 500"). Indexes also may be based on an industry or market
segment.
Options on stock indexes are generally similar to options on stock
except that 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 a cash "exercise
settlement amount" equal to (a) the amount, if any, by which the fixed
exercise price of the option exceeds (in the case of a put) or is less than
(in the case of a call) the closing value of the underlying index on the
date of exercise, multiplied by (b) a fixed "index multiplier." 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 equal to such difference between the
closing price of the index and the exercise price of the option, expressed
in dollars, times a specified multiple. The writer of the option is
obligated, in return for the premium received, to make delivery of this
amount. The writer 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.
The effectiveness of purchasing stock index options as a hedging
technique will depend upon the extent to which price movements in the
portion of a securities portfolio being hedged correlate with price
movements of the stock index selected. Because the value of an index
option depends upon movements in the level of the index rather than the
price of a particular stock, whether the Portfolio will realize a gain or
loss from the purchase or writing of options on an index depends upon
movements in the level of stock prices in the stock market generally or, in
the case of certain indexes, in an industry or market segment, rather than
movements in the price of a particular stock. Accordingly, successful use
by the Portfolio of options on stock indexes will be subject to its
Adviser's ability to predict correctly movements in the direction of the
stock market generally or of a particular industry. This requires
different skills and techniques than predicting changes in the price of
individual stocks.
A Portfolio will engage in stock index options transactions only when
determined by its Adviser to be consistent with the Portfolio's efforts to
control risk. There can be no assurance that such judgment will be
accurate or that the use of these portfolio strategies will be successful.
Futures Activities (Intermediate High Grade, Diversified Strategic Income,
Equity Income, Equity Index, Growth & Income, Total Return, International
Equity and Emerging Growth Portfolios)
The Intermediate High Grade, Diversified Strategic Income, Equity
Income, Growth & Income, Total Return, International Equity and Emerging
Growth Portfolios may enter into interest rate futures contracts, the
Equity Index, Equity Income, Growth & Income, Total Return,
International Equity and Emerging Growth Portfolios may enter into stock
index futures contracts, the Diversified Strategic Income and International
Equity Portfolios may enter into foreign currency futures contracts, and
each such Portfolio may enter into related options that are traded on a
U.S. exchange or board of trade.
An interest rate futures contract provides for the future sale by one
party and the purchase by another party of a certain amount of a specific
financial instrument (debt security) at a specified price, date, time and
place. Similarly, a foreign currency futures contract provides for the
future sale by one party and the purchase by another party of a certain
amount of a particular currency at a specified price, date, time and place.
A stock index futures contract is an agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading
day of the contract and the price at which the index contract was
originally written. No physical delivery of the underlying securities in
the index is made.
The purpose of the acquisition or sale of a futures contract by a
Portfolio, other than the Equity Index, Total Return, International Equity
and Emerging Growth Portfolios, is to mitigate the effects of fluctuations
in the value of its securities caused by anticipated changes in interest
rates, market conditions or currency values without actually buying or
selling the securities. Of course, because the value of portfolio
securities will far exceed the value of the futures contracts entered into
by a Portfolio, an increase in the value of the futures contracts could
only mitigate - but not totally offset - the decline in the value of the
Portfolio.
No consideration is paid or received by a Portfolio upon entering
into a futures contract. Initially, a Portfolio will be required to
deposit with the broker an amount of cash or cash equivalents equal to
approximately 1% to 10% of the contract amount (this amount is subject to
change by the board of trade on which the contract is traded and members of
such board of trade may charge a higher amount). This amount, known as
"initial margin," is in the nature of a performance bond or good faith
deposit on the contract and is returned to a Portfolio upon termination of
the futures contract, assuming all contractual obligations have been
satisfied. Subsequent payments, known as "variation margin", to and from
the broker will be made daily as the price of the securities, currency or
index underlying the futures contract fluctuates, making the long and short
positions in the futures contract more or less valuable, a process known as
"marking-to-market." At any time prior to expiration of a futures contract,
a Portfolio may elect to close the position by taking an opposite position,
which will operate to terminate the Portfolio's existing position in the
contract.
Several risks are associated with the use of futures contracts as a
hedging device. Successful use of futures contracts by a Portfolio is
subject to the ability of its Adviser to predict correctly movements in
interest rates, changes in market conditions or fluctuations in currency
values. These predictions involve skills and techniques that may be
different from those involved in the management of the Portfolio being
hedged. In addition, there can be no assurance that there will be a
correlation between movements in the price of the underlying securities,
index or currency and movements in the price of the securities or currency
that is the subject of a hedge. A decision of whether, when and how to
hedge involves the exercise of skill and judgment, and even a well-
conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected trends in interest rates or currency values.
Although the Portfolios intend to enter into futures contracts only
if there is an active market for such contracts, there is no assurance that
an active market will exist for the contracts at any particular time. Most
U.S. futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the
daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit. It is possible that futures
contract prices could move 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. In such event, and in the event of adverse price
movements, a Portfolio would be required to make daily cash payments of
variation margin, and an increase in the value of the portion of the
Portfolio being hedged, if any, may partially or completely offset losses
on the futures contract. As described above, however, there is no
guarantee that the price of the securities or value of the currency being
hedged will, in fact, correlate with the price movements in a futures
contract and thus provide an offset to losses on the futures contract.
If a Portfolio has hedged against the possibility of a change in
interest rates, market conditions or currency values adversely affecting
the value of securities held in its portfolio and interest rates, market
conditions or currency values move in a direction opposite to that which
has been anticipated, the Portfolio will lose part or all of the benefit of
the increased value of securities or currencies that it has hedged because
it will have offsetting losses in its futures positions. In addition, in
such situations, if the Portfolio had insufficient cash, it may have to
sell securities to meet daily variation margin requirements at a time when
it may be disadvantageous to do so. These sales of securities may, but
will not necessarily, be at increased prices that reflect the change in
interest rates, market conditions or currency values, as the case may be.
Options on Futures Contracts. An option on a futures contract, as
contrasted with the direct investment in such a contract, gives the
purchaser the right, in return for the premium paid, to assume a position
in the underlying futures contract at a specified exercise price at any
time prior to the expiration date of the option. Upon exercise of an
option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount
by which the market price of the futures contract exceeds, in the case of a
call, or is less than, in the case of put, the exercise price of the option
on the futures contract. The potential for loss related to the purchase of
an option on a futures contract is limited to the premium paid for the
option plus transaction costs. Because the value of the option is fixed at
the point of sale, there are no daily cash payments to reflect changes in
the value of the underlying contract; however, the value of the option does
change daily and that change would be reflected in the net asset value of a
Portfolio holding the options.
The Portfolios may purchase and write put and call options on futures
contracts that are traded on a U.S. exchange or board of trade as a hedge
against changes in the value of their portfolio securities, or, in the case
of the Equity Index Portfolio, in anticipation of the purchase of
securities, and may enter into closing transactions with respect to such
options to terminate existing positions. There is no guarantee that such
closing transactions can be effected.
Several risks are associated with options on futures contracts. The
ability to establish and close out positions on such options will be
subject to the existence of a liquid market. In addition, the purchase of
put or call options will be based upon predictions by an Adviser as to
anticipated trends, which predictions could prove to be incorrect. Even if
the expectations of an Adviser are correct, there may be an imperfect
correlation between the change in the value of the options and of the
portfolio securities being hedged.
When-Issued Securities and Delayed Delivery Transactions (Intermediate High
Grade, Diversified Strategic Income, Equity Income, Growth & Income,
Emerging Growth, International Equity and Total Return Portfolios)
To secure an advantageous price or yield, the Intermediate High
Grade, Diversified Strategic Income, Equity Income, Growth & Income,
Emerging Growth, International Equity and Total Return Portfolios may
purchase certain securities on a when-issued basis or purchase or sell
securities for delayed-delivery. A Portfolio will enter into such
transactions for the purpose of acquiring portfolio securities and not for
the purpose of leverage. Delivery of the securities in such cases occurs
beyond the normal settlement periods, but no payment or delivery is made by
a Portfolio prior to the reciprocal delivery or payment by the other party
to the transaction. In entering into a when-issued or delayed-delivery
transaction, a Portfolio will rely on the other party to consummate the
transaction and may be disadvantaged if the other party fails to do so.
U.S. government securities normally are subject to changes in value
based upon changes, real or anticipated, in the level of interest rates
and, to a lesser extent, the public's perception of the creditworthiness of
the issuers. In general, U.S. government securities tend to appreciate
when interest rates decline and depreciate when interest rates rise.
Purchasing these securities on a when-issued or delayed-delivery basis,
therefore, can involve 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. Similarly, the sale of U.S. government securities
for delayed delivery can involve the risk that the prices available in the
market when the delivery is made may actually be higher than those obtained
in the transaction itself.
In the case of the purchase by a Portfolio of securities on a when-
issued or delayed delivery basis, a segregated account in the name of the
Portfolio consisting of cash or liquid debt securities equal to the amount
of the when-issued or delayed delivery commitments will be established at
Boston Safe Deposit and Trust Company ("Boston Safe"), the Fund's
custodian. For the purpose of determining the adequacy of the securities
in the account, the deposited securities will be valued at market or fair
value. If the market or fair value of the securities declines, additional
cash or securities will be placed in the account daily so that the value of
the account will equal the amount of such commitments by the Portfolio
involved. On the settlement date, the Portfolio will meet its obligations
from then-available cash flow, the sale of securities held in the
segregated account, the sale of other securities or, although it would not
normally expect to do so, from the sale of the securities purchased
themselves (which may have a greater or lesser value than the Portfolio's
payment obligations).
Mortgage Related Securities (Intermediate High Grade, Diversified Strategic
Income and Growth & Income Portfolios)
The mortgage pass-through securities in which these Portfolios may
invest may be backed by adjustable-rate, as well as conventional,
mortgages. Those backed by adjustable-rate mortgages bear interest at a
rate that is adjusted monthly, quarterly or annually. The average maturity
of pass-through pools of mortgage related securities varies with the
maturities of the underlying mortgage instruments. In addition, a pool's
stated maturity may be shortened by unscheduled payments on the underlying
mortgages. Factors affecting mortgage prepayments include the level of
interest rates, general economic and social conditions, the location of the
mortgaged property and the age of the mortgage. Because prepayment rates
of individual mortgage pools vary widely, it is not possible to accurately
predict the average life of a particular pool. Pools of mortgages with
varying maturities or different characteristics will have varying average
life assumptions and the prepayment experience of securities backed by
adjustable-rate mortgages may vary from those backed by fixed-rate
mortgages.
Mortgage related securities may be classified as private,
governmental or government-related, depending on the issuer or guarantor.
Private mortgage related securities represent pass-through pools consisting
principally of conventional residential mortgage loans created by non-
governmental issuers, such as commercial banks, savings and loan
associations and private mortgage insurance companies. Government mortgage
related securities are backed by the full faith and credit of the United
States. Government National Mortgage Association ("GNMA"), the principal
guarantor of such securities, is a wholly owned U.S. government corporation
within the Department of Housing and Urban Development. Government-related
mortgage related securities are not backed by the full faith and credit of
the United States. Issuers of such securities include Federal National
Mortgage Association ("FNMA") and Federal Home Loan Mortgage Corporation
("FHLMC"). FNMA is a government-sponsored corporation owned entirely by
private stockholders, which is subject to general regulation by the
Secretary of Housing and Urban Development. Pass-through securities issued
by FNMA are guaranteed as to timely payment of principal and interest by
FNMA. FHLMC is a corporate instrumentality of the United States, the stock
of which is owned by the Federal Home Loan Banks. Participation
certificates representing interests in mortgages from the FHLMC national
portfolio are guaranteed as to the timely payment of interest and ultimate
collection of principal by FHLMC.
The Portfolios expect that private, governmental or government-
related entities may create mortgage loan pools offering pass-through
investments in addition to those described above. The mortgages underlying
these securities may be alternative mortgage instruments, that is, mortgage
instruments whose principal or interest payments may vary or whose terms to
maturity may be shorter than previously customary. As new types of
mortgage related securities are developed and offered to investors, the
Portfolios, consistent with their investment goals and policies, will
consider making investments in such new types of securities.
American, European and Continental Depository Receipts (Equity Income,
Growth & Income, Appreciation, Total Return, International Equity and
Emerging Growth Portfolios)
The Equity Income, Growth & Income, Appreciation, Total Return,
International Equity and Emerging Growth Portfolios may invest in the
securities of foreign and U.S. issuers in the form of American Depository
Receipts ("ADRs") and European Depository Receipts ("EDRs"). These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically
issued by a U.S. bank or trust company that evidence ownership of
underlying securities issued by a foreign corporation. EDRs, which
sometimes are referred to as Continental Depository Receipts ("CDRs"), are
receipts issued in Europe, typically by foreign banks and trust companies,
that evidence ownership of either foreign or U.S. securities. Generally,
ADRs, in registered form, are designed for use in U.S. securities markets
and EDRs and CDRs, in bearer form, are designed for use in European
securities markets.
Currency Exchange Transactions (Diversified Strategic Income, International
Equity and Emerging Growth Portfolio)
The Diversified Strategic Income, International Equity and Emerging
Growth Portfolios' dealings in forward currency exchange will be limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the forward purchase or sale of currency with
respect to specific receivables or payables of the Portfolio, generally
arising in connection with the purchase or sale of its portfolio
securities. Position hedging is the forward sale of currency with respect
to portfolio security positions denominated or quoted in the currency. The
Portfolios may not position hedge with respect to a particular currency to
an extent greater than the aggregate market value at any time of the
securities held in its portfolio denominated or quoted in or currently
convertible (such as through exercise of an option or consummation of a
forward contract) into that particular currency. If a Portfolio enters
into a transaction hedging or position hedging transaction, it will cover
the transaction through one or more of the following methods: (a) ownership
of the underlying currency or an option to purchase such currency, (b)
ownership of an option to enter into an offsetting forward contract, (c)
entering into a forward contract to purchase currency being sold or to sell
currency being purchased, provided that such covering contract is itself
covered by one of these methods, unless the covering contract closes out
the first contract, or (d) depositing into a segregated account with Boston
Safe cash or readily marketable securities in an amount equal to the value
of the Portfolio's total assets committed to the consummation of the
forward contract and not otherwise covered. In the case of transaction
hedging, any securities placed in the account must be liquid debt
securities. In any case, if the value of the securities placed in the
segregated account declines, additional cash or securities will be placed
in the account so that the value of the account will equal the above
amount. Hedging transactions may be made from any foreign currency into
U.S. dollars or into other appropriate currencies.
At or before the maturity of a forward contract, the Portfolio either
may sell a portfolio security and make delivery of the currency, or retain
the security and offset its contractual obligation to deliver the currency
by purchasing a second contract pursuant to which the Portfolio will
obtain, on the same maturity date, the same amount of the currency that it
is obligated to deliver. If the Portfolio retains the portfolio security
and engages in an offsetting transaction, the Portfolio, at the time of
execution of the offsetting transaction, will incur a gain or loss to the
extent that movement has occurred in forward contract prices. Should
forward prices decline during the period between the Portfolio's entering
into a forward contract for the sale of a currency and the date that it
enters into an offsetting contract for the purchase of the currency, the
Portfolio will realize a gain to the extent that the price of the currency
that it has agreed to sell exceeds the price of the currency that it has
agreed to purchase. Should forward prices increase, the Portfolio will
realize a loss to the extent that the price of the currency that it has
agreed to purchase exceeds the price of the currency that it has agreed to
sell.
The cost to a Portfolio of engaging in currency transactions varies
with factors such as the currency involved, the length of the contract
period and the market conditions then prevailing. Because transactions in
currency exchange are usually conducted on a principal basis, no fees or
commissions are involved. The use of forward currency contracts does not
eliminate fluctuations in the underlying prices of the securities, but it
does establish a rate of exchange that can be achieved in the future. In
addition, although forward currency contracts limit the risk of loss due to
a decline in the value of the hedged currency, at the same time they limit
any potential gain that might result should the value of the currency
increase.
If a devaluation is generally anticipated, a Portfolio may not be
able to contract to sell the currency at a price above the devaluation
level it anticipates.
Foreign Currency Options (Diversified Strategic Income, International
Equity and Emerging Growth Portfolios)
The Diversified Strategic Income, Emerging Growth and International
Equity Portfolios may purchase put and call options on foreign currencies
for the purpose of hedging against changes in future currency exchange
rates. Put options convey the right to sell the underlying currency at a
price that is anticipated to be higher than the spot price of the currency
at the time the option expires. Call options convey the right to buy the
underlying currency at a price that is expected to be lower than the spot
price of the currency at the time the option expires.
A Portfolio may use foreign currency options under the same
circumstances that it could use forward currency exchange transactions. A
decline in the U.S. dollar value of a foreign currency in which the
Portfolio's securities are denominated, for example, will reduce the U.S.
dollar value of the securities, even if their value in the foreign currency
remains constant. In order to protect against such diminution in the value
of securities it holds, the Portfolio may purchase put options on the
foreign currency. If the value of the currency does decline, the Portfolio
will have the right to sell the currency for a fixed amount in U.S. dollars
and will thereby offset, in whole or in part, the adverse effect on its
securities that otherwise would have resulted. Conversely, if a rise in
the U.S. dollar value of a currency in which securities to be acquired are
denominated is projected, thereby potentially increasing the cost of the
securities, the Portfolio may purchase call options on the particular
currency. The purchase of these options could offset, at least partially,
the effects of the adverse movements in exchange rates. The benefit to the
Portfolio derived from purchases of foreign currency options, like the
benefit derived from other types of options, will be reduced by the amount
of the premium and related transaction costs. In addition, if currency
exchange rates do not move in the direction or to the extent anticipated,
the Portfolio could sustain losses on transactions in foreign currency
options that would require it to forego a portion or all of the benefits of
advantageous changes in the rates.
Floating Rate and Variable Rate Obligations (Money Market Portfolio)
The Money Market Portfolio may purchase floating rate and variable
rate obligations, including participation interests therein. Variable rate
obligations provide for a specified periodic adjustment in the interest
rate, while floating rate obligations have an interest rate that changes
whenever there is a change in the external interest rate. The Portfolio
may purchase floating rate and variable rate obligations that carry a
demand feature that would permit the Portfolio to tender them back to the
issuer or remarketing agent at par value prior to maturity. Frequently,
floating rate and variable rate obligations are secured by letters of
credit or other credit support arrangements provided by banks.
Convertible Securities (International High Grade, Equity Income, Growth &
Income, Appreciation, Total Return, Emerging Growth and International
Equity Portfolios)
The International High Grade, Equity Income, Growth & Income,
Appreciation, Total Return, Emerging Growth and International Equity
Portfolios may invest in convertible securities, which are fixed-income
securities that may be converted at either a stated price or stated rate
into underlying shares of common stock. Convertible securities have
general characteristics similar to both fixed-income and equity securities.
Although to a lesser extent than with fixed-income securities generally,
the market value of convertible securities tends to decline as interest
rates increase and, conversely, tends to increase as interest rates
decline. In addition, because of the conversion feature, the market value
of convertible securities tends to vary with fluctuations in the market
value of the underlying common stocks and, therefore, also will react to
variations in the general market for equity securities. A unique feature
of convertible securities is that as the market price of the underlying
common stock declines, convertible securities tend to trade increasingly on
a yield basis and so may not experience market value declines to the same
extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities
tend to rise as a reflection of the value of the underlying common stock.
While no securities investments are without risk, investments in
convertible securities generally entail less risk than investments in
common stock of the same issuer.
As fixed-income securities, convertible securities provide for a
stable stream of income with generally higher yields than common stocks.
Of course, like all fixed-income securities, there can be no assurance of
current income because the issuers of the convertible securities may
default on their obligations. Convertible securities, however, generally
offer lower interest or dividend yields than non-convertible securities of
similar quality because of the potential for capital appreciation. A
convertible security, in addition to providing fixed income, offers the
potential for capital appreciation through the conversion feature, which
enables the holder to benefit from increases in the market price of the
underlying common stock. There can be no assurance of capital appreciation,
however, because securities prices fluctuate.
Convertible securities generally are subordinated to other similar
but non-convertible securities of the same issuer, although convertible
bonds, as corporate debt obligations, enjoy seniority in right of payment
to all equity securities, and convertible preferred stock is senior to
common stock of the same issuer. Because of the subordination feature,
however, convertible securities typically have lower ratings than similar
non-convertible securities.
Preferred Stock (Intermediate High Grade, Diversified Strategic Income,
Equity Income, Appreciation, Total Return, Emerging Growth and
International Equity Portfolios)
The Intermediate High Grade, Diversified Strategic Income, Equity
Income, Appreciation, Total Return, Emerging Growth and International
Equity Portfolios may invest in preferred stocks, which, like debt
obligations, are generally fixed-income securities. Shareholders of
preferred stocks normally have the right to receive dividends at a fixed
rate when and as declared by the issuer's board of directors, but do not
participate in other amounts available for distribution by the issuing
corporation. Dividends on the preferred stock may be cumulative, and all
cumulative dividends usually must be paid prior to common shareholders
receiving any dividends. Preferred stock dividends must be paid before
common stock dividends and, for that reason, preferred stocks generally
entail less risk than common stocks. Upon liquidation, preferred stocks
are entitled to a specified liquidation preference, which is generally the
same as the par or stated value, and are senior in right of payment to
common stock. Preferred stocks are, however, equity securities in the
sense that they do not represent a liability of the issuer and, therefore,
do not offer as great a degree of protection of capital or assurance of
continued income as investments in corporate debt securities. In addition,
preferred stocks are subordinated in right of payment to all debt
obligations and creditors of the issuer and convertible preferred stocks
may be subordinated to other preferred stock of the same issuer.
Warrants (Equity Income, Appreciation, Growth & Income, Total Return,
International Equity and Emerging Growth Portfolios)
The Equity Income, Appreciation, Growth & Income, Total Return,
International Equity and Emerging Growth Portfolios may invest in warrants.
Because a warrant does not carry with it the right to dividends or voting
rights with respect to the securities that the warrant holder is entitled
to purchase, and because it does not represent any rights to the assets of
the issuer, warrants may be considered more speculative than certain other
types of investments. Also, the value of a warrant does not necessarily
change with the value of the underlying securities and a warrant ceases to
have value if it is not exercised prior to its expiration date.
Repurchase Agreements (All Portfolios)
The Portfolios may enter into repurchase agreements with banks, which
are the issuers of instruments acceptable for purchase by the Fund, and
with certain dealers on the Federal Reserve Bank of New York's list of
reporting dealers. A repurchase agreement is a short-term investment in
which the purchaser 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 Investment Company Act of 1940, as amended (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
will be required to maintain the value of the underlying securities marked
to market daily at not less than the repurchase price. The underlying
securities (securities of the United States government, or its agencies and
instrumentalities) may have maturity dates exceeding one year. The
Portfolios do not bear the risk of a decline in value of the underlying
security unless the seller defaults under its repurchase obligation. See
"Appendix - Certain Investment Strategies" in the Prospectus for further
information.
Restricted Securities (All Portfolios)
Each Portfolio may invest up to 10% (15% in the case of the Total
Return, Emerging Growth and International Equity Portfolios) of the value
of its net assets in restricted securities (i.e., securities which may not
be sold without registration under the Securities Act of 1933, as amended)
and in other securities that are not readily marketable, including
repurchase agreements maturing in more than seven days. Restricted
securities are generally purchased 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. Investments
in securities which have no readily available market value are valued at
fair value as determined in good faith by the Fund's Board of Trustees.
Ordinarily, a Portfolio would invest in restricted securities only when it
receives the issuer's commitment to register the securities without expense
to the Portfolio. However, registration and underwriting expenses (which
may range from 7% to 15% of the gross proceeds of the securities sold) may
be paid by the Portfolio. A Portfolio position in restricted securities
might adversely affect the liquidity and marketability of such securities,
and the Portfolio might not be able to dispose of its holdings in such
securities at reasonable price levels.
Short Sales Against the Box (Equity Income, International Equity, Emerging
Growth and Total Return Portfolios)
Each of the Equity Income, International Equity, Emerging Growth and
Total Return Portfolios may enter into a short sale of common stock such
that when the short position is open the Portfolio involved owns an equal
amount of preferred stocks or debt securities, convertible or exchangeable,
without payment of further consideration, into an equal number of shares of
the common stock sold short. This kind of short sale, which is described
as "against the box," will be entered into by a Portfolio for the purpose
of receiving a portion of the interest earned by the executing broker from
the proceeds of the sale. The proceeds of the sale will be held by the
broker until the settlement date when the Portfolio delivers the
convertible or exchangeable securities to close out its short position.
Although prior to delivery a Portfolio will have to pay an amount equal to
any dividends paid on the common stock sold short, the Portfolio will
receive the dividends from the preferred stock or interest from the debt
securities convertible or exchangeable into the stock sold short, plus a
portion of the interest earned from the proceeds of the short sale. The
Portfolio will deposit, in a segregated account with the Fund's custodian,
convertible preferred stock or convertible debt securities in connection
with short sales against the box.
Investment Restrictions
The investment restrictions numbered 1 through 14 have been adopted
by the Fund with respect to the Portfolios as fundamental policies for
protection of shareholders. Under the 1940 Act, a fundamental policy may
not be changed without the vote of a majority (as defined in the 1940 Act)
of the outstanding voting securities of the Fund. Majority is defined in
the 1940 Act as the lesser of (a) 67% or more of the shares present at a
Fund meeting, if the holders of more than 50% of the outstanding shares of
the Fund are present or represented by proxy, or (b) more than 50% of the
outstanding shares. A fundamental policy affecting a particular Portfolio
may not be changed without the vote of a majority of the outstanding shares
of that Portfolio. Investment restrictions 15 through 21 are non-
fundamental policies and may be changed by vote of a majority of the Fund's
Board of Trustees at any time.
The investment policies adopted by the Fund prohibit a Portfolio
from:
1. Purchasing the securities of any issuer (other than U.S.
government securities) if as a result more than 5% of the value of the
Portfolio's total assets would be invested in the securities of the issuer,
except that, with respect to each Portfolio other than the Money Market
Portfolio, up to 25% of the value of the Portfolio's total assets may be
invested without regard to this 5% limitation.
2. Purchasing more than 10% of the voting securities of any one
issuer or more than 10% of the securities of any class of any one issuer;
provided that this limitation shall not apply to investments in U.S.
government securities.
3. Purchasing securities on margin, except that the Portfolio may
obtain any short-term credits necessary for the clearance of purchases and
sales of securities. For purposes of this restriction, the deposit or
payment of initial or variation margin in connection with futures contracts
or related options will not be deemed to be a purchase of securities on
margin.
4. Making short sales of securities or maintaining a short
position, except for "short sales against the box."
5. Borrowing money or issuing senior securities, except that (a)
the Portfolio may borrow from banks for temporary or emergency (not
leveraging) purposes including the meeting of redemption requests that
might otherwise require the untimely disposition of securities in an amount
not exceeding 30% of the value of the Portfolio's total assets (including
the amount borrowed), valued at market less liabilities (not including the
amount borrowed) at the time the borrowing is made, (b) one or more of the
Portfolios may enter into futures contracts, reverse repurchase agreements
and forward roll transactions and (c) the International Equity Portfolio
may borrow up to one-third of the Portfolio's assets. In the event that
the asset coverage for a Portfolio's borrowings falls below 300%, the
Portfolio would reduce, within three days (excluding Saturdays, Sundays and
holidays), the amount of its borrowings in order to provide for 300% asset
coverage. Whenever borrowings pursuant to (a) above exceeds 5% of the
value of a Portfolio's total assets, the Portfolio (other than the
International Equity Portfolio) will not make any additional investments.
6. Pledging, hypothecating, mortgaging or otherwise encumbering
more than 30% of the value of the Portfolio's total assets. For purposes
of this restriction, (a) the deposit of assets in escrow in connection with
the writing of options and the purchase of securities on a when-issued or
delayed delivery basis, (b) the International Equity Portfolio's pledge of
its assets to secure permitted borrowing and (c) collateral arrangements
with respect to (i) the purchase and sale of stock options, options on
foreign currencies and options on stock indexes and (ii) initial or
variation margin for futures contracts will not be deemed to be pledges of
a Portfolio's assets.
7. Underwriting the securities of other issuers, except insofar as
the Portfolio may be deemed an underwriter under the Securities Act of
1933, as amended, by virtue of disposing of portfolio securities.
8. Purchasing or selling real estate or interests in real estate,
except that the Portfolio may purchase and sell securities that are
secured, directly or indirectly, by real estate and may purchase securities
issued by companies that invest or deal in real estate.
9. Investing in commodities, except that one or more of the
Portfolios may invest in futures contracts and options on futures
contracts.
10. Investing in oil, gas or other mineral exploration or
development programs, except that the Portfolio may invest in the
securities of companies that invest in or sponsor these programs.
11. Making loans to others, except through the purchase of qualified
debt obligations, loans of portfolio securities and entry into repurchase
agreements.
12. Investing in securities of other investment companies registered
or required to be registered under the 1940 Act, except as they may be
acquired as part of a merger, consolidation, reorganization, acquisition of
assets or an offer of exchange or as otherwise permitted by law.
13. Purchasing any securities that would cause more than 25% of the
value of the Portfolio's total assets at the time of purchase to be
invested in the securities of issuers conducting their principal business
activities in the same industry; provided that this limitation shall not
apply to the purchase of (a) U.S. government securities or (b) with respect
to the Money Market Portfolio, U.S. dollar-denominated bank instruments
such as certificates of deposit, time deposits, bankers' acceptances and
letters of credit that have been issued by U.S. banks or (c) with respect
to the Equity Income Portfolio, the securities of companies within the
utility industry.
14. Purchasing, writing or selling puts, calls, straddles, spreads
or combinations thereof, except as permitted under the Portfolio's
investment goals and policies.
15. Purchasing restricted securities, illiquid securities or other
securities that are not readily marketable if more than 10% (15% in the
case of the Total Return, International Equity and Emerging Growth
Portfolios) of the total assets of the Portfolio would be invested in such
securities.
16. Investing more than 10% of its total assets in time deposits
maturing in more than seven calendar days.
17. Purchasing any security if as a result the Portfolio would then
have more than 5% of its total assets invested in securities of companies
(including predecessors) that have been in continuous operation for less
than three years. (For purposes of this limitation, issuers include
predecessors, sponsors, controlling persons, general partners, guarantors
and originators of underlying assets which have less than three years of
continuous operation or relevant business experience.)
18. Making investments for the purpose of exercising control or
management.
19. Purchasing or retaining securities of any company if, to the
knowledge of the Fund, any of the Fund's officers or Trustees or any
officer or director of an Adviser or sub-investment adviser individually
owns more than 1/2 of 1% of the outstanding securities of such company and
together they own beneficially more than 5% of the securities.
20. Investing in warrants (except as permitted under the Portfolio's
investment goals and policies or other than warrants acquired by the
Portfolio as part of a unit or attached to securities at the time of
purchase) if, as a result, the investments (valued at the lower of cost or
market) would exceed 5% of the value of the Portfolio's net assets or if,
as a result, more than 2% (5% in the case of the International Equity
Portfolio) of the Portfolio's net assets would be invested in warrants not
listed on a recognized U.S. or foreign exchange to the extent permitted by
applicable state securities laws.
21. With regard to the Equity Income Portfolio, purchase 10% or more
of the voting securities of a public utility or public utility holding
company, so as to become a public utility holding company as defined in the
Public Utility Holding Company Act of 1935, as amended.
The Fund may make commitments more restrictive than the restrictions
listed above with respect to a Portfolio so as to permit the sale of shares
of the Portfolio in certain states. Should the Fund determine that any
such commitment is no longer in the best interests of the Portfolio and its
shareholders, the Fund will revoke the commitment by terminating the sale
of shares of the Portfolio in the state involved. Except for investment
restriction number 5, the percentage limitations contained in the
restrictions listed above apply at the time of purchases of securities.
Portfolio Turnover
The Money Market Portfolio may attempt to increase yields by trading
to take advantage of short-term market variations, which results in high
portfolio turnover. Because purchases and sales of money market
instruments are usually effected as principal transactions, this policy
does not result in high brokerage commissions to the Portfolio. The other
Portfolios do not intend to seek profits through short-term trading.
Nevertheless, the Portfolios will not consider portfolio turnover rate a
limiting factor in making investment decisions.
A Portfolio's turnover rate is calculated by dividing the lesser of
purchases or sales of its portfolio securities for the year by the monthly
average value of the portfolio's securities. Securities or options with
remaining maturities of one year or less on the date of acquisition are
excluded from the calculation. Under certain market conditions, a
Portfolio authorized to engage in transactions in options may experience
increased portfolio turnover as a result of its investment strategies. For
instance, the exercise of a substantial number of options written by a
Portfolio (due to appreciation of the underlying security in the case of
call options or depreciation of the underlying security in the case of put
options) could result in a turnover rate in excess of 100%. A portfolio
turnover rate of 100% would occur if all of a Portfolio's securities that
are included in the computation of turnover were replaced once during a
period of one year.
The Portfolios cannot accurately predict their portfolio turnover
rates but anticipate that annual turnover for each Portfolio will not
exceed the following percentages: Intermediate High Grade Portfolio -
100%; Diversified Strategic Income Portfolio - 100%; Equity Income
Portfolio - 100%; Equity Index Portfolio - 20%; Growth & Income Portfolio
- - 50%; Appreciation Portfolio - 50%; Total Return Portfolio - 100%;
Emerging Growth Portfolio - 100%; and International Equity Portfolio -
100%. For regulatory purposes, the portfolio turnover rate for the Money
Market Portfolio will be considered 0%.
For the 1994 and 1993 fiscal years, the portfolio turnover rates for
Portfolios having operations during the stated periods were as follows:
Portfolio
Fiscal Year Ended
December 31, 1994
Fiscal Year Ended
December 31, 1993
Intermediate High Grade
Portfolio
139%
Diversified Strategic Income
Portfolio
94%
Equity Income Portfolio
4%
Equity Index Portfolio
1%
Growth & Income Portfolio
78%
Appreciation Portfolio
33%
Total Return Portfolio
0%
Emerging Growth Portfolio
0%
International Equity Portfolio
0%
Certain other practices that may be employed by a Portfolio also
could result in high portfolio turnover. For example, portfolio securities
may be sold in anticipation of a rise in interest rates (market decline) or
purchased in anticipation of a decline in interest rates (market rise) and
later sold. In addition, a security may be sold and another of comparable
quality purchased at approximately the same time to take advantage of what
an Adviser believes to be a temporary disparity in the normal yield
relationship between the two securities. These yield disparities may occur
for reasons not directly related to the investment quality of particular
issues or the general movement of interest rates, such as changes in the
overall demand for, or supply of, various types of securities. Higher
portfolio turnover rates can result in corresponding increases in brokerage
commissions and short-term gains realized from portfolio transactions are
taxable to shareholders as ordinary income. See "Dividends and Taxes."
Portfolio turnover rates may vary greatly from year to year as well
as within a particular year and may be affected by cash requirements for
redemptions of a Portfolio's shares as well as by requirements that enable
the Portfolio to receive favorable tax treatment.
The Fund's Board of Trustees will review periodically the commissions
paid by the Portfolios to determine if the commissions paid over
representative periods of time were reasonable in relation to the benefits
inuring to the Portfolios.
Portfolio Transactions
Most of the purchases and sales of securities for a Portfolio,
whether effected on a securities exchange or over-the-counter, will be
effected in the primary trading market for the securities. Decisions to
buy and sell securities for a Portfolio are made by its Adviser, which also
is responsible for placing these transactions, subject to the overall
review of the Fund's Trustees. With respect to the Diversified Strategic
Income Portfolio, decisions to buy and sell U.S. securities for the
Portfolio are made by Smith Barney Mutual Funds Management Inc. ("SBMFM"),
the Portfolio's Adviser, which also is responsible for placing these
transactions; however, the responsibility to make investment decisions with
respect to foreign securities and to place these transactions rests with
Smith Barney Global Capital Management, Inc. ("Global Capital Management"),
the Portfolio's sub-investment adviser. Although investment decisions for
each Portfolio are made independently from those of the other accounts
managed by its Adviser, investments of the type the Portfolio may make also
may be made by those other accounts. When a Portfolio and one or more
other accounts managed by its Adviser are prepared to invest in, or desire
to dispose of, the same security, available investments or opportunities
for sales will be allocated in a manner believed by the Adviser to be
equitable to each. In some cases, this procedure may adversely affect the
price paid or received by a Portfolio or the size of the position obtained
or disposed of by the Portfolio.
Transactions on U.S. stock exchanges and some foreign stock exchanges
involve the payment of negotiated brokerage commissions. On exchanges on
which commissions are negotiated, the cost of transactions may vary among
different brokers. Commissions generally are fixed on most foreign
exchanges. There is generally no stated commission in the case of
securities traded in U.S. or foreign over-the-counter markets, but the
prices of those securities include undisclosed commissions or mark-ups.
The cost of securities purchased from underwriters includes an underwriting
commission or concession and the prices at which securities are purchased
from and sold to dealers include a dealer's mark-up or mark-down. U.S.
government securities generally are purchased from underwriters or dealers,
although certain newly issued U.S. government securities may be purchased
directly from the United States Treasury or from the issuing agency or
instrumentality.
The following table sets forth certain information regarding each
Portfolio's payment of brokerage commissions with the exception of the
Money Market Portfolio, Intermediate High Grade Portfolio, and Diversified
Strategic Income Portfolio, which did not pay any brokerage commissions
during these time periods.
Fiscal Year Ended
December 31, 1994
Portfolio
Total Brokerage
Commissions Paid
Brokerage Commissions
Paid to Smith Barney
Equity Income
Portfolio
Equity Index Portfolio
Growth & Income
Portfolio
Appreciation Portfolio
Total Return Portfolio
Emerging Growth
Portfolio
International Equity
Portfolio
Fiscal Year Ended
December 31, 1993
Portfolio
Total Brokerage
Commissions Paid
Brokerage Commissions
Paid to Shearson
Lehman Brothers Inc.
and/or Smith Barney
Shearson Inc.
Equity Income
Portfolio
$52,560
$7,518
Equity Index Portfolio
$ 2,727
$------
Growth & Income
Portfolio
$42,972
$4,818
Appreciation Portfolio
$67,361
$2,499
Total Return Portfolio
$ 1,410
$-----
Emerging Growth
Portfolio
$ 1,342
$-----
International Equity
Portfolio
$ 7,413
$ 416
Fiscal Year Ended
December 31, 1992
Portfolio
Total Brokerage
Commissions Paid
Brokerage Commissions
Paid to Shearson
Lehman
Brothers Inc.
Equity Income
Portfolio
$30,510
$7,884
Equity Index Portfolio
$ 1,142
$------
Growth & Income
Portfolio
$22,980
$6,786
Appreciation Portfolio
$48,003
$8,664
Fiscal Year Ended
December 31, 1994
Equity
Income
Portfolio
Growth &
Income
Portfolio
Appreciati
on
Portfolio
Internation
al
Equity
Portfolio
% of Total Brokerage
Commission paid to Smith
Barney Inc.
%
%
%
%
% of Total Transactions
involving Commissions paid
to Smith Barney Inc.
%
%
%
%
In selecting brokers or dealers to execute securities transactions on
behalf of a Portfolio, its Adviser seeks the best overall terms available.
In assessing the best overall terms available for any transaction, each
Adviser will consider the factors that the Adviser deems relevant,
including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer and the reasonableness of the commission, if any, for the specific
transaction and on a continuing basis. In addition, each advisory
agreement between the Fund and an Adviser authorizes the Adviser, in
selecting brokers or dealers to execute a particular transaction and in
evaluating the best overall terms available, to consider the brokerage and
research services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934) provided to the Fund, the other Portfolios
and/or other accounts over which the Adviser or its affiliates exercise
investment discretion. The fees under the advisory agreements and the sub-
investment advisory and/or administration agreements between the Fund and
the Advisers and the sub-investment advisers and/or administrator,
respectively, are not reduced by reason of their receiving such brokerage
and research services. The Fund's Board of Trustees, in its discretion,
may authorize the Advisers to cause the Portfolios to pay a broker that
provides such brokerage and research services a brokerage commission in
excess of that which another broker might have charged for effecting the
same transaction, in recognition of the value of such brokerage and
research services. The Fund's Board of Trustees periodically will review
the commissions paid by the Portfolios to determine if the commissions paid
over representative periods of time were reasonable in relation to the
benefits inuring to the Fund.
To the extent consistent with applicable provisions of the 1940 Act
and the rules and exemptions adopted by the SEC thereunder, the Fund's
Board of Trustees has determined that portfolio transactions for a
Portfolio may be executed through Smith Barney and other affiliated broker-
dealers if, in the judgment of its Adviser, the use of such broker-dealer
is likely to result in price and execution at least as favorable as those
of other qualified broker-dealers, and if, in the transaction, such broker-
dealer charges the Portfolio a rate consistent with that charged to
comparable unaffiliated customers in similar transactions. In addition,
under rules recently adopted by the SEC, Smith Barney may directly execute
transactions for a Portfolio of the Fund on the floor of any national
securities exchange, provided: (a) the Board of Trustees has expressly
authorized Smith Barney to effect such transactions; and (b) Smith Barney
annually advises the Fund of the aggregate compensation it earned on such
transactions. Over-the-counter purchases and sales are transacted directly
with principal market makers except in those cases in which better prices
and executions may be obtained elsewhere.
The Portfolios will not purchase any security, including U.S.
government securities, during the existence of any underwriting or selling
group relating thereto of which Smith Barney is a member, except to the
extent permitted by the SEC.
The Portfolios may use Smith Barney as a commodities broker in
connection with entering into futures contracts and options on futures
contracts. Smith Barney has agreed to charge the Portfolios commodity
commissions at rates comparable to those charged by Smith Barney to its
most favored clients for comparable trades in comparable accounts.
MANAGEMENT OF THE FUND
The executive officers of the Fund are employees of certain of the
organizations that provide services to the Fund. These organizations are
as follows:
Name Service
American Capital Asset Investment Adviser to
Emerging
Management Inc. Growth Portfolio
Travelers Investment Management Investment Adviser to
Company ("TIM Co.") Equity Index Portfolio
Smith Barney Mutual Funds Management Investment Adviser to
Inc. ("SBMFM") Money Market , Intermediate
High Grade, Diversified Strategic
Income, Equity Income, Growth
and Income, Appreciation and
Total Return Portfolios;
Administrator to each Portfolio
Global Capital Management Sub-Investment Adviser to
Diversified Strategic Income
Portfolio
The Boston Company Advisors,
Inc. ("Boston Advisors") Sub-Administrator to each
Portfolio
Smith Barney Inc. Distributor
Boston Safe Custodian
The Shareholder Services Group, Transfer and Dividend
Paying
Inc. ("TSSG"), a subsidiary Agent
of First Data Corporation
These organizations and the functions they perform for the Fund are
discussed in the Prospectus and in this Statement of Additional
Information.
Trustees and Officers of the Fund
The names of the Trustees and executive officers of the Fund,
together with information as to their principal business occupations during
the past five years, are set forth below. Each Trustee who is an
"interested person" of the Fund, as defined in the 1940 Act, is indicated
by an asterisk. As of March 31, 1995, Trustees and officers of the Fund as
a group owned no shares of the Fund.
Herbert Barg, Trustee (Age 71). Private Investor. His address is
273 Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.
*Alfred J. Bianchetti, Trustee (Age 72). Retired; formerly Senior
Consultant to Dean Witter Reynolds. His address is 19 Circle End Drive,
Ramsey, New Jersey 17466.
Martin Brody, Trustee (Age 73). Vice Chairman of the Board of
Restaurant Associates Industries Corp. and a Director of Jaclyn, Inc. His
address is c/o HNK Associates, Three ADP Boulevard, Roseland, New Jersey
07068.
Dwight B. Crane, Trustee (Age 57). Professor, Graduate School of
Business Administration, Harvard University and a Director of Peer Review
Analysis, Inc. His address is c/o Harvard Business School, Soldiers Field
Road, Boston, Massachusetts 02163.
Burt N. Dorsett, Trustee (Age 64). Managing Partner of Dorsett,
McCabe Management, Inc., an investment counseling firm; Director of
Research Corporation Technologies, Inc., a non-profit patent-clearing and
licensing firm. His address is 201 East 62nd Street, New York, New York
10021.
Elliot S. Jaffe, Trustee (Age 68). Chairman of the Board and
President of The Dress Barn, Inc. His address is 30 Dunnigan Drive,
Suffern, New York 10901.
Stephen E. Kaufman, Trustee (Age 62). Attorney. His address is 277
Park Avenue, New York, New York 10172.
Joseph J. McCann, Trustee (Age 64). Financial Consultant; formerly
Vice President of Ryan Homes, Inc. His address is 200 Oak Park Place,
Suite One, Pittsburgh, PA 15243.
* Heath B. McLendon, Chairman of the Board and Investment Officer
(Age 61). Managing Director of Smith Barney, President of SBMFM and
Chairman of Smith Barney Strategy Advisers Inc.; prior to July 1993, Senior
Executive Vice President of Shearson Lehman Brothers Inc.; Vice Chairman of
Shearson Asset Management. His address is 388 Greenwich Street, New York,
New York 10013. Mr. McLendon also serves as Chairman of the Board of _____
other mutual funds of the Smith Barney Mutual Funds.
Cornelius C. Rose, Jr., Trustee (Age 61). President, Cornelius C.
Rose Associates, Inc., financial consultants, and Chairman and Director of
Performance Learning Systems, an educational consultant. His address is
Fair Oaks, Enfield, New Hampshire 03748.
John C. Bianchi, Vice President and Investment Officer (Age __).
Investment officer of SBMFM; prior to November 7, 1994, Managing Director
of Greenwich Street Advisors; prior to July 1993, Managing Director of
Shearson Lehman Advisors. His address is 388 Greenwich Street, New York,
New York 10013.
Harry D. Cohen, Vice President and Investment Officer (Age __).
President of Asset Management; Managing Director of Smith Barney Shearson;
prior to July 1993, Executive Vice President of Shearson Lehman Brothers.
His address is 388 Greenwich Street, New York, New York 10013.
James C. Conroy, Vice President and Investment Officer (Age __).
Investment Officer of SBMFM; prior to November 7, 1994, Managing Director
of Greenwich Street Advisors; prior to July 1993, Managing Director of
Shearson Lehman Advisors. His address is 388 Greenwich Street, New York,
New York 10013.
Paul A. Hilstad, Vice President (Age __). Senior Vice President,
General Counsel and Director of American Capital Management & Research,
Inc.; Senior Vice President and General Counsel of American Capital;
formerly Vice President and Deputy General Counsel, IDS Financial Services
Inc. His address is 2800 Post Oak Boulevard, Houston, Texas 77056.
Jack S. Levande, Vice President and Investment Officer (Age __).
Investment Officer of SBMFM; prior to November 7, 1994; Managing Director
of Greenwich Street Advisors; prior to July 1993, Managing Director of
Shearson Lehman Advisors. His address is 388 Greenwich Street, New York,
New York 10013.
Gary Lewis, Vice President and Investment Officer (Age __).
Portfolio Manager at American Capital Management. His address is 2800 Post
Oak Boulevard, Houston, Texas 77056.
George Mueller, Vice President and Investment Officer (Age __).
Investment Officer of SBMFM; prior to November 7, 1994, Senior Vice
President of Greenwich Street Advisors; prior to July 1993, Managing
Director of Shearson Lehman Advisors. His address is 388 Greenwich Street,
New York, New York 10013.
Alan T. Sachtleben, Vice President and Investment Officer (Age __).
Senior Vice President - Chief Investment Officer/Equity and Director of
American Capital. Executive Vice President and Director, American Capital
Management & Research, Inc. His address is 2800 Post Oak Boulevard,
Houston, Texas 77056.
Jessica M. Bibliowicz, President (Age __). Executive Vice President
Smith Barney, Director of Sales and Marketing for Prudential Mutual Funds;
prior to 1990, First Vice President of Asset Management Division of
Shearson Lehman Brothers Inc. Her address is 388 Greenwich Street, New
York, New York 10013.
William G. Zink, Vice President and Investment Officer (Age __).
Manager --Equities of PanAgora Management. His address is 260 Franklin
Street, Boston, Massachusetts 02110.
Phyllis Zahorodny, Vice President and Investment Officer (Age __).
Managing Director of Greenwich Street Advisors; prior to July 1993 Managing
Director of Shearson Lehman Advisors. Her address is 388 Greenwich Street,
New York, New York 10013.
Lewis E. Daidone, Senior Vice President and Treasurer (Age __).
Managing Director of Smith Barney; Director and Senior Vice President of
SBMFM. His address is 388 Greenwich Street, New York, New York 10013.
Christina T. Sydor, Secretary (Age __). Managing Director of Smith
Barney; General Counsel and Secretary of SBMFM. Her address is 388
Greenwich Street, New York, New York 10013.
Each Trustee also serves as a director, trustee or general partner of
certain other mutual funds for which Smith Barney serves as distributor.
No officer, director or employee of Smith Barney, the Advisers,
Global Capital Management, Boston Advisors or any of their affiliates
receives any compensation from the Fund for serving as an officer or
Trustee of the Fund. The Fund pays each Trustee who is not a director,
officer or employee of Smith Barney, the Advisers, Global Capital
Management, Boston Advisors or any of their affiliates a fee of $5,000 per
annum plus $500 per meeting attended and reimburses them for travel and
out-of-pocket expenses. For the fiscal year ended December 31, 1994, such
fees and expenses totaled $ .
For the calendar year ended December 31, 1994, the Trustees of the
Fund were paid the following compensation:
Trustee*
Aggregate
Compensation
from the Fund
Pension or
Retirement
Benefits Accrued
as Part of Fund
Expenses
Aggregate
Compensation
from the Smith
Barney Mutual
Funds
Herbert Barg ( ) 0 0
77,850
Alfred J. Bianchetti ( ) 0 0
38,850
Martin Brody ( ) 0 0
111,675
Dwight B. Crane ( ) 0 0
125,975
Burt N. Dorsett ( ) 7,500 0
34,300
Elliot S. Jaffe ( ) 7,500 0
33,300
Stephen E. Kaufman ( ) 0 0
83,600
Joseph J. McCann ( ) 0 0
51,100
Cornelius C. Rose, Jr. ( ) 7,500 0
33,300
* Number of director/trusteeships held with other mutual funds in the
Smith Barney Mutual Fund family.
Advisers, Sub-Investment Adviser and Administrator
Each Adviser serves as investment adviser to one or more Portfolios
pursuant to a separate written agreement with each Portfolio (an "Advisory
Agreement"). The Advisory Agreements for the Money Market Portfolio,
Intermediate High Grade Portfolio, Equity Income Portfolio, Appreciation
Portfolio, Diversified Strategic Income Portfolio and Growth & Income
Portfolio were most recently approved by the Board of Trustees, including a
majority of the Trustees who are not interested persons, on July 1994. The
Advisory Agreements for the Total Return, International Equity and Emerging
Growth Portfolios were approved by the Fund's Board of Trustees on October
13, 1993. SBMFM serves as administrator to each Portfolio pursuant to a
separate written agreement with each Portfolio (an "Administration
Agreement") and Boston Advisors serves as sub-administrator to each
Portfolio pursuant to a written agreement ("Sub-Administration Agreement")
between the Fund, SBMFM and Boston Advisors. The Administration Agreement
and Sub-Administration Agreement were most recently approved by the Fund's
Board of Trustees, including a majority of the disinterested Trustees, on
July 1994. Prior to May 4, 1994, Boston Advisors served as administrator
for each Portfolio. Certain of the services provided by, and the fees paid
by the Fund to, the Advisers under the Advisory Agreements, SBMFM under its
Administration Agreement, Boston Advisors under its Sub-Administration
Agreement and Global Capital Management under its sub-investment advisory
Agreement are described in the Prospectus.
SBMFM is a wholly owned subsidiary of Smith Barney Holdings Inc.
("Holdings"), which, in turn, is a subsidiary of The Travelers Inc.
("Travelers"). Travelers is a diversified financial services holding
company principally engaged in the business of providing investment,
consumer finance and insurance services.
American Capital Asset Management, Inc. is a wholly owned subsidiary
of American Capital Management & Research, Inc., an indirect wholly owned
subsidiary of Travelers.
Smith Barney, the Fund's distributor, and Global Capital Management,
sub-investment adviser to Diversified Strategic Income Portfolio, are
subsidiaries of Holdings.
Certain of the services provided to the Fund by Boston Advisors are
described in the Prospectus under "Management of the Fund." In addition to
those services, Boston Advisors pays the salaries of all officers and
employees who are employed by both it and the Fund, maintains office
facilities for the Fund, furnishes the Fund with statistical and research
data, clerical help and accounting, data processing, bookkeeping, internal
auditing and legal services and certain other services required by the
Fund, prepares reports to the Fund's shareholders and prepares tax returns,
reports to and filings with the SEC and state blue sky authorities. Boston
Advisors bears all expenses in connection with the performance of its
services.
Each Adviser and Global Capital Management pay the salaries of all
officers and employees who are employed by both them and the Fund, maintain
office facilities for the Fund and bear all expenses in connection with the
performance of their respective services under their Agreements with the
Fund.
The Portfolios incurred the following investment advisory fees for
the past three years, which were partially waived for the years ended
December 31, 1992, 1993 and 1994 by their respective Adviser:
Portfolio
Fiscal Year
Ended
December 31,
1994
Fiscal Year
Ended
December 31,
1993
Fiscal Year
Ended
December
31, 1992
Money Market Portfolio
$
$
7,643
$
6,123
Intermediate High Grade
Portfolio
25,734
8,818
Diversified Strategic Income
Portfolio
133,663
36,728
Equity Income Portfolio
206,623
62,981
Equity Index Portfolio
25,538
13,325
Growth & Income Portfolio
79,917
28,401
Appreciation Portfolio
364,632
196,339
Total Return Portfolio
---
- ----
419
--
- -----
Emerging Growth Portfolio
---
- ----
431
--
- -----
International Equity
Portfolio
---
- ----
1,422
--
- -----
For the fiscal year ended December 31, 1992, the Diversified
Strategic Income Portfolio incurred $18,364 in sub-investment advisory
fees, $4,407 of which was waived by Lehman Brothers Global Asset Management
Limited ("LBGAM"), the sub-investment adviser of the Portfolio prior to
March 22, 1994. For the fiscal year ended December 31, 1993, the
Diversified Strategic Income Portfolio incurred $44,556 in sub-investment
advisory fees, $515 of which was waived by LBGAM. For the period from
January 1, 1994 through March 22, 1994, the Diversified Strategic Income
Portfolio incurred $_____ in sub-investment advisory fees, $___ of which
was waived by LBGAM. For the period from March 23, 1994 through December
31, 1994, the Diversified Strategic Income Portfolio incurred $____ in sub-
investment advisory fees, $____ of which was waived by Global Capital
Management.
The Portfolios then in existence incurred the following sub-
investment advisory and administration fees for the past three years, which
were totally waived for the period ended December 31, 1991 and partially
waived by Boston Advisors for the year ended December 31, 1992;
respectively, and the Portfolios incurred administration fees, which were
partially waived for the year ended December 31, 1993 as follows:
Portfolio
Fiscal Year
Ended
December 31,
1994
Fiscal Year
Ended
December 31,
1993
Fiscal Year
Ended
December 31,
1992
Money Market Portfolio
$
$
5,096
$
4,082
Intermediate High Grade
Portfolio
12,867
4,409
Diversified Strategic Income
Portfolio
59,406
24,485
Equity Income Portfolio
91,832
27,991
Equity Index Portfolio
12,769
6,662
Growth & Income Portfolio
35,519
12,623
Appreciation Portfolio
132,593
71,396
Total Return Portfolio
---
- ---
152
--
- ----
Emerging Growth Portfolio
---
- ---
115
--
- ----
International Equity
Portfolio
---
- ---
335
--
- ----
For the year ended December 31, 1992, the investment advisers and
sub-investment adviser waived fees for the Portfolios then in existence as
follows:
Portfolio
Investment
Advisers
Boston
Advisors
Money Market Portfolio
$ 4,280
$ 2,853
Intermediate High Grade
Portfolio
5,928
2,964
Diversified Strategic Income
Portfolio
8,816
5,877
Equity Income Portfolio
11,122
4,943
Equity Index Portfolio
6,974
3,487
Growth & Income Portfolio
9,382
4,170
Appreciation Portfolio
19,370
7,044
For the year ended December 31, 1992, IDS Life reimbursed expenses
for the Portfolios then in existence as follows:
Money Market Portfolio
$14,624
Intermediate High Grade Portfolio
15,865
Diversified Strategic Income Portfolio
25,396
Equity Income Portfolio
19,510
Equity Index Portfolio
31,633
Growth & Income Portfolio
20,683
Appreciation Portfolio
29,950
For the year ended December 31, 1993, the investment adviser and
administrator waived fees for the Portfolios as follows:
Portfolio
Investment
Adviser
Boston
Advisors
Money Market Portfolio
$ 5,078
$ 3,385
Intermediate High Grade
Portfolio
8,383
4,191
Diversified Strategic Income
Portfolio
1,544
685
Equity Index Portfolio
8,795
4,397
Growth & Income Portfolio
630
280
Total Return Portfolio
419
152
Emerging Growth Portfolio
308
82
International Equity Portfolio
1,048
246
For the year ended December 31, 1993, the investment adviser and
administrator reimbursed expenses in the amounts of $52 and $19,
respectively, for the Total Return Portfolio.
For the year ended December 31, 1993, IDS Life reimbursed expenses
for the Portfolios as follows:
Money Market Portfolio
$17,889
Intermediate High Grade Portfolio
16,459
Diversified Strategic Income Portfolio
2,816
Equity Index Portfolio
28,169
Growth & Income Portfolio
1,085
Total Return Portfolio
1,472
Emerging Growth Portfolio
2,915
International Equity Portfolio
1,902
The Fund bears expenses incurred in its operation, including taxes,
interest, brokerage fees and commissions, if any; fees of Trustees who are
not officers, directors, shareholders or employees of the Advisers, Global
Capital Management, Boston Advisors or Smith Barney; SEC fees and state
blue sky qualification fees; charges of custodians; transfer and dividend
disbursing agents' fees; certain insurance premiums; outside auditing and
legal expenses; costs of maintenance of corporate existence; investor
services (including allocated telephone and personnel expenses); and costs
of preparation of corporate meetings and of preparation and printing of
prospectuses and shareholder reports for regulatory purposes and for
distribution to shareholders.
Each Adviser, Global Capital Management, SBMFM and Boston Advisors
have agreed that if in any fiscal year the aggregate expenses of any
Portfolio that they serve (including fees payable pursuant to their service
agreements with the Fund, but excluding interest, taxes, brokerage and, if
permitted by the relevant state securities commissions, extraordinary
expenses) exceed the expense limitation of any state having jurisdiction
over the Portfolio, the relevant Adviser, Global Capital Management, SBMFM
and Boston Advisors, as appropriate, will reduce their fees for the
Portfolio for that excess expense to the extent required by state law in
the same proportion as their respective fees bear to the combined fees for
investment advice and administration. A fee reduction, if any, will be
reconciled on a monthly basis. The most restrictive annual expense
limitation applicable to any Portfolio is 2.50% of the first $30 million of
the Portfolio's average net assets, 2.00% of the next $70 million of the
average net assets and 1.50% of the remaining average net assets of each
Portfolio. No fee reduction was required for the fiscal year ended
December 31, 1993.
Counsel and Auditors
Willkie Farr & Gallagher serves as counsel to the Fund. Stroock &
Stroock & Lavan serves as counsel to the Trustees who are not interested
persons of the Fund.
KPMG Peat Marwick L.L.P. ("KPMG Peat Marwick"), independent
accountants, 345 Park Avenue, New York, New York 10154, serve as auditors
of the Fund and will render an opinion on the Fund's financial statement
annually beginning with the fiscal year ending 1995. Prior to KPMG Peat
Marwick's appointment, Coopers & Lybrand L.L.P., independent accountants,
served as auditors of the Fund and rendered an opinion on the Fund's
financial statements for the fiscal year ended 1994.
Organization of the Fund
The Fund was organized as a business trust under the laws of the
Commonwealth of Massachusetts pursuant to a Master Trust Agreement dated
May 13, 1991, as amended from time to time (the "Trust Agreement"). On
October 14, 1994, the Trust changed its name to its current name, Smith
Barney Series Fund. As of the date of this Statement of Additional
Information, the Subaccounts owned all of the outstanding shares of each of
the Portfolios, with the exception of a nominal amount owned by an IDS
affiliate.
In the interest of economy and convenience, certificates representing
shares in the Fund are not physically issued. Boston Safe maintains a
record of each shareholder's ownership of Fund shares. Shares do not have
cumulative voting rights, which means that holders of more than 50% of the
shares voting for the election of Trustees can elect all of the Trustees.
Shares are transferable but have no preemptive, conversion or subscription
rights. Annuity owners generally vote by Portfolio, except with respect to
the election of Trustees and the selection of independent public
accountants. The Variable Account will vote the shares of the Fund held by
the Variable Account at regular and special meetings of the shareholders of
the various Portfolios in accordance with instructions received from the
owners of the Symphony Annuity, an individual flexible premium deferred
combination fixed and variable annuity contract or a certificate evidencing
interest in a master group flexible premium deferred variable annuity (the
"Annuity"), having a voting interest in the relevant Subaccount. Prior to
the retirement date of each Annuity, the number of votes that may be cast
by an Annuity owner is based on the owner's Accumulation Units in each
Subaccount invested in shares of the Fund as of the record date of the
meeting.
There will 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. Under the 1940 Act, shareholders of record of no less than
two-thirds of the outstanding shares of the Fund may remove a Trustee
through a declaration in writing or by vote cast in person or by proxy at a
meeting called for that purpose. Under the Trust Agreement, the Trustees
are required to call a meeting of shareholders for the purpose of voting
upon the question of removal of any such Trustee when requested in writing
to do so by the shareholders of record of not less than 10% of the Fund's
outstanding shares.
Massachusetts law provides that shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Trust Agreement disclaims shareholder liability for acts or
obligations of the Fund and requires that notice of such disclaimer be
given in each agreement, obligation or instrument entered into or executed
by the Fund or a Trustee. The Trust Agreement provides for indemnification
from the Fund's property for all losses and expenses of any shareholder
held personally liable for the obligations of the Fund. Thus, the risk of
an Annuity Owner incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund would be unable to
meet its obligations, a possibility that the Fund's management believes is
remote. Upon payment of any liability incurred by the Fund, the
shareholder paying the liability will be entitled to reimbursement from the
general assets of the Fund. The Trustees intend to conduct the operations
of the Fund in such a way so as to avoid, as far as possible, ultimate
liability of the shareholders for liabilities of the Fund.
PURCHASE OF SHARES
The Fund offers its shares of capital stock on a continuous basis.
Shares can only be acquired by buying an Annuity from either IDS Life
Insurance Company ("IDS Life") or IDS Life Insurance Company of New York
("IDS Life of New York") and directing the allocation of part or all of the
net purchase payment to one or more of the ten Subaccounts. Each
Subaccount invests only in a single Portfolio of the Fund. Investors
should read this Statement of Additional Information and the Fund's
Prospectus along with the Annuity prospectus dated April 29, 1995.
Sales Charges and Surrender Charges
The Fund does not assess any sales charge, either when it sells or
when it redeems shares of the Portfolio. Surrender charges may be assessed
under the Annuity, as described in the Annuity prospectus. Mortality and
expense risk fees and other charges are also described in that prospectus.
REDEMPTION OF SHARES
The Fund will redeem any shares presented by the Subaccounts, its
sole shareholders, for redemption. The Subaccounts' policy on when or
whether to buy or redeem Fund shares is described in the Annuity
prospectus.
Payment upon redemption of shares of a Portfolio is normally made
within seven days of receipt of such request. The right of redemption of
shares of a Portfolio may be suspended or the date of payment postponed (a)
for any periods during which the NYSE is closed (other than for customary
weekend and holiday closings), (b) when trading in the markets the
Portfolio customarily utilizes is restricted, or an emergency, as defined
by the rules and regulations of the SEC, exists, making disposal of the
Portfolio's investments or determination of its net asset value not
reasonably practicable, or (c) for such other periods as the SEC by order
may permit for the protection of the Portfolio's shareholders.
Should the redemption of shares of a Portfolio be suspended or
postponed, the Fund's Board of Trustees may make a deduction from the value
of the assets of the Portfolio to cover the cost of future liquidations of
the assets so as to distribute fairly these costs among all owners of the
Annuity.
NET ASSET VALUE
As noted in the Prospectus, the Fund will not calculate the net asset
value of the Portfolios on certain holidays. On those days, securities
held by a Portfolio may nevertheless be actively traded, and the value of
the Portfolio's shares could be significantly affected.
Because of the need to obtain prices as of the close of trading on
various exchanges throughout the world, the calculation of the net asset
values of certain Portfolios may not take place contemporaneously with the
determination of the prices of some of their respective portfolio
securities used in such calculation. A security that is listed or traded
on more than one exchange is valued at the quotation on the exchange
determined to be the primary market for such security. All assets and
liabilities initially expressed in foreign currency values will be
converted into U.S. dollar values at the mean between the bid and offered
quotations of such currencies against U.S. dollars as last quoted by any
recognized dealer. If such quotations are not available, the rate of
exchange will be determined in good faith by the Fund's Board of Trustees.
In carrying out the Board's valuation policies, Boston Advisors as
administrator, may consult with an independent pricing service (the
"Pricing Service") retained by the Fund.
Debt securities of U.S. issuers (other than U.S. government
securities and short-term investments) are valued by Boston Advisors, after
consultation with the Pricing Service. When, in the judgment of the
Pricing Service, quoted bid prices for investments are readily available
and are representative of the bid side of the market, these investments are
valued at the mean between the quoted bid prices and asked prices.
Investments for which, in the judgment of the Pricing Service, there are no
readily obtainable market quotations are carried at fair value as
determined by the Pricing Service. The procedures of the Pricing Service
are reviewed periodically by the officers of the Fund under the general
supervision and responsibility of the Fund's Board of Trustees.
The Money Market Portfolio
The valuation of the portfolio securities of the Money Market
Portfolio is based upon their amortized cost, which does not take into
account unrealized capital gains or losses. Amortized cost valuation
involves initially valuing an instrument at its cost and thereafter
assuming a constant amortization to maturity of any discount or premium
regardless of the impact of fluctuating interest rates on the market value
of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost,
is higher or lower than the price a Fund would receive if it sold the
instrument.
The use by the Money Market Portfolio of the amortized cost method of
valuing its portfolio securities is permitted by a rule adopted by the SEC.
Under this rule, the Portfolio must maintain a dollar-weighted average
portfolio maturity of ninety days or less, purchase only instruments having
remaining maturities of thirteen months or less, and invest only in
securities determined by the Board of Trustees of the Fund to be "Eligible
Securities," as determined by the SEC, with minimal credit risks. Pursuant
to the rule, the Fund's Board of Trustees also has established procedures
designed to stabilize, to the extent reasonably possible, the Portfolio's
price per share as computed for the purpose of sales and redemptions at
$1.00. Such procedures include review of the Portfolio's holdings by the
Fund's Board of Trustees, at such intervals as it may deem appropriate, to
determine whether the Portfolio's net asset value calculated by using
available market quotations or market equivalents deviates from $1.00 per
share based on amortized cost.
The rule also provides that the extent of any deviation between the
Portfolio's net asset value based upon available market quotations or
market equivalents and the $1.00 per share net asset value based on
amortized cost must be examined by the Fund's Board of Trustees. In the
event that the Fund's Board of Trustees determines that a deviation exists
that may result in material dilution or other unfair results to investors
or existing shareholders, pursuant to the rule the Fund's Board of Trustees
must cause the Portfolio to take such corrective action as the Fund's Board
of Trustees regards as necessary and appropriate, including: selling
portfolio instruments prior to maturity to realize capital gains or losses
or to shorten average portfolio maturity; withholding dividends or paying
distributions from capital or capital gains; redeeming shares in kind; or
establishing a net asset value per share by using available market
quotations.
PERFORMANCE DATA
From time to time, the Fund may quote yield or total return in
advertisements or in reports and other communications to shareholders.
Yield
For a Portfolio other than the Money Market Portfolio, the thirty-day
yield figure described in the Prospectus and shown below is calculated
according to a formula prescribed by the SEC. The formula can be expressed
as follows:
6
YIELD = 2[(a-b + 1) - 1]
cd
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 that were 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 value of the debt obligations.
The yields for the 30-day period ended December 31, 1994 for the
Diversified Strategic Income Portfolio and the Intermediate High Grade
Portfolio were ____% and ____%, respectively.
The yield for the Money Market Portfolio is computed by (a)
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account in the Portfolio having a balance of one
share at the beginning of a seven day period for which yield is to be
quoted; (b) subtracting a hypothetical charge reflecting deductions from
shareholder accounts;(c) dividing the difference by the value of the
account at the beginning of the period to obtain the base period return;
and (d) annualizing the results (i.e., multiplying the base period return
by 365/7). The net change in the value of the account reflects the value
of additional shares purchased with dividends declared on the original
share and any such additional shares, but does not include realized gains
and losses or unrealized appreciation and depreciation. In addition, the
Portfolio may calculate a compound effective annualized yield by adding one
to the base period return (calculated as described above), raising the sum
to a power equal to 365/7 and subtracting one. For the seven-day period
ended December 31, 1994, the annualized yield for the Money Market
Portfolio was ____% and the effective yield was ____%. For the same seven-
day period, the Portfolio's average maturity was __ days.
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 such Portfolio's portfolio,
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
A Portfolio's "average annual total return" figure described in the
Prospectus and shown below is computed according to a formula prescribed by
the SEC. The formula can be expressed as follows:
P(1 + 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 payment made at
the beginning of the one-, five- or ten-year (or other) period at the
end of the one-, five- or ten-year (or other) period (or fractional portion
thereof).
The ERV assumes complete redemption of the hypothetical investment at
the end of the measuring period. A Portfolio's net investment income
changes in response to fluctuations in interest rates and the expenses of
the Portfolio.
The average annual total returns for the Portfolios then in existence
were as follows for the periods indicated (reflecting the waivers of
investment advisory and administration fees and reimbursement of expenses):
Portfolio
For the one-year
period ended
December 31, 1994
Per annum for the
period from
commencement of
operations through
December 31, 1994
Intermediate High Grade
Portfolio
%
% *
Diversified Strategic Income
Portfolio
%
% *
Equity Income Portfolio
%
% *
Equity Index Portfolio
%
% *
Growth & Income Portfolio
%
% *
Appreciation Portfolio
%
% *
Total Return Portfolio
%
% *
Emerging Growth Portfolio
%
% *
International Equity
Portfolio
%
% *
* Portfolio commenced operations on October 16, 1991.
** Portfolio commenced operations on December 3, 1993.
Aggregate Total Return
A Portfolio's aggregate total return figure described in the
Prospectus and shown below represents the cumulative change in the value of
an investment in a Portfolio for the specified period and is computed by
the following formula:
ERV - P
P
Where: P = a hypothetical initial payment of $10,000.
ERV = Ending Redeemable Value of a hypothetical $10,000 investment made
at the beginning of the one-, five- or ten-year period at the end of the
one-, five- or ten-year period (or fractional portion thereof), assuming
reinvestment of all dividends and distributions.
The aggregate total returns for the Portfolios then in existence were
as follows for the periods indicated (reflecting the waiver for investment
advisory and administration fees and reimbursement of expenses):
Portfolio
For the one-year
period ended
December 31, 1994
For the period
from commencement
of operations
through December
31, 1994
Intermediate High Grade
Portfolio
%
% *
Diversified Strategic Income
Portfolio
%
% *
Equity Income Portfolio
%
% *
Equity Index Portfolio
%
% *
Growth & Income Portfolio
%
% *
Appreciation Portfolio
%
% *
Total Return Portfolio
%
% **
Emerging Growth Portfolio
%
% **
International Equity Portfolio
%
% **
* Portfolio commenced operations on October 16, 1991.
** Portfolio commenced operations on December 3, 1993.
It is important to note that the yield and total return figures set
forth above are based on historical earnings and are not intended to
indicate future performance.
From time to time, the Fund may quote the performance of a Portfolio
in terms of total return in reports or other communications to shareholders
or in advertising material. A Portfolio's total return combines principal
changes and income dividends and capital gains distributions reinvested for
the periods shown. Principal changes are based on the difference between
the beginning and closing net asset values for the period. The period
selected will depend upon the purpose of reporting the performance.
A Portfolio's performance will vary from time to time depending upon
market conditions, the composition of its portfolio and its operating
expenses. Consequently, any given performance quotation should not be
considered representative of the Portfolio's performance for any specified
period in the future. In addition, because performance will fluctuate, it
may not provide a basis for comparing an investment in a Portfolio with
certain bank deposits or other investments that pay a fixed yield for a
stated period of time.
The following comparative performance information may be used from
time to time in advertising the Fund's shares:
(1) Average of Savings Accounts, which is measure of all kinds of
savings deposits, including longer-term certificates (based on figures
supplied by the U.S. League of Savings Institutions). Savings accounts
offer a guaranteed rate of return on principal, but no opportunity for
capital growth. During a portion of the period, the maximum rates paid on
some savings deposits were fixed by law.
(2) The Consumer Price Index, which is a measure of the average
change in prices over time in a fixed market basket of goods and services
(e.g., food, clothing, shelter, fuels, transportation fares, charges for
doctors' and dentists' services, prescription medicines, and other goods
and services that people buy for day-to-day living).
(3) Data and mutual fund rankings published or prepared by Lipper
Analytical Services, Inc., which ranks mutual funds by overall performance,
investment objectives and assets.
(4) Bear Stearns Foreign Bond Index, which provides simple average
returns for individual countries and GNP-weighted index, beginning in 1975.
The returns are broken down by local market and currency.
(5) Ibbottson Associates International Bond Index, which provides a
detailed breakdown of local market and currency returns since 1960.
(6) S&P 500 which is a widely recognized index composed of the
capitalization-weighted average of the price of 500 of the largest publicly
traded stocks in the U.S.
(7) Salomon Brothers Broad Investment Grade Index which is a widely
used index composed of U.S. domestic government, corporate and mortgage-
back fixed income securities.
(8) Dow Jones Industrial Average.
(9) Financial News Composite Index.
(10) Morgan Stanley Capital International World Indices, including,
among others, the Morgan Stanley Capital International Europe, Australia,
Far East Index ("EAFE Index"). The EAFE index is an unmanaged index of
more than 800 companies of Europe, Australia and the Far East.
(11) Data and comparative performance rankings published or prepared
by CDA Investment Technologies, Inc.
(12) Data and comparative performance rankings published or prepared
by Wiesenberger Investment Company Service.
Indices prepared by the research departments of such financial
organizations as Salomon Brothers, Inc., Merrill Lynch, Pierce, Fenner &
Smith, Inc., Bear Stearns & Co., Inc., Morgan Stanley, and Ibbottson
Associates may be used, as well as information provided by the Federal
Reserve Board. In addition, performance rankings and ratings reported
periodically in national financial publications.
TAXES
Each Portfolio will be treated as a separate taxpayer for federal
income tax purposes with the result that: (a) each Portfolio must qualify
separately as a regulated investment company; and (b) the amounts of
investment income and capital gains earned will be determined on a
Portfolio-by-Portfolio (rather than on a Fund-wide) basis.
Regulated Investment Company Status
The Fund intends that each Portfolio will qualify separately each
year as a "regulated investment company" under Subchapter M of 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
receives annually at least 90% of its net investment income from dividends,
interest, payments with respect to securities loans and gains from the sale
or other disposition of stock or securities, or foreign currencies, or
other income derived with respect to its business of investing in such
stock, securities or currencies. In addition, each Portfolio must
distribute at least 90% of its net investment income each year.
To qualify as a regulated investment company, a Portfolio also must
earn less than 30% of its gross income from the disposition of certain
investments held for less than three months. The 30% test will limit the
extent to which a Portfolio may: sell stock or securities held for less
than three months; effect short sales of stock or securities held for less
than three months (or of substantially identical securities); write certain
options, futures and forward contracts which expire in less than three
months; and effect closing transactions with respect to call or put options
that have been written or purchased within the preceding three months. (If
a Portfolio purchases a put option for the purpose of hedging an underlying
portfolio security, the acquisition of the option is treated as a short
sale of the underlying security unless, for purposes of the 30% test only,
the option and the security are acquired on the same date.) Finally, as
discussed below, this requirement also may limit investments by certain
Portfolios in options on stock indexes, options on nonconvertible debt
securities, futures contracts and options on futures contracts.
Legislation currently pending before the U.S. Congress would repeal the 30%
test. However, it is impossible to predict whether the legislation will
become law, and if so enacted, what form it will eventually take.
If a Portfolio is the holder of record of any stock on the record
date for any dividends payable with respect to such stock, such dividends
are included in the Portfolio's gross income not as of the date received
but as of the later of (a) the date such stock became ex-dividend with
respect to such dividends (i.e., the date on which a buyer of the stock
would not be entitled to receive the declared, but unpaid, dividends) or
(b) the date the Portfolio acquired such stock.
Taxation of Investment by the Portfolios
A Portfolio's transactions in foreign currencies, forward contracts,
options, futures contracts (including options and futures contracts on
foreign currencies) and warrants will be subject to special provisions of
the Code that, among other things, may affect the character of gains and
losses realized by the Portfolio (i.e., may affect whether gains or losses
are ordinary or capital), accelerate recognition of income to the Portfolio
and defer Portfolio losses. These rules could therefore affect the
character, amount and timing of distributions to shareholders. These
provisions also (a) will require the Portfolio to mark-to-market certain
types of the positions in its portfolio (i.e., treat them as if they were
closed out) and (b) may cause the Portfolio to recognize income without
receiving cash with which to pay dividends or make distributions in amounts
necessary to satisfy the 90% distribution requirement for avoiding income
tax. The Portfolio will monitor its transactions, will make the
appropriate tax elections and will make the appropriate entries in its
books and records when it acquires any foreign currency, forward contract,
option, futures contract, warrant or hedged investment in order to mitigate
the effect of these rules and prevent disqualification of the Portfolio as
a regulated investment company.
Segregated Asset Account
The Fund has been informed that IDS Life and IDS Life of New York
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 may not invest more than certain specified percentages of its
assets in the securities of any one, two, three or four issuers. However,
certain increases are made to the percentage limitations to the extent of
investments in United States Treasury obligations. For these purposes, all
obligations of the United States Treasury and each 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 Annuity 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 during the period of disqualification.
The Fund 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. In
particular, the ability of the Money Market and Intermediate High Grade
Portfolios to invest in U.S. government securities other than direct United
States Treasury obligations may be materially limited by these
diversification requirements.
CUSTODIAN AND TRANSFER AGENT
Boston Safe, a wholly owned subsidiary of TBC, is located at One
Boston Place, Boston, Massachusetts 02108, and serves as the custodian of
the Fund pursuant to a custodian agreement. Under the custodian agreement,
Boston Safe holds the Fund's portfolio securities and keeps all necessary
accounts and records. For its services, Boston Safe receives a monthly fee
based upon the month-end market value of securities held in custody and
also receives certain securities transaction charges (including out-of-
pocket expenses and costs of any foreign and U.S. sub-custodians). The
assets of the Fund are held under bank custodianship in compliance with the
1940 Act.
TSSG, a subsidiary of First Data Corporation, is located at Exchange
Place, Boston, Massachusetts 02109, and serves as the Fund's transfer and
dividend-paying agent. Under the transfer agency agreement, TSSG maintains
the shareholder account records for the Fund, handles certain
communications between shareholders and the Fund, distributes dividends and
distributions payable by the Fund and produces statements with respect to
account activity for the Fund and its shareholders. For these services,
TSSG receives fees from the Fund computed on the basis of the number of
shareholder accounts that TSSG maintains for the Fund during the month and
is reimbursed for out-of-pocket expenses.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal year ended December 31, 1994
is incorporated into this Statement of Additional Information in its
entirety.
APPENDIX
DESCRIPTION OF S&P, MOODY'S AND OTHER RATINGS
Description of S&P Corporate Bond Ratings:
AAA - Bonds rated AAA have the highest rating assigned by S&P to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small
degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in
higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit 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 bonds in this category than for bonds in
higher rated categories.
BB, B AND CCC - Bonds rated BB and B are 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
represents a lower degree of speculation than B, and CCC represents the
highest degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Descriptions of Moody's Corporate Bond Ratings:
AAA - Bonds which are rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt-edge." Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
AA - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as "high grade bonds." They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
BAA - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
BA - Bonds which are 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 that are rated Caa are of poor standing. These issues
may be in default or present elements of danger may exist with respect to
principal or interest.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic
rating classification from Aa through B. 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.
Description of other Corporate Bond Ratings:
Bonds rated AAA by IBCA Limited or its affiliate IBCA Inc. (together,
"IBCA") are obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest
is substantial, such that adverse changes in business, economic or
financial conditions are unlikely to increase investment risk
significantly. Bonds rated AA are obligations for which there is a very
low expectation of investment risk. Capacity for timely repayment of
principal and interest is substantial. Adverse changes in business,
economic or financial conditions may increase investment risk, albeit not
very significantly.
Bonds rated AAA by Fitch Investors Services, Inc. ("Fitch") are
considered to be investment grade and of the highest credit quality. The
obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable
events. Bonds rated AA are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated AAA.
Bonds rated AAA by Duff & Phelps Inc. ("Duff & Phelps") are deemed to
be of the highest credit quality: the risk factors are negligible, being
only slightly more than for risk-free United States Treasury debt. AA
indicates high credit quality: protection factors are strong, and risk is
modest but may vary slightly from time to time because of economic
conditions.
Description of S&P Commercial Paper Ratings:
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are
denoted A-1+. Capacity for timely payment on commercial paper rated A-2 is
strong, but the relative degree of safety is not as high as for issues
designated A-1.
Description of Moody's Commercial Paper Ratings:
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 (or related supporting
institutions) are considered to have a strong capacity for repayment of
short-term promissory obligations. This will normally be evidenced by many
of the characteristics of issuers rated Prime-1, 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 alternative liquidity is maintained.
Description of other Commercial Paper Ratings:
Short term obligations, including commercial paper, rated A1+ by IBCA
are obligations supported by the highest capacity for timely repayment.
Obligations rated A1 have a very strong capacity for timely repayment.
Obligations rated A2 have a strong capacity for timely repayment, although
such capacity may be susceptible to adverse changes in business, economic
or financial conditions.
Fitch employs the rating F-1+ to indicate issues regarded as having
the strongest degree of assurance for timely payment. The rating F-1
reflects an assurance of timely payment only slightly less in degree than
issues rated F-1+, while the rating F-2 indicates a satisfactory degree of
assurance for timely payment, although the margin of safety is not as great
as indicated by the F-1+ and F-1 categories.
Duff & Phelps employs the designation of Duff 1 with respect to top
grade commercial paper and bank money instruments. 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 high certainty of timely
payment. Duff 2 indicates good certainty of timely payment: liquidity
factors and company fundamentals are sound.
The Thomson Bankwatch ("TBW") Short-Term Ratings apply to commercial
paper, other senior short-term obligations and deposit obligations of the
entities to which the rating has been assigned, and apply only to unsecured
instruments that have a maturity of one year or less.
The TBW Short-Term Ratings specifically assess the likelihood of an
untimely payment of principal or interest.
TBW-1 The highest category; indicates a very high degree of
likelihood that principal and interest will be paid on a timely basis.
TBW-2 The second highest category; 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."
Various of the NRSROs utilize rankings within rating categories
indicated by a + or -. The Fund, in accordance with industry practice,
recognizes such rankings within categories as gradations, viewing for
example S&P's rating of A- 1 + and A-1 as being in S&P's highest rating
category.
1
ssf/1995SAI
SMITH BARNEY SERIES FUND
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
None
Included in Part B:
None
Included in Part C:
None.
(b) Exhibits
Exhibit No. Description of Exhibit
All references are to the Registrant's registration statement on Form N-1A
(the "Registration Statement") as filed with the SEC on May 16, 1991.
(File Nos. 33-40603 and 811-6310).
(1) Registrant's Master Trust Agreement and Amendment Nos. 1 and 2 are
incorporated by reference to the Registrant's Registration Statement as
filed with the SEC on December 1, 1993 ("Post-Effective Amendment No. 6").
(2) By-Laws are incorporated by reference to the Registration Statement.
(3) Not applicable.
(4)(a) Specimen certificate for shares of beneficial interest in the
Money Market Portfolio is incorporated by reference to Pre-Effective
Amendment No. 1 to the Registrant's Registration Statement as filed with
the SEC on July 10, 1991 ("Pre-Effective Amendment No. 1").
(b) Specimen certificates for shares of beneficial interest in the
Intermediate High Grade Portfolio, Diversified Strategic Income Portfolio,
Equity Income Portfolio, Equity Index Portfolio, Growth & Income Portfolio
and Appreciation Portfolio is incorporated by reference to Pre-Effective
Amendment No. 1.
(c) Specimen certificates for shares of beneficial interest in the
Total Return Portfolio, International Equity Portfolio and Emerging Growth
Portfolio will be filed herein.
(5)(a) Investment Advisory Agreement dated October 16, 1991 between
the Registrant and Travelers Investment Management Company relating to
Equity Index Portfolio, shall be filed by amendment.
(b) Investment Advisory Agreements dated July 30, 1993 between the
Registrant and Greenwich Street Advisors relating to Money Market,
Intermediate High Grade, Diversified Strategic Income, Equity Income and
Growth and Income Portfolios and between the Registrant and Smith Barney
Shearson Asset Management relating to Appreciation Portfolio dated July 30,
1993, are incorporated by reference to Post-Effective Amendment No. 4 to
the Registrant's Registration Statement as filed with the SEC on October
22, 1993 ("Post Effective Amendment No. 4").
(b) Investment Advisory Agreement with Smith Barney Shearson Asset
Management relating to Total Return Portfolio, dated November 23, 1993, is
incorporated by reference to Post-Effective Amendment No. 6.
(c) Investment Advisory Agreement with Smith, Barney Advisers, Inc.
relating to International Equity Portfolio, dated November 23, 1993, is
incorporated by reference to Post-Effective Amendment No. 6.
(d) Investment Advisory Agreement with American Capital Asset
Management, Inc. relating to Emerging Growth Portfolio, shall be filed
by amendment.
(e) Form of Investment Advisory Agreement with Greenwich Street
Advisors relating to Diversified Strategic Income Portfolio dated March 21,
1994 is incorporated by reference to Post-Effective Amendment No. 9 to the
Registration Statement as filed with the SEC on May 1, 1994 (Post-Effective
Amendment No. 9").
(f) Form of Sub-Investment Advisory Agreement with Smith Barney
Global Capital Management Inc. relating to Diversified Strategic Income
Portfolio dated March 21, 1994 is incorporated by reference to Post-
Effective Amendment No. 9.
(6)(a) Distribution Agreement with Smith Barney Shearson Inc.,
dated July 30, 1993, is incorporated by reference to Post-Effective
Amendment No. 4.
(7) Not Applicable.
(8)(a) Custody Agreement is incorporated by reference to Post-
Effective Amendment No. 1 as filed with the SEC on February 29, 1992
("Post-Effective Amendment No. 1").
(b) Form of Subcustodian Agreement is incorporated by reference to Pre-
Effective Amendment No. 2 to the Registrant's Registration Statement as
filed with the SEC on September 24, 1991 ("Pre-Effective Amendment No. 2").
(9)(a) Administration Agreements dated June 4, 1994 with Smith Barney
Mutual Funds Management Inc. relating to Money Market, Intermediate High
Grade, Diversified Strategic Income, Equity Income, Equity Index, Growth
and Income, Appreciation, Total Return, Emerging Growth and International
Equity Portfolios shall be filed by amendment.
(b) Sub-Administration Agreements dated June 4, 1994 with The
Boston Company Advisors, Inc. relating to Money Market, Intermediate High
Grade, Diversified Strategic Income, Equity Income, Equity Index, Growth
and Income, Appreciation, Total Return, Emerging Growth and International
Equity Portfolios shall be filed by amendment.
(c) Transfer Agency Agreement between the Registrant and The
Shareholder Services Group, Inc. dated August 2, 1993 is incorporated by
reference to Post-Effective Amendment No. 7 to the Registrant's
Registration Statement as filed with the SEC on March 1, 1994 ("Post-
Effective Amendment No. 7").
(10) Not applicable
(11) Consent of Independent Accountants shall be filed by amendment.
(12) Not Applicable.
(13) Purchase Agreement is incorporated by reference to Pre-Effective
Amendment No. 3.
(14) Not Applicable.
(15) Not Applicable.
(16) Performance Data is incorporated by reference to Post-Effective
Amendment No. 1.
Item 25. Persons Controlled by or under Common Control with Registrant
Shares of Registrant will be offered to IDS Life Insurance Company
("IDS Life") and IDS Life Insurance Company of New York ("IDS Life of New
York"), corporations organized under the laws of the State of Minnesota,
for allocation to one or more separate subaccounts of the IDS Life Account
SBS. IDS Life and IDS Life of New York are wholly owned subsidiaries of
IDS Financial Corporation, a corporation organized under the laws of the
State of Delaware.
IDS Financial Corporation is a direct wholly owned subsidiary of
American Express Company, a New York corporation.
Item 26. Number of Holders of Securities
(1) (2)
Number of Record Holders by Class
Title of Class as of December 16, 1994
Shares of beneficial interest,
par value $.001 per share
Money Market Portfolio 3
Intermediate High Grade Portfolio 4
Diversified Strategic Income Portfolio 4
Equity Income Portfolio 4
Equity Index Portfolio 4
Growth & Income Portfolio 4
Appreciation Portfolio 4
Total Return Portfolio 2
Emerging Growth Portfolio 3
International Equity Portfolio 3
Item 27. Indemnification
The response to this item is incorporated by reference to Pre-
Effective Amendment No. 3.
Item 28(a.) Business and Other Connections of Investment Adviser
Investment Adviser - - Smith Barney Mutual Funds Management Inc.
(formerly known as Smith, Barney
Advisers, Inc.)
SBMFM was incorporated in 1968 under the laws of the state of
Delaware. SBMFM is a wholly owned
subsidiary of Smith Barney Holdings Inc., which in turn is
a wholly owned subsidiary of The Travelers Inc.
(formerly know as Primerica Corporation) ("Travelers").
The list required by this Item 28 of officers and directors of
SBMFM, together with information as to any other
business, profession, vocation or employment of a
substantial nature engaged in by such officers and directors
during the past two fiscal years, is incorporated by reference
to Schedules A and D of FORM ADV filed by
SBMFM pursuant to the Advisers Act (SEC File No. 801-8314).
Prior to the close of business on July 30, 1993 (the "Closing"),
Smith Barney Asset Management ("Asset
Management") was a member of the Asset Management Group of
Shearson Lehman Brothers Inc. ("Shearson
Lehman Brothers"), and served as the Registrant's investment adviser.
On the Closing, Travelers and Smith
Barney Shearson Inc. (now known as Smith Barney Inc.) acquired
the domestic retail brokerage and asset
management business of Shearson Lehman Brothers, which included
the business of the Registrant's prior
investment adviser. Shearson Lehman Brothers was a wholly owned
subsidiary of Shearson Lehman Brothers
Holdings Inc. ("Shearson Holdings"). All of the issued and
outstanding common stock of Shearson Holdings
(representing 92% of the voting stock) was held by
American Express Company. Information as to any past
business vocation or employment of a substantial nature engaged
in by officers and directors of Asset
Management can be located in Schedules A and D of FORM ADV
filed by Shearson Lehman Brothers on
behalf of Asset Management prior to July 30, 1993 (SEC FILE NO. 801-3701).
01/01/95
Item 28(a). Business and Other Connections of Investment Adviser
Investment Adviser - - Smith Barney Global Capital Management, Inc.
Investment Adviser - - Smith Barney Global Capital Management, Inc.
("SBGCM") was incorporated on January 22, 1988 under the laws of the State
of Delaware. SBGCM is an indirect wholly owned subsidiary of Smith Barney
Holdings Inc., which in turn is a wholly owned subsidiary of Travelers.
SBGCM is an investment adviser registered with the Securities and Exchange
Commission in the United States and with the Investment Management
Regulatory Organization Limited in the United Kingdom. SBGCM conducts its
operations primarily in the United Kingdom.
The list required by this Item 28 of officers and directors of SBGCM,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to
Schedules A and D of FORM ADV filed by SBGCM pursuant to the Advisers Act
(SEC File No. 801-31824).
3/15/94
Item 28(a). Business and Other Connections of Investment Adviser
Investment Adviser - - American Capital Asset Management, Inc.
American Capital Asset Management Inc. ("American Capital"), is located at
2800 Post Oak Boulevard, Houston, Texas 77056, and through its
predecessors, has been in the investment counseling business since 1926.
American Capital is a wholly owned subsidiary of The Van Kampen Merritt
Companies, Inc.
The list required by this Item 28 of officers and directors of American
Capital, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by such officers
and directors during the past two fiscal years, is incorporated by
reference to Schedules A and D of FORM ADV filed by American Capital
pursuant to the Investment Advisers Act of 1940 (SEC File No. 801-1169).
Item 29. Principal Underwriters
Smith Barney Inc. ("Smith Barney") currently acts as
distributor for Smith Barney Managed Municipals Fund
Inc., Smith Barney New York Municipals Fund Inc., Smith
Barney California Municipals Fund Inc., Smith
Barney Massachusetts Municipals Fund, Smith Barney Global
Opportunities Fund, Smith Barney Aggressive
Growth Fund Inc., Smith Barney Appreciation Fund Inc., Smith
Barney Worldwide Prime Assets Fund, Smith
Barney Principal Return Fund, Smith Barney Municipal Money Market
Fund Inc., Smith Barney Daily
Dividend Fund Inc., Smith Barney Government and Agencies Fund Inc.,
Smith Barney Managed Governments
Fund Inc., Smith Barney New York Municipal Money Market Fund,
Smith Barney California Municipal
Money Market Fund, Smith Barney Income Funds, Smith Barney Equity
Funds, Smith Barney Investment
Funds Inc., Smith Barney Precious Metals and Minerals Fund Inc.,
Smith Barney Telecommunications Trust,
Smith Barney Arizona Municipals Fund Inc., Smith Barney New Jersey
Municipals Fund Inc., The USA High
Yield Fund N.V., Garzarelli Sector Analysis Portfolio N.V.,
The Advisors Fund L.P., Smith Barney
Fundamental Value Fund Inc., Smith Barney Series Fund, Consulting
Group Capital Markets Funds, Smith
Barney Income Trust, Smith Barney FMA R Trust, Smith Barney
Adjustable Rate Government Income Fund,
Smith Barney Florida Municipals Fund, Smith Barney Funds, Inc.,
Smith Barney Muni Funds, Smith Barney
World Funds, Inc., Smith Barney Money Funds, Inc., Smith Barney
Tax Free Money Fund, Inc., Smith Barney
Variable Account Funds, Smith Barney U.S. Dollar Reserve Fund
(Cayman), Worldwide Special Fund, N.V.,
Worldwide Securities Limited, (Bermuda), and various series
of unit investment trusts.
Smith Barney is a wholly owned subsidiary of Smith Barney
Holdings Inc., which in turn is a wholly owned
subsidiary of The Travelers, Inc. (formerly Primerica Corporation).
The information required by this Item 29
with respect to each director, officer and partner of
Smith Barney is incorporated by reference to Schedule A of
FORM BD filed by Smith Barney pursuant to the Securities Exchange
Act of 1934 (SEC File No. 812-8510).
Item 30. Location of Accounts and Records
(1) Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013
(Records relating to its function as Investment Adviser and
Administrator)
(2) American Capital Asset Management, Inc.
2800 Post Oak Boulevard
Houston, Texas 77056
(Records relating to its function as Investment Adviser)
(3) Smith Barney Global Capital Management Inc.
388 Greenwich Street
New York, New York 10048
(Records relating to its function as Sub-Investment Adviser)
(4) The Boston Company Advisors, Inc.
Exchange Place
53 State Street
Boston, Massachusetts 02109
(Records relating to its function as Sub-Administrator)
(5) Boston Safe Deposit and Trust Company
Wellington Business Center
One Cabot Road
Medford, Massachusetts 02155
(Records relating to its function as Custodian)
(6) The Shareholders Services Group, Inc.
One Exchange Place
53 State Street
Boston, Massachusetts 02109
(Records relating to its function as Transfer Agent and
Dividend Paying Agent)
Item 31. Management Services
Not Applicable.
Item 32. 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, SMITH BARNEY
SERIES FUND, has duly caused this
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston,
Commonwealth of Massachusetts on the 27th day of February, 1995.
SMITH BARNEY SERIES FUND
By:/s/ Heath B.
McLendon*
Heath B. McLendon, Chairman
of the Board
WITNESS our hands on the date set forth below.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement has been signed below
by the following persons in the capacities and on the dates indicated.*
Signature Title Date
/s/ Heath B. McLendon
Heath B. McLendon Trustee and Chairman of
the Board (Chief Executive 02/27/95
Officer)
/s/ Lewis E. Daidone
Lewis E. Daidone Treasurer (Chief Financial
and Accounting Officer) 02/27/95
/s/ Herbert Barg Trustee
02/27/95
Herbert Barg
/s/ Alfred Bianchetti Trustee
02/27/95
Alfred Bianchetti
/s/ Martin Brody Trustee
02/27/95
Martin Brody
/s/ Burt N. Dorsett Trustee
02/27/95
Burt N. Dorsett
/s/ Eliott S. Jaffe Trustee
02/27/95
Eliott S. Jaffe
/s/ Stephen Kaufman Trustee
02/27/95
Stephen Kaufman
/s/ Joseph J. McCann Trustee
02/27/95
Joseph J. McCann
/s/ Cornelius C. Rose
Cornelius C. Rose Trustee 02/27/95
shared/domestic/clients/shearson/funds/ssf/pea9.doc
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> SB SERIES: MONEY MARKET
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 7,140,004
<INVESTMENTS-AT-VALUE> 7,140,004
<RECEIVABLES> 11,903
<ASSETS-OTHER> 782
<OTHER-ITEMS-ASSETS> 8,937
<TOTAL-ASSETS> 7,161,626
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 20,680
<TOTAL-LIABILITIES> 20,680
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,140,946
<SHARES-COMMON-STOCK> 7,140,946
<SHARES-COMMON-PRIOR> 3,702,688
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 7,140,946
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 287,558
<OTHER-INCOME> 0
<EXPENSES-NET> 49,261
<NET-INVESTMENT-INCOME> 238,297
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 238,297
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 238,297
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,671,065
<NUMBER-OF-SHARES-REDEEMED> 6,475,417
<SHARES-REINVESTED> 242,610
<NET-CHANGE-IN-ASSETS> 3,438,258
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 19,592
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 49,261
<AVERAGE-NET-ASSETS> 6,530,705
<PER-SHARE-NAV-BEGIN> 1.0000
<PER-SHARE-NII> 0.0350
<PER-SHARE-GAIN-APPREC> 0.0000
<PER-SHARE-DIVIDEND> 0.0350
<PER-SHARE-DISTRIBUTIONS> 0.0000
<RETURNS-OF-CAPITAL> 0.0000
<PER-SHARE-NAV-END> 1.0000
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<ARTICLE> 6
<SERIES>
[NUMBER] 7
<NAME> SB SERIES: APPRECIATION
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
[INVESTMENTS-AT-COST] 77,806,423
[INVESTMENTS-AT-VALUE] 80,836,700
[RECEIVABLES] 153,810
[ASSETS-OTHER] 2,737
[OTHER-ITEMS-ASSETS] 10,219
[TOTAL-ASSETS] 81,003,466
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 180,850
[TOTAL-LIABILITIES] 180,850
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 74,990,083
[SHARES-COMMON-STOCK] 7,004,234
[SHARES-COMMON-PRIOR] 6,593,923
[ACCUMULATED-NII-CURRENT] 1,410,239
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 1,392,017
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 3,030,277
[NET-ASSETS] 80,822,616
[DIVIDEND-INCOME] 1,657,502
[INTEREST-INCOME] 467,319
[OTHER-INCOME] 0
[EXPENSES-NET] 712,981
[NET-INVESTMENT-INCOME] 1,411,840
[REALIZED-GAINS-CURRENT] 2,426,383
[APPREC-INCREASE-CURRENT] (4,664,335)
[NET-CHANGE-FROM-OPS] (826,112)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 893,799
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 10,824,472
[NUMBER-OF-SHARES-REDEEMED] 7,016,905
[SHARES-REINVESTED] 893,799
[NET-CHANGE-IN-ASSETS] 2,981,455
[ACCUMULATED-NII-PRIOR] 892,198
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] (1,034,366)
[GROSS-ADVISORY-FEES] 444,244
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 712,981
[AVERAGE-NET-ASSETS] 80,771,607
[PER-SHARE-NAV-BEGIN] 11.8000
[PER-SHARE-NII] 0.2000
[PER-SHARE-GAIN-APPREC] (0.3200)
[PER-SHARE-DIVIDEND] 0.1400
[PER-SHARE-DISTRIBUTIONS] 0.0000
[RETURNS-OF-CAPITAL] 0.0000
[PER-SHARE-NAV-END] 11.5400
[EXPENSE-RATIO] 0.88
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<SERIES>
[NUMBER] 3
<NAME> SB SERIES: DIVERSIFIED STRATEGIC INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
[INVESTMENTS-AT-COST] 56,094,571
[INVESTMENTS-AT-VALUE] 52,981,897
[RECEIVABLES] 6,469,792
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 1,142,010
[TOTAL-ASSETS] 60,593,699
[PAYABLE-FOR-SECURITIES] 10,464
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 5,322,980
[TOTAL-LIABILITIES] 5,333,444
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 59,220,776
[SHARES-COMMON-STOCK] 6,018,370
[SHARES-COMMON-PRIOR] 4,294,279
[ACCUMULATED-NII-CURRENT] 662
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (905,769)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (3,055,414)
[NET-ASSETS] 55,260,255
[DIVIDEND-INCOME] 62,907
[INTEREST-INCOME] 4,313,546
[OTHER-INCOME] 0
[EXPENSES-NET] 505,283
[NET-INVESTMENT-INCOME] 3,871,170
[REALIZED-GAINS-CURRENT] (1,560,526)
[APPREC-INCREASE-CURRENT] (3,687,044)
[NET-CHANGE-FROM-OPS] (1,376,400)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 3,209,940
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 200,460
[NUMBER-OF-SHARES-SOLD] 18,827,572
[NUMBER-OF-SHARES-REDEEMED] 5,435,332
[SHARES-REINVESTED] 3,410,400
[NET-CHANGE-IN-ASSETS] 12,015,840
[ACCUMULATED-NII-PRIOR] 29,871
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 238,422
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 505,283
[AVERAGE-NET-ASSETS] 52,983,217
[PER-SHARE-NAV-BEGIN] 10.0700
[PER-SHARE-NII] 0.5800
[PER-SHARE-GAIN-APPREC] (0.8600)
[PER-SHARE-DIVIDEND] 0.5800
[PER-SHARE-DISTRIBUTIONS] 0.0000
[RETURNS-OF-CAPITAL] 0.0300
[PER-SHARE-NAV-END] 9.1800
[EXPENSE-RATIO] 0.95
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<SERIES>
[NUMBER] 9
<NAME> SB SERIES: Emerging Growth
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
[INVESTMENTS-AT-COST] 11,196,444
[INVESTMENTS-AT-VALUE] 11,979,237
[RECEIVABLES] 116,460
[ASSETS-OTHER] 2,742
[OTHER-ITEMS-ASSETS] 12,550
[TOTAL-ASSETS] 12,110,989
[PAYABLE-FOR-SECURITIES] 536,421
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 35,510
[TOTAL-LIABILITIES] 571,931
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 12,157,167
[SHARES-COMMON-STOCK] 1,198,109
[SHARES-COMMON-PRIOR] 216,901
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (1,400,902)
[ACCUM-APPREC-OR-DEPREC] 782,793
[NET-ASSETS] 11,539,058
[DIVIDEND-INCOME] 47,002
[INTEREST-INCOME] 47,209
[OTHER-INCOME] 0
[EXPENSES-NET] 109,572
[NET-INVESTMENT-INCOME] (15,361)
[REALIZED-GAINS-CURRENT] (1,399,759)
[APPREC-INCREASE-CURRENT] 715,785
[NET-CHANGE-FROM-OPS] (699,335)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 897
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 11,029,729
[NUMBER-OF-SHARES-REDEEMED] 1,048,804
[SHARES-REINVESTED] 897
[NET-CHANGE-IN-ASSETS] 9,281,590
[ACCUMULATED-NII-PRIOR] 895
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] (1,143)
[GROSS-ADVISORY-FEES] 68,528
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 109,572
[AVERAGE-NET-ASSETS] 9,137,001
[PER-SHARE-NAV-BEGIN] 10.4100
[PER-SHARE-NII] 0.0000
[PER-SHARE-GAIN-APPREC] (0.7800)
[PER-SHARE-DIVIDEND] 0.0000
[PER-SHARE-DISTRIBUTIONS] 0.0000
[RETURNS-OF-CAPITAL] 0.0000
[PER-SHARE-NAV-END] 9.6300
[EXPENSE-RATIO] 1.20
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<SERIES>
[NUMBER] 4
<NAME> SB SERIES: EQUITY INCOME
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
[INVESTMENTS-AT-COST] 48,324,433
[INVESTMENTS-AT-VALUE] 43,407,001
[RECEIVABLES] 461,572
[ASSETS-OTHER] 631,673
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 44,500,246
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 82,850
[TOTAL-LIABILITIES] 82,850
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 50,336,936
[SHARES-COMMON-STOCK] 4,502,148
[SHARES-COMMON-PRIOR] 5,210,301
[ACCUMULATED-NII-CURRENT] 627,374
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (1,629,482)
[ACCUM-APPREC-OR-DEPREC] (4,917,432)
[NET-ASSETS] 44,417,396
[DIVIDEND-INCOME] 2,381,677
[INTEREST-INCOME] 766,674
[OTHER-INCOME] 0
[EXPENSES-NET] 416,677
[NET-INVESTMENT-INCOME] 2,731,674
[REALIZED-GAINS-CURRENT] (1,629,482)
[APPREC-INCREASE-CURRENT] (6,956,371)
[NET-CHANGE-FROM-OPS] (5,854,179)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 2,331,772
[DISTRIBUTIONS-OF-GAINS] 117,669
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 3,601,508
[NUMBER-OF-SHARES-REDEEMED] 13,489,892
[SHARES-REINVESTED] 2,449,442
[NET-CHANGE-IN-ASSETS] (15,742,562)
[ACCUMULATED-NII-PRIOR] 227,472
[ACCUMULATED-GAINS-PRIOR] 117,669
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 223,055
[INTEREST-EXPENSE] 340
[GROSS-EXPENSE] 416,677
[AVERAGE-NET-ASSETS] 49,567,681
[PER-SHARE-NAV-BEGIN] 11.5500
[PER-SHARE-NII] 0.5800
[PER-SHARE-GAIN-APPREC] (1.7500)
[PER-SHARE-DIVIDEND] 0.4900
[PER-SHARE-DISTRIBUTIONS] 0.0200
[RETURNS-OF-CAPITAL] 0.0000
[PER-SHARE-NAV-END] 9.8700
[EXPENSE-RATIO] 0.84
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<SERIES>
[NUMBER] 5
<NAME> SB SERIES: EQUITY INDEX
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
[INVESTMENTS-AT-COST] 9,786,366
[INVESTMENTS-AT-VALUE] 10,204,881
[RECEIVABLES] 57,570
[ASSETS-OTHER] 1,384,050
[OTHER-ITEMS-ASSETS] 9,054
[TOTAL-ASSETS] 11,655,555
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1,430,143
[TOTAL-LIABILITIES] 1,430,143
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 9,630,127
[SHARES-COMMON-STOCK] 874,944
[SHARES-COMMON-PRIOR] 742,872
[ACCUMULATED-NII-CURRENT] 200,919
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (42,749)
[ACCUM-APPREC-OR-DEPREC] 437,115
[NET-ASSETS] 10,225,412
[DIVIDEND-INCOME] 236,206
[INTEREST-INCOME] 60,280
[OTHER-INCOME] 0
[EXPENSES-NET] 95,547
[NET-INVESTMENT-INCOME] 200,939
[REALIZED-GAINS-CURRENT] (39,099)
[APPREC-INCREASE-CURRENT] (57,595)
[NET-CHANGE-FROM-OPS] 104,245
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 111,775
[DISTRIBUTIONS-OF-GAINS] 111,690
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 2,438,324
[NUMBER-OF-SHARES-REDEEMED] 1,159,262
[SHARES-REINVESTED] 223,465
[NET-CHANGE-IN-ASSETS] 1,383,307
[ACCUMULATED-NII-PRIOR] 111,758
[ACCUMULATED-GAINS-PRIOR] 108,037
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 38,236
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 95,547
[AVERAGE-NET-ASSETS] 9,559,102
[PER-SHARE-NAV-BEGIN] 11.9000
[PER-SHARE-NII] 0.2300
[PER-SHARE-GAIN-APPREC] (0.1400)
[PER-SHARE-DIVIDEND] 0.1500
[PER-SHARE-DISTRIBUTIONS] 0.1500
[RETURNS-OF-CAPITAL] 0.0000
[PER-SHARE-NAV-END] 11.6900
[EXPENSE-RATIO] 1.00
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<SERIES>
[NUMBER]6
<NAME> SB SERIES: growth & income
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
[INVESTMENTS-AT-COST] 28,913,544
[INVESTMENTS-AT-VALUE] 29,325,496
[RECEIVABLES] 834,972
[ASSETS-OTHER] 708
[OTHER-ITEMS-ASSETS] 9,082
[TOTAL-ASSETS] 30,170,258
[PAYABLE-FOR-SECURITIES] 501,496
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 44,092
[TOTAL-LIABILITIES] 545,588
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 29,561,442
[SHARES-COMMON-STOCK] 2,757,006
[SHARES-COMMON-PRIOR] 2,246,457
[ACCUMULATED-NII-CURRENT] 74,799
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (423,523)
[ACCUM-APPREC-OR-DEPREC] 411,952
[NET-ASSETS] 29,624,670
[DIVIDEND-INCOME] 726,517
[INTEREST-INCOME] 250,659
[OTHER-INCOME] 0
[EXPENSES-NET] 264,326
[NET-INVESTMENT-INCOME] 712,850
[REALIZED-GAINS-CURRENT] (343,937)
[APPREC-INCREASE-CURRENT] (1,273,005)
[NET-CHANGE-FROM-OPS] (904,092)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 667,174
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 7,429,055
[NUMBER-OF-SHARES-REDEEMED] 2,448,822
[SHARES-REINVESTED] 667,175
[NET-CHANGE-IN-ASSETS] 4,076,142
[ACCUMULATED-NII-PRIOR] 30,295
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] (80,758)
[GROSS-ADVISORY-FEES] 127,450
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 264,326
[AVERAGE-NET-ASSETS] 28,322,222
[PER-SHARE-NAV-BEGIN] 11.3700
[PER-SHARE-NII] 0.2700
[PER-SHARE-GAIN-APPREC] (0.6300)
[PER-SHARE-DIVIDEND] 0.2600
[PER-SHARE-DISTRIBUTIONS] 0.0000
[RETURNS-OF-CAPITAL] 0.0000
[PER-SHARE-NAV-END] 10.7500
[EXPENSE-RATIO] 0.93
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<SERIES>
[NUMBER] 2
<NAME> SB SERIES: INTERMEDIATE HIGH GRADE
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
[INVESTMENTS-AT-COST] 13,737,993
[INVESTMENTS-AT-VALUE] 13,029,483
[RECEIVABLES] 266,907
[ASSETS-OTHER] 629
[OTHER-ITEMS-ASSETS] 8,934
[TOTAL-ASSETS] 13,305,953
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 25,791
[TOTAL-LIABILITIES] 25,791
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 14,239,723
[SHARES-COMMON-STOCK] 1,374,312
[SHARES-COMMON-PRIOR] 922,006
[ACCUMULATED-NII-CURRENT] 174,543
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (425,594)
[ACCUM-APPREC-OR-DEPREC] (708,510)
[NET-ASSETS] 13,280,162
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 914,252
[OTHER-INCOME] 0
[EXPENSES-NET] 104,633
[NET-INVESTMENT-INCOME] 809,619
[REALIZED-GAINS-CURRENT] (425,633)
[APPREC-INCREASE-CURRENT] (706,692)
[NET-CHANGE-FROM-OPS] (322,706)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 754,838
[DISTRIBUTIONS-OF-GAINS] 96,524
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 5,706,733
[NUMBER-OF-SHARES-REDEEMED] 1,963,006
[SHARES-REINVESTED] 851,363
[NET-CHANGE-IN-ASSETS] 3,421,022
[ACCUMULATED-NII-PRIOR] 119,762
[ACCUMULATED-GAINS-PRIOR] 96,524
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 49,279
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 104,633
[AVERAGE-NET-ASSETS] 12,319,740
[PER-SHARE-NAV-BEGIN] 10.6900
[PER-SHARE-NII] 0.6100
[PER-SHARE-GAIN-APPREC] (0.9400)
[PER-SHARE-DIVIDEND] 0.6100
[PER-SHARE-DISTRIBUTIONS] 0.0900
[RETURNS-OF-CAPITAL] 0.0000
[PER-SHARE-NAV-END] 9.6600
[EXPENSE-RATIO] 0.85
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<SERIES>
[NUMBER] 10
<NAME> SB SERIES: INTERNATIONAL EQUITY
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
[INVESTMENTS-AT-COST] 29,811,507
[INVESTMENTS-AT-VALUE] 28,401,425
[RECEIVABLES] 56,006
[ASSETS-OTHER] 43,365
[OTHER-ITEMS-ASSETS] 12,621
[TOTAL-ASSETS] 28,513,417
[PAYABLE-FOR-SECURITIES] 9,374
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 91,237
[TOTAL-LIABILITIES] 100,611
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 30,133,232
[SHARES-COMMON-STOCK] 3,086,160
[SHARES-COMMON-PRIOR] 583,970
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (310,638)
[ACCUM-APPREC-OR-DEPREC] (1,409,788)
[NET-ASSETS] 28,412,806
[DIVIDEND-INCOME] 284,416
[INTEREST-INCOME] 80,491
[OTHER-INCOME] 0
[EXPENSES-NET] 295,422
[NET-INVESTMENT-INCOME] 69,485
[REALIZED-GAINS-CURRENT] (457,968)
[APPREC-INCREASE-CURRENT] (1,437,165)
[NET-CHANGE-FROM-OPS] (1,825,648)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 25,681,169
[NUMBER-OF-SHARES-REDEEMED] 1,309,624
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 22,545,897
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 193,164
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 295,422
[AVERAGE-NET-ASSETS] 22,725,095
[PER-SHARE-NAV-BEGIN] 10.0500
[PER-SHARE-NII] 0.0000
[PER-SHARE-GAIN-APPREC] (0.8400)
[PER-SHARE-DIVIDEND] 0.0000
[PER-SHARE-DISTRIBUTIONS] 0.0000
[RETURNS-OF-CAPITAL] 0.0000
[PER-SHARE-NAV-END] 9.2100
[EXPENSE-RATIO] 1.30
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<SERIES>
[NUMBER] 8
<NAME> SB SERIES: TOTAL RETURN
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
[INVESTMENTS-AT-COST] 24,159,162
[INVESTMENTS-AT-VALUE] 23,368,385
[RECEIVABLES] 109,239
[ASSETS-OTHER] 697
[OTHER-ITEMS-ASSETS] 12,604
[TOTAL-ASSETS] 23,490,925
[PAYABLE-FOR-SECURITIES] 210,300
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 84,734
[TOTAL-LIABILITIES] 295,034
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 23,136,830
[SHARES-COMMON-STOCK] 2,151,407
[SHARES-COMMON-PRIOR] 269,587
[ACCUMULATED-NII-CURRENT] 133,581
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 686,358
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (760,878)
[NET-ASSETS] 23,195,891
[DIVIDEND-INCOME] 494,165
[INTEREST-INCOME] 193,568
[OTHER-INCOME] 0
[EXPENSES-NET] 141,891
[NET-INVESTMENT-INCOME] 545,842
[REALIZED-GAINS-CURRENT] 686,358
[APPREC-INCREASE-CURRENT] (800,268)
[NET-CHANGE-FROM-OPS] 431,932
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 413,990
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 20,827,157
[NUMBER-OF-SHARES-REDEEMED] 840,368
[SHARES-REINVESTED] 413,991
[NET-CHANGE-IN-ASSETS] 20,418,722
[ACCUMULATED-NII-PRIOR] 1,729
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 78,167
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 141,891
[AVERAGE-NET-ASSETS] 14,212,110
[PER-SHARE-NAV-BEGIN] 10.3000
[PER-SHARE-NII] 0.3400
[PER-SHARE-GAIN-APPREC] 0.4200
[PER-SHARE-DIVIDEND] 0.2800
[PER-SHARE-DISTRIBUTIONS] 0.0000
[RETURNS-OF-CAPITAL] 0.0000
[PER-SHARE-NAV-END] 10.7800
[EXPENSE-RATIO] 1.00
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
