ssf/pea10.doc
Registration
No. 3340603
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. 12
REGISTRATION STATEMENT
UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 15
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 388
Greenwich Street
New York, New York 10013
(Name and Address of Agent of Service)
Approximate Date of Proposed Public Offering:
As soon as possible after this
PostEffective Amendment becomes
effective.
It is proposed that this filing will become effective:
_X__ immediately upon filing pursuant to Rule
485(b)
on _____________ pursuant to Rule 485(b)
60 days after filing pursuant to Rule
485(a) on ____________ pursuant to Rule
485(a)
_________________________________________________________________
__ __ _______________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Share Maximum Maximum Amount
Title of Amount Offering Aggregate of
Securities being being Price per Offering* Registra
Registered Registere Share* * tion Fee
d
<S> <C> <C> <C>
<C> Appreciation 454,911 $15.30
$290,000 $100
Portfolio
Diversified 119,464 $10.20 $290,000
$100
Strategic Income
Portfolio
Equity Income 279,747 $11.81 $290,000
$100 Portfolio
Growth & Income 216,064 $14.73 $290,000
$100 Portfolio
International 206,816 $11.26 $290,000
$100 Equity Portfolio
Money Market 1,777,676 $1.00 $290,000
$100 Portfolio
</TABLE>
*The fee for the shares to be registered by this filing
has been computed on the basis of the market value per
share in effect on April 26, 1996.
**Calculation of the proposed maximum offering price has
been made pursuant to Rule 24e-2.
Appreciation Portfolio
During its fiscal year ended December 31, 1995, the Fund
redeemed 872,074 shares of the Appreciation Portfolio.
During its current fiscal year, the Fund used 436,117
shares of the Portfolio it redeemed during the fiscal
year ended December 31, 1995 for a reduction pursuant to
Rule 24f2(c).
The Fund currently is registering 454,911 shares for the
Appreciation Portfolio, which is equal to the remaining
435,957 shares redeemed during its fiscal year ended
December 31, 1995, plus 18,954 shares.
Diversified Strategic Income Portfolio
During its fiscal year ended December 31, 1995, the Fund
redeemed 695,713 shares of the Diversified Strategic
Income Portfolio. During its current fiscal year, the
Fund used 604,680 shares of the Portfolio it redeemed
during the fiscal year ended December 31, 1995 for a
reduction pursuant to Rule 24f-2(c).
The Fund currently is registering 119,464 shares for the
Diversified Strategic Income Portfolio, which is equal
to the remaining 91,033 shares redeemed during its fiscal
year ended December 31, 1995, plus 28,431 shares.
Equity Income Portfolio
During its fiscal year ended December 31, 1995, the Fund
redeemed 692,366 shares of the Equity Income Portfolio.
During its current fiscal year, the Fund used 437,174
shares of the Portfolio it redeemed during the fiscal
year ended December 31, 1995 for a reduction pursuant to
Rule 24f2(c).
The Fund currently is registering 279,747 shares for the
Equity Income Portfolio, which is equal to the remaining
255,192 shares redeemed during its fiscal year ended
December 31, 1995, plus 24,555 shares.
Growth & Income Portfolio
During its fiscal year ended December 31, 1995, the Fund
redeemed 375,361 shares of the Growth & Income
Portfolio. During its current fiscal year, the Fund used
178,984 shares of the Portfolio it redeemed during the
fiscal year ended December 31, 1995 for a reduction
pursuant to Rule 24f2(c).
The Fund currently is registering 216,064 shares for
the Growth & Income Portfolio, which is equal to the
remaining 196,377 shares redeemed during its fiscal year
ended December 31, 1995, plus 19,687 shares.
International Equity Portfolio
During its fiscal year ended December 31, 1995, the Fund
redeemed 475,871 shares of the International Equity
Portfolio. During its current fiscal year, the Fund used
294,809 shares of the Portfolio it redeemed during the
fiscal year ended December 31, 1995 for a reduction
pursuant to Rule 24f-2(c).
The Fund currently is registering 206,816 shares for
the International Equity Portfolio, which is equal to the
remaining 181,062 shares redeemed during its fiscal year
ended December 31, 1995, plus 25,754 shares.
Money Market Portfolio
During its fiscal year ended December 31, 1995, the Fund
redeemed 5,951,049 shares of the Money Market Portfolio.
During its current fiscal year, the Fund used 4,463,373
shares of the Portfolio it redeemed during the fiscal
year ended December 31, 1995 for a reduction pursuant to
Rule 24f2(c).
The Fund currently is registering 1,777,676 shares for
the Money Market Portfolio, which is equal to the
remaining 1,487,676 shares redeemed during its fiscal
year ended December 31, 1995, plus 290,000 shares.
The Registrant has previously filed a declaration of
indefinite registration of its shares pursuant to Rule
24f2 under the Investment Company Act of 1940, as
amended. Registrant's Rule 24f-2 Notice for the fiscal
year ended December 31, 1995 was filed on February 29,
1996 as Accession Number 874835-96-000001.
SMITH BARNEY SERIES FUND
FORM N-1A
CROSS-REFERENCE SHEET
PURSUANT TO RULE 495(b)
Part A Item No. Prospectus Caption
1. Cover Page Cover Page
2. Synopsis Summary
3. Condensed Financial Financial Highlights; The
Information Portfolio's Performance
4. General Description of Cover Page; Investment
Goals
Registrant and Policies of the
Portfolio; Additional
Investments; Certain
Investment Guidelines;
Special Considerations
and Risk Factors;
Additional Information
5. Management of the Fund Management of the Fund;
Portfolio Management;
Custodian and Transfer
Agent; Distributor
6. Capital Stock and Other Additional Information;
Securities Dividends and Taxes
7. Purchase of Securities Net Asset Value; Cover
Page;
Being Offered 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
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and Additional Information;
History Distributor
13. Investment Objectives Investment Goals and
Policies
and Policies of the Portfolios
14. Management of the Fund Management of the Fund
15. Control Persons and Management of the Fund
Principal Holders of
Securities
16. Investment Advisory and Management of the Fund;
Other Services Distributor
17. Brokerage Allocation and Investment Goals and
Other Practices Policies; Portfolio
Transactions
18. Capital Stock and Other Net Asset Value;
Performance Securities Data
19. Purchase, Redemption and Purchase of Shares;
Pricing of Securities Being Redemptions
Offered
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
FORM N1-A
PART A
39
1
<
Smith Barney
Series Fund
Prospectus dated April 29, 1996
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 Appreciation
Portfolio's goal is long-term appreciation of capital.
This Portfolio invests primarily in equity securities.
The Diversified Strategic Income Portfolio's goal is high
current income. This Portfolio invests 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
Emerging Growth Portfolio's goal is to provide capital
appreciation. This Portfolio invests primarily in common
stocks of small and medium sized companies, both domestic
and foreign, considered to be emerging growth companies by
its investment adviser.
The Equity Income Portfolio's primary goal is current
income, with a secondary goal of long-term capital
appreciation. This Portfolio invests 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 invests 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 invests primarily in
dividend paying equity securities meeting certain
specified investment criteria.
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 invests in high
quality intermediate-term U.S. government securities and
corporate bonds of U.S. issuers. The International Equity
Portfolio's goal is to provide total return on its assets
from growth of capital and income. This Portfolio invests
in equity securities of established non-United States
issuers. 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 invests in high quality short-term money
market instruments.
The Total Return Portfolio's goal is to provide
shareholders with total return, consisting of long-term
capital appreciation and income. This Portfolio invests
primarily in a diversified portfolio of dividend-paying
common stocks. 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 and should be
retained for future reference. 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, 1996, 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
separate accounts which fund certain variable annuity and
variable life insurance contracts (each referred to herein
as a "Contract") offered by designated insurance
companies.
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS
OF THE CONTRACT. 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
Contract Owner Inquiries: (212) 723-
9217>
Contents>
3
<TABLE>
<S>
<C> Synopsis
3
Expenses of the Portfolios
5
Investment Goals and Policies of
the Portfolios
11
Additional Investments
17
Certain Investment Guidelines
18
Special Considerations and Risk Factors
19
Portfolio Transactions.
23
Net Asset Value
23
How to Use the Fund
24
Dividends and Taxes
25
Management of the Fund
26
Portfolio Management
27
Custodian and Transfer Agent
28
Distributor
28
Additional Information
28
The Portfolios' Performance
29
Appendix
30
</TABLE>
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." <TABLE>
<CAPTION>
Name Service
<S> <C>
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
Davis Skaggs Investment Management, Investment Advisor to the
Total Return Portfolio
a division of SBMFM ("Davis Skaggs")
Smith Barney Global Capital Management, Inc. Sub-Investment
Adviser to the Diversified Strategic
("Global Capital Management") Income Portfolio
Travelers Investment Management Company
Investment Adviser to the Equity Index Portfolio
("TIMCO")
Van Kampen American Capital Asset Investment
Adviser
to
the
Emerging
Growth Portfolio
Management, Inc. ("VKAC")
Smith Barney Inc. ("Smith Barney") Distributor
Name Service
PNC Bank, National Association ("PNC")
Custodian to all Portfolios except International Equity
Portfolio and
Diversified
Strategic Income Portfolio
The Bank of New York Custodian to
International
Equity
Portoflio and
Diversified Strategic
Income
Portfolio
First Data Investor Services Group, Inc.,
Transfer and Dividend Paying Agent
formerly The Shareholder Services Group Inc.
(the "Transfer Agent")
</TABLE>
The Portfolios pay their respective investment advisers an
aggregate fee at an annual percentage of the value of the
relevant Portfolio's average net assets as follows:
Appreciation Portfolio 0.55%;
Diversified Strategic Income Portfolio - 0.45%; Emerging
Growth Portfolio - 0.75%.; Equity Income Portfolio - 0.45%;
Equity Index Portfolio - 0.40%; Growth & Income Portfolio -
0.45%; Intermediate High Grade Portfolio - 0.40%;
International Equity Portfolio 0.85%; Money Market Portfolio
- - 0.30%; and Total Return Portfolio 0.55%. Global Capital
Management, as subinvestment adviser to the Diversified
Strategic Income Portfolio, is paid a fee by SBMFM, the
Portfolio's investment adviser, at the annual percentage 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 percentage of 0.20% of the value of each
Portfolio's average net assets. The 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
Shares of the Fund are offered only to Contract owners as set
forth in the specific Contract. Typically a Contract owner
can direct the allocation of part or all of his or her net
purchase payment to one or more of the ten Portfolios of the
Fund. In the future, the Fund may establish additional
portfolios. See "How to Use the Fund."
Redeeming Shares
Shares may be redeemed as described in the applicable
Contract 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 unrated, medium- and
lowerrated 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
higherrated 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 and 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 subinvestment
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 a
Contract and the Portfolios is included in the Contract
prospectus.
Financial Highlights
The following information for the fiscal year ended
December 31, 1995 has been audited by KPMG Peat Marwick LLP,
independent auditors, whose report thereon appears in the
Fund's Annual Report dated December 31, 1995. The information
with respect to the fiscal years ended December 31, 1994,
1993 and 1992 and the period ended 1991, respectively, has
been audited by Coopers & Lybrand L.L.P., independent
accountants, whose report thereon
appears in the Fund's Annual Report dated December 31, 1994.
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.
Financial Highlights
For a share of beneficial interest outstanding throughout
each period: <TABLE>
<S>
<C> <C>
<C>
<C> <C>
Money Market Portfolio 1995 1994 1993 1992 1991(1)
Net Asset Value, Beginning of Year $1.000 $1.000 $1.000
$1.000 $1.000 Income From Operations:
Net investment income (2)0.052 0.035 0.023 0.027
0.005
Total Income From Operations 0.052 0.035 0.023
0.027
0.005 Less Distributions:
Net investment income (0.052) (0.035) (0.023)
(0.027) (0.005)
Total Distributions (0.052) (0.035) (0.023) (0.027)
(0.005) Net Asset Value, End of Year $1.000 $1.000 $1.000
$1.000 $1.000 Total Return 5.31% 3.56% 2.37% 2.75%
0.53%*
Net Assets, End of Year (000's) $5,653 $7,141 $3,703 $2,108
$830 Ratios to Average Net Assets:
Expenses (2) 0.75% 0.75% 0.75% 0.75% 0.65%
Net investment income 5.19% 3.65 2.34 2.79 3.35
Intermediate High Grade Portfolio 1995 1994 1993 1992
1991(1) Net Asset Value, Beginning of Year $9.66
$10.69 $10.29 $10.24 $10.00 Income (Loss) From
Operations: Net investment income 0.66 0.61 0.55 0.45
0.03
Net realized and
unrealized gain on investments 1.00 (0.94) 0.26 0.08
0.21
Total Income (Loss) From Operations 1.66 (0.33) 0.81
0.53
0.24 Less Distributions:
Net investment income (0.72)(0.61)(0.36)(0.48) -
Net realized gains - (0.09) (0.05) -
- -
Total Distributions (0.72)(0.70) (0.41) (0.48)
Net Asset Value, End of Year $10.60 $9.66 $10.69
$10.29 $10.24 Total Return 17.76% (3.05)% 8.00% 5.28%
2.40%*
Net Assets, End of Year (000's) $16,152 $13,280
$9,859 $3,621 $697 Ratios to Average Net Assets: Expenses
(2)0.86% 0.85% 0.85% 0.85% 0.80%*
Net investment income 6.63 6.57 5.25 4.75 4.49*
Portfolio turnover rate 121% 90% 139% 124% -
</TABLE>
(1) For the period from October 16, 1991 (commencement of
operations) to December 31, 1991.
(2) Expense ratios and the per share decrease in net
investment income before fees waivers and expense
reimbursements were as follows:
<TABLE>
<CAPTION>
Net Investment Income Expense Ratios
Without Waivers Per Share Decrease
and Reimbursements
<S>
<C> <C> <C> <C>
<C>
<C> <C> <C> <C> <C>
Portfolio 1995 1994 1993 1992 1991 1995 1994 1993
1992 1991 Money Market
$0.005$0.005$0.014 $0.014$0.0341.21%
1.26%2.15%2
.18% 21.47%
Intermediate High Grade 0.0090.020 0.050 0.1300.170
0.94 1.05 1.362.2826.28
</TABLE>
* Total return is not annualized, as it may not be
representative
of
the total return for the year.
Annualized.>
6
<
#>
6
<
#>
7
<
Smith Barney Series Fund>
7
Financial Highlights (continued)
For a share of beneficial interest outstanding throughout
each period: <TABLE>
<S>
<C> <C>
<C>
<C> <C>
Diversified Strategic Income Portfolio 1995 1994 1993 1992
1991(1) Net Asset Value, Beginning of Year $9.18 $10.07
$9.61 $10.14 $10.00 Income (Loss) From Operations:
Net investment income (2)* 0.74 0.58 0.70 0.67 0.02
Net realized and unrealized
gains/(loss) on investments 0.70 (0.86) 0.47 (0.53) 0.12
Total Income (Loss) From Operations 1.44 (0.28) 1.17
0.14 0.14
Less Distributions:
Net investment income (0.61)(0.58) (0.61) (0.67)
Net realized gains on security transactions -
(0.04)-
- -
In excess of net realized
gain on security transactions - - (0.05) -
Capital - (0.03) (0.01) - -
Total Distributions (0.61) (0.61) (0.71)
(0.67) -
Net Asset Value,
End of Year $10.01 $9.18 $10.07 $9.61
$10.14 Total Return 16.18% (2.81)% 12.56%
1.42% 1.40%* Net Assets,
End of Year (000's)$59,316 $55,260 $43,244 $19,991 $3,914
Ratios to Average Net Assets:
Expenses (2) 0.90% 0.95% 1.00% 1.00% 0.94%
Net investment income 7.73 7.31 7.14 7.70
4.57%
Portfolio turnover rate 46% 54% 94% 65% -
Equity Income Portfolio 1995 1994 1993 1992 1991(1)
Net Asset Value, Beginning of Year $9.87 $11.55 $10.90
$10.20 $10.00 Income (Loss) From Operations:
Net investment income (2) 0.54 0.58 0.53 0.45 0.02
Net realized and unrealized
gain/(loss)on investments 2.56(1.75) 0.60 0.72 0.18
Total Income (Loss) From Operations 3.10 (1.17) 1.13 1.17
0.20 Less Distributions:
Net investment income(0.62) (0.49) (0.47) (0.47)
Net realized gains on security transactions - (0.02)(0.01)
Total Distributions (0.62) (0.51) (0.48) (0.47) -
Net Asset Value, End of Year $12.35 $9.87 $11.55 $10.90
$10.20 Total Return 32.47% (10.20)% 10.41% 11.74%
2.00%* Net Assets, End of Year (000's) $52,444 $44,417
$60,160 $25,985 $3,900 Ratios to Average Net Assets:
Expenses (2) 0.95% 0.84% 0.87% 1.00%
0.93% Net investment income 64.95
5.51 4.544.93
4.14%
Portfolio turnover rate 33% 21% 4% 4%
Average commissions paid on equity
security
transactions.(3) $0.06 -
- -
-
</TABLE>
(1) For the period from October 16, 1991 (commencement of
operations) to December 31, 1991.
(2) Expense ratios and the per share decrease in net
investment income before fees waivers and expense
reimbursements were as follows:
<TABLE>
<CAPTION>
Net Investment Income Expense Ratios
Without Waivers Per Share Decrease
and Reimbursements
<S>
<C> <C> <C> <C>
<C>
<C> <C> <C> <C> <C>
Portfolio 1995 1994 1993 1992 1991 1995 1994 1993
1992 1991 Diversified Strategic Income N/A N/A
$0.03$0.03N/A N/A
1.02% 1.41% 7.76%
Equity Income N/A N/A N/A 0.020.03 N/A N/A N/A
1.27
8.34
</TABLE>
(3) New SEC disclosure guidelines require that average
commissions per share be calculated and presented for the
current year only.
* Includes realized gains and losses from foreign currency
transactions.
* Total return is not annualized, as it may not be
represnetative of
the total return for the year.
Annualized.
>
7
<
#>
8
<
Smith Barney Series Fund>
8
Financial Highlights (continued)
For a share of beneficial interest outstanding throughout
each period: <TABLE>
<S>
<C> <C>
<C>
<C> <C>
Equity Index Portfolio 1995 1994 1993 1992 1991(1)
Net Asset Value, Beginning of Year $11.69 $11.90 $11.27
$10.62 $10.00 Income From Operations:
Net investment income (2)0.25 0.23 0.20 0.17 0.04
Net realized and unrealized
gains (loss) on investments 3.88 (0.14) 0.71 0.55 0.58
Total Income From Operations 4.13 0.09 0.91 0.72 0.62
Less Distributions:
Net investment income (0.23) (0.15) (0.16)
(0.02)
- -
Net realized gains (0.01) (0.15) (0.12)
(0.05)
- -
Total Distributions (0.24) (0.30) (0.28)
(0.07)
- -
Net Asset Value, End of Year $15.58 $11.69 $11.90
$11.27 $10.62
Total Return 35.81% 0.85% 8.66% 6.74%
6.20%* Net Assets, End
of Year (000's) $15,230 $10,225 $8,842 $4,178
$1,733 Ratios to Average Net Assets:
Expenses (2) 1.00% 1.00% 1.00% 1.00%
0.98%
Net investment income 1.84 2.10 1.77 2.10
2.91
Portfolio turnover rate 5% 1% 1% 8%
Average commissions paid on
equity security transactions (3) $0.05 - - -
- -
Growth & Income Portfolio 1995 1994 1993 1992 1991(1)
Net Asset Value,
Beginning of Year $10.75 $11.37 $10.68 $10.15 $10.00
Income (Loss) From Operations:
Net investment income (2) 0.26 0.27 0.30 0.27 0.02
Net realized and unrealized
gain/(loss)on investments 2.99 (0.63) 0.67 0.55 0.13
Total Income (Loss)
From Operations 3.25 (0.36) 0.97 0.82 0.15
Less Distributions:
Net investment income (0.27) (0.26) (0.26) (0.29) -
Net realized gains on
security transactions - - (0.02) - -
Capital - - - (0.00)* -
Total Distributions (0.27) (0.26) (0.28) (0.29)
Net Asset Value, End of Year $13.73 $10.75 $11.37 $10.68
$10.15 Total Return 30.49% (3.20)% 9.09% 8.44%
1.40%
Net Assets, End
of Year (000's) $35,158 $29,625 $25,549 $10,951 $1,904
Ratios to Average Net Assets:
Expenses (2) 0.98% 0.93% 1.00% 1.00% 0.90%
Net investment income 2.09 2.52 2.68 3.06
4.14
Portfolio turnover rate 17% 77% 78%78% 3%
Average commissions paid on equity security
transactions.(3) $0.06 - - - -
</TABLE>
(1) For the period from October 16, 1991 (commencement of
operations) to December 31, 1991.
(2) Expense ratios and the per share decrease in net
investment income before fees waivers and expense
reimbursements were as follows:
<TABLE>
<CAPTION>
Net Investment Income Expense Ratios
Without Waivers Per Share Decrease
and Reimbursements
<S>
<C> <C> <C> <C>
<C>
<C> <C> <C> <C> <C>
Portfolio 1995 1994 1993 1992 1991 1995 1994 1993
1992 1991 Equity Index $0.02$0.06 $0.10$0.15
0.091.17%1.53% 1.88%
2.89% 7.60%
Growth & Income N/A N/A 0.01 0.06 0.07 N/A N/A 1.01
1.65
20.02
</TABLE>
(3) New SEC disclosure guidelines require that average
commissions per
share be calculated and presented for the current year only.
* Total return is not annualized, as it may not be
representative
of the total return for the year
Annualized.
* Amount represents less than $0.01
Financial Highlights (continued)
For a share of beneficial interest outstanding throughout
each period: <TABLE>
<S>
<C> <C>
<C>
<C> <C>
Appreciation Portfolio 1995 1994 1993 1992 1991(1)
Net Asset Value, Beginning of Year $11.54 $11.80 $11.13
$10.49 $10.00 Income (Loss) From Operations:
Net investment income (3) 0.23 0.20 0.15 0.11 0.01
Net realized and unrealized
gains (loss) on investments 3.04 (0.32) 0.63 0.53 0.48
Total Income (Loss) From Operations 3.27 (0.12) 0.78 0.64
0.49
Less Distributions:
Net investment income (0.21)(0.14) (0.11) 0.00* -
Net realized gains (0.21) - - - -
Total Distributions (0.42) (0.14) (0.11) - -
Net Asset Value, End of Year $14.39 $11.54 $11.80
$11.13 $10.49 Total Return 28.84% (1.12)% 7.03%
6.13% 4.90%* Net Assets,
End of Year (000's) $94,492 $80,823 $77,843
$53,450
$11,436
Ratios to Average Net Assets:
Expenses (3) 0.97% 0.88% 1.01% 1.00%
0.94%
Net investment income 1.65 1.75 1.35 1.61
3.00
Portfolio turnover rate 43% 61% 33%
14%
- -
Average commissions paid on equity security
transactions.(4) $0.06 - - - -
Emerging Growth Portfolio 1995 1994 1993(2)
Net Asset Value, Beginning of Year $9.63
$10.41 $10.00 Income (Loss) From Operations:
Net investment income (3) (0.03) 0.00*
0.01
Net realized and unrealized
gain (loss) on investments 4.16 (0.78) 0.40
Total Income (Loss) From Operations 4.13
(0.78) 0.41 Less Distributions:
Net investment income - 0.00*
- -
Net realized gains - -
- -
Total Distributions - -
- -
Net Asset Value, End of Year $13.76 $9.63
$10.41
Total Return 42.89% (7.48)%
4.10%*
Net Assets, End of Year (000's) $17,463
$11,539 2,257 Ratios to Average Net Assets:
Expenses (3) 1.20% 1.20% 1.05%
Net investment income (loss) (0.24) (0.17)
1.37
Portfolio turnover rate 121% 66%
Average commissions paid on equity security
transactions.(4) $0.06 - -
</TABLE>
(1) For the period from October 16, 1991 (commencement
of operations) to December 31, 1991.
(2) For the period from December 3, 1993 (commencement
of operations) to December 31, 1993.
(3) Expense ratios and the per share decrease in net investment
income before fees waivers and expense reimbursements were as
follows:
<TABLE>
<CAPTION>
Net Investment Income Expense Ratios
Without Waivers Per Share Decrease
and Reimbursements
<S>
<C> <C> <C> <C> <C>
<C> <C> <C> <C> <C>
Portfolio 1995 1994 1993 1992 1991 1995 1994 1993
1992 1991 Appreciation N/A N/A N/A$0.01$0.01 N/A
N/A N/A1.16%3.64% Emerging Growth $0.02 $0.01$0.06 N/A
N/A1.39% 1.59%9.99% N/A
N/A
</TABLE>
(4) New SEC disclosure guidelines require that average
commissions per
share be calculated and presented for the current year only.
*Total Return is not annualized, as it may not be
representative
of the total return for the year.
Annualized.
* Amount represents less than $0.01.>
8
<
#>
9
<
Smith Barney Series Fund>
9
<
#>
10
<
Smith Barney Series Fund>
10
<
Financial Highlights (continued)
For a share of beneficial interest outstanding throughout each
period: <TABLE>
<S>
<C> <C>
<C>
Total Return Portfolio 1995 1994 1993(1)
Net Asset Value, Beginning of Year $10.78 $10.30 10.00
Income From Operations:
Net investment income (2) 0.43 0.34 0.01
Net realized and unrealized
gains/(loss) on investments 2.19 0.42* 0.29
Total Income (Loss) From Operations 2.62 0.76
0.30 Less Distributions:
Net investment income (0.41) (0.28)
- -
Net realized gains (0.24) - -
Total Distributions (0.65) (0.28) -
Net Asset Value, End of Year $12.75
$10.78 $10.30 Total Return 25.04% 7.40%
3.00%
Net Assets, End of Year (000's) $78,042
$23,196 $2,777 Ratios to Average Net
Assets: Expenses (2) 1.00% 1.00%
0.85%
Net investment income 3.80 3.84
1.93 Portfolio turnover rate 81%
118% -
Average commissions paid on equity
security transactions (3)
$0.06
- -
International Equity Portfolio 1995 1994
1993(1)
Net Asset Value, Beginning of Year $9.21 $10.05
$10.00 Income (Loss) From Operations:
Net investment income (2)*** 0.03 0.00**
0.00**
Net realized and unrealized
gain/(loss)on investments 0.78 (0.84)
0.05 Total Income (Loss) From Operations 0.81
(0.84)
0.05
Less Distributions:
Net investment income (0.04) - -
Net realized gains on security transactions Total
Distributions (0.04) - -
Net Asset Value, End of Year $9.98 $9.21
$10.05 Total Return 8.80% (8.36)%
0.50%
Net Assets, End of Year (000's) $28,979
$28,413 $5,867 Ratios to Average Net
Assets: Expenses (2)(4) 1.43% 1.30%
1.08%
Net investment income (loss) 0.35 0.31
(0.51) Portfolio turnover rate 34%
12%
- -
Average commissions paid on equity
security
transactions (3) $0.01 - </TABLE>
(1) For the period from December 3, 1993
(commencement of operations) to December 31, 1993.
(2) Expense ratios and the per share decrease in net
investment income before fees waivers and expense
reimbursements were as follows:
<TABLE>
<CAPTION>
Net Investment Income Expense Ratios
Without Waivers
Per Share Decrease and
Reimbursements
<S>
<C> <C> <C> <C>
<C>
<C>
Portfolio 1995 1994 1993 1995
1994
1993
Total Return N/A $0.01 $0.02 N/A
1.11%
4.14%
Internatioinal Equity N/A -** 0.02 N/A
1.51
2.96
</TABLE
(3) New SEC disclosure guidelines require that average
commissions per share be calculated and presented for the
current year only. (4) During the year ended December 31,
1995, the Portfolio has earned credits from the custodian
which reduce service fees incurred. If the credits are taken
into consideration, the ratios of expenses to average net
assets would be 1.37%.
* Total Return is not annualized, as it may not be
representative
of the total return for the year.
Annualized.
* The amount shown in this caption for each share
outstanding
throughout the period may not accord with the change in the
aggregate gains and losses in the portfolio securities for the
period because of the timing of purchases and withdrawals of
shares in relation to the fluctuating market values of the
portfolio.
** Amount represents less than $0.01.
*** Includes realized gains and losses from foreign currency
transactions.
10
<
#>
11
<
Smith Barney Series Fund>
11
<
Investment Goals and Policies of the Portfolios
>
11
<
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 1940 Act)
defined on page with table of contents 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; highgrade commercial paper of U.S. and
foreign issuers and other shortterm 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 from three to ten
years. The portion of the Portfolio's assets not invested in
intermediateterm U.S. government securities and U.S. corporate
bonds may be invested in longor 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 fixedincome 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
adviser, 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 from four to in excess of 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
fixedincome 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 investmentgrade 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 or in
unrated securities 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 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
TIMCO 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. TIMCO reserves the right
to remove an investment from the Portfolio if, in its
opinion, 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 nonU.S.
issuers in the form of depository 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 dividendpaying 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 income and equity securities without such an
emphasis. The Portfolio also may invest up to 10% of its
assets in securities rated less than investment-grade by
Moody's or S&P or comparable 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 nondividend 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
nonUnited 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 aboveaverage 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
securities held by the Portfolio 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-thecounter
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 their
equivalents.
Emerging Growth Portfolio
Goal - The Emerging Growth Portfolio's goal is to provide
capital appreciation.
Investment Policies - The Emerging Growth Portfolio seeks 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 does 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 thencurrent
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 shortterm 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 securityholder 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
securityholder 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 RateRelated 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 fixedincome obligations held by the Portfolios. The
market value of the Portfolios' fixedincome 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, fixedincome 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
mortgagerelated 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 mortgagerelated 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 ("interestonly") 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 interestonly government stripped mortgagebacked
securities and increasing the yield to maturity on principal-
only
government stripped mortgagebacked 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 overthe-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 fixedincome 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 securities. In addition,
medium- and lowerrated securities and comparable unrated
securities generally present a higher degree of credit risk.
Issuers of medium-, lowerrated 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 lowerrated 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 a
Portfolio to purchase and also may have the effect of
limiting the ability of the Portfolio 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, 1995, were
composed as follows: 0.38% rated BBB; 14.75% rated BB;
25.38% rated B; and 0.84% rated CCC. The percentages were
calculated on a dollar weighted average basis by determining
monthly the percentage of the Portfolio'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 futures 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-thecounter
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 mean between
the bid and asked prices 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-thecounter 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 exclusively to
Contract owners. To find out which insurance companies offer
Contracts that are eligible to invest in the Fund, call the
Fund at (212) 7239217. For further information, see the
description provided in the Contract 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 Contract
are described in the Contract prospectus. Mortality and
expense risk fees and other charges are also described in
the Contract prospectus.
Redeeming and Exchanging Shares
The Fund will redeem shares in response to full or
partial surrenders of a Contract or a transfer of money from
one Portfolio to another. Information on how to transfer
funds is described in the Contract prospectus. Generally,
payment upon redemption will be made on the third business
day 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. If the
request is received 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 Contract and
transfer money among Portfolios is included in the Contract
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. Net
investment income, including dividends on stocks and
interest on bonds or other
securities the Fund holds, is distributed to the
shareholders of the Portfolios as follows:
- - monthly for the Money Market Portfolio;
- - annually for the Appreciation, Diversified Strategic
Income, Emerging Growth, Equity Income, Equity Index, Growth
& Income, Intermediate High Grade, International Equity,
and Total Return 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-byPortfolio (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 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 longterm 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 that the separate accounts represented by
the Contracts should, for federal income tax purposes, be
considered the shareholders 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 a Contract owner to be considered the owner of the
shares of the Portfolio. Reference is made to the Contract
prospectus for information regarding the federal income tax
treatment of distributions.
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/or subinvestment
adviser and 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/or sub-investment advisers and
administrator of the Portfolios. The identities and
backgrounds of the Trustees and officers of the Fund,
together with certain additional information about them, are
contained in the Statement of Additional Information. By
virtue of the responsibilities assumed by the investment
advisers, the subinvestment 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 Travelers Group 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
March 1, 1996, in excess of $75 billion.
TIMCO, located at One Tower Square, Hartford, CT 06183
2030, provides investment advisory and management services
to investment companies affiliated with Holdings. TIMCO
renders investment advice to investment companies that had
aggregate assets under management as of March 1, 1996, of
approximately of $1.2 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
Diversified Strategic Income Portfolio's investments in
foreign securities and selects brokers and dealers that
execute the Portfolio's investments in foreign securities.
Global Capital Management renders investment advice to
institutional clients and investment companies with
aggregate assets under management, as of March 1, 1996, in
excess of $2 billion. VKAC, located at One Parkview
Plaza, Oakwood Terrace, Illinois, 60181, is a subsidiary of
Van Kampen American Capital, Inc. VKAC, together with its
predecessors, has been in the investment advisory business
since 1926. VKAC provides investment advice to investment
companies with aggregate assets under management as of
March 1, 1996, in excess of approximately $50 billion.
Portfolio Management
Appreciation Portfolio - Harry D. Cohen is a Vice President
and Investment Officer of the Fund and a Managing Director
of Smith Barney. Prior to July 1993, Mr. Cohen served as
Executive Vice President of Shearson Lehman Brothers Inc.
("Shearson Lehman Brothers").
Diversified Strategic Income Portfolio - James C. Conroy
is a Vice President and Investment Officer of the Fund. Mr.
Conroy has served as a Managing Director of SBMFM (and its
predecessors) since October 1989. Victor Filatov of Global
Capital Management is a Vice President and Investment
Officer of the Fund. Emerging Growth Portfolio - Gary
Lewis is a Vice President and Investment Officer of the
Fund. Mr. Lewis has served as a Portfolio Manager at VKAC
for over five years, and as Portfolio Manager for the Van
Kampen American Capital Emerging Growth Fund since April
1989.
Equity Income Portfolio - Jack S. Levande is a Vice
President and Investment Officer of the Fund, and a Managing
Director of SBMFM. Prior to October 1989, Mr. Levande was a
Senior Vice President of E.F. Hutton & Company Inc.
Equity Index Portfolio - Kent A. Kelley is an Investment
Officer of the Fund. Mr. Kelley is Chief Executive Officer
of, and has been with, TIMCO since 1986. Mr. Sandip A.
Bhagat is an
Investment Officer of the Fund and is President of TIMCO.
Mr.
Bhagat joined TIMCO in 1987.
Growth & Income Portfolio -
R. Jay Gerken is a Vice President and Investment Officer of
the Fund. Mr. Gerken has served as a Managing Director of
SBMFM (and its predecessors) since October 1989. George V.
Novello is a Vice President and Investment Officer of the
Fund. Mr. Novello has served as a Managing Director of SBMFM
(and its predecessors) since September 1990. From January
1990 until September 1990, Mr. Novello served as a Senior
Vice President of Grunthal Financial Corp.
Intermediate High Grade Portfolio - George Rupert Vernon,
Jr. is a Vice President and Investment Officer of the Fund.
Mr. Vernon is a Vice President of Smith Barney and a Fixed
Income Portfolio
Manager of Greenwich Street Advisers, a division of SBMFM.
International Equity Portfolio - Jeffrey Russell is a
Vice President and Investment Officer of the Fund. Mr.
Russell has been a Managing Director at Smith Barney since
1991.
Total Return Portfolio - John G. Goode is a Vice President
and Investment Officer of the Fund. Mr. Goode has been
President and Chief Executive Officer of what is now the
Davis Skaggs Investment Management Division of SBMFM since
1989. Money Market Portfolio - Phyllis Visalli-
Zahorodny is a Vice President and Investment Officer of the
Fund. Ms. Visalli Zahorodny is the Managing Director of
Taxable Money Markets at SBMFM. The Fund's management
discussion and analysis, and additional performance
information regarding the Portfolios of the Fund during the
fiscal year ended December 31, 1995, is included in the
Annual Report dated December 31, 1995. 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
PNC, located at 17th and Chestnut Streets, Philadelphia,
PA 19103, acts as custodian of the Appreciation, Emerging
Growth, Equity Income, Equity Index, Growth & Income,
Intermediate High Grade, Money Market and Total Return
Portfolios' investments generally.
The Bank of New York, located at 48 Wall Street, New York,
New York 10005, acts as the custodian of the International
Equity and Diversified Strategic Income Portfolios'
investments generally. The Transfer Agent, First Data
Investor Services Group, Inc., is located at Exchange Place,
Boston, Massachusetts, 02109.
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. Insurance companies offering the
Contracts pay Smith Barney for the services it provides and
the expenses it bears in distributing the Contracts,
including payment of commissions for sales. Insurance
companies offering the Contracts 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 July 30, 1993
and October 14, 1994, the Fund changed its name to Smith
Barney Shearson Series Fund and Smith Barney Series Fund,
respectively. 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 Contract owners concerning
the voting of shares, please refer to the Contract
prospectus. Generally, shares of the Fund vote by individual
Portfolio on all matters except (a) matters affecting only
the interests of more than
one of the Portfolios, in which case shares of the affected
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. The Fund sends to each owner of a Contract
a semi-annual 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. Contract
owners may make inquiries regarding the Fund and its
Portfolios, including the current performance of the
Portfolios, of a Smith Barney Financial Consultant.
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
tenyear periods (if applicable), and may be given for other
periods as well
(such as from commencement of the Portfolio's operations, or
on a yearby-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, of 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 indices 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 agreedupon 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 33 1/3% 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
whenissued 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-thecounter 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 agreedupon 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 the
Portfolio's custodian 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 the Portfolio's custodian 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-thecounter 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 the Portfolio's
Custodian. 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
brokerdealer, 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 shortterm
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 Portfolio and that of the
S&P 500 will be above 0.95, 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
Portfolio's 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.> Symphony
IDSLife Insurance Company
IDSTower 10
Minneapolis, Minnesota 55440-0010>
40
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recycled paper with a minimum
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Part B
SMITH BARNEY SERIES FUND
388 Greenwich Street, New York, New York 10013 (212)
723 9218
STATEMENT OF ADDITIONAL INFORMATION
April 29, 1996
This Statement of Additional Information expands
upon
and supplements the information contained in the
current Prospectuses of Smith Barney Series Fund (the
"Fund"), relating to one or more of the ten investment
portfolios offered by the Fund (the "Portfolios"),
dated April 29, 1996, 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.
</TABLE>
<TABLE>
<S> <C>
Investment Goals and Policies of the Portfolios 2
Management of the Fund 25
Purchase of Shares (See in the Prospectus
"How to Use the Fund") 34
Redemption of Shares (See in the Prospectus "How
to Use the Fund") 35
Net Asset Value 35
Performance Data (See in the Prospectus "The
Portfolios' Performance") 36
Taxes (See in the Prospectus "Dividends and Taxes") 39
Custodians and Transfer Agent 41
Financial Statements 42
Appendix 43
</TABLE>
INVESTMENT GOALS AND POLICIES OF THE PORTFOLIOS
The Fund's Prospectuses discuss the investment goals
of the 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 Portfolios'
investment advisers (the "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 (Appreciation,
Diversified Strategic Income, Emerging Growth, Equity
Index, Equity Income, Growth &
Income, Intermediate High Grade,
International Equity and Total Return Portfolios)
The Portfolios have the ability to lend
portfolio securities to brokers, dealers and other
financial organizations. Such loans, if and when made, may
not exceed 33.33% 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 Prospectuses, 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 (Diversified Strategic
Income,
Emerging Growth, Equity Income, Equity Index, Growth
& Income, Intermediate High Grade, International Equity,
and Total Return Portfolios)
The 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-
ofthe-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-themoney
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-thecounter 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-thecounter
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 overthe-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, Emerging
Growth, International Equity and Total Return Portfolios)
The Portfolios may purchase call options on
stock
indexes listed on U.S. securities exchanges for the
purpose of hedging their portfolios. 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 (Diversified Strategic Income,
Emerging Growth, Equity Income, Equity Index, Growth
& Income, Intermediate High Grade, International
Equity and Total Return 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. Each of the above Portfolios 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-tomarket." 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 (Diversified Strategic Income, Emerging
Growth, Equity
Income, Growth & Income, Intermediate High
Grade,
International Equity and Total Return Portfolios)
To secure an advantageous price or yield,
these Portfolios may purchase certain securities on
a whenissued basis or purchase or sell securities for
delayeddelivery. 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 delayeddelivery 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 the Fund's custodian, PNC Bank,
National Association ("PNC") (or, in the case of the
International Equity or Diversified Strategic Income
Portfolios, The Bank of New York (collectively with PNC
referred to herein as the "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 thenavailable 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 (Diversified Strategic
Income, Growth & Income, and Intermediate High Grade
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 adjustablerate 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
adjustablerate 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 (Appreciation, Emerging Growth, Equity
Income, Growth & Income, International Equity and Total
Return Portfolios)
The Portfolios may invest in the
securities of foreign and U.S. issuers in the form of
American Depositary Receipts ("ADRs") and European
Depositary 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 Depositary 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, Emerging Growth, and International
Equity
Portfolios)
The 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 the
Custodian 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 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
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 it enters into an
offsetting contract for the purchase of the currency,
the Portfolio will realize a gain to the extent the
price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase.
Should
forward prices increase, the Portfolio will realize a
loss to the extent the price of the currency it has
agreed to purchase exceeds the price of the currency
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, Emerging Growth and International Equity
Portfolios)
The 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 (Appreciation, Emerging
Growth, Equity Income, Growth & Income, Intermediate
High Grade, International Equity and Total Return
Portfolios)
The 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 (Appreciation, Diversified Strategic
Income, Emerging Growth, Equity Income, Intermediate
High Grade, International Equity and Total Return
Portfolios)
The 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 (Appreciation, Emerging Growth, Equity
Income, Growth &
Income, International Equity and Total Return
Portfolios)
The 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 (Emerging Growth, Equity
Income, International Equity and Total Return
Portfolios)
The 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. The extent to which the
Portfolio may make short sales of common stock may be
limited by the requirements contained in Section 401(a)
of the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated
investment company.
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 Portfolio's
fundamental policy may not be changed without the
vote of a "majority" of the outstanding voting
securities of that Portfolio. "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 that
Portfolio 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 onethird of the
Portfolio's assets. In the event that the asset
coverage for a Portfolio's borrowings falls below 30%,
the Portfolio would reduce, within three days
(excluding Saturdays, Sundays and holidays), the
amount of
its
borrowings in order to provide for 30% 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 Portfolios
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. dollardenominated
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.)
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 subinvestment 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 1995 and 1994 fiscal years, the
portfolio turnover rates for Portfolios having
operations during the stated periods were as follows:
<TABLE>
<S> <C> <C>
Portfolio December 31, December
31, 1995
1994
Appreciation 43% 61%
Diversified Strategic 46 54
Income
Emerging Growth 121 66
Equity Income 33 21
Equity Index 5 1
Growth & Income 17 77
Intermediate High Grade 121 90
International Equity 34 12
Total Return 81 118
</TABLE>
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. 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 overthe-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-thecounter 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 and Intermediate High Grade
Portfolio, which did not pay any brokerage
commissions during these time periods.
<TABLE>
<CAPTION>
Fiscal Year Ended
December 31, 1995
<S> <C> <C>
Brokerage Total
Commissio
Portfolio Brokerage ns
Paid
Commission to
Smith s Paid
Barney
Appreciation $73,446
$2,370
Diversified Strategic 800 ----
- --
- -
Income
Emerging Growth 34,596
1,039
Equity Income 73,350
900
Equity Index 3,290 ----
- --
- -
Growth & Income 14,338
198
International Equity 95,068
3,578
Total Return 120,351 ----
- --
- -
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended
December 31, 1994
<S> <C> <C>
Brokerage Total
Commissio
Portfolio Brokerage ns
Paid
Commission to
Smith s Paid
Barney
Appreciation $ 100,831 $
5,952
Diversified Strategic -
- --
- --
Income 2,515 --
Emerging Growth 21,824 -
- --
- --
-
Equity Income 54,816
8,442
Equity Index -
- --
- --
1,377 --
Growth & Income 55,941
4,380
International Equity 144,775 -
- --
- --
-Total
Return 73,782 -
- --
- --
--
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended
December 31, 1993
<S> <C> <C>
Brokera
ge
Commiss
io ns
Paid to
Total
Shearson
Portfolio Brokerage Lehman
Commissio
Brothers ns Paid
Inc.*
and/or
Smith
Barney
Inc.
Appreciation $ 67,361 $ 2,499
Diversified Strategic
Income
Emerging Growth -------
1,342
Equity Income 7,518
52,560
Equity Index ------
2,727
Growth & Income 4,818
42,972
International Equity 416
7,413
Total Return Portfolio ------
1,410
</TABLE>
* Shearson Lehman Brothers Inc. was Smith
Barney's predecessor as the Fund's distributor.
<TABLE>
<CAPTION>
Fiscal Year
Ended
December 31,
1995
<S> <C> <C>
% of
Aggregate % of Aggregate
Dollar Amount of
Brokerage
Transactions
Portfolio Commissions paid involving
to Commissions
paid Smith Barney to Smith
Barney
Inc. Inc.
Appreciation 3.22%
Diversified Strategic -----
Income
Emerging Growth 3.00
Equity Income 1.22
Equity Index -----
Growth & Income 1.38
International Equity 3.76
Total Return -----
</TABLE>
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 investment 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
brokerdealer 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 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:
<TABLE>
<CAPTION>
Name Service
<S> <C>
SBMFM Investment Adviser to
Money
Market, Intermediate
High Grade,
Diversified Strategic
Income, Equity
Income, Growth
& Income,
Appreciation and
International
Equity Portfolios;
Administrator to
each Portfolio
Davis Skaggs Investment Management,
Investment
Adviser to Total
a division of SBMFM ("Davis Skaggs")
Return Portfolio
Global Capital Management Sub-
Investment
Adviser to
Diversified
Strategic Income
Portfolio
Travelers Investment Management
Investment
Adviser to
Company ("TIMCO") Equity
Index
Portfolio
Van Kampen American Capital
Investment
Adviser to Emerging
Asset Management, Inc. ("VKAC")
Growth Portfolio
Smith Barney Distributor
PNC Custodian
for
Appreciation, Emerging
Growth, Equity
Income, Equity Index,
Growth &
Income, Intermediate High
Grade, Money Market
and Total Return
Portfolios
The Bank of New York Custodian
for
Diversified Strategic
Income and
International Equity
Portfolios
First Data Investor Services Group,
Transfer
and Dividend Paying
Inc. (the "Transfer Agent") Agent
</TABLE>
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, 1996, Trustees and officers
of
the Fund as a group owned no shares of the Fund.
Herbert Barg, Trustee (Age 72). Private Investor.
His address is 273 Montgomery Avenue, Bala Cynwyd,
Pennsylvania 19004.
*Alfred J. Bianchetti, Trustee (Age 73).
Retired;
formerly Senior Consultant to Dean Witter Reynolds Inc.
His address is 19 Circle End Drive, Ramsey, New Jersey
07466.
Martin Brody, Trustee (Age 74). Vice Chairman of
the Board of Restaurant Associates Corp. His address
is HMK Associates, Three ADP Boulevard, Roseland, New
Jersey 07068.
Dwight B. Crane, Trustee (Age 58). Professor,
Graduate School of Business Administration, Harvard
University; Business Consultant. His address is
Graduate School of Business
Administration, Harvard University, Boston,
Massachusetts 02163.
Burt N. Dorsett, Trustee (Age 65). 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 69). Chairman of the
Board and Chief
Executive Officer of The Dress Barn, Inc. His
address is 30 Dunnigan Drive, Suffern, New York
10901.
Stephen E. Kaufman, Trustee (Age 63). Attorney.
His address is 277 Park Avenue, New York, New York
10172.
Joseph J. McCann, Trustee (Age 65).
Financial
Consultant. His address is 200 Oak Park Place,
Pittsburgh, Pennsylvania 15243.
*Heath B. McLendon, Chairman of the Board and
Investment Officer (Age 62). Managing Director of
Smith Barney and Chairman of Smith Barney Strategy
Advisers Inc.; prior to July 1993, Senior Executive
Vice President of Shearson Lehman Brothers Inc.
("Shearson Lehman Brothers"), Vice Chairman of
Shearson Asset Management, a Director
of
PanAgora Asset Management, Inc. and PanAgora
Asset
Management Limited. Mr. McLendon is Chairman of the
Board and Investment Officer of 41 Smith Barney Mutual
Funds. His address is 388 Greenwich Street, New York,
New York 10013.
Cornelius C. Rose, Jr., Trustee (Age 62).
President, Cornelius C. Rose Associates, Inc.,
Financial Consultants, and Chairman and Director of
Performance Learning Systems, an educational
consultant. His address is P.O. Box 355, Fair Oaks,
Enfield, New Hampshire 03748.
John C. Bianchi, Vice President and Investment
Officer
(Age 40). Investment Officer of SBMFM; prior to
November 7, 1994, Managing Director of Greenwich
Street Advisors, a division of SBMFM; prior to July
1993, Managing Director of Shearson Lehman Advisors.
Mr. Bianchi is Vice President and
Investment Officer of six other Smith Barney Mutual
Funds. His address is 388 Greenwich Street, New York,
New York 10013.
Sandip A. Bhagat, Investment Officer (Age 36).
President of TIMCO; prior to 1995, Senior Portfolio
Manager for TIMCO's quantitative active equity
strategies. His address is One Tower Square, Hartford,
Connecticut 06183-2030.
Harry D. Cohen, Vice President and Investment
Officer (Age 55). President and Director of Smith
Barney Investment Advisors, a division of SBMFM;
Executive Vice President of Smith Barney; prior to
July 1993, President of Asset Management, a
division of Shearson Lehman Brothers.
Mr.
Cohen is Vice President and Investment Officer of two
other Smith Barney Mutual Funds. His address is 388
Greenwich Street, New York, New York 10013.
James C. Conroy, Vice President and Investment
Officer (Age 41). Investment Officer of SBMFM; prior to
November 7, 1994, Managing Director of Greenwich
Street Advisors, a division of SBMFM; prior to July
1993, Managing Director of Shearson Lehman Advisors.
Mr. Conroy is Vice President and Investment Officer of
three other Smith Barney Mutual Funds. His address is
388 Greenwich Street, New York, New York 10013.
Victor Filatov, Vice President and Investment
Officer (Age 44). Managing Director of Smith Barney,
President and Director of Smith Barney Global Capital
Management Inc.; prior to 1993, Vice President of J.P.
Morgan Securities Inc. Mr. Filatov is Vice President and
Investment Officer of four other Smith Barney Mutual
Funds. His address is 10 Piccadilly, London, WIV
9LA,
U.K.
R. Jay Gerken, Vice President and Investment Officer
(Age 45). Managing Director of Greenwich Street
Advisors, a
division of SBMFM; prior to July 1993, Managing Director
of Shearson Lehman Advisors. Mr. Gerken is Vice
President and Investment Officer of one other Smith
Barney Mutual Fund. His address is 388 Greenwich
Street, New York, New York 10013.
John G. Goode, Vice President and Investment Officer
(Age 42). Managing Director of Smith Barney; President
and Chief Executive Officer of Davis Skaggs Investment
Management, a division of
SBMFM. Mr. Goode is Vice President and
Investment Officer of two other Smith Barney Mutual
Funds. His address is One Sansome Street, San Francisco,
California 94104.
Peter Hable, Vice President and Investment Officer
(Age 37). Investment Officer of SBMFM. His address is
One Sansome Street, San Francisco, California 94104.
Kent A. Kelley, Investment Officer (Age 46).
Chief Executive Officer of TIMCO; prior to 1995,
President and Chief Investment Officer of TIMCO; prior
to 1992, Executive Vice President of TIMCO. His address
is One Tower Square, Hartford, Connecticut 06183-2030.
Jack S. Levande, Vice President and Investment
Officer (Age 49). Investment Officer of SBMFM; prior to
November 7, 1994, Managing Director of Greenwich
Street Advisors, a division of SBMFM; prior to July
1993, Managing Director of Shearson Lehman Advisors.
Mr. Levande is Vice President and
Investment Officer of two other Smith Barney Mutual
Funds. His address is 388 Greenwich Street, New York,
New York 10013.
Gary Lewis, Vice President and Investment Officer
(Age 42). Senior Vice President of Van Kampen American
Capital Asset Management, Inc. His address is
2800 Post Oak Boulevard, Houston, Texas 77056.
George Mueller, Vice President and Investment
Officer (Age 55). Investment Officer of SBMFM; prior to
November 7, 1994, Senior Vice President of Greenwich
Street Advisors, a division of SBMFM; prior to July
1993, Managing Director of Shearson Lehman Advisors.
Mr. Mueller is Vice President and Investment Officer
of two other Smith Barney Mutual Funds. His address
is 388 Greenwich Street, New York, New York 10013.
George V. Novello, Vice President and Investment
Officer (Age 53). Managing Director of Greenwich Street
Advisors, a division of SBMFM; prior to July 1993,
Managing Director of Shearson Lehman Advisors. Mr.
Novello is Vice President and Invcestment Officer of
two other Smith Barney Mutual Funds. His address is
388 Greenwich Street, New York, New York 10013.
Jeffrey Russell, Vice President and Investment
Officer (Age 38). Managing Director of Smith Barney;
Vice President and Assistant Secretary of Fenimore
International Management Corporation. Mr. Russell is
Vice President and Investment Officer of seven
other Smith Barney Mutual Funds. His address is 388
Greenwich Street, New York, New York 10013.
Alan T. Sachtleben, Vice President and Investment
Officer (Age 53). Executive Vice President and
Director of Van Kampen American Capital Asset
Management, Inc. His address is 2800 Post Oak
Boulevard, Houston, Texas 77056.
George Rupert Vernon, Jr., Vice President and
Investment Officer (Age 36). Vice President of Smith
Barney and a Fixed Income Portfolio Manager of
Greenwich Street Advisors, a division of SBMFM. His
adress is 388 Greenwich Street, New York, New York
10013.
Jessica M. Bibliowicz, President (Age 36).
Executive
Vice President Smith Barney, prior to 1994, Director
of Sales and Marketing for Prudential Mutual Funds;
prior to 1990, First Vice President of Asset
Management, a division of Shearson Lehman
Brothers Inc. Ms.
Bibliowicz serves as President of 39 Smith Barney
Mutual Funds. Her address is 388 Greenwich Street, New
York, New York 10013.
Phyllis Visalli-Zahorodny, Vice President and
Investment Officer (Age 38). Managing Director of
Greenwich Street Advisors, a division of SBMFM; prior
to July 1993, Managing Director of Shearson Lehman
Advisors. Ms. Visalli-Zahorodny is Vice President and
Investment Officer of six other Smith Barney Mutual
Funds. Her address is 388 Greenwich Street, New York,
New York 10013.
Lewis E. Daidone, Senior Vice President and
Treasurer (Age 38). Managing Director of Smith Barney;
Director and Senior Vice President of SBMFM. Mr.
Daidone serves as Senior Vice President and
Treasurer of 41 Smith Barney Mutual Funds. His
address is 388 Greenwich Street, New York, New York
10013.
Christina T. Sydor, Secretary (Age 45).
Managing Director of Smith Barney; General Counsel and
Secretary of SBMFM. Ms. Sydor serves as Secretary of
41 Smith Barney Mutual Funds. Her address is 388
Greenwich Street, New York, New York 10013.
No officer, director or employee of Smith Barney,
any of the Portfolios' Adviser or sub-investment
advisers 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 or any of their affiliates a fee of
$5,000 per annum plus $500 per in-person meeting and
$100 per telephonic meeting. The Fund pays a
Trustee emeritus who is not a director, officer or
employee of Smith Barney, the Advisers, or any of their
affiliates a fee of $2,500 per annum plus $250 per in
person meeting and $50 per telephonic meeting. Each
Trustee is reimbursed for travel and out-of-pocket
expenses incurred to attend such meetings.
For the calendar year ended December 31, 1995,
the Trustees of the Fund were paid the following
compensation: <TABLE>
<S> <C> <C>
Aggregate
Compensatio
n
Aggregate from the
Smith Compensation
Barney
Trustee (*) from the Fund Mutual
Funds
Herbert Barg (18) $1,750** $81,850
Alfred Bianchetti (13) 1,750** 40,850
Martin Brody (21) 1,750** 93,300
Dwight B. Crane (24) 1,750** 119,250
Burt N. Dorsett (13) 7,000 51,400
Elliot S. Jaffe (13) 7,000 53,250
Stephen E. Kaufman (15) 1,750** 57,000
Joseph J. McCann (13) 1,750** 40,750
Heath B. McLendon (41) ------- --------
Cornelius C. Rose (13) 7,000 54,100
</TABLE>
* Indicates number of funds within the Smith
Barney
Mutual Fund complex for which each Trustee serves
as Director/Trustee.
** First elected to the Board of Trustees of the Fund
on October 17, 1995.
Pursuant to the Fund's deferred compensation plan,
Mr. Dorsett elected to defer the payment of all
of the compensation due to him from the Fund.
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 each of the Portfolios
were most recently approved by the Board of Trustees,
including a majority of the Trustees who are not
interested persons, on July 19, 1995. SBMFM serves
as administrator to each Portfolio pursuant to a
separate written agreement with each Portfolio (the
"Administration Agreement"). The Administration
Agreement was most recently approved by the Fund's
Board of
Trustees, including a majority of the
disinterested Trustees, on July 19, 1995. 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 and Global Capital Management under its
subinvestment advisory agreement are described
in the Prospectus.
SBMFM is a wholly owned subsidiary of Smith
Barney Holdings Inc. ("Holdings"), which, in turn, is
a wholly owned subsidiary of Travelers Group Inc.
("Travelers"). Travelers is a diversified financial
services holding company principally engaged in
four business segments: Investment
Services, Consumer
Finance Services, Life Insurance Services and
Property & Casualty Insursance Services.
VKAC is a diversified asset management company
with more than two million retail investor accounts,
capabilities for managing institutional portfolios, and
over $50 billion under management or supervision.
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
SBMFM as administrator are described in the
Prospectus under "Management of the Fund." In
addition to those services, SBMFM 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. SBMFM bears all
expenses in connection with the performance of its
services.
Each Adviser and Global Capital Management pays
the salaries of all officers and employees who are
employed by both them and the Fund, maintains office
facilities for the Fund and bears 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,
1995, 1994 and 1993 by their respective Adviser:
<TABLE>
<CAPTION>
Portfolio December December
December
31, 1995 31, 1994
31,1993
<S> <C> <C> <C>
Appreciation $488,187 $444,244
$364,632
Diversified Strategic 252,838 238,422
133,663
Income
Emerging Growth 108,035 68,528
431
Equity Income 216,900 223,055
206,623
Equity Index 50,171 38,236
25,538
Growth & Income 146,172 127,450
79,917
Intermediate High Grade 61,355 49,279
25,734
International Equity 235,739 193,164
1,422
Money Market 18,434 19,592
7,643
Total Return 247,410 78,167
419
</TABLE>
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 Lehman Brothers Global Asset Management
Limited ("LBGAM"), the sub-investment adviser of the
Portfolio prior to March 22, 1994. For the period from
January 1, 1994 through March 22, 1994, the
Diversified Strategic Income Portfolio
incurred $14,919 in sub-investment advisory fees. For
the period from March 23, 1994 through December 31,
1994, the Diversified Strategic Income Portfolio
incurred $64,555 in sub-investment advisory fees.
The Portfolios then in existence incurred the
following sub-investment advisory and administration
fees for the fiscal years ended December 31, 1993,
which were partially waived by The Boston Company
Advisors, Inc. ("Boston Advisors"), the sub-investment
adviser and administrator of the Portfolios prior to
April 20, 1994 and the Portfolios incurred
administration fees, which were partially waived by
SBMFM, the administrator to the Portfolio's after April
20, 1994, for the year ended December 31, 1994 as
follows: <TABLE> <CAPTION>
Portfolio December 31, December
31,
1994 1993
<S> <C> <C>
Appreciation $ 161,543 $ 132,593
Diversified Strategic 105,966
59,406
Income
Emerging Growth 18,274
115
Equity Income 99,135
91,832
Equity Index 19,119
12,769
Growth & Income 56,644
35,519
Intermediate High Grade 24,639
12,867
International Equity 45,450
335
Money Market 13,062
5,096
Total Return 28,424
152
</TABLE>
For the year ended December 31, 1995, the
Advisers, administrator, Transfer Agent and
Custodian waived fees to the Portfolios as
follows:
<TABLE>
<CAPTION>
Total Fee
Waivers
Trans
Portfolio and Advise Administ fer
Custod
Reimbursem r rator
Agent
ian*
ents
<S> <C> <C> <C> <C>
<C>
Money Market $ 28,195 $ $ 10,510 $ 519 $
15,764
1,402
Intermediate 14,361
High Grade 7,291 3,592 145
327
Equity Index 21,657
8,065 3,972 310
2,468
Emerging Growth 27,302
16,260 4,066 221
1,490
</TABLE>
* Boston Safe Deposit and Trust Company served as
the Portfolio's custodian prior to May 15,1995.
For the year ended December 31, 1995, IDS
Life Insurance Company ("IDS Life") reimbursed
expenses to the Portfolios as follows:
<TABLE>
<S> <C>
Emerging Growth $ 5,265
Equity Index 6,842
Intermediate High Grade 3,006
</TABLE>
For the year ended December 31, 1994, the Advisers
and administrator waived fees to the Portfolios as
follows: <TABLE>
<CAPTION>
Portfolio Adviser Boston
Advisors <S> <C>
<C>
Emerging Growth $ 10,509 $
2,802
Equity Index 9,185
4,592
Intermediate High Grade 6,939
3,470
International Equity 14,886
3,503
Money Market 6,198
4,132
Total Return 4,652
1,692
</TABLE>
For the year ended December 31, 1994, IDS
Life reimbursed expenses to the Portfolios as follows:
<TABLE>
<S> <C>
Emerging Growth $ 18,068
Equity Index
25,496
Intermediate High Grade
12,616
International Equity
23,712
Money Market
16,616
Total Return
7,873
</TABLE>
For the year ended December 31, 1993, the Advisers
and administrator waived fees to the Portfolios as
follows: <TABLE>
<CAPTION>
Portfolio Adviser Boston
Advisors <S> <C>
<C>
Diversified Strategic $ 1,544 $ 685
Income
Emerging Growth 308
82
Equity Index 8,795 4,397
Growth & Income 630
280
Intermediate High Grade 8,383 4,191
International Equity 1,048
246
Money Market 5,078 3,385
Total Return* 419 152
</TABLE>
* For the year ended December 31, 1993, the Adviser
and administrator also reimbursed expenses in the
amounts of $52 and $19, respectively, to the Total
Return Portfolio.
For the year ended December 31, 1993, IDS
Life reimbursed expenses to the Portfolios as follows:
<TABLE>
<S> <C>
Diversified Strategic Income $ 2,816
Emerging Growth
2,915
Equity Index
28,169 Growth & Income
1,085
Intermediate High Grade
16,459 International Equity
1,902
Money Market
17,889 Total Return
1,472
</TABLE>
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 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 and SBMFM
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 and SBMFM, as
appropriate, will reduce their fees to 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
31,1995. 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 LLP ("Peat
Marwick"),
independent
auditors, 345 Park Avenue, New York, New York 10154,
has been selected as the Fund's independent auditor to
examine and report on the Fund's financial statements
and highlights for the fiscal year ended December 31,
1996.
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
July 30, 1993 and October 14, 1994, the Trust changed
its name from Shearson Series Fund to Smith Barney
Shearson Series Fund and its current name, Smith
Barney Series Fund, respectively.
In the interest of economy and
convenience,
certificates representing shares in the Fund are
not
physically issued. The Transfer Agent 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 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
"Contract") offered by certain insurance
companies
designated by the Fund, having a voting interest in
the relevant subaccount (the "Subaccount"). For a
discussion of the rights of Contract owners
concerning the voting of shares, please refer to the
Contract prospectus.
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 a Contract 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 a Contract from a life insurance company
designated by the Fund and directing the allocation of
part or all of the net
purchase payment to one or more of ten subaccounts,
each of which invests in a Portfolio as permitted under
the Contract prospectus. Investors should read
this Statement of
Additional Information and the Fund's Prospectus dated
April 29, 1996 along with the Contract prospectus.
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 Contract, as described in the Contract 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
Contract prospectus.
Payment upon redemption of shares of a
Portfolio is normally made within three 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 Contract.
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, SBMFM, 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 SBMFM, 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 dollarweighted 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 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.
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-, fiveor 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):
<TABLE>
<CAPTION>
Per annum
for
the period from
For the one-year
commencement of Portfolio period
operations
ended December
through
31, 1995 December
31,
1995
<S> <C> <C>
Appreciation 28.84% 10.44 %
*
Diversified Strategic 16.18% 6.57
% *
Income
Emerging Growth 42.89% 16.62%
**
Equity Income 32.47% 10.07 %
*
Equity Index 35.81% 13.22%
*
Growth & Income 30.49% 10.37%
*
Intermediate High Grade 17.76%
6.99% *
International Equity 8.80% 0.10%
**
Total Return 25.04% 16.91%
**
</TABLE>
* 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
tenyear 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 of investment advisory
and
administration fees and reimbursement of expenses):
<TABLE>
<CAPTION>
Per annum
for
the period from
For the one-year commencement
of Portfolio period
operations
ended December through
31, 1995 December
31,
1995
<S> <C> <C>
Appreciation 28.84% 51.93%*
Diversified Strategic 16.18% 30.71%*
Income
Emerging Growth 42.89% 37.61%**
Equity Income 32.47% 49.79%*
Equity Index 35.81% 68.70%*
Growth & Income 30.49% 51.52%*
Intermediate High Grade 17.76% 32.92%*
International Equity 8.80% 0.20%**
Total Return 25.04% 38.32%**
</TABLE>
* Portfolio commenced operations on October 16,
1991.
** Portfolio commenced operations on December 3,
1993.
It is important to note that the
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 a 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.
(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
GNPweighted 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 and 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 indices, 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-
tomarket 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. Each 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
certain of the life insurance
companies offering Contracts intend
to qualify each of the Subaccounts
as a "segregated asset account"
within the meaning of the Code. For a
Subaccount to qualify as a segregated
asset account, the Portfolio in which
such Subaccount holds shares must
meet the
diversification requirements of
Section 817(h) of the Code and the
regulations promulgated thereunder.
To meet those requirements, a
Portfolio 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
Contract owners. However, in the
event a Subaccount is not so
qualified, all annuities allocating
any amount of premiums to such
Subaccount will not qualify as
annuities for federal income tax
purposes and the holders of such
annuities would be taxed on any income
on the annuities 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
PNC, located at 17th and
Chestnut Streets,
Philadelphia, Pennsylvania 19103,
serves as the custodian of the Fund
in respect to all Portfolios except
Diversified Strategic Income and
International Equity Portfolios
pursuant to a custodian agreement.
The Bank of New York, located at 48
Wall Street New York, New York 10015,
serves as custodian of Diversified
Strategic Income Portfolio and
International Equity Portfolio
pursuant to a custodian agreement.
Under the custodian agreements, the
respective Custodian holds the Fund's
portfolio securities and keeps all
necessary accounts and records. For
its services, the Custodian 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-ofpocket expenses and
costs of any foreign and U.S.
subcustodians).The assets of the Fund
are held under bank custodianship in
compliance with the 1940 Act.
The Transfer Agent, located at
Exchange Place, Boston, Massachusetts
02109, serves as the Fund's
transfer and dividend-paying agent.
Under the
transfer agency agreement, the Transfer
Agent 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, the Transfer Agent
receives fees from the Fund computed
on the basis of the number of
shareholder accounts that the
Transfer Agent maintains for the Fund
during the month and is reimbursed for
out-ofpocket expenses.
FINANCIAL STATEMENTS
The Fund's Annual Report for
the fiscal year ended December 31,
1995, is incorporated herein by
reference 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 longterm 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 A1+. Capacity for timely
payment on commercial paper rated A2 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
Prime1, 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")
ShortTerm 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.
SMITH BARNEY SERIES
FUND PART C
Item 24. Financial Statements and
Exhibits (a) Financial Statements:
Included in Part A:
Financial Highlights
Included in Part B:
The Registrant's Annual Report for the
fiscal year ended December 31, 1995 and the
Report of Independent Accountants are
incorporated by reference to the Definitive 30D
filed on March 15, 1996 as Accession #91155-96
000117.
Included in Part C:
Consent of Independent Auditors is filed
herein.
(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
PostEffective Amendment No. 6 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) Specimen certificates for shares of beneficial
interest in the Money Market Portfolio,
Intermediate High Grade Portfolio, Diversified
Strategic Income Portfolio, Equity Income
Portfolio, Equity Index Portfolio, Growth and
Income Portfolio and Appreciation 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").
(5)(a) Investment Advisory Agreement dated April 1,
1995
between the Registrant and Travelers Investment
Management Company relating to Equity Index
Portfolio, is incorporated by reference to Post
Effective Amendment No. 10 to the Registrant's
Registration Statement as filed with the SEC
on May 3, 1995 ("Post-Effective Amendment No.
10").
(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").
(c) 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.
(d) 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.
(e) Investment Advisory Agreement with American
Capital Asset Management, Inc. relating to
Emerging Growth Portfolio, is incorporated by
reference to Post-Effective Amendment No. 10.
(f) 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").
(g) 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) Form of Custody Agreement between the
Registrant and PNC Bank, National Association
is incorporated by reference to Post-Effective
Amendment No. 11 to the Registration Statement
as filed with the SEC on September 6, 1995
("PostEffective Amendment No. 11").
(b) Form of Custody Agreement between the
Registrant and The Bank of New York is filed
herein.
(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 are
incorporated by reference to Post-Effective
Amendment No. 10.
(b) 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 is filed
herein.
(12) Not Applicable.
(13) Purchase Agreement is incorporated by
reference
to
Pre-Effective Amendment No. 3 to the
Registration Statement filed with the SEC on
October 15, 1991("Pre-Effective Amendment No.
3").
(14) Not Applicable.
(15) Not Applicable.
(16) Performance Data is incorporated by reference
to
Post-Effective Amendment No. 1to the
Registration Statement filed with the SEC on
February 28, 1992.
(17) Financial Data Schedule is filed herein.
(18) Not Applicable.
Item 25. Persons Controlled by or under Common Control
with Registrant
Shares of the Registrant will be offered to The
Travelers Insurance Company ("Travelers"), a
corporation organized under the laws of the State
of Connecticut, for allocation to one or more
separate subaccounts of the Travelers Fund BD for
Variable Annuities. Travelers is a wholly owned
subsidiary of Travelers Group Inc.
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Holders by Class
Title of Class as of
April
1, 1996
Shares of beneficial interest,
par value $.001 per share
Appreciation Portfolio
2
Diversified Strategic Income Portfolio
2
Emerging Growth Portfolio
2 Equity Income Portfolio
2 Equity Index Portfolio
2 Intermediate High Grade Portfolio
3
International Equity Portfolio
2
Growth & Income Portfolio
2 Money Market Portfolio
2 Total Return 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 Travelers Group 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 Investment Advisers
Act of 1940 (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 one of the Registrant's
investment advisers. 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 Asset Management. 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. 8013701).
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).
Item 28(a). Business and Other Connections of
Investment Adviser
Investment Adviser - - Van Kampen American Capital Asset
Management, Inc.
Van Kampen American Capital Asset Management Inc.
("VKAC"), is located at One Parkview Plaza, Oakwood
Terrace, Illinois 60181 and through its predecessors,
has been in the investment counseling business since
1926. VKAC is a wholly owned subsidiary of Van Kampen
American Capital, Inc.
The list required by this Item 28 of officers and
directors of VKAC, 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 VKAC pursuant to the Advisers Act (SEC File
No. 801-1169).
Item 28(a). Business and Other Connections of
Investment Adviser
Investment Adviser -- Travelers Investment Management
Company
Travelers Investment Management Company ("TIMCO"), is
located at One Tower Square, Hartford, Connecticut
06183, and has been in the investment counseling
business since 1976. TIMCO is a wholly owned subsidiary
of Travelers Group Inc.
The list required by this Item 28 of officers and
directors of TIMCO, 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 TIMCO pursuant to Advisers Act (SEC File
No. 80107212).
Item 29. Principal Underwriters
Smith Barney Inc. ("Smith Barney") currently acts
as a distributor for Smith Barney Managed Municipals
Fund Inc., Smith Barney California Municipals
Fund Inc., Smith Barney
Massachusetts Municipals Fund, Smith Barney
Managed Government Fund Inc., Smith Barney Aggressive
Growth Fund Inc., Smith Barney Appreciation
Fund
Inc., Smith Barney
Principal Return Fund, Smith Barney Income Funds,
Smith Barney Equity Funds, Smith Barney Investment
Funds Inc., Smith Barney Natural Resources 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., Smith
Barney/Travelers Series Fund, Smith Barney Fundamental
Value Fund Inc., Smith Barney Series Fund, Consulting
Group Capital Markets Funds, Smith Barney Investment
Trust, Smith Barney Adjustable Rate Government
Income
Fund, Smith Barney Oregon Municipals Fund, Smith
Barney Funds, Inc., Smith Barney Muni Funds, Smith
Barney World Funds, Inc., Smith Barney Money Funds,
Inc., Smith Barney Municipal Money Market Fund, Inc.,
Smith Barney Variable Account Funds, Smith Barney U.S.
Dollar Reserve Fund (Cayman), Worldwide Special
Fund,
N.V., Worldwide Securities Limited (Bermuda), Smith
Barney International Fund (Luxembourg),
Smith Barney Institutional Cash
Management Fund, Inc., Smith Barney Concert Series Inc.
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 Travelers Group 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) Van Kampen American Capital Asset Management,
Inc. One Parkview Plaza,
Oakwood Terrace, Illinois 60181
(Records relating to its function as
Investment Adviser)
(3) Smith Barney Global Capital Management Inc.
10 Piccadilly
London, U.K. W1V-9LA
(Records relating to its function as Sub-
Investment Adviser)
(4) Travelers Investment Management Company
One Tower Square
Hartford, CT 06183-2030
(Records relating to its function as
Investment Adviser)
(5) PNC Bank, National Association 17th and
Chestnut Streets Philadelphia, PA 19103
(Records relating to its function as Custodian for
all of the Portfolios except
International Equity and Diversified
Strategic Income Portfolios)
(6) The Bank of New York
48 Wall Street
New York, New York 10015
(Records relating to its function as
Custodian for International Equity and
Diversified Strategic Income Portfolios)
(6) First Data Investor 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
485(b) Certification
The Registrant hereby certifies that it meets all the
requirements for effectiveness pursuant to Rule
485(b)(1)(ix) under the Securities Act of 1933, as
amended.
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933 and the Investment Company Act of 1940, as
amended, the Registrant has duly caused this
Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York and State of
New York, on the 19th day of April, 1996.
SMITH BARNEY SERIES FUND
By:_/s/Heath B. McLendon____
Health B. McLendon
Chairman of the Board
We, the undersigned, hereby severally constitute
and appoint Heath B. McLendon, Christina T. Sydor
and Caren Cunningham and each of them singly, our
true and lawful attorneys, with full power to them and
each of them to sign for us, and in our hands and in
the capacities indicated below, any and all Amendments
to this Registration Statement and to file the same,
with all exhibits thereto, and other documents
therewith, with the Securities and Exchange
Commission, granting unto said attorneys and each of
them, acting alone, full authority and power to do and
perform each and every act and thing requisite or
necessary to be done in the premises, as fully to all
intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said
attorneys or any of them may lawfully do or cause to
be done by virtue thereof.
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 and the above Power of Attorney
has been signed below by the following persons in the
capacities and as of the dates indicated.
Signature: Title: Date:
/s/Heath B. Chairman of the April 19,
1996
McLendon Board
Heath B. McLendon (Chief Executive
Officer)
/s/Lewis E. Senior Vice April 19,
1996
Daidone President and
Lewis E. Daidone Treasurer (Chief
Financial
and Accounting
Officer)
/s/Herbert Barg Trustee April
19,
1996
Herbert Barg
/s/Alfred J. Trustee April
19,
1996
Bianchetti
Alfred J.
Bianchetti
/s/Martin Brody Trustee April
19,
1996
Martin Brody
/s/Dwight B. Crane Trustee April
19,
1996
Dwight B. Crane
/s/Burt N. Dorsett Trustee April
19,
1996
Burt N. Dorsett
/s/Elliot S. Jaffe Trustee April
19,
1996
Elliot S. Jaffe
/s/Stephen E. Trustee April
19,
1996
Kaufman
Stephen E. Kaufman
/s/Joseph J. Trustee April
19,
1996
McCann
Joseph J. McCann
/s/Cornelius C. Trustee April
19,
1996 Rose, Jr.
Cornelius C. Rose,
Jr.
Independent Auditors' Consent
To the Shareholders and Board of Trustees of the
Smith Barney Series Fund:
We consent to the use of our report dated February 27, 1996
with respect to the Portfolios listed below for the Smith
Barney Series Fund incorporated herein by reference and to the
references to our Firm under the headings "Financial
Highlights" in the Prospectus and "Counsel and Auditors" in the
Statement of Additional Information.
Portfolios
Money Market Portfolio
Intermediate High Grade Portfolio
Diversified Strategic Income Portfolio
Equity Income Portfolio
Equity Index Portfolio
Growth and Income Portfolio
Appreciation Portfolio
Emerging Growth Portfolio
Total Return Portfolio
International Equity Portfolio
KPMG PEAT MARWICK LLP
New York, New York
April 26, 1996
[ARTICLE] 6
[CIK] 0000874835
[NAME] SMITH BARNEY SERIES FUND
[SERIES]
[NUMBER] 4
[NAME] APPRECIATION PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR [FISCAL-YEAR-END]
DEC-31-1995 [PERIOD-END] DEC-
31-1995 [INVESTMENTS-AT-COST] 77,665,095
[INVESTMENTS-AT-VALUE] 94,697,581
[RECEIVABLES] 127,659
[ASSETS-OTHER] 3,533
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 94,828,773
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 336,945
[TOTAL-LIABILITIES] 336,945
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 69,247,035
[SHARES-COMMON-STOCK] 1,679,000
[SHARES-COMMON-PRIOR] 2,114,957
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 6,748,581
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 17,032,486
[NET-ASSETS] 94,491,828
[DIVIDEND-INCOME] 1,793,770
[INTEREST-INCOME] 521,326
[OTHER-INCOME] 0
[EXPENSES-NET] 857,318
[NET-INVESTMENT-INCOME] 1,457,778
[REALIZED-GAINS-CURRENT] 6,749,135
[APPREC-INCREASE-CURRENT] 14,002,209
[NET-CHANGE-FROM-OPS] 22,209,122
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 1,410,859
[DISTRIBUTIONS-OF-GAINS] 1,392,571
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 211,123
[NUMBER-OF-SHARES-REDEEMED] 872,074
[SHARES-REINVESTED] 224,994
[NET-CHANGE-IN-ASSETS] 13,669,212
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 488,187
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 857,318
[AVERAGE-NET-ASSETS] 88,275,400
[PER-SHARE-NAV-BEGIN] 11.54
[PER-SHARE-NII] 0.23
[PER-SHARE-GAIN-APPREC] 3.04
[PER-SHARE-DIVIDEND] 0.21
[PER-SHARE-DISTRIBUTIONS] 0.42
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 14.39
[EXPENSE-RATIO] 0.97
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000874835
[NAME] SMITH BARNEY SERIES FUND
[SERIES]
[NUMBER] 10
[NAME] DIVERSIFIED STRATEGIC INCOME PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR [FISCAL-YEAR-END]
DEC-31-1995 [PERIOD-END] DEC-
31-1995 [INVESTMENTS-AT-COST]
57,032,317 [INVESTMENTS-AT-VALUE]
58,797,517 [RECEIVABLES] 1,635,768
[ASSETS-OTHER] 3,090
[OTHER-ITEMS-ASSETS] 277,358
[TOTAL-ASSETS] 60,713,733
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1,398,196
[TOTAL-LIABILITIES] 1,398,196
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 58,362,809
[SHARES-COMMON-STOCK] 5,927
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 791,941
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (1,608,501)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 1,763,361
[NET-ASSETS] 59,315,537
[DIVIDEND-INCOME] 86,025
[INTEREST-INCOME] 5,010,761
[OTHER-INCOME] 0
[EXPENSES-NET] 516,753
[NET-INVESTMENT-INCOME] 4,580,033
[REALIZED-GAINS-CURRENT] (863,120)
[APPREC-INCREASE-CURRENT] 4,818,775
[NET-CHANGE-FROM-OPS] 8,535,688
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 3,628,366
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 2,483,761
[NUMBER-OF-SHARES-REDEEMED] 6,963,752
[SHARES-REINVESTED] 3,627,951
[NET-CHANGE-IN-ASSETS] 4,055,282
[ACCUMULATED-NII-PRIOR] 662
[ACCUMULATED-GAINS-PRIOR] (905,769)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 252,838
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 516,753
[AVERAGE-NET-ASSETS] 57,143,243 <PER-
SHARE-NAV-BEGIN> 9.18
[PER-SHARE-NII] 0.74
[PER-SHARE-GAIN-APPREC] 0.70
[PER-SHARE-DIVIDEND] 0.61
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.01
[EXPENSE-RATIO] 0.90
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000874835
[NAME] SMITH BARNEY SERIES FUND
[SERIES]
[NUMBER] 6
[NAME] EMERGING GROWTH PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR [FISCAL-YEAR-END]
DEC-31-1995 [PERIOD-END] DEC-
31-1995 [INVESTMENTS-AT-COST]
13,767,923 [INVESTMENTS-AT-VALUE]
17,783,227 [RECEIVABLES] 55,466
[ASSETS-OTHER] 18,578
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 17,857,271
[PAYABLE-FOR-SECURITIES] 335,538
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 58,798
[TOTAL-LIABILITIES] 394,336
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 13,001,818
[SHARES-COMMON-STOCK] 1,269,217
[SHARES-COMMON-PRIOR] 1,198,109
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 445,813
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 4,015,304
[NET-ASSETS] 17,462,935
[DIVIDEND-INCOME] 78,022
[INTEREST-INCOME] 60,166
[OTHER-INCOME] 0
[EXPENSES-NET] 173,058
[NET-INVESTMENT-INCOME] (34,870)
[REALIZED-GAINS-CURRENT] 1,846,715
[APPREC-INCREASE-CURRENT] 3,232,511
[NET-CHANGE-FROM-OPS] 5,044,356
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 210,992
[NUMBER-OF-SHARES-REDEEMED] 139,884
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 5,923,877
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 1,400,901
[GROSS-ADVISORY-FEES] 108,035
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 200,360
[AVERAGE-NET-ASSETS] 14,405,170 <PER-
SHARE-NAV-BEGIN> 9.63
[PER-SHARE-NII] (0.03)
[PER-SHARE-GAIN-APPREC] 4.16
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 13.76
[EXPENSE-RATIO] 1.20
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000874835
[NAME] SMITH BARNEY SERIES FUND
[SERIES]
[NUMBER] 2
[NAME] EQUITY INCOME PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR [FISCAL-YEAR-END]
DEC-31-1995 [PERIOD-END] DEC-
31-1995 [INVESTMENTS-AT-COST] 45,452,561
[INVESTMENTS-AT-VALUE] 52,224,818
[RECEIVABLES] 368,603
[ASSETS-OTHER] 3,108
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 52,596,529
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 152,261
[TOTAL-LIABILITIES] 152,261
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 47,480,817
[SHARES-COMMON-STOCK] 4,247
[SHARES-COMMON-PRIOR] 4,502
[ACCUMULATED-NII-CURRENT] 274,291
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (2,087,344)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 6,772,257
[NET-ASSETS] 52,444,268
[DIVIDEND-INCOME] 1,989,298
[INTEREST-INCOME] 862,643
[OTHER-INCOME] 0
[EXPENSES-NET] 460,659
[NET-INVESTMENT-INCOME] 2,391,282
[REALIZED-GAINS-CURRENT] (457,862)
[APPREC-INCREASE-CURRENT] 11,689,689
[NET-CHANGE-FROM-OPS] 13,623,109
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 2,744,365
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1,968,215
[NUMBER-OF-SHARES-REDEEMED] 7,564,452
[SHARES-REINVESTED] 2,744,365
[NET-CHANGE-IN-ASSETS] 8,026,872
[ACCUMULATED-NII-PRIOR] 627,374
[ACCUMULATED-GAINS-PRIOR] (1,629,482)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 0
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 0
[AVERAGE-NET-ASSETS] 48,333,133
[PER-SHARE-NAV-BEGIN] 9.87
[PER-SHARE-NII] 0.54
[PER-SHARE-GAIN-APPREC] 2.56
[PER-SHARE-DIVIDEND] 0.62
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 12.35
[EXPENSE-RATIO] 0.95
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000874835
[NAME] SMITH BARNEY SERIES FUND
[SERIES]
[NUMBER] 7
[NAME] EQUITY INDEX PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR [FISCAL-YEAR-END]
DEC-31-1995 [PERIOD-END] DEC-
31-1995 [INVESTMENTS-AT-COST]
11,942,487 [INVESTMENTS-AT-VALUE]
15,466,758 [RECEIVABLES] 41,637
[ASSETS-OTHER] 4,796
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 15,513,191
[PAYABLE-FOR-SECURITIES] 225,102
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 57,870
[TOTAL-LIABILITIES] 282,972
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 978
[SHARES-COMMON-STOCK] 294,193
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 376,704
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 3,530,713 <NET-
ASSETS> 15,230,219 <DIVIDEND-
INCOME> 289,051
[INTEREST-INCOME] 69,518
[OTHER-INCOME] (1,930)
[EXPENSES-NET] 125,382
[NET-INVESTMENT-INCOME] 231,257
[REALIZED-GAINS-CURRENT] 432,091
[APPREC-INCREASE-CURRENT] 3,093,598 <NET-
CHANGE-FROM-OPS> 3,756,946
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (200,191)
[DISTRIBUTIONS-OF-GAINS] (12,638)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 221,160
[NUMBER-OF-SHARES-REDEEMED] (135,102)
[SHARES-REINVESTED] 16,599
[NET-CHANGE-IN-ASSETS] 102,657
[ACCUMULATED-NII-PRIOR] 200,991
[ACCUMULATED-GAINS-PRIOR] 12,638
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 56,171
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 147,039
[AVERAGE-NET-ASSETS] 12,552,000 <PER-
SHARE-NAV-BEGIN> 11.69
[PER-SHARE-NII] 0.25
[PER-SHARE-GAIN-APPREC] 3.86
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0.24
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 15.58
[EXPENSE-RATIO] 1.05
[AVG-DEBT-OUTSTANDING] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000874835
[NAME] SMITH BARNEY SERIES FUND
[SERIES]
[NUMBER] 3
[NAME] GROWTH AND INCOME PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR [FISCAL-YEAR-END]
DEC-31-1995 [PERIOD-END] DEC-
31-1995 [INVESTMENTS-AT-COST]
27,200,462 [INVESTMENTS-AT-VALUE]
35,122,542 [RECEIVABLES] 126,775
[ASSETS-OTHER] 3,745
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 35,253,062
[PAYABLE-FOR-SECURITIES] 8,594
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 86,282
[TOTAL-LIABILITIES] 94,876
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 27,182,235
[SHARES-COMMON-STOCK] 2,560
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 52,721
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (1,565)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 7,922,235
[NET-ASSETS] 35,158,186
[DIVIDEND-INCOME] 739,759
[INTEREST-INCOME] 256,091
[OTHER-INCOME] 0
[EXPENSES-NET] 316,183
[NET-INVESTMENT-INCOME] 679,667
[REALIZED-GAINS-CURRENT] 421,958
[APPREC-INCREASE-CURRENT] 7,510,283
[NET-CHANGE-FROM-OPS] 8,611,908
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 701,745
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1,543,081
[NUMBER-OF-SHARES-REDEEMED] 4,621,473
[SHARES-REINVESTED] 701,745
[NET-CHANGE-IN-ASSETS] 5,533,516
[ACCUMULATED-NII-PRIOR] 74,799
[ACCUMULATED-GAINS-PRIOR] (423,523)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 146,172
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 316,183
[AVERAGE-NET-ASSETS] 32,376,443 <PER-
SHARE-NAV-BEGIN> 10.75
[PER-SHARE-NII] 0.26
[PER-SHARE-GAIN-APPREC] 2.99
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (0.27)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 13.73
[EXPENSE-RATIO] 0.98
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000874835
[NAME] SMITH BARNEY SERIES FUND
[SERIES]
[NUMBER] 9
[NAME] INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR [FISCAL-YEAR-END]
DEC-31-1995 [PERIOD-END] DEC-
31-1995 [INVESTMENTS-AT-COST]
25,118,895 [INVESTMENTS-AT-VALUE]
28,181,006 [RECEIVABLES] 103,009
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 812,846
[TOTAL-ASSETS] 29,096,761
[PAYABLE-FOR-SECURITIES] 6,105
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 112,069
[TOTAL-LIABILITIES] 118,174
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 28,442,350
[SHARES-COMMON-STOCK] 2,905
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] (11,017)
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (2,515,619)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 3,059,968 <NET-
ASSETS> 28,978,587 <DIVIDEND-
INCOME> 436,627
[INTEREST-INCOME] 17,428
[OTHER-INCOME] 0
[EXPENSES-NET] 391,768
[NET-INVESTMENT-INCOME] 62,287
[REALIZED-GAINS-CURRENT] (2,167,638)
[APPREC-INCREASE-CURRENT] 4,469,756 <NET-
CHANGE-FROM-OPS> 2,364,405
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 110,647
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 2,702,681
[NUMBER-OF-SHARES-REDEEMED] 4,501,305
[SHARES-REINVESTED] 110,647
[NET-CHANGE-IN-ASSETS] 565,781
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (310,638)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 235,739
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 407,416
[AVERAGE-NET-ASSETS] 28,548,755 <PER-
SHARE-NAV-BEGIN> 9.21
[PER-SHARE-NII] 0.03
[PER-SHARE-GAIN-APPREC] 0.78
[PER-SHARE-DIVIDEND] 0.04
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 9.98
[EXPENSE-RATIO] 1.43
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000874835
[NAME] SMITH BARNEY SERIES FUND
[SERIES]
[NUMBER] 1
[NAME] INTERMEDIATE HIGH GRADE PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR [FISCAL-YEAR-END]
DEC-31-1995 [PERIOD-END] DEC-
31-1995 [INVESTMENTS-AT-COST]
15,211,475 [INVESTMENTS-AT-VALUE]
15,848,404 [RECEIVABLES] 347,932
[ASSETS-OTHER] 2,890
[OTHER-ITEMS-ASSETS] 662
[TOTAL-ASSETS] 16,199,888
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 47,467
[TOTAL-LIABILITIES] 47,467
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 15,695,912
[SHARES-COMMON-STOCK] 1,524
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 1,012,045
[OVERDISTRIBUTION-NII] 68,862
[ACCUMULATED-NET-GAINS] 1,483,408
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 1,345,438
[NET-ASSETS] 16,152,421
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 1,142,554
[OTHER-INCOME] 0
[EXPENSES-NET] 117,382
[NET-INVESTMENT-INCOME] 1,012,045
[REALIZED-GAINS-CURRENT] 137,970
[APPREC-INCREASE-CURRENT] 1,345,438
[NET-CHANGE-FROM-OPS] 2,495,453
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 1,080,907
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 2,606,497
[NUMBER-OF-SHARES-REDEEMED] 2,229,692
[SHARES-REINVESTED] 1,080,907
[NET-CHANGE-IN-ASSETS] 2,796,308
[ACCUMULATED-NII-PRIOR] 809,619
[ACCUMULATED-GAINS-PRIOR] (425,594)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 0
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 144,870
[AVERAGE-NET-ASSETS] 15,260,771 <PER-
SHARE-NAV-BEGIN> 9.66
[PER-SHARE-NII] 0.66
[PER-SHARE-GAIN-APPREC] 1.00
[PER-SHARE-DIVIDEND] 0.72
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.60
[EXPENSE-RATIO] 0.85
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000874835
[NAME] SMITH BARNEY SERIES FUND
[SERIES]
[NUMBER] 8
[NAME] MONEY MARKET PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR [FISCAL-YEAR-END]
DEC-31-1995 [PERIOD-END] DEC-
31-1995 [INVESTMENTS-AT-COST] 5,674,068
[INVESTMENTS-AT-VALUE] 5,674,068
[RECEIVABLES] 23,845
[ASSETS-OTHER] 993
[OTHER-ITEMS-ASSETS] 2,937
[TOTAL-ASSETS] 5,701,843
[PAYABLE-FOR-SECURITIES] 16,480
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 32,093
[TOTAL-LIABILITIES] 48,573
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 5,653,270
[SHARES-COMMON-STOCK] 0
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 5,653,270
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 365,063
[OTHER-INCOME] 0
[EXPENSES-NET] 46,085
[NET-INVESTMENT-INCOME] 318,978
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 0
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 318,978
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 4,160,876
[NUMBER-OF-SHARES-REDEEMED] 5,951,049
[SHARES-REINVESTED] 302,497
[NET-CHANGE-IN-ASSETS] (1,487,676)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 30,723
[INTEREST-EXPENSE] 74,280
[GROSS-EXPENSE] 74,280
[AVERAGE-NET-ASSETS] 6,140,655
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] 0.052
[PER-SHARE-GAIN-APPREC] 0.052
[PER-SHARE-DIVIDEND] 0.052
[PER-SHARE-DISTRIBUTIONS] (0.052)
[RETURNS-OF-CAPITAL] 5.31
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] 0.75
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000874835
[NAME] SMITH BARNEY SERIES FUND
[SERIES]
[NUMBER] 5
[NAME] TOTAL RETURN PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR [FISCAL-YEAR-END]
DEC-31-1995 [PERIOD-END] DEC-
31-1995 [INVESTMENTS-AT-COST] 74,167,885
[INVESTMENTS-AT-VALUE] 78,385,709
[RECEIVABLES] 435,172
[ASSETS-OTHER] 1,376
[OTHER-ITEMS-ASSETS] 9,379
[TOTAL-ASSETS] 78,831,636
[PAYABLE-FOR-SECURITIES] 669,797
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 118,867
[TOTAL-LIABILITIES] 788,664
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 71,248,020
[SHARES-COMMON-STOCK] 6,123
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 335,812
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 2,235,356
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 4,217,824
[NET-ASSETS] 78,042,972
[DIVIDEND-INCOME] 1,489,735
[INTEREST-INCOME] 668,585
[OTHER-INCOME] 0
[EXPENSES-NET] 449,475
[NET-INVESTMENT-INCOME] 1,708,845
[REALIZED-GAINS-CURRENT] 2,235,356
[APPREC-INCREASE-CURRENT] 4,978,702
[NET-CHANGE-FROM-OPS] 8,922,903
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (1,506,614)
[DISTRIBUTIONS-OF-GAINS] (686,521)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 48,877,204
[NUMBER-OF-SHARES-REDEEMED] (2,953,026)
[SHARES-REINVESTED] 2,193,135
[NET-CHANGE-IN-ASSETS] 54,847,081
[ACCUMULATED-NII-PRIOR] 133,581
[ACCUMULATED-GAINS-PRIOR] 686,358
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 0
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 0
[AVERAGE-NET-ASSETS] 44,940,506
[PER-SHARE-NAV-BEGIN] 10.78
[PER-SHARE-NII] 0.43
[PER-SHARE-GAIN-APPREC] 2.19
[PER-SHARE-DIVIDEND] (0.41)
[PER-SHARE-DISTRIBUTIONS] (0.24)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 12.75
[EXPENSE-RATIO] 0
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
Rev. 2/94 2.CUS
1022.cc Securities,
Trust & Information Services
(GCIC -
Brussels)
Global Custody Agreement
0
Global Custody Agreement
Agreement dated as of _______, 1995 between Morgan Guaranty
Trust
Company of New York (the "Custodian"), acting through its
office at 35 avenue des Arts, Brussels, Belgium, and Smith
Barney Series Fund (the "Client").
Whereas, the Client desires to arrange for the custody of
certain of its assets and the provision of related services
by the Custodian;
Now, Therefore, in consideration of the mutual agreements
contained herein, the Custodian and the Client agree as
follows:
1. Definitions. The following terms, as used herein,
shall have the following meanings:
"Authorized Instruction" means (i) a written, oral or
electronic communication accepted by the Custodian in good
faith that has been transmitted subject to the Security
Procedures agreed upon in writing by the Custodian and the
Client or (ii) any other written, oral or electronic
communication that the Custodian believes in good faith to
have been given by an Authorized Person.
"Authorized Persons" means those individuals who have been
designated by or duly authorized by the Client pursuant to
necessary corporate or other action (which shall be
evidenced by appropriate documentation delivered to the
Custodian) to act on behalf of the Client in connection
with this Agreement. Such persons shall continue to be
Authorized Persons until such time as the Client has
delivered to the Custodian appropriate documents revoking
the authority of such persons.
"Cash" has the meaning set forth in Section 5.
"Cash Account" means a current account (which may be
divided into a number of subaccounts, denominated in U.S.
dollars, Belgian francs or any other currency or Composite
Currency Unit acceptable to the Custodian) opened by the
Custodian on its books in the name of the Client.
"Communication Products" has the meaning set forth in
Section 28.
"Composite Currency Units" means the European Currency
Unit ("ECU"), the Special Drawing Right ("SDR") or another
composite unit consisting of the aggregate of specified
amounts of specified currencies, as such ECU, SDR or other
unit may be constituted from time to time.
"Morgan Affiliate" means any office or branch of Morgan
Guaranty Trust Company of New York ("Morgan") and any
other entity that directly, or indirectly through one or
more intermediaries, controls Morgan or that is controlled
by or is under common control with Morgan.
"Securities Account" means any securities account opened
by the Custodian on its books in the name of the Client.
"Securities Depository" means any securities depository,
bookentry system or clearing system used by the Custodian
from time to time in accordance with Section 4(e) hereof.
"Security" means any share, stock, bond, debenture, note,
certificate of indebtedness, warrant or other security or
financial instrument acceptable to the Custodian (whether
represented by a certificate or by a book-entry on the
records of the issuer or other entity responsible for
recording such book-
entries) that is from time to time held for the account of
the Client directly, or indirectly through a Subcustodian
or Securities Depository, by the Custodian pursuant to
this Agreement.
"Security Procedure" means, for any specified method of
communication, a procedure agreed upon in writing by the
Custodian and the Client for the purpose of verifying that
an Authorized Instruction given pursuant to such method of
communication is that of the Client or detecting error in
the transmission or the content of such Authorized
Instruction. A Security Procedure may require the use of
algorithms or other codes, identifying words or numbers,
encryption, callback procedures, or similar security
devices.
"Subcustodian" means any bank or other institution (other
than a Securities Depository) used by the Custodian to
hold Securities from time to time in accordance with
Section 4(e) hereof.
2 (a). Representations, Warranties and Covenants of the
Client. The Client represents and warrants that the
execution, delivery and performance by the Client of this
Agreement (i) are within the Client's corporate, trust or
other constitutive powers; (ii) have been duly authorized
by all necessary corporate, trust or other appropriate
action under its organizational documents; (iii) require
no action by or in respect of, or filing with, any
governmental body, agency or official (including without
limitation any exchange control approvals) other than
those set forth in Appendix B under "Consents and
Filings", which have been duly taken or made or will be
duly taken or made as and when required; and (iv) do not
contravene, or constitute a default under, any provision
of applicable law or regulation or of the organizational
documents of the Client or of any agreement, judgment,
injunction, order, decree or other instrument binding upon
the Client. In addition, the Client represents and
warrants that each of the statements set forth in Appendix
B under "Additional Information" is true and correct. The
Client represents, warrants and covenants that the
Custodian shall be entitled to deal with all Securities
free of any proprietary or equitable interest of any
person or entity (other than interests of the Client and
interests of the Custodian, Subcustodians and Securities
Depositories that are created by this Agreement). The
Client agrees to inform the Custodian immediately if any
statement set forth in this Section 2 or in Appendix B
ceases to be true and correct as of any date after the
date hereof.
2(b). Massachusetts Business Trust - Limitation of
Liability. The Client and the Custodian agree that the
obligations of the Client under this Agreement shall not
be binding upon any of the Trustees, shareholders,
nominees, officers, employees or agents, whether past,
present or future, of the Client, individually, but are
binding only upon the assets and property of the Client,
as provided in the Declaration and Agreement of Trust.
The execution and delivery of this Agreement have been
authorized by the Trustees of the Client, and signed by an
authorized officer of the Client, acting as such, and
neither such authorizationby such Trustees nor such
execution and delivery by such officer shall be deemed to
have been made by any of them or any shareholder of the
Client pesonally, but shall bind only the assets and
property of the Client as provided in the Master Trust
Agreement.
3. Securities Accounts. The Client hereby establishes
with
the Custodian one or more Securities Accounts, which shall
contain,
in the manner and on the terms specified herein, the
Client's Securities.
4. Terms of Custody.
(a) Authority to Hold Securities. Subject to the terms
and conditions of this Agreement, the Client hereby
authorizes the Custodian to hold any Securities received
from time to time for the account of the Client. The
Custodian may, at its sole discretion, hold the Securities
directly or indirectly through one or more Subcustodians
or Securities Depositories. Securities held indirectly
through any Subcustodian shall be held subject to the
terms and conditions of the Custodian's agreement with
such Subcustodian. Securities held indirectly through any
Securities Depository shall be held subject to the terms
of any agreement between the Custodian or Subcustodian and
such Securities Depository and to the rules and terms and
conditions of such Securities Depository.
(b) Fungibility. The Client agrees that all Securities
held by the Custodian directly, or indirectly through any
Subcustodian or Securities Depository, shall be subject to
the provisions of the Belgian Royal Decree No. 62 of
November 10, 1967, as amended. In accordance with the
Royal Decree, all Securities of any issue shall be treated
as fungible with all other securities of the same issue
held by the Custodian directly, or indirectly through any
Subcustodian or Securities Depository. Therefore, the
Client shall have no right to any specific securities of
an issue but shall instead be entitled, subject to
applicable laws and regulations and to the terms of this
Agreement, to transfer, deliver or repossess from the
Custodian an amount of securities of such issue that is
equivalent to the amount of such securities credited to a
Securities Account, without regard to the certificate
numbers (or other identifying information) of the
securities originally deposited, and the Custodian's
obligation to the Client with respect to such Securities
shall be limited to effecting such transfer, delivery or
repossession.
(c) Identification of Client's Interests. The Custodian
shall cause the Client's interest in any Securities held
by the Custodian directly, or indirectly through any
Subcustodian or Securities Depository, to be evidenced by
a credit to a Securities Account on the books of the
Custodian. The Custodian shall instruct each Subcustodian
to credit all Securities held by such Subcustodian
directly, or indirectly through a Securities Depository,
to an account of the Custodian on the books of such
Subcustodian. The Custodian shall instruct, or direct the
relevant Subcustodian to instruct, each Securities
Depository to credit all Securities held by such
Securities Depository to an account of the Custodian or
the relevant Subcustodian on the books of such Securities
Depository. Securities may be registered in the name of
the Custodian's nominee or, as to any Securities held by
an entity other than the Custodian, in the name of such
entity's nominee. The Client agrees to hold any such
nominee harmless from any liability as a holder of record
of such Securities.
(d) Liens of Subcustodians and Securities Depositories.
Unless the Custodian has received Authorized Instructions
to
the contrary, the Custodian shall hold Securities
indirectly through a Subcustodian or Securities Depository
only if (i) the Securities are not subject to any right,
charge, security interest, lien or claim of any kind in
favor of such Subcustodian or Securities Depository or the
creditors or operators of any of them, including a
receiver or trustee in bankruptcy or similar
authority, except for a claim of payment for the safe
custody or administration of the Securities or for funds
advanced on behalf of the Client by such Subcustodian or
Securities Depository and (ii) beneficial ownership of the
Securities is freely transferable without the payment of
money or value other than for safe custody or
administration.
(e) Selection of Subcustodians and Securities
Depositories. The list of Subcustodians and Securities
Depositories used by the Custodian as of the date hereof
is listed on Appendix A hereto. The Custodian reserves the
right to add and delete subcustodians and securities
depositories to and from such list from time to time by
notice to the Client. The Custodian agrees that, if it
replaces the subcustodian or securities depository used in
any country with another subcustodian or securities
depository, it will not transfer any of the Client's
securities from the former subcustodian or securities
depository for such country to the replacement
subcustodian or securities depository for such country
without giving the Client at least 30 days' prior written
notice, during which time the Client may make arrangements
to have the Securities transferred to another Custodian if
it does not approve of the replacement.
5. Cash Account.
(a) The Client hereby establishes and shall maintain with
the Custodian a Cash Account to be used in connection with
transactions relating to the Securities. The collected
balance from time to time in the Cash Account shall
constitute "Cash". Any credit made to the Cash Account
shall be provisional and may be reversed if such payment
is not actually collected or received.
(b) Except as otherwise provided by law, the Cash Account
(including subdivisions maintained in different
currencies, including Composite Currency Units) shall
constitute one single and indivisible current account.
Consequently, the Custodian has the right, among others,
of transferring the balance of any subaccount of the Cash
Account to any other subaccount at any time and without
prior notice.
(c) The Custodian may in accordance with customary
practice hold any currency (other than Belgian Francs) or
Composite Currency Unit in which any subdivision of the
Cash Account is denominated on deposit in, and effect
transactions relating thereto through, an account (a
"Foreign Account") with a Morgan Affiliate or another bank
in the country where such currency is the lawful currency
or in other countries where such currency or Composite
Currency Unit may be lawfully held on deposit.
(d) The Custodian shall have no liability for any loss or
damage arising from the applicability of any law or
regulation now or hereafter in effect, or from the
occurrence of any event, which may affect the
transferability, convertibility, or availability of any
currency (other than Belgian Francs) or Composite Currency
Unit in the countries where such Foreign Accounts are
maintained and in no event shall the Custodian be
obligated to substitute another currency for a currency
(including a currency that is a component of a Composite
Currency Unit) whose transferability, convertibility or
availability has been affected by such law, regulation or
event. To the extent that any such law, regulation or
event imposes a cost or charge upon the Custodian in
relation to the transferability, convertibility, or
availability of any such currency or Composite Currency
Unit, such cost or charge shall be for the account of the
Client. If pursuant to any such
law or regulation, or as a result of any such event, the
Custodian cannot deal in any component currency of a
Composite Currency Unit or effect a particular transaction
in a Composite Currency Unit on behalf of the Client, the
Custodian may thereafter treat any account denominated in
an affected Composite Currency Unit as a group of separate
accounts denominated in the relevant component currencies.
(e) Transactions in a currency or Composite Currency Unit
shall be subject to the regulations laid down by the
exchange control authorities of Belgium and of the country
where such currency (or component currency) is the lawful
currency or where such currency or Composite Currency Unit
is held on deposit.
6. Instructions by the Client.
(a) Generally. The Client shall give an Authorized
Instruction with respect to Cash and Securities only to
the Custodian or to the Custodian's designee. The Client
agrees to be bound by all Authorized Instructions, whether
or not such instructions were duly authorized in
accordance with the Client's own procedures. The Custodian
shall not be required to follow any Authorized Instruction
that would violate any applicable law, decree, regulation
or order of any government or governmental body (including
any court or tribunal) or that would be contrary to any
provision of this Agreement.
(b) Payments. Payments shall be made by the Custodian,
or a Subcustodian at the direction of the Custodian, only
to the extent that sufficient Cash in the applicable
currency is available in the Cash Account or otherwise
available therefor and only (i) as specified by an
Authorized Instruction, (ii) as permitted by Sections 14
and 15 or (iii) upon the termination of this Agreement as
set forth in Section 17 hereof. The Custodian may make
payments, or direct a Subcustodian to make payments, from
time to time on behalf of the Client when sufficient Cash
in the applicable currency is not available in the Cash
Account or otherwise available therefor, but neither the
Custodian nor any Subcustodian shall have any obligation
to make such payments. If any payments are made that
result in an overdraft in a particular currency, then such
overdraft shall be payable on demand by the Custodian and
shall bear interest for each day outstanding at the rate
customarily charged by the Custodian for overdrafts in
such currency.
(c) Delivery of Securities. Any Securities held by a
Subcustodian shall be subject only to the instructions of
the Custodian and any Securities held by a Securities
Depository shall be subject only to the instructions of
the
Custodian or the Subcustodian for which such Securities
Depository is acting. Securities shall be transferred,
exchanged, or delivered by the Custodian, or a
Subcustodian at the direction of the Custodian, only to
the extent that sufficient Securities are actually in the
Securities Account and available for delivery and only:
(i) as specified by an Authorized Instruction;
(ii) in exchange for or upon conversion into other
Securities or Cash pursuant to a plan of merger,
consolidation, reorganization, recapitalization or
readjustment;
(iii) upon the conversion of Securities pursuant to their
terms into other Securities;
(iv) as permitted by Sections 14 and 15; or
(v) upon the termination of this Agreement as set forth
in Section 17 hereof.
7. Corporate Events.
(a) Collections. Unless the Custodian has received an
Authorized Instruction to the contrary, the Custodian
shall, or shall instruct the appropriate Subcustodian to,
collect dividends, interest and other payments made and
stock dividends, rights and similar distributions made or
issued with respect to Securities and present for payment
maturing Securities and those called for redemption, in
each case net of any applicable taxes or other charges
withheld by the maker of such payment or distribution.
Neither the Custodian nor any Subcustodian shall have any
obligation to commence legal proceedings or to take other
extraordinary actions to collect any of the foregoing
payments or distributions.
(b) Rights Offerings. Promptly after the Custodian
becomes aware thereof, the Custodian shall notify the
Client of any rights offering by an issuer of Securities.
If the Client does not send an Authorized Instruction to
the Custodian regarding the exercise of rights under such
offering by the deadline set by the Custodian in such
notice, then to the extent permitted by applicable law and
consistent with local market practice, the Custodian or
the applicable Subcustodian shall sell such rights in the
principal market for such rights and deposit the proceeds
of such sale in the Cash Account.
(c) Partial Redemptions. Promptly after the Custodian
becomes aware thereof, the Custodian shall notify the
Client of the partial redemption of any Securities. If
the Custodian or any Subcustodian or Securities Depository
holds any Securities in which the Client has an interest
as part of a fungible mass, the Custodian or such
Subcustodian or Securities Depository may select the
securities to participate in partial redemptions, partial
payments or other actions affecting less than all
securities of the relevant class in any non-discriminatory
manner that it customarily uses to make such selection.
(d) Authority of Custodian. Unless the Custodian has
received an Authorized Instruction to the contrary, the
Custodian shall, or shall instruct the appropriate
Subcustodian to: (i) execute in the name of the Client
such ownership and other certificates as may be required
to obtain payment or exercise any rights in respect of any
Securities; (ii) accept and open all mail directed to the
Client in care of the Custodian or such Subcustodian; and
(iii) retain or dispose of fractional interests received
by the Custodian or such Subcustodian as a result of stock
dividends in accordance with local law and practice. With
respect to any corporate events not listed above, the
Custodian shall (in the absence of an Authorized
Instruction from the Client within any prescribed
deadline) take any action that it considers appropriate in
the circumstances; provided that the Custodian shall not
be liable for the consequences of any such action.
8. Reporting.
(a) Statements. The Custodian shall mail, or cause to be
mailed, or transmit electronically to the Client (or, with
prior written consent of the Client, make available
electronically) monthly statements of the Securities
Accounts and Cash Account. Such statements shall list all
Securities and Cash and specify
(i) whether the Securities are held directly by the
Custodian or indirectly through a Subcustodian or
Securities Depository and (ii) the amount of Cash held on
deposit in each currency. The Client agrees that each
such statement shall be binding on the Client 60 days
after (a) in the case of any statement sent by mail, it
has been mailed by first class mail, postage prepaid or
(b) in the case of any statement transmitted or made
available electronically, it has been transmitted or made
available electronically to the Client, unless the Client
has theretofore notified the Custodian in writing of any
inaccuracy in such statement.
(b) Access to Records. The Custodian shall allow the
Client and its independent public accountants reasonable
access to the records of the Custodian relating to the
Securities and Cash as is required by the Client or its
accountants in connection with their examination of the
books and records pertaining to the affairs of the Client
and shall require each Subcustodian and Securities
Depository to grant such access to the Client and its
independent public accountants to the extent consistent
with applicable law and regulations. The Custodian has no
obligation to maintain any records for a period of more
than 10 years. The Custodian shall have no obligation to
require any Subcustodian or Securities Depository to
maintain records for any specified period of time.
(c) Other Information. From time to time the Custodian
may provide additional reporting information to the Client
on terms and conditions agreed upon by the parties hereto
in writing. The additional information may include data
obtained from third parties, such as pricing valuation
information relating to the Securities. The Client agrees
that it shall not redistribute or resell data obtained by
the Custodian from third parties, except that it may
provide such data to the beneficial owners of the
Securities as recorded on the Client's books and records.
9. Taxes. The respective responsibilities of the Client
and the Custodian with respect to tax matters are set
forth in Appendix C hereto and incorporated by reference
herein.
10. Responsibilities; Indemnification by the Custodian.
(a) Standard of Care. The Custodian shall use reasonable
care in the performance of its duties hereunder and shall
exercise the same degree of care with respect to the
Securities as it would with respect to its own securities.
The Custodian shall require each Subcustodian to use
reasonable care in the performance of its duties and to
exercise the same degree of care with respect to the
Securities as it would with respect to its own securities.
The Custodian shall be responsible to ensure that each
Subcustodian that is a Morgan Affiliate performs in
accordance with the foregoing standard. The Custodian's
responsibility with respect to any Securities held by a
Subcustodian (other than a Morgan Affiliate) or any
carrier of Securities acting for the Custodian or any
Subcustodian is limited to the failure on the part of the
Custodian (or a Subcustodian that is a Morgan Affiliate)
to exercise reasonable care in the selection or retention
of such Subcustodian or carrier. The Custodian shall have
no responsibility for the selection or retention of any
Securities Depository or for the performance of any
Securities Depository.
(b) Insurance. The Custodian shall, and shall require
each Subcustodian to, maintain insurance coverage with
respect to the
Securities covering such risks and in such amounts as the
Custodian or such Subcustodian maintains with respect to
securities which the Custodian or such Subcustodian holds
for its own account and for the account of other
customers. (c) Indemnification by the Custodian and
Subcustodians. The Custodian shall indemnify the Client
against, and hold the Client harmless from, any loss or
liability (including, without limitation, the reasonable
fees and disbursements of counsel and other legal
advisors, but excluding all losses and liabilities of the
types described in Section 11 hereof) incurred by the
Client by reason of the negligence (whether through action
or inaction) or willful misconduct of the Custodian or any
Subcustodian that is a Morgan Affiliate in connection with
the services provided pursuant to this Agreement or the
applicable subcustodian agreement. The Custodian shall
require each Subcustodian that is not a Morgan Affiliate
to indemnify the Custodian and the Client against, and
hold the Custodian and the Client harmless from, any loss
or liability (including, without limitation, the
reasonable fees and disbursements of counsel, but
excluding all losses and liabilities of the types
specified in Section 11) incurred by the Custodian or the
Client by reason of the negligence (whether through action
or inaction) or willful misconduct of such Subcustodian in
connection with the services provided by such Subcustodian
pursuant to the applicable subcustodian agreement.
11. Limitations on Responsibilities and Liabilities.
(a) Generally. The Custodian shall be responsible for
the performance of only those duties as are set forth
herein or contained in an Authorized Instruction that is
not contrary to the provisions of this Agreement.
(b) Consequential Damages. Under no circumstances shall
the Custodian or any Subcustodian be liable to the Client
or
any other person for indirect, special or consequential
damages, even if the Custodian or such Subcustodian is
apprised of the likelihood of such damages.
(c) Corporate Actions. The Custodian shall not be liable
for any loss occasioned by the failure of the Custodian to
notify the Client of any payment of dividends or interest
or any redemption, rights offering or other distribution
made with respect to any Security or any other corporate
action taken or to be taken with respect to any Security
if the Custodian or a Subcustodian has not received notice
of such transaction directly from or on behalf of the
issuer of such Security or if such distribution or action
was not included in the reports of an
internationallyrecognized investment data service selected
by the Custodian.
(d) Authorized Instructions. Neither the Custodian nor
any Subcustodian shall be liable for any action taken upon
an Authorized Instruction.
(e) Payment and Delivery Instructions. In some
securities markets, securities deliveries and payments
therefor may not be or are not customarily made
simultaneously. Accordingly, the Client agrees that,
notwithstanding the Client's instruction to deliver
Securities against payment or to pay for Securities
against delivery, the Custodian or a Subcustodian may make
or accept payment for or delivery of Securities at such
time and in such form and manner as shall be in accordance
with relevant local law and practice or with the customs
prevailing in the relevant market among securities
dealers. The Client shall bear the risk that (i) the
recipient of Securities may fail to make
payment, return such Securities or hold such Securities or
the proceeds of their sale in trust for the Client and
(ii) the recipient of payment for Securities may fail to
deliver the Securities (such failure to include, without
limitation, delivery of forged or stolen Securities) or to
return such payment, in each case whether such failure is
total or partial or merely a failure to perform on a
timely basis. Neither the Custodian nor any Subcustodian
shall be liable to the Client for any loss resulting from
any of the foregoing events.
(f) Reversals. In some securities markets and cash
clearing systems, deliveries of securities and cash may be
reversed under certain circumstances. Accordingly,
credits of securities to a Securities Account and cash to
the Cash Account are provisional and subject to reversal
if, in accordance with relevant local law and practice,
the delivery of the security or cash giving rise to the
credit is reversed.
(g) Foreign Currency Risks. The Client shall bear all
risks of investing in Securities or holding Cash
denominated in a currency other than that of the Client's
home jurisdiction. Without limiting the foregoing, the
Client shall bear the risks that rules or procedures
imposed by Securities Depositories, exchange controls,
asset freezes or other laws or regulations shall prohibit
or impose burdens or costs on the transfer to, by or for
the account of the Client of Securities or Cash held
outside the Client's jurisdiction or denominated in a
currency other than the currency of the Client's home
jurisdiction or the conversion of Cash from one currency
into another currency. The Custodian shall not be
obligated to substitute another currency for a currency
(including a currency that is a
component of a Composite Currency Unit) whose
transferability, convertibility or availability has been
affected by such law, regulation, rule or procedure.
Neither the Custodian nor any Subcustodian shall be liable
to the Client for any loss resulting from any of the
foregoing events.
(h) Force Majeure. Notwithstanding any other provision
contained herein, neither the Custodian nor any
Subcustodian shall be liable for any action taken, or any
failure to take any action required to be taken, hereunder
or otherwise to fulfill its obligations hereunder
(including without limitation the failure to receive or
deliver securities or the failure to receive or make any
payment) in the event and to the extent that the taking of
such action or such failure arises out of or is caused by
war, insurrection, riot, civil commotion, act of God,
accident, fire, water damage, explosion, mechanical
breakdown, computer or system failure or other failure of
equipment, or malfunction or failures caused by computer
virus, failure or malfunctioning of any communications
media for whatever reason, interruption (whether partial
or total) of power supplies or other utility of service,
strike or other stoppage (whether partial or total) of
labor, any law, decree, regulation or order of any
government or governmental body (including any court or
tribunal), or any other cause (whether similar or
dissimilar to any of the foregoing) whatsoever beyond its
reasonable control.
(i) Delays. Except in the case of a failure by the
Custodian or a Morgan Affiliate to exercise the standard
of care required by Section 10(a), the Custodian shall not
be liable for delays in carrying out payment instructions
given by the Client. In the event that a delay in the
carrying out of a payment instruction is caused by such a
failure of the Custodian or a Morgan Affiliate, the
liability of the Custodian shall not exceed an interest
equivalent for the period from the day when the payment
would have been carried out, but for the negligence of the
Custodian or such Morgan Affiliate, until the day when it
is actually carried out (excluding any portion of such
period during which the Custodian cannot carry out such
instructions as a result of any event referred to in
Section 11(h)); provided that if the Client shall fail to
report the delay to the Custodian within 10 days from the
date when the payment would, but for the negligence of the
Custodian or a Morgan Affiliate, have been made, then the
Custodian shall not be liable for an interest equivalent
for more than a total of 10 days.
(j) Client's Reporting Obligations. The Client shall be
solely responsible for compliance with any notification,
license or other requirement of any jurisdiction relating
to or affecting the Client's beneficial ownership of the
Securities, and neither the Custodian nor any Subcustodian
assumes liability for noncompliance with such
requirements. (k) No Investment Advice. Neither the
Custodian nor any Subcustodian or Morgan Affiliate is
under any duty to provide the Client with investment
advice or to supervise its investments.
(l) Fraudulent Securities. Neither the Custodian nor any
Subcustodian shall have any liability for losses incurred
by the Client or any other person as a result of the
receipt or acceptance of fraudulent, forged or invalid
Securities (or Securities which are otherwise not freely
transferable or deliverable without encumbrance in any
relevant market). (m) Third Party Information. The
Custodian shall have no
responsibility for the accuracy of any information
provided by the Custodian to the Client that has been
obtained from third parties pursuant to Section 7 or 8(c)
of this Agreement.
12. Use of Morgan Affiliates.
(a) Executing Orders. The Custodian shall, in its sole
discretion and if permitted by applicable law, accept
orders from the Client for the purchase or sale of
Securities and either execute such orders itself or by
means of Morgan Affiliates or brokers or other financial
organizations of its choice, subject to the fees and
commissions in effect from time to time. The Custodian
shall not be responsible for any act or omission, or for
the solvency, of any broker or other financial
organization so selected to effect any transaction for the
account of the Client. When instructed to buy or sell
Securities for which the Custodian or a Morgan Affiliate
acts as a dealer, the Custodian may buy or sell such
Securities from or to either itself, as principal, or such
Morgan Affiliate.
(b) Disclosure to Morgan Affiliates. Notwithstanding the
provisions of Section 26 hereof, the Custodian may
disclose to any Morgan Affiliate details with respect to
the Securities and the transactions effected hereunder.
Such disclosure shall be for the purpose of identifying
banking, securities and financial services that Morgan
Affiliates may be able to provide to the Client.
(c) Sub-Contracting. The Client hereby agrees that the
Custodian may arrange with any Morgan Affiliate to perform
on behalf of the Custodian any act required to be
performed by the Custodian hereunder.
13. Fees. The Client agrees to pay the Custodian as
compensation for the services provided hereunder a fee
computed
at rates determined by the Custodian from time to time and
communicated to the Client in advance, as well as all
assessments, charges and expenses (including legal
expenses and attorney's fees associated with enforcing the
Custodian's rights hereunder) incurred by the Custodian in
connection with this Agreement.
14. Right to Debit and Set-Off. The Custodian has the
right to debit any subaccount of the Cash Account for any
amount payable by the Client in connection with any and
all obligations of the Client to the Custodian, whether or
not relating to or arising under this Agreement. In
addition to the rights of the Custodian under applicable
law and other agreements, at any time when the Client
shall not have honored any and all of its obligations to
the Custodian, whether or not relating to or arising under
this Agreement, the Custodian shall have the right without
notice to the Client to retain or set-off, against such
obligations of the Client, any assets the Custodian or any
Morgan Affiliate may directly or indirectly hold for the
account of the Client, and any obligations (whether
matured or unmatured) that the Custodian or any Morgan
Affiliate may have to the Client in any currency or
Composite Currency Unit, including time deposits and all
assets credited to any Securities Account. Any such asset
of, or obligation to, the Client may be
transferred among the Custodian and any Morgan Affiliates
in order to effect the above rights.
15. Security Interests. In order to secure the prompt
and complete payment when due of any and all obligations
of the Client to the Custodian, now outstanding or which
may be outstanding at any time in the future, whether or
not relating to or arising out of this Agreement, the
Client hereby pledges and grants to the Custodian a
security interest in (i) all of the Client's right, title
and interest in and to all Cash Accounts, including any
credit or debit balance which now appears or may at any
time in the future appear in any currency or Composite
Currency Unit subaccount of a Cash Account, (ii) all of
the Client's right, title and interest in and to all time
deposit accounts and notice accounts that the Client may
open from time to time with the Custodian, (iii) all of
the Client's right, title and interest in and to all
Securities Accounts and the amount of all securities which
are now or at any time in the future shall be standing to
the credit of a Securities Account (clauses (i), (ii) and
(iii) of this Section 15 being referred to collectively
herein as the "Collateral"), (iv) all amounts of cash,
securities or other property or countervalue received or
to be received with respect to or in exchange for any and
all of the then existing Collateral which are, or are
intended, to be credited to a Cash Account or a Securities
Account and (v) to the extent not covered by the
foregoing, all proceeds, product, offspring, rents or
profits of any or all of the foregoing (whether acquired
before or after the commencement of any bankruptcy or
liquidation proceeding by or in respect of the Client)
which are, or are intended to be credited to a Cash
Account or a Securities Account. All time deposit
accounts and notice accounts shall be deemed constituted
for an indefinite period, even though the Client and the
Custodian may agree from time to time that interest
thereon will be paid on specified dates rather than only
at final maturity. The foregoing security interests are
granted as security only and shall not subject the
Custodian to, or transfer or in any way affect or modify,
any obligation or liability of the Client with respect to
any of the Collateral or any transaction in connection
therewith. The Client authorizes the Custodian to perform
all acts which the Custodian, in its sole discretion,
deems necessary or desirable
to perfect and preserve its security interests and rights
under this Section 15. Upon any breach by the Client of
its obligations hereunder, the Custodian shall be entitled
to exercise all of the remedies available to a secured
creditor under applicable law.
16. Indemnification by the Client. The Client agrees to
indemnify the Custodian and each Subcustodian and to hold
the Custodian and each such Subcustodian harmless from any
loss or liability (including, without limitation, the
reasonable fees and disbursements of counsel and other
legal advisors) incurred by the Custodian or such
Subcustodian in rendering services hereunder or in
connection with any breach of the terms of this Agreement
by the Client, except such loss or liability which results
from the Custodian's or such Subcustodian's failure to
exercise the standard of care required by Section 10(a)
hereof.
17. Termination. This Agreement may be terminated by the
Custodian or the Client following receipt by the other
party of not less than 60 days' prior written notice
thereof; provided that such termination may be immediate
if the other party shall be in breach of its obligations
hereunder or shall become the subject of bankruptcy,
insolvency, reorganization, receivership or other similar
proceedings. If notice of termination is given by the
Custodian, then the Client shall, within 60 days following
receipt of such notice, specify in an Authorized
Instruction the names of the persons to whom all
Securities and Cash shall be delivered or paid. In such
case, the Custodian shall, subject to the payment of
amounts owed to it pursuant to Sections 6(b) and 13
hereof, deliver such Securities and Cash, and instruct
each Subcustodian to deliver any Securities or Cash held
by such Subcustodian, to the persons so specified. If
within 60 days following the receipt of a notice of
termination by the Custodian, the Custodian does not
receive from the Client the names of the persons to whom
such Securities and Cash shall be delivered, the
Custodian, at its election, may deliver such Securities
and Cash, and instruct each Subcustodian holding any
Securities or Cash to deliver such Securities and Cash, to
a bank or a trust company doing business in the state or
country where such Securities and Cash were held.
Securities or Cash so delivered shall be held and disposed
of pursuant to the provisions of this Agreement or an
Authorized Instruction or may be continued to be held
until the names of such persons are delivered to the
Custodian. If notice of termination is given by the
Client, the Custodian shall, subject to the payment of all
amounts owed to it pursuant to Sections 6(b) and 13
hereof, deliver such Securities and Cash, and instruct
each Subcustodian holding any Securities or Cash to
deliver such Securities or Cash, to the persons specified
in an Authorized Instruction. If this Agreement is
terminated by the Custodian or the Client, but the
Custodian or a Morgan Affiliate continues to provide other
services to the Client in connection with which the Client
uses Communication Products, then the provisions of
Sections 27 and 28 hereof shall survive the termination of
this Agreement until the time that no such other services
continue to be provided by the Custodian or a Morgan
Affiliate to the Client or until otherwise terminated in
writing by the Client or the Custodian. The provisions of
Sections 20, 24, 26 and Appendix G hereof and the
indemnity provisions of this Agreement and the provisions
limiting the liabilities of the Custodian and the
Subcustodians shall survive the termination of this
Agreement (including any subsequent termination of
Sections 27 and 28 hereof).
18. Notices. Except as otherwise specified herein, any
notice or other communication to the Custodian or Client
is to be addressed to the respective party as set forth in
Appendix D hereto or in such other manner as may be
specified by the one party to the other in writing from
time to time. Unless otherwise specified herein, notices
shall be effective when received. If any Authorized
Instruction is given to the Custodian orally, then the
Custodian's record of such instruction shall constitute
conclusive evidence of the contents of such instruction,
notwithstanding any conflicting written confirmation or
record of such instruction provided by the Client.
19. Amendments and Waivers. Any provision of this
Agreement (including Appendices B through G hereto) may be
amended or waived if, but only if, such amendment or waiver
is in writing and is signed by the Client and the
Custodian. 20. Claims. Any claim arising out of or
related to this Agreement must be brought no later than one
year after such claim has accrued.
21. Successors and Assigns; Governing Law; Jurisdiction.
This Agreement shall bind the successors and assigns of the
Custodian and the Client. Except as otherwise provided by
the terms of this Agreement, neither the Custodian nor the
Client may assign any of its rights or obligations under
this Agreement without the prior written consent of the
other party. This Agreement shall be governed by and
construed in accordance with the law of State of New York
except that the provisions set forth in Sections 4(b) and
15 shall be governed by the law of Belgium. The Client
hereby submits to the non-exclusive jurisdiction of any any
federal or state court in New York City for purposes of all
legal proceedings arising out of or relating to this
Agreement or the transactions contemplated hereby. The
Client hereby irrevocably waives, to the fullest extent
permitted by applicable law, any objection which it may now
or hereafter have to the laying of venue of any such
proceeding brought in such a court and any claim that any
such proceeding brought in such a court has been brought in
an inconvenient forum. The Client and the Custodian each
hereby irrevocably waives any and all rights to trial by
jury in any legal proceeding arising out of or relating to
this Agreement. 22. Counterparts. This Agreement may be
signed in any number of counterparts with the same effect
as if the signatures thereto and hereto were upon the same
instrument. 23. Headings. The section headings used
herein are for information only and shall not affect the
interpretation of any provision of this Agreement.
24. Evidence. The Custodian's books and records (whether
on paper, microfilm, microfiche, by electronic or magnetic
recording, or any other mechanically reproducible form or
otherwise) shall be deemed to constitute, in the absence of
manifest error, sufficient evidence of the facts stated
therein and of any obligations of the Client to the
Custodian.
25. Integration. This Agreement constitutes the entire
agreement between the parties hereto as it pertains to the
provision of global custody services and supersedes any and
all prior agreements and understanding, oral or written,
relating to the subject matter hereof.
26. Confidentiality. Notwithstanding any other provision
herein, the Custodian may disclose the Client's name,
address and securities position and other information to
such persons and to such an extent as required by law
(including, but not limited to, article 28 of the Belgian
Law of December 4, 1990 relating to securities transactions
suspected of constituting market manipulation, insider
trading and other breaches of financial regulations), the
rules of any stock exchange or regulatory or self-
regulatory organization or any order or decree of any court
or administrative body that is binding on the Custodian or
any Subcustodian or Securities Depository or the terms of
the organizational documents of the issuer of any Security
or the term of any Security itself.
27. Security Procedures. The Client acknowledges that it
has been fully informed of the protections and risks
associated with the various methods of communication for
transmitting Authorized Instructions to the Custodian. The
Custodian has recommended that the Client transmit
Authorized Instructions to the Custodian using one or more
specified methods of communication and has recommended a
type of Security Procedure for each such method. The Client
hereby agrees that the Security Procedure actually agreed
between the Client and the Custodian shall be deemed
commercially reasonable even if such Security Procedure
offers less protection than the Security Procedure
recommended by the Custodian. If the Client elects to
transmit Authorized Instructions to the Custodian by a
method of communication for which no Security Procedure has
been agreed, the Client agrees to be bound by any such
Authorized Instruction that the Custodian believes in good
faith to have been given by an Authorized Person. The
Client shall (i) not disclose, or permit any Authorized
Person to disclose, except on a "need to know" basis, any
aspects of any Security Procedure, (ii) notify the
Custodian immediately if the confidentiality of any
Security Procedure is compromised and (iii) act to prevent
the Security Procedures from being further compromised.
The Client shall designate one or more persons, as
identified in Appendix E, to receive Security Procedure
materials from the Custodian. The Client may amend Appendix
E from time to time upon seven days' prior written notice
to the Custodian in accordance with Section 18 of this
Agreement.
28. License. The Custodian hereby grants to the Client a
personal, nontransferable and nonexclusive license to use,
for its internal purposes only, the respective number of
copies of any hardware, firmware, microcode and software
set forth in Appendix F or hereafter identified by the
Custodian in writing as communication products (the
"Communication Products"), for the respective terms set
forth in Appendix F and at the respective locations set
forth in Appendix F, solely in connection with transmitting
and receiving electronic communications to and from the
Custodian in connection with this Agreement. The Client
hereby acknowledges and agrees that this license is subject
to the terms and conditions set forth in Appendix G.
29. Severability. In the event any of the terms or
provisions of this Agreement shall be held to be
unenforceable, the
remaining terms and provisions shall be unimpaired and the
unenforceable term or provision shall be replaced by such
enforceable term or provision as comes closest to the
intention underlying the unenforceable term or provision.
In Witness Whereof, the parties have caused this Agreement
to be duly executed by their respective authorized
representatives as of the day and year first above written.
Morgan Guaranty Trust Company of Smith Barney Series
New York Fund
By: ______________________________ By:
______________________________
Title: ______________________________ Title:
______________________________
Appendix A
Global Custody Network
Country Subcustodian
Depository1
Argentina Morgan Guaranty Trust Co.
Caja de Valores
of New York - Buenos Aires
Office
Australia ANZ Banking Group
Austraclear
Austria Creditanstalt-Bankverein
OeKB-WSB (Wertpapiersammelbank bei der
Oesterreichischen Kontrollbank AG)
Belgium Morgan Guaranty Trust Co.
CIK (Caisse Interprofessionnelle
of New York - Brussels Office
de Depots et de Virements de Titres)
Euroclear Clearance System Limited
Brazil Morgan Guaranty Trust Co.
BOVESPA (Bolsa de Valores de Sao Paulo;
of New York - Sao Paulo Office
equities)
BVRJ
(Bolsa de Valores de Rio de Janeiro; equities)
CETIP
(Central de Custodia e Liquidacao Financiera de
Titulos; corporate bonds)
SELIC
(Sistema Especial de Liquidacao e Custodia; government
securities)
Canada Canadian Imperial Bank CDS
(Canadian Depository for
of Commerce
Securities)
Chile Citibank, N.A.
People's Republic of China - Hongkong and Shanghai
Banking
Shanghai and Shenzhen Corporation
Denmark Den Danske Bank VP
(Vaerdipapircentralen; Danish Securities Centre)
Finland Union Bank of Finland
France Morgan Guaranty Trust Co.
SICOVAM (Societe Interprofessionnelle
of New York - Paris Office
Pour La Compensation des Valeurs
Mobilieres)
Germany J.P. Morgan GmbH DKV
(Deutscher Kassenverein)
Greece National Bank of Greece S.A.
Hong Kong Hongkong and Shanghai Banking
CCASS
(Central Clearing and Settlement
Corporation
System)
Hungary Citibank Budapest Rt
India Hong Kong and Shanghai
Banking
Corporation
Indonesia Hongkong and Shanghai Banking
Corporation
Ireland Allied Irish Banks PLC
Italy Morgan Guaranty Trust Co.
Monte Titoli S.p.A.
of New York - Milan Office
Japan The Fuji Bank, Ltd.
JASDEC (Japanese Securities
Depository Center)
JSA (Japan Securities Agency)2
Korea Bank of Seoul
KSSC (Korea Securities Settlement Corporation)
Luxembourg Banque Internationale a
CEDEL (Central de Livraison
Luxembourg, S.A.
des Valeurs Mobilieres)
Malaysia Hongkong and Shanghai Banking
SCANS
(Securities Clearing Automated
Corporation
Network Services)
Mexico Citibank, N.A.
Indeval
Netherlands Bank Van Haften
Labouchere
NECIGEF (Nederlands Centraal Instituut Voor
Giraal Effectenverkeer BV)
New Zealand ANZ Banking Group Ltd.
Austraclear
Norway Den Norske Bank
VPS
(Verdipapirsentralen; Norwegian Registry of
Securities) Philippines
Hongkong and Shanghai Banking
Corporation
Portugal Banco Espirito Santo
e Comercial de Lisboa
Singapore Development Bank of Singapore
(CDP)
Central Depository Pte
Spain Morgan Guaranty Trust Co.
of New York - Madrid
Office
Banco de Santander
Sri Lanka Hongkong and Shanghai Banking
Corporation
Sweden Skandinaviska Enskilda Banken
VPC (Vaerdepappercentralen;
Securities Register Centre)
Switzerland Morgan Guaranty Trust Co.
SEGA (Schweizerische
of New York - Zurich
Office Effekten - Giro AG)
Taiwan Hongkong and Shanghai Banking
Corporation
Thailand Hongkong and Shanghai Banking
Corporation
Turkey3 Citibank, N.A.
Ottoman Bank
United Kingdom Morgan Guaranty Trust Co.
TALISMAN (Transfer, Accounting and
of New York - London
Office Lodgement for Investors Stock Management
for Jobbers) - Sepon Limited
CGO (Central Gilts Office)
CMO (Central Money Markets Office)
ESO (European Settlements Office)
United States Morgan Guaranty Trust Co.
The Depository Trust Co.
of New York
The Participants Trust Co.
Venezuela Citibank, N.A.
Appendix B
Consents and Filings
Additional Information
Appendix C
Tax Matters
The provisions of this Appendix C shall govern the rights,
responsibilities, duties and liabilities of the Client and
the Custodian with respect to the payment or withholding of
all taxes, assessments, duties or other governmental charges
(including any interest or penalty thereon or with respect
thereto) imposed by any governmental authority upon or with
respect to (i) any Cash, (ii) any Securities, and any
distributions with respect thereto, and (iii) the purchase,
sale, loan or other transfer of any Security by the
Custodian, any Subcustodian or any Securities Depository on
behalf of the Client and any proceeds or other income from
such a sale, loan or other transfer (any such tax,
assessment, duty or other governmental charge being referred
to herein as a "Tax"). All capitalized terms not defined
herein shall have the meanings assigned to them in the Global
Custody Agreement.
1. As further provided in this Appendix C, the Client shall
be liable for all Taxes and shall indemnify and hold harmless
the Custodian, each Subcustodian and each Securities
Depository for the amount of any Tax that the Custodian or
such Subcustodian or Securities Depository is required under
applicable laws (whether by assessment or otherwise) to pay
on behalf of, or in respect of income earned by or payments
or distributions made to or for the account of, the Client
(including any payment of Tax required by reason of an
earlier failure to withhold).
2. The Custodian shall, and shall instruct each Subcustodian
and
Securities Depository to, withhold the amount of any Tax
which the Custodian or such Subcustodian or Securities
Depository is required to withhold under applicable law upon
collection (on behalf of the Client pursuant to an Authorized
Instruction) of (i) any dividend, interest or other cash
distribution made with respect to any Security, (ii) any
stock dividend or distribution of rights, warrants or other
property with respect to any Security and (iii) any proceeds
or income from the sale, loan or other transfer of any
Security. The Custodian shall, and shall instruct each
Subcustodian and Securities Depository to, timely remit the
amount of any such tax withheld to the appropriate
governmental authority in the manner required by applicable
law. The Custodian has, and is authorized to grant to each
Subcustodian and Securities Depository, complete discretion
to determine the amount of any Tax which the Custodian or
such Subcustodian or Securities Depository is required to
withhold from any distribution, proceeds or income under any
applicable law.
3. In the event that (A) the Custodian or any Subcustodian
or Securities Depository is required under applicable law to
pay any Tax on behalf of the Client (including a payment due
by reason of an earlier failure to withhold such Tax) or (B)
the Custodian or any Subcustodian or Securities Depository is
required under applicable law to withhold or otherwise pay
any Tax from or with respect to any distribution or payment
in property other than cash which is collected by the
Custodian or such Subcustodian or Securities Depository (on
behalf of the Client pursuant to an Authorized Instruction),
the Custodian shall be authorized to withdraw Cash from any
subaccount of the Cash Account in the amount and currency
required to pay such
Tax and to use such Cash, or to remit such Cash to the
appropriate Subcustodian or Securities Depository for the
timely payment of such Tax in the manner required by
applicable law. If the Cash Account does not contain
sufficient Cash in the appropriate currency to pay such Tax,
the Custodian shall be authorized to withdraw Cash of any
other currency from any subaccount of the Cash Account in an
amount which, when converted to the appropriate currency at
the exchange rate prevailing on the date of withdrawal, is
sufficient to enable the Custodian or such Subcustodian or
Securities Depository to pay such Tax. If the aggregate
amount of Cash in all subaccounts of the Cash Account is not
sufficient to pay such Tax, the Custodian shall promptly
notify the Client of the additional amount of Cash (in the
appropriate currency) required, and the Client shall deposit
such additional amount in the Cash Account promptly after
receipt of such notice for use by the Custodian as specified
herein. In the event that the Custodian or any Subcustodian
or Securities Depository is required to pay any such Tax
prior to the deposit by the Client of an additional amount as
required hereunder, the Custodian shall be authorized to
withdraw such additional amount (following deposit thereof)
from any subaccount of the Cash Account for payment to its
own account or the account of such Subcustodian or Securities
Depository in satisfaction of the Client's indemnification
obligation hereunder.
4. The information delivered to the Client each month
pursuant to Section 8(a) of the Global Custody Agreement
shall include the amount of each Tax (i) withheld by the
Custodian or any Subcustodian or Securities Depository from
any payment collected on behalf of the Client, (ii) withheld
by the payor of any payment collected by the Custodian or any
Subcustodian or Securities Depository on behalf of the Client
or (iii) paid by the Custodian or any Subcustodian or
Securities Depository on
behalf of the Client with Cash withdrawn from the Cash
Account or otherwise obtained pursuant to paragraph 3 of this
Appendix C, in each case during the period since the date of
the immediately preceding monthly report.
5. In the event that the Client is eligible, pursuant to the
provisions of any tax treaty, for a reduced rate of, or
exemption from, any Tax which the Custodian or any
Subcustodian or Securities Depository is otherwise required
to withhold or pay on behalf of the Client under any
applicable law, the Custodian shall, or shall instruct such
Subcustodian or Securities Depository to, either withhold or
pay such Tax at such reduced rate or refrain from withholding
or paying such Tax, as appropriate; provided that the
Custodian has received from the Client all documentary
evidence of residence or other qualification for such reduced
rate or exemption required to be received under such
applicable law. As soon as practicable following the
execution of the Global Custody Agreement, the Client shall
notify the Custodian of the Client's eligibility for the
benefits of any tax treaty between the Client's country of
residence and the countries listed in Appendix A to the
Global Custody Agreement and to the extent possible, furnish
to the Custodian all forms or other documentary evidence
required under applicable law to establish such eligibility.
The Custodian shall, and shall instruct each Subcustodian and
Securities Depository to, withhold or pay any Tax at a
reduced rate hereunder, or refrain from withholding or paying
any Tax, only in reliance upon documentation furnished to the
Custodian pursuant to this paragraph 5. The Custodian and
each
Subcustodian and Securities Depository shall have no
responsibility for the accuracy or validity of any forms or
documentation provided by the Client to the Custodian
hereunder, and the Client hereby indemnifies and agrees to
hold harmless the Custodian and each Subcustodian and
Securities Depository in respect of any liability arising
from any underwithholding or underpayment of any Tax which
results from the inaccuracy or invalidity of any such forms
or other documentation.
6. In the event that the Custodian becomes aware that any
person is required under applicable law of any country to
withhold any Tax from any payment collected by the Custodian
or any Subcustodian or Securities Depository on behalf of the
Client, and the Client has previously provided to the
Custodian pursuant to paragraph 5 of this Appendix C all
forms or other documentary evidence required under applicable
law to establish eligibility for an exemption from or reduced
rate of such withholding pursuant to any tax treaty between
such country and the Client's country of residence, then the
Custodian shall furnish, or shall instruct such Subcustodian
or Securities Depository to furnish, to the extent
permissible and effective to establish such eligibility under
applicable law, such forms or other documentary evidence on
behalf of the Client to the person required to withhold such
Tax. In the event that the Custodian or such Subcustodian or
Securities Depository is not permitted under applicable law
to furnish the necessary forms or other documentary evidence
on behalf of the Client, the Custodian shall make reasonable
efforts to notify the Client, reasonably promptly after it
becomes aware of such requirement, that the Client is
required under such law to furnish such items to the person
required to withhold such Tax. In the event that (i) the Tax
which any such person is required to withhold is imposed
under an applicable law of a country other than those listed
in Appendix A to the Global Custody Agreement or (ii) the
Custodian or an appropriate governmental authority or
withholding agent has
determined that any forms or other documentation previously
provided to the Custodian pursuant to paragraph 5 of this
Appendix C are insufficient to establish the eligibility of
the Client for a reduced rate of, or exemption from,
withholding of any Tax imposed under the applicable law of a
country listed in Appendix A to the Global Custody Agreement,
the Custodian shall make reasonable efforts to so notify the
Client reasonably promptly after the Custodian becomes aware
that such Tax is required to be withheld.
7. In the event that (i) the Client is eligible pursuant to
the provisions of any tax treaty for a reduced rate of, or
exemption from, withholding of any Tax, which reduced rate or
exemption is obtainable only by means of application to the
appropriate governmental authority for a refund of tax paid
or withheld, or (ii) the Custodian or any Subcustodian or
Securities Depository withholds from any distribution,
proceeds or income collected on behalf of the Client an
amount which is subsequently determined to be greater than
the amount required under applicable law to have been
withheld, the Custodian shall, or shall instruct the
appropriate Subcustodian or Securities Depository to, assist
the Client, to the extent permissible under applicable law,
to obtain a refund of such Tax from the appropriate
governmental authority in the amount for which the Client is
eligible.
Appendix D
Notices to the Custodian
Morgan Guaranty Trust Company of New York, Brussels
Office 35 avenue des Arts
Brussels 1040, Belgium
Attention: Securities Trust and
Information Services,
Global Custody
Facsimile No. 322-512-4977
Telephone No. 322-508-8365
Notices to the Client
388 Greenwich Street
New York, NY 10013
Attention Lewis Daidone
Appendix E
Persons Authorized by the Client to Receive Security
Procedure Materials
[To be provided by Client]
Appendix F
Communication Products
(To be provided)
Appendix G
Communication Products - Terms and Conditions
1. Misuse; Confidentiality; Copies. The Client shall not
transfer, sublicense, rent, lease, convey, translate, convert
to another programming language, decompile, disassemble,
modify or change any Communication Product for any purpose.
The Client shall not use any Communication Product in a
manner which would violate this license or infringe the
proprietary rights of the Custodian or others or violate the
laws, tariffs or regulations of any country. The Client
agrees not to disclose to any other party and to keep
confidential all of the Communication Products and all
information contained in or related to the Communication
Products and related documentation. The Client may make only
one copy of each licensed software Communication Product for
backup purposes in support of its authorized use of the
software. The Client shall include any applicable copyright
notice on any such software backup. The Client is permitted
to use each licensed copy of any Communication Product on
only one computer or local area network at a time.
2. Compatible Products. The Client shall be responsible for
obtaining and maintaining hardware, software and other
equipment and products that are compatible with the
Communication Products, as compatibility is defined by the
Custodian from time to time. The Custodian shall give the
Client reasonable advance notice of any changes in such
compatibility requirements.
3. Documentation. If available, the Custodian shall give
the Client one copy of a user manual and related
documentation (the "Documentation") for each licensed
Communication Product. The Documentation is intended to be
used for training and informational purposes. The
Documentation describes Security Procedures that the Client
must comply with in using the Communication Products. The
Client shall immediately notify the Custodian in writing if
it believes any Security Procedure has been compromised or if
any Communication Product fails to perform as described in
the Documentation.
4. Installation. At its option, the Custodian shall either
install the Communication Products at the locations specified
by the Client or shall furnish the Client with installation
instructions. From time to time, at its option, the
Custodian shall either install new releases of the
Communication Products or furnish the Client with
installation instructions and direct the Client to install
such new releases by itself. The Client agrees to allow the
Custodian to install such new releases or to install such new
releases by itself if directed to do so by the Custodian.
5. Returns, Repairs and Replacements. Upon the termination
of this License with respect to any Communication Product,
the Client agrees to return all copies of such Communication
Product and related documentation to the Custodian. The
Client agrees to pay any shipping charges incurred in
connection with the return of any Communication Product to
the Custodian for replacement, update or upon termination of
this License with respect to such
Communication Product. Communication Products that are lost,
damaged or otherwise rendered inoperable due to the Client's
negligent, reckless or intentional misuse, or due to reasons
beyond the Custodian's control, shall be repaired or replaced
at the Client's expense. Communication Product repairs shall
only be performed by the Custodian or a party authorized by
the Custodian to perform such repairs.
6. Fees; Taxes. The Client agrees to pay the Custodian
license fees and such other fees as the parties hereto may
agree upon in writing from time to time in connection with
obtaining the Communication Products. The Client agrees to
reimburse the Custodian for, or shall pay directly to the
relevant taxing authorities, any sales, use, value-added,
excise or other taxes, other than taxes based on the
Custodian's net income, incurred by the Custodian or which
may in the future be incurred by the Custodian as a result of
this License or on or measured by the prices and other
charges of the Communication Products furnished for the
Client's use, however designated, levied or based, whenever
the Custodian has paid or shall be liable to pay or collect
any such tax from the Client pursuant to applicable law, as
interpreted by the departmental authorities of the taxing
unit.
7. Warranty. The Custodian warrants that, for a period of
30 days after delivery of a Communication Product to the
Client such Communication Product will perform substantially
in accordance with the then current specifications therefor
as set forth in the Documentation. If a Communication
Product fails to meet the foregoing warranty and the Client
gives the Custodian written notice thereof during the
applicable warranty period, the Custodian's sole obligation
shall be to provide technical services to attempt to correct
the failure, provided that (i) the Client gives the Custodian
detailed information regarding such failure and the Custodian
is able to duplicate same and (ii) the Communication Product
has not been used in an unauthorized manner or otherwise
misused or abused. The Client acknowledges that the
Communication Products are complex, may not be error free,
and that all errors, if any, may not be correctable or
avoidable. Except and to the extent expressly provided above,
and in lieu of all other warranties, the Communication
Products are provided "as is", all warranties and
representations of any kind with regard to the Communication
Products are hereby disclaimed, including any implied
warranties of merchantability or fitness for a particular
purpose.
8. Infringement. The Custodian shall defend or settle, at
its own expense, any cause of action or proceeding brought
against the Client which is based on a claim that the use of
a Communication Product infringes any patent, copyright,
trade secret or other proprietary right. The Custodian shall
indemnify and hold the Client harmless against any final
judgment that may be awarded by a court of competent
jurisdiction against the Client as a result of the foregoing.
The Custodian's obligations hereunder are conditioned upon
its receiving from the Client (i) prompt written notice of
each such claim, (ii) reasonable cooperation and information
in Client's possession and (iii) the right to control and
direct the investigation, defense and settlement of each such
claim. If a claim is made that a Communication Product
infringes any patent, copyright, trade secret or other
proprietary right, the Custodian may, in the Custodian's sole
discretion, either procure for the Client the right to
continue using such Communication Product, modify it to
make its use noninfringing, or replace it with a
noninfringing product; provided that if none of the foregoing
is reasonably available to the Custodian, the Custodian may
terminate the license granted herein and require the Client
to return all copies of the relevant Communication Product.
Notwithstanding the foregoing, the Custodian shall not be
liable to the Client pursuant to this Section if a claim is
based on (i) a combination of a Communication Product with
data or other software or devices not supplied by the
Custodian, (ii) modifications to a Communication Product not
made by the Custodian or (iii) use of a Communication Product
in an unauthorized manner.
9. Related Services. These terms and conditions and the
Documentation are intended to define the rights and
obligations of the Client with respect to Communication
Products used by the Client in connection with all services
(e.g., custody, funds transfers, foreign exchange etc.)
offered by Morgan Guaranty Trust Company of New York and its
affiliates to the Client. The provisions of this Agreement
and any documents relating to other services offered by
Morgan Guaranty Trust Company of New York and its affiliates
may supplement these terms and conditions but in the event of
any inconsistency between this Agreement or such other
documents and these terms
and conditions, these terms and conditions shall prevail.
10. Intraday Reports. The Client acknowledges that
intraday reports received by the Client by means of any
Communication Product may contain information that is
subject to correction, and that corrections of such
information will routinely occur without notice to the
Client. The Client understands that intraday reports are
provided for informational purposes only and are not to be
relied upon for purposes of final reconciliations or
otherwise. Neither Morgan Guaranty Trust Company of New
York nor any affiliate or subsidiary of Morgan Guaranty
Trust Company of New York that provides data with respect to
intraday reports makes any representation or warranty that
such reports are accurate or complete.
_______________________________
1In addition to the central bank, if applicable.
2JSA currently does not meet Rule 17-5 requirements.
3Citibank meets the capital requirements of Rule 17f-5
and Ottoman bank currently does not.
