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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, each with separate
goals and investment policies. The Appreciation Portfolio (the "Portfolio") is
the only portfolio offered herein.
THE APPRECIATION PORTFOLIO'S goal is long-term appreciation of capital.
This Portfolio invests primarily in equity securities.
There can be no guarantee that the Portfolio's goal will be achieved since
any investment involves risks. Discussions of the investments which the
Portfolio will make, and their related risks, are found in the sections of this
Prospectus entitled "Investment Goal and Policies of the Portfolio," "Additional
Investments" and "Special Considerations" and in the Appendix to this
Prospectus.
This Prospectus sets forth briefly certain information about the Fund and
the Portfolio that you should know before investing and should be retained for
future reference. Additional information about the Fund and the Portfolio 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
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CONTENTS
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<S> <C>
SYNOPSIS.............................................................................. 1
EXPENSES OF THE PORTFOLIO............................................................. 2
INVESTMENT GOAL AND POLICIES OF THE PORTFOLIO......................................... 3
ADDITIONAL INVESTMENTS................................................................ 3
CERTAIN INVESTMENT GUIDELINES......................................................... 4
SPECIAL CONSIDERATIONS AND RISK FACTORS............................................... 4
PORTFOLIO TRANSACTIONS................................................................ 5
NET ASSET VALUE....................................................................... 5
HOW TO USE THE FUND................................................................... 6
DIVIDENDS AND TAXES................................................................... 6
MANAGEMENT OF THE FUND................................................................ 8
PORTFOLIO MANAGEMENT.................................................................. 8
CUSTODIAN AND TRANSFER AGENT.......................................................... 8
DISTRIBUTOR........................................................................... 9
ADDITIONAL INFORMATION................................................................ 9
THE PORTFOLIO'S PERFORMANCE........................................................... 9
APPENDIX.............................................................................. A-1
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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. The Appreciation
Portfolio (the "Portfolio") is the only portfolio available hereunder. See
"Investment Goal and Policies of the Portfolio" and "Additional Information."
MANAGEMENT
The organizations that perform services for the Portfolio 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 and Administrator
("SBMFM")
Smith Barney Inc......................................... Distributor
("Smith Barney")
PNC Bank, National Association........................... Custodian
("PNC")
First Data Investor Services Group, Inc.,................ Transfer and Dividend Paying Agent
formerly The Shareholder Services Group, Inc. (the
"Transfer Agent")
</TABLE>
The Portfolio pays SBMFM, its investment adviser, a fee at the annual
percentage rate of 0.55% of the value of the Portfolio's average net assets.
SBMFM, as administrator of the Portfolio, is paid a fee at the annual percentage
of 0.20% of the value of the Portfolio's average net assets. The management fees
paid by the Portfolio 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. In the future, the Fund may establish additional portfolios
which may or may not be available hereunder. 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 may constitute
a temporary part of the investments of the Portfolio, may vary inversely in
response to changes in prevailing interest rates. The non-publicly traded and
illiquid securities, which the Portfolio may hold, may have to be sold at lower
prices, or may remain unsold, when the Portfolio desires to dispose of them. The
foreign securities, including securities of developing countries, in which the
Portfolio may invest, may be subject to certain risks in addition to those
inherent in U.S. investments. The Portfolio may make certain investments and
employ certain investment techniques that involve other risks, including
entering into repurchase agreements and lending portfolio securities. These
risks are described under "Investment Goal and Policies of the Portfolio,"
"Special Considerations" and in the Appendix to this Prospectus.
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EXPENSES OF THE PORTFOLIO
The Portfolio will bear its own expenses. Operating expenses for the
Portfolio generally will consist of all costs not specifically borne by its
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
and administrator of the 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 Portfolio 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.
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FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share of beneficial interest outstanding throughout each period:
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<CAPTION>
APPRECIATION PORTFOLIO 1995 1994 1993 1992 1991(1)
<S> <C> <C> <C> <C> <C>
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NET ASSET VALUE, BEGINNING OF YEAR......... $ 11.54 $ 11.80 $ 11.13 $ 10.49 $ 10.00
INCOME (LOSS) FROM OPERATIONS:
Net investment income(2)................. 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
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Total Income (Loss) From Operations........ 3.27 (0.12) 0.78 0.64 0.49
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LESS DISTRIBUTIONS:
Net investment income.................... (0.21) (0.14) (0.11) 0.00* --
Net realized gains....................... (0.21) -- -- -- --
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Total Distributions........................ (0.42) (0.14) (0.11) -- --
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NET ASSET VALUE, END OF YEAR............... $ 14.39 $ 11.54 $ 11.80 $ 11.13 $ 10.49
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TOTAL RETURN............................... 28.84% (1.12)% 7.03% 6.13% 4.90%++
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NET ASSETS, END OF YEAR (000'S)............ $94,492 $80,823 $77,843 $53,450 $11,436
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RATIOS TO AVERAGE NET ASSETS:
Expenses(2).............................. 0.97% 0.88% 1.01% 1.00% 0.94%
Net investment income.................... 1.65 1.75 1.35 1.61 3.00+
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Portfolio Turnover Rate.................... 43% 61% 33% 14% --
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Average Commissions Paid on Equity Security
Transactions(3).......................... $ 0.06 -- -- -- --
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</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
fee waivers and expense reimbursements were as follows:
<TABLE>
<CAPTION>
NET INVESTMENT INCOME EXPENSE RATIOS WITHOUT WAIVERS
PER SHARE DECREASE AND REIMBURSEMENTS
------------------------------------- ------------------------------------
PORTFOLIO 1995 1994 1993 1992 1991 1995 1994 1993 1992 1991
- ----------------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Appreciation....................... N/A N/A N/A $0.01 $0.01 N/A N/A N/A 1.16% 3.64%+
</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.
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INVESTMENT GOAL AND POLICIES OF THE PORTFOLIO
Set forth below is a description of the investment goal and policies of the
Portfolio. The investment goal of the Portfolio may not be changed without the
approval of the holders of a majority (as defined in the Investment Company Act
of 1940, as amended (the "1940 Act")) of the outstanding shares of the
Portfolio. There can, of course, be no guarantee that the Portfolio will achieve
its investment goal. Additional information about investment strategies that the
Portfolio 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.
GOAL -- The Portfolio's goal is long-term appreciation of capital.
INVESTMENT POLICIES -- The Portfolio will attempt to achieve its goal by
investing primarily in equity and equity-related securities that are believed to
afford attractive opportunities for appreciation. For example, the Portfolio may
invest in the securities of companies whose earnings are expected to increase,
companies whose securities prices are lower than are believed justified in
relation to their underlying assets or earning power or companies in which
changes are anticipated that would result in improved operations or
profitability. The Portfolio's investments will be broadly diversified among
different industries. In analyzing securities for investment, SBMFM will
consider many different factors, including past growth records, management
capability, future earnings prospects and technological innovation, as well as
general market and economic factors that can influence the price of securities.
Under normal market conditions, substantially all -- but not less than
65% -- of the Portfolio's assets will consist of common stocks, but the
Portfolio also may hold securities convertible into common stocks and warrants.
When SBMFM believes that a conservative or defensive investment posture is
warranted or when opportunities for capital appreciation do not appear
attractive, the Portfolio may invest temporarily in debt obligations, preferred
securities or short-term money market instruments. The Portfolio may, from time
to time, lend its portfolio securities and invest in securities of non-U.S.
issuers in the form of depository receipts representing interests in the common
stocks of foreign issuers.
ADDITIONAL INVESTMENTS
MONEY MARKET INSTRUMENTS
The Portfolio may, as a cash management tool, hold up to 20% 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 Portfolio 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.
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.
U.S. GOVERNMENT SECURITIES
The U.S. government securities in which the Portfolio 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
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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 Portfolio may invest up to 5% of its 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 Portfolio over the term
of the security. The rate of exchange between the U.S. dollar and other
currencies is determined by the forces of supply and demand in the foreign
exchange markets. These forces are affected by the international balance of
payments and other economic and financial conditions, government intervention,
speculation and other factors. The imposition or modification of foreign
exchange controls by the United States or foreign governments or intervention by
central banks also could affect exchange rates. Finally, there is no assurance
that sufficient trading interest to create a liquid secondary market will exist
for particular Exchange Rate-Related Securities due to conditions in the debt
and foreign currency markets. Illiquidity in the forward foreign exchange market
and the high volatility of the foreign exchange market may from time to time
combine to make it difficult to sell an Exchange Rate-Related Security prior to
maturity without incurring a significant price loss.
CERTAIN INVESTMENT GUIDELINES
Up to 10% of the total assets of the Portfolio may be invested in
securities with contractual or other restrictions on resale and other
instruments that are not readily marketable, including repurchase agreements
with maturities greater than seven days and time deposits maturing in more than
seven calendar days. The 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 the
Portfolio, the Portfolio will not make any additional investments. 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 the Portfolio's outstanding shares is contained in the
Statement of Additional Information.
SPECIAL CONSIDERATIONS AND RISK FACTORS
This section describes certain investments of the Portfolio and related
risks. Further information concerning investments of the Portfolio and related
risks may be found in the Appendix to this Prospectus and in the Statement of
Additional Information.
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FIXED-INCOME SECURITIES
The market value of fixed-income obligations of the Portfolio will be
affected by general changes in interest rates, which will result in increases or
decreases in the value of fixed-income obligations held by the Portfolio. The
market value of the Portfolio's fixed-income obligations can be expected to vary
inversely in relation to changes in prevailing interest rates. In addition,
fixed-income securities in which the Portfolio 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
The 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, the 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 Portfolio's
investments in illiquid securities are subject to the risk that should the
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.
FOREIGN SECURITIES
The 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 the 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 the 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.
PORTFOLIO TRANSACTIONS
All orders for transactions in securities on behalf of the Portfolio will
be placed by its investment adviser with broker-dealers that the adviser
selects, including Smith Barney and other affiliated brokers. The 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.
NET ASSET VALUE
The value of an individual share of the Portfolio is the net asset value of
that share. The net asset value per share of the 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
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falls on a Saturday or Sunday, respectively. Net asset value per share of the
Portfolio is determined as of the close of regular trading on the NYSE
(currently 4:00 p.m., New York time).
Net asset value per share is computed by dividing the value of the
Portfolio's net assets by the total number of its shares outstanding. Generally,
the Portfolio's investments are valued at market value or, in the absence of a
market value with respect to any portfolio securities, at fair value as
determined by or under the direction of the Fund's Board of Trustees. A security
that is primarily traded on a U.S. or foreign exchange (including securities
traded through the National Market System) is valued at the last sale price on
that exchange or, if there were no sales during the day, at the current quoted
bid price. Portfolio securities that are primarily traded on foreign exchanges
are generally valued at the preceding closing values of such securities on their
respective exchanges, except that when an occurrence subsequent to the time a
value was so established is likely to have changed the value, then the fair
value of those securities will be determined by consideration of other factors
by or under the direction of the Fund's Board of Trustees or its delegates.
Over-the-counter securities that are not traded through the National Market
System and securities listed or traded on certain foreign exchanges whose
operations are similar to the U.S. over-the-counter market are valued on the
basis of the mean between the bid and asked prices at the close of business on
each day. Investments in U.S. government securities (other than short-term
securities) are valued at the average of the quoted bid and asked prices in the
over-the-counter market. Short-term investments that mature in 60 days or less
are valued at amortized cost when the Fund's Board of Trustees determines that
this constitutes fair value. 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) 723-9217. 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 the 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. Generally, payment upon redemption will be made within three business
days after receiving a valid redemption request (unless redemption is suspended
or payment is delayed as permitted in accordance with SEC regulations). The Fund
will use the net asset value at the close of trading on the NYSE on the day the
notice of surrender or transfer is received. 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 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, unless the shareholder instructs
the Portfolio to pay all dividends and distributions in cash. Net investment
income,
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including dividends on stocks and interest on bonds or other securities the Fund
holds, is distributed to the shareholders of the Portfolio annually.
CAPITAL GAINS. Distributions of any net realized capital gains of the
Portfolio 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, the 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 (rather than on a Fund-wide) basis.
The Fund intends that the 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, the 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, the 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 the Portfolio from taxable investment income and
distributions of short-term capital gains will be treated as ordinary income in
the hands of the shareholders for federal income tax purposes, whether received
in cash or reinvested in additional shares. Distributions of net long-term
capital gains will be treated as long-term capital gains in the hands of the
shareholders, if certain notice and designation requirements are satisfied,
whether paid in cash or reinvested in additional shares, regardless of the
length of time the investor has held shares of the Portfolio. The Fund has been
informed that the separate accounts represented by the Contracts should, for
federal income tax purposes, be considered the shareholders of the Portfolio.
To comply with regulations under Section 817(h) of the Code, the 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 its 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.
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 Portfolio 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 the Portfolio. While the 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 the Portfolio as necessary to prevent any such
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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
Portfolio 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 the Portfolio, including agreements with the
investment adviser and administrator of the Portfolio and with the Fund's
custodian, transfer agent and distributor. The day-to-day operations of the
Portfolio are delegated to the investment adviser and administrator of the
Portfolio. 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 adviser and the administrator of the Portfolio, the
Fund requires no employees other than its executive officers, none of whom
devotes full time to the affairs of the Fund.
INVESTMENT ADVISER AND ADMINISTRATOR
The assets of each Portfolio of the Fund are managed separately. Subject to
the supervision and direction of the Fund's Board of Trustees, the investment
adviser of the Portfolio manages the Portfolio in accordance with its goal 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 31, 1996, in excess of $75 billion.
PORTFOLIO MANAGEMENT
Harry D. Cohen is a Vice President and Investment Officer of the Portfolio
and a Managing Director of Smith Barney. Prior to July 1993, Mr. Cohen served as
Executive Vice President of Shearson Lehman Brothers Inc.
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 the cover page of this Prospectus.
CUSTODIAN AND TRANSFER AGENT
PNC, located at 17th and Chestnut Streets, Philadelphia, Pennsylvania
19103, acts as custodian of the Portfolio's investments generally.
The Transfer Agent, FIRST DATA INVESTOR SERVICES GROUP, INC., is located at
Exchange Place, Boston, Massachusetts 02109.
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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 ten portfolios. 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 Portfolio at the end of the period covered. Contract
owners may make inquiries regarding the Fund and the Portfolio, including the
current performance of the Portfolio, from a Smith Barney Financial Consultant.
THE PORTFOLIO'S PERFORMANCE
TOTAL RETURN
From time to time, the 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
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distributions made by the Portfolio during the period were reinvested in shares
of the Portfolio. Figures will be given for recent one-, five- and ten-year
periods (if applicable), and may be given for other periods as well (such as
from commencement of the Portfolio's operations, or on a year-by-year basis).
When considering average annual total return figures for periods longer than one
year, it is important to note that the 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 the
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 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 Portfolio's
total return. Shareholders may make inquiries regarding the Portfolio, including
total return figures, of a Smith Barney Financial Consultant.
In reports or other communications to shareholders or in advertising
material, the 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,
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 Portfolio 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 Portfolio, as well as the
performance of other mutual funds or indices, does not reflect sales charges,
the inclusion of which would reduce the Portfolio's performance.
The 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.
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APPENDIX
CERTAIN INVESTMENT STRATEGIES
In attempting to achieve its investment goal, the 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 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 Portfolio and in conformity with its investment
restrictions.
REPURCHASE AGREEMENTS. The 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, the Portfolio would
acquire an underlying debt obligation for a relatively short period (usually not
more than one week) subject to an obligation of the seller to repurchase, and
the Portfolio to resell, the obligation at an agreed-upon price and time,
thereby determining the yield during the Portfolio's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Portfolio's holding period. The value of the underlying
securities will be monitored by the Portfolio's investment adviser to ensure
that it at least equals at all times the total amount of the repurchase
obligation, including interest. The 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. The 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. The Portfolio may lend its portfolio securities to
brokers, dealers and other financial organizations. By lending its securities,
the 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 the Portfolio may not exceed 33 1/3%
of the Portfolio's total assets, taken at value. Loans of the Portfolio's
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.
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.
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