Registration No. 33-40603
811-6310
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 14 [X]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 17 [X]
GREENWICH STREET SERIES FUND
(Exact name of Registrant as specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices) (Zip Code)
(212) 816-6474
Registrant's Telephone Number, including area code
Christina T. Sydor, 388 Greenwich Street, New York, New York 10013
(Name and Address of Agent for Service)
Continuous
(Approximate Date of Proposed Public Offering)
It is proposed that this filing becomes effective (check appropriate
box):
[ ] Immediately upon filing pursuant to paragraph b
[X] on April 30, 1998 pursuant to paragraph b
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2)
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment
GREENWICH STREET SERIES FUND
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
Part A.
Item No.
Prospectus Caption
1. Cover Page
Cover Page
2. Synopsis
Summary
3. Condensed Financial Information
Financial Highlights; The
Portfolio's Performance
4. General Description of
Registrant
Cover Page; Summary; Investment
Goals and Policies of the
Portfolios; Certain Investment
Guidelines; Additional Investments;
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
Securities
Dividends and Taxes; Additional
Information
7. Purchase of Securities Being
Offered
Purchase of Shares; Net Asset
Value; How to Use the Fund;
Distributor; Additional Information
8. Redemption or Repurchase
Purchase of Shares; Redemption of
Shares; How to Use the Fund
9. Legal Proceedings
Not Applicable
Part B
Item No.
Statement of Additional Information
Caption
10. Cover Page
Cover Page
11. Table of Contents
Contents
12. General Information
Distributor; Additional Information
13. Investment Objective and
Policies
Investment Goals and Policies of
the Portfolios
14. Management of the Fund
Management of the Fund
15. Control Persons and Principal
Holders of
Securities
Management of the Fund
16. Investment Advisory and other
Services
Management of the Fund; Distributor
17. Brokerage Allocation
Investment Goals and Policies of
the Portfolios; Portfolio
Transactions
18. Capital Stock and Other
Securities
Net Asset Value; Performance Data
19. Purchase, Redemption and
Pricing of
Securities being Offered
Purchase of Shares; Redemption of
Shares;
20. Tax Status
Taxes
21. Underwriters
Management of the Fund
22. Calculation of Performance
Data
Performance Data
23. Financial Statements
Financial Statements
Part C of Form N-1A
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration
Statement.
This Registration Statement contains ten Portfolios of Greenwich
Street Series Fund (the "Fund"). Numerous other versions of the
Prospectuses will be created from this Registration Statement. The
distribution system for each version of the Prospectus is different.
These Prospectuses will be filed pursuant to Rule 497.
Greenwich Street
Series Fund
PROSPECTUS April 30, 1998
Greenwich Street 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-related 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
a diversified portfolio of equity securities of established non-U.S.
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
because any investment involves risks. An investment in the Money Market
Portfolio is neither insured nor guaranteed by the U.S. 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 that
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 Risk Factors".
This Prospectus sets forth certain information that you should know
about the Fund and each of the Portfolios 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," (the "SAI") dated April 30, 1998, 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 SAI or in authorized sales material. The SAI 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 SEC OR ANY
STATE SECURITIES COMMISSION, NOR HAS THE SEC OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Greenwich Street Series Fund
388 Greenwich Street
New York, New York 10013
Contract Owner Inquiries: (800) 451-2010
Contents
Summary 3
Financial Highlights 6
Investment Goals and Policies of the Portfolios 11
Certain Investment Strategies 17
Additional Investments 23
Certain Investment Guidelines 25
Special Considerations and Risk Factors 26
Portfolio Transactions 30
Net Asset Value 30
How to Use the Fund 31
Dividends and Taxes 32
Management of the Fund 33
Portfolio Management 34
Custodian and Transfer Agent 35
Distributor 35
Additional Information 35
The Portfolios' Performance 36
Summary
The Fund
The Fund is a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), which currently offers a selection of ten Portfolios. See
"Investment Goals and Policies of the Portfolios" and "Additional
Information."
Management
The organizations that perform services for the Fund are listed below
and are described more fully under "Management of the Fund."
Name
Service
Mutual Management Corp. ("MMC" or
"Adviser" and "Administrator")
formerly known as
Smith Barney Mutual Funds Management,
Inc.
Investment Adviser to the Money
Market Portfolio, the 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, a
division of MMC ("Davis Skaggs" or
"Adviser")
Investment Adviser to the Total
Return Portfolio
Smith Barney Global Capital
Management, Inc. ("Global Capital
Management" or "Adviser")
Sub-Investment Adviser to the
Diversified Strategic Income
Portfolio
Travelers Investment Management
Company ("TIMCO" or "Adviser")
Investment Adviser to the Equity
Index Portfolio
Van Kampen American Capital Asset
Management, Inc. ("VKAC" or
"Adviser")
Investment Adviser to the Emerging
Growth Portfolio
Smith Barney Inc. ("Smith Barney" or
"Distributor")
Distributor
PNC Bank, National Association ("PNC"
or "Custodian")
Custodian to all Portfolios except
International Equity Portfolio and
Diversified Strategic Income
Portfolio
The Chase Manhattan Bank ("Chase" or
"Custodian")
Custodian to International Equity
Portfolio and Diversified Strategic
Income Portfolio
First Data Investor Services Group,
Inc. ("First Data" or "Transfer
Agent")
Transfer and Dividend Paying Agent
The Portfolios pay their respective 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
0.15%
Growth & Income Portfolio
0.45%
Intermediate High Grade
Portfolio
0.40%
International Equity
Portfolio
0.85%
Money Market Portfolio
0.30%
Total Return Portfolio
0.55%
Global Capital Management, as Sub-Adviser to the Diversified Strategic
Income Portfolio, is paid a fee by MMC, the Portfolio's Adviser, at the
annual percentage of 0.15% of the value of the Portfolio's average net
assets. MMC, 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, except with respect to the Equity Index Portfolio, for which it
is paid a fee at an annual percentage of 0.06% of the value of the
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 underlying 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 lower-rated
securities and the securities of unseasoned issuers that certain
Portfolios may hold, some of which have speculative characteristics, may
be subject to greater market fluctuation and risk of loss of income or
principal than higher-rated securities. Emerging growth companies, such
as those in which the Emerging Growth Portfolio may invest, may involve
certain special risks. Emerging growth companies often have limited
product lines, markets or financial resources, and may be dependent upon
one or a few key people for management. The securities of such companies
may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages
in general. The Equity Income Portfolio's concentration policy may
involve greater risk and market fluctuation than if it invested in a
broader range of securities. One or more Portfolios may make certain
investments and employ certain investment techniques that involve other
risks, including entering into repurchase agreements, lending portfolio
securities and entering into futures contracts and related options as
hedges. These risks and those associated with when-issued and delayed-
delivery transactions, put and call options, covered option writing,
short sales against the box, forward roll transactions, currency
exchange transactions, options on foreign currencies, interest rate and
other hedging transactions and reverse repurchase agreements, are
described under "Investment Goals and Policies of the Portfolios,"
"Special Considerations and Risk Factors."
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 Adviser, Sub-Adviser and Administrator or the 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 Adviser, the Sub-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 three years ended December 31, 1997
has been audited by KPMG Peat Marwick LLP, independent auditors, whose
report thereon appears in the Fund's Annual Report dated December 31,
1997. The information for each of the years in the four year period
ended December 31, 1994 has been audited by other auditors, whose report
thereon appears in the Fund's Annual Report dated December 31, 1994. The
information set out below should be read in conjunction with the
financial statements and related notes that also appear in the Fund's
Annual Report to Shareholders, which is incorporated by reference into
the SAI.
Financial Highlights
For a share of beneficial interest outstanding throughout each period:
MONEY MARKET PORTFOLIO
1997
1996
1995
1994
1993
1992
1991(
1)
Net Asset Value, Beginning
of Year
$1.000
$1.000
$1.000
$1.000
$1.000
$1.000
$1.000
Net investment income (2)
0.044
0.047
0.052
0.035
0.023
0.027
0.005
Dividends from net
investment income
(0.044)
(0.047)
(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
$1.000
$1.000
Total Return
4.47%
4.80%
5.31%
3.56%
2.37%
2.75%
0.53%!
Net Assets, End of Year
(000's)
$4,753
$5,888
$5,653
$7,141
$3,703
$2,108
$803
Ratios to Average Net
Assets:
Expenses (2)
1.20%
0.75%
0.75%
0.75%
0.75%
0.75%
0.65%+
Net investment income
4.38
4.70
5.19
3.65
2.34
2.79
3.35+
INTERMEDIATE HIGH GRADE PORTFOLIO
1997
1996
1995
1994
1993
1992
1991(1)
Net Asset Value, Beginning
of Year
$10.70
$10.60
$9.66
$10.69
$10.29
$10.24
$10.00
Income (Loss) From
Operations:
Net investment income(2)
0.72
0.71
0.66
0.61
0.55
0.45
0.03
Net realized and
unrealized gain (loss)
0.21
(0.53)
1.00
(0.94)
0.26
0.08
0.21
Total Income (Loss) From
Operations
0.93
0.18
1.66
(0.33)
0.81
0.53
0.24
Less Distributions From:
Net investment income
(0.74)
(0.08)
(0.72)
(0.61)
(0.36)
(0.48)
- --
Net realized gains
- --
- --
- --
(0.09)
(0.05)
- --
- --
Total Distributions
(0.74)
(0.08)
(0.72)
(0.70)
(0.41)
(0.48)
- --
Net Asset Value, End of Year
$10.89
$10.70
$10.60
$9.66
$10.69
$10.29
$10.24
Total Return
8.67%
1.69%
17.76%
(3.05)%
8.00%
5.28%
2.40%!
Net Assets, End of Year
(000's)
$15,100
$14,736
$16,152
$13,280
$9,859
$3,621
$697
Ratios to Average Net
Assets:
Expenses (2)
0.95%
0.90%
0.86%
0.85%
0.85%
0.85%
0.80%+
Net investment income
6.28
6.35
6.63
6.57
5.25
4.75
4.49+
Portfolio turnover rate
66%
116%
121%
90%
139%
124%
- -
(1) For the period from October 16, 1991 (commencement of operations)
to December 31, 1991.
(2) For the Money Market Portfolio, the Adviser waived all or part of its
fees for the five years ended December 31, 1996 and the period ended
December 31, 1991. In addition, for the Intermediate High Grade
Portfolio, the Adviser waived all or part of its fees for the five years
ended December 31, 1996 and the period ended December 31, 1991. For the
Money Market Portfolio, IDS Life also reimbursed expenses of $16,616,
$17,889, $14,624 and $5,862 for the three years ended December 31, 1994
and the period ended December 31, 1991. In addition, for the
Intermediate High Grade Portfolio, IDS Life reimbursed expenses of
$3,006, $12,616, $16,459, $15,865 and $5,726 for the four years ended
December 31, 1995 and the period ended December 31, 1991. If such fees
had not been waived and expenses reimbursed, the per share effect on net
investment income and the expense ratios would have been as follows:
Per Share Decreases to
Expense Ratios Without
Net Investment Income
Waivers and Reimbursements
Portfolio
1996
1995
1994
1993
1992
1991
1996
1995
1994
1993
1992
1991
Money
Market
$0.005
$0.005
$0.005
$0.014
$0.014
$0.034
1.25%
1.21%
1.26%
2.15%
2.18%
21.47%+
Intermediate High
Grade.
0.02
0.01
0.02
0.05
0.13
0.17
1.07
0.94
1.05
1.36
2.28
26.28+
!Total return is not annualized, as it may not be representative of
the total return for the year
+ Annualized
Financial Highlights (continued)
For a share of beneficial interest outstanding throughout each period:
DIVERSIFIED STRATEGIC INCOME
PORTFOLIO
1997
1996
1995
1994
1993
1992
1991
(1)
Net Asset Value,
Beginning of Year
$10.98
$10.01
$9.18
$10.07
$9.61
$10.14
$10.00
Income (Loss) From
Operations:
Net investment income
(2)(3)
0.77
0.88
0.74
0.58
0.70
0.67
0.02
Net realized and
unrealized gain (loss)
0.12
0.24
0.70
(0.86)
0.47
(0.53)
0.12
Total Income (Loss) From
Operations
0.89
1.12
1.44
(0.28)
1.17
0.14
0.14
Less Distributions From:
Net investment income
(0.98)
(0.15)
(0.61)
(0.58)
(0.61)
(0.67)
- --
Net realized gains
- --
- --
- --
- --
(0.09)
- --
- --
Capital
- --
- --
- --
(0.03)
(0.01)
- --
- --
Total Distributions
(0.98)
(0.15)
(0.061)
(0.61)
(0.71)
(0.67)
- -
Net Asset Value, End of
Year
$10.89
$10.98
$10.01
$9.18
$10.07
$9.61
$10.14
Total Return
8.14%
11.16%
16.18%
(2.81)%
12.56%
1.42%
1.40%!
Net Assets, End of Year
(millions)
$62
$60
$59
$55
$43
$20
$4
Ratios to Average Net
Assets:
Expenses(2)
0.78%
0.84%
0.90%
0.95%
1.00%
1.00%
0.94%+
Net investment income
7.29
7.94
7.73
7.31
7.14
7.70
4.57+
Portfolio turnover rate
47%
106%
46%
54%
94%
65%
- -
EQUITY INCOME PORTFOLIO
1997
1996
1995
1994
1993
1992
1991
(2)
Net Asset Value,
Beginning of Year
$13.01
$12.35
$9.87
$11.55
$10.90
$10.20
$10.00
Income (Loss) From
Operations:
Net investment income
(2)
0.77
0.63
0.54
0.58
0.53
0.45
0.02
Net realized and
unrealized gain (loss)
2.28
0.11
2.56
(1.75)
0.60
0.72
0.18
Total Income (Loss) From
Operations
3.05
0.74
3.10
(1.17)
1.13
1.17
0.20
Less Distributions From:
Net investment income
(0.75)
(0.08)
(0.62)
(0.49)
(0.47)
(0.47)
- --
Net realized gains
- --
- --
- --
(0.02)
(0.01)
- --
- --
Total Distributions
(0.75)
(0.08)
(0.62)
(0.51)
(0.48)
(0.47)
- --
Net Asset Value, End of
Year
$15.31
$13.01
$12.35
$9.87
$11.55
$10.90
$10.20
Total Return
23.52%
5.99%
32.47%
(10.20)%
10.41%
11.74%
2.00%!
Net Assets, End of Year
(millions)
$46
$46
$52
$44
$60
$26
$4
Ratios to Average Net
Assets:
Expenses(2)
0.77%
0.77%
0.95%
0.84%
0.87%
1.00%
0.93%+
Net investment income
4.42
4.53
4.95
5.51
4.54
4.93
4.14+
Portfolio turnover rate
42%
28%
33%
21%
4%
4%
- --
Average commissions per
share paid on equity
transactions(4)
0.06
$0.06
$0.06
- --
- --
- --
- --
(1) For the period from October 16, 1991 (commencement of operations)
to December 31, 1991.
(2) For the Diversified Strategic Income Portfolio, the Adviser waived
all or part of its fees and the two years ended December 31, 1993 and
the period ended December 31, 1991. In addition, for the Equity
Income Portfolio, the Adviser waived all or part of its fees for the
year ended December 31, 1992 and the period ended December 31, 1991.
For the Diversified Strategic Income Portfolio, IDS Life reimbursed
expenses of $2,816, $25,396 and $5,927 for the two years ended
December 31, 1993 and the period ended December 31, 1991. In
addition, for the Equity Income Portfolio, IDS Life reimbursed
expenses of $19,510 and $5,825 for the year ended December 31, 1992
and the period ended December 31, 1991. If such fees had not been
waived and expenses reimbursed, the per share effect on net
investment income and the expense ratios would have been as follows:
Per Share
Decreases to
Expense Ratios
Without
Net Investment
Income
Waivers and
Reimbursements
Portfolio
1993
1992
1991
1993
1992
1991
Diversified
Strategic Income
$0.00*
$0.03
$0.03
1.02%
1.41%
7.76%+
Equity Income
N/A
0.02
0.03
N/A
1.27
8.34+
(3) Includes realized gains and losses from foreign currency
transactions for the four years ended December 31, 1995.
(4) As of September 1995, the SEC instituted new guidelines requiring
the disclosure of average commissions per year.
* Amount represents less than $0.01.
! Total return is not annualized, as it may not be representative of
the total return for the year
+ Annualized
Financial Highlights (continued)
For a share of beneficial interest outstanding throughout each period:
EQUITY INDEX PORTFOLIO
1997
1996
1995
1994
1993
1992
1991(1)
Net Asset Value, Beginning
of Year
$18.36
$15.58
$11.69
$11.90
$11.27
$10.62
$10.00
Income From Operations:
Net investment income(2)
0.12
0.22
0.25
0.23
0.20
0.17
0.04
Net realized and
unrealized gain (loss)
5.76
3.17
3.88
(0.14)
0.71
0.55
0.58
Total Income From Operations
5.88
3.39
4.13
0.09
0.91
0.72
0.62
Less Distributions From:
Net investment income
(0.17)
(0.23)
(0.23)
(0.15)
(0.16)
(0.02)
- --
Net realized gains
(0.48)
(0.38)
(0.01)
(0.15)
(0.12)
(0.05)
- --
Total Distributions
(0.65)
(0.61)
(0.24)
(0.30)
(0.28)
(0.07)
- --
Net Asset Value, End of Year
$23.59
$18.36
$15.58
$11.69
$11.90
$11.27
$10.62
Total Return
32.16%
21.68%
35.81%
0.85%
8.66%
6.74%
6.20%!
Net Assets, End of Year
(millions)
$35
$19
$15
$10
$9
$4
$2
Ratios to Average Net
Assets:
Expenses(2)
0.76%
1.06%
1.00%
1.00%
1.00%
1.00%
0.98+
Net investment income
1.08
1.37%
1.84%
2.10%
1.77%
2.10%
2.91+
Portfolio turnover rate
6%
7%
5%
1%
1%
8%
- --
Average commissions per
share paid on equity
transactions (3)
$0.03
$0.04
$0.05
- --
- --
- --
- --
GROWTH & INCOME PORTFOLIO
1997
1996
1995
1994
1993
1992
1991(1)
Net Asset Value, Beginning
of Year
$16.43
$13.73
$10.75
$11.37
$10.68
$10.15
$10.00
Income (Loss) From
Operations:
Net investment income(2)
0.31
0.27
0.26
0.27
0.30
0.27
0.02
Net realized and
unrealized gain (loss)
3.41
2.45
2.99
(0.63)
0.67
0.55
0.13
Total Income (Loss) From
Operations
3.72
2.72
3.25
(0.36)
0.97
0.82
0.15
Less Distributions From:
Net investment income
(0.29)
(0.02)
(0.27)
(0.26)
(0.26)
(0.29)
- --
Net realized gains
(1.32)
- --
- --
- --
(0.02)
- --
- --
Total Distributions
(1.61)
(0.02)
(0.27)
(0.26)
(0.28)
(0.29)
- --
Net Asset Value, End of Year
$18.54
$16.43
$13.73
$10.75
$11.37
$10.68
$10.15
Total Return
22.94%
19.83%
30.49%
(3.20)%
9.09%
8.44%
1.40%!
Net Assets, End of Year
(millions)
$43
$39
$35
$30
$26
$11
$2
Ratios to Average Net
Assets:
Expenses(2)
0.77%
0.83%
0.98%
0.93%
1.00%
1.00%
0.90%+
Net investment income
1.62
1.67%
2.09%
2.52%
2.68%
3.06%
4.14+
Portfolio turnover rate
17%
22%
17%
77%
78%
78%
3%
Average commissions per
share paid on equity
transactions (3)
$0.06
$0.06
$0.06
- --
- --
- --
- --
(1) For the period from October 16, 1991 (commencement of operations)
to December 31, 1991.
(2) For the Equity Index Portfolio, the Adviser waived all or part of
its fees for the four years ended December 31, 1995 and the period
ended December 31, 1991. In addition, for the Growth & Income
Portfolio, the Adviser waived all or part of its fees for the two
years ended December 31, 1993 and the period ended December 31, 1991.
For the Equity Index Portfolio, IDS Life also reimbursed expenses of
$6,842, $25,496, $28,169, $31,633 and $7,408 for the four years ended
December 31, 1995 and the period ended December 31, 1991. In
addition, for the Growth & Income Portfolio, IDS Life reimbursed
expenses of $1,085, $20,683 and $6,497 for the two years ended
December 31, 1993 and the period ended December 31, 1991. If such
fees had not been waived and expenses reimbursed, the per share
effect on net investment income and the expense ratios would have
been as follows:
Per Share Decreases to
Expense Ratios Without
Net Investment Income
Waivers and Reimbursements
Portfolio
1995
1994
1993
1992
1991
1995
1994
1993
1992
1991
Equity
Index
$0.02
$0.06
$0.10
$0.15
$0.09
1.17%
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+
(3) As of September 1995, the SEC instituted new guidelines requiring
the disclosure of average commissions per year.
! Total return is not annualized, as it may not be representative of
the total return for the year.
+ Annualized
Financial Highlights (continued)
For a share of beneficial interest outstanding throughout each period:
APPRECIATION PORTFOLIO
1997
1996
1995
1994
1993
1992
1991
(1)
Net Asset Value, Beginning of
Year
$15.86
$14.39
$11.54
$11.80
$11.13
$10.49
$10.00
Income (Loss) From Operations:
Net investment income(3)
0.24
0.27
0.23
0.20
0.15
0.11
0.01
Net realized and unrealized
gain (loss)
3.90
2.60
3.04
(0.32)
0.63
0.53
0.48
Total Income (Loss) From
Operations
4.14
2.87
3.27
(0.12)
0.78
0.64
0.49
Less Distributions From:
Net investment income
(0.21)
(0.25)
(0.21)
(0.14)
(0.11)
0.00
*
- --
Net realized gains
(1.06)
(1.15)
(0.21)
- --
- --
- --
- --
Total Distributions
(1.27)
(1.40)
(0.42)
(0.14)
(0.11)
(0.00)
- --
Net Asset Value, End of Year
$18.73
$15.86
$14.39
$11.54
$11.80
$11.13
$10.49
Total Return
26.39%
19.77%
28.84%
(1.12)%
7.03%
6.13%
4.90%!
Net Assets, End of Year
(millions)
$144
$101
$94
$81
$78
$53
$11
Ratios to Average Net Assets:
Expenses(3)
0.80%
0.85%
0.97%
0.88%
1.01%
1.00%
0.94%+
Net investment income
1.68
1.59
1.65
1.75
1.35
1.61
3.00+
Portfolio turnover rate
34%
39%
43%
61%
33%
14%
- --
Average commissions per share
paid on equity transactions(4)
$0.06
$0.06
$0.06
- --
- --
- --
- --
EMERGING GROWTH PORTFOLIO
1997
1996
1995
1994
1993(2)
Net Asset Value, Beginning of
Year
$15.83
$13.76
$9.63
$10.41
$10.00
Income (Loss) From Operations:
Net investment income
(loss)(3)
(0.12)
(0.10)
(0.03)
0.00*
0.01
Net realized and unrealized
gain (loss)
3.32
2.55
4.16
(0.78)
0.40
Total Income (Loss) From
Operations
3.20
2.45
4.13
(0.78)
0.41
Less Distributions From:
Net investment income
- --
- --
- --
(0.00)*
- --
Net realized gains
(2.16)
(0.38)
- --
(0.00)
- --
Total Distributions
(2.16)
(0.38)
- --
- --
- --
Net Asset Value, End of Year
$16.87
$15.83
$13.76
$9.63
$10.41
Total Return
21.16%
17.83%
42.89%
(7.48)%
4.10%!
Net Assets, End of Year
(millions)
$20
$19
$17
$12
$2
Ratios to Average Net Assets:
Expenses(3)
1.26%
1.27%
1.20%
1.20%
1.05%+
Net investment income (loss)
(0.72)
(0.64)
(0.24)
(0.17)
1.37+
Portfolio turnover rate
102%
84%
121%
66%
- --
Average commissions per share
paid on equity transactions(4)
$0.05
$0.05
$0.06
- --
- --
(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) For the Appreciation Portfolio, the Adviser waived all or part of
its fees for the year ended December 31, 1992 and the period ended
December 31, 1991. In addition, for the Emerging Growth Portfolio,
the Adviser waived all or part of its fees for the two years ended
December 31, 1995 and the period ended December 31, 1993. For the
Appreciation Portfolio, IDS Life reimbursed expenses of $29,950 and
$7,264 for the year ended December 31, 1992 and the period ended
December 31, 1991. In addition, for the Emerging Growth Portfolio,
IDS Life reimbursed expenses of $5,265, $18,068 and $2,915 for the
two years ended December 31, 1995 and the period ended December 31,
1993. If such fees had not been waived and expenses reimbursed, the
per share effect on net investment income and the expense ratios
would have been as follows:
Per Share Decreases to
Expense Ratios Without
Net Investment Income
Waivers and
Reimbursements
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/A
1.16%
3.64%+
Emerging
Growth
$0.02
$0.01
$0.06
N/A
N/A
1.39%
1.59%
9.99%+
N/A
N/A
(4) As of September 1995 the SEC instituted new guidelines requiring
the disclosure of average commissions per share.
* Amount represents less than $0.01.
! Total return is not annualized, as it may not be representative of
the total return for the year.
+ Annualized.
Financial Highlights (continued)
For a share of beneficial interest outstanding throughout each period:
TOTAL RETURN PORTFOLIO
1997
1996
1995
1994
1993(1)
Net Asset Value, Beginning of Year
$15.73
$12.75
$10.78
$10.30
$10.00
Income From Operations:
Net investment income(2)
0.37
0.26
0.43
0.34
0.01
Net realized and unrealized gain
(loss)
2.26
2.97
2.19
0.42*
0.29
Total Income (Loss) From Operations
2.63
3.23
2.62
0.76
0.30
Less Distributions From:
Net investment income
(0.21)
(0.07)
(0.41)
(0.28)
- -
Net realized gains
(0.53)
(0.18)
(0.24)
- -
- -
Total Distributions
(0.74)
(0.25)
(0.65)
(0.28)
- -
Net Asset Value, End of Year
$17.62
$15.73
$12.75
$10.78
$10.30
Total Return
16.84%
25.33%
25.04%
7.40%
3.00%!
Net Assets, End of Year (millions)
$274
$172
$78
$23
$3
Ratios to Average Net Assets:
Expenses(2)
0.79%
0.83%
1.00%
1.00%
0.85%+
Net investment income
3.24
3.06
3.80
3.84
1.93+
Portfolio turnover rate
75%
82%
81%
118%
- -
Average commissions paid on equity
transactions(3)
$0.06
$0.06
$0.06
- -
- -
INTERNATIONAL EQUITY PORTFOLIO
1997
1996
1995
1994
1993
(1)
Net Asset Value, Beginning of Year
$12.07
$9.98
$9.21
$10.05
$10.00
Income (Loss) From Operations:
Net investment income (Loss)(2)***
(0.02)
(0.02)
0.03
0.00**
0.00**
Net realized and unrealized gain
(loss)
(0.24)
2.15
0.78
(0.84)
0.05
Total Income (Loss) From Operations
(0.26)
2.13
0.81
(0.84)
0.05
Less Distributions From:
Net investment income
(0.03)
(0.04)
(0.04)
- --
- --
Total Distributions
(0.03)
(0.04)
(0.04)
- --
- --
Net Asset Value, End of Year
$11.78
$12.07
$9.98
$9.21
$10.05
Total Return
(2.18)%
21.38%
8.80%
(8.36)%
0.50%!
Net Assets, End of Year (millions)
$28
$33
$29
$28
$6
Ratios to Average Net Assets:
Expenses (2)(4)
1.31%
1.35%
1.43%
1.30%
1.08%+
Net investment income (loss)
(0.23)
(0.20)
0.35
0.31
(0.51)+
Portfolio turnover rate
21%
33%
34%
12%
- --
Average commissions paid on equity
transactions(3)
$0.01
$0.03
$0.01
- --
- --
(1) For the period from December 3, 1993 (commencement of operations)
to December 31, 1993.
(2) For the Total Return Portfolio, the Adviser waived all or part of its
fees for the year ended December 31, 1994 and the period ended
December 31, 1993. In addition, for the International Equity
Portfolio, the Adviser waived all or part of its fees for the year
ended December 31, 1994 and the period ended December 31, 1993. For
the Total Return Portfolio, IDS Life reimbursed expenses of $7,873
and $1,472 for the year ended December 31, 1994 and the period ended
December 31, 1993. In addition, for the International Equity
Portfolio, IDS Life also reimbursed expenses of $23,712 and $1,902
for the year ended December 31, 1994 and the period ended December
31, 1993. If such fees had not been waived and expenses reimbursed,
the per share effect on net investment income and the expense ratios
would have been as follows:
Per Share
Decreases to
Expense Ratios
Without
Net
Investment
Income
Waivers and
Reimbursements
Portfolio
1994
1993
1994
1993
Total Return
$0.01
$0.02
1.11%
4.14%+
International
Equity
$0.00
**
$0.02
1.51%
2.96%+
(3) As of September 1995 the SEC instituted new guidelines requiring
the disclosure of average commissions per share.
(4) During the period 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%.
* 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 for the two years ended December 31, 1995 and the period
ended December 31,1993
! Total Return is not annualized, as it may not be representative of
the total return for the year.
+ Annualized.
Investment Goals and Policies of the Portfolios
Set forth below is a description of the investment goals and policies of
the ten Portfolios currently offered by the Fund. 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) 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 the investment policies mentioned below appears in the SAI. A
description of the corporate bond and commercial paper rating systems of
Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc.
("Moody's") and other nationally recognized statistical rating
organizations ("NRSROs") is also contained in the SAI.
Money Market Portfolio
Goal - The Money Market Portfolio's goal is maximum current income to
the extent consistent with the preservation of capital and the
maintenance of liquidity.
Investment Policies - In seeking to achieve its goal, the Money Market
Portfolio will invest in short-term money market instruments, including:
securities issued or guaranteed by the U.S. government, its agencies and
instrumentalities ("U.S. government securities"); repurchase agreements,
U.S. and foreign bank time deposits, certificates of deposit and
bankers' acceptances; high-grade commercial paper of U.S. and foreign
issuers and other short-term corporate debt obligations of such issuers
that are comparable in priority and security to such instruments,
including variable-rate and floating--rate instruments. Except when
maintaining a temporary defensive position, the Portfolio intends to
invest more than 25% of its assets in short-term bank instruments. The
Portfolio will invest in money market instruments that are determined by
the Adviser 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, S&P, or the equivalent
from another NRSRO or, if not rated, believed by the Adviser 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 intermediate-term U.S. government
securities and U.S. corporate bonds may be invested in long- or 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 the equivalent of another NRSRO 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, the Adviser expects to maintain 50% of the Portfolio's
assets in government and mortgage-securities, 25% in foreign government
securities and 25% of its assets in high-yield corporate securities. The
portions of the Portfolio's assets invested in each type of security
will vary from time to time and, at any given time, the Portfolio may be
entirely invested in a single type of fixed-income security. Under
normal circumstances, substantially all, but not less than 65%, of the
Portfolio's assets will be invested in fixed-income securities,
including non-convertible preferred stocks.
The Portfolio's Adviser and Sub-Adviser 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 Adviser, offer the highest income available at
the time, unless the 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 12 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 the equivalent from another NRSRO, or if
unrated, will be deemed by the Adviser to be of comparable quality.
Under normal market conditions, the Portfolio's mortgage-related
holdings can be expected to consist primarily of securities issued or
guaranteed by the Government National Mortgage Association ("GNMA"), the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). The Portfolio may invest up to 35% of
its assets in corporate fixed-income securities of U.S. issuers rated Ba
or lower by Moody's or BB or lower by S&P, but not lower than Caa or
CCC, respectively, or the equivalent from another NRSRO, or in unrated
securities deemed by the Adviser and the Sub-Adviser 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 the Adviser. 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 the Adviser include investment-grade debt securities such
as bonds, debentures and commercial paper, U.S. government securities
and money market instruments, and 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 the equivalent of another NRSRO or in unrated securities deemed by
the Adviser to be of comparable quality. When the outlook for common
stocks is not considered promising in the judgment of the Adviser, 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; 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 - The Equity Index Portfolio 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 the
Portfolio's Adviser believes such investments will assist the Portfolio
in approximating the return of the S&P 500. The Portfolio may use up to
an additional 20% of its assets to enter into stock index futures and
related options to increase efficiency, may lend portfolio securities
and write covered options to help offset operating expenses, and may
acquire money market instruments. Portfolio turnover is expected to be
lower than for most other investment companies.
No attempt will be made to manage the Portfolio in the traditional sense
using economic, financial and market analysis, nor will the adverse
financial situation of an issuer necessarily result in the elimination
of its securities from the Portfolio, unless the securities are removed
from the S&P 500. From time to time, administrative adjustments may be
made in the Portfolio because of changes in the composition of the S&P
500. The Adviser 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. The Portfolio's Adviser 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 the Adviser 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, the Adviser 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 may also hold securities convertible into common stocks and
warrants. When the Adviser 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.
Total Return Portfolio
Goal - The Total Return Portfolio's goal is to provide shareholders with
total return, consisting of long-term capital appreciation and income.
Investment Policies - The Total Return Portfolio will seek to achieve
its goal by investing primarily in a diversified portfolio of dividend-
paying common stocks. The Portfolio may engage in various portfolio
strategies involving options to seek to increase its return and to hedge
its portfolio against movements in the equity markets and interest
rates. Because the Portfolio seeks total return by emphasizing
investments in dividend-paying common stocks, it will not have as much
investment flexibility as total return funds which may pursue their
objective by investing in income and equity securities without such an
emphasis. The Portfolio may also invest up to 10% of its assets in
securities rated less than investment grade by Moody's, S&P or the
equivalent of another NRSRO or, in unrated securities deemed by the
Adviser to be of comparable quality. The Portfolio may invest up to 35%
of its assets in interest-paying debt securities such as U.S. government
securities, and other securities, including convertible bonds,
convertible preferred stock and warrants. The Portfolio also may lend
its portfolio securities and enter into short sales against the box.
International Equity Portfolio
Goal - The International Equity Portfolio's goal is to provide a total
return on its assets from growth of capital and income.
Investment Policies - Under normal market conditions, the Portfolio will
invest at least 65% of its assets in a diversified portfolio of equity
securities consisting of dividend and non-dividend paying common stock,
preferred stock, convertible debt and rights and warrants to such
securities, and up to 35% of its 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 income, or any
combination of both for the purpose of achieving a higher overall return
than might otherwise be obtained solely from investing for growth of
capital or for income. There is no limitation on the percentage or
amount of the Portfolio's assets which may be invested for growth or
income and therefore, from time to time, the investment emphasis may be
placed solely or primarily on growth of capital or solely or primarily
on income. In seeking to achieve its objective, the Portfolio presently
expects to invest its assets primarily in common stocks of established
non-U.S. companies which in the opinion of its 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 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 its 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, including the Far East (e.g., Hong Kong, Japan, Malaysia and
Singapore), Western Europe (e.g., France, Germany, Italy, the
Netherlands, Switzerland and the United Kingdom), Central and South
America (e.g., Chile, Mexico and Venezuela), Australia, Canada and such
other areas and countries as its 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 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 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 Adviser
ordinarily looks for one or more of the following characteristics: an
above-average earnings growth per share; high return on invested
capital; healthy balance sheet; sound financial and accounting policies
and overall financial strength; strong competitive advantages; effective
research and product development and marketing; efficient service;
pricing flexibility; strength of management; and general operating
characteristics which will enable the company to compete successfully in
its market place. Ordinarily, the Portfolio's 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, U. S. securities exchanges and over-
the-counter markets.
To the extent that the Portfolio's assets are not otherwise invested as
described above, the assets may be held in cash, in any currency, or
invested in U.S. or 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 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, to a limited extent it
may invest 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 Adviser believes
are 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
that may not be sold without registration under the Securities Act of
1933, as amended (the "1933 Act")) 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.
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 SAI.
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.
Repurchase Agreements. The Money Market Portfolio will enter into
repurchase agreements with respect to U.S. government securities and
each other Portfolio may engage in repurchase agreement transactions on
portfolio securities, in each case with banks which are the issuers of
instruments acceptable for purchase by the Portfolio and with certain
dealers listed on the Federal Reserve Bank of New York's list of
reporting dealers. Under the terms of a typical repurchase agreement, a
Portfolio would acquire an underlying debt obligation for a relatively
short period (usually not more than one week) subject to an obligation
of the seller to repurchase, and the Portfolio to resell, the obligation
at an agreed-upon price and time, thereby determining the yield during
the Portfolio's holding period. This arrangement results in a fixed rate
of return that is not subject to market fluctuations during the
Portfolio's holding period. The value of the underlying securities will
be monitored by the relevant Portfolio's 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
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. Consistent with applicable regulatory
requirements, 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 will be collateralized by cash, letters of
credit or U.S. government securities that are maintained at all times in
a segregated account with the Fund's custodian, in an amount at least
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. The risks in lending portfolio securities, as with other
extensions of secured credit, consist of possible delays in receiving
additional collateral or in the recovery of the securities or possible
loss of rights in the collateral should the borrower fail financially.
Futures and Options on Futures. When deemed advisable by their
respective 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 Income, 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, equity securities or debt obligations
of any grade in an amount equal to or greater than the amount of its
when-issued and delayed-delivery commitments, provided such securities
have been determined by the Adviser to be liquid and unencumbered, and
are marked to market daily pursuant to guidelines established by the
Trustees. 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; the Total
Return, Emerging Growth, International Equity and Diversified Strategic
Income Portfolios may also purchase such options on foreign exchanges
and in the over-the-counter market. The Portfolios may utilize up to 10%
of their respective assets to purchase put options on portfolio
securities, and may do so at or about the same time that they purchase
the underlying security or at a later time. By buying a put, a Portfolio
limits its risk of loss from a decline in the market value of the
underlying security until the put expires. However, any appreciation in
the value of, and yield otherwise available from, the underlying
security 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, an option represents the holder's right to
obtain from the writer in cash a fixed multiple of the amount by which
the exercise price exceeds (in the case of a put) or is less than (in
the case of a call) the closing value of the underlying index on the
exercise date.
A stock index measures the movement of a certain group of stocks by
assigning relative values to the common stocks included in the index. In
purchasing put options on a stock index, the Total Return Portfolio
seeks to benefit from a decline in the value of the stocks underlying
the index or seeks to hedge against the risk of loss on securities that
it holds. In purchasing call options on a stock index, the Portfolio
seeks to participate in an advancing market in anticipation of becoming
more fully invested in equity securities.
The advisability of using stock index options to hedge against the risk
of marketwide movements will depend on the extent of diversification of
the stock investments of the Fund and the sensitivity of its stock
investments to factors influencing the underlying index. The
effectiveness of purchasing or writing stock index options as a hedging
technique will depend upon the extent to which price movements in the
Portfolio's securities investments correlate with price movements in the
stock index selected.
Covered Option Writing. The Intermediate High Grade, Diversified
Strategic Income, Equity Income, Equity Index, Total Return,
International Equity, Emerging Growth and Growth & Income Portfolios may
write put and call options on securities. Each Portfolio realizes fees
(referred to as "premiums") for granting the rights evidenced by the
options. A put option embodies the right of its purchaser to compel the
writer of the option to purchase from the option holder an underlying
security at a specified price at any time during the option period. In
contrast, a call option embodies the right of its purchaser to compel
the writer of the option to sell to the option holder an underlying
security at a specified price at any time during the option period.
Thus, the purchaser of a put option written by a Portfolio has the right
to compel the Portfolio to purchase from it the underlying security at
the agreed-upon price for a specified time period, while the purchaser
of a call option written by a Portfolio has the right to purchase from
the Portfolio the underlying security owned by the Portfolio at the
agreed-upon price for a specified time period.
Upon the exercise of a put option written by a Portfolio, the Portfolio
may suffer a loss equal to the difference between the price at which the
Portfolio is required to purchase the underlying security plus the
premium received for writing the option and its market value at the time
of the option exercise. Upon the exercise of a call option written by a
Portfolio, the Portfolio may suffer a loss equal to the difference
between the security's market value at the time of the option exercise
less the premium received for writing the option and the Portfolio's
acquisition cost of the security.
The Portfolios with option-writing authority will write only covered
options. Accordingly, whenever a Portfolio writes a call option, it will
continue to own or have the present right to acquire the underlying
security for as long as it remains obligated as the writer of the
option. To support its obligation to purchase the underlying security if
a put option is exercised, a Portfolio that has written a put option
will either (a) deposit with the Portfolio's custodian in a segregated
account cash, U.S. government securities, equity securities or debt
obligations of any grade having a value equal to or greater than the
exercise price of the underlying securities, provided such securities
have been determined by the Adviser to be liquid and unencumbered, and
are marked to market daily pursuant to guidelines established by the
Trustees 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-the-counter market may be more
limited than in the case of exchange-traded options and also may involve
the risk that securities dealers participating in such transactions
would fail to meet their obligations to the Portfolio involved.
Short Sales Against the Box. The Equity Income, Total Return,
International Equity and Emerging Growth Portfolios may make short sales
of common stock if, at all times when a short position is open, the
Portfolio owns the stock or owns preferred stocks or debt securities
convertible or exchangeable into the shares of common stock sold short.
Short sales of this kind are referred to as short sales "against the
box." The broker-dealer that executes a short sale generally invests
cash proceeds of the sale until they are paid to the Portfolio.
Arrangements may be made with the broker-dealer to obtain a portion of
the interest earned by the broker-dealer 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 broker-dealer, and simultaneously agrees
to repurchase a similar security from the institution at a later date at
an agreed-upon price. The mortgage securities that are repurchased will
bear the same interest rate as those sold, but generally will be
collateralized by different pools of mortgages with different prepayment
histories than those sold. During the period between the sale and
repurchase, the Portfolio will not be entitled to receive interest and
principal payments on the securities sold. Proceeds of the sale will be
invested in short-term instruments, particularly repurchase agreements,
and the income from these investments, together with any additional fee
income received on the sale, will generate income for the Portfolio
exceeding the yield on the securities sold. Forward roll transactions
involve the risk that the market value of the securities sold by a
Portfolio may decline below the repurchase price of those securities. At
the time that a Portfolio enters into a forward roll transaction, it
will place in a segregated custodial account cash, U.S. government
securities, equity securities or debt obligations of any grade having a
value equal to or greater than the repurchase price (including accrued
interest) provided such securities have been determined by the Adviser
to be liquid and unencumbered, and are marked to market daily pursuant
to guidelines established by the Trustees, 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, equity securities or debt obligations of any grade having a
value equal to its obligations under the reverse repurchase agreement,
provided such securities have been determined by the Adviser to be
liquid and unencumbered, and are marked to market daily pursuant to
guidelines established by the Trustees.
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 New York Stock Exchange
(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 Adviser will generally
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 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 resale; 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 where oil production is concentrated, such as the Persian Gulf,
while the rates of return of utility companies are generally 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. The issuers of certain 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 above-referenced risks 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.
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 determine present minimal
credit risks and which are "Eligible Securities" at the time of
acquisition by the Portfolio. Eligible Securities include securities
rated by the "Requisite NRSROs" in one of the two highest short-term
rating categories and 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 IBCA, Inc., Duff
and Phelps Credit Rating Co. and Thomson BankWatch. A discussion of the
ratings categories of the NRSROs is contained in the Appendix to the
SAI.
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 NRSRO 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 up to 25% of the then-current value of
the Portfolio's total assets in the securities of a single issuer for a
period of up to three business days, provided that (a) the securities
are rated by the Requisite NRSRO in the highest short-term rating
category, are securities of issuers that have received such rating with
respect to other short-term debt securities or are comparable unrated
securities, and (b) the Portfolio does not make more than one such
investment at any one time.
Eurodollar or Yankee Obligations
The Money Market Portfolio may invest in Eurodollar and Yankee
obligations. Eurodollar bank obligations are dollar-denominated debt
obligations issued outside the U.S. capital markets by foreign branches
of U.S. banks and by foreign banks. Yankee obligations are dollar-
denominated obligations issued in the U.S. capital markets by foreign
issuers. Eurodollar (and to a limited extent, Yankee) obligations are
subject to certain sovereign risks. One such risk is the possibility
that a foreign government might prevent dollar-denominated funds from
flowing across its borders. Other risks include: adverse political and
economic developments in a foreign country; the extent and quality of
government regulation of financial markets and institutions; the
imposition of foreign withholding taxes; and expropriation or
nationalization of foreign issuers.
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, could also 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.
Real Estate Investment Trusts
The Total Return Portfolio and the Intermediate High Grade Portfolio may
invest in real estate investment trusts ("REITs"). REITs are entities
which either own properties or make construction or mortgage loans.
Equity trusts own real estate directly and the value of, and income
earned by, the trust depends upon the income of the underlying
properties and the rental income they earn. Equity trusts may also
include operating or finance companies. Equity trusts can also realize
capital gains by selling properties that have appreciated in value. A
mortgage trust can make construction, development or long-term mortgage
loans, and are sensitive to the credit quality of the borrower.
Mortgage trusts derive their income from interest payments. Hybrid
trusts combine the characteristics of both equity and mortgage trusts,
generally by holding both ownership interests and mortgage interests in
real estate. The values of securities issued by REITs are affected by
tax and regulatory requirements and by perceptions of management skill.
They are also subject to heavy cash flow dependency, defaults by
borrowers or tenants, self-liquidation, the possibility of failing to
qualify for tax-free status under the Internal Revenue Code of 1986, as
amended (the "Code"), and failing to maintain exemption from the
Investment Company Act of 1940, as amended.
Certain Investment Guidelines
Up to 10% (15% in the case of the Diversified Strategic Income, Emerging
Growth, International Equity 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 (or in the case of the Money
Market Portfolio, maturing from two business days through six months).
In the case of the Diversified Strategic Income Portfolio the above
restriction does not apply to securities subject to Rule 144A of the
1933 Act. Rule 144A Securities are unregistered securities restricted to
purchase by "qualified institutional buyers" pursuant to Rule 144A under
the 1933 Act. Because Rule 144A Securities are freely transferable
among qualified institutional buyers, a liquid market may exist among
such buyers. The Board of Trustees has adopted guidelines and delegated
to management the daily function of determining and monitoring liquidity
of Rule 144A securities. However, the Board of Trustees maintains
sufficient oversight and is ultimately responsible for the liquidity
determinations. Investments in restricted securities such as Rule 144A
securities could have the effect of increasing the level of illiquidity
in the Portfolio to the extent that there is temporarily no market for
these securities among qualified institutional buyers.
Each Portfolio may borrow from banks for temporary or emergency
purposes, but not for leverage, in an amount up to 33 1/3% 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 SAI.
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 SAI.
Fixed-Income Securities
The market value of fixed-income obligations of the Portfolios will be
affected by general changes in interest rates, which will result in
increases or decreases in the value of fixed-income obligations held by
the Portfolios. The market value of the Portfolios' fixed-income
obligations can be expected to vary inversely in relation to changes in
prevailing interest rates. Investors also should recognize that in
periods of declining interest rates the yield of income-oriented
Portfolios will tend to be somewhat higher than prevailing market rates,
while and in periods of rising interest rates these Portfolios' yield
will tend to be somewhat lower. Also, when interest rates are falling,
the inflow of net new money to these Portfolios from the continuous sale
of their shares probably will be invested in instruments producing lower
yields than the balance of their holdings, thereby reducing the
Portfolios' current yield. In periods of rising interest rates the
opposite can be expected to occur. In addition, fixed-income securities
in which certain Portfolios may invest may not yield as high a level of
current income as might be achieved by investing in securities with less
liquidity and safety and longer maturities.
Non-Publicly Traded and Illiquid Securities
Each Portfolio may purchase securities that are not publicly traded. The
sale of securities that are not publicly traded is typically restricted
under federal securities laws. As a result, a Portfolio may be forced to
sell these securities at less than fair market value or may not be able
to sell them when its Adviser believes it desirable to do so. The
Portfolios' investments in illiquid securities are subject to the risk
that should a Portfolio desire to sell any of these securities when a
ready buyer is not available at a price that the Portfolio deems
representative of their value, the value of the Portfolio's net assets
could be adversely affected.
Mortgage-Related Securities
To the extent that a Portfolio purchases mortgage-related securities at
a premium, mortgage foreclosures and prepayments of principal by
mortgagors (which may be made at any time without penalty) may result in
some loss of the Portfolio's principal investment to the extent of the
premium paid. The yield of a Portfolio that invests in mortgage-related
securities may be affected by reinvestment of prepayments at higher or
lower rates than the original investment. In addition, like other debt
securities, the values of mortgage-related securities, including
government and government-related mortgage pools, will generally
fluctuate in relation to interest rates.
Asset-Backed Securities
The Diversified Strategic Income Portfolio and Intermediate High Grade
Portfolio may invest in asset-backed securities arising through the
grouping by governmental, government-related and private organizations
of loans, receivables and other assets originated by various lenders.
Interests in pools of these assets differ from other forms of debt
securities, which normally provide for periodic payment of interest in
fixed amounts with principal paid at maturity or specifies call dates.
Instead, asset-backed securities provide periodic payments that
generally consist of both interest and principal payments.
The estimated life of an asset-backed security varies with the
prepayment experience with respect to the underlying debt instruments.
The rate of such prepayments, and hence the life of an asset-backed
security, will be primarily a function of current market interest rates,
although other economic and demographic factors may be involved. For
example, falling interest rates generally result in an increase in the
rate of prepayments of mortgage loans while rising interest rates
generally decrease the rate of prepayments. An acceleration of
prepayments in response to sharply falling interest rates will shorten
the security's average maturity and limit the potential appreciation in
the security's value relative to a conventional debt security.
Consequently, asset-backed securities are not as effective in locking in
high long-term yields. Conversely, in periods of sharply rising rates,
prepayments generally slow, increasing the security's average life and
its potential for price depreciation.
Government Stripped Mortgage-Backed Securities
The Intermediate High Grade Portfolio may invest up to 10% of its total
assets in government stripped mortgage-backed securities issued and
guaranteed by GNMA, FNMA or FHLMC. These securities represent beneficial
ownership interests in either periodic principal distributions
("principal-only") or interest distributions ("interest-only") on
mortgage-backed certificates issued by GNMA, FNMA or FHLMC, as the case
may be. The certificates underlying government stripped mortgage-backed
securities represent all or part of the beneficial interest in pools of
mortgage loans.
Investing in government stripped mortgage-backed securities involves the
risks normally associated with investing in mortgage-backed securities
issued by government or government-related entities. See "Mortgage-
Related Securities" above. In addition, the yields on government
stripped mortgage-backed securities are extremely sensitive to the
prepayment experience on the mortgage loans underlying the certificates
collateralizing the securities. If a decline in prevailing interest
rates results in a rate of principal prepayments higher than
anticipated, distributions of principal will be accelerated, thereby
reducing the yield to maturity on interest-only government stripped
mortgage-backed securities and increasing the yield to maturity on
principal-only government stripped mortgage-backed securities.
Sufficiently high prepayment rates could result in the Portfolio not
fully recovering its initial investment in an interest-only government
stripped mortgage-backed security. Government stripped mortgage-backed
securities are currently traded in an over-the-counter market maintained
by several large investment banking firms. There can be no assurance
that the Portfolio will be able to effect a trade of a government
stripped mortgage-backed security at a time when it wishes to do so,
although the Portfolio will acquire government stripped mortgage-backed
securities only if a secondary market for the securities exists at the
time of acquisition.
Foreign Securities
Each Portfolio may invest in obligations of companies and governments of
foreign nations, which involve certain risks in addition to the usual
risks inherent in U.S. investments. These risks include those resulting
from revaluation of currencies; future adverse political and economic
developments and the possible imposition of currency exchange blockages
or other foreign governmental laws or restrictions; reduced availability
of public information concerning issuers; and the lack of uniform
accounting, auditing and financial reporting standards or of other
regulatory practices and requirements comparable to those applicable to
U.S. companies. The performance of a Portfolio investing in foreign
securities may be adversely affected by fluctuations in value of one or
more foreign currencies relative to the U.S. dollar. Moreover,
securities of many foreign companies may be less liquid and their prices
more volatile than those of securities of comparable U.S. companies. In
addition, with respect to certain foreign countries, there is the
possibility of expropriation, nationalization, confiscatory taxation and
limitations on the use or removal of funds or other assets of a
Portfolio, including the withholding of dividends. Foreign securities
may be subject to foreign government taxes that could reduce the return
on such securities. Changes in foreign currency exchange rates may
affect the value of portfolio securities and the appreciation or
depreciation of investments. Investment in foreign securities may also
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 are generally 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 is generally considered to be a country
that is in the initial stages of its industrialization cycle. Investing
in the equity and fixed-income markets of developing countries involves
exposure to economic structures that are generally less diverse and
mature, and to political systems that can be expected to have less
stability, than those of developed countries. Historical experience
indicates that the markets of developing countries have been more
volatile than the markets of the more mature economies of developed
countries; however, such markets often have provided higher rates of
return to investors.
Zero Coupon Securities
The Diversified Strategic Income Portfolio and the Intermediate High
Grade Portfolio may invest in zero coupon securities. A zero coupon
security is a debt obligation that does not entitle the holder to any
periodic payments of interest prior to maturity and therefore is issued
and traded at a discount from its face amount. Zero coupon securities
may be created by separating the interest and principal components of
securities issued or guaranteed by the United States government or one
of its agencies or instrumentalities ("U.S. Government securities")
or issued by private corporate issuers. The discount from face value at
which zero coupon securities are purchased varies depending on the time
remaining until maturity, prevailing interest rates and the liquidity of
the security. Because the discount from face value is known at the time
of investment, investors holding zero coupon securities until maturity
know the total amount of their investment return at the time of
investment. In contrast, a portion of the total realized return from
conventional interest-paying obligations comes from the reinvestment of
periodic interest. Because the rate to be earned on these reinvestments
may be higher or lower than the rate quoted on the interest-paying
obligations at the time of the original purchase, the investor's return
on reinvestments is uncertain even if the securities are held to
maturity. This uncertainty is commonly referred to as reinvestment
risk. With zero coupon securities, however, there are no cash
distributions to reinvest, so investors bear no reinvestment risk if
they hold the zero coupon securities to maturity; holders of zero coupon
securities, however, forego the possibility of reinvesting at a higher
yield than the rate paid on the originally issued security. With both
zero coupon and interest-paying securities, there is no reinvestment
risk on the principal amount of the investment.
Zero coupon securities of the type held by the Portfolios can be sold
prior to their due date in the secondary market at their then prevailing
market value which, depending on prevailing levels of interest rates and
the time remaining to maturity, may be more or less than the securities'
"accreted value;" that is, their value based solely on the amount due
at maturity and accretion of interest to date. The market prices of
zero coupon securities are generally more volatile than the market
prices of securities that pay interest periodically and, accordingly,
are likely to respond to a greater degree to changes in interest rates
than do non-zero coupon securities having similar maturities and yields
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 lower-rated
securities and comparable unrated securities generally present a higher
degree of credit risk. Issuers of medium-, lower-rated and comparable
unrated securities are often highly leveraged and may not have more
traditional methods of financing available to them so that their ability
to service their debt obligations during a major economic downturn or
during sustained periods of rising interest rates may be impaired. The
risk of loss due to default by such issuers is significantly greater
because medium- and lower-rated securities and comparable unrated
securities are generally unsecured and frequently are subordinated to
the prior payment of senior indebtedness. In light of these risks, each
Portfolio's 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 are generally 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 values of securities in lower rating categories are 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 may also 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
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 or the equivalent
from another NRSRO have speculative characteristics with respect to
their capacity to pay interest and repay principal. Securities that are
rated B generally lack the characteristics of a 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, 1997, were composed as follows:
0.11% rated BBB; 10.23% rated BB; 14.37% rated B; and 0.32% 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 invest less
than 25% of its assets in the affected industry for defensive purposes.
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
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 risks. 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
that can exceed the income from the assets retained. To the extent that
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.
Year 2000
The investment management services provided to the Fund by the Adviser
and the services provided to shareholders by Smith Barney, the Fund's
distributor, depend on the smooth functioning of their computer systems.
Many computer software systems in use today cannot recognize the year
2000, but revert to 1900 or some other date, due to the manner in which
dates were encoded and calculated. That failure could have a negative
impact on the Fund's operations, including the handling of securities
trades, pricing and account services. The Adviser and Smith Barney have
advised the Fund that they have been reviewing all of their computer
systems and actively working on necessary changes to their systems to
prepare for the year 2000 and except that their systems will be
compliant before that date. In addition, the Adviser has been advised
by the Fund's custodian, transfer agent and accounting service agent
that they are also in the process of modifying their systems with the
same goal. There can, however, be no assurance that the Adviser, Smith
Barney or any other service provider will be successful, or that
interaction with other non-complying computer systems will not impair
Fund services at that time.
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 Advisers and/or Sub-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 NYSE is closed. The NYSE is currently scheduled to be closed on
New Year's Day, President's Day, Martin Luther King, Jr. 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. Net asset value per share
of each Portfolio is determined as of the close of regular trading on
the NYSE (currently 4:00 p.m., New York time). The Money Market
Portfolio seeks to maintain its net asset value at $1.00 per share.
Net asset value per share is computed by dividing the value of a
Portfolio's net assets by the total number of its shares outstanding.
Generally, a Portfolio's investments are valued at market value or, in
the absence of a market value with respect to any portfolio securities,
at fair value as determined by or under the direction of the Fund's
Board of Trustees. A security that is primarily traded on a U.S. or
foreign exchange (including securities traded through the National
Market System) is valued at the last sale price on that exchange or, if
there were no sales during the day, at the current quoted bid price.
Portfolio securities that are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on
their respective exchanges, except that when an occurrence subsequent to
the time a value was so established is likely to have changed the value,
then the fair value of those securities will be determined by
consideration of other factors by or under the direction of the Fund's
Board of Trustees or its delegates. Over-the-counter securities that are
not traded through the National Market System and securities listed or
traded on certain foreign exchanges whose operations are similar to the
U.S. over-the-counter market are valued on the basis of the 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-the-counter market.
Short-term investments that mature in 60 days or less are valued at
amortized cost when the Fund's Board of Trustees determines that this
constitutes fair value; assets of the Money Market Portfolio also are
valued at amortized cost. The value of a futures contract equals the
unrealized gain or loss on the contract, which is determined by marking
the contract to the current settlement price for a like contract
acquired on the day on which the futures contract is being valued. A
settlement price may not be used if the market makes a limit move with
respect to the security, index or currency underlying the futures
contract. In such event, the futures contract will be valued at a fair
market price to be determined by or under the direction of the Fund's
Board of Trustees. Further information regarding the Fund's valuation
policies is contained in the SAI.
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 (800) 451-2010. 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-by-Portfolio (rather than on a Fund-wide)
basis.
The Fund intends that each Portfolio will separately meet the
requirements for qualification each year as a "regulated investment
company" within the meaning of the Code. In order to qualify as a
regulated investment company, each Portfolio must meet certain income
and diversification tests. 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 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 that
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, or within 30 days thereafter, 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. 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 securities issued by a single agency or instrumentality of the U.S.
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 ever, 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 Advisers and/or Sub-Adviser, and
Administrator of the Portfolios and with the Portfolios' Custodian,
Transfer Agent and Distributor. The day-to-day operations of the
Portfolios are delegated to the Advisers and/or Sub-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 SAI.
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 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.
MMC, located at 388 Greenwich Street, New York, New York 10013, provides
investment advisory and management services to investment companies
affiliated with Salomon 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 including Asset Management, Consumer Finance
Services, Life Insurance Services and Property & Casualty Insurance
Services. MMC renders investment advice to investment companies that had
aggregate assets under management as of March 31, 1998, in excess of
$100.5 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 31,
1998, of approximately of $2.6 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 the Diversified Strategic Income
Portfolio's investments in foreign securities, and selects the 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 31, 1998, in excess of approximately $1
billion.
VKAC, located at One Parkview Plaza, Oakbrook Terrace, Illinois, 60181,
is a wholly owned subsidiary of VK/AC Holding, Inc. VK/AC Holding, Inc.
is a wholly owned subsidiary of Morgan Stanley Dean Witter & Co.
VKAC, together with its predecessors, has been in the investment
advisory business since 1926. VKAC provides investment advice to
investment companies and has aggregate assets under management or
supervision as of March 31, 1998 in excess of approximately $60
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
("SB"). Prior to July 1993, Mr. Cohen served as Executive Vice
President of Shearson Lehman Brothers Inc. ("SLB").
Diversified Strategic Income Portfolio -- James C. Conroy is a Vice
President and Investment Officer of the Fund, and a Managing Director of
SB. Prior to July 1993, Mr. Conroy served as Managing Director of SLB.
Victor Filatov of Global Capital Management is a Vice President and
Investment Officer of the Fund and a Managing Director of SB. Prior to
November 1993, Mr. Filatov was a Vice President of J.P. Morgan
Securities, Inc.
Emerging Growth Portfolio -- Gary Lewis is a Vice President and
Investment Officer of the Fund, and Senior Vice President of VKAC. Mr.
Lewis has been a Portfolio Manager at VKAC since 1989.
Equity Income Portfolio -- Jack S. Levande is a Vice President and
Investment Officer of the Fund, and a Managing Director of SB. Prior to
July 1993, Mr. Levande served as Managing Director of SLB.
Equity Index Portfolio -- Mr. Sandip A. Bhagat is a Vice President and
Investment Officer of the Fund, and 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 and a Managing Director of SB. Prior to
July 1993, Mr. Gerken served as Managing Director of SLB. George V.
Novello is a Vice President and Investment Officer of the Fund, and a
Managing Director of SB. Prior to July 1993, Mr. Novello served as
Managing Director of SLB.
Intermediate High Grade Portfolio -- George Ruppert Vernon, Jr. is a
Vice President and Investment Officer of the Fund, and a Managing
Director of SB.
International Equity Portfolio -- Jeffrey Russell is a Vice President
and Investment Officer of the Fund, and a Managing Director of SB.
Total Return Portfolio -- John G. Goode is a Vice President and
Investment Officer of the Fund, and Chairman and Chief Investment
Officer of Davis Skaggs Investment Management, a division of MMC.
Money Market Portfolio -- Phyllis Zahorodny is a Vice President and
Investment Officer of the Fund, and a Managing Director of SB.
The Fund's management discussion and analysis, and additional
performance information regarding the Portfolios of the Fund during the
fiscal year ended December 31, 1997 is included in the Annual Report
dated December 31, 1997. A copy of the Annual Report may be obtained
upon request without charge from a representative of a participating
life insurance company or from their 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.
Chase, located at MetroTech Center, Brooklyn, New York 11245, acts as
the custodian of the International Equity and Diversified Strategic
Income Portfolios' investments generally.
First Data, located at Exchange Place, Boston, Massachusetts, 02109,
acts as the Fund's Transfer Agent.
Distributor
Smith Barney, a subsidiary of Holdings, is located at 388 Greenwich
Street, New York, New York, 10013 and 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, October 14, 1994 and
July 24, 1997, the Fund changed its name to Smith Barney Shearson Series
Fund, Smith Barney Series Fund and Greenwich Street 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 participating life insurance company sends a semi-annual report and
an audited annual report to each owner of a Contract, 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, to a representative of a participating life insurance
company or their 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 52 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 30-day
yield. The yield of a Portfolio refers to the income generated by an
investment in such Portfolio over the 30-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 semi-annually. 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 of the
measuring period to the end of the measuring period. These figures
reflect changes in the price of the Portfolio's shares and assume that
any income dividends and/or capital gains distributions made by the
Portfolio during the period were reinvested in shares of the Portfolio.
Figures will be given for recent one-, five- and ten-year periods (if
applicable), and may be given for other periods as well (such as from
commencement of the Portfolio's operations or on a year-by-year basis).
When considering average annual total return figures for periods longer
than one year, it is important to note that the relevant Portfolio's
annual total return for any one year in the period might have been
greater or less than the average for the entire period. A Portfolio also
may use "aggregate" total return figures for various periods,
representing the cumulative change in value of an investment in the
Portfolio for the specific period (again reflecting changes in a
Portfolio's share prices and assuming reinvestment of dividends and
distributions). Aggregate total returns may be shown by means of
schedules, charts or graphs and may indicate subtotals of the various
components of total return (i.e., changes 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 SAI describes the method used to determine the Portfolios' yield and
total return. Shareholders may make inquiries regarding a Portfolio,
including current yield quotations or total return figures, to a
representative of a participating life insurance company or their 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 may also include
evaluations of the Portfolios published by nationally recognized ranking
services and by financial publications that are also 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.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, the SAI
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
IDS Life Insurance Company
IDS Tower 10
Minneapolis, Minnesota 55440-0010
GREENWICH STREET SERIES FUND
388 Greenwich Street, New York, New York 10013 (800) 451-2010
STATEMENT OF ADDITIONAL INFORMATION April 30, 1998
This Statement of Additional Information (the "SAI") expands
upon and supplements the information contained in the current
Prospectus of Greenwich Street Series Fund (the "Fund"), relating to
one or more of the ten investment portfolios offered by the Fund (the
"Portfolios"), dated April 30, 1998, 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 SAI, although not in
itself a prospectus, is incorporated by reference into the Prospectus
in its entirety.
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'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-related 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 a diversified portfolio of equity securities of
established non-U.S. 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.
CONTENTS
For ease of reference, the same section headings are used in
both the Prospectus and this SAI, except where shown below.
Management of the Fund 3
Investment Goals and Policies of the Portfolios 9
Purchase of Shares (See in the Prospectus "How to Use the Fund") 32
Redemption of Shares (See in the Prospectus "How to Use the Fund") 32
Net Asset Value 33
Performance Data (See in the Prospectus "The Portfolios'
Performance") 34
Taxes (See in the Prospectus "Dividends and Taxes") 37
Custodian and Transfer Agent 39
Financial Statements 39
Appendix A-1
MANAGEMENT OF THE FUND
The executive officers of the Fund are employees of certain of
the organizations that provide services to the Fund. These
organizations are as follows:
Name
Service
Mutual Management Corp. ("MMC" or
"Adviser" and "Administrator")
formerly known as Smith Barney
Mutual Funds Management, Inc.
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,
a division of MMC ("Davis
Skaggs" or "Adviser")
Investment Adviser to Total Return
Portfolio
Smith Barney Global Capital
Management Inc.
("Global Capital Management" or
"Sub-Adviser")
Sub-Investment Adviser to
Diversified Strategic Income
Portfolio
Travelers Investment Management
Company ("TIMCO" or "Adviser")
Investment Adviser to Equity Index
Portfolio
Van Kampen American Capital Asset
Management, Inc. ("VKAC" or
"Adviser")
Investment Adviser to Emerging
Growth Portfolio
Smith Barney Inc. ("Distributor")
Distributor
PNC Bank, National Association
("PNC" or "Custodian")
Custodian for Appreciation,
Emerging Growth, Equity Income,
Equity Index, Growth & Income,
Intermediate High Grade, Money
Market and Total Return Portfolios
Chase Manhattan Bank ("Chase" or
"Custodian")
Custodian for Diversified Strategic
Income and International Equity
Portfolios
First Data Investor Services Group,
Inc. ("First Data" or "Transfer
Agent")
Transfer and Dividend Paying Agent
These organizations and the functions they perform for the Fund
are discussed in the Prospectus and in this SAI.
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 Investment
Company Act of 1940, as amended (the "1940 Act"), is indicated by an
asterisk. As of March 31, 1998, Trustees and officers of the Fund as
a group owned no shares of the Fund.
Herbert Barg, Trustee (Age 74). Private Investor. His address is
273 Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.
*Alfred Bianchetti, Trustee (Age 74). Retired; formerly Senior
Consultant to Dean Witter Reynolds Inc. His address is 19 Circle End
Drive, Ramsey, New Jersey 07446.
Martin Brody, Trustee (Age 76). Consultant, HMK Associates.
Retired Vice Chairman of the Board of Restaurant Associates Corp. and
a Director of Jaclyn, Inc. His address is c/o HMK Associates, 30
Columbia Turnpike, Florham Park, New Jersey 07932.
Dwight B. Crane, Trustee (Age 60). Professor, Harvard Business
School. His address is c/o Harvard Business School, Soldiers Field
Road, Boston, Massachusetts 02163.
Burt N. Dorsett, Trustee (Age 67). 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 71). Chairman of the Board and
President of The Dress Barn, Inc. His address is 30 Dunnigan Drive,
Suffern, New York 10901.
Stephen E. Kaufman, Trustee (Age 65). Attorney. His address is
277 Park Avenue, New York, New York 10172.
Joseph J. McCann, Trustee (Age 67). Financial Consultant; Retired
Financial Executive of Ryan Homes, Inc. His address is 200 Oak Park
Place, Pittsburgh, Pennsylvania 15243.
*Heath B. McLendon, Chairman of the Board and Investment Officer
(Age 64). Managing Director of Smith Barney, Chairman of the Board
of Smith Barney Strategy Advisers Inc. and President of MMC and
Travelers Investment Adviser, Inc. ("TIA"); prior to July 1993,
Senior Executive Vice President of Shearson Lehman Brothers Inc.
("SLB"); Vice Chairman of Asset Management division of SLB. Mr.
McLendon is Chairman of the Board and Investment Officer of 42 Smith
Barney Mutual Funds. His address is 388 Greenwich Street, New York,
New York 10013.
Cornelius C. Rose, Jr., Trustee (Age 64). 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 335, High Street, Enfield, New Hampshire
03748.
James J. Crisona, Trustee Emeritus. Attorney; formerly Justice
of the Supreme Court of the State of New York. His address is 118
East 60th Street, New York, New York 10022
Sandip A. Bhagat, Vice President and Investment Officer (Age 37).
President of TIMCO; prior to 1995, Senior Portfolio Manager for
TIMCO. His address is One Tower Square, Hartford, Connecticut 06183-
2030.
John C. Bianchi, Vice President and Investment Officer (Age 42).
Managing Director of Smith Barney; prior to July 1993, Managing
Director of Shearson Lehman Advisors ("SLA"). 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.
Harry D. Cohen, Vice President and Investment Officer (Age 56).
Managing Director of Smith Barney; prior to July 1993, President of
Asset Management division of SLB. 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 E. Conroy, Vice President and Investment Officer (Age 47).
Managing Director of Smith Barney; prior to July 1993, Managing
Director of SLA. Mr. Conroy serves as Vice President and Investment
Officer of four Smith Barney Mutual Funds. His address is 388
Greenwich Street, New York, New York 10013.
Victor Filatov, Vice President and Investment Officer (Age 45).
Managing Director of Smith Barney, President and Director of Global
Capital Management; prior to November 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 46).
Managing Director of Smith Barney; prior to July 1993, Managing
Director of SLA. Mr. Gerken is Vice President and Investment Officer
of two other Smith Barney Mutual Funds. His address is 388 Greenwich
Street, New York, New York 10013.
Scott Glasser, Vice President and Investment Officer (Age 30).
Vice President of Smith Barney; prior to October 1993, fixed income
analyst with Bear, Stearns & Co. Inc. Mr. Glasser 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 52).
Managing Director of Smith Barney; Chairman and Chief Investment
Officer of Davis Skaggs. Mr. Goode is Vice President and Investment
Officer of four other Smith Barney Mutual Funds. His address is One
Sansome Street, San Francisco, California 94104.
Simon Hildreth, Vice President and Investment Officer (Age 42).
Managing Director of Smith Barney; prior to 1994, Director of Mercury
Asset Management Ltd. Mr. Hildreth is Vice President and Investment
Officer of one other Smith Barney Mutual Fund. His address is 10
Piccadilly, London, WIV 9LA, U.K.
Jack S. Levande, Vice President and Investment Officer (Age 51).
Managing Director of Smith Barney; prior to July 1993, Managing
Director of SLA. Mr. Levande is Vice President and Investment
Officer of one other Smith Barney Mutual Fund. His address is 388
Greenwich Street, New York, New York 10013.
Gary Lewis, Vice President and Investment Officer (Age 43).
Senior Vice President of Van Kampen American Capital Asset
Management, Inc. His address is 2800 Post Oak Boulevard, Houston,
Texas 77056.
George E. Mueller, Jr., Vice President and Investment Officer (Age
56). Managing Director of Smith Barney; prior to July 1993, Managing
Director of SLA. 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.
Jeffrey Russell, Vice President and Investment Officer (Age 39).
Managing Director of Smith Barney. Mr. Russell is Vice President and
Investment Officer of six other Smith Barney Mutual Funds. His
address is 388 Greenwich Street, New York, New York 10013.
George Ruppert Vernon, Jr., Vice President and Investment Officer
(Age 39). Managing Director of SB. His address is 388 Greenwich
Street, New York, New York 10013.
Phyllis Zahorodny, Vice President and Investment Officer (Age 39).
Managing Director of Smith Barney; prior to July 1993, Managing
Director of SLA. Ms. 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 40).
Managing Director of Smith Barney; Director and Senior Vice President
of MMC and TIA. Mr. Daidone serves as Senior Vice President and
Treasurer of 42 Smith Barney Mutual Funds. His address is 388
Greenwich Street, New York, New York 10013.
Christina T. Sydor, Secretary (Age 46). Managing Director of Smith
Barney; General Counsel and Secretary of MMC and TIA. Ms. Sydor also
serves as Secretary of 42 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' Advisers or Sub-Adviser, 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 Trustee, 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, 1997, the Trustees of
the Fund were paid the following compensation:
Pension or
Compensation
Number of
Retirement
From Fund
Funds for
Aggregate
Benefits
Accrued
And Fund
Which Director
Compensation
as part of
Complex
Serves Within
Name of Person
from Fund +
Fund
Expenses
Paid to
Directors
Fund Complex
Herbert Berg
$7,600
$0
$101,600
18
Alfred
Bianchetti*
7,600
0
49,600
13
Martin Brody
7,000
0
119,814
21
Dwight B. Crane
7,600
0
133,850
24
Burt N. Dorsett*
7,600
0
49,600
13
Elliot S. Jaffe
7,500
0
48,500
13
Stephen E.
Kaufman
7,600
0
91,964
15
Joseph J. McCann
7,600
0
49,600
13
Heath B. McLendon
*
0
0
0
42
Cornelius C.
Rose, Jr.
7,600
0
49,600
13
+ Upon attainment of age 80, Fund Trustees are required to change to
emeritus status. Trustees Emeritus are entitled to serve in
emeritus status for a maximum of 10 years, during which time they
are paid 50% of the annual retainer fee and meeting fees otherwise
applicable to Fund Trustees, together with reasonable out-of-
pocket expenses for each meeting attended. Mr. Crisona is a
Trustee Emeritus and as such may attend meetings but has no voting
rights. During the Fund's last fiscal year, aggregate
compensation paid by the Fund to Trustees achieving emeritus
status totaled $11,423.
* Designates an "interested" Trustee.
Investment 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 approved by the Board of Trustees,
including a majority of the Trustees who are not interested persons.
MMC serves as Administrator to each Portfolio pursuant to a separate
written agreement with each Portfolio (the "Administration
Agreement"). The Administration Agreement was approved by the Fund's
Board of Trustees, including a majority of the disinterested
Trustees. Certain of the services provided by, and the fees paid by
the Fund to, the Advisers under the Advisory Agreements, MMC under
its Administration Agreement and Global Capital Management under its
sub-investment advisory agreement are described in the Prospectus.
MMC is a wholly owned subsidiary of Salomon 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, including Asset
Management, Consumer Finance Services, Life Insurance Services and
Property & Casualty Insurance Services.
VKAC is a diversified asset management company with more than
two million retail investor accounts, capabilities for managing
institutional portfolios, and over $60 billion under management or
supervision.
Smith Barney, the Fund's distributor, and Global Capital
Management, Sub-Adviser to Diversified Strategic Income Portfolio,
are subsidiaries of Holdings.
Certain of the services provided to the Fund by MMC as
administrator are described in the Prospectus under "Management of
the Fund." In addition to those services, MMC 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, 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. MMC bears all expenses
in connection with the performance of its services.
Each Adviser and the Sub-Adviser 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, 1997, 1996 and 1995 by their respective Adviser:
Portfolio
December 31,1997
December 31,1996
December 31,1995
Appreciation
$662,865
$536,120
$488,187
Diversified Strategic
Income
263,097
266,327
252,838
Emerging Growth
146,478
142,425
108,035
Equity Income
194,623
215,308
216,900
Equity Index
56,376
69,030
50,171
Growth & Income
187,747
166,039
146,172
Intermediate High Grade
59,572
60,847
61,355
International Equity
275,190
278,118
235,739
Money Market
16,034
17,904
18,434
Total Return
1,220,026
665,417
247,410
For the year ended December 31, 1995, the Advisers,
Administrator, Transfer Agent and Custodian waived fees to the
Portfolios as follows:
Waivers and
Investm
ent
Transf
er
Portfolio
Reimbursemen
ts
Adviser
Administra
tor
Agent
Custodia
n
Money Market
$28,195
$15,76
4
$10,510
$519
$1,402
Intermediate High
Grade
14,361
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
* 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:
Emerging Growth
$5,265
Equity Index
6,842
Intermediate High Grade
3,006
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, the Sub-Adviser 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, the Sub-Adviser and MMC 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, the Sub-
Adviser and MMC, 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 ending December 31, 1997.
INVESTMENT GOALS AND POLICIES OF THE PORTFOLIOS
The Fund's Prospectus discusses 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.
U.S. Government Securities (All Portfolios)
U.S. government securities include debt obligations of varying
maturities issued or guaranteed by the U.S. government or its
agencies or instrumentalities. 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 ("GNMA"),
General Services Administration, Federal Home Loan Banks, Federal
Home Loan Mortgage Corporation ("FHLMC"), Federal National Mortgage
Association ("FNMA"), 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 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 is
headquartered. 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 an amount of its assets equal to 5% of its
total liabilities by depositing assets with a designated bank within
the state 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' Advisers will carefully evaluate such investments on
a case-by-case basis.
The Money Market Portfolio will not purchase TDs maturing in
more than six months and will limit its investment in TDs maturing
from two business days through six months 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 (the "OTS") and
is insured by the Savings Association Insurance Fund (the "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 OTS 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 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 Ratings Group ("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. Nor do such
ratings 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 SAI contains further
information concerning the ratings of Moody's, S&P and other NRSROs.
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 determining 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) within 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.
Comparable quality shall be determined in accordance with procedures
established by the Board of Trustees of the Fund.
Reverse Repurchase Agreements (Diversified Strategic Income, Equity
Income, Intermediate High Grade and International Equity Portfolios)
The Fund does not currently intend to commit more than 5% of
the Portfolios' 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)
Consistent with applicable regulatory requirements, the
Portfolios have the ability to lend portfolio securities to brokers,
dealers and other financial organizations. 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 ( the "SEC").
Loans of portfolio securities will be collateralized by cash, letters
of credit or U.S. government securities, which will be maintained at
all times in an amount at least equal to the current market value of
the loaned securities. From time to time, a Portfolio may pay a part
of the interest earned from the investment of collateral received for
securities loaned to the borrower and/or a third party that is
unaffiliated with the Portfolio and is acting as a "finder."
By lending its portfolio securities, a Portfolio can increase
its income by continuing to receive interest on the loaned securities
as well as by either investing the cash collateral in short-term
instruments or obtaining yield in the form of interest paid by the
borrower when U.S. government securities are used as collateral. A
Portfolio will comply with the following conditions whenever its
portfolio securities are loaned: (a) the Portfolio must receive at
least 100% cash collateral or equivalent securities from the
borrower; (b) the borrower must increase such collateral whenever the
market value of the securities loaned rises above the level of such
collateral; (c) the Portfolio must be able to terminate the loan at
any time; (d) the Portfolio must receive reasonable interest on the
loan, as well as an amount equal to any dividends, interest or other
distributions on the loaned securities, and any increase in market
value; (e) the Portfolio may pay only reasonable custodian fees in
connection with the loan; and (f) voting rights on the loaned
securities may pass to the borrower; however, if a material event
adversely affecting the investment in the loaned securities occurs,
the Fund's Board of Trustees must terminate the loan and regain the
right to vote the securities. The risks in lending portfolio
securities, as with other extensions of secured credit, consist of
possible delay in receiving additional collateral or in the recovery
of the securities or possible loss of rights in the collateral should
the borrower fail financially. Loans will be made to firms deemed by
each Adviser to be of good standing and will not be made unless, in
the judgment of the relevant Adviser, the consideration to be earned
from such loans would justify the risk.
Hedging Transactions
As described in the Prospectus, certain of the Portfolios may
enter into various types of securities, index and currency futures,
options and related contracts in order to hedge the existing or
anticipated value of its portfolio. 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-of-the-money call options when its
Adviser expects that the price of the underlying security may
increase but not above a price equal to the sum of the exercise price
plus the premiums received from writing the call option. In any of
the preceding situations, if the market price of the underlying
security declines and the security is sold at this lower price, the
amount of any realized loss will be offset wholly or in part by the
premium received. Out-of-the-money, at-the-money and in-the-money
put options (the reverse of call options as to the relation of
exercise price to market price) may be utilized in the same market
environments that such call options are used in equivalent
transactions.
So long as the obligation of a Portfolio as the writer of an
option continues, the Portfolio may be assigned an exercise notice by
the broker-dealer through which the option was sold, requiring the
Portfolio to deliver, in the case of a call, or take delivery of, in
the case of a put, the underlying security against payment of the
exercise price. This obligation terminates when the option expires
or the Portfolio effects a closing purchase transaction. A Portfolio
can no longer effect a closing purchase transaction with respect to
an option once it has been assigned an exercise notice. To secure
its obligation to deliver the underlying security when it writes a
call option, or to pay for the underling security when it writes a
put option, a Portfolio will be required to deposit in escrow the
underlying security or other assets in accordance with the rules of
the Options Clearing Corporation ("Clearing Corporation") and of the
securities exchange on which the option is written.
An option position may be closed out only where there exists a
secondary market for an option of the same series on a recognized
securities exchange or in the over-the-counter market. Because of
this and current trading conditions, the Diversified Strategic
Income, Total Return, International Equity and Emerging Growth
Portfolios expect to purchase not only call or put options issued by
the Clearing Corporation, but also options in the domestic and
foreign over-the-counter markets. Portfolios with the authority to
write options expect to do so only if a secondary market exists on a
U.S. securities exchange or in the over-the-counter market.
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
which have 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 Income, Equity Index, Emerging Growth,
Growth & Income, 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 with respect to delivery. 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 in 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 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 option transactions only
when it is 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,
Emerging Growth 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-to-market." At any time prior to expiration
of a futures contract, a Portfolio may elect to close the position by
taking an opposite position, which will operate to terminate the
Portfolio's existing position in the contract.
Several risks are associated with the use of futures contracts
as a hedging device. Successful use of futures contracts by a
Portfolio is subject to the ability of its Adviser to predict
correctly movements in interest rates, changes in market conditions
or fluctuations in currency values. These predictions involve skills
and techniques that may be different from those involved in the
management of the Portfolio being hedged. In addition, there can be
no assurance that there will be a correlation between movements in
the price of the underlying securities, index or currency and
movements in the price of the securities or currency that is the
subject of a hedge. A decision of whether, when and how to hedge
involves the exercise of skill and judgment, and even a well-
conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected trends in interest rates or currency values.
Although the Portfolios intend to enter into futures contracts
only if there is an active market for such contracts, there is no
assurance that an active market will exist for the contracts at any
particular time. Most U.S. futures exchanges and boards of trade
limit the amount of fluctuation permitted in futures contract prices
during a single trading day. Once the daily limit has been reached
in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures contract prices could
move to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of
futures positions and subjecting some futures traders to substantial
losses. In such event, and in the event of adverse price movements,
a Portfolio would be required to make daily cash payments of
variation margin, and an increase in the value of the portion of the
Portfolio being hedged, if any, may partially or completely offset
losses on the futures contract. As described above, however, there
is no guarantee that the price of the securities or value of the
currency being hedged will, in fact, correlate with the price
movements in a futures contract and thus provide an offset to losses
on the futures contract.
If a Portfolio has hedged against the possibility of a change
in interest rates, market conditions or currency values adversely
affecting the value of securities held in its portfolio and interest
rates, market conditions or currency values move in a direction
opposite to that which has been anticipated, the Portfolio will lose
part or all of the benefit of the increased value of securities or
currencies that it has hedged because it will have offsetting losses
in its futures positions. Additionally, if in such situations the
Portfolio has 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, and such predictions could prove to
be incorrect. Even if an Adviser's expectations 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 when-issued basis or purchase or
sell securities for delayed delivery. A Portfolio will enter into
such transactions for the purpose of acquiring portfolio securities
and not for the purpose of leverage. Delivery of the securities in
such cases occurs beyond the normal settlement periods, but no
payment or delivery is made by a Portfolio prior to the reciprocal
delivery or payment by the other party to the transaction. In
entering into a when-issued or delayed-delivery transaction, a
Portfolio will rely on the other party to consummate the transaction
and may be disadvantaged if the other party fails to do so.
U.S. government securities normally are subject to changes in
value based upon changes, real or anticipated, in the level of
interest rates and, to a lesser extent, the public's perception of
the creditworthiness of the issuers. In general, U.S. government
securities tend to appreciate when interest rates decline and
depreciate when interest rates rise. Purchasing these securities on
a when-issued or delayed-delivery basis, therefore, can involve the
risk that the yields available in the market when the delivery takes
place may actually be higher than those obtained in the transaction
itself. Similarly, the sale of U.S. government securities for
delayed delivery can involve the risk that the prices available in
the market when the delivery is made may actually be higher than
those obtained in the transaction itself.
In the case of the purchase of securities on a when-issued or
delayed-delivery basis by a Portfolio, a segregated account in the
name of the Portfolio consisting of cash, U.S. government securities,
equity securities or debt securities of any grade equal to the amount
of the when-issued or delayed delivery commitments, provided such
securities are liquid and unencumbered and are marked to market daily
pursuant to guidelines established by the Trustees, will be
established at the Fund's custodian, PNC (or, in the case of the
International Equity or Diversified Strategic Income Portfolios,
Chase). For the purpose of determining the adequacy of the
securities in the account, the deposited securities will be valued at
market or fair value. If the market or fair value of the securities
declines, additional cash or securities will be placed in the account
daily so that the value of the account will equal the amount of such
commitments by the Portfolio involved. On the settlement date, the
Portfolio will meet its obligations from then-available cash flow,
the sale of securities held in the segregated account, the sale of
other securities or, although it would not normally expect to do so,
from the sale of the securities purchased themselves (which may have
a greater or lesser value than the Portfolio's payment obligations).
Mortgage-Related Securities (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 adjustable-rate mortgages bear interest
at a rate that is adjusted monthly, quarterly or annually. The
average maturity of pass-through pools of mortgage-related securities
varies with the maturities of the underlying mortgage instruments.
In addition, a pool's stated maturity may be shortened by unscheduled
payments on the underlying mortgages. Factors affecting mortgage
prepayments include interest rate levels, general economic and social
conditions, the location of the mortgaged property and the age of the
mortgage. Because prepayment rates of individual mortgage pools vary
widely, it is not possible to accurately predict the average life of
a particular pool. Pools of mortgages with varying maturities or
different characteristics will have varying average life assumptions
and the prepayment experience of securities backed by adjustable-rate
mortgages may vary from those backed by fixed-rate mortgages.
Mortgage-related securities may be classified as private,
governmental or government-related, depending on the issuer or
guarantor. Private mortgage-related securities represent pass-
through pools consisting principally of conventional residential
mortgage loans created by non-governmental issuers, such as
commercial banks, savings and loan associations and private mortgage
insurance companies. Government mortgage-related securities are
backed by the full faith and credit of the United States. 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 FNMA and 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 Depository Receipts ("ADRs") and
European Depository Receipts ("EDRs"). These securities may not
necessarily be denominated in the same currency as the securities
into which they may be converted. ADRs are receipts typically issued
by a U.S. bank or trust company that evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which sometimes
are referred to as Continental Depository Receipts ("CDRs"), are
receipts issued in Europe, typically by foreign banks and trust
companies, that evidence ownership of either foreign or U.S.
securities. Generally, ADRs, in registered form, are designed for use
in U.S. securities markets and EDRs and CDRs, in bearer form, are
designed for use in European securities markets.
Currency Exchange Transactions (Diversified Strategic Income,
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, at the time of execution of the offsetting
transaction, it 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 that 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- 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 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 U.S. 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 "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, International Equity and Diversified
Strategic Income 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 (the "1933
Act"), except where at least two dealers make a market in such
securities) and in other securities that are not readily marketable,
including repurchase agreements maturing in more than seven days.
With respect to the Diversified Strategic Income Portfolio, this
restriction will not apply to securities subject to Rule 144A of the
1933 Act. 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 8 have been
adopted by the Fund with respect to the Portfolios as fundamental
policies for the 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 9 through 18 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. Investing in a manner that would cause it to fail to be a
"diversified company" under the 1940 Act and the rules, regulations
and orders thereunder.
2. Borrowing money, except that (a) the Portfolio may borrow
from banks for temporary or emergency (not leveraging) purposes,
including the meeting of redemption requests which might otherwise
require the untimely disposition of securities, and (b) the Portfolio
may, to the extent consistent with its investment policies, enter into
reverse repurchase agreements, forward roll transactions and similar
investment strategies and techniques. To the extent that it engages
in transactions described in (a) and (b), the Portfolio will be
limited so that no more than 33 1/3% of the value of its total assets
(including the amount borrowed), valued at the lesser of cost or
market, less liabilities (not including the amount borrowed) valued
at the time the borrowing is made, is derived from such transactions.
3. Engaging in the business of underwriting securities issued
by other persons, except to the extent that the Fund may technically
be deemed to be an underwriter under the 1933 Act, in disposing of
portfolio securities.
4. Purchasing or selling real estate, real estate mortgages,
commodities or commodity contracts, but this restriction shall not
prevent the Portfolio from (a) investing in securities of issuers
engaged in the real estate business or the business of investing in
real estate (including interests in limited partnerships owning or
otherwise engaging in the real estate business or the business of
investing in real estate) and securities which are secured by real
estate or interests therein; (b) holding or selling real estate
received in connection with securities it holds or held; (c) trading
in futures contracts and options on futures contracts (including
options on currencies to the extent consistent with the Portfolios'
investment objective and policies); or (d) investing in real estate
investment trust securities.
6. Making loans. This restriction does not apply to: (a) the
purchase of debt obligations in which the Portfolio may invest
consistent with its investment objectives and policies; (b) repurchase
agreements; and (c) loans of its portfolio securities, to the fullest
extent permitted under the 1940 Act.
7. Invest more than 25% of its total assets in securities, the
issuers of which conduct their principal business activities in the
same industry. For purposes of this limitation, securities of the
U.S. government (including its agencies and instrumentalities) and
securities of state or municipal governments and their political
subdivisions are not considered to be issued by members of any
industry; provided that this limitation shall not apply to the
purchase of (a) with respect to the Money Market Portfolio, U.S.
dollar-denominated bank instruments such as Cds, Tds, bankers'
acceptances and letters of credit that have been issued by U.S. banks
or (b) with respect to the Equity Income Portfolio, the securities of
companies within the utility industry.
8. Issuing "senior securities" as defined in the 1940 Act and
the rules, regulations and orders thereunder, except as permitted
under the 1940 Act and the rules, regulations and orders thereunder.
9. 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.
10. 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.
11. Purchasing any securities on margin (except for such short-
term credits as are necessary for the clearance of purchases and sales
of portfolio securities) or sell any securities short (except "against
the box"). For purposes of this restriction, the deposit or payment
by the Portfolio of underlying securities and other assets in escrow
and collateral agreements with respect to initial or maintenance
margin in connection with futures contracts and related options and
options on securities, indexes or similar items is not considered to
be the purchase of a security on margin.
12. Purchasing, writing or selling puts, calls, straddles,
spreads or combinations thereof, except as permitted under the
Portfolio's investment goals and policies.
13. 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, Emerging
Growth and Diversified Strategic Income Portfolios) of the total
assets of the Portfolio would be invested in such securities. With
respect to the Money Market Portfolio, this restriction will not
apply to securities subject to Rule 144A of the 1933 Act if two or
more dealers make a market in such securities.
14. Investing more than 10% of its total assets in time
deposits maturing in more than seven calendar days (in the case of
the Money Market Portfolio, time deposits maturing from two business
days through six months).
15. 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.)
16. Making investments for the purpose of exercising control
or management.
17. 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.
18. 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 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, 1996 and 1997 fiscal years, the portfolio
turnover rates for Portfolios having operations during the stated
periods were as follows:
Portfolio
December 31,
1995
December 31,
1996
December 31,
1997
Appreciation
43%
39%
34%
Diversified Strategic
Income
46
10
47
Emerging Growth
121
84
102
Equity Income
33
28
42
Equity Index
5
7
6
Growth & Income
17
22
17
Intermediate High
Grade
121
116
66
International Equity
34
33
21
Total Return
81
82
75
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 Investment
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 over-the-counter, will
be effected in the primary trading market for the securities.
Decisions to buy and sell securities for a Portfolio are made by its
Investment 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 MMC,
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 Global Capital Management, the Portfolio's
Sub-Adviser. Although investment decisions for each Portfolio are
made independently from those of the other accounts managed by its
Adviser, investments of the type the Portfolio may make also may be
made by those other accounts. When a Portfolio and one or more other
accounts managed by its Adviser are prepared to invest in, or desire
to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the
Adviser to be equitable to each. In some cases, this procedure may
adversely affect the price paid or received by a Portfolio or the
size of the position obtained or disposed of by the Portfolio.
Transactions on U.S. stock exchanges and some foreign stock
exchanges involve the payment of negotiated brokerage commissions.
On exchanges on which commissions are negotiated, the cost of
transactions may vary among different brokers. Commissions generally
are fixed on most foreign exchanges. There is generally no stated
commission in the case of securities traded in U.S. or foreign over-
the-counter markets, but the prices of those securities include
undisclosed commissions or mark-ups. The cost of securities
purchased from underwriters includes an underwriting commission or
concession and the prices at which securities are purchased from and
sold to dealers include a dealer's mark-up or mark-down. U.S.
government securities generally are purchased from underwriters or
dealers, although certain newly issued U.S. government securities may
be purchased directly from the United States Treasury or from the
issuing agency or instrumentality.
The following table sets forth certain information regarding
each Portfolio's payment of brokerage commissions with the exception
of the Money Market Portfolio and Intermediate High Grade Portfolio,
which did not pay any brokerage commissions during these time
periods.
Fiscal Year Ended December 31, 1997
Total Brokerage
Brokerage
Commissions
Portfolio
Commissions Paid
Paid to Smith
Barney
Appreciation
$76,960
$3,240
Diversified Strategic
Income
0
0
Emerging Growth
24,590
324
Equity Income
75,365
1,200
Equity Index
6,685
0
Growth & Income
157,715
0
International Equity
57,156
650
Total Return
46,446
14,850
Fiscal Year Ended December 31, 1996
Total Brokerage
Brokerage
Commissions
Portfolio
Commissions Paid
Paid to Smith
Barney
Appreciation
$97,345
$0
Diversified Strategic
Income
1,200
0
Emerging Growth
24,692
566
Equity Income
54,224
4,320
Equity Index
3,060
0
Growth & Income
6,360
60
International Equity
79,738
1,859
Total Return
338,129
6,000
Fiscal Year Ended December 31, 1995
Total Brokerage
Brokerage
Commissions
Portfolio
Commissions Paid
Paid to Smith
Barney
Appreciation
$73,446
$2,370
Diversified Strategic
Income
800
0
Emerging Growth
34,596
1,039
Equity Income
73,350
900
Equity Index
3,290
0
Growth & Income
14,338
198
International Equity
95,068
3,578
Total Return
120,351
- --
Fiscal Year Ended December 31, 1997
% of Aggregate
Dollar
% of Aggregate
Amount of
Transactions
Brokerage
Commissions
Involving
Commissions
Portfolio
Paid to Smith
Barney Inc.
Paid to Smith
Barney Inc.
Appreciation
0.04%
0
Diversified Strategic
Income
0
0
Emerging Growth
1.32
0.95%
Equity Income
1.59
3.08%
Equity Index
0.03
0
Growth & Income
0
0
International Equity
1.14
2.43
Total Return
3.71
2.98
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-Adviser and/or Administrator, respectively, are
not reduced by reason of their receiving such brokerage and research
services. The Fund's Board of Trustees, in its discretion, may
authorize the Advisers to cause the Portfolios to pay a broker that
provides such brokerage and research services a brokerage commission
in excess of that which another broker might have charged for
effecting the same transaction, in recognition of the value of such
brokerage and research services. The Fund's Board of Trustees
periodically will review the commissions paid by the Portfolios to
determine if the commissions paid over representative periods of time
were reasonable in relation to the benefits inuring to the Fund.
To the extent consistent with applicable provisions of the 1940
Act and the rules and exemptions adopted by the SEC thereunder, the
Fund's Board of Trustees has determined that portfolio transactions
for a Portfolio may be executed through Smith Barney and other
affiliated broker-dealers if, in the judgment of its Adviser, the use
of such broker-dealer is likely to result in price and execution at
least as favorable as those of other qualified broker-dealers, and
if, in the transaction, such broker-dealer charges the Portfolio a
rate consistent with that charged to comparable unaffiliated
customers in similar transactions. In addition, under rules 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.
Counsel and Auditors
Willkie Farr & Gallagher serves as counsel to the Fund.
Stroock & Stroock & Lavan LLP 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 auditors to examine and report on the Fund's
financial statements and highlights for the fiscal year ending
December 31, 1998.
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"). The Fund commenced operations on October 16,
1991, under the name Shearson Series Fund. On July 30, 1993, October
14, 1994 and July 24, 1997, the Fund changed its name to Smith
Barney Shearson Series Fund, Smith Barney Series Fund, and Greenwich
Street 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 a variable annuity contract
or a certificate evidencing interest in a 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 SAI and the
Fund's Prospectus dated April 30, 1998 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 New York Stock
Exchange 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, the 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 MMC, after
consultation with the Pricing Service. When, in the judgment of the
Pricing Service, quoted bid prices for investments are readily
available and are representative of the bid side of the market, these
investments are valued at the mean between the quoted bid prices and
asked prices. Investments for which, in the judgment of the Pricing
Service, there are no readily obtainable market quotations are
carried at fair value as determined by the Pricing Service. The
procedures of the Pricing Service are reviewed periodically by the
officers of the Fund under the general supervision and responsibility
of the Fund's Board of Trustees.
The Money Market Portfolio
The valuation of the portfolio securities of the Money Market
Portfolio is based upon their amortized cost, which does not take
into account unrealized capital gains or losses. Amortized cost
valuation involves initially valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any
discount or premium regardless of the impact of fluctuating interest
rates on the market value of the instrument. While this method
provides certainty in valuation, it may result in periods during
which value, as determined by amortized cost, is higher or lower than
the price a Fund would receive if it sold the instrument.
The use by the Money Market Portfolio of the amortized cost
method of valuing its portfolio securities is permitted by a rule
adopted by the SEC. Under this rule, the Portfolio must maintain a
dollar-weighted average portfolio maturity of ninety days or less,
purchase only instruments having remaining maturities of thirteen
months or less, and invest only in securities determined by the Board
of Trustees of the Fund to be "Eligible Securities," as determined by
the SEC, with minimal credit risks. Pursuant to the rule, the Fund's
Board of Trustees also has established procedures designed to
stabilize, to the extent reasonably possible, the Portfolio's price
per share as computed for the purpose of sales and redemptions at
$1.00. Such procedures include review of the Portfolio's holdings by
the Fund's Board of Trustees, at such intervals as it may deem
appropriate, to determine whether the Portfolio's net asset value
calculated by using available market quotations or market equivalents
deviates from $1.00 per share based on amortized cost.
The rule also provides that the extent of any deviation between
the Portfolio's net asset value based upon available market
quotations or market equivalents and the $1.00 per share net asset
value based on amortized cost must be examined by the Fund's Board of
Trustees. In the event that the Fund's Board of Trustees determines
that a deviation exists that may result in material dilution or other
unfair results to investors or existing shareholders, pursuant to the
rule the Fund's Board of Trustees must cause the Portfolio to take
such corrective action as the Fund's Board of Trustees regards as
necessary and appropriate, including: selling portfolio instruments
prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity; withholding dividends or paying
distributions from capital 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-, five- or ten-year (or other) period (or
fractional portion thereof).
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period. A Portfolio's net
investment income changes in response to fluctuations in interest
rates and the expenses of the Portfolio.
The average annual total returns for the Portfolios then in
existence were as follows for the periods indicated (reflecting the
waivers of investment advisory and administration fees and
reimbursement of expenses):
Per annum for
the
period from
commencement
One-Year
Period
Five-Year
Period
of operations
Portfolio
Ended
12/31/97
Ended
12/31/97
through
12/31/97
Appreciation*
26.39
15.62
14.34
Diversified Strategic
Income*
8.14
8.85
7.54
Emerging Growth**
21.16
- ---
18.00
Equity Income*
23.52
11.46
11.45
Equity Index*
32.16
19.07
17.42
Growth & Income*
22.94
15.21
13.79
Intermediate High Grade*
8.67
6.38
6.38
International Equity**
(2.18)
- ---
4.35
Total Return**
16.84
- ---
18.89
* 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 (or other) period at
the end of the one-, five- or ten-year period
(or fractional portion thereof), assuming
reinvestment of all dividends and
distributions.
The aggregate total returns for the Portfolios then in
existence were as follows for the periods indicated (reflecting the
waiver of investment advisory and administration fees and
reimbursement of expenses):
Per annum for
the
Period from
Commencement
One-Year
Period
Five-Year
Period
of operations
Portfolio
Ended
12/31/97
Ended
12/31/97
Through
12/31/97
Appreciation*
26.39
106.58
129.99
Diversified Strategic
Income*
8.14
52.79
57.13
Emerging Growth**
21.16
- ---
96.46
Equity Income*
23.52
72.06
96.10
Equity Index*
32.16
139.31
171.27
Growth & Income*
22.94
103.00
123.21
Intermediate High Grade*
8.67
36.26
46.90
International Equity**
(2.18)
- ---
18.97
Total Return**
16.84
- ---
102.54
* 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 GNP-weighted index,
beginning in 1975. The returns are broken down by local market and
currency.
(5) Ibbottson Associates International Bond Index, which
provides a detailed breakdown of local market and currency returns
since 1960.
(6) S&P 500, which is a widely recognized index composed of the
capitalization-weighted average of the price of 500 of the largest
publicly, traded stocks in the U.S.
(7) Salomon Brothers Broad Investment Grade Index, which is a
widely used index, composed of U.S. domestic government, corporate
and mortgage-back fixed income securities.
(8) Dow Jones Industrial Average.
(9) Financial News Composite Index.
(10) Morgan Stanley Capital International World Indices,
including, among others, the Morgan Stanley Capital International
Europe, Australia, Far East Index ("EAFE Index"). The EAFE index is
an unmanaged index of more than 800 companies of Europe, Australia
and the Far East.
(11) Data and comparative performance rankings published or
prepared by CDA Investment Technologies, Inc.
(12) Data and comparative performance rankings published or
prepared by Wiesenberger Investment Company Service.
Indices prepared by the research departments of such financial
organizations as Salomon Brothers, Inc., Merrill Lynch, 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 continue to 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.
If a Portfolio is the holder of record of any stock on the
record date for any dividends payable with respect to such stock,
such dividends are included in the Portfolio's gross income not as of
the date received but as of the later of (a) the date such stock
became ex-dividend with respect to such dividends (i.e., the date on
which a buyer of the stock would not be entitled to receive the
declared, but unpaid, dividends) or (b) the date the Portfolio
acquired such stock.
Taxation of Investment by the Portfolios
A Portfolio's transactions in foreign currencies, forward
contracts, options, futures contracts (including options and futures
contracts on foreign currencies) and warrants will be subject to
special provisions of the Code that, among other things, may affect
the character of gains and losses realized by the Portfolio (i.e.,
may affect whether gains or losses are ordinary or capital),
accelerate recognition of income to the Portfolio and defer Portfolio
losses. These rules could therefore affect the character, amount and
timing of distributions to shareholders. These provisions also (a)
will require the Portfolio to mark-to-market certain types of the
positions in its portfolio (i.e., treat them as if they were closed
out) and (b) may cause the Portfolio to recognize income without
receiving cash with which to pay dividends or make distributions in
amounts necessary to satisfy the 90% distribution requirement for
avoiding income tax. 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 with respect
to all Portfolios except Diversified Strategic Income and
International Equity Portfolios pursuant to a custodian agreement.
Chase, located at Chase MetroTech Center, Brooklyn, New York
11245, 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-of-pocket expenses and costs of any foreign and U.S. sub-
custodians). The assets of the Fund are held under bank
custodianship in compliance with the 1940 Act.
First Data, 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-of-pocket expenses.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal year ended December 31,
1997 is incorporated herein by reference in its entirety.
APPENDIX
RATINGS ON DEBT OBLIGATIONS
BOND (AND NOTES) RATINGS
Moody's Investors Service, Inc.
Aaa - Bonds that are rated "Aaa" are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds that are rated "Aa" are judged to be of high quality
by all standards. Together with the "Aaa" group they comprise what
are generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large as
in "Aaa" securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present that make
the long term risks appear somewhat larger than in "Aaa" securities.
A - Bonds that are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are
considered adequate but elements may be present that suggest a
susceptibility to impairment sometime in the future.
Baa - Bonds that are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds in
this class.
B - Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any
long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of danger
with respect to principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C - Bonds which are rated C are the lowest class of bonds and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Note: The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end of its generic rating category.
Standard & Poor's
AAA - Debt rated "AAA" has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated "AA" has a very strong capacity to pay interest
and repay principal and differs from the highest rated issues only in
small degree.
A - Debt rated "A" has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions
than debt in higher rated categories.
BBB - Debt rated "BBB" is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated `BB', `B', `CCC', `CC' or `C' is
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the
terms of the obligation. `BB' indicates the lowest degree of
speculation and `C' the highest degree of speculation. While such
debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures
to adverse conditions.
Plus (+) or Minus (-): The ratings from `AA' to `B' may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating
is provisional. A provisional rating assumes the successful
completion of the project being financed by the debt being rated and
indicates that payment of debt service requirements is largely or
entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such
completion. The investor should exercise judgment with respect to
such likelihood and risk.
L - The letter "L" indicates that the rating pertains to the
principal amount of those bonds where the underlying deposit
collateral is fully insured by the Federal Savings & Loan Insurance
Corp. or the Federal Deposit Insurance Corp.
+ - Continuance of the rating is contingent upon S&P's receipt
of closing documentation confirming investments and cash flow.
* - Continuance of the rating is contingent upon S&P's receipt
of an executed copy of the escrow agreement.
NR - Indicates no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does
not rate a particular type of obligation as a matter of policy.
Fitch IBCA, Inc.
AAA - Bonds rated AAA by Fitch have the lowest expectation of
credit risk. The obligor has an exceptionally strong capacity for
timely payment of financial commitments which is highly unlikely to
be adversely affected by foreseeable events.
AA - Bonds rated AA by Fitch have a very low expectation of
credit risk. They indicate very strong capacity for timely payment of
financial commitment. This capacity is not significantly vulnerable
to foreseeable events.
A - Bonds rated A by Fitch are considered to have a low
expectation of credit risk. The capacity for timely payment of
financial commitments is considered to be strong, but may be more
vulnerable to changes in economic conditions and circumstances than
bonds with higher ratings.
BBB - Bonds rated BBB by Fitch currently have a low expectation
of credit risk. The capacity for timely payment of financial
commitments is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to impair this
capacity. This is the lowest investment grade category assigned by
Fitch.
BB - Bonds rated BB by Fitch carry the possibility of credit
risk developing, particularly as the result of adverse economic
change over time. Business or financial alternatives may, however, be
available to allow financial commitments to be met. Securities rated
in this category are not considered by Fitch to be investment grade.
B - Bonds rated B by Fitch carry significant credit risk,
however, a limited margin of safety remains. Although financial
commitments are currently being met, capacity for continued payment
depends upon a sustained, favorable business and economic
environment.
CCC, CC, C - Default on bonds rated CCC,CC, and C by Fitch is a
real possibility. The capacity to meet financial commitments depends
solely on a sustained, favorable business and economic environment.
Default of some kind on bonds rated CC appears probable, a C rating
indicates imminent default.
Plus and minus signs are used by Fitch to indicate the relative
position of a credit within a rating category. Plus and minus signs
however, are not used in the AAA category.
COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.
Issuers rated "Prime-1" (or related supporting institutions)
have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment will normally be evidenced by the
following characteristics: leading market positions in well-
established industries; high rates of return on funds employed;
conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of
fixed financial changes and high internal cash generation; well-
established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated "Prime-2" (or related supporting institutions)
have strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends
and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is
maintained.
Standard & Poor's
A-1 - This designation indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those
issuers determined to possess overwhelming safety characteristics
will be denoted with a plus (+) sign designation.
A-2 - Capacity for timely payment on issues with this
designation is strong. However, the relative degree of safety is not
as high as for issues designated A-1.
Fitch IBCA, Inc.
Fitch's short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to
three years, including commercial paper, certificates of deposit,
medium-term notes, and municipal and investment notes.
The short-term rating places greater emphasis than a long-term
rating on the existence of liquidity necessary to meet financial
commitment in a timely manner.
Fitch's short-term ratings are as follows:
F1+ - Issues assigned this rating are regarded as having the
strongest capacity for timely payments of financial commitments. The
"+" denotes an exceptionally strong credit feature.
F1 - Issues assigned this rating are regarded as having the
strongest capacity for timely payment of financial commitments.
F2 - Issues assigned this rating have a satisfactory capacity
for timely payment of financial commitments, but the margin of safety
is not as great as in the case of the higher ratings.
F3 - The capacity for the timely payment of financial
commitments is adequate; however, near-term adverse changes could
result in a reduction to non investment grade.
Duff & Phelps Inc.
Duff 1+ - Indicates the highest certainty of timely payment:
short-term liquidity is clearly outstanding, and safety is just below
risk-free United States Treasury short-term obligations.
Duff 1 - Indicates a high certainty of timely payment.
Duff 2 - Indicates a good certainty of timely payment:
liquidity factors and company fundamentals are sound.
The Thomson BankWatch ("TBW")
TBW-1 - Indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
TBW-2 - While the degree of safety regarding timely repayment
of principal and interest is strong, the relative degree of safety is
not as high as for issues rated TBW-1.
GREENWICH STREET 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, 1997 and the report of
Independent Accountants are incorporated by
reference to the Definitive 30b2-1 filed on March
6, 1998 as Accession # 91155-98-145.
Included in Part C:
Consent of Independent Auditors
(b) Exhibits
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) (a) Registrant's Master Trust Agreement and Amendment Nos. 1
and 2 are incorporated by reference to Post-Effective
Amendment No. 6 to the Registrant's Registration
Statement as filed with the SEC on December 1, 1993
("Post-Effective Amendment No. 6").
(2) Registrant's by-laws are incorporated by reference to the
Registration Statement.
(3) Not applicable.
(4) (a) 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 ("Post-Effective Amendment No. 11").
(b) Form of Custody Agreement between the Registrant and The
Chase Manhattan Bank is incorporated by reference to
Post-Effective Amendment No. 13 to the Registration
Statement as filed with the SEC on April 29, 1997 ("Post-
Effective Amendment No. 13").
(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 (filed
herewith).
(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.
(14) Not Applicable.
(15) Not Applicable.
(16) Performance Data is incorporated by reference to Post-
Effective Amendment No. 1.
(17)
Financial Data Schedule (filed herewith).
(18) Not Applicable.
Item 25. Persons Controlled by or under Common Control with
Registrant
Shares of the Registrant will be offered to IDS Life
Insurance Company ("IDS Life") and IDS Life Insurance
Company of New York ("IDS Life of New York"),
corporations organized under the laws of the State of
Minnesota, for allocation to one or more separate
subaccounts of the IDS Life Account SBS. IDS Life and IDS
Life of New York are wholly owned subsidiaries of
American Express Financial Services, a corporation
organized under the laws of the state of Delaware.
Item 26. Number of Holders of Securities
(1)
Title of
Class
(2)
Number of Record Holders
by class as of April 17, 1998
Shares of Beneficial Interest
par value
$.001 per share
Appreciation Portfolio
5
Diversified Strategic Income
Portfolio
4
Emerging Growth Portfolio
3
Equity Income Portfolio
4
Equity Index Portfolio
5
Intermediate High Grade Portfolio
5
International Equity Portfolio
5
Growth & Income Portfolio
4
Money Market Portfolio
3
Total Return Portfolio
4
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--Mutual Management Corp., formerly
known as Smith Barney Mutual Funds Management Inc.
("MMC").
MMC was incorporated in December 1968 under the laws of
the State of Delaware. MMC is a wholly owned subsidiary
of Salomon Smith Barney Holdings Inc., formerly known as
Smith Barney Holdings Inc., which in turn is a wholly
owned subsidiary of Travelers Group Inc. ("Travelers").
MMC is registered as an investment adviser under the
Investment Advisers Act of 1940 (the "1940 Act").
The list required by this Item 28 of officers and
directors of MMC 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 MMC
pursuant to the Investment Advisers Act of 1940 Act (the
"Advisers Act") (SEC File No. 801-8314).
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, Oakbrook
Terrace, Illinois 60181 and through its predecessors, has
been in the investment counseling business since 1926.
VKAC is a wholly owned subsidiary of VK/AC Holding, Inc.
VK/AC Holding, Inc. is a wholly owned subsidiary of
Morgan Stanley Dean Witter & Co.
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.
801-07212).
Item 29. Principal Underwriters
Smith Barney Inc. ("Smith Barney") currently acts as a
distributor for Consulting Group Capital Markets Funds;
Global Horizons Investment Series (Cayman Islands);
Greenwich Street California Municipal Fund Inc.;
Greenwich Street Municipal Fund Inc.; Greenwich Street
Series Fund; High Income Opportunity Fund Inc.; The Italy
Fund Inc.; Managed High Income Portfolio Inc.; Managed
Municipals Portfolio II Inc.; Managed Municipals
Portfolio Inc.; Municipal High Income Fund Inc.; Puerto
Rico Daily Liquidity Fund Inc.; Smith Barney Adjustable
Rate Government Income Fund; Smith Barney Aggressive
Growth Fund Inc.; Smith Barney Appreciation Fund Inc.;
Smith Barney Arizona Municipals Fund Inc.; Smith Barney
California Municipals Fund Inc.; Smith Barney Concert
Allocation Series Inc.; Smith Barney Small Cap Blend
Fund, Inc.; Smith Barney Equity Funds; Smith Barney
Fundamental Value Fund Inc.; Smith Barney Funds, Inc.;
Smith Barney Income Funds; Smith Barney Income Trust;
Smith Barney Institutional Cash Management Fund, Inc.;
Smith Barney Intermediate Municipal Fund, Inc.; Smith
Barney Investment Funds Inc.; Smith Barney Investment
Trust; Smith Barney Managed Governments Fund Inc.; Smith
Barney Managed Municipals Fund Inc.; Smith Barney
Massachusetts Municipals Fund; Smith Barney Money Funds,
Inc.; Smith Barney Muni Funds; Smith Barney Municipal
Fund, Inc.; Smith Barney Municipal Money Market Fund,
Inc.; Smith Barney Natural Resources Fund Inc.; Smith
Barney New Jersey Municipals Fund Inc.; Smith Barney
Oregon Municipals Fund Inc.; Smith Barney Principal
Return Fund; Smith Barney Telecommunications Trust; Smith
Barney Variable Account Funds; Smith Barney World Funds,
Inc.; Smith Barney Worldwide Special Fund N.V.
(Netherlands Antilles); Travelers Series Fund Inc.; The
USA High Yield Fund N.V.; Worldwide Securities Limited
(Bermuda); Zenix Income Fund Inc. and various series of
unit investment trusts.
(b) Smith Barney is a wholly owned subsidiary of Salomon
Smith Barney Holdings Inc., which in turn is a wholly
owned subsidiary of Travelers Group Inc. 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).
(c) Not applicable.
Item 30. Location of Accounts and Records
(1) Mutual Management Corp.
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,
Oakbrook 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)
(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)
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, the Registrant certifies that it
meets all of the requirements for effectiveness of this Amendment to
the Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the undersigned,
and where applicable, the true and lawful attorney-in-fact, thereto
duly authorized, in the City of New York and State of New York on the
24th day of April, 1998.
GREENWICH STREET SERIES FUND
By: /s/Heath B. McLendon
Heath B. McLendon
Chairman of the Board
WITNESS our hands on the date set forth below.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement and the above
Power of Attorney has been signed below by the following persons
in the capacities and as of the dates indicated.
/s/Heath B. McLendon
Heath B. McLendon
Chairman of the Board
and Chief Executive
Officer
April 24,
1998
/s/Lewis E. Daidone
Lewis E. Daidone
Senior Vice President
and Treasurer (Chief
Financial and
Accounting Officer)
April 24,
1998
/s/Herber Barg*
Herbert Barg
Trustee
April 24,
1998
/s/Alfred J. Bianchetti*
Alfred J. Bianchetti
Trustee
April 24,
1998
/s/Martin Brody*
Martin Brody
Trustee
April 24,
1998
/s/Dwight B. Crane*
Dwight B. Crane
Trustee
April 24,
1998
/s/Burt N. Dorsett*
Burt N. Dorsett
Trustee
April 24,
1998
/s/Elliot S. Jaffe*
Elliot S. Jaffe
Trustee
April 24,
1998
/s/Stephen E. Kaufman*
Stephen E. Kaufman
Trustee
April 24,
1998
/s/Joseph J. McCann
Joseph J. McCann
Trustee
April 24,
1998
/s/Cornelius C. Rose, Jr.*
Cornelius C. Rose, Jr.
Trustee
April 24,
1998
* Signed by Heath B. McLendon, their duly authorized attorney-in-fact,
pursuant to power of attorney dated April 16, 1997.
/s/ Heath B. McLendon
Heath B. McLendon
EXHIBIT INDEX
Exhibit No. Exhibit
11(b) Auditor's Consent
17 Financial Data Schedule
Independent Auditors' Consent
To the Shareholders and Board of Trustees of
Greenwich Street Series Fund:
We consent to the use of our reports dated February 10, 1998 for
Appreciation Portfolio, Diversified Strategic Income Portfolio,
Emerging Growth Portfolio, Equity Income Portfolio, Equity Index
Portfolio, Growth and Income Portfolio, Intermediate High Grade
Portfolio, International Equity Portfolio, Money Market Portfolio, and
Total Return Portfolio of Greenwich Street 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.
KPMG Peat Marwick LLP
New York, New York
April 24, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000874835
<NAME> GREENWICH STREET SERIES FUND
<SERIES>
<NUMBER> 4
<NAME> APPRECIATION PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 102,166,810
<INVESTMENTS-AT-VALUE> 145,379,757
<RECEIVABLES> 3,269,428
<ASSETS-OTHER> 76
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 148,649,261
<PAYABLE-FOR-SECURITIES> 4,346,718
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 168,519
<TOTAL-LIABILITIES> 4,515,237
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 91,704,926
<SHARES-COMMON-STOCK> 7,693,323
<SHARES-COMMON-PRIOR> 6,384,643
<ACCUMULATED-NII-CURRENT> 2,029,289
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,186,862
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 43,212,947
<NET-ASSETS> 144,134,024
<DIVIDEND-INCOME> 1,870,369
<INTEREST-INCOME> 1,124,049
<OTHER-INCOME> 0
<EXPENSES-NET> 963,225
<NET-INVESTMENT-INCOME> 2,031,193
<REALIZED-GAINS-CURRENT> 7,187,150
<APPREC-INCREASE-CURRENT> 18,175,990
<NET-CHANGE-FROM-OPS> 27,394,333
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,537,587
<DISTRIBUTIONS-OF-GAINS> 7,668,488
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,610,791
<NUMBER-OF-SHARES-REDEEMED> 807,939
<SHARES-REINVESTED> 505,828
<NET-CHANGE-IN-ASSETS> 42,902,196
<ACCUMULATED-NII-PRIOR> 1,535,683
<ACCUMULATED-GAINS-PRIOR> 7,668,200
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 662,865
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 963,225
<AVERAGE-NET-ASSETS> 120,637,753
<PER-SHARE-NAV-BEGIN> 15.86
<PER-SHARE-NII> 00.24
<PER-SHARE-GAIN-APPREC> 03.90
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 01.27
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.73
<EXPENSE-RATIO> 00.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000874835
<NAME> GREENWICH STREET SERIES PORTFOLIO
<SERIES>
<NUMBER> 10
<NAME> DIVERSIFIED STRATEGIC INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 59,391,378
<INVESTMENTS-AT-VALUE> 60,542,407
<RECEIVABLES> 1,358,870
<ASSETS-OTHER> 739,566
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 62,645,843
<PAYABLE-FOR-SECURITIES> 40,235
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 55,867
<TOTAL-LIABILITIES> 96,102
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 56,738,975
<SHARES-COMMON-STOCK> 5,743,025
<SHARES-COMMON-PRIOR> 5,418,831
<ACCUMULATED-NII-CURRENT> 4,460,204
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (102,223)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,452,785
<NET-ASSETS> 62,549,741
<DIVIDEND-INCOME> 4,585,774
<INTEREST-INCOME> 134,639
<OTHER-INCOME> 0
<EXPENSES-NET> 455,980
<NET-INVESTMENT-INCOME> 4,264,433
<REALIZED-GAINS-CURRENT> 950,640
<APPREC-INCREASE-CURRENT> (667,301)
<NET-CHANGE-FROM-OPS> 4,547,772
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,165,625
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 742,785
<NUMBER-OF-SHARES-REDEEMED> 892,937
<SHARES-REINVESTED> 474,346
<NET-CHANGE-IN-ASSETS> 4,547,772
<ACCUMULATED-NII-PRIOR> 143,714
<ACCUMULATED-GAINS-PRIOR> (3,221,741)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 380,029
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 455,980
<AVERAGE-NET-ASSETS> 58,514,081
<PER-SHARE-NAV-BEGIN> 10.98
<PER-SHARE-NII> 00.77
<PER-SHARE-GAIN-APPREC> (00.12)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 00.98
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.89
<EXPENSE-RATIO> 00.86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000874835
<NAME> GREENWICH STREET SERIES FUND
<SERIES>
<NUMBER> 6
<NAME> EMERGING GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 14,558,965
<INVESTMENTS-AT-VALUE> 20,009,231
<RECEIVABLES> 88,429
<ASSETS-OTHER> 1,260
<OTHER-ITEMS-ASSETS> 2,845
<TOTAL-ASSETS> 20,101,765
<PAYABLE-FOR-SECURITIES> 43,624
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 53,698
<TOTAL-LIABILITIES> 97,322
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,383,218
<SHARES-COMMON-STOCK> 1,186,046
<SHARES-COMMON-PRIOR> 1,193,702
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 141,421
<ACCUMULATED-NET-GAINS> 3,312,380
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,450,266
<NET-ASSETS> 20,004,443
<DIVIDEND-INCOME> 45,116
<INTEREST-INCOME> 60,266
<OTHER-INCOME> 0
<EXPENSES-NET> 245,670
<NET-INVESTMENT-INCOME> 140,288
<REALIZED-GAINS-CURRENT> 3,311,992
<APPREC-INCREASE-CURRENT> 499,956
<NET-CHANGE-FROM-OPS> 3,671,660
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 2,276,771
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 85,297
<NUMBER-OF-SHARES-REDEEMED> 237,235
<SHARES-REINVESTED> 144,282
<NET-CHANGE-IN-ASSETS> (291,578)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 2,277,159
<OVERDISTRIB-NII-PRIOR> 1,113
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 146,478
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 146,478
<AVERAGE-NET-ASSETS> 19,536,789
<PER-SHARE-NAV-BEGIN> 15.83
<PER-SHARE-NII> 00.12
<PER-SHARE-GAIN-APPREC> 03.32
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 02.16
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.87
<EXPENSE-RATIO> 01.26
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000874835
<NAME> GREENWICH STREET SERIES FUND
<SERIES>
<NUMBER> 2
<NAME> EQUITY INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 35,357,600
<INVESTMENTS-AT-VALUE> 45,819,375
<RECEIVABLES> 304,745
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 896
<TOTAL-ASSETS> 46,125,016
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 50,482
<TOTAL-LIABILITIES> 50,982
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 31,893,667
<SHARES-COMMON-STOCK> 3,009,643
<SHARES-COMMON-PRIOR> 3,506,583
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 1,897,407
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,821,185
<ACCUM-APPREC-OR-DEPREC> 10,461,775
<NET-ASSETS> 46,074,034
<DIVIDEND-INCOME> 1,355,296
<INTEREST-INCOME> 885,451
<OTHER-INCOME> 0
<EXPENSES-NET> 330,879
<NET-INVESTMENT-INCOME> 1,909,868
<REALIZED-GAINS-CURRENT> 1,831,459
<APPREC-INCREASE-CURRENT> 5,391,585
<NET-CHANGE-FROM-OPS> 9,132,912
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,166,350
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 64,996
<NUMBER-OF-SHARES-REDEEMED> 143,372
<SHARES-REINVESTED> 105,308
<NET-CHANGE-IN-ASSETS> 458,189
<ACCUMULATED-NII-PRIOR> 369,077
<ACCUMULATED-GAINS-PRIOR> 2,077,070
<OVERDISTRIB-NII-PRIOR> 2,153,889
<OVERDIST-NET-GAINS-PRIOR> (10,274)
<GROSS-ADVISORY-FEES> 194,623
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 330,879
<AVERAGE-NET-ASSETS> 43,250,747
<PER-SHARE-NAV-BEGIN> 13.01
<PER-SHARE-NII> 00.75
<PER-SHARE-GAIN-APPREC> 02.28
<PER-SHARE-DIVIDEND> 00.75
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.31
<EXPENSE-RATIO> 00.77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000874835
<NAME> GREENWICH STREET SERIES FUND
<SERIES>
<NUMBER> 3
<NAME> GROWTH AND INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 27,973,504
<INVESTMENTS-AT-VALUE> 43,006,474
<RECEIVABLES> 454,818
<ASSETS-OTHER> 1,641,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 45,102,292
<PAYABLE-FOR-SECURITIES> 149,895
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,738,455
<TOTAL-LIABILITIES> 1,888,350
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,538,826
<SHARES-COMMON-STOCK> 2,330,583
<SHARES-COMMON-PRIOR> 2,273
<ACCUMULATED-NII-CURRENT> 676,309
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,975,853
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 43,213,942
<DIVIDEND-INCOME> 854,747
<INTEREST-INCOME> 143,542
<OTHER-INCOME> 0
<EXPENSES-NET> 321,980
<NET-INVESTMENT-INCOME> 676,309
<REALIZED-GAINS-CURRENT> 3,975,853
<APPREC-INCREASE-CURRENT> 3,880,199
<NET-CHANGE-FROM-OPS> 8,532,361
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 623,961
<DISTRIBUTIONS-OF-GAINS> 2,840,099
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 138,981
<NUMBER-OF-SHARES-REDEEMED> 344,165
<SHARES-REINVESTED> 192,448
<NET-CHANGE-IN-ASSETS> 4,711,815
<ACCUMULATED-NII-PRIOR> 613,411
<ACCUMULATED-GAINS-PRIOR> 2,840,633
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 187,747
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 321,980
<AVERAGE-NET-ASSETS> 41,734,427
<PER-SHARE-NAV-BEGIN> 16.43
<PER-SHARE-NII> 00.31
<PER-SHARE-GAIN-APPREC> 03.41
<PER-SHARE-DIVIDEND> 00.29
<PER-SHARE-DISTRIBUTIONS> 01.32
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.54
<EXPENSE-RATIO> 00.77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000874835
<NAME> GREENWICH STREET SERIES FUND
<SERIES>
<NUMBER> 1
<NAME> INTERMEDIATE HIGH GRADE PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 14,649,976
<INVESTMENTS-AT-VALUE> 14,885,229
<RECEIVABLES> 257,470
<ASSETS-OTHER> 858
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15,143,557
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 43,398
<TOTAL-LIABILITIES> 43,398
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,247,375
<SHARES-COMMON-STOCK> 1,386,827
<SHARES-COMMON-PRIOR> 1,377,431
<ACCUMULATED-NII-CURRENT> 934,607
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 317,076
<ACCUM-APPREC-OR-DEPREC> 235,253
<NET-ASSETS> 15,100,159
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,076,781
<OTHER-INCOME> 0
<EXPENSES-NET> 141,042
<NET-INVESTMENT-INCOME> 935,739
<REALIZED-GAINS-CURRENT> (24,810)
<APPREC-INCREASE-CURRENT> 336,859
<NET-CHANGE-FROM-OPS> 1,247,788
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 962,101
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 139,239
<NUMBER-OF-SHARES-REDEEMED> 218,271
<SHARES-REINVESTED> 88,428
<NET-CHANGE-IN-ASSETS> 363,798
<ACCUMULATED-NII-PRIOR> 960,969
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 292,266
<GROSS-ADVISORY-FEES> 59,572
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 59,572
<AVERAGE-NET-ASSETS> 14,894,111
<PER-SHARE-NAV-BEGIN> 10.70
<PER-SHARE-NII> 00.71
<PER-SHARE-GAIN-APPREC> 00.22
<PER-SHARE-DIVIDEND> 00.74
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.89
<EXPENSE-RATIO> 00.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000874835
<NAME> GREENWICH STREET SERIES FUND
<SERIES>
<NUMBER> 7
<NAME> EQUITY INDEX PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 24,838,905
<INVESTMENTS-AT-VALUE> 36,224,950
<RECEIVABLES> 173,552
<ASSETS-OTHER> 55,326
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 36,453,828
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,102,524
<TOTAL-LIABILITIES> 1,102,524
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,075,681
<SHARES-COMMON-STOCK> 1,498,461
<SHARES-COMMON-PRIOR> 1,048,910
<ACCUMULATED-NII-CURRENT> 248,482
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 637,442
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,389,699
<NET-ASSETS> 35,351,304
<DIVIDEND-INCOME> 403,723
<INTEREST-INCOME> 22,107
<OTHER-INCOME> 0
<EXPENSES-NET> 176,168
<NET-INVESTMENT-INCOME> 249,662
<REALIZED-GAINS-CURRENT> 654,539
<APPREC-INCREASE-CURRENT> 5,289,554
<NET-CHANGE-FROM-OPS> 6,193,755
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 234,763
<DISTRIBUTIONS-OF-GAINS> 647,602
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 571,732
<NUMBER-OF-SHARES-REDEEMED> 161,000
<SHARES-REINVESTED> 38,819
<NET-CHANGE-IN-ASSETS> 1,135,372
<ACCUMULATED-NII-PRIOR> 233,583
<ACCUMULATED-GAINS-PRIOR> 630,505
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 56,376
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 176,168
<AVERAGE-NET-ASSETS> 23,137,660
<PER-SHARE-NAV-BEGIN> 18.36
<PER-SHARE-NII> 00.12
<PER-SHARE-GAIN-APPREC> 05.76
<PER-SHARE-DIVIDEND> 00.17
<PER-SHARE-DISTRIBUTIONS> 00.48
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 23.59
<EXPENSE-RATIO> 0.76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000874835
<NAME> GREENWICH STREET SERIES FUND
<SERIES>
<NUMBER> 9
<NAME> INTERNATIONAL EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 19,054,132
<INVESTMENTS-AT-VALUE> 28,402,497
<RECEIVABLES> 247,682
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 2,924
<TOTAL-ASSETS> 28,653,103
<PAYABLE-FOR-SECURITIES> 18,102
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 287,621
<TOTAL-LIABILITIES> 305,723
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22,436,493
<SHARES-COMMON-STOCK> 2,406,432
<SHARES-COMMON-PRIOR> 2,762,236
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 358,202
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 3,077,471
<ACCUM-APPREC-OR-DEPREC> 9,346,560
<NET-ASSETS> 28,347,380
<DIVIDEND-INCOME> 320,856
<INTEREST-INCOME> 31,152
<OTHER-INCOME> 0
<EXPENSES-NET> 425,682
<NET-INVESTMENT-INCOME> 73,674
<REALIZED-GAINS-CURRENT> 144,270
<APPREC-INCREASE-CURRENT> (548,768)
<NET-CHANGE-FROM-OPS> (554,524)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 62,462
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 105,543
<NUMBER-OF-SHARES-REDEEMED> 466,755
<SHARES-REINVESTED> 5,408
<NET-CHANGE-IN-ASSETS> (554,524)
<ACCUMULATED-NII-PRIOR> 140,200
<ACCUMULATED-GAINS-PRIOR> (3,015,799)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 339,940
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 425,682
<AVERAGE-NET-ASSETS> 32,384,134
<PER-SHARE-NAV-BEGIN> 12.07
<PER-SHARE-NII> 00.04
<PER-SHARE-GAIN-APPREC> (00.22)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 00.03
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.78
<EXPENSE-RATIO> 01.31
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000874835
<NAME> GREENWICH STREET SERIES FUND
<SERIES>
<NUMBER> 8
<NAME> MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 4,754,861
<INVESTMENTS-AT-VALUE> 4,754,861
<RECEIVABLES> 32,835
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,787,696
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 35,160
<TOTAL-LIABILITIES> 35,160
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,747,783
<SHARES-COMMON-STOCK> 4,747,783
<SHARES-COMMON-PRIOR> 5,850,730
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 4,752,536
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 298,425
<OTHER-INCOME> 0
<EXPENSES-NET> 64,386
<NET-INVESTMENT-INCOME> 234,039
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 234,039
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 234,039
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,068,547
<NUMBER-OF-SHARES-REDEEMED> 5,440,439
<SHARES-REINVESTED> 236,528
<NET-CHANGE-IN-ASSETS> (1,135,364)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 16,034
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 64,386
<AVERAGE-NET-ASSETS> 5,344,677
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.04
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000874835
<NAME> GREENWICH STREET SERIES FUND
<SERIES>
<NUMBER> 5
<NAME> TOTAL RETURN PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 236,996,451
<INVESTMENTS-AT-VALUE> 276,332,175
<RECEIVABLES> 2,390,398
<ASSETS-OTHER> 1,290,398
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 280,013,259
<PAYABLE-FOR-SECURITIES> 5,148,992
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 858,535
<TOTAL-LIABILITIES> 6,007,527
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 217,835,626
<SHARES-COMMON-STOCK> 15,550,604
<SHARES-COMMON-PRIOR> 10,905,986
<ACCUMULATED-NII-CURRENT> 7,870,177
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,351,433
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 39,948,496
<NET-ASSETS> 274,005,732
<DIVIDEND-INCOME> 6,536,579
<INTEREST-INCOME> 2,430,419
<OTHER-INCOME> 0
<EXPENSES-NET> 1,762,194
<NET-INVESTMENT-INCOME> 7,204,804
<REALIZED-GAINS-CURRENT> 8,306,846
<APPREC-INCREASE-CURRENT> 19,189,024
<NET-CHANGE-FROM-OPS> 34,706,674
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,114,806
<DISTRIBUTIONS-OF-GAINS> 7,861,176
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 04,454,907
<NUMBER-OF-SHARES-REDEEMED> 442,850
<SHARES-REINVESTED> 638,881
<NET-CHANGE-IN-ASSETS> 102,502,333
<ACCUMULATED-NII-PRIOR> 3,780,179
<ACCUMULATED-GAINS-PRIOR> 7,905,763
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,663,672
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,762,194
<AVERAGE-NET-ASSETS> 222,711,109
<PER-SHARE-NAV-BEGIN> 15.73
<PER-SHARE-NII> 00.37
<PER-SHARE-GAIN-APPREC> 02.26
<PER-SHARE-DIVIDEND> 00.21
<PER-SHARE-DISTRIBUTIONS> 00.53
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.62
<EXPENSE-RATIO> 00.79
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
