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. 17 [X]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 20 [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 of Rule 485
[XXX] on April 30, 1999 pursuant to paragraph b of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for
a previously filed post-effective amendment
Part A
PROSPECTUS
<PAGE>
GREENWICH STREET SERIES FUND
Prospectus
April 30, 1999
FIXED INCOME FUNDS EQUITY FUNDS
- -------------------------------------- --------------------------------
Diversified Strategic Income Portfolio Emerging Growth Portfolio
Intermediate High Grade Portfolio International Equity Portfolio
Money Market Portfolio Appreciation Portfolio
Equity Index Portfolio
Growth & Income Portfolio
Equity Income Portfolio
Total Return Portfolio
Shares of each fund are offered only to insurance company separate accounts that
fund certain variable annuity and variable life insurance contracts. This
prospectus should be read together with the prospectus for those contracts.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Contents
Greenwich Street Series Fund consists of 10 separate investment funds, each
with its own investment objective and policies. Each fund offers different lev-
els of potential return and involves different levels of risk.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund goals and investments Page
----------------------------------------------
<S> <C>
Emerging Growth Portfolio 2
International Equity Portfolio 4
Appreciation Portfolio 6
Equity Index Portfolio 8
Growth & Income Portfolio 10
Equity Income Portfolio 12
Total Return Portfolio 14
Diversified Strategic Income Portfolio 16
Intermediate High Grade Portfolio 18
Money Market Portfolio 20
More on the funds' investments 22
Management 25
Share transactions 27
Share price 27
Dividends, distributions and taxes 28
Financial highlights 29
</TABLE>
- --------------------------------------------------------------------------------
The Managers:
SSBC Fund Management Inc. (SSBC), Davis Skaggs Investment Management (Davis
Skaggs), a division of SSBC, and Travelers Investment Management Company
(TIMCO) are each the manager of one or more of the funds. SSBC and TIMCO are
affiliates of Salomon Smith Barney Inc. (Salomon Smith Barney) and a subsidiary
of Citigroup Inc. ("Citigroup). Citigroup businesses produce a broad range of
financial services. Van Kampen Asset Management (VKAM) also manages one of the
funds and is an indirect wholly owned subsidiary of Morgan Stanley Dean Witter
& Co.
SSBC, Davis Skaggs, TIMCO and VKAM select investments for the funds for which
they serve as managers, except that SSBC has engaged Smith Barney Global
Capital Management, also an affiliate of Salomon Smith Barney Inc. and
subsidiary of Citigroup Inc., as subadviser to select investments for
Diversified Strategic Income Portfolio.
You should know:
An investment in the fund is not a bank deposit and is not insured or
guaranteed by the FDIC or any other government agency.
<PAGE>
The Fund's Goal and Investments
Smith Barney Emerging Growth Portfolio
Manager
VKAM is the manager
Portfolio Manager
Gary Lewis (since 1993,)
Mr. Lewis is a senior vice president of VKAM.
Investment Goal
Capital appreciation.
Key Investments
The fund invests primarily in common stocks of small and medium sized (with
market capitalizations or annual sales of less than $2 billion) emerging
growth companies. These are domestic or foreign companies the manager believes
are in the early stages of their life cycles and have the potential to become
major enterprises. The fund may invest up to 20% of its assets in securities
of foreign issuers.
- --------------------------------------------------------------------------------
Selection Process
The fund's primary approach is to seek what the manager
believes to be unusually attractive growth investments on
an individual company basis, while spreading investments
among many industries and sectors. The manager uses
fundamental analysis to identify individual companies it
believes offer exceptionally high prospects for growth. The
manager selects investments for their potential capital
appreciation; any ordinary income is incidental.
In selecting individual companies for investment, the
manager looks for:
. Above average earnings growth
. A pattern of reported earnings that exceed market
expectations
. Rising earnings estimates over the next several quarters
. High relative return on invested capital
The fund may also invest in special situations involving
new management, special products and techniques, unusual
developments, mergers or liquidations.
Greenwich Street Series Fund
2
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
. Stock prices decline generally
. Emerging growth companies fall out of favor with investors
. Stock prices of smaller, newer companies decline further and more abruptly
than those of larger, more established companies in response to negative
stock market movements
. The manager's judgment about the attractiveness, value or potential
appreciation of a particular stock proves to be incorrect
. A particular product or service developed by a company in which the fund
invests is unsuccessful, the company does not meet earnings expectations or
other events depress the value of the company's stock
Compared to mutual funds that focus on large capitalization companies, the
fund's share price may be more volatile because of its focus on smaller
capitalization emerging growth companies.
Compared to large companies, emerging growth companies are more likely to have:
. More limited product lines
. Fewer capital resources
. More limited management depth
Further, securities of emerging growth companies are more likely to:
. Experience sharper swings in market values
. Be harder to sell at times and prices the manager believes appropriate
. Offer greater potential for gains and losses
- --------------------------------------------------------------------------------
Fund performance
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. The table shows how the fund's
average annual returns for different calendar periods compare to the return of
the NASDAQ Composite Index, an unmanaged broad-based index of common stocks.
Past performance does not necessarily indicate how the fund will perform in the
future. Performance figures do not reflect expenses incurred from investing
through a separate account; if those expenses had been reflected, performance
would have been lower. Please refer to the separate account prospectus for more
information on expenses.
[BAR CHART APPEARS HERE]
% TOTAL RETURN
1994 -7.48%
1995 42.89%
1996 17.83%
1997 21.16%
1998 37.14%
Calendar years ended December 31
The bar chart shows the fund's performance for each full calendar year since
inception.
Quarterly returns:
Highest:28.47% in 4th quarter 1998
Lowest:-12.54% in 3rd quarter 1998
Average Annual Total Returns
(for the periods ended December 31, 1998)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
One Five Since
year years inception*
- -----------------------------------------
<S> <C> <C> <C>
Fund 37.14% 20.95% 21.55%
NASDAQ 39.63% 23.06% 23.06%
Composite Index
</TABLE>
- --------------------------------------------------------------------------------
* Inception date of 12/03/93
Index comparison begins on December 31, 1993
Greenwich Street Series Fund
3
<PAGE>
The Fund's Goal and Investments
International Equity Portfolio
Manager
SSBC is the manager
Portfolio Managers
Jeffrey Russell (since 1993)
James Conheady (since 1993)
Messrs. Russell and Conheady are investment officers of SSBC and managing
directors of Salomon Smith Barney
Investment Goal
Total return on its assets from growth of capital and income.
Key Investments
The fund invests primarily in equity securities of foreign companies. Equity
securities include exchange traded and over-the-counter common stocks and
preferred shares, debt securities convertible into equity securities, and
warrants and rights relating to equity securities.
- --------------------------------------------------------------------------------
Selection Process
The manager emphasizes individual security selection while
diversifying the fund's investments across regions and
countries. While the manager selects investments primarily
for their capital appreciation potential, some investments
have an income component as well. Companies in which the
fund invests may have large, medium or small market
capitalizations and may operate in any market sector.
Depending on the manager's assessment of a country's or
sector's potential for long-term growth, the fund's
emphasis among foreign markets and types of companies may
vary.
In selecting individual companies for investment, the
manager looks for:
. Above average earnings growth
. High relative return on invested capital
. Experienced and effective management
. Effective research, product development and marketing
. Competitive advantages
. Strong financial condition or stable or improving credit
quality
By spreading the fund's investments across many
international markets, the manager seeks to reduce
volatility compared to an investment in a single region.
Unlike global mutual funds, which may allocate a
substantial portion of assets to the U.S. markets, the fund
invests substantially all of its assets in countries
outside of the U.S. In allocating assets among countries
and regions, the economic and political factors the manager
evaluates include:
. Low or decelerating inflation which creates a favorable
environment for securities markets
. Stable government with policies that encourage economic
growth, equity investment and development of securities
markets
. Currency stability
. The range of individual investment opportunities
Greenwich Street Series Fund
4
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
.Foreign stock prices decline
.Adverse governmental action or political, economic or market instability
occurs in a foreign country or region
.The currency in which a security is priced declines in value relative to the
U.S. dollar
. The manager's judgment about the attractiveness, value or potential
appreciation of a particular stock proves to be incorrect
Many foreign countries in which the fund invests have markets that are less
liquid and more volatile than markets in the U.S. In some foreign countries,
there is also less information available about foreign issuers and markets
because of less rigorous accounting and regulatory standards than in the U.S.
Currency fluctuations could erase investment gains or add to investment losses.
The risk of investing in foreign securities is greater in the case of emerging
markets.
In Europe, Economic and Monetary Union (EMU) and the introduction of a single
currency began in 1999. There are significant political and economic risks
associated with EMU, which may increase the volatility of European markets.
- --------------------------------------------------------------------------------
Fund Performance
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. The table shows how the fund's
average annual returns for different calendar periods compare to the return of
the Morgan Stanley EAFE Index ("EAFE Index"), an unmanaged broad-based index of
foreign stocks. Past performance does not necessarily indicate how the fund
will perform in the future. Performance figures do not reflect expenses
incurred from investing through a separate account; if those expenses had been
reflected, performance would have been lower. Please refer to the separate
account prospectus for more information on expenses.
[BAR CHART APPEARS HERE]
% TOTAL RETURN
1994 -8.36%
1995 8.8%
1996 21.38%
1997 -2.18%
1998 18.84%
Calendar years ended December 31
The bar chart shows the fund's performance for each full calendar year since
inception.
Quarterly Returns:
Highest: 20.69% in 4th quarter 1998
Lowest: -17.14% in 3rd quarter 1998
Average Annual Total Returns
(for the periods ended December 31, 1998)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
One Five Since
year years inception*
- -----------------------------------
<S> <C> <C> <C>
Fund 18.84% 7.06% 7.06%
EAFE Index 20.00% 9.19% 9.19%
</TABLE>
- --------------------------------------------------------------------------------
* Inception date of 12/03/93
Index comparison begins on December 31, 1993
Greenwich Street Series Fund
5
<PAGE>
The Fund's Goal and Investments
Appreciation Portfolio
Manager
SSBC is the manager
Portfolio Manager
Harry D. Cohen (since 1991)
Mr. Cohen is an investment officer of SSBC and a managing director of Salomon
Smith Barney
Investment Goal
Long-term appreciation of capital.
Key Investments
The fund invests primarily in equity securities of U.S. companies. The fund
typically invests in medium and large capitalization companies but may also
invest in small capitalization companies. Equity securities include exchange
traded and over-the-counter common stocks and preferred stocks, debt
securities convertible into equity securities, and warrants and rights
relating to equity securities.
- --------------------------------------------------------------------------------
Selection Process
The manager's investment strategy consists of individual
company selection and management of cash reserves. The
manager looks for investments among a strong core of growth
stocks, consisting primarily of blue chip companies
dominant in their industries. The fund may also invest in
companies with prospects for sustained earnings growth
and/or a cyclical earnings record.
In selecting individual companies for the fund's portfolio,
the manager looks for the following:
. Strong or rapidly improving balance sheets
. Recognized industry leadership
. Effective management teams that exhibit a desire to earn
consistent returns for shareholders
In addition, the manager considers the following
characteristics:
. Past growth records
. Future earnings prospects
. Technological innovation
. General market and economic factors
. Current yield or potential for dividend growth
Generally, companies in the fund's portfolio fall into one
of the following categories:
. Undervalued companies: companies with assets or earning
power that are either unrecognized or undervalued. The
manager generally looks for a catalyst that will unlock
these values. The manager also looks for companies that
are expected to have unusual earnings growth or whose
stocks appear likely to go up in value because of marked
changes in the way they do business (for example, a
corporate restructuring).
. Growth at a reasonable price: companies with superior
demonstrated and expected growth characteristics whose
stocks are available at a reasonable price. Typically,
there is strong recurring demand for these companies'
products.
The manager adjusts the amount held in cash reserves
depending on the manager's outlook for the stock market.
The manager will increase the fund's allocation to cash
when, in the manager's opinion, market valuation levels
become excessive. The manager may sometimes hold a
significant portion of the fund's assets in cash while
waiting for buying opportunities or to provide a hedge
against stock market declines.
Greenwich Street Series Fund
6
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
. The U.S. stock market declines
. Large and medium capitalization stocks or growth stocks are temporarily out
of favor
. An adverse event depresses the value of a company's stock
. The manager's judgment about the attractiveness, value or potential
appreciation of a particular stock or about the amount to hold in cash
reserves proves to be incorrect
- --------------------------------------------------------------------------------
Fund Performance
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. The table shows how the fund's
average annual returns for different calendar periods compare to the return of
Standard & Poor's 500 Stock Price Index (the "S&P 500 Index"), an unmanaged
broad-based index of common stocks. Past performance does not necessarily
indicate how the fund will perform in the future. Performance figures do not
reflect expenses incurred from investing through a separate account; if those
expenses had been reflected, performance would have been lower. Please refer to
the separate account prospectus for more information on expenses.
[BAR CHART APPEARS HERE]
% TOTAL RETURN
1992 6.13%
1993 7.03%
1994 -1.12%
1995 28.84%
1996 19.77%
1997 26.39%
1998 19.15%
Calendar years ended December 31
The bar chart shows the fund's performance for each full calendar year since
inception.
Quarterly returns:
Highest:16.91% in 4th quarter 1998
Lowest:-9.65% in 3rd quarter 1998
Average Annual Total Returns
(for the periods ended December 31, 1998)
<TABLE>
- ---------------------------------------
<CAPTION>
One Five Since
year years inception*
- ---------------------------------------
<S> <C> <C> <C>
Fund 19.15% 18.10% 15.00%
S&P 500 Index 28.60% 24.05% 20.12%
- ---------------------------------------
</TABLE>
* Inception date of 10/16/91
Index comparison begins on October 31, 1991
Greenwich Street Series Fund
7
<PAGE>
The Fund's Goal and Investments
Equity Index Portfolio
Manager
TIMCO is the manager
Portfolio Manager
Sandip A. Bhagat (since 1994)
Mr. Bhagat is an investment officer of SSBC and president of TIMCO
Investment Goal
Investment results that, before expenses, correspond to the price and yield
performance of the S&P 500 Index. The fund will hold substantially all of the
stocks in the S&P 500 Index, with comparable economic sector weightings,
market capitalization and liquidity.
Key Investments
The fund invests at least 90% of its assets in common stocks included in the
S&P 500 Index. The fund holds stocks of substantially all of the companies in
the S&P 500 Index, including those companies headquartered outside the U.S.
The fund may purchase stock index futures and related options to hedge any
cash reserves in anticipation of purchasing additional stocks at a later date.
- --------------------------------------------------------------------------------
Selection Process
The fund is managed as a pure index fund. This means the
manager does not evaluate individual companies to identify
attractive investment candidates. Instead, the manager
attempts to mirror the composition of the S&P 500 Index as
closely as possible by adjusting the fund's portfolio as
necessary. With the exception of a portion of the assets
held in cash and liquid securities to meet redemptions, the
fund intends to be fully invested in common stocks.
The S&P 500 Index is one of the mostly widely used
benchmarks of U.S. equity performance. The index is
unmanaged and consists of 500 stocks chosen for market
capitalization, liquidity and industry group
representation. The index is market-value-weighted, so the
larger of the 500 companies have a bigger impact on the
performance of the index.
The fund'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 fund. The fund will make investment
changes to accommodate these cash flows and to maximize the
similarity of the fund's assets to those of the S&P 500.
Greenwich Street Series Fund
8
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investments in the fund, or the fund may
not perform as well as other investments, if:
. The S&P 500 Index declines, or performs poorly relative to other U.S. equity
indexes or individual stocks
. An adverse company specific event, such as an unfavorable earnings report,
negatively affects the stock price of one of the larger companies in the S&P
500 Index
. The stocks of companies which comprise the S&P 500 Index fall out of favor
with investors
Because the fund is an index fund, it will not ordinarily sell a portfolio
security because of the security's poor performance. The fund normally buys or
sells a portfolio security only to reflect additions or deletions of stocks
comprising the S&P 500 Index or to adjust their relative weightings.
Although the manager seeks to replicate the performance of the S&P 500 Index,
the fund may underperform the index because:
. The fund incurs brokerage commissions and other expenses that do not apply to
the S&P 500 Index
. The performance of the fund's futures positions may not match that of the S&P
500 Index
. The prices of S&P 500 Index stocks may rise after the close of the stock
market and before the fund can invest cash from fund share purchases in these
stocks
- --------------------------------------------------------------------------------
Fund performance
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. The table shows how the fund's
average annual returns for different calendar periods compare to the return of
the S&P 500 Index, an unmanaged broad-based index of common stocks. Past
performance does not necessarily indicate how the fund will perform in the
future. Performance figures do not reflect expenses incurred from investing
through a separate account; if these expenses had been reflected, performance
would have been lower. Please refer to the separate account prospectus for more
information on expenses.
[BAR CHART APPEARS HERE]
% TOTAL RETURN
1992 6.74%
1993 8.66%
1994 0.85%
1995 35.81%
1996 21.68%
1997 32.18%
1998 28.46%
Calendar years ended December 31
The bar chart shows the Class I shares' performance for each full calendar year
since inception. Class II shares would have different performance because of
their different expenses. Class I share performance is shown because Class II
shares were offered on January 15, 1999. Class II shares do not yet have a
sufficient operating history to generate performance information.
Quarterly returns:
Highest: 21.39% in 4th quarter 1998
Lowest: -9.92% in 3rd quarter 1998
Average Annual Total Returns
(for the periods ended December 31, 1998)
<TABLE>
- ---------------------------------------
<CAPTION>
One Five Since
year years inception*
- ---------------------------------------
<S> <C> <C> <C>
Class I 28.46% 23.12% 18.89%
S&P 500 Index 28.60% 24.05% 20.12%
- ---------------------------------------
</TABLE>
* Inception date of Class I shares is 10/16/91.
Index comparison begins on October 31, 1991
Greenwich Street Series Fund
9
<PAGE>
The Fund's Goal and Investments
Growth & Income Portfolio
Manager
SSBC is the manager
Portfolio Managers
R. Jay Gerken (since 1993)
Mr. Gerken is an investment officer of SSBC and a managing director of Salomon
Smith Barney
Investment Goal
Income and long-term capital growth.
Key Investments
The fund invests primarily in equity securities, including convertible
securities, that provide dividend or interest income. However, it may also
invest in non-income producing stocks for potential appreciation in value. The
fund emphasizes U.S. stocks with large market capitalizations. The fund may
purchase below investment grade convertible securities (commonly known as
"junk bonds").
- --------------------------------------------------------------------------------
Selection Process
The manager emphasizes individual security selection while
spreading the fund's investments among industries and
sectors. The manager uses quantitative analysis to
establish investment criteria based on objective
parameters, such as market capitalization, credit quality,
dividend growth, historic earnings, current yield and
industry diversification.
The manager then analyzes securities based on these
criteria, which influence the manager's buy and sell
decisions. In evaluating these criteria, the manager seeks
to identify companies with:
. A history of consistent dividend payments
. Relatively high dividend levels
. Capacity to raise dividends in the future
. Potential for capital appreciation
The manager may change the investment criteria from time to
time in response to changes in economic or market
conditions.
Greenwich Street Series Fund
10
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
. The U.S. stock market declines
. Rising interest rates depress the value of dividend paying stocks or debt
securities in the fund's portfolio
. Large capitalization companies fall out of favor with investors
. Companies in which the fund invests suffer unexpected losses or lower than
expected earnings, or pay lower than expected dividends
. The manager's judgment about the attractiveness, value or income potential of
a particular security proves to be incorrect
. The issuer of a debt security owned by the fund defaults on its obligation to
pay principal and/or interest or the security has its credit rating
downgraded. This risk is higher for below investment grade bonds. These bonds
are considered speculative because they have a higher risk of issuer default,
are subject to greater price volatility and may be illiquid
- --------------------------------------------------------------------------------
Fund performance
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. The table shows how the fund's
average annual returns for different calendar periods compare to the return of
the S&P 500 Index, an unmanaged broad-based index of common stocks. Past
performance does not necessarily indicate how the fund will perform in the
future. Performance figures do not reflect expenses incurred from investing
through a separate account; if these expenses had been reflected, performance
would have been lower. Please refer to the separate account prospectus for more
information on expenses.
[BAR CHART APPEARS HERE]
% TOTAL RETURN
1992 8.44%
1993 9.09%
1994 -3.20%
1995 30.49%
1996 19.83%
1997 22.94%
1998 11.88%
Calendar years ended December 31
The bar chart shows the fund's performance for each full calendar year since
inception.
Quarterly returns:
Highest: 17.94% in 4th quarter 1998
Lowest: -14.29% in 3rd quarter 1998
Average Annual Total Returns
(for the periods ended December 31, 1998)
<TABLE>
- ---------------------------------------
<CAPTION>
One Five Since
year years inception*
- ---------------------------------------
<S> <C> <C> <C>
Fund 11.88% 15.79% 13.53%
S&P 500 Index 28.60% 24.05% 20.12%
- ---------------------------------------
</TABLE>
* Inception date of 10/16/91
Index comparison begins on October 31, 1991
Greenwich Street Series Fund
11
<PAGE>
The Fund's Goal and Investments
Equity Income Portfolio
Manager
SSBC is the manager
Portfolio Manager
Robert J. Brady (since 1998)
Mr. Brady is an investment officer of SSBC and a managing director of Salomon
Smith Barney
Investment Goals
Primary: Current income.
Secondary: Long-term capital appreciation.
Key Investments
The fund invests primarily in dividend-paying common stocks and other equity
securities of U.S. companies. Companies with dividend-paying stocks tend to
have large market capitalizations, but the fund also may invest in medium and
small capitalization stocks. Equity securities include preferred stocks and
securities convertible into common stock.
The fund may invest in non-dividend paying stocks and may invest up to 35% of
its assets in debt securities. Up to 10% of the fund's assets may be invested
in below investment grade bonds (commonly known as "junk bonds").
The fund normally concentrates 25% or more of its assets in equity and debt
securities of companies in the utility industry. These include securities of
companies principally engaged in the manufacture, production, generation,
transmission or sale of electric or gas energy, and companies principally
engaged in the communications field. A company is a utility company if at
least 50% of its 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. Communications companies include telephone,
telegraph, satellite, microwave and other companies regulated by governmental
agencies as utilities that provide public communication facilities.
- --------------------------------------------------------------------------------
Selection Process
The manager emphasizes individual security selection,
seeking to identify companies having a consistent record of
long-term above average growth in earnings as well as
companies with favorable prospects for dividend growth and
capital appreciation.
In selecting individual companies for investment, the
manager looks for the following:
. Established operating history
. Low price/earnings ratio compared to the stocks included
in the S&P 500
. Strong balance sheet and other financial characteristics
. History of consistent dividend payments
Greenwich Street Series Fund
12
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if :
. The U.S. stock market declines
. Rising interest rates depress the value of dividend paying stocks or debt
securities in the fund's portfolio
. Large capitalization and utility companies fall out of favor with investors
. Companies in which the fund invests suffer unexpected losses or lower than
expected earnings, or pay lower than expected dividends
. The manager's judgment about the attractiveness, value or income potential of
a particular security proves to be incorrect
The fund concentrates its assets in the utility industry and, as a result, is
more susceptible to events affecting this industry than a fund that does not
concentrate. In particular, the following events could have a negative impact
on the fund's performance:
. The utility industry underperforms the market because of changes in
technology, costs of labor and materials, or internal or external competition
. Changes in the federal or state regulation of utility companies adversely
affect a company's competitive position, ability to raise prices or ability
to adapt to changing conditions
. Deregulation increases competition for utility customers
- --------------------------------------------------------------------------------
Fund performance
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. The table shows how the fund's
average annual returns for different calendar periods compare to the return of
the S&P Utility Index, an unmanaged broad-based index of utility stocks
and the S&P 500 Index, an unmanaged broad-based index of common
stocks. Past
performance does not necessarily indicate how the fund will perform in the
future. Performance figures do not reflect expenses incurred from investing
through a separate account; if these expenses had been reflected, performance
would have been lower. Please refer to the separate account prospectus for more
information on expenses.
[BAR CHART APPEARS HERE]
% TOTAL RETURN
1992 11.74%
1993 10.41%
1994 -10.20%
1995 32.47%
1996 5.99%
1997 23.52%
1998 16.99%
Calendar years ended December 31
The bar chart shows the fund's performance for each full calendar year since
inception.
Quarterly returns:
Highest:11.83% in 4th quarter 1997
Lowest:-8.12% in 1st quarter 1994
Average Annual Total Returns
(for the periods ended December 31, 1998)
<TABLE>
- ---------------------------------------
<CAPTION>
One Five Since
year years inception*
- ---------------------------------------
<S> <C> <C> <C>
Fund 16.99% 12.76% 12.20%
S&P Utility
Index 14.77% 13.90% 13.77%
S&P 500 Index 28.60% 24.05% 20.12%
- ---------------------------------------
</TABLE>
* Inception date of 10/16/91
Index comparison begins on October 31, 1991
Greenwich Street Series Fund
13
<PAGE>
The Fund's Goal and Investments
Total Return Portfolio
Manager
Davis Skaggs is the manager
Portfolio Manager
John G. Goode (since 1993)
Mr. Goode is an investment officer of SSBC and chairman and chief investment
officer of Davis Skaggs
Investment Goal
Total return, consisting of long-term capital appreciation and income.
Key Investments
The fund invests primarily in dividend-paying common stocks of U.S. and
foreign companies. These companies tend to have large market capitalizations,
but the fund also may invest in medium and small capitalization stocks.
The fund may invest up to 35% of its assets in convertible bonds and preferred
stock, warrants and interest paying debt securities. Up to 10% of the fund's
assets may be invested in below investment grade bonds (commonly known as
"junk bonds").
- --------------------------------------------------------------------------------
Selection Process
The manager emphasizes individual security selection while
spreading investments among many industries and sectors.
The manager uses fundamental analysis to identify
individual companies it believes offer favorable prospects
for dividend growth and capital appreciation.
In selecting individual companies for investment, the
manager looks for the following:
. Above average earnings growth
. High relative return on invested capital
. History of consistent dividend payments
. Strong financial condition or stable or improving credit
quality
. Experienced and effective management
. Effective research, product development and marketing
. Competitive advantages
Greenwich Street Series Fund
14
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
. The U.S. stock market declines
. Rising interest rates depress the value of dividend paying stocks or debt
securities in the fund's portfolio
. Large capitalization companies fall out of favor with investors
. Companies in which the fund invests suffer unexpected losses or lower than
expected earnings, or pay lower than expected dividends
. The manager's judgment about the attractiveness, value or income potential of
a particular security proves to be incorrect
. The issuer of a debt security owned by the fund defaults on its obligation to
pay principal and/or interest, or the security's credit rating is downgraded.
This risk is higher for below investment grade bonds. These bonds are
considered speculative because they have a higher risk of issuer default, are
subject to greater price volatility and may be illiquid
Because the fund seeks total return by emphasizing investments in dividend-
paying common stocks, it will not have as much investment flexibility as total
return funds that do not emphasize dividend-paying stocks.
- --------------------------------------------------------------------------------
Fund performance
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. The table shows how the fund's
average annual returns for different calendar periods compare to the return of
the S&P 500 Index, an unmanaged broad-based index of common stocks. Past
performance does not necessarily indicate how the fund will perform in the
future. Performance figures do not reflect expenses incurred from investing
through a separate account; if these expenses had been reflected, performance
would have been lower. Please refer to the separate account prospectus for more
information on expenses.
[BAR CHART APPEARS HERE]
% TOTAL RETURN
1994 7.40%
1995 25.04%
1996 25.33%
1997 16.84%
1998 4.97%
Calendar years ended December 31
The bar chart shows the fund's performance for each full calendar year since
inception.
Quarterly returns:
Highest: 10.51% in 4th quarter 1996
Lowest: -8.71% in 3rd quarter 1998
Average Annual Total Returns
(for the periods ended December 31, 1998)
<TABLE>
- ---------------------------------------
<CAPTION>
One Five Since
year years inception*
- ---------------------------------------
<S> <C> <C> <C>
Fund 4.97% 15.60% 16.01%
S&P 500 Index 28.60% 24.05% 24.05%
- ---------------------------------------
</TABLE>
* Inception date of 12/03/93
Index comparison begins on December 31, 1993
Greenwich Street Series Fund
15
<PAGE>
The Fund's Goal and Investments
Diversified Strategic Income Portfolio
Manager and subadviser
SSBC is the manager and Smith Barney Global Capital Management, Inc. is the
subadviser
Portfolio Managers (since)
James E. Conroy (1991)
John C. Bianchi (1991)
Simon R. Hildreth (1998)
Messrs. Conroy and Bianchi are investment officers of SSBC and managing
directors of Salomon Smith Barney. Mr. Hildreth is a managing director of
Smith Barney Global Capital Management, Inc.
Investment Goal
High current income.
Key Investments
The fund invests primarily in three types of fixed income securities:
.U.S. government and mortgage-related securities
.foreign government securities
. corporate debt securities and non-convertible preferred stocks rated
below investment grade
Allocation: The fund currently expects to maintain approximately 50% of its
assets in government and mortgage-related securities, 25% in foreign
government securities and 25% in below investment grade corporate debt.
However, these percentages may vary significantly over time.
Maturity: The fund will invest primarily in intermediate-term and long-term
securities. As a result, the weighted average maturity of the fund's portfolio
is normally expected to be from four years to 12 years.
- --------------------------------------------------------------------------------
Selection Process
Government and mortgage-related securities
In selecting government and mortgage-related securities, the
manager focuses on identifying undervalued sectors and securities.
Specifically, the manager:
. Emphasizes those sectors and maturities that seem to be most
undervalued based on the manager's economic and interest rate
outlook
. Monitors the yield spreads between U.S. Treasury and government
agency or instrumentality securities and purchases agency and
instrumentality securities when their additional yield justifies
their additional risk
. Uses research to uncover inefficient sectors of the government
and mortgage markets and adjusts portfolio positions to take
advantage of new information
. Measures the potential impact of supply/demand imbalances,
changes in the relative yields for securities with different
maturities, and changing prepayment patterns to identify
individual securities that balance potential return and risk
Foreign government securities
In selecting foreign government securities, the subadviser
considers and compares the relative yields of various foreign
government obligations. The subadviser diversifies this portion of
the portfolio by spreading assets among countries and regions. The
subadviser also attempts to preserve the U.S. dollar value of
securities by using currency derivatives to hedge foreign currency
exposure. In selecting securities, the subadviser looks for:
. Political and economic stability, and favorable inflation and
government deficit prospects
. Favorable yield and maturity
. Strong financial condition and high credit quality
. Low sensitivity to interest rate changes
Below investment grade corporate fixed income securities
In selecting below investment grade corporate securities, the
manager considers and compares the relative yields of various types
of obligations and employs a forward looking strategy seeking to
identify companies that exhibit favorable earnings prospects or
demonstrate a potential for higher ratings over time. The manager
looks for:
. ""Fallen angels" or companies that are repositioning in the
marketplace and which the manager believes are temporarily
undervalued
. Younger companies with smaller capitalizations that have
exhibited improving financial strength or improving credit
ratings over time
The subadviser also employs an active sell strategy to dispose of
securities that no longer meet the manager's investment criteria to
harvest gains for reinvestment in new securities.
Greenwich Street Series Fund
16
<PAGE>
Principal risks of investing in the fund
Investors could lose money in the fund, or the fund's performance could fall
below other investments, if:
. Interest rates increase, causing the prices of fixed income securities to
decline, reducing the value of the fund's portfolio
. As interest rates decline, the issuers of securities held by the fund may pay
principal earlier than scheduled or exercise a right to call the securities,
forcing the fund to reinvest in lower yielding securities. This is known as
prepayment or call risk
. As interest rates increase, slower than expected principal payments may
extend the average life of fixed income securities held by the fund, locking
in below market interest rates and reducing the value of these securities.
This is known as extension risk
. The issuer of a security owned by the fund defaults on its obligation to pay
principal and/or interest, or the security's credit rating is downgraded.
This risk is higher for below investment grade bonds, as described below
. Foreign government bond investments lose their value because of an increase
in market interest rates in one or more regions, a decline in a government's
credit rating or financial condition or a default by a government
. Adverse governmental action or political, economic or market instability
affects a foreign country or region
. An unhedged currency in which a security is priced declines in value relative
to the U.S. dollar
. The manager's or subadviser's judgment about the attractiveness, relative
yield, value or potential appreciation of a particular security, or the
proper allocation among types of investments, proves to be incorrect
Payments of principal and interest on mortgage pools issued by
instrumentalities of the U.S. government are not guaranteed by the U.S.
government. Although payments of principal and interest on mortgage pools
issued by some U.S. agencies are guaranteed, this guarantee does not apply to
losses resulting from declines in their market values.
Many foreign countries in which the fund invests have less liquid and more
volatile markets than in the U.S. In some of these foreign countries, there is
also less information available about foreign issuers and markets because of
less rigorous accounting and regulatory standards than in the U.S. Currency
fluctuations could erase investment gains or add to investment losses. The risk
of investing in foreign securities is greater in the case of less developed
countries.
Below investment grade bonds, which are commonly known as "junk bonds," are
speculative and their issuers may have diminished capacity to pay principal and
interest. These securities have a higher risk of default, tend to be less
liquid, and may be more difficult to value. Changes in economic conditions or
other circumstances are likely to weaken the capacity of issuers of these
securities to make principal and interest payments.
- --------------------------------------------------------------------------------
Fund performance
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. The table shows how the fund's
average annual returns for different calendar periods compare to the return of
an unmanaged, blended index consisting of three broad-based components: Merrill
Lynch GNMA Master Index (35%), Merrill Lynch Global Bond Index (35%) and
Merrill Lynch High Yield Master II Index (30%). Lehman Brothers Aggregate Bond
Index ("Lehman Brothers Index"), an unmanaged index are composed of the Lehman
Intermediate Government/Corporate Bond Index and the Mortgage-Backed Securities
Index and includes treasury issues, agency issues, corporate bond issues and
mortgage-backed securities. Past performance does not necessarily indicate how
the fund will perform in the future. Performance figures do not reflect
expenses incurred from investing through a separate account; if these expenses
had been reflected, performance would have been lower. Please refer to the
separate account prospectus for more information on expenses.
[BAR CHART APPEARS HERE]
% TOTAL RETURN
1992 1.42%
1993 12.58%
1994 -2.81%
1995 16.18%
1996 11.16%
1997 8.14%
1998 6.41%
Calendar years ended December 31
The bar chart shows the fund's performance for each full calendar year since
inception.
Quarterly returns:
Highest: 4.53% in 1st quarter 1993
Lowest: -2.29% in 1st quarter 1994
Average Annual Total Returns
(for the periods ended December 31, 1998)
<TABLE>
- ----------------------------------------------
<CAPTION>
One Five Since
year years inception*
- ----------------------------------------------
<S> <C> <C> <C>
Fund 6.41% 7.63% 7.39%
Blended Index 6.79% 7.94% 9.27%
Lehman Brothers Index 8.69% 7.27% 8.04%
- ----------------------------------------------
</TABLE>
* Inception date 10/16/91
Index comparison begins on October 31, 1991
Greenwich Street Series Fund
17
<PAGE>
The Fund's Goal and Investments
Intermediate High Grade Portfolio
Manager
SSBC is the manager.
Portfolio Manager
Denis Doherty (since 1998)
Mr. Doherty is an investment officer of SSBC and a director of Salomon Smith
Barney
Investment Goals
As high a level of current income as is consistent with protection of capital.
Key Investments
The fund invests primarily in U.S. government securities and high-grade
corporate bonds of U.S. issuers. The fund may also invest up to 35% of its
assets in other fixed income securities.
U.S. government securities include U.S. Treasury securities and mortgage-
related securities. Mortgage-related securities issued by federal agencies or
instrumentalities may be backed by the full faith and credit of the U.S.
Treasury, by the right of the issuer to borrow from the U.S. government or
only by the credit of the issuer itself.
Credit Quality: The fund invests primarily in high-grade bonds rated
within the three highest rating categories by a nationally recognized rating
organization, or, if unrated, judged by the manager to be of comparable credit
quality. The fund may invest up to 35% of its assets in securities that are
not high grade if they are at least investment grade.
Maturity: The fund's average weighted maturity generally will be between three
and 10 years, depending on the manager's outlook for interest rates. However,
the fund may invest in individual securities of any maturity.
- --------------------------------------------------------------------------------
Selection Process
U.S. government securities
In selecting U.S. government securities, the manager
focuses on identifying undervalued sectors and securities.
Specifically, the manager:
. Monitors the yield spreads between U.S. Treasury and
government agency or instrumentality securities and
purchases agency and instrumentality securities when
their additional yield justifies their additional risk
. Uses research to uncover inefficient sectors of the
government and mortgage markets and adjusts portfolio
positions to take advantage of new information
. Measures the potential impact of supply/demand
imbalances, yield curve shifts and changing prepayment
patterns to identify individual securities that balance
potential return and risk
Corporate bonds
In selecting high-grade corporate bonds, the manager
emphasizes individual bond selection while diversifying the
fund's investments across a range of issuers, industries
and maturity dates. In selecting individual corporate
bonds, the manager:
. Uses fundamental credit analysis to estimate the relative
value and attractiveness of various companies and bonds
. Identifies undervalued corporate bond issues and attempts
to identify bonds that may be subject to credit upgrades
and avoid bonds that may be subject to credit downgrades
For both U.S. government securities and corporate bonds,
the manager emphasizes those sectors and maturities that
seem most undervalued based on the manager's economic and
interest rate outlook. The manager buys and sells
securities in order to adjust portfolio maturity. The
manager also makes ongoing adjustments based on the
relative values or overall investment merits of individual
bonds or changes in the creditworthiness of an issuer.
Greenwich Street Series Fund
18
<PAGE>
Principal risks of investing in the fund
Investors could lose money in the fund, or the fund's performance could fall
below other possible investments, if:
. Interest rates increase, causing the prices of fixed income securities to
decline, reducing the value of the fund's portfolio. The fund has greater
sensitivity to changes in interest rates than a fund investing in securities
with shorter maturities
. The issuer of a security owned by the fund defaults on its obligation to pay
principal and/or interest, or the security's credit rating is downgraded
. As interest rates decline, the issuers of mortgage-related securities held by
the fund may pay principal earlier than scheduled or exercise a right to call
the securities, forcing the fund to reinvest in lower yielding securities.
This is known as prepayment or call risk
. As interest rates increase, slower than expected principal payments may
extend the average life of fixed income securities, locking in below-market
interest rates and reducing the value of these securities. This is known as
extension risk
. The manager's judgment about interest rates or the attractiveness, value or
income potential of a particular security proves incorrect
Payments of principal and interest on mortgage pools issued by
instrumentalities of the U.S. government are not guaranteed by the U.S.
government. Although payments of principal and interest on mortgage pools
issued by some U.S. agencies are guaranteed, this guarantee does not apply to
losses resulting from declines in the market value of these securities.
- --------------------------------------------------------------------------------
Fund performance
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. The table shows how the fund's
average annual returns for different calendar periods compare to the return of
the Lehman Government/Corporate Bond Index ("Lehman Index"). The Lehman Index
is a weighted composite of the Lehman Brothers Government Bond Index, which is
a broad-based index of all public debt obligations of the U.S. Government and
its agencies and has an average maturity of nine years the Lehman Brothers
Corporate Bond Index, which is comprised of all public fixed-rate non-
convertible investment grade domestic corporate debt, excluding collateralized
mortgage obligations. Past performance does not necessarily indicate how the
fund will perform in the future. Performance figures do not reflect expenses
incurred from investing through a separate account; if these expenses had been
reflected, performance would have been lower. Please refer to the separate
account prospectus for more information on expenses.
[BAR CHART APPEARS HERE]
% TOTAL RETURN
1992 5.28%
1993 8.00%
1994 -3.05%
1995 17.78%
1996 1.69%
1997 8.67%
1998 6.79%
Calendar years ended December 31
The bar chart shows the fund's performance for each full calendar year since
inception.
Quarterly returns:
Highest: 5.78% in 2nd quarter 1995
Lowest: -2.64% in 1st quarter 1996
Average Annual Total Returns
(for the periods ended December 31, 1998)
<TABLE>
- ------------------------------------
<CAPTION>
One Five Since
year years inception*
- ------------------------------------
<S> <C> <C> <C>
Fund 6.79% 6.14% 6.44%
Lehman Index 9.47% 7.30% 8.33%
- ------------------------------------
</TABLE>
* Inception date 10/16/91
Index Comparison begins on October 31, 1991
Greenwich Street Series Fund
19
<PAGE>
The Fund's Goal and Investments
Money Market Portfolio
Manager
SSBC is the manager.
Portfolio Manager
Phyllis Zahorodny (since 1991)
Ms. Zahorodny is an investment officer of SSBC and a managing director of
Salomon Smith Barney
Investment Goal
Maximum current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
Key Investments
The fund invests in short-term money market securities, including U.S.
government securities, repurchase agreements, U.S. and foreign bank time
deposits, certificates of deposit and bankers' acceptances and high-quality
commercial paper and short-term corporate debt obligations of U.S. and foreign
issuers, including variable-rate and floating-rate securities. The fund
invests only in securities purchased with and payable in U.S. dollars.
Credit Quality: The fund invests exclusively in securities rated within the
two highest short-term rating categories by a nationally recognized ratings
organization.
Maturity: The fund normally maintains a dollar-weighted average maturity of 90
days or less. Individual investments must have a remaining maturity of 397
days or less.
- --------------------------------------------------------------------------------
Selection Process
In selecting investments for the fund, the manager looks
for:
. The best relative values based on an analysis of yield,
price, interest rate sensitivity and credit quality
. Issuers offering minimal credit risk
. Maturities consistent with the manager's outlook for
interest rates
Under normal market conditions, the fund intends to
concentrate more than 25% of its assets in short-term bank
instruments.
Greenwich Street Series Fund
20
<PAGE>
Principal risks of investing in the fund
Although the fund seeks to preserve the value of your investment at $1 per
share, it is not guaranteed and it is possible to lose money.The fund could
underperform other short term debt instruments or money market funds, if:
. Interest rates rise sharply
. An issuer or guarantor of the fund's securities defaults, or has its credit
rating downgraded
. Adverse events in the banking industry reduce the value of the fund's
investments in bank instruments
. Sectors or issuers the fund has emphasized fail to perform as expected
. The value of the fund's foreign securities declines because of unfavorable
government actions or political instability
. The manager's judgment about the value or credit quality of a particular
security proves to be incorrect
- --------------------------------------------------------------------------------
Fund performance
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. The table shows how the fund's
average annual returns for different calendar periods compare to the return of
the 90-day Treasury bill. Past performance does not necessarily indicate how
the fund will perform in the future. Performance figures do not reflect
expenses incurred from investing through a Separate Account; if these expenses
had been reflected, performance would have been lower. Please refer to the
Separate Account prospectus for more information on expenses.
[BAR CHART APPEARS HERE]
% TOTAL RETURN
1992 2.75%
1993 2.37%
1994 3.56%
1995 5.31%
1996 4.80%
1997 4.47%
1998 4.40%
Calendar years ended December 31
The bar chart shows the fund's performance for each full calendar year since
inception.
Quarterly returns:
Highest:1.30% in 3rd quarter 1995
Lowest:0.57% in 2nd quarter 1993
Average Annual Total Returns
(for the periods ended December 31, 1998)
<TABLE>
- --------------------------------------------
<CAPTION>
One Five Since
year years inception*
- --------------------------------------------
<S> <C> <C> <C>
Fund 4.40% 4.45% 3.86%
90 Day Treasury Bill 4.88% 5.02% 4.52%
- --------------------------------------------
</TABLE>
* Inception date 10/16/91
Index comparison begins on October 31, 1991
The funds 7-day yield as of December 31, 1998 was 3.97%. Call toll free 1-800-
451-2010 for the fund's current 7-day yield.
Greenwich Street Series Fund
21
<PAGE>
More on the Funds' Investments
Additional investments and investment techniques
- --------------------------------------------------------------------------------
Each fund de- International Equity Portfolio
scribes its The fund may invest up to 35% of its assets in debt securi-
investment ob- ties of any credit quality or maturity of foreign corporate
jective and and governmental issuers, as well as U.S. government securi-
its principal ties and money market obligations of U.S. and foreign corpo-
investment rate issuers.
strategies and
risks under
"Fund goals
and invest-
ments."
Appreciation Portfolio
Although the fund intends to be fully invested in equity se-
curities, it may invest up to 35% of its total assets in debt
securities and money market instruments for cash management
or other purposes.
This section Equity Index Portfolio
provides addi- The fund may invest up to 5% of its assets in equity securi-
tional infor- ties not included in the S&P 500 to help approximate the re-
mation about turn of the S&P 500.
the funds' in-
vestments and Diversified Strategic Income Portfolio
certain port- The fund may invest up to 35% of its assets in corporate
folio manage- fixed income securities of U.S. issuers rated Ba or lower by
ment tech- Moody's or BB or lower by S&P, but not lower than Caa or CCC,
niques the respectively; or, if unrated, judged by the subadviser to be
funds may use. within this quality range. The fund may invest up to 5% of
More informa- its assets in securities of less developed countries.
tion about the
funds' invest- Intermediate High Grade Portfolio
ments and The fund may invest up to 10% of its assets in government
portfolio man- stripped mortgage-backed securities.
agement tech-
niques, some
of which en-
tail risks, is
included in
the statement
of additional
information
(SAI).
Greenwich Street Series Fund
22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Greenwich Street Series Fund
Equity Equity securities include exchange-traded and over-the-
investments counter (OTC) common and preferred stocks, warrants, rights,
Each equity convertible securities, depositary receipts and shares, trust
fund certificates, limited partnership interests, shares of other
investment companies, real estate investment trusts and eq-
uity participations.
- --------------------------------------------------------------------------------
Fixed income Fixed income securities include bonds, notes (including
investments structured notes), mortgage-related securities, asset-backed
Each fixed in- securities, convertible securities, Eurodollar and Yankee
come fund dollar instruments, preferred stocks and money market instru-
(other than ments. Fixed income securities may be issued by U.S. and for-
Money Market eign companies; U.S. and foreign banks; the U.S. government,
Portfolio) its agencies, authorities, instrumentalities or sponsored en-
and, to a lim- terprises; state and municipal governments; supranational or-
ited extent, ganizations; and foreign governments and their political sub-
each equity divisions. Fixed income securities may have all types of in-
fund terest rate payment and reset terms, including fixed rate,
adjustable rate, zero coupon, contingent, deferred, payment
in kind and auction rate features.
Mortgage-related securities may be issued by private compa-
nies or by agencies of the U.S. government and represent di-
rect or indirect participations in, or are collateralized by
and payable from, mortgage loans secured by real property.
Diversified These funds may invest in asset-backed securities. Asset-
Strategic In- backed securities represent participations in, or are secured
come Portfolio by and payable from, assets such as installment sales or loan
and Intermedi- contracts, leases, credit card receivables and other catego-
ate High Grade ries of receivables.
Portfolio
- --------------------------------------------------------------------------------
Credit quality of fixed income securities
If a security receives different ratings, a fund will treat
the securities as being rated in the highest rating category.
A fund may choose not to sell securities that are downgraded
below the fund's minimum acceptable credit rating after their
purchase. Each fund's credit standards also apply to
counterparties to OTC derivative contracts.
Below investment grade securities
Securities are below investment grade if:
. They are rated, respectively, below one of the top four
long-term rating categories by all the nationally
recognized rating organizations that have rated the
securities
. They have received comparable short-term ratings, or
. They are unrated securities the manager believes are of
comparable quality to below investment grade securities
23
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Risks of high yield, lower quality fixed income securities
Total Return The issuers of lower quality bonds may be highly leveraged
Portfolio, Eq- and have difficulty servicing their debt, especially during
uity Income prolonged economic recessions or periods of rising interest
Portfolio, rates. The prices of lower quality securities are volatile
Growth & In- and may go down because of market perceptions of deteriorat-
come Portfo- ing creditworthiness or economic conditions. Lower quality
lio, Diversi- securities may become illiquid and hard to value in down mar-
fied Strategic kets.
Income Portfo-
lio and Inter-
mediate High
Grade Portfo-
lio
- --------------------------------------------------------------------------------
Derivatives Each fund may, but need not, use derivative contracts, such
and hedging as futures and options on securities, securities indices or
techniques currencies; options on these futures; forward currency con-
tracts; and interest rate or currency swaps for any of the
following purposes:
All funds ex-
cept Money
Market Portfo-
lio
. To hedge against the economic impact of adverse changes in
the market value of its securities, because of changes in
stock market prices, currency exchange rates or interest
rates
. As a substitute for buying or selling securities
A derivative contract will obligate or entitle a fund to de-
liver or receive an asset or cash payment based on the change
in value of one or more securities, currencies or indices.
Even a small investment in derivative contracts can have a
big impact on a fund's stock market, currency and interest
rate exposure. Therefore, using derivatives can dispropor-
tionately increase losses and reduce opportunities for gains
when stock prices, currency rates or interest rates are
changing. A fund may not fully benefit from or may lose money
on derivatives if changes in their value do not correspond
accurately to changes in the value of the fund's holdings.
The other parties to certain derivative contracts present the
same types of credit risk as issuers of fixed income securi-
ties. Derivatives can also make a fund less liquid and harder
to value, especially in declining markets.
- --------------------------------------------------------------------------------
Defensive Each fund may depart from its principal investment strategies
investing in response to adverse market, economic or political condi-
tions by taking temporary defensive positions in all types of
money market and short-term debt securities. If a fund takes
a temporary defensive position, it may be unable to achieve
its investment goal.
- --------------------------------------------------------------------------------
Portfolio Each fund may engage in active and frequent trading to
turnover achieve its principal investment strategies. Frequent trading
also increases transaction costs, which could detract from a
fund's performance.
Greenwich Street Series Fund
24
<PAGE>
Management
The managers
SSBC Fund Management Inc. (SSBC)
Smith Barney Global Capital Management (Subadviser for Diversified Strategic
Income Portfolio)
Davis Skaggs Investment Management (Davis Skaggs)
Travelers Investment Management Company (TIMCO)
Van Kampen Asset Management (VKAM)
SSBC, located at 388 Greenwich Street, New York, New York 10013, acts as
investment manager to investment companies having aggregate assets as of March
31, 1999 in excess of $114 billion. TIMCO, located at One Tower Square,
Hartford, CT 06183-2030, provides investment advice to investment companies
with aggregate assets under management as of March 31, 1999 in excess of $800
million. Davis Skaggs, located at 1 Sansone Place, San Francisco CA, 94104, is
a division of SSBC.
SSBC and TIMCO each are wholly owned subsidiaries of Citigroup, a financial
services holding company engaged, through its subsidiaries, principally in five
business segments: Investment Services, Asset Management, Consumer Finance
Services, Life Insurance Services and Property & Casualty Insurance Services.
Smith Barney Global Capital Management, a U.S. registered investment adviser
located at 10 Piccadilly, London, England, engaged by SSBC as subadviser for
Diversified Strategic Income Portfolio, is also a wholly owned subsidiary of
Citigroup.
VKAM, located at One Parkview Plaza, Oakbrook Terrace, Illinois, 60181, is an
indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. VKAM,
together with its predecessors, has been in the investment advisory business
since 1926. VKAM provides investment advice to investment companies with
aggregate assets under management or supervision as of March 31, 1999 of more
than $46 billion.
Management fees
Each fund's manager oversees the investment operations of the fund and receives
the following fee for these services:
<TABLE>
--------------------------------------------------------------------------
<CAPTION>
Actual management fee
paid for the fiscal year
ended December 31, 1998
(as a percentage
of the fund's
Fund Manager average daily net assets)
--------------------------------------------------------------------------
<S> <C> <C>
Emerging Growth Portfolio VKAM 0.75%
International Equity Portfolio SSBC 0.85%
Appreciation Portfolio SSBC 0.55%
Equity Index Portfolio TIMCO 0.15%
Growth & Income Portfolio SSBC 0.45%
Equity Income Portfolio SSBC 0.45%
Total Return Portfolio Davis Skaggs 0.55%
Diversified Strategic Income
Portfolio SSBC 0.45%
Intermediate High Grade Portfolio SSBC 0.40%
Money Market Portfolio SSBC 0.30%
--------------------------------------------------------------------------
</TABLE>
Smith Barney Global Capital Management, as subadviser to the Diversified
Strategic Income Portfolio, is paid a fee by SSBC at the annual percentage of
0.15% of the value of the fund's average net assets.
Greenwich Street Series Fund
25
<PAGE>
Administrator
SSBC serves as administrator to each fund, performing certain account
maintenance and administrative services. As compensation for these services
SSBC receives a fee equal on an annual basis to 0.20% of each fund's average
daily net assets. However, for the Equity Index Portfolio, SSBC receives a fee
equal on an annual basis to 0.06% of the value of the fund's average daily net
assets.
Classes of Shares
The Equity Index Portfolio offers two classes of shares: Class I shares and
Class II shares. Each Class is offered at net asset value per share of that
Class. The shares of the Portfolio that were outstanding on January 15, 1999
have been designated Class I shares of the Portfolio.
Distribution plan
The Equity Index Portfolio has adopted a Rule 12b-1 distribution plan for its
Class II shares. Under the plan, the fund pays a distribution fee of 0.25% of
the daily net assets of Class II shares. These fees are an ongoing expense and,
over time, may cost you more than other types of sales charges.
Year 2000 issue
Information technology experts are concerned about computer systems' ability to
process date-related information on and after January 1, 2000. This situation,
commonly known as the "Year 2000" issue, could have an adverse impact on the
funds. Individual companies and governmental issuers of securities held by a
fund may also be adversely affected by the cost of addressing their Year 2000
systems problem, which cannot be substantial. The managers and the
administrator are addressing the Year 2000 issue for their systems. The funds
have been informed by their other service providers that they are taking
similar measures. Although the funds do not expect the Year 2000 issue to
adversely affect them, the funds cannot guarantee that their efforts or the
efforts of their service providers to correct the problem will be successful.
Greenwich Street Series Fund
26
<PAGE>
Share Transactions
Availability of the funds
Shares of the funds are available only through the purchase of variable annuity
or variable life insurance contracts issued by insurance companies through
their separate accounts. The separate accounts may or may not invest in all the
funds described in this prospectus.
The interests of different variable contract separate accounts investing in a
fund could conflict due to differences of tax treatment and other
considerations. The funds currently do not foresee any disadvantages to
investors arising from the fact that each fund may offer its shares to
different insurance company separate accounts that serve as the investment
medium for their variable annuity and variable life products. Nevertheless, the
board of trustees intends to monitor events to identify any material conflicts
which may arise, and to determine what action, if any, should be taken in
response to these conflicts. If a conflict were to occur, one or more insurance
companies' separate accounts might be required to withdraw their investments in
one or more funds and shares of another fund might be substituted. In addition,
the sale of shares may be suspended or terminated if required by law or
regulatory authority or if in the best interests of the funds' shareholders.
Redemption of shares
The redemption price of each fund's shares will be the net asset value next
determined after receipt by the fund of a redemption order from a separate
account. The fund will ordinarily pay redemption proceeds within one business
day, and must pay redemption proceeds within seven days after receipt of the
request in good order, except on a day when the New York Stock Exchange is
closed or as permitted by the Securities and Exchange Commission in
extraordinary circumstances.
Share Price
Each fund's net asset value is the value of its assets minus its liabilities.
Each fund calculates its net asset value every day the New York Stock Exchange
is open. This calculation is done when regular trading closes on the Exchange
(normally 4:00 p.m., Eastern time). If the New York Stock Exchange closes
early, each fund accelerates the calculation of its net asset value to the
actual closing time.
Each fund generally values its portfolio securities based on market prices or
quotations. To the extent a fund holds securities denominated in a foreign
currency, the fund's currency conversions are done when the London stock
exchange closes, which is 12 noon Eastern time. When market prices are not
available, or when the manager believes they are unreliable or that the value
of a security has been materially affected by events occurring after a foreign
exchange closes, the funds may price that security at fair value. Fair value is
determined in accordance with procedures approved by the fund's board. A fund
that uses fair value to price securities may value those securities higher or
lower than another fund that uses market quotations to price the same
securities.
International markets may be open on days when U.S. markets are closed, and the
value of foreign securities owned by the fund could change on days when fund
shares may not be purchased or redeemed.
Unless there are extraordinary or unusual circumstances, Money Market Portfolio
uses the amortized cost method of valuing its money market securities. Under
the amortized cost method, assets are valued by constantly amortizing over the
remaining life of an instrument the difference between the principal amount due
at maturity and the cost of the instrument to the fund.
Greenwich Street Series Fund
27
<PAGE>
Dividends, Distributions and Taxes
All income and capital gain distributions are automatically reinvested in
additional shares of the fund at net asset value and are includable in gross
income of the separate accounts holding these shares. See the accompanying
separate account contract prospectus for information regarding the federal
income tax treatment of distributions to the separate accounts and to holders
of the contracts.
If a fund fails to comply with special diversification requirements under the
Internal Revenue Code of 1986 (the "Code"), the contracts invested in that fund
would not be treated as annuity, endowment or life insurance contracts under
the Code.
Greenwich Street Series Fund
28
<PAGE>
Financial Highlights
The financial highlights tables are intended to help you understand the
performance of each fund for the past five years. The information in the
following tables was audited by KPMG LLP, independent accountants, whose
report, along with each fund's financial statements, are included in the annual
report (available upon request). Certain information reflects financial results
for a single share. Total return represents the rate that a shareholder would
have earned (or lost) on a share of a fund assuming reinvestment of all
dividends and distributions. The information for the fiscal year ended December
31, 1994 has been audited by other auditors.
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
Emerging Growth Portfolio
1998(1) 1997 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $16.87 $15.83 $13.76 $ 9.63 $10.41
- ------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss) (2) (0.15) (0.12) (0.10) (0.03) 0.00*
Net realized and unrealized gain
(loss) 5.98 3.32 2.55 4.16 (0.78)
- ------------------------------------------------------------------------------
Total income (loss) from operations 5.83 3.20 2.45 4.13 (0.78)
- ------------------------------------------------------------------------------
Less distributions from:
Net investment income -- -- -- -- (0.00)*
Net realized gains (3.07) (2.16) (0.38) -- --
- ------------------------------------------------------------------------------
Total distributions (3.07) (2.16) (0.38) -- (0.00)*
- ------------------------------------------------------------------------------
Net asset value, end of year $19.63 $16.87 $15.83 $13.76 $ 9.63
- ------------------------------------------------------------------------------
Total return 37.14% 21.16% 17.83% 42.89% (7.48)%
- ------------------------------------------------------------------------------
Net assets, end of year (millions) $ 21 $ 20 $ 19 $ 17 $ 12
- ------------------------------------------------------------------------------
Ratios to average net assets:
Expenses (2) 1.28% 1.26% 1.27% 1.20% 1.20%
Net investment loss (0.88) (0.72) (0.64) (0.24) (0.17)
- ------------------------------------------------------------------------------
Portfolio turnover rate 98% 102% 84% 121% 66%
- ------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the year.
(2) The manager waived all or part of its fees for the two years ended December
31, 1995. In addition, IDS Life reimbursed expenses of $5,265 and $18,068
for the two years ended December 31, 1995. If such fees had not been waived
and expenses reimbursed, the per share effect on net investment loss and
the expense ratios would have been as follows:
<TABLE>
-------------------------------------------------------------
<CAPTION>
Expense Ratios
Per Share Increases to Without Waivers
Net Investment Income and Reimbursements
-------------------------------------------------------------
Portfolio 1995 1994 1995 1994
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Emerging Growth $ 0.02 $ 0.01 1.39% 1.59%
-------------------------------------------------------------
</TABLE>
*Amount represents less than $0.01.
Greenwich Street Series Fund
29
<PAGE>
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
International Equity Portfolio
1998(1) 1997 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $11.78 $12.07 $ 9.98 $9.21 $10.05
- ------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss) (2)(3) (0.03) (0.02) (0.02) 0.03 0.00*
Net realized and unrealized gain
(loss) 2.25 (0.24) 2.15 0.78 (0.84)
- ------------------------------------------------------------------------------
Total income (loss) from operations 2.22 (0.26) 2.13 0.81 (0.84)
- ------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.06) (0.03) (0.04) (0.04) --
- ------------------------------------------------------------------------------
Total distributions (0.06) (0.03) (0.04) (0.04) --
- ------------------------------------------------------------------------------
Net asset value, end of year $13.94 $11.78 $12.07 $9.98 $ 9.21
- ------------------------------------------------------------------------------
Total return 18.84% (2.18)% 21.38% 8.80% (8.36)%
- ------------------------------------------------------------------------------
Net assets, end of year (millions) $ 23 $ 28 $ 33 $ 29 $ 28
- ------------------------------------------------------------------------------
Ratios to average net assets:
Expenses (2)(4) 1.40% 1.31% 1.35% 1.43% 1.30%
Net investment income (loss) (0.25) (0.23) (0.20) 0.35 0.31
- ------------------------------------------------------------------------------
Portfolio turnover rate 30% 21% 33% 34% 12%
- ------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the year.
(2) The manager waived all or part of its fees for the year ended December 31,
1994. In addition, IDS Life also reimbursed expenses of $23,712 for the
year ended December 31, 1994. 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:
<TABLE>
---------------------------------------------------------------
<CAPTION>
Expense Ratios
Per Share Decrease to Without Waivers
Net Investment Income and Reimbursements
---------------------------------------------------------------
Portfolio 1994 1994
---------------------------------------------------------------
<S> <C> <C>
International Equity $0.00* 1.51%
---------------------------------------------------------------
</TABLE>
(3) Includes realized gains and losses from foreign currency transactions for
the two years ended December 31, 1995.
(4) During the years ended December 31, 1995 and 1996, the fund has earned
credits from the custodian which reduced service fees incurred. If the
credits are taken into consideration, the ratio of expenses to average net
assets would have been 1.37% and 1.33%, respectively.
*Amount represents less than $0.01
Greenwich Street Series Fund
30
<PAGE>
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
Appreciation Portfolio
1998(1) 1997 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $18.73 $15.86 $14.39 $11.54 $11.80
- ------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.27 0.24 0.27 0.23 0.20
Net realized and unrealized gain
(loss) 3.24 3.90 2.60 3.04 (0.32)
- ------------------------------------------------------------------------------
Total income (loss) from operations 3.51 4.14 2.87 3.27 (0.12)
- ------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.22) (0.21) (0.25) (0.21) (0.14)
Net realized gains (0.86) (1.06) (1.15) (0.21) --
- ------------------------------------------------------------------------------
Total distributions (1.08) (1.27) (1.40) (0.42) (0.14)
- ------------------------------------------------------------------------------
Net asset value, end of year $21.16 $18.73 $15.86 $14.39 $11.54
- ------------------------------------------------------------------------------
Total return 19.15% 26.39% 19.77% 28.84% (1.12)%
- ------------------------------------------------------------------------------
Net assets, end of year (millions) $ 246 $ 144 $ 101 $ 94 $ 81
- ------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.80% 0.80% 0.85% 0.97% 0.88%
Net investment income 1.36 1.68 1.59 1.65 1.75
- ------------------------------------------------------------------------------
Portfolio turnover rate 22% 34% 39% 43% 61%
- ------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the year.
Greenwich Street Series Fund
31
<PAGE>
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
Equity Index Portfolio
Class I Shares 1998 (1) 1997 1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $23.59 $18.36 $15.58 $11.69 $11.90
- ----------------------------------------------------------------------------
Income from operations:
Net investment income (2) 0.36 0.12 0.22 0.25 0.23
Net realized and unrealized gain
(loss) 6.33 5.76 3.17 3.88 (0.14)
- ----------------------------------------------------------------------------
Total income from operations 6.69 5.88 3.39 4.13 0.09
- ----------------------------------------------------------------------------
Less distributions from:
Net investment income (0.08) (0.17) (0.23) (0.23) (0.15)
Net realized gains (0.21) (0.48) (0.38) (0.01) (0.15)
- ----------------------------------------------------------------------------
Total distributions (0.29) (0.65) (0.61) (0.24) (0.30)
- ----------------------------------------------------------------------------
Net asset value, end of year $29.99 $23.59 $18.36 $15.58 $11.69
- ----------------------------------------------------------------------------
Total return 28.46% 32.16% 21.68% 35.81% 0.85%
- ----------------------------------------------------------------------------
Net assets, end of year (millions) $ 177 $ 35 $ 19 $ 15 $ 10
- ----------------------------------------------------------------------------
Ratios to average net assets:
Expenses (3) 0.30% 0.76% 1.06% 1.00% 1.00%
Net investment income 1.36 1.08 1.37 1.84 2.10
- ----------------------------------------------------------------------------
Portfolio turnover rate 5% 6% 7% 5% 1%
- ----------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the year.
(2) For the year ended December 31, 1998, the administrator agreed to reimburse
expenses of $114,983. In addition, the manager waived all or part of its
fees for the two years ended December 31, 1995. IDS Life also reimbursed
expenses of $6,942 and $25,496 for the two years ended December 31, 1995.
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:
<TABLE>
---------------------------------------------------------------------
<CAPTION>
Expense Ratios
Per Share Decreases to Without Waivers
Net Investment Income and Reimbursements
---------------------------------------------------------------------
Portfolio 1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Index $0.02 N/A N/A $0.02 $0.06 0.42 N/A N/A 1.17% 1.53%
---------------------------------------------------------------------
</TABLE>
(3) As a result of the 0.30% voluntary expense limitation for the ratio of
expenses to average net assets, which became effective during 1998, the
manager will reimburse fees for the amount that exceeds the limitation.
Greenwich Street Series Fund
32
<PAGE>
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
Growth & Income Portfolio
1998(1) 1997 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $18.54 $16.43 $13.73 $10.75 $ 11.37
- -------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.27 0.31 0.27 0.26 0.27
Net realized and unrealized gain
(loss) 1.93 3.41 2.45 2.99 (0.63)
- -------------------------------------------------------------------------------
Total income (loss) from operations 2.20 3.72 2.72 3.25 (0.36)
- -------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.33) (0.29) (0.02) (0.27) (0.26)
Net realized gains (1.94) (1.32) -- -- --
- -------------------------------------------------------------------------------
Total distributions (2.27) (1.61) (0.02) (0.27) (0.26)
- -------------------------------------------------------------------------------
Net asset value, end of year $18.47 $18.54 $16.43 $13.73 $ 10.75
- -------------------------------------------------------------------------------
Total return 11.88% 22.94% 19.83% 30.49% (3.20)%
- -------------------------------------------------------------------------------
Net assets, end of year (millions) $ 36 $ 43 $ 39 $ 35 $ 30
- -------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.72% 0.77% 0.83% 0.98% 0.93%
Net investment income 1.45 1.62% 1.67% 2.09% 2.52%
- -------------------------------------------------------------------------------
Portfolio turnover rate 13% 17% 22% 17% 77%
- -------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the year.
<TABLE>
<CAPTION>
Equity Income Portfolio
1998(1) 1997 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $15.31 $13.01 $12.35 $ 9.87 $ 11.55
- -------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.53 0.77 0.63 0.54 0.58
Net realized and unrealized gain
(loss) 1.94 2.28 0.11 2.56 (1.75)
- -------------------------------------------------------------------------------
Total income (loss) from operations 2.47 3.05 0.74 3.10 (1.17)
- -------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.71) (0.75) (0.08) (0.62) (0.49)
Net realized gains (0.69) -- -- -- (0.02)
- -------------------------------------------------------------------------------
Total distributions (1.40) (0.75) (0.08) (0.62) (0.51)
- -------------------------------------------------------------------------------
Net asset value, end of year $16.38 $15.31 $13.01 $12.35 $ 9.87
- -------------------------------------------------------------------------------
Total return 16.99% 23.52% 5.99% 32.47% (10.20)%
- -------------------------------------------------------------------------------
Net assets, end of year (millions) $ 37 $ 46 $ 46 $ 52 $ 44
- -------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.79% 0.77% 0.77% 0.95% 0.84%
Net investment income 3.43 4.42 4.53 4.95 5.51
- -------------------------------------------------------------------------------
Portfolio turnover rate 43% 42% 28% 33% 21%
- -------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the year.
Greenwich Street Series Fund
33
<PAGE>
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
Total Return Portfolio
1998 (1) 1997 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $17.62 $15.73 $12.75 $10.78 $10.30
- ------------------------------------------------------------------------------
Income from operations:
Net investment income (2) 0.49 0.37 0.26 0.43 0.34
Net realized and unrealized gain 0.38 2.26 2.97 2.19 0.42(3)
- ------------------------------------------------------------------------------
Total income from operations 0.87 2.63 3.23 2.62 0.76
- ------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.43) (0.21) (0.07) (0.41) (0.28)
Net realized gains (0.51) (0.53) (0.18) (0.24) --
- ------------------------------------------------------------------------------
Total distributions (0.94) (0.74) (0.25) (0.65) (0.28)
- ------------------------------------------------------------------------------
Net asset value, end of year $17.55 $17.62 $15.73 $12.75 $10.78
- ------------------------------------------------------------------------------
Total return 4.97% 16.84% 25.33% 25.04% 7.40%
- ------------------------------------------------------------------------------
Net assets, end of year (millions) $ 298 $ 274 $ 172 $ 78 $ 23
- ------------------------------------------------------------------------------
Ratios to average net assets:
Expenses (2) 0.79% 0.79% 0.83% 1.00% 1.00%
Net investment income 2.79 3.24 3.06 3.80 3.84
- ------------------------------------------------------------------------------
Portfolio turnover rate 72% 75% 82% 81% 118%
- ------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the year.
(2) The manager waived all or part of its fees for the year ended December 31,
1994. IDS Life reimbursed expenses of $7,873 for the year ended December
31, 1994. 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:
<TABLE>
-------------------------------------------------------
<CAPTION>
Expense Ratio
Per Share Decrease to Without Waivers
Net Investment Income and Reimbursements
-------------------------------------------------------
Portfolio 1994 1994
-------------------------------------------------------
<S> <C> <C>
Total Return $0.01 1.11%
-------------------------------------------------------
</TABLE>
(3) The amount shown in this caption for each share outstanding throughout the
year may not accord with the change in the aggregate gains and losses in
the fund's securities for the year because of the timing of purchases and
withdrawals of shares in relation to the fluctuating market values of the
fund.
Greenwich Street Series Fund
34
<PAGE>
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
Diversified Strategic Income
Portfolio
1998 (1) 1997 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.89 $10.98 $10.01 $ 9.18 $10.07
- ------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (2) 0.69 0.77 0.88 0.74 0.58
Net realized and unrealized gain
(loss) (0.01) 0.12 0.24 0.70 (0.86)
- ------------------------------------------------------------------------------
Total income (loss) from operations 0.68 0.89 1.12 1.44 (0.28)
- ------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.67) (0.98) (0.15) (0.61) (0.58)
Capital -- -- -- -- (0.03)
- ------------------------------------------------------------------------------
Total distributions (0.67) (0.98) (0.15) (0.61) (0.61)
- ------------------------------------------------------------------------------
Net asset value, end of year $10.90 $10.89 $10.98 $10.01 $ 9.18
- ------------------------------------------------------------------------------
Total return 6.41% 8.14% 11.16% 16.18% (2.81)%
- ------------------------------------------------------------------------------
Net assets, end of year (millions) $ 81 $ 63 $ 60 $ 59 $ 55
- ------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.78% 0.78% 0.84% 0.90% 0.95%
Net investment income 6.38 7.29 7.94 7.73 7.31
- ------------------------------------------------------------------------------
Portfolio turnover rate 86% 47% 106% 46% 54%
- ------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the year.
(2) Includes realized gains and losses from foreign currency transactions for
the two years ended December 31, 1995.
Greenwich Street Series Fund
35
<PAGE>
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
Intermediate High Grade Portfolio
1998 (1) 1997 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.89 $10.70 $10.60 $ 9.66 $10.69
- ------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (2) 0.65 0.72 0.71 0.66 0.61
Net realized and unrealized gain
(loss) 0.07 0.21 (0.53) 1.00 (0.94)
- ------------------------------------------------------------------------------
Total income (loss) from operations 0.72 0.93 0.18 1.66 (0.33)
- ------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.71) (0.74) (0.08) (0.72) (0.61)
Net realized gains -- -- -- -- (0.09)
- ------------------------------------------------------------------------------
Total distributions (0.71) (0.74) (0.08) (0.72) (0.70)
- ------------------------------------------------------------------------------
Net asset value, end of year
(millions) $10.90 $10.89 $10.70 $10.60 $ 9.66
- ------------------------------------------------------------------------------
Total return 6.79% 8.67% 1.69% 17.76% (3.05)%
- ------------------------------------------------------------------------------
Net assets, end of year (millions) $ 13 $ 15 $ 15 $ 16 $ 13
- ------------------------------------------------------------------------------
Ratios to average net assets:
Expenses (2) 0.93% 0.95% 0.90% 0.86% 0.85%
Net investment income 5.82 6.28 6.35 6.63 6.57
- ------------------------------------------------------------------------------
Portfolio turnover rate 60% 66% 116% 121% 90%
- ------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the year.
(2) The manager waived all or part of its fees for the three years ended
December 31, 1996. IDS Life reimbursed expenses of $3,006 and $12,616 for
the two years ended December 31, 1995. 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:
<TABLE>
----------------------------------------------------------------------
<CAPTION>
Expense Ratios
Per Share Decreases to Without Waivers
Net Investment Income and Reimbursements
----------------------------------------------------------------------
Portfolio 1996 1995 1994 1996 1995 1994
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Intermediate High Grade $ 0.02 0.00* 0.02 1.07% 0.94% 1.05%
----------------------------------------------------------------------
</TABLE>
*Amount represents less than $0.01 per share.
Greenwich Street Series Fund
36
<PAGE>
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
Money Market Portfolio
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $1.000 $1.000 $1.000 $1.000 $1.000
Net investment income (1) 0.043 0.044 0.047 0.052 0.035
Dividends from net investment income (0.043) (0.044) (0.047) (0.052) (0.035)
- -----------------------------------------------------------------------------
Net asset value, end of year $1.000 $1.000 $1.000 $1.000 $1.000
- -----------------------------------------------------------------------------
Total return 4.40% 4.47% 4.80% 5.31% 3.56%
- -----------------------------------------------------------------------------
Net assets, end of year (millions) $5 $5 $6 $6 $7
- -----------------------------------------------------------------------------
Ratios to average net assets:
Expenses (1) 1.24% 1.20% 0.75% 0.75% 0.75%
Net investment income 4.30 4.38 4.70 5.19 3.65
- -----------------------------------------------------------------------------
</TABLE>
(1) The manager waived all or part of its fees for year ended December 31, 1998
and the three years ended December 31, 1996. IDS Life also reimbursed
expenses of $16,616 for the year ended December 31, 1994. 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:
<TABLE>
----------------------------------------------------------------------------
<CAPTION>
Expense Ratios
Per Share Decreases to Without Waivers
Net Investment Income and Reimbursements
----------------------------------------------------------------------------
Portfolio 1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market $0.005 N/A $0.005 $0.005 $0.005 1.74% N/A 1.25% 1.21% 1.26%
----------------------------------------------------------------------------
</TABLE>
Greenwich Street Series Fund
37
<PAGE>
Greenwich Street Series Fund
Additional Information
Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about each fund's investments. These reports discuss the
market conditions and investment strategies that affected the funds'
performance.
The funds send one report to a household if more than one account has the same
address. Contact your participating life insurance company representative or
your Salomon Smith Barney Financial Consultant if you do not want this policy
to apply to you.
Statement of additional information. The statement of additional information
provides more detailed information about the fund. It is incorporated by
reference into this prospectus.
You can make inquiries about the funds or obtain shareholder reports or the
statement of additional information (without charge) by calling 1-800-451-2010
or writing to Greenwich Street Series Fund, 388 Greenwich Street, New York, New
York 10013.
You can also review the fund's shareholder reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. The Commission charges a fee for this
service. Information about the public reference room may be obtained by calling
1-800-SEC-0330. You can obtain copies of these materials upon payment of a
duplicating fee, by writing to the Public Reference Section of the Commission,
Washington, D.C. 20549-60019. You can get the same reports and information free
from the Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Each fund is not offering to sell its
shares to any person to whom the fund may not lawfully sell its shares.
Emerging Growth Portfolio
International Equity Portfolio
Appreciation Portfolio
Equity Index Portfolio
Growth & Income Portfolio
Equity Income Portfolio
Total Return Portfolio
Diversified Strategic Income Portfolio
Intermediate High Grade Portfolio
Money Market Portfolio
(Investment Company Act file no. 811-6310)
L-12410 2/99
PART B
STATEMENT OF ADDITIONAL INFORMATION
April 30, 1999
STATEMENT OF ADDITIONAL INFORMATION
GREENWICH STREET SERIES FUND
388 Greenwich Street,
New York, New York 10013
(800) 451-2010
This Statement of Additional Information ("SAI") is not a prospectus
and should be read in conjunction with the prospectus of the
Greenwich Street Series Fund (the "fund") dated April 30, 1999, as
amended or supplemented from time to time), and is incorporated by
reference in its entirety into the prospectus. Additional information
about the fund's investments is available in the fund's annual and
semi-annual reports to shareholders which are incorporated herein by
reference. The prospectus and copies of the reports may be obtained
free of charge by contacting a Salomon Smith Barney Financial
Consultant, or by writing or calling Salomon Smith Barney Inc. at the
address or telephone number above.
TABLE OF CONTENTS
Investment Objective and Management Policies
Emerging Growth Portfolio
International Equity Portfolio
Appreciation Portfolio
Equity Index Portfolio
Growth & Income Portfolio
Equity Income Portfolio
Total Return Portfolio
Diversified Strategic Income Portfolio
Intermediate High Grade Portfolio
Money Market Portfolio
Investment Restrictions
Trustees of the Trust and Executive Officers of the Fund
Investment Management and Other Services
Portfolio Transactions...
Portfolio Turnover
Purchase of Shares
Redemption of Shares
Valuation of Shares
Exchange Privilege
Performance Data
Dividends, Distributions and Taxes
Additional Information
Financial Statements
Appendix A
The fund is a diversified, open-end management investment company
with ten portfolios, each with separate goals and investment
policies:
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 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 Appreciation Portfolio's goal is long-term appreciation of
capital. This portfolio invests primarily in equity securities.
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 Index"). This portfolio invests in the common stocks of
companies represented in the S&P 500 Index.
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 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 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.
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 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 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.
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
SSBC Fund Management Inc.
("SSBC" or "adviser" and
"administrator") formerly known as
Mutual Management, Corp.
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 SSBC ("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 Asset Management, Inc.
("VKAM" or "adviser")
Investment Adviser to Emerging
Growth Portfolio
CFBDS, Inc.
("CFBDS" or "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
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 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 April 16, 1999,
trustees and officers of the fund as a group owned no shares of the
fund.
HERBERT BARG (Age 75). Trustee
Private Investor. His address is 273 Montgomery Avenue, Bala Cynwyd,
Pennsylvania, 19004.
*ALFRED J. BIANCHETTI (Age 76). Trustee
Retired; formerly Senior Consultant to Dean Witter Reynolds Inc. His
address is 19 Circle End Drive, Ramsey, New Jersey 07466.
MARTIN BRODY (Age 77). Trustee
Consultant, HMK Associates. Retired Vice Chairman of the Board of
Restaurant Associates Corp. His address is c/o HMK Associates, 30
Columbia Turnpike, Florham Park, New Jersey 07932.
DWIGHT B. CRANE (Age 61). Trustee
Professor, Harvard Business School. His address is c/o Harvard
Business School, Soldiers Field Road, Boston, Massachusetts 02163.
BURT N. DORSETT (Age 68). Trustee
Managing Partner of the investment counseling firm Dorsett McCabe
Management, Inc. Director of Research Corporation Technologies,
Inc., a nonprofit patent clearing and licensing firm. His address is
201 East 62nd Street, New York, New York 10021.
ELLIOT S. JAFFE (Age 72). Trustee
Chairman of the Board and President of The Dress Barn, Inc. His
address is 30 Dunnigan Drive, Suffern, New York 10021.
STEPHEN E. KAUFMAN (Age 67). Trustee
Attorney. His address is 277 Park Avenue, New York, New York 10172.
JOSEPH J. McCANN (Age 68). Trustee
Financial Consultant. Retired Financial Executive, Ryan Homes, Inc.
His address is 200 Oak Park Place, Pittsburgh, Pennsylvania 15243.
*HEATH B. McLENDON (Age 65).Chairman of the Board and Investment
Officer Managing Director of Salomon Smith Barney Inc. ("Salomon
Smith Barney"), Chairman. and President of SSBC and Travelers
Investment Adviser, Inc. ("TIA"); Chairman or Co-Chairman of the
Board and Director of 59 investment companies associated with Salomon
Smith Barney: His address is 388 Greenwich Street, New York, New York
10013.
CORNELIUS C. ROSE, JR. (Age 65). Trustee
President, Cornelius C. Rose Associates, Inc., financial consultants,
and Chairman and Director of Performance Learning Systems, an
educational consultant. His address is Meadowbrook Village, Building
4, Apt. 6, West Lebanon, New Hampshire 03784.
LEWIS E. DAIDONE (Age 41). Senior Vice President and Treasurer
Managing Director of Salomon Smith Barney, Chief Financial Officer of
the Smith Barney Mutual Funds; Director and Senior Vice President of
SSBC and TIA; His address is 388 Greenwich Street, New York, New York
10013.
HARRY D. COHEN (Age 56). Vice President and Investment Officer
Managing Director of Salomon Smith Barney; Executive Vice President
of Salomon Smith Barney; Investment Officer of SSBC; His address is
388 Greenwich Street, New York, New York 10013.
SCOTT GLASSER (Age 32). Vice President and Investment Officer
Director of Salomon Smith Barney; Investment Officer of SSBC; prior
to October 1993, fixed income analyst with Bear, Stearns & Co. Inc;
His address is 388 Greenwich Street, New York, New York 10013.
SANDIP A. BHAGAT (Age 38). Vice President and Investment Officer
President of TIMCO; prior to 1995, Senior Portfolio Manager for
TIMCO. His address is One Tower Square, Hartford, Connecticut 06183-
2030.
JOHN C. BIANCHI (Age 43). Vice President and Investment Officer
Managing Director of Salomon Smith Barney; Investment Officer of
SSBC; His address is 388 Greenwich Street, New York, New York 10013.
ROBERT BRADY (Age 58). Vice President and Investment Officer
Managing Director of Salomon Smith Barney; Investment Officer of
SSBC; His address is 388 Greenwich Street, New York, New York 10013..
JAMES CONHEADY (Age 63). Vice President and Investment Officer
Managing Director of Salomon Smith Barney; Investment Officer of
SSBC; His address is 388 Greenwich Street, New York, New York 10013..
JAMES E. CONROY (Age 48). Vice President and Investment Officer
Managing Director of Salomon Smith Barney; Investment Officer of
SSBC; His address is 388 Greenwich Street, New York, New York 10013..
DENIS DOHERTY (Age 35). Vice President and Investment Officer
Director of Salomon Smith Barney; Investment Officer of SSBC; His
address is 388 Greenwich Street, New York, New York 10013..
R. JAY GERKEN (Age 47). Vice President and Investment Officer
Managing Director of Salomon Smith Barney; Investment Officer of
SSBC; His address is 388 Greenwich Street, New York, New York 10013..
JOHN G. GOODE (Age 53). Vice President and Investment Officer
Managing Director of Salomon Smith Barney; Chairman and Chief
Investment Officer of Davis Skaggs; Investment Officer of SSBC. His
address is One Sansome Street, San Francisco, California 94104.
SIMON HILDRETH (Age 43). Vice President and Investment Officer
Managing Director of Salomon Smith Barney; prior to 1994, Director of
Mercury Asset Management Ltd.; Investment Officer of SSBC. His
address is 10 Piccadilly, London, WIV 9LA, U.K.
GARY LEWIS (Age 44). Vice President and Investment Officer
Senior Vice President of Van Kampen American Capital Asset
Management, Inc. His address is 2800 Post Oak Boulevard, Houston,
Texas 77056.
JEFFREY RUSSELL (Age 40). Vice President and Investment Officer
Managing Director of Salomon Smith Barney; Investment Officer of
SSBC; His address is 388 Greenwich Street, New York, New York 10013.
PHYLLIS ZAHORODNY (Age 40). Vice President and Investment Officer
Managing Director of Salomon Smith Barney; Investment Officer of
SSBC; Her address is 388 Greenwich Street, New York, New York 10013.
PAUL BROOK (Age 45). Controller
Director of Salomon Smith Barney; from 1997-1998 Managing Director of
AMT Capital Services Inc.; prior to 1997 Partner with Ernst & Young
LLP; His address is 388 Greenwich Street, New York, New York 10013.
IRVING DAVID (Age 38) Controller
Director of Salomon Smith Barney. Formerly Assistant Treasurer of
First Investment Management Company; His address is 388 Greenwich
Street, New York, New York 10013.
CHRISTINA T. SYDOR (Age 48). Secretary
Managing Director of Salomon Smith Barney; General Counsel and
Secretary of SSBC and TIA; Her address is 388 Greenwich Street, New
York, New York 10013.
As of April 16, 1999, the trustees and officers as a group owned less
than 1% of the outstanding common stock of the trust. To the best
knowledge of the trustees, as of April 16, 1999, the following
shareholders or "groups" (as such term is defined in Section 13(d)
of the Securities Exchange Act of 1934, as amended) owned
beneficially or of record more than 5% of the shares of the following
classes:
Shareholder
Percent Ownership
Money Market Portfolio
IDS Life Variable Account
For Shearson
Attn: Unit 229
IDS Tower 10
Minneapolis, MN 55402
Owned 5,804,883.280 shares
97.76%
Intermediate High Grade Portfolio
IDS Life Variable Account
For Shearson
Attn: Unit 229
IDS Tower 10
Minneapolis, MN 55402
Owned 1,112,958.457 shares
99.73%
Diversified Strategic Income Portfolio
IDS Life Variable Account
For Shearson
Attn: Unit 229
IDS Tower 10
Minneapolis, MN 55402
Owned 3,744,547.468 shares
50.29%
Diversified Strategic Income Portfolio
Travelers Insurance Company
Separate Account QPM 401(k)-TIC
Travelers Insurance Company
Attn: Roger Ferland 5 MS
One Tower Square
Hartford, CT 06183
Owned 3,701,697.701 shares
49.71%
Equity Index Portfolio - Class I
Travelers Insurance Company
Separate Account QPM 401(k)-TIC
Travelers Insurance Company
Attn: Roger Ferland 5 MS
One Tower Square
Hartford, CT 06183
Owned 7,716,388.469 shares
91.76%
IDS Life Variable Account
For Shearson
Attn: Unit 229
IDS Tower 10
Minneapolis, MN 55402
Owned 693,030.737 shares
8.24%
Shareholder
Equity Income Portfolio
Percent Ownership
IDS Life Variable Account
For Shearson
Attn: Unit 229
IDS Tower 10
Minneapolis, MN 55402
Owned 2,022,467.519 shares
100%
Growth and Income Portfolio
IDS Life Variable Account
For Shearson
Attn: Unit 229
IDS Tower 10
Minneapolis, MN 55402
Owned 1,726,184.653 shares
100%
Appreciation Portfolio
Travelers Insurance Company
Separate Account QPM 401(k)-TIC
Travelers Insurance Company
Attn: Roger Ferland 5 MS
One Tower Square
Hartford, CT 06183
Owned 5,906,811.551 shares
42.72%
Equitable Life of Iowa
Prime Elite
Attn: Gina Keck
604 Locust Street
Des Moines, Iowa 50306
Owned 4,067,008.413 shares
Shareholder
IDS Life Variable Account
For Shearson
Attn: Unit 229
IDS Tower 10
Minneapolis, MN 55402
Owned 3,853,494.944 shares
29.41%
Percent Ownership
27.87%
Total Return Portfolio
Travelers Insurance Company
Separate Account QPM 401(k)-TIC
Travelers Insurance Company
Attn: Roger Ferland 5 MS
One Tower Square
Hartford, CT 06183
Owned 14,865,796.336 shares
90.31%
International Equity Portfolio
IDS Life Variable Account
For Shearson
Attn: Unit 229
IDS Tower 10
Minneapolis, MN 55402
Owned 1,457,298.897 shares
99.31%
Shareholder
Emerging Growth Portfolio
IDS Life Variable Account
For Shearson
Attn: Unit 229
IDS Tower 10
Minneapolis, MN 55402
Owned 902,846.506 shares
Percent Ownership
98.50%
No officer, director or employee of Salomon 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 Salomon Smith Barney, the advisers
or any of their affiliates a fee of $10,000 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 Salomon
Smith Barney, the advisers, or any of their affiliates a fee of
$5,000 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 fiscal year
ended December 31, 1998, the trustees were reimbursed, in the
aggregate, $13,594 for travel and out-of-pocket expenses.
For the fiscal year ended December 31, 1998, the trustees of the fund
were paid the following compensation:
Name of Person
Aggregate
Compensation
From fund
Pension or
Retirement
Benefits
Accrued
as part of
fund expenses
Compensation
From fund
And fund
Complex
Paid to trustees
Number of funds
Which trustee
Serves Within
Fund Complex
Herbert Barg**
$7,100
$0
$105,425
18
Alfred
Bianchetti* **
7,100
0
51,200
13
Martin Brody**
6,600
0
132,500
22
Dwight B. Crane**
6,100
0
139,975
25
Burt N. Dorsett*
**
7,100
0
51,200
13
Elliot S. Jaffe**
6,600
0
47,550
13
Stephen E.
Kaufman**
7,100
0
96,400
15
Joseph J.
McCann**
7,100
0
51,200
13
Heath B. McLendon
*
0
0
0
59
Cornelius C.
Rose, Jr.**
7,100
0
51,200
13
* Designates an "interested" trustee.
** Designates member of Audit Committee.
+ 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. Trustees emeritus
may attend meetings but have no voting rights.
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. Subject to
the supervision and direction of the trust's board of trustees, each
adviser manages the portfolios in accordance with the portfolio's
stated investment objective and policies, makes investment decisions
for the portfolio, places orders to purchase and sell securities, and
employs professional portfolio managers and securities analysts who
provide research services to the fund. The adviser pays the salary of
any officer and employee who is employed by both it and the fund.
Each adviser bears all expenses in connection with the performance of
its services.
SSBC is an affiliate of Salomon Smith Barney, and is a wholly owned
subsidiary of Citigroup Inc. Global Capital Management, sub-adviser
to Diversified Strategic Income Portfolio, also is a subsidiary of
Citigroup. Davis Skaggs, adviser to the Total Return Portfolio is a
division of SSBC.
VKAM is a diversified asset management company which provides
investment advice to investment companies with aggregate assets under
management or supervision as of March 31, 1999 of more than $46
billion.
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 SSBC, the portfolio's
Adviser, at the annual percentage of 0.15% 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.
Each adviser and the sub-adviser pay the salaries of all officers and
employees who are employed by both it 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, 1998, 1997 and 1996 by their respective adviser:
Portfolio
Adviser
12/31/98
12/31/97
12/31/96
Appreciation
SSBC
$1,032,03
8
$662,865
$536,120
Diversified Strategic
Income
SSBC
332,908
263,097
266,327
Emerging Growth
VKAM
150,773
146,478
142,425
Equity Income
SSBC
192,581
194,623
215,308
Equity Index
TIMCO
135,564
56,376
69,030
Growth & Income
SSBC
179,897
187,747
166,039
Intermediate High
Grade*
SSBC
58,825
59,572
60,847
International Equity
SSBC
225,622
275,190
278,118
Money Market**
SSBC
14,675
16,034
17,904
Total Return
Davis Skaggs
1,607,515
1,220,026
665,417
* SSBC waived investment advisory fees in the amount of $16,451 for
the fiscal year ended December 31, 1996.
** SSBC waived all of its investment advisory fees for the fiscal year ended
December 31, 1996.
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 Salomon 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.
Administrator
SSBC 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.
As administrator, SSBC performs certain services for the fund. As
part of those services, SSBC 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. SSBC bears all expenses in
connection with the performance of its services.
SSBC, 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 Smith Barney Money Market
Portfolio waived all of its administration fees for the fiscal year
ended December 31, 1998.
The portfolios incurred the following administration fees for the
past three years, which were partially waived for the years ended
December 31, 1998, 1997 and 1996 by their respective adviser:
Portfolio
Administrato
r
12/31/98
12/31/97
12/31/96
Appreciation
SSBC
$375,286
$241,042
$194,953
Diversified Strategic
Income
SSBC
147,959
116.932
118,368
Emerging Growth
SSBC
40,206
39,061
37,980
Equity Income
SSBC
85,592
86,499
95,692
Equity Index*
SSBC
54,226
27,188
34,515
Growth & Income
SSBC
79,954
83,443
73,795
Intermediate High
Grade**
SSBC
29,412
29,786
30,424
International Equity
SSBC
53,087
64,750
65,439
Money Market***
SSBC
9,784
10,689
11,942
Total Return
SSBC
584,551
443,646
241,844
* SSBC agreed to reimburse administration fees in the amount of
$114,983 for the fiscal year ended December 31, 1998.
** SSBC waived administration fees in the amount of $8,226 for the
fiscal year ended December 31,1996.
*** SSBC waived all of its administration fees for the fiscal years
ended December 31, 1998 and
December 31, 1996.
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.
Emerging Growth Portfolio
Goal - The Emerging Growth Portfolio's goal is to provide capital
appreciation.
Investment Policies - The 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. In managing the portfolio, the subadviser has
defined early stage small and medium sized companies as those with
less than $2 billion of market capitalization or annual sales.
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 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.
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.
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.
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 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.
Appreciation Portfolio
Goal - The Appreciation Portfolio's goal is long-term appreciation of
capital.
Investment Policies - The portfolio will attempt to achieve its goal
by investing primarily in equity and equity-related securities
believed to afford attractive opportunities for appreciation.
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 up to 10% of its assets (at
the time of investment) in foreign securities. The portfolio may
invest directly in foreign issuers or invest in depository receipts.
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 Index.
Investment Policies - The portfolio will seek to achieve its goal by
owning all 500 stocks in the S&P 500 Index 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 Index 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 Index if the adviser believes such
investments will assist the portfolio in approximating the return of
the S&P 500 Index. 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 Index. From time to time,
administrative adjustments may be made in the portfolio because of
changes in the composition of the S&P 500 Index. 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 Index as its standard for
performance comparison because the S&P 500 Index 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.
The portfolio will invest in the common stocks of the companies
represented in the S&P 500 Index with the goal of matching, before
deduction of operating expenses, the price and yield performance of
the S&P 500 Index. The S&P 500 Index 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 Index solely on a statistical basis. The S&P 500 Index is a
trademark of S&P and inclusion of a stock in the S&P 500 Index 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 portfolio's ability to replicate the performance of the S&P 500
Index 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.
Growth & Income Portfolio
Goal - The Growth & Income Portfolio's goal is income and long-term
capital growth.
Investment Policies - The 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. 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 rated investment grade or 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.
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 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 Investors Service, Inc. ("Moody's"), Standard &
Poor's Ratings Group ("S&P") or the equivalent by another nationally
recognized statistical rating organization ("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 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.
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 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.
Diversified Strategic Income Portfolio
Goal - The Diversified Strategic Income Portfolio's goal is high
current income.
Investment Policies - The 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 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.
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 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 three 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.
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 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 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 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.
ADDITIONAL INVESTMENT POLICIES
EQUITY INVESTMENTS
Common Stocks (Appreciation, Emerging Growth, Equity Income, Equity
Index, Growth & Income, International Equity and Total Return
Portfolios). Common stocks are shares of a corporation or other
entity that entitle the holder to a pro rata share of the profits of
the corporation, if any, without preference over any other
shareholder or class of shareholders, including holders of the
entity's preferred stock and other senior equity. Common stock
usually carries with it the right to vote and frequently an exclusive
right to do so.
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. 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 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.
Real Estate Investment Trusts (Total Return and the Intermediate High
Grade Portfolios). The portfolios 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. Mortgage trusts 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.
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.
FIXED INCOME SECURITIES
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.
U.S. Government Securities (All Portfolios). The Portfolios may
invest in debt obligations of varying maturities issued or guaranteed
by the United States government, its agencies or instrumentalities
("U.S. Government Securities"). Direct obligations of the U.S.
Treasury include a variety of securities that differ in their
interest rates, maturities and dates of issuance. U.S. Government
Securities also include securities issued or guaranteed by the
Federal Housing Administration, Farmers Home Loan Administration,
Export-Import Bank of the United States, Small Business
Administration, GNMA, General Services Administration, Central Bank
for Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks,
FHLMC, Federal Intermediate Credit Banks, Federal Land Banks, FNMA,
Maritime Administration, Tennessee Valley Authority, District of
Columbia Armory Board and Student Loan Marketing Association. A
portfolio may also invest in instruments that are supported by the
right of the issuer to borrow from the U.S. Treasury and instruments
that are supported by the credit of the instrumentality. Because the
U.S. government is not obligated by law to provide support to an
instrumentality it sponsors, a portfolio will invest in obligations
issued by such an instrumentality only if the adviser determines that
the credit risk with respect to the instrumentality does not make its
securities unsuitable for investment by the portfolio.
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.
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.
Money Market Instruments (All Portfolios). 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 instrument 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 five 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 NRSROs and comparable
unrated securities ("Second Tier Securities") and may not invest more
than 1% of its total assets in the Second Tier Securities of any one
issuer. The portfolio may invest 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 (a) the
securities are rated by the Requisite NRSROs 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.
Ratings as Investment Criteria (All Portfolios). In general, the
ratings of Moody's, S&P and other 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 whether the
portfolio should continue to hold the securities.
In addition, to the extent 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 because of 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.
Zero Coupon Securities (Diversified Strategic Income and the
Intermediate High Grade Portfolios). 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 he 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 (Intermediate High Grade,
Diversified Strategic Income, Equity Income, Growth & Income and
Total Return Portfolios). 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 judgement 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 it's adviser
will consider such event in its determination of whether the
portfolio should continue to hold the securities.
Securities 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 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 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
Floating- and Variable-Rate Demand Notes (Money Market Portfolio).
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 must be determined
by it'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.
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) The portfolios may purchase securities on a "when-issued"
basis, for delayed delivery (i.e., payment or delivery occur beyond
the normal settlement date at a stated price and yield) or on a
forward commitment basis. No portfolio intends to engage in these
transactions for speculative purposes, but only in furtherance of its
investment goal. These transactions occur when securities are
purchased or sold by the portfolios with payment and delivery taking
place in the future to secure what is considered an advantageous
yield and price to the portfolios at the time of entering into the
transaction. The payment obligation and the interest rate that will
be received on when-issued securities are fixed at the time the buyer
enters into the commitment. Because of fluctuations in the value of
securities purchased or sold on a when-issued, delayed-delivery basis
or forward commitment basis, the prices obtained on such securities
may be higher or lower than the prices available in the market on the
dates when the investments are actually delivered to the buyers.
When the portfolios agree to purchase when-issued or delayed-delivery
securities, the fund will set aside cash or liquid securities equal
to the amount of the commitment in a segregated account on the fund's
books. Normally, the portfolio will set aside portfolio securities
to satisfy a purchase commitment, and in such a case the portfolio
may be required subsequently to place additional assets in the
segregated account in order to ensure that the value of the account
remains equal to the amount of the portfolio's commitment. The
assets contained in the segregated account will be marked-to-market
daily. It may be expected that the portfolio's net assets will
fluctuate to a greater degree when it sets aside portfolio securities
to cover such purchase commitments than when it sets aside cash.
When the portfolio engages in when-issued or delayed-delivery
transactions, it relies on the other party to consummate the trade.
Failure of the seller to do so may result in the portfolios'
incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
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.
Forward Roll Transactions (Intermediate High Grade and Diversified
Strategic Income Portfolios). 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. When a
portfolio enters into a forward roll transaction, it will place in a
segregated account on the fund's books 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.
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.
Eurodollar or Yankee Obligations (All Portfolios including the Money
Market Portfolio). Each portfolio including 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 U.S.dollars from leaving the
country. 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.
DERIVATIVE CONTRACTS
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. 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 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 Intermediate High Grade,
Diversified Strategic Income, Equity Income, Total Return,
International Equity and Emerging Growth Portfolios expect to
purchase not only call or put options issued by the Clearing
Corporation, but also options in the domestic and foreign over-the-
counter markets. 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 option and will
incur a loss if the cost of the closing purchase transaction exceeds
the premium received upon writing the 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 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 S&P 500 Index. 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. The portfolios may enter into
related options 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 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 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.
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
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 on the fund's books 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 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 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.
OTHER PRACTICES
Repurchase Agreements (All portfolios). 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 on the Federal Reserve Bank of
New York's list of reporting dealers. The portfolios may agree to
purchase securities from a bank or recognized securities dealer and
simultaneously commit to resell the securities to the bank or dealer
at an agreed-upon date and price reflecting a market rate of interest
unrelated to the coupon rate or maturity of the purchased securities
("repurchase agreements"). The portfolios would maintain custody of
the underlying securities prior to their repurchase; thus, the
obligation of the bank or dealer to pay the repurchase price on the
date agreed to would be, in effect, secured by such securities. If
the value of such securities were less than the repurchase price,
plus interest, the other party to the agreement would be required to
provide additional collateral so that at all times the collateral is
at least 102% of the repurchase price plus accrued interest. Default
by or bankruptcy of a seller would expose the fund to possible loss
because of adverse market action, expenses and/or delays in
connection with the disposition of the underlying obligations. The
financial institutions with which the fund may enter into repurchase
agreements will be banks and non-bank dealers of U.S. Government
securities listed on the Federal Reserve Bank of New York's list of
reporting dealers, if such banks and non-bank dealers are deemed
creditworthy by the portfolios' adviser. The adviser will continue
to monitor creditworthiness of the seller under a repurchase
agreement, and will require the seller to maintain during the term of
the agreement the value of the securities subject to the agreement to
equal at least 102% of the repurchase price (including accrued
interest). In addition, the adviser will require that the value of
this collateral, after transaction costs (including loss of interest)
reasonably expected to be incurred on a default, be equal to 102% or
greater than the repurchase price (including accrued premium)
provided in the repurchase agreement or the daily amortization of the
difference between the purchase price and the repurchase price
specified in the repurchase agreement. The adviser will mark-to-
market daily the value of the securities. Repurchase agreements are
considered to be loans by the fund under the 1940 Act.
Restricted Securities (All portfolios). Each portfolio may invest up
to 10% (15% in the case of the Total Return, Emerging Growth,
International Equity, Intermediate High Grade Portfolio 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 1933 Act) 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.
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
portfolio's net assets to reverse repurchase agreements. A portfolio
may enter into reverse repurchase agreements with the same parties
with whom it may enter into repurchase agreements. Reverse
repurchase agreements involve the sale of securities held by the
portfolio pursuant to its agreement to repurchase them at a mutually
agreed upon date, price and rate of interest. At the time a
portfolio enters into a reverse repurchase agreement, it will
establish and maintain a segregated account on the fund's books
containing cash or liquid securities having a value not less than the
repurchase price (including accrued interest). The assets contained
in the segregated account will be marked-to-market daily and
additional assets will be placed in such account on any day in which
the assets fall below the repurchase price (plus accrued interest).
The portfolio's liquidity and ability to manage its assets might be
affected when it sets aside cash or portfolio securities to cover
such commitments. Reverse repurchase agreements involve the risk
that the market value of the securities retained in lieu of sale may
decline below the price of the securities the portfolio has sold but
is obligated to repurchase. If the buyer of securities under a
reverse repurchase agreement files for bankruptcy or becomes
insolvent, such buyer or its trustee or receiver may receive an
extension of time to determine whether to enforce the portfolio's
obligation to repurchase the securities, and the portfolio's use of
the proceeds of the reverse repurchase agreement may effectively be
restricted pending such decision.
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 on
its books, convertible preferred stock or convertible debt securities
in connection with short sales against the box.
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, a portfolio may lend securities to brokers, dealers and
other financial organizations that meet capital and other credit
requirements or other criteria established by the Board. A portfolio
will not lend securities to affiliates of the adviser unless they
have applied for and received specific authority to do so from the
SEC. Loans of portfolio securities will be collateralized by cash,
letters of credit or U.S. Government Securities, which are maintained
at all times in an amount equal to at least 102% of 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 a portfolio. From
time to time, a portfolio may return 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 fund
and that is acting as a "finder."
By lending its securities, a portfolio can increase its income by
continuing to receive interest and any dividends on the loaned
securities as well as by either investing the collateral received for
securities loaned 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. Income received could be used to pay a
portfolio's expenses and would increase an investor's total return. A
portfolio will adhere to the following conditions whenever its
portfolio securities are loaned: (i) a portfolio must receive at
least 102% cash collateral or equivalent securities of the type
discussed in the preceding paragraph from the borrower; (ii) the
borrower must increase such collateral whenever the market value of
the securities rises above the level of such collateral; (iii) a
portfolio must be able to terminate the loan at any time; (iv) a
portfolio must receive reasonable interest on the loan, as well as
any dividends, interest or other distributions on the loaned
securities and any increase in market value; (v) a portfolio may pay
only reasonable custodian fees in connection with the loan; and (vi)
voting rights on the loaned securities may pass to the borrower,
provided, however, that if a material event adversely affecting the
investment occurs, the board must terminate the loan and regain the
right to vote the securities. Loan agreements involve certain risks
in the event of default or insolvency of the other party including
possible delays or restrictions upon a portfolio's ability to recover
the loaned securities or dispose of the collateral for the loan.
Borrowing (All portfolios). 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.
Foreign Securities (All Portfolios). 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 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.
Leverage (International Equity Portfolio). 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 the income or other gain derived from
securities purchased with borrowed fluids 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
fluids. Depending on market or other conditions, such liquidations
could be disadvantageous to the portfolio.
RISK FACTORS
General. Investors should realize that risk of loss is inherent in
the ownership of any securities and that each Portfolio's net asset
value will fluctuate, reflecting fluctuations in the market value of
its portfolio positions.
Fixed Income Securities. Investments in fixed income securities may
subject the portfolios to risks, including the following.
Interest Rate Risk. When interest rates decline, the market
value of fixed income securities tends to increase. Conversely, when
interest rates increase, the market value of fixed income securities
tends to decline. The volatility of a security's market value will
differ depending upon the security's duration, the issuer and the
type of instrument.
Default Risk/Credit Risk. Investments in fixed income
securities are subject to the risk that the issuer of the security
could default on its obligations, causing a portfolio to sustain
losses on such investments. A default could impact both interest and
principal payments.
Call Risk and Extension Risk. Fixed income securities may be
subject to both call risk and extension risk. Call risk exists when
the issuer may exercise its right to pay principal on an obligation
earlier than scheduled, which would cause cash flows to be returned
earlier than expected. This typically results when interest rates
have declined and a portfolio will suffer from having to reinvest in
lower yielding securities. Extension risk exists when the issuer
exercises its right to pay principal on an obligation later than
expected. This typically results when interest rates have increased,
and a portfolio will suffer from the inability to invest in higher
yield securities.
Lower Rated and Below Investment Grade Fixed Income Securities.
Securities which are rated BBB by S&P or Baa by Moody's are generally
regarded as having adequate capacity to pay interest and repay
principal, but may have some speculative characteristics. Securities
rated below Baa by Moody's or BBB by S&P may have speculative
characteristics, including the possibility of default or bankruptcy
of the issuers of such securities, market price volatility based upon
interest rate sensitivity, questionable creditworthiness and relative
liquidity of the secondary trading market. Because high yield bonds
have been found to be more sensitive to adverse economic changes or
individual corporate developments and less sensitive to interest rate
changes than higher-rated investments, an economic downturn could
disrupt the market for high yield bonds and adversely affect the
value of outstanding bonds and the ability of issuers to repay
principal and interest. In addition, in a declining interest rate
market, issuers of high yield bonds may exercise redemption or call
provisions, which may force a portfolio, to the extent it owns such
securities, to replace those securities with lower yielding
securities. This could result in a decreased return.
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 and other ratings agencies might not timely change
their ratings of a particular issue to reflect subsequent events.
Foreign Securities. Investments in securities of foreign issuers
involve certain risks not ordinarily associated with investments in
securities of domestic issuers. Such risks include fluctuations in
foreign exchange rates, future political and economic developments,
and the possible imposition of exchange controls or other foreign
governmental laws or restrictions. Since each portfolio will invest
heavily in securities denominated or quoted in currencies other than
the U.S. dollar, changes in foreign currency exchange rates will, to
the extent the portfolio does not adequately hedge against such
fluctuations, affect the value of securities in its portfolio and the
unrealized appreciation or depreciation of investments so far as U.S.
investors are concerned. In addition, with respect to certain
countries, there is the possibility of expropriation of assets,
confiscatory taxation, political or social instability or diplomatic
developments which could adversely affect investments in those
countries.
There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not be
subject to accounting, auditing, and financial reporting standards
and requirements comparable to or as uniform as those of U.S.
companies. Foreign securities markets, while growing in volume,
have, for the most part, substantially less volume than U.S. markets,
and securities of many foreign companies are less liquid and their
prices more volatile than securities of comparable U.S. companies.
Transaction costs on foreign securities markets are generally higher
than in the U.S. There is generally less government supervision and
regulation of exchanges, brokers and issuers than there is in the
U.S. A portfolio might have greater difficulty taking appropriate
legal action in foreign courts. Dividend and interest income from
foreign securities will generally be subject to withholding taxes by
the country in which the issuer is located and may not be recoverable
by the portfolio or the investors. Capital gains are also subject to
taxation in some foreign countries.
Currency Risks. The U.S. dollar value of securities denominated in a
foreign currency will vary with changes in currency exchange rates,
which can be volatile. Accordingly, changes in the value of the
currency in which a portfolio's investments are denominated relative
to the U.S. dollar will affect the portfolio's net asset value.
Exchange rates are generally affected by the forces of supply and
demand in the international currency markets, the relative merits of
investing in different countries and the intervention or failure to
intervene of U.S. or foreign governments and central banks. However,
currency exchange rates may fluctuate based on factors intrinsic to a
country's economy. Some emerging market countries also may have
managed currencies, which are not free floating against the U.S.
dollar. In addition, emerging markets are subject to the risk of
restrictions upon the free conversion of their currencies into other
currencies. Any devaluations relative to the U.S. dollar in the
currencies in which a portfolio's securities are quoted would reduce
the portfolio's net asset value per share.
Special Risks of Countries in the Asia Pacific Region. Certain of
the risks associated with international investments are heightened
for investments in these countries. For example, some of the
currencies of these countries have experienced devaluations relative
to the U.S. dollar, and adjustments have been made periodically in
certain of such currencies. Certain countries, such as Indonesia,
face serious exchange constraints. Jurisdictional disputes also
exist, for example, between South Korea and North Korea. In
addition, Hong Kong reverted to Chinese administration on July 1,
1997. The long-term effects of this reversion are not known at this
time.
Securities of Developing/Emerging Markets Countries. A developing
or emerging markets country generally is considered to be a country
that is in the initial stages of its industrialization cycle.
Investing in the equity markets of developing countries involves
exposure to economic structures that are generally less diverse and
mature, and to political systems that can be expected to have less
stability, than those of developed countries. Historical experience
indicates that the markets of developing countries have been more
volatile than the markets of the more mature economies of developed
countries; however, such markets often have provided higher rates of
return to investors.
One or more of the risks discussed above could affect adversely the
economy of a developing market or a portfolio's investments in such a
market. In Eastern Europe, for example, upon the accession to power
of Communist regimes in the past, the governments of a number of
Eastern European countries expropriated a large amount of property.
The claims of many property owners against those of governments may
remain unsettled. There can be no assurance that any investments
that a portfolio might make in such emerging markets would not be
expropriated, nationalized or otherwise confiscated at some time in
the future. In such an event, the portfolio could lose its entire
investment in the market involved. Moreover, changes in the
leadership or policies of such markets could halt the expansion or
reverse the liberalization of foreign investment policies now
occurring in certain of these markets and adversely affect existing
investment opportunities.
Many of a portfolio's investments in the securities of emerging
markets may be unrated or rated below investment grade. Securities
rated below investment grade (and comparable unrated securities) are
the equivalent of high yield, high risk bonds, commonly known as
"junk bonds." Such securities are regarded as predominantly
speculative with respect to the issuer's capacity to pay interest and
repay principal in accordance with the terms of the obligations and
involve major risk exposure to adverse business, financial, economic,
or political conditions.
Derivative Instruments. In accordance with its investment policies,
each portfolio may invest in certain derivative instruments which are
securities or contracts that provide for payments based on or
"derived" from the performance of an underlying asset, index or other
economic benchmark. Essentially, a derivative instrument is a
financial arrangement or a contract between two parties. Transactions
in derivative instruments can be, but are not necessarily, riskier
than investments in conventional stocks, bonds and money market
instruments. A derivative instrument is more accurately viewed as a
way of reallocating risk among different parties or substituting one
type of risk for another. Every investment by a portfolio, including
an investment in conventional securities, reflects an implicit
prediction about future changes in the value of that investment.
Every portfolio investment also involves a risk that the portfolio
manager's expectations will be wrong. Transactions in derivative
instruments often enable a portfolio to take investment positions
that more precisely reflect the portfolio manager's expectations
concerning the future performance of the various investments
available to the portfolio. Derivative instruments can be a
legitimate and often cost-effective method of accomplishing the same
investment goals as could be achieved through other investment in
conventional securities.
Derivative contracts include options, futures contracts, forward
contracts, forward commitment and when-issued securities
transactions, forward foreign currency exchange contracts and
interest rate, mortgage and currency swaps. The following are the
principal risks associated with derivative instruments.
Each derivative instrument purchased for a portfolio's portfolio is
reviewed and analyzed by the portfolio's adviser to assess the risk
and reward of each such instrument in relation the portfolio's
investment strategy. The decision to invest in derivative
instruments or conventional securities is made by measuring the
respective instrument's ability to provide value to the portfolio and
its shareholders.
Special Risks of Using Futures Contracts and Options on Futures
Contracts. The prices of futures contracts are volatile and are
influenced by, among other things, actual and anticipated changes in
interest rates, which in turn are affected by fiscal and monetary
policies and national and international political and economic
events.
At best, the correlation between changes in prices of futures
contracts and of the securities or currencies being hedged can be
only approximate. The degree of imperfection of correlation depends
upon circumstances such as: variations in speculative market demand
for futures and for debt securities or currencies, including
technical influences in futures trading; and differences between the
financial instruments being hedged and the instruments underlying the
standard futures contracts available for trading, with respect to
interest rate levels, maturities, and creditworthiness of issuers. A
decision of whether, when, and how to hedge involves skill and
judgment, and even a well-conceived hedge may be unsuccessful to some
degree because of unexpected market behavior or interest rate trends.
Because of the low margin deposits required, futures trading involves
an extremely high degree of leverage. As a result, a relatively
small price movement in a futures contract may result in immediate
and substantial loss, as well as gain, to the investor. For example,
if at the time of purchase, 10% of the value of the futures contract
is deposited as margin, a subsequent 10% decrease in the value of the
futures contract would result in a total loss of the margin deposit,
before any deduction for the transaction costs, if the account were
then closed out. A 15% decrease would result in a loss equal to 150%
of the original margin deposit, if the futures contract were closed
out. Thus, a purchase or sale of a futures contract may result in
losses in excess of the amount invested in the futures contract. A
portfolio, however, would presumably have sustained comparable losses
if, instead of the futures contract, it had invested in the
underlying financial instrument and sold it after the decline. Where
a portfolio enters into futures transactions for non-hedging
purposes, it will be subject to greater risks and could sustain
losses which are not offset by gains on other portfolio assets.
Furthermore, in the case of a futures contract purchase, in order to
be certain that each portfolio has sufficient assets to satisfy its
obligations under a futures contract, the portfolio segregates on its
books and commits to back the futures contract an amount of cash and
liquid securities equal in value to the current value of the
underlying instrument less the margin deposit.
Most U.S. futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily
limit establishes the maximum amount the price of a futures contract
may vary either up or down from the previous day's settlement price
at the end of a trading session. Once the daily limit has been
reached in a particular type of futures contract, no trades may be
made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may
prevent the liquidation of unfavorable positions. Futures contract
prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting
some futures traders to substantial losses.
As with options on debt securities, the holder of an option may
terminate his position by selling an option of the same series.
There is no guarantee that such closing transactions can be effected.
The portfolio will be required to deposit initial margin and
maintenance margin with respect to put and call options on futures
contracts described above, and, in addition, net option premiums
received will be included as initial margin deposits.
In addition to the risks which apply to all options transaction,
there are several special risks relating to options on futures
contracts. The ability to establish and close out positions on such
options will be subject to the development and maintenance of a
liquid secondary market. It is not certain that this market will
develop. The portfolio will not purchase options on futures
contracts on any exchange unless and until, in the investment
advisor's opinion, the market for such options had developed
sufficiently that the risks in connection with options on futures
contracts are not greater than the risks in connection with futures
contracts. Compared to the use of futures contracts, the purchase of
options on futures contracts involves less potential risk to the
portfolio because the maximum amount of risk is the premium paid for
the options (plus transaction costs). However, there may be
circumstances when the use of an option on a futures contract would
result in a loss to the portfolio when the use of a futures contract
would not, such as when there is no movement in the prices of debt
securities. Writing an option on a futures contract involves risks
similar to those arising in the sale of futures contracts, as
described above.
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. If 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 specified 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. 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 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. 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.
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 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.
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.
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.
Economic and Monetary Union (EMU). EMU conversion began on January
1, 1999, through which 11 European countries adopted a single
currency - the euro. For participating countries, EMU means sharing
a single currency and single official interest rate and adhering to
agreed upon limits on government borrowing. Budgetary decisions
remain in the hands of each participating country, but are subject to
each country's commitment to avoid "excessive deficits" and other
more specific budgetary criteria. A European Central Bank will be
responsible for setting the official interest rate to maintain price
stability within the euro zone. EMU is driven by the expectation of
a number of economic benefits, including lower transaction costs,
reduced exchange risk, greater competition, and a broadening and
deepening of European financial markets. However, there are a number
of significant risks associated with EMU. Monetary and economic
union on this scale has never been attempted before. There is a
significant degree of uncertainty as to whether participating
countries will remain committed to EMU in the face of changing
economic conditions. This uncertainty may increase the volatility of
European markets and may adversely affect the prices of securities of
European issuers in the portfolios.
Portfolio Turnover. Each portfolio may purchase or sell securities
without regard to the length of time the security has been held and
thus may experience a high rate of portfolio turnover. A 100%
turnover rate would occur, for example, if all the securities in a
portfolio were replaced in a period of one year. Under certain market
conditions, the portfolio may experience a high rate of portfolio
turnover. This may occur, for example, if a portfolio writes a
substantial number of covered call options and the market prices of
the underlying securities appreciate. The rate of portfolio turnover
is not a limiting factor when the manager deems it desirable to
purchase or sell securities or to engage in options transactions.
High portfolio turnover involves correspondingly greater transaction
costs, including any brokerage commissions, which are borne directly
by the respective portfolio and may increase the recognition of
short-term, rather than long-term, capital gains if securities are
held for one year or less and may be subject to applicable income
taxes.
INVESTMENT RESTRICTIONS
The investment restrictions numbered 1 through 7 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. The remaining restrictions 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.
5. 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.
6. 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 certificates of deposit, time deposits,
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.
7. 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.
8. 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.
9. 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.
10. Purchasing, writing or selling puts, calls, straddles,
spreads or combinations thereof, except as permitted under the
portfolio's investment goals and policies.
11. 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, Intermediate High Grade Portfolio and
Diversified Strategic Income Portfolios) of the total assets of
the portfolio would be invested in such securities. However,
with respect to the Money Market Portfolio, Diversified
Strategic Income Portfolio and the Intermediate High Grade
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.
12. Investing more than 10% of its total assets in time
deposits maturing in more than six months seven calendar days
(in the case of the Money Market Portfolio, time deposits.
maturing from two business days through six months).
13. 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.)
14. Making investments for the purpose of exercising control
or management.
15. 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.
16. 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.
17. 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.
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 1998 and 1997 fiscal years, the portfolio turnover rates for
portfolios having operations during the stated periods were as
follows:
Portfolio
12/31/98
12/31/97
Appreciation
22%
34%
Diversified Strategic
Income
86%
47%
Emerging Growth
98%
102%
Equity Income
43%
42%
Equity Index
5%
6%
Growth & Income
13%
17%
Intermediate High
Grade
60%
66%
International Equity
30%
21%
Total Return
72%
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 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.
Portfolio turnover rates may vary greatly from year to year as well
as within a particular year and may be affected by cash requirements
for redemptions of a portfolio's shares as well as by requirements
that enable the portfolio to receive favorable tax treatment.
The fund's board of trustees will review periodically the
commissions paid by the portfolios to determine if the commissions
paid over representative periods of time were reasonable in relation
to the benefits inuring to the portfolios.
Portfolio Transactions
Most of the purchases and sales of securities for a portfolio,
whether effected on a securities exchange or over-the-counter, will
be effected in the primary trading market for the securities.
Decisions to buy and sell securities for a portfolio are made by its
adviser, which also is responsible for placing these transactions,
subject to the overall review of the fund's Trustees. With respect
to the Diversified Strategic Income Portfolio, decisions to buy and
sell U.S. securities for the Portfolio are made by 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, 1998
Total Brokerage
Brokerage Commissions
Portfolio
Commissions Paid
Paid to Salomon Smith Barney
Appreciation
$0
$0
Diversified Strategic
Income
0
0
Emerging Growth
26,923
853
Equity Income
78,529
600
Equity Index
62,186
0
Growth & Income
21,272
300
International Equity
53,838
1,393
Total Return
515,729
26,965
% of Aggregate
% of Aggregate Dollar
Brokerage Commissions
Amount of Transactions
Paid to Salomon Smith
Involving Commissions
Portfolio
Barney Inc.
Paid to Salomon Smith Barney
Inc.
Appreciation
0%
0%
Diversified
Strategic
Income
0%
0%
Emerging Growth
3.17%
0.95%
Equity Income
0.76%
0.48%
Equity Index
0%
0%
Growth & Income
1.41%
0.96%
International Equity
2.59%
4.60%
Total Return
5.23%
3.20%
Fiscal Year Ended December 31, 1997
Total Brokerage
Brokerage Commissions
Portfolio
Commissions Paid
Paid to Salomon 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
% of Aggregate
Dollar
% of Aggregate
Amount of
Transactions
Brokerage
Commissions
Involving
Commissions
Portfolio
Paid to Salomon
Smith Barney Inc.
Paid to Salomon
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%
Fiscal Year Ended December 31, 1996
Total Brokerage
Brokerage Commissions
Portfolio
Commissions Paid
Paid to Salomon 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
% of Aggregate
% of Aggregate
Dollar
Brokerage
Commissions
Amount of
Transactions
Paid to Salomon
Smith
Involving
Commissions
Portfolio
Barney
Paid to Salomon
Smith Barney
Appreciation
Diversified Strategic Income
0%
0
0%
0
Emerging Growth
2.20
0.85%
Equity Income
7.97
7.35%
Equity Index
0
0
Growth & Income
6.12
3.90%
International Equity
0.0233
0.06%
Total Return
1.77
6.40%
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 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 portfolio, 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 portfolio.
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 Salomon 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, Salomon 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 Salomon Smith Barney to effect such
transactions; and (b) Salomon 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 Salomon Smith Barney is a
member, except to the extent permitted by the SEC.
The portfolios may use Salomon Smith Barney as a commodities broker
in connection with entering into futures contracts and options on
futures contracts. Salomon Smith Barney has agreed to charge the
portfolios commodity commissions at rates comparable to those charged
by Salomon Smith Barney to its most favored clients for comparable
trades in comparable accounts.
Auditors
KPMG LLP, 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, 1999.
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.
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 the prospectus and this SAI. 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.
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 Salomon Smith Barney
Financial Consultant.
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. 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.
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 be acquired only 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, 1999 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. Shares of the fund are currently offered
exclusively to Contract owners.
On January 15, 1999, the existing shares of the Equity Index
Portfolio were redesignated as Class I shares. The fund created a
separate class of shares designated as Class II shares.
Class II shares are sold without an initial sales charge, but are
subject to an annual distribution fee of 0.25% of the daily net
assets of the Class. 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.
Distribution Arrangements for the Equity Index Portfolio
The fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
for the Class II shares of the Equity Index Portfolio (the "Plan").
Pursuant to the Plan, the portfolio may pay Salomon Smith Barney (for
remittance to a Participating Insurance Company) for various costs
incurred or paid by such company in connection with the distribution
of Class II Shares of the portfolio. Depending on the Participating
Insurance Company's corporate structure and applicable state law,
Salomon Smith Barney may remit payments to the Participating
Insurance Company's affiliated broker-dealer or other affiliated
company rather than the Participating Insurance Company itself.
The Plan provides that the fund, on behalf of the portfolio, shall
pay Salomon Smith Barney, a fee of up to 0.25% of the average daily
net assets of the portfolio attributable to the Class II shares.
Under the terms of the Plan, the fund is authorized to make payments
quarterly to Salomon Smith Barney for remittance to a Participating
Insurance Company, in order to pay or reimburse such Participating
Insurance Company for distribution expenses incurred or paid by such
Participating Insurance Company.
Expenses payable pursuant to the Plan may include, but are not
necessarily limited to: (a) the printing and mailing of fund
prospectuses, statements of additional information, any supplements
thereto and shareholder reports for existing and prospective Contract
owners; (b) those relating to the development, preparation, printing
and mailing of fund advertisements, sales literature and other
promotional materials describing and/or relating to the fund and
including materials intended for use within the Participating
Insurance Company, or for broker-dealer only use or retail use; (c)
holding seminars and sales meetings designed to promote the
distribution of fund shares; (d) obtaining information and providing
explanations to Contract owners regarding fund investment objectives
and policies and other information about the fund and its portfolios,
including the performance of the portfolios; (e) training sales
personnel regarding the fund; (f) compensating sales personnel in
connection with the allocation of cash values and premiums of the
Contracts to the fund; (g) personal service and/or maintenance of
Contract owner accounts with respect to fund shares attributable to
such accounts; and (h) financing any other activity that the fund's
Board of Trustees determines is primarily intended to result in the
sale of shares.
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 the
administrator, 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 portfolio 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. If
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.
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 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 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 seven-day period ended December 31, 1998, the
yield for the Money Market Portfolio was 3.97% (the effective yield
was 4.05%).
For the Diversified Strategic Income Portfolio, the Total Return
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 assets 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.
For the thirty-day period ended December 31, 1998, the yields for the
Diversified Strategic Income Portfolio, the Total Return Portfolio
and the Intermediate High Grade Portfolio were 6.13%, 1.93% and
5.56%, respectively.
Average Annual 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
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).
A portfolio's "average annual total return" figure shown below is
computed according to a formula prescribed by the SEC. The formula
can be expressed as follows:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of
$1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical $1,000 payment made
at the beginning of the one-, five- or ten-year (or other) period at
the end of the one-, five- or ten-year (or other) period (or
fractional portion thereof).
The ERV assumes complete redemption of the hypothetical investment at
the end of the measuring period. A portfolio's net investment income
changes in response to fluctuations in interest rates and the
expenses of the portfolio.
The average annual total returns for the portfolios then in existence
were as follows for the periods indicated (reflecting the waivers of
investment advisory and administration fees and reimbursement of
expenses):
Portfolio
Adviser
1 Year
Ended
12/31/98
5 Years
Ended
12/31/98
Since
Commencement
Appreciation*
SSBC
19.15%
18.10%
15.00%
Diversified Strategic
Income*
SSBC
6.41%
7.63%
7.39%
Emerging Growth**
VKAM
37.14%
20.95%
21.55%
Equity Income*
SSBC
16.99%
12.76%
12.20%
Equity Index*
TIMCO
28.46%
23.12%
18.89%
Growth & Income*
SSBC
11.88%
15.79%
13.53%
Intermediate High
Grade*
SSBC
6.79%
6.14%
6.44%
International
Equity**
SSBC
18.84%
7.06%
7.06%
Money Market*
SSBC
4.40%
4.45%
3.86%
Total Return**
Davis
Skaggs
4.97%
15.60%
16.01%
* 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):
Portfolio
Adviser
1 Year
Ended
12/31/98
5 Years
Ended
12/31/98
Since
Commencement
Appreciation*
SSBC
19.15%
129.77%
174.02%
Diversified Strategic
Income*
SSBC
6.41%
44.44%
67.20%
Emerging Growth**
VKAM
37.14%
158.82%
169.43%
Equity Income*
SSBC
16.99%
82.31%
129.41%
Equity Index*
TIMCO
28.46%
182.74%
248.46%
Growth & Income*
SSBC
11.88%
108.18%
149.72%
Intermediate High
Grade*
SSBC
6.79%
34.74%
56.87%
International
Equity**
SSBC
18.84%
40.68%
41.38%
Money Market*
SSBC
4.40%
24.32%
31.46%
Total Return**
Davis
Skaggs
4.97%
106.41%
112.60%
* Portfolio commenced operations on October 16, 1991.
** Portfolio commenced operations on December 3, 1993.
It is important to note that yield and total return figures are based
on historical earnings and are not intended to indicate future
performance. 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
Salomon Smith Barney Financial Consultant.
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 Index, 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.
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, Salmon Brothers World
Government Bond Index, Lehman Brothers Government Bond Index and
Lehman Brothers Mortage-Backed Securities Index, with the Consumer
Price Index, Dow Jones Industrial Average and 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 the prospectus, this
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. The prospectus does not constitute an offer
in any state in which, or to any person to whom, the offer may not
lawfully be made.
DIVIDENDS AND DISTRIBUTIONS
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
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 its taxable net investment
income and net realized capital gains are distributed to its
shareholders, provided 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.
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, 1998
is incorporated herein by reference in its entirety. The annual
report was filed on March 15, 1999, Accession Number 91155-99-156.
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.
/netuser13/silva/op/83579.257/sais/Grnwch_2.wpf
1
A-6
Part C
OTHER INFORMATION
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
PART C - OTHER INFORMATION
Item 23. 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).
(a) (1)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 Amendments No.3 and No. 4 to the Master
Trust Agreement are incorporated by reference to Post-
Effective Amendment No. 15 as filed with the SEC on
December 24, 1998 ("Post-Effective Amendment No. 15").
(b) Registrant's by-laws are incorporated by reference to the
Registration Statement.
(c) 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").
(d) (1) 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").
(2) 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").
(3) 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.
(4) 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.
(5) Investment Advisory Agreement with American Capital Asset
Management, Inc. relating to Emerging Growth Portfolio, is
incorporated by reference to Post-Effective Amendment No.
10.
(6) 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").
(7) 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.
(e) (1) Distribution Agreement with Smith Barney Shearson Inc.,
dated July 30, 1993, is incorporated by reference to Post-
Effective Amendment No. 4.
(2) Distribution Agreement with CFBDS, Inc. dated October
8, 1998 is incorporated by reference to Post-Effective
Amendment No. 15.
(f) Not Applicable.
(g) (1) 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").
(2) 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").
(h) (1) 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.
(2) 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").
(i) Not applicable
(j) Consent of Independent Accountants (filed herewith).
(k) Not Applicable.
(l) Purchase Agreement is incorporated by reference to Pre-
Effective Amendment No. 3 to the Registration Statement
filed with the SEC on October 15, 1991.
(m) Form of Distribution Plan pursuant to Rule 12b-1 for the
Equity Index Portfolio is incorporated by reference to
Post-Effective Amendment No. 15
(n) Financial Data Schedule (filed by herewith).
(o) Rule 18f-3 Plan is incorporated by reference to Post-
Effective Amendment No. 15.
Item 24. 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 25. Indemnification
The response to this item is incorporated by reference to
Pre-Effective Amendment No. 3
Item 26.
Business and Other Connections of Investment Adviser
(a) Investment Adviser-SSBC Fund Management Inc. ("SSBC")
formerly known as Mutual Management Corp.,.
SSBC was incorporated in December 1968 under the laws of
the State of Delaware. SSBC 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 Citigroup Inc. ("Citigroup"). SSBC is
registered as an investment adviser under the Investment
Advisers Act of 1940 (the "1940 Act").
The list required by this Item 26 of officers and directors
of SSBC 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 SSBC pursuant to the Investment
Advisers Act of 1940 Act (the "Advisers Act") (SEC File No.
801-8314).
(b). 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
Citigroup. 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 26 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).
(c). 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 26 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).
(d). 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 Citigroup.
The list required by this Item 26 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 27. Principal Underwriters
(a) CFBDS, Inc., ("CFBDS") the Registrant's Distributor, is also
the distributor for the following Smith Barney funds: Concert
Investment Series, Consulting Group Capital Markets Funds,
Smith Barney Adjustable Rate Government Income
Fund, Smith Barney Aggressive Growth Fund Inc., Smith Barney
Appreciation Fund Inc., Smith Barney Arizona Municipals Fund Inc.,
Smith Barney California Municipals Fund Inc., Smith Barney Concert
Allocation Series Inc., Smith Barney Equity Funds, Smith Barney
Fundamental Value Fund Inc., Smith Barney Funds, Inc., Smith Barney
Income Funds, Smith Barney Institutional Cash Management Fund, Inc.,
Smith Barney Investment Funds Inc., Smith Barney Investment Trust,
Smith Barney Managed Governments Fund Inc., Smith Barney Managed
Municipals Fund Inc., Smith Barney Massachusetts Municipals Fund,
Smith Barney Money Funds, Inc., Smith Barney Muni Funds, Smith Barney
Municipal Money Market Fund, Inc., Smith Barney
Natural Resources Fund Inc., Smith Barney New Jersey Municipals
Fund Inc., Smith Barney Oregon Municipals Fund Inc., Smith Barney
Principal Return Fund, Smith Barney Small Cap Blend Fund, Inc., Smith
Barney Telecommunications Trust, Smith Barney Variable Account Funds,
Smith Barney World Funds, Inc., Travelers Series Fund Inc., and
various series of unit investment trusts.
CFBDS also serves as the distributor for the following funds: The
Travelers Fund UL for Variable Annuities, The Travelers Fund VA for
Variable Annuities, The Travelers Fund BD for Variable Annuities, The
Travelers Fund BD II for Variable Annuities, The Travelers Fund BD
III for Variable Annuities, The Travelers Fund BD IV for Variable
Annuities, The Travelers Fund ABD for Variable Annuities, The
Travelers Fund ABD II for Variable Annuities, The Travelers Separate
Account PF for Variable Annuities, The Travelers Separate Account PF
II for Variable Annuities, The Travelers Separate Account QP for
Variable Annuities, The Travelers Separate Account TM for Variable
Annuities, The Travelers Separate Account TM II for Variable
Annuities, The Travelers Separate Account Five for Variable
Annuities, The Travelers Separate Account Six for Variable Annuities,
The Travelers Separate Account Seven for Variable Annuities, The
Travelers Separate Account Eight for Variable Annuities, The
Travelers Fund UL for Variable Annuities, The Travelers Fund UL II
for Variable Annuities, The Travelers Variable Life Insurance
Separate Account One, The Travelers Variable Life Insurance Separate
Account Two, The Travelers Variable Life Insurance Separate Account
Three, The Travelers Variable Life Insurance Separate Account Four,
The Travelers Separate Account MGA, The Travelers Separate Account
MGA II, The Travelers Growth and Income Stock Account for Variable
Annuities, The Travelers Quality Bond Account for Variable Annuities,
The Travelers Money Market Account for Variable Annuities, The
Travelers Timed Growth and Income Stock Account for Variable
Annuities, The Travelers Timed Short-Term Bond Account for Variable
Annuities, The Travelers Timed Aggressive Stock Account for Variable
Annuities, The Travelers Timed Bond Account for Variable Annuities.
In addition, CFBDS, the Registrant's Distributor, is also the
distributor for CitiFunds Multi-State Tax Free Trust, CitiFunds
Premium Trust, CitiFunds Institutional Trust, CitiFunds Tax Free
Reserves, CitiFunds Trust I, CitiFunds Trust II, CitiFunds Trust III,
CitiFunds International Trust, CitiFunds Fixed Income Trust,
CitiSelect VIP Folio 200, CitiSelect VIP Folio 300, CitiSelect VIP
Folio 400, CitiSelect VIP Folio 500, CitiFunds Small Cap Growth VIP
Portfolio. CFBDS is also the placement agent for Large Cap Value
Portfolio, Small Cap Value Portfolio, International Portfolio,
Foreign Bond Portfolio, Intermediate Income Portfolio, Short-Term
Portfolio, Growth & Income Portfolio, U.S. Fixed Income Portfolio,
Large Cap Growth Portfolio, Small Cap Growth Portfolio, International
Equity Portfolio, Balanced Portfolio, Government Income Portfolio,
Tax Free Reserves Portfolio, Cash Reserves Portfolio and U.S.
Treasury Reserves Portfolio.
In addition, CFBDS is also the distributor for the following Salomon
Brothers funds: Salomon Brothers Opportunity Fund Inc., Salomon
Brothers Investors Fund Inc., Salomon Brothers Capital Fund Inc.,
Salomon Brothers Series Funds Inc., Salomon Brothers Institutional
Series Funds Inc., Salomon Brothers Variable Series Funds Inc.
In addition, CFBDS is also the distributor for the Centurion Funds,
Inc.
(b) The information required by this Item 27 with respect to each
director and officer of CFBDS is incorporated by reference to
Schedule A of Form BD filed by CFBDS pursuant to the Securities and
Exchange Act of 1934 (File No. 8-32417).
(c) Not applicable.
Item 28. Location of Accounts and Records
(1) SSBC Fund Management Inc.
388 Greenwich Street
New York, New York 10013
(Records relating to its function as Investment Adviser and
Administrator)
(2) Van Kampen American Capital Asset Management, Inc.
One Parkview Plaza,
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) CFBDS, Inc.
21 Milk Street, 5th Floor
Boston, MA 02109
(Records relating to its function as Distributor)
(6) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, PA 19103
(Records relating to its function as Custodian)
(7) Chase Manhattan Bank
4 Metrotech Center
Brooklyn , NY 11245
(Records relating to its function as Custodian)
(8) 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 29. Management Services
There are no management related services contracts not
discussed on Part A or Part B.
Item 30. Undertakings
None
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 (the
"1933 Act") and the Investment Company Act of 1940, the Registrant
certifies that it meets all the requirements for
effectiveness of this Registration Statement pursuant to Rule 485(b)
under
the 1933 Act 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 28th
day of April, 1999.
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 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 28,
1999
/s/Lewis E. Daidone
Lewis E. Daidone
Senior Vice President
and Treasurer (Chief
Financial and
Accounting Officer)
April 28,
1999
/s/Herber Barg
Herbert Barg
Trustee
April 28,
1999
/s/Alfred J. Bianchetti
Alfred J. Bianchetti
Trustee
April 28,
1999
/s/Martin Brody
Martin Brody
Trustee
April 28,
1999
/s/Dwight B. Crane
Dwight B. Crane
Trustee
April 28,
1999
/s/Burt N. Dorsett
Burt N. Dorsett
Trustee
April 28,
1999
/s/Elliot S. Jaffe
Elliot S. Jaffe
Trustee
April 28,
1999
/s/Stephen E. Kaufman
Stephen E. Kaufman
Trustee
April 28,
1999
/s/Joseph J. McCann
Joseph J. McCann
Trustee
April 28,
1999
/s/Cornelius C. Rose, Jr.
Cornelius C. Rose, Jr.
Trustee
April 28,
1999
EXHIBIT INDEX
Exhibit No. Exhibit
(j) Consent of Independent Auditors
(n) Financial Data Schedule.
Independent Auditors' Consent
To the Shareholders and Board of Directors of
Greenwich Street Series Fund:
We consent to the use of our reports dated February 8, 1999, with
respect to the Greenwich Street Series Fund, incorporated herein by
reference and to the references to our Firm under the headings
"Financial Highlights" in the Prospectus and "Auditors" in the Statement
of Additional Information.
KPMG LLP
New York, New York
April 26, 1999
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<NET-INVESTMENT-INCOME> (176,291)
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<APPREC-INCREASE-CURRENT> 2,689,829
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<NUMBER-OF-SHARES-REDEEMED> 370,092
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 190,979
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 256,392
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<NAME> MONEY MARKET PORTFOLIO
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