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. 16 [X]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 19 [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
[ ] on (date) pursuant to paragraph b of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
XXX on April 30, 1999 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
Emerging Growth Portfolio
International Equity Portfolio
Appreciation Portfolio
Equity Index Portfolio EQUITY FUNDS
Growth & Income Portfolio
Equity Income Portfolio
Total Return Portfolio
Diversified Strategic Income Portfolio
FIXED INCOME FUNDS Intermediate High Grade Portfolio
Money Market 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
<TABLE>
<CAPTION>
Fund goals and investments Page
<S> <C> <C>
Greenwich Street Series Fund + Emerging Growth Portfolio 1
consists of 10 separate + International Equity Portfolio 3
investment funds, each with its + Appreciation Portfolio 5
own investment objective and + Equity Index Portfolio 7
policies. Each fund offers + Growth & Income Portfolio 9
different levels of potential + Equity Income Portfolio 11
return and involves different + Total Return Portfolio 13
levels of risk. + Diversified Strategic Income Portfolio 15
+ Intermediate High Grade Portfolio 17
+ Money Market Portfolio 19
More on the funds' investments
Management
Share transactions
Share price
Dividends, distributions and taxes
Financial highlights
</TABLE>
THE MANAGERS:
SSBC Fund Management Inc. (SSBC), Davis Skaggs Investment Management (Davis
Skaggs), and Travelers Investment Management Company (TIMCO) are each the
manager of one or more of the funds. Each of these managers is an affiliate of
Salomon Smith Barney Inc. and a subsidiary of Citigroup Inc. Citigroup
businesses produce a broad range of financial services. Van Kampen American
Capital Asset Management (VKAC) also manages one of the funds and is an indirect
wholly owned subsidiary of Morgan Stanley Dean Witter & Co.
SSBC, Davis Skaggs, TIMCO and VKAC 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.
Greenwich Street Series Fund - 1
<PAGE>
THE FUND'S GOAL AND INVESTMENTS EMERGING GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
- ----------------------
Manager INVESTMENT GOAL
VKAC is the manager
Capital appreciation.
.......................................................
Portfolio Manager KEY INVESTMENTS
Gary Lewis
(since 19__) 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
Mr. Lewis is a senior manager believes are in the early stages of their life
vice president of VKAC. 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 that 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. Please refer to the separate account prospectus for
more information on expenses.
[BAR CHART APPEARS HERE]
<TABLE>
<S> <C>
1994 7.48%
1995 42.89%
1996 17.83%
1997 21.16%
1998
</TABLE>
The bar chart shows the fund's performance for each full calendar year since
inception.
QUARTERLY RETURNS:
Highest: xx% in ___ quarter 199X
Lowest: xx% in ___ quarter 199X
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
- -------------------------------------------------------------
One Five Since
year years inception*
- -------------------------------------------------------------
<S> <C> <C> <C>
Fund
NASDAQ
Composite Index
- -------------------------------------------------------------
</TABLE>
*Inception date of 12/03/93
Greenwich Street Series Fund - 3
<PAGE>
THE FUND'S GOAL AND INVESTMENTS INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
- ----------------------
Manager INVESTMENT GOAL
SSBC is the
manager Total return on its assets from growth of capital
and income.
.......................................................
Portfolio Managers KEY INVESTMENTS
Jeffrey Russell
(since 19__) The fund invests primarily in equity securities of
James Conheady foreign companies. Equity securities include exchange
(since 19__) traded and over-the-counter common stocks and preferred
shares, debt securities convertible into equity
securities, and warrants and rights relating to equity
securities.
Messrs. Russell and
Conheady are
investment officers of
SSBC and managing
directors of Salomon
Smith Barney
- ----------------------..........................................................
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
While investing in foreign securities can bring added benefits, it may also
involve additional risks. 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 and
present valuation problems for the fund.
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. Please refer to the separate account
prospectus for more information on expenses.
[BAR CHART APPEARS HERE]
<TABLE>
<S> <C>
1994 -8.36%
1995 8.8 %
1996 21.38%
1997 -2.18%
</TABLE>
The bar chart shows the fund's performance for each full calendar year since
inception.
QUARTERLY RETURNS:
Highest: xx% in ___ quarter 199X
Lowest: xx% in ___ quarter 199X
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
------------------------------------------------------------
One Five Since
year years inception*
------------------------------------------------------------
<S> <C> <C> <C>
Fund
EAFE Index
- -------------------------------------------------------------
</TABLE>
*Inception date of 12/03/93
Greenwich Street Series Fund - 5
<PAGE>
THE FUND'S GOAL AND INVESTMENTS APPRECIATION PORTFOLIO
- --------------------------------------------------------------------------------
- -----------------------
Manager INVESTMENT GOAL
SSBC is the
manager Long-term appreciation of capital.
.......................................................
Portfolio Manager KEY INVESTMENTS
Harry D. Cohen
(since 19__) 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
Mr. Cohen is an include exchange traded and over-the-counter common
investment officer of stocks and preferred stocks, debt securities
SSBC and a convertible into equity securities, and warrants and
managing director of rights relating to equity securities.
Salomon Smith Barney
- ----------------------.........................................................
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
Investing in equity securities can bring added benefits, but it may also involve
additional risks. 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. Please
refer to the separate account prospectus for more information on expenses.
................................................................................
[BAR CHART APPEARS HERE]
<TABLE>
<S> <C>
1992 6.13%
1993 7.03%
1994 -1.12%
1995 28.84%
1996 19.77%
1997 26.39%
</TABLE>
The bar chart shows the fund's performance for each full calendar year since
inception.
Quarterly returns:
Highest: xx% in ___ quarter 199X
Lowest: xx% in ___ quarter 199X
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
------------------------------------------------------------
One Five Since
year years inception*
------------------------------------------------------------
<S> <C> <C> <C>
Fund
S&P 500 Index
- -------------------------------------------------------------
</TABLE>
*Inception date of 10/16/91
Greenwich Street Series Fund - 7
<PAGE>
THE FUND'S GOAL AND INVESTMENTS EQUITY INDEX PORTFOLIO
- --------------------------------------------------------------------------------
- ----------------------
Manager INVESTMENT GOAL
TIMCO is the
manager 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.
.......................................................
Portfolio Manager KEY INVESTMENTS
Sandip A. Bhagat
(since 1994) 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
Mr. Bhagat is an outside the U.S.
investment officer of The fund may purchase stock index futures and related
SSBC and president options to hedge any cash reserves in anticipation of
of TIMCO purchasing additional stocks at a later date.
- ----------------------..........................................................
SELECTION PROCESS
The fund is managed as a pure index fund. This means that 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 does 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. Please refer to the separate account prospectus for
more information on expenses.
[BAR CHART APPEARS HERE]
<TABLE>
<S> <C>
1992 6.74%
1993 8.66%
1994 0.85%
1995 35.81%
1996 21.68%
1997 32.16%
</TABLE>
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.
QUARTERLY RETURNS:
Highest: xx% in ___ quarter 199X
Lowest: xx% in ___ quarter 199X
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
------------------------------------------------------------
One Five Since
year years inception*
------------------------------------------------------------
<S> <C> <C> <C>
Class I
Class II n/a n/a
S&P 500 Index
- -------------------------------------------------------------
</TABLE>
* Inception date of Class I shares (and for index comparison) is
10/16/91. Inception date of Class II shares is 04/30/98.
Greenwich Street Series Fund - 9
<PAGE>
THE FUND'S GOAL AND INVESTMENTS GROWTH & INCOME PORTFOLIO
- --------------------------------------------------------------------------------
- ----------------------
Manager INVESTMENT GOAL
SSBC is the
manager
Income and long-term capital growth.
.......................................................
Portfolio Managers KEY INVESTMENTS
R. Jay Gerken
(since 19__) 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
Mr. Gerken is an value. The fund emphasizes U.S. stocks with large
investment officer market capitalizations. The fund may purchase below
of SSBC and a managing
director of Salomon investment grade convertible securities (commonly
Smith Barney 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
While investing in equity securities can bring added benefits, it may also
involve additional risks. 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 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. Please refer to the separate account prospectus for
more information on expenses.
................................................................................
[BAR CHART APPEARS HERE]
<TABLE>
<S> <C>
1992 8.44%
1993 9.09%
1994 -3.2 %
1995 30.49%
1996 19.83%
1997 22.94%
</TABLE>
The bar chart shows the fund's performance for each full calendar year since
inception.
QUARTERLY RETURNS:
Highest: xx% in ___ quarter 199X
Lowest: xx% in ___ quarter 199X
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
- ------------------------------------------------------------
One Five Since
year years inception*
- ------------------------------------------------------------
<S> <C> <C> <C>
Fund
S&P 500 Index
- ------------------------------------------------------------
</TABLE>
* Inception date of 10/16/91
Greenwich Street Series Fund - 11
<PAGE>
THE FUND'S GOAL AND INVESTMENTS EQUITY INCOME PORTFOLIO
- --------------------------------------------------------------------------------
- ----------------------
Manager INVESTMENT GOALS
SSBC is the manager
Primary: Current income.
Secondary: Long-term capital appreciation.
.......................................................
Portfolio Manager KEY INVESTMENTS
Robert J. Brady
(since 1998) The fund invests primarily in dividend-paying common
stocks and other equity securities of U.S. companies.
Mr. Brady is an Companies with dividend-paying stocks tend to have
investment officer large market capitalizations, but the fund also may
of SSBC and a managing invest in medium and small capitalization stocks.
director of Salomon Equity securities include preferred stocks and
Smith Barney securities convertible into common stock.
The fund may invest in non-dividend paying stocks and
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
While investing in equity securities can bring added benefits, it may also
involve risks. 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. 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. Please refer to the separate account prospectus for
more information on expenses.
[BAR CHART APPEARS HERE]
<TABLE>
<S> <C>
1992 11.74%
1993 10.41%
1994 -10.2 %
1995 32.47%
1996 5.99%
1997 23.52%
</TABLE>
The bar chart shows the fund's performance for each full calendar year since
inception.
QUARTERLY RETURNS:
Highest: xx% in ___ quarter 199X
Lowest: xx% in ___ quarter 199X
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
- ------------------------------------------------------------
One Five Since
year years inception*
- ------------------------------------------------------------
<S> <C> <C> <C>
Fund
S&P Utility Index
- ------------------------------------------------------------
</TABLE>
[*Inception date of 10/16/91]
Greenwich Street Series Fund - 13
<PAGE>
THE FUND'S GOAL AND INVESTMENTS TOTAL RETURN PORTFOLIO
- --------------------------------------------------------------------------------
- ----------------------
MANAGER INVESTMENT GOAL
Davis Skaggs is the
manager
Total return, consisting of long-term capital
appreciation and income.
.......................................................
Portfolio Manager KEY INVESTMENTS
John G. Goode
(since 19__) 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
Mr. Goode is an stocks.
investment officer
of SSBC and chairman
and chief investment
officer of Davis Skaggs 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
convertible securities
(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 above-average dividend payments
. High relative current yield
. 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
While investing in equity securities can bring added benefits, it may also
involve risks. 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. Please refer to the separate account prospectus for
more information on expenses.
[BAR CHART APPEARS HERE]
<TABLE>
<S> <C>
1994 7.4 %
1995 25.04%
1996 25.33%
1997 16.84%
</TABLE>
The bar chart shows the fund's performance for each full calendar year since
inception.
QUARTERLY RETURNS:
Highest: xx% in ___ quarter 199X
Lowest: xx% in ___ quarter 199X
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
- ------------------------------------------------------------
One Five Since
year years inception*
- ------------------------------------------------------------
<S> <C> <C> <C>
Fund
S&P 500 Index
- ------------------------------------------------------------
</TABLE>
* Inception date of 12/03/93
Greenwich Street Series Fund - 15
<PAGE>
THE FUND'S GOAL AND INVESTMENTS DIVERSIFIED STRATEGIC INCOME PORTFOLIO
- --------------------------------------------------------------------------------
- ----------------------
Manager and subadviser INVESTMENT GOAL
SSBC is the manager and
Smith Barney Global
Capital Management, High current income.
Inc. is the subadviser
.......................................................
Portfolio Managers KEY INVESTMENTS
(since)
James E. Conroy (1992) The fund invests primarily in three types of fixed
John __ Bianchi (19__) income securities:
Simon R. Hilbreth (19__) . U.S. government and mortgage-related securities
. foreign government securities
. corporate debt securities and non-convertible
preferred stocks rated below investment grade
Messrs. Conroy and ALLOCATION: The fund currently expects to maintain
Bianchi are approximately 50% of its assets in government and
investment officers mortgage-related securities, 25% in foreign government
of SSBC and securities and 25% in below investment grade corporate
managing directors of debt. However, these percentages may vary
Salomon Smith Barney. significantly over time.
Mr. Hilbreth is a MATURITY: The fund will invest primarily in
managing director of intermediate-term and long-term securities. As
Smith Barney a result, the weighted average maturity of the fund's
Global Capital portfolio is normally expected to be from four years
Management, Inc. 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
that 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
While investing in fixed income securities can bring added benefits, it may also
involve risks. 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%). 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. Please
refer to the separate account prospectus for more information on expenses.
Greenwich Street Series Fund - 17
<PAGE>
[BAR CHART APPEARS HERE]
<TABLE>
<S> <C>
1992 1.42%
1993 12.56%
1994 -2.81%
1995 16.18%
1996 11.16%
1997 8.14%
</TABLE>
The bar chart shows the fund's performance for each full calendar year since
inception.
QUARTERLY RETURNS:
Highest: xx% in ___ quarter 199X
Lowest: xx% in ___ quarter 199X
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
- ------------------------------------------------------------
One Five Since
year years inception*
- ------------------------------------------------------------
<S> <C> <C> <C>
Fund
Blended Index
- ------------------------------------------------------------
</TABLE>
*Inception date 10/16/91
Greenwich Street Series Fund - 18
<PAGE>
THE FUND'S GOAL AND INVESTMENTS INTERMEDIATE HIGH GRADE PORTFOLIO
- --------------------------------------------------------------------------------
- ---------------------
MANAGER INVESTMENT GOALS
SSBC is the manager.
As high a level of current income as is consistent with
protection of capital.
.......................................................
PORTFOLIO MANAGER KEY INVESTMENTS
Denis Doherty
(since 1998) 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.
Mr. Doherty is an
investment officer U.S. government securities include U.S. Treasury
of SSBC and a securities and mortgage-related securities. Mortgage-
director of Salomon related securities issued by federal agencies or
Smith Barney 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 actively 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 - 19
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUND
While investing in intermediate-term fixed income securities can bring added
benefits, it may also involve risks. 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 _________________ Index ("______ Index"), an unmanaged broad-based index of
_________________. 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. Please refer to the separate account
prospectus for more information on expenses.
[BAR CHART APPEARS HERE]
<TABLE>
<S> <C>
1992 5.28%
1993 8.00%
1994 -3.05%
1995 17.76%
1996 1.69%
1997 8.67%
</TABLE>
The bar chart shows the fund's performance for each full calendar year since
inception.
QUARTERLY RETURNS:
Highest: xx% in ___ quarter 199X
Lowest: xx% in ___ quarter 199X
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
- ------------------------------------------------------------
One Five Since
year years inception*
- ------------------------------------------------------------
<S> <C> <C> <C>
Fund
_______ Index
- ------------------------------------------------------------
</TABLE>
*Inception date 10/16/91
Greenwich Street Series Fund - 20
<PAGE>
THE FUND'S GOAL AND INVESTMENTS MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
- ----------------------
MANAGER INVESTMENT GOAL
SSBC is the manager.
Maximum current income to the extent consistent with
the preservation of capital and the maintenance of
liquidity.
.......................................................
PORTFOLIO MANAGER KEY INVESTMENTS
Phyllis Zahorodny
(since 19__) The fund invests in short-term money market securities,
including U.S. government securities, repurchase
agreements, U.S. and foreign bank time deposits,
Ms. Zahorodny is an certificates of deposit and bankers' acceptances and
investment officer of high-quality commercial paper and short-term corporate
SSBC and a managing debt obligations of U.S. and foreign issuers, including
director of Salomon variable-rate and floating-rate securities. The fund
Smith Barney invests only in securities that are 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 - 21
<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 possible to lose money by investing in the fund, or 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. Please refer to the Separate
Account prospectus for more information on expenses.
[BAR CHART APPEARS HERE]
<TABLE>
<S> <C>
1992 2.75%
1993 2.37%
1994 3.56%
1995 5.31%
1996 4.8 %
1997 4.47%
1998
</TABLE>
The bar chart shows the fund's performance for each full calendar year since
inception.
QUARTERLY RETURNS:
Highest: xx% in ___ quarter 199X
Lowest: xx% in ___ quarter 199X
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
- -------------------------------------------------------------
One Five Since
year years inception*
- -------------------------------------------------------------
<S> <C> <C> <C>
Fund
90 Day Treasury Bill
- -------------------------------------------------------------
</TABLE>
*Inception date 10/16/91
Greenwich Street Series Fund - 22
<PAGE>
MORE ON THE FUNDS' INVESTMENTS
ADDITIONAL INVESTMENTS AND INVESTMENT TECHNIQUES
................................................................................
Each fund describes its investment INTERNATIONAL EQUITY PORTFOLIO The
objective and its principal fund may invest up to 35% of its
investment strategies and risks assets in debt securities of any
under "Fund goals and credit quality or maturity of foreign
investments." corporate and governmental issuers, as
well as U.S. government securities and
money market obligations of U.S. and
foreign corporate issuers.
This section provides additional APPRECIATION PORTFOLIO
information about the funds' Although the fund intends to be fully
investments and certain portfolio invested in equity securities, it may
management techniques the funds invest up to 35% of its total assets
may use. More information about in debt securities and money market
the funds' investments and instruments for cash management or
portfolio management techniques, other purposes.
some of which entail risks, is
included in the statement of EQUITY INDEX PORTFOLIO
additional information (SAI). The fund may invest up to 5% of its
assets in equity securities not
included in the S&P 500 to help
approximate the return of the S&P 500.
DIVERSIFIED STRATEGIC INCOME PORTFOLIO
The fund 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, if unrated, judged
by the subadviser to be within this
quality range. The fund may invest up
to 5% of its assets in securities of
less developed countries.
INTERMEDIATE HIGH GRADE PORTFOLIO
The fund may invest up to 10% of its
assets in government stripped
mortgage-backed securities.
................................................................................
EQUITY INVESTMENTS Equity securities include exchange-
traded and over-the-counter (OTC)
Each equity fund common and preferred stocks, warrants,
rights, convertible securities,
depositary receipts and shares, trust
certificates, limited partnership
interests, shares of other investment
companies, real estate investment
trusts and equity participations.
................................................................................
FIXED INCOME INVESTMENTS Fixed income securities include bonds,
notes (including structured notes),
Each fixed income fund (other than mortgage-related securities, asset-
Money Market Portfolio) and, to a backed securities, convertible
limited extent, each equity fund securities, Eurodollar and Yankee
dollar instruments, preferred stocks
and money market instruments. Fixed
income securities may be issued by
U.S. and foreign companies; U.S. and
foreign banks; the U.S. government,
its agencies, authorities,
instrumentalities or sponsored
enterprises; state and municipal
governments; supranational
organizations; and foreign governments
and their political subdivisions.
Fixed income securities may have all
types of interest 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 companies or by
agencies of the U.S. government and
represent direct or indirect
participations in, or are
collateralized by and payable from,
mortgage loans secured by real
property.
These funds may invest in asset-backed
Diversified Strategic Income Portfolio securities. Asset-backed securities
and Intermediate High Grade represent participations in, or are
Portfolio secured by and payable from, assets
such as installment sales or loan
contracts, leases, credit card
receivables and other categories of
receivables.
................................................................................
Greenwich Street Series Fund - 23
<PAGE>
................................................................................
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
[_] They are unrated securities that
the manager believes are of
comparable quality to below
investment grade securities
................................................................................
HIGH YIELD, LOWER QUALITY FIXED INCOME
SECURITIES
Total Return Portfolio, Equity The issuers of lower quality bonds may
Income Portfolio, Growth & Income be highly leveraged and have
Portfolio, Diversified Strategic difficulty servicing their debt,
Income Portfolio and Intermediate especially during prolonged economic
High Grade Portfolio recessions or periods of rising
interest rates. The prices of lower
quality securities are volatile and
may go down because of market
perceptions of deteriorating
creditworthiness or economic
conditions. Lower quality securities
may become illiquid and hard to value
in down markets.
................................................................................
DERIVATIVES AND HEDGING Each fund may, but need not, use
TECHNIQUES derivative contracts, such as futures
and options on securities, securities
indices or currencies; options on
these futures; forward currency
contracts; and interest rate or
currency
All funds except Money Market swaps for any of the following
Portfolio purposes:
[_] 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 deliver 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
disproportionately 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 securities.
Derivatives can also make a fund less
liquid and harder to value, especially
in declining markets.
................................................................................
DEFENSIVE INVESTING Each fund may depart from its
principal investment strategies in
response to adverse market, economic
or political conditions 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 TURNOVER Each fund may engage in active and
frequent trading to 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 American Capital Asset Management (VKAC)
SSBC, located at 388 Greenwich Street, New York, New York 10013, acts as
investment manager to investment companies having aggregate assets as of the
date of this prospectus of approximately $94 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, 1998 of
approximately $2.6 billion. [Davis Skaggs, located at 1 Sansone Place, San
Francisco CA, xxxxx, is investment manager to investment companies having
aggregate assets as of the date of this prospectus of approximately
$__________.]
SSBC, Davis Skaggs and TIMCO each are wholly owned subsidiaries of Citigroup, a
financial services holding company engaged, through its subsidiaries,
principally in four business segments: Investment Services including Asset
Management, Consumer Finance Services, Life Insurance Services and Property &
Casualty Insurance Services. Smith Barney Global Capital Management, engaged by
SSBC as subadviser for Diversified Strategic Income Fund, is also a wholly owned
subsidiary of Citigroup.
VKAC, located at One Parkview Plaza, Oakbrook Terrace, Illinois, 60181, is an
indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. VKAC,
together with its predecessors, has been in the investment advisory business
since 1926. VKAC provides investment advice to investment companies with
aggregate assets under management or supervision as of [March 31, 1998 of more
than $60 billion].
Greenwich Street Series Fund - 25
<PAGE>
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 average daily net assets)
---- -----------------------------------
<S> <C>
Emerging Growth Portfolio [0.75%]
International Equity Portfolio [0.85%]
Appreciation Portfolio [0.55%]
Equity Index Portfolio [0.15%]
Growth & Income Portfolio [0.45%]
Equity Income Portfolio [0.45%]
Total Return Portfolio [0.55%]
Diversified Strategic Income Portfolio [0.45%]
Intermediate High Grade Portfolio [0.40%]
Money Market Portfolio [0.30%]
</TABLE>
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.
DISTRIBUTION PLAN
The Equity Index Fund has adopted a Rule 12b-1 distribution plan for its Class
II shares. Under the plan, the fund pays distribution and service fees. 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. The managers 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 of
the funds described in this prospectus. The funds do not assess
any sales charge, either
when they sell or when they redeem shares. The Equity Index Portfolio
offers two separate share classes: Class I and Class II shares. Class II
shares are subject to an annual distribution fee of 0.25% of the daily
net assets of the Class.
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 irreconcilable
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 that 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
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 (or since inception if less
than 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.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $15.83 $13.76 $ 9.63 $ 10.41
INCOME (LOSS) FROM OPERATIONS:
Net investment income (loss)(1)..................... (0.12) (0.10) (0.03) 0.00*
Net realized and unrealized gain (loss)............... 3.32 2.55 4.16 (0.78)
Total income (loss) from operations................... 3.20 2.45 4.13 (0.78)
LESS DISTRIBUTIONS FROM:
Net investment income................................. -- -- -- (0.00)*
Net realized gains.................................... (2.16) (0.38) -- --
Total distributions................................... (2.16) (0.38) -- (0.00)*
NET ASSET VALUE, END OF YEAR.......................... $16.87 $15.83 $13.76 $ 9.63
TOTAL RETURN.......................................... 21.16% 17.83% 42.89% (7.48)%
NET ASSETS, END OF YEAR (000)'S....................... $ 20 $ 19 $ 17 $ 12
RATIOS TO AVERAGE NET ASSETS:
Expenses(1)........................................... 1.26% 1.27% 1.20% 1.20%
Net investment income................................. (0.72) (0.64) (0.24) (0.17)
PORTFOLIO TURNOVER RATE............................... 102% 84% 121% 66%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the Emerging Growth Portfolio, 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 income and the expense ratios would have been
as follows:
<TABLE>
<CAPTION>
PER SHARE DECREASES TO EXPENSE RATIOS WITHOUT
NET INVESTMENT INCOME WAIVERS 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>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 12.07 $ 9.98 $ 9.21 $ 10.05
INCOME (LOSS) FROM OPERATIONS:
Net investment income (loss)(1)(2)............... (0.02) (0.02) 0.03 0.00*
Net realized and unrealized gain (loss)............ (0.24) 2.15 0.78 (0.84)
Total income (loss) from operations................ (0.26) 2.13 0.81 (0.84)
LESS DISTRIBUTIONS FROM:
Net investment income.............................. (0.03) (0.04) (0.04) --
Total distributions................................ (0.03) (0.04) (0.04) --
NET ASSET VALUE, END OF YEAR....................... $ 11.78 $ 12.07 $ 9.98 $ 9.21
TOTAL RETURN....................................... (2.18)% 21.38% 8.80% (8.36)%
NET ASSETS, END OF YEAR (000)'S.................... $ 28 $ 33 $ 29 $ 28
RATIOS TO AVERAGE NET ASSETS:
Expenses(1)(3)..................................... 1.31% 1.35% 1.43% 1.30%
Net investment income (loss)....................... (0.23) (0.20) 0.35 0.31
PORTFOLIO TURNOVER RATE............................ 21% 33 % 34% 12%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the International Equity Portfolio, 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>
PER SHARE DECREASES TO EXPENSE RATIOS WITHOUT
NET INVESTMENT INCOME WAIVERS AND REIMBURSEMENTS
--------------------------------------------------
PORTFOLIO 1994 1994
- ---------------------- ---------------------- --------------------------
<S> <C> <C>
International Equity $0.00** 1.51%
</TABLE>
(2) Includes realized gains and losses from foreign currency transactions for
the two years ended December 31, 1995.
(3) During the period ended December 31, 1995, the fund has earned credits from
the custodian which reduce service fees incurred. If the credits are taken
into consideration, the ratio of expenses to average net assets would have
been 1.37%.
* Amount represents less than $0.01
Greenwich Street Series Fund - 30
<PAGE>
For a share of beneficial interest outstanding through each year ended December
31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
APPRECIATION PORTFOLIO 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $15.86 $14.39 $11.54 $ 11.80
INCOME FROM OPERATIONS:
Net investment income................................... 0.24 0.27 0.23 0.20
Net realized and unrealized gain (loss)................. 3.90 2.60 3.04 (0.32)
Total income (loss) from operations.......................... 4.14 2.87 3.27 (0.12)
LESS DISTRIBUTIONS FROM:
Net investment income................................... (0.21) (0.25) (0.21) (0.14)
Net realized gains...................................... (1.06) (1.15) (0.21) --
Total distributions.......................................... (1.27) (1.40) (0.42) (0.14)
NET ASSET VALUE, END OF YEAR................................. $18.73 $15.86 $14.39 $ 11.54
TOTAL RETURN................................................. 26.39% 19.77% 28.84% (1.12)%
NET ASSETS, END OF YEAR (000)'S.............................. $ 144 $ 101 $ 94 $ 81
RATIOS TO AVERAGE NET ASSETS:
Expenses................................................ 0.80% 0.85% 0.97% 0.88%
Net investment income................................... 1.68 1.59 1.65 1.75
PORTFOLIO TURNOVER RATE...................................... 34% 39% 43% 61%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Greenwich Street Series Fund - 31
<PAGE>
For a share of beneficial interest outstanding through each year ended December
31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
EQUITY INDEX PORTFOLIO 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $18.36 $15.58 $11.69 $11.90
INCOME FROM OPERATIONS:
Net investment income(1).................................. 0.12 0.22 0.25 0.23
Net realized and unrealized gain (loss)................... 5.76 3.17 3.88 (0.14)
Total income from operations................................ 5.88 3.39 4.13 0.09
LESS DISTRIBUTIONS FROM:
Net investment income..................................... (0.17) (0.23) (0.23) (0.15)
Net realized gains........................................ (0.48) (0.38) (0.01) (0.15)
Total distributions......................................... (0.65) (0.61) (0.24) (0.30)
NET ASSET VALUE, END OF YEAR................................ $23.59 $18.36 $15.58 $11.69
TOTAL RETURN................................................ 32.16% 21.68% 35.81% 0.85%
NET ASSETS, END OF YEAR (000)'S............................. $ 35 $ 19 $ 15 $ 10
RATIOS TO AVERAGE NET ASSETS:
Expenses(1)............................................... 0.76% 1.06% 1.00% 1.00%
Net investment income..................................... 1.08 1.37% 1.84% 2.10%
PORTFOLIO TURNOVER RATE..................................... 6% 7% 5% 1%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the Equity Index Portfolio, 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>
PER SHARE DECREASES TO EXPENSE RATIOS WITHOUT
NET INVESTMENT INCOME WAIVERS AND REIMBURSEMENTS
------------------------ ----------------------------
PORTFOLIO 1995 1994 1995 1994
- --------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Equity Index $0.02 $0.06 1.17% 1.53%
</TABLE>
Greenwich Street Series Fund - 32
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
GROWTH & INCOME PORTFOLIO 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $16.43 $13.73 $10.75 $ 11.37
INCOME (LOSS) FROM OPERATIONS:
Net investment income.............................. 0.31 0.27 0.26 0.27
Net realized and unrealized gain (loss)............ 3.41 2.45 2.99 (0.63)
Total income (loss) from operations.................. 3.72 2.72 3.25 (0.36)
LESS DISTRIBUTIONS FROM:
Net investment income.............................. (0.29) (0.02) (0.27) (0.26)
Net realized gains................................. (1.32) -- -- --
Total distributions.................................. (1.61) (0.02) (0.27) (0.26)
NET ASSET VALUE, END OF YEAR......................... $18.54 $16.43 $13.73 $ 10.75
TOTAL RETURN......................................... 22.94% 19.83% 30.49% (3.20)%
NET ASSETS, END OF YEAR (000)'S...................... $ 43 $ 39 $ 35 $ 30
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................... 0.77% 0.83% 0.98% 0.93%
Net investment income.............................. 1.62% 1.67% 2.09% 2.52%
PORTFOLIO TURNOVER RATE.............................. 17% 22% 17% 77%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Greenwich Street Series Fund - 33
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $13.01 $12.35 $ 9.87 $ 11.55
INCOME (LOSS) FROM OPERATIONS:
Net investment income.................................... 0.77 0.63 0.54 0.58
Net realized and unrealized gain (loss).................. 2.28 0.11 2.56 (1.75)
Total Income (Loss) From Operations........................ 3.05 0.74 3.10 (1.17)
LESS DISTRIBUTIONS FROM:
Net investment income.................................... (0.75) (0.08) (0.62) (0.49)
Net realized gains....................................... -- -- -- (0.02)
Total distributions........................................ (0.75) (0.08) (0.62) (0.51)
NET ASSET VALUE, END OF YEAR............................... $15.31 $13.01 $12.35 $ 9.87
TOTAL RETURN............................................... 23.52% 5.99% 32.47% (10.20)%
NET ASSETS, END OF YEAR (000)'S............................ $ 46 $ 46 $ 52 $ 44
RATIOS TO AVERAGE NET ASSETS:
Expenses(1).............................................. 0.77% 0.77% 0.95% 0.84%
Net investment income.................................... 4.42 4.53 4.95 5.51
PORTFOLIO TURNOVER RATE.................................... 42% 28% 33% 21%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes realized gains and losses from foreign currency transactions for
the two years ended December 31, 1995.
Greenwich Street Series Fund - 34
<PAGE>
For a share of beneficial interest outstanding through each year ended December
31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
TOTAL RETURN PORTFOLIO 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $15.73 $12.75 $10.78 $10.30
INCOME FROM OPERATIONS:
Net investment income(1)............................... 0.37 0.26 0.43 0.34
Net realized and unrealized gain (loss)................ 2.26 2.97 2.19 0.42 (2)
Total income (loss) from operations......................... 2.63 3.23 2.62 0.76
LESS DISTRIBUTIONS FROM:
Net investment income.................................. (0.21) (0.07) (0.41) (0.28)
Net realized gains..................................... (0.53) (0.18) (0.24) --
Total distributions......................................... (0.74) (0.25) (0.65) (0.28)
NET ASSET VALUE, END OF YEAR................................ $17.62 $15.73 $12.75 $10.78
TOTAL RETURN................................................ 16.84% 25.33% 25.04% 7.40%
NET ASSETS, END OF YEAR (000)'S............................. $ 274 $ 172 $ 78 $ 23
RATIOS TO AVERAGE NET ASSETS:
Expenses(1)............................................ 0.79% 0.83% 1.00% 1.00%
Net investment income.................................. 3.24 3.06 3.80 3.84
PORTFOLIO TURNOVER RATE..................................... 75% 82% 81% 118%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the Total Return Portfolio, 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>
PER SHARE DECREASES TO EXPENSE RATIOS WITHOUT
NET INVESTMENT INCOME WAIVERS AND REIMBURSEMENTS
---------------------------------- -------------------------------
PORTFOLIO 1994 1994
- --------- ---- ----
<S> <C> <C>
Total Return $0.01 1.11%
</TABLE>
(2) The amount shown in this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the fund's securities for the period because of the timing of purchases and
withdrawals of shares in relation to the fluctuating market values of the
fund.
(3) Includes realized gains and losses from foreign currency transactions for
the two years ended December 31, 1995.
(4) During the period ended December 31, 1995, the fund has earned credits from
the custodian which reduce service fees incurred. If the credits are taken
into consideration, the ratio of expenses to average net assets would be
1.37%.
* Amount represents less than $0.01
Greenwich Street Series Fund - 35
<PAGE>
For a share of beneficial interest outstanding through each ended December 31:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
DIVERSIFIED STRATEGIC INCOME PORTFOLIO 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.98 $10.01 $ 9.18 $ 10.07
INCOME (LOSS) FROM OPERATIONS:
Net investment income(1)................................... 0.77 0.88 0.74 0.58
Net realized and unrealized gain (loss).................... 0.12 0.24 0.70 (0.86)
Total income (loss) from operations............................. 0.89 1.12 1.44 (0.28)
LESS DISTRIBUTIONS FROM:
Net investment income...................................... (0.98) (0.15) (0.61) (0.58)
Net realized gains......................................... -- -- -- --
Capital.................................................... -- -- -- (0.03)
Total distributions............................................. (0.98) (0.15) (0.061) (0.61)
NET ASSET VALUE, END OF YEAR.................................... $10.89 $10.98 $ 10.01 $ 9.18
TOTAL RETURN.................................................... 8.14% 11.16% 16.18% (2.81)%
NET ASSETS, END OF YEAR (000)'S................................. $ 62 $ 60 $ 59 $ 55
RATIOS TO AVERAGE NET ASSETS:
Expenses(1)................................................ 0.78% 0.84% 0.90% 0.95%
Net investment income...................................... 7.29 7.94 7.73 7.31
PORTFOLIO TURNOVER RATE......................................... 47% 106% 46% 54%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes realized gains and losses from foreign currency transactions for
the two years ended December 31, 1995.
Greenwich Street Series Fund - 36
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
INTERMEDIATE HIGH GRADE PORTFOLIO 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 10.70 $ 10.60 $ 9.66 $ 10.69
INCOME (LOSS) FROM OPERATIONS:
Net investment income(1)............................... 0.72 0.71 0.66 0.61
Net realized and unrealized gain (loss)................ 0.21 (0.53) 1.00 (0.94)
Total income (loss) from operations....................... 0.93 0.18 1.66 (0.33)
LESS DISTRIBUTIONS FROM:
Net investment income.................................. (0.74) (0.08) (0.72) (0.61)
Net realized gains..................................... -- -- -- (0.09)
Total distributions....................................... (0.74) (0.08) (0.72) (0.70)
NET ASSET VALUE, END OF YEAR.............................. $ 10.89 $ 10.70 $ 10.60 $ 9.66
TOTAL RETURN.............................................. 8.67% 1.69% 17.76% (3.05)%
NET ASSETS, END OF YEAR (000)'S........................... $15,100 $14,736 $16,152 $13,280
RATIOS TO AVERAGE NET ASSETS:
Expenses(1)............................................ 0.95% 0.90% 0.86% 0.85%
Net investment income.................................. 6.28 6.35 6.63 6.57
PORTFOLIO TURNOVER RATE................................... 66% 116% 121% 90%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the Intermediate High Grade Portfolio, the manager waived all or part of
its fees for the three years ended December 31, 1996. For the Intermediate
High Grade Portfolio, 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>
PER SHARE DECREASES TO EXPENSE RATIOS WITHOUT
NET INVESTMENT INCOME WAIVERS AND
REIMBURSEMENTS
--------------------------- --------------------------
PORTFOLIO 1996 1995 1994 1996 1995 1994
- --------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Intermediate High Grade 0.02 0.01 0.02 1.07 0.94 1.05
</TABLE>
Greenwich Street Series Fund - 37
<PAGE>
For a share of beneficial interest outstanding through 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
Net investment income(1)............................... 0.044 0.047 0.052 0.035
Dividends from net investment income................... (0.044) (0.047) (0.052) (0.035)
NET ASSET VALUE, END OF YEAR............................. $ 1.000 $ 1.000 $ 1.000 $ 1.000
TOTAL RETURN............................................. 4.47% 4.80% 5.31% 3.56%
NET ASSETS, END OF YEAR (000)'S.......................... $ 4,753 $ 5,888 $ 5,653 $ 7,141
RATIOS TO AVERAGE NET ASSETS:
Expenses(1)............................................ 1.20% 0.75% 0.75% 0.75%
Net investment income.................................. 4.38% 4.70 5.19 3.65
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the Money Market Portfolio, the manager waived all or part of its fees
for the three years ended December 31, 1996. For the Money Market Portfolio,
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>
PER SHARE DECREASES TO EXPENSE RATIOS WITHOUT
NET INVESTMENT INCOME WAIVERS AND
REIMBURSEMENTS
--------------------------- --------------------------
PORTFOLIO 1996 1995 1994 1996 1995 1994
- --------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Money Market $0.005 $0.005 $0.005 1.25% 1.21% 1.26%
</TABLE>
Greenwich Street Series Fund - 38
<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 a representative of a participating
life insurance company 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-xxx-xxxx
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 meant to 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 (the "prospectus"), 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.
CONTENTS
Management of the Fund
Investment Goals and Policies of the Portfolios
Additional Investment Policies
Risk Factors
Investment Restrictions
Purchase of Shares
Redemption of Shares
Net Asset Value
Performance Data
Taxes
Custodian and Transfer Agent
Financial Statements
Appendix A-1
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 American Capital Asset
Management, Inc.
("VKAC" or "Adviser")
Investment Adviser to Emerging
Growth Portfolio
CFBDS
("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 March 31, 1999, trustees and
officers of the fund as a group owned no shares of the fund.
HERBERT BARG (Age 75). Private Investor. His address is 273
Montgomery Avenue, Bala Cynwyd, Pennsylvania, 19004.
*ALFRED J. BIANCHETTI (Age 76). Retired; formerly Senior Consultant to
Dean Witter Reynolds Inc. His address is 19 Circle End Drive, Ramsey,
New Jersey 07466.
MARTIN BRODY (Age 77). 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). Professor, Harvard Business School. His
address is c/o Harvard Business School, Soldiers Field Road, Boston,
Massachusetts 02163.
BURT N. DORSETT (Age 68). 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). 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). Attorney. His address is 277 Park
Avenue, New York, New York 10172.
JOSEPH J. McCANN (Age 68). Financial Consultant. Retired Financial
Executive, Ryan Homes, Inc. His address is 200 Oak Park Place,
Pittsburgh, Pennsylvania 15243.
*HEATH B. McLENDON, Chairman of the Board and Investment Officer (Age
65). Managing Director of Salomon Smith Barney Inc. ("Salomon Smith
Barney"), Chairman of the Board of Smith Barney Strategy Advisers Inc.
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.
CORNELIUS C. ROSE, JR. (Age 65). 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, Senior Vice President and Treasurer (Age 41).
Managing Director of Salomon Smith Barney, Chief Financial Officer of
the Smith Barney Mutual Funds; Director and Senior Vice President of
SSBC and TIA.
HARRY D. COHEN, Vice President and Investment Officer (Age 56).
Managing Director of Salomon Smith Barney; Executive Vice President of
Salomon Smith Barney; Investment Officer of SSBC.
SCOTT GLASSER, Vice President and Investment Officer (Age 32).
Director of Salomon Smith Barney; Investment Officer of SSBC; prior to
October 1993, fixed income analyst with Bear, Stearns & Co. Inc
SANDIP A. BHAGAT, Vice President and Investment Officer (Age 38).
President of TIMCO; prior to 1995, Senior Portfolio Manager for TIMCO.
His address is One Tower Square, Hartford, Connecticut 06183-2030.
JOHN C. BIANCHI, Vice President and Investment Officer (Age 43).
Managing Director of Smith Barney; Investment Officer of SSBC.
ROBERT BRADY, Vice President and Investment Officer
Managing Director of Salomon Smith Barney; Investment Officer of SSBC.
JAMES CONHEADY, Vice President and Investment Officer (Age 63)
Managing Director of Salomon Smith Barney; Investment Officer of SSBC.
JAMES E. CONROY, Vice President and Investment Officer (Age 48).
Managing Director of Salomon Smith Barney; Investment Officer of SSBC.
DENIS DOHERTY, Vice President and Investment Officer (Age )
Director of Salomon Smith Barney; Investment Officer of SSBC.
R. JAY GERKEN, Vice President and Investment Officer (Age 47).
Managing Director of Salomon Smith Barney; Investment Officer of SSBC.
JOHN G. GOODE, Vice President and Investment Officer (Age 53). 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, Vice President and Investment Officer (Age 43).
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, Vice President and Investment Officer (Age 44). Senior
Vice President of Van Kampen American Capital Asset Management, Inc.
His address is 2800 Post Oak Boulevard, Houston, Texas 77056.
JEFFREY RUSSELL, Vice President and Investment Officer (Age 40).
Managing Director of Salomon Smith Barney; Investment Officer of SSBC.
PHYLLIS ZAHORODNY, Vice President and Investment Officer (Age 40).
Managing Director of Salomon Smith Barney; Investment Officer of SSBC.
CHRISTINA T. SYDOR, Secretary (Age 48). Managing Director of Salomon
Smith Barney; General Counsel and Secretary of SSBC and TIA.
As of March , 1999, the directors and officers of the fund, as a
group, owned less than 1% of the outstanding shares of beneficial
interest of the fund.
To the best knowledge of the directors, as of March , 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
Class
Percent Ownership
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 [$5,000] per annum plus [$500] per in-person
meeting and [$100] per telephonic meeting. The fund pays a trustee
emeritus who is not a trustee, officer or employee of Salomon Smith
Barney, the advisers, or any of their affiliates a fee of [$2,500] per
annum plus [$250] per in person meeting and [$50] per telephonic
meeting. Each trustee is reimbursed for travel and out-of-pocket
expenses incurred to attend such meetings.
For the calendar year ended December 31, 1998, the trustees of the fund
were paid the following compensation:
Pension or
Compensation
Number of
Retirement
From Fund
Funds for
Aggregate
Benefits
Accrued
And Fund
Which
Director
Compensat
ion
as part of
Complex
Serves Within
Name of Person
from Fund
+
Fund
Expenses
Paid to
Directors
Fund Complex
Herbert Berg**
$0
18
Alfred
Bianchetti* **
0
13
Martin Brody**
0
21
Dwight B. Crane**
0
24
Burt N. Dorsett*
**
0
13
Elliot S. Jaffe**
0
13
Stephen E.
Kaufman**
0
15
Joseph J.
McCann**
0
13
Heath B. McLendon
*
0
59
Cornelius C.
Rose, Jr.**
0
13
* Designates an "interested" Director.
** Designates member of Audit Committee.
Upon attainment of age 80, fund Directors are required to change to
emeritus status. Directors Emeritus are entitled to serve in emeritus
status for a maximum of 10 years, during which time they are paid 50%
of the annual retainer fee and meeting fees otherwise applicable to
fund Directors, together with reasonable out-of-pocket expenses for
each meeting attended. Directors Emeritus may attend meetings but have
no voting rights. During the fund's last fiscal year, aggregate
compensation paid by the fund to Directors Emeritus was $1,500.
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. 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.
SSBC is an affiliate of Salomon Smith Barney, and each is a wholly
owned subsidiary of Citigroup Inc. Global Capital Management, Sub-
Adviser to Diversified Strategic Income Portfolio, also is a subsidiary
of Citigroup.
VKAC is a diversified asset management company with more than two
million retail investor accounts, capabilities for managing
institutional portfolios, and over [$60 billion] under management or
supervision.
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.
Each adviser and the sub-adviser pays the salaries of all officers and
employees who are employed by both them and the fund, maintains office
facilities for the fund and bears all expenses in connection with the
performance of their respective services under their Agreements with
the fund.
The portfolios incurred the following investment advisory fees for the
past three years, which were partially waived for the years ended
December 31, 1998, 1997 and 1996 by their respective adviser:
Portfolio
December 31,
1998
December 31,
1997
December 31,
1996
Appreciation
$662,865
$536,120
Diversified Strategic
Income
263,097
266,327
Emerging Growth
146,478
142,425
Equity Income
194,623
215,308
Equity Index
56,376
69,030
Growth & Income
187,747
166,039
Intermediate High
Grade
59,572
60,847
International Equity
275,190
278,118
Money Market
16,034
17,904
Total Return
1,220,026
665,417
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.
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 companies with less than $2 billion of
market capitalization or annual sales. The current prospectus does not
define the early stage or emerging growth characteristics. 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 that the portfolio's assets
are not otherwise invested as described above, the assets may be held
in cash, in any currency, or invested in U.S. or foreign, high-quality
money market instruments and their equivalents.
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 that are
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 securities of non-U.S. issuers in
the form of depository receipts representing interests in the common
stocks of foreign issuers.
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 adviser expects that, once the portfolio's assets reach $25
million, the correlation between the performance of the portfolio and
that of the S&P 500 Index will be above 0.95, with a figure of 1.00
indicating perfect correlation. Perfect correlation would be achieved
when the portfolio's net asset value per share increases and decreases
in exact proportion to changes in the S&P 500 Index. 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 that are rated
investment grade or are deemed to be of comparable quality. The
portfolio may enter into repurchase agreements, lend portfolio
securities, enter into interest rate and stock index futures and
related options, purchase or sell securities on a when-issued or
delayed-delivery basis and write covered options.
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 ("GAMA"), the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("EHLMC"). 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 two
highest rating categories by Moody's, S&P, or the equivalent from
another NRSRO or, if not rated, believed by the adviser to be of
comparable quality).
Under normal market conditions, the average weighted maturity of the
portfolio's assets will be from three to ten years. The portion of the
portfolio's assets not invested in intermediate-term U.S. government
securities and U.S. corporate bonds may be invested in long- or
short-term U.S. government and corporate obligations, convertible
securities and preferred stock that is not convertible into common
stock. The portfolio may not hold securities rated lower than Baa by
Moody's or BBB by S&P, or the equivalent of another NRSRO or unrated
securities deemed to be comparable to securities rated below investment
grade. The portfolio may invest up to 10% of its total assets in
government stripped mortgage- backed securities and may invest in
floating- or variable-rate demand notes.
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 will invest
in short-term money market instruments, including: securities issued or
guaranteed by the U.S. government, its agencies and instrumentalities
("U.S. government securities"); repurchase agreements, U.S. and foreign
bank time deposits, certificates of deposit and bankers' acceptances;
high-grade commercial paper of U.S. and foreign issuers and other
short-term corporate debt obligations of such issuers that are
comparable in priority and security to such instruments, including
variable-rate and floating--rate instruments. Except when maintaining
a temporary defensive position, the Portfolio intends to invest more
than 25% of its assets in short-term bank instruments. The portfolio
will invest in money market instruments that are determined by the
adviser to present minimal credit risks and which at the time of
purchase are considered to be "Eligible Securities," as defined by the
SEC.
The portfolio will invest only in securities that are purchased with
and payable in U.S. dollars and that have (or, pursuant to regulations
adopted by the SEC, are deemed to have) remaining maturities of 13
months or less at the date of purchase by the portfolio. The portfolio
will maintain a dollar-weighted average portfolio maturity of 90 days
or less. The portfolio will follow these policies to maintain a
constant net asset value of $ 1.00 per share, although there is no
assurance that it can do so on a continuing basis.
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. Dividends on
the preferred stock may be cumulative, and all cumulative dividends
usually must be paid prior to common shareholders receiving any
dividends. Preferred stock dividends must be paid before common stock
dividends and, for that reason, preferred stocks generally entail less
risk than common stocks. Upon liquidation, preferred stocks are
entitled to a specified liquidation preference, which is generally the
same as the par or stated value, and are senior in right of payment to
common stock. Preferred stocks are, however, equity securities in the
sense that they do not represent a liability of the issuer and,
therefore, do not offer as great a degree of protection of capital or
assurance of continued income as investments in corporate debt
securities. In addition, preferred stocks are subordinated in right of
payment to all debt obligations and creditors of the issuer and
convertible preferred stocks may be subordinated to other preferred
stock of the same issuer.
Warrants (Appreciation, Emerging Growth, Equity Income, Growth &
Income, International Equity and Total Return Portfolios). The
portfolios may invest in warrants. Because a warrant does not carry
with it the right to dividends or voting rights with respect to the
securities that the warrant holder is entitled to purchase, and because
it does not represent any rights to the assets of the issuer, warrants
may be considered more speculative than certain other types of
investments. Also, the value of a warrant does not necessarily change
with the value of the underlying securities and a warrant ceases to
have value if it is not exercised prior to its expiration date.
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. A mortgage trust can make construction,
development or long-term mortgage loans, and are sensitive to the
credit quality of the borrower. Mortgage trusts derive their income
from interest payments. Hybrid trusts combine the characteristics of
both equity and mortgage trusts, generally by holding both ownership
interests and mortgage interests in real estate. The values of
securities issued by REITs are affected by tax and regulatory
requirements and by perceptions of management skill. They are also
subject to heavy cash flow dependency, defaults by borrowers or
tenants, self-liquidation, the possibility of failing to qualify for
tax-free status under the Internal Revenue Code of 1986, as amended
(the "Code"), and failing to maintain exemption from the Investment
Company Act of 1940, as amended.
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, Government National
Mortgage Association ("GNMA"), General Services Administration, Central
Bank for Cooperatives, Federal Farm Credit Banks, Federal Home Loan
Banks, Federal Home Loan Mortgage Corporation ("FHLMC"), Federal
Intermediate Credit Banks, Federal Land Banks, Federal National
Mortgage Association ("FNMA"), Maritime Administration, Tennessee
Valley Authority, District of Columbia Armory Board and Student Loan
Marketing Association. A Fund 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 Fund 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 Fund.
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
six NRSROs: S&P, Moody's, Fitch IBCA, Inc., Duff and Phelps Credit
Rating Co. and Thomson BankWatch. A discussion of the ratings
categories of the NRSROs is contained in the Appendix to the SAI.
The Money Market Portfolio generally may not invest more than 5% of its
total assets in the securities of any one issuer, except for U.S.
government securities. In addition, the portfolio may not invest more
than 5% of its total assets in Eligible Securities that have not
received the highest rating from the Requisite NRSRO and comparable
unrated securities ("Second Tier Securities") and may not invest more
than 1% of its total assets in the Second Tier Securities of any one
issuer. The portfolio may invest up to 25% of the then-current value of
the portfolio's total assets in the securities of a single issuer for a
period of up to three business days, provided that (a) the securities
are rated by the Requisite NRSRO in the highest short-term rating
category, are securities of issuers that have received such rating with
respect to other short-term debt securities or are comparable unrated
securities, and (b) the portfolio does not make more than one such
investment at any one time.
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 of whether the
portfolio should continue to hold the securities.
In addition, to the extent that the rating given by Moody's, S&P or
another NRSRO changes as a result of changes in such organization or
its rating system, or due to a corporate reorganization of such
organization, a portfolio will attempt to use comparable ratings as
standards for its investments in accordance with its investment goal
and policies.
The Money Market Portfolio is prohibited from purchasing a security
unless that security is (a) rated by at least two NRSROs (such as
Moody's or S&P) within the highest rating assigned to short-term debt
securities (or, if not rated or rated by only one agency, is determined
to be of comparable quality) or (b) rated by at least two NRSROs within
the two highest ratings assigned to short-term debt securities (or, if
not rated or rated by only one agency, is determined to be of
comparable quality) and not more than 5% of the assets of the portfolio
will be invested in such securities. Comparable quality shall be
determined in accordance with procedures established by the Board of
Trustees of the fund.
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 are. Adverse publicity and investor perceptions may also have a
negative impact on the value and liquidity of lower-rated, high-yield
securities, especially in a limited trading market.
Subsequent to its purchase by a portfolio, an issue of securities may
cease to be rated or its rating may be reduced below the minimum
required for purchase by the portfolio. Neither event will require sale
of such securities by the portfolio involved, but the portfolio's
adviser will consider such event in its determination of whether the
portfolio should continue to hold the securities.
Securities that are rated Ba by Moody's or BB by S&P or the equivalent
from another NRSRO have speculative characteristics with respect to
their capacity to pay interest and repay principal. Securities that are
rated B generally lack the characteristics of a desirable investment
and assurance of interest and principal payments over any long period
of time may be small. Securities that are rated Caa or CCC are of poor
standing. These issues may be in default or present elements of danger
with respect to principal or interest
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 will be determined by the portfolio's
adviser to be of comparable quality at the time of purchase to
instruments rated "high quality" (i.e., within the two highest rating
categories) by any NRSRO. Moreover, while there may be no active
secondary market with respect to a particular floating- or
variable-rate demand note purchased by the portfolio, the portfolio
may, upon the notice specified in the note, demand payment of the
principal of and accrued interest on the note at any time and may
resell the note at any time to a third party. The absence of such an
active secondary market, however, could make it difficult for the
portfolio to dispose of a particular floating- or variable- rate demand
note in the event the issuer of the note defaulted on its payment
obligations, and the portfolio could, for this or other reasons, suffer
a loss to the extent of the default.
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. The portfolios do not intend 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. GAMA, 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 GAMA, FNMA and FHLMC. In a forward roll
transaction, a portfolio sells a mortgage security to a financial
institution, such as a bank or broker-dealer, and simultaneously agrees
to repurchase a similar security from the institution at a later date
at an agreed-upon price. The mortgage securities that are repurchased
will bear the same interest rate as those sold, but generally will be
collateralized by different pools of mortgages with different
prepayment histories than those sold. During the period between the
sale and repurchase, the portfolio will not be entitled to receive
interest and principal payments on the securities sold. Proceeds of the
sale will be invested in short-term instruments, particularly
repurchase agreements, and the income from these investments, together
with any additional fee income received on the sale, will generate
income for the portfolio exceeding the yield on the securities sold.
Forward roll transactions involve the risk that the market value of the
securities sold by a portfolio may decline below the repurchase price
of those securities. At the time that a portfolio enters into a forward
roll transaction, it will place in a segregated 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 dollar-denominated funds from flowing across its borders.
Other risks include: adverse political and economic developments in a
foreign country; the extent and quality of government regulation of
financial markets and institutions; the imposition of foreign
withholding taxes; and expropriation or nationalization of foreign
issuers.
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.
A portfolio will not, however, enter into such transactions in a manner
which would adversely affect its status as an investment company for
Federal securities law or income tax purposes. Each portfolio will
invest in these instruments only in markets believed by its adviser to
be active and sufficiently liquid.
Options on Securities (Diversified Strategic Income, Emerging Growth,
Equity Income, Equity Index, Growth & Income, Intermediate High Grade,
International Equity, and Total Return Portfolios). The portfolios may
engage in the writing of covered put and call options and may enter
into closing transactions. The Intermediate High Grade, Diversified
Strategic Income, Equity Income, Total Return, International Equity and
Emerging Growth Portfolios also may purchase put and call options.
The principal reason for writing covered call options on securities is
to attempt to realize, through the receipt of premiums, a greater
return than would be realized on the securities alone. In return for a
premium, the writer of a covered call option forfeits the right to any
appreciation in the value of the underlying security above the strike
price for the life of the option (or until a closing purchase
transaction can be effected). Nevertheless, the call writer retains the
risk of a decline in the price of the underlying security. Similarly,
the principal reason for writing covered put options is to realize
income in the form of premiums. The writer of a covered put option
accepts the risk of a decline in the price of the underlying security.
The size of the premiums that a portfolio may receive may be adversely
affected as new or existing institutions, including other investment
companies, engage in or increase their option-writing activities.
Options written by a portfolio normally will have expiration dates
between one and nine months from the date written. The exercise price
of the options may be below, equal to or above the market values of the
underlying securities at the times the options are written. In the
case of call options, these exercise prices are referred to as "in-the-
money," "at-the-money" and "out-of-the-money," respectively. A
portfolio may write (a) in-the-money call options when its adviser
expects that the price of the underlying security will remain flat or
decline moderately during the option period, (b) at-the-money call
options when its adviser expects that the price of the underlying
security will remain flat or advance moderately during the option
period and (c) out-of-the-money call options when its adviser expects
that the price of the underlying security may increase but not above a
price equal to the sum of the exercise price plus the premiums received
from writing the call option. In any of the preceding situations, if
the market price of the underlying security declines and the security
is sold at this lower price, the amount of any realized loss will be
offset wholly or in part by the premium received. Out-of-the-money,
at-the-money and in-the-money put options (the reverse of call options
as to the relation of exercise price to market price) may be utilized
in the same market environments that such call options are used in
equivalent transactions.
So long as the obligation of a portfolio as the writer of an option
continues, the portfolio may be assigned an exercise notice by the
broker-dealer through which the option was sold, requiring the
portfolio to deliver, in the case of a call, or take delivery of, in
the case of a put, the underlying security against payment of the
exercise price. This obligation terminates when the option expires or
the portfolio effects a closing purchase transaction. A portfolio can
no longer effect a closing purchase transaction with respect to an
option once it has been assigned an exercise notice. To secure its
obligation to deliver the underlying security when it writes a call
option, or to pay for the underling security when it writes a put
option, a portfolio will be required to deposit in escrow the
underlying security or other assets in accordance with the rules of the
Options Clearing Corporation ("Clearing Corporation") and of the
securities exchange on which the option is written.
An option position may be closed out only where there exists a
secondary market for an option of the same series on a recognized
securities exchange or in the over-the-counter market. Because of this
and current trading conditions, the 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 original option and
will incur a loss if the cost of the closing purchase transaction
exceeds the premium received upon writing the original option.
Similarly, when a portfolio has purchased an option and engages in a
closing sale transaction, whether the portfolio realizes a profit or
loss will depend upon whether the amount received in the closing sale
transaction is more or less than the premium that the portfolio
initially paid for the original option plus the related transaction
costs.
Although a portfolio generally will purchase or write only those
options for which its adviser believes there is an active secondary
market so as to facilitate closing transactions, there is no assurance
that sufficient trading interest to create a liquid secondary market on
a securities exchange will exist for any particular option or at any
particular time, and for some options no such secondary market may
exist. A liquid secondary market in an option may cease to exist for a
variety of reasons. In the past, for example, higher than anticipated
trading activity or order flow or other unforeseen events have at times
rendered inadequate certain of the facilities of the Clearing
Corporation and securities exchanges which have resulted in the
institution of special procedures, such as trading rotations,
restrictions on certain types of orders or trading halts or suspensions
in one or more options. There can be no assurance that similar events,
or events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be
possible to effect closing transactions in particular options. If, as
a covered call option writer, a portfolio is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell
the underlying security until the option expires or it delivers the
underlying security upon exercise.
Securities exchanges generally have established limitations governing
the maximum number of calls and puts of each class which may be held or
written, or exercised within certain time periods, by an investor or
group of investors acting in concert (regardless of whether the options
are written on the same or different securities exchanges or are held,
written or exercised in one or more accounts or through one or more
brokers). It is possible that the portfolios and other clients of
their respective advisers and certain of their affiliates may be
considered to be such a group. A securities exchange may order the
liquidation of positions found to be in violation of these limits and
it may impose certain other sanctions.
In the case of options written by a portfolio that are deemed covered
by virtue of the portfolio's holding convertible or exchangeable
preferred stock or debt securities, the time required to convert or
exchange and obtain physical delivery of the underlying common stocks
with respect to which the portfolio has written options may exceed the
time within which the portfolio must make delivery in accordance with
an exercise notice. In these instances, a portfolio may purchase or
temporarily borrow the underlying securities for purposes of physical
delivery. By so doing, the portfolio will not bear any market risk,
because the portfolio will have the absolute right to receive from the
issuer of the underlying security an equal number of shares to replace
the borrowed stock, but the portfolio may incur additional transaction
costs or interest expenses in connection with any such purchase or
borrowing.
Additional risks exist with respect to certain of the U.S. government
securities for which a portfolio may write covered call options. If a
portfolio writes covered call options on mortgage-backed securities,
the securities that it holds as cover may, because of scheduled
amortization or unscheduled prepayments, cease to be sufficient cover.
The portfolio will compensate for the decline in the value of the
cover by purchasing an appropriate additional amount of those
securities.
Stock Index Options (Equity Income, Equity Index, Emerging Growth,
Growth & Income, International Equity and Total Return Portfolios).
The portfolios may purchase call options on stock indexes listed on
U.S. securities exchanges for the purpose of hedging their portfolios.
The Total Return Portfolio may also write call and buy put options on
stock indexes. A stock index fluctuates with changes in the market
values of the stocks included in the index. Stock index options may be
based on a broad market index such as the New York Stock Exchange
Composite Index or a narrower market index such as the 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 that
are traded on a U.S. exchange or board of trade.
An interest rate futures contract provides for the future sale by one
party and the purchase by another party of a certain amount of a
specific financial instrument (debt security) at a specified price,
date, time and place. Similarly, a foreign currency futures contract
provides for the future sale by one party and the purchase by another
party of a certain amount of a particular currency at a specified
price, date, time and place. A stock index futures contract is an
agreement pursuant to which two parties agree to take or make delivery
of an amount of cash equal to the difference between the value of the
index at the close of the last trading day of the contract and the
price at which the index contract was originally written. No physical
delivery of the underlying securities in the index is made.
The purpose of the acquisition or sale of a futures contract by a
portfolio, other than the Equity Index, Total Return, International
Equity and Emerging Growth Portfolios, is to mitigate the effects of
fluctuations in the value of its securities caused by anticipated
changes in interest rates, market conditions or currency values without
actually buying or selling the securities. Of course, because the
value of portfolio securities will far exceed the value of the futures
contracts entered into by a portfolio, an increase in the value of the
futures contracts could only mitigate, but not totally offset, the
decline in the value of the portfolio.
No consideration is paid or received by a portfolio upon entering into
a futures contract. Initially, a portfolio will be required to deposit
with the broker an amount of cash or cash equivalents equal to
approximately 1% to 10% of the contract amount (this amount is subject
to change by the board of trade on which the contract is traded and
members of such board of trade may charge a higher amount). This
amount, known as "initial margin," is in the nature of a performance
bond or good faith deposit on the contract and is returned to a
portfolio upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Subsequent payments,
known as "variation margin," to and from the broker will be made daily
as the price of the securities, currency or index underlying the
futures contract fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as "marking-to-
market." At any time prior to expiration of a futures contract, a
portfolio may elect to close the position by taking an opposite
position, which will operate to terminate the portfolio's existing
position in the contract.
Several risks are associated with the use of futures contracts as a
hedging device. Successful use of futures contracts by a portfolio is
subject to the ability of its adviser to predict correctly movements in
interest rates, changes in market conditions or fluctuations in
currency values. These predictions involve skills and techniques that
may be different from those involved in the management of the portfolio
being hedged. In addition, there can be no assurance that there will
be a correlation between movements in the price of the underlying
securities, index or currency and movements in the price of the
securities or currency that is the subject of a hedge. A decision of
whether, when and how to hedge involves the exercise of skill and
judgment, and even a well-conceived hedge may be unsuccessful to some
degree because of market behavior or unexpected trends in interest
rates or currency values.
Although the portfolios intend to enter into futures contracts only if
there is an active market for such contracts, there is no assurance
that an active market will exist for the contracts at any particular
time. Most U.S. futures exchanges and boards of trade limit the amount
of fluctuation permitted in futures contract prices during a single
trading day. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond that limit.
It is possible that futures contract prices could move to the daily
limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses. In such event,
and in the event of adverse price movements, a portfolio would be
required to make daily cash payments of variation margin, and an
increase in the value of the portion of the portfolio being hedged, if
any, may partially or completely offset losses on the futures contract.
As described above, however, there is no guarantee that the price of
the securities or value of the currency being hedged will, in fact,
correlate with the price movements in a futures contract and thus
provide an offset to losses on the futures contract.
If a portfolio has hedged against the possibility of a change in
interest rates, market conditions or currency values adversely
affecting the value of securities held in its portfolio and interest
rates, market conditions or currency values move in a direction
opposite to that which has been anticipated, the portfolio will lose
part or all of the benefit of the increased value of securities or
currencies that it has hedged because it will have offsetting losses in
its futures positions. Additionally, if in such situations the
portfolio has insufficient cash, it may have to sell securities to meet
daily variation margin requirements at a time when it may be
disadvantageous to do so. These sales of securities may, but will not
necessarily, be at increased prices that reflect the change in interest
rates, market conditions or currency values, as the case may be.
Options on Futures Contracts. An option on a futures contract, as
contrasted with the direct investment in such a contract, gives the
purchaser the right, in return for the premium paid, to assume a
position in the underlying futures contract at a specified exercise
price at any time prior to the expiration date of the option. Upon
exercise of an option, the delivery of the futures position by the
writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin
account, which represents the amount by which the market price of the
futures contract exceeds, in the case of a call, or is less than, in
the case of put, the exercise price of the option on the futures
contract. The potential for loss related to the purchase of an option
on a futures contract is limited to the premium paid for the option
plus transaction costs. Because the value of the option is fixed at
the point of sale, there are no daily cash payments to reflect changes
in the value of the underlying contract; however, the value of the
option does change daily and that change would be reflected in the net
asset value of a portfolio holding the options.
The portfolios may purchase and write put and call options on futures
contracts that are traded on a U.S. exchange or board of trade as a
hedge against changes in the value of their portfolio securities, or,
in the case of the Equity Index Portfolio, in anticipation of the
purchase of securities, and may enter into closing transactions with
respect to such options to terminate existing positions. There is no
guarantee that such closing transactions can be effected.
Several risks are associated with options on futures contracts. The
ability to establish and close out positions on such options will be
subject to the existence of a liquid market. In addition, the purchase
of put or call options will be based upon predictions by an adviser as
to anticipated trends, and such predictions could prove to be
incorrect. Even if an adviser's expectations are correct, there may be
an imperfect correlation between the change in the value of the options
and of the portfolio securities being hedged.
Currency Exchange Transactions (Diversified Strategic Income, Emerging
Growth, and International Equity Portfolios). The portfolios' dealings
in forward currency exchange will be limited to hedging involving
either specific transactions or portfolio positions. Transaction
hedging is the forward purchase or sale of currency with respect to
specific receivables or payables of the portfolio, generally arising in
connection with the purchase or sale of its portfolio securities.
Position hedging is the forward sale of currency with respect to
portfolio security positions denominated or quoted in the currency.
The portfolios may not position hedge with respect to a particular
currency to an extent greater than the aggregate market value at any
time of the securities held in its portfolio denominated or quoted in
or currently convertible (such as through exercise of an option or
consummation of a forward contract) into that particular currency. If
a portfolio enters into a transaction hedging or position hedging
transaction, it will cover the transaction through one or more of the
following methods: (a) ownership of the underlying currency or an
option to purchase such currency; (b) ownership of an option to enter
into an offsetting forward contract; (c) entering into a forward
contract to purchase currency being sold or to sell currency being
purchased, provided that such covering contract is itself covered by
one of these methods, unless the covering contract closes out the first
contract; or (d) depositing into a segregated account with the
Custodian cash or readily marketable securities in an amount equal to
the value of the portfolio's total assets committed to the consummation
of the forward contract and not otherwise covered. In the case of
transaction hedging, any securities placed in the account must be
liquid debt securities. In any case, if the value of the securities
placed in the segregated account declines, additional cash or
securities will be placed in the account so that the value of the
account will equal the above amount. Hedging transactions may be made
from any foreign currency into U.S. dollars or into other appropriate
currencies.
At or before the maturity of a forward contract, the portfolio either
may sell a portfolio security and make delivery of the currency, or
retain the security and offset its contractual obligation to deliver
the currency by purchasing a second contract pursuant to which the
portfolio will obtain, on the same maturity date, the same amount of
the currency it is obligated to deliver. If the portfolio retains the
portfolio security and engages in an offsetting transaction, at the
time of execution of the offsetting transaction, it will incur a gain
or loss to the extent movement has occurred in forward contract
prices. Should forward prices decline during the period between the
portfolio's entering into a forward contract for the sale of a currency
and the date it enters into an offsetting contract for the purchase of
the currency, the portfolio will realize a gain to the extent that the
price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the
portfolio will realize a loss to the extent the price of the currency
it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
The cost to a portfolio of engaging in currency transactions varies
with factors such as the currency involved, the length of the contract
period and the market conditions then prevailing. Because transactions
in currency exchange are usually conducted on a principal basis, no
fees or commissions are involved. The use of forward currency
contracts does not eliminate fluctuations in the underlying prices of
the securities, but it does establish a rate of exchange that can be
achieved in the future. In addition, although forward currency
contracts limit the risk of loss due to a decline in the value of the
hedged currency, at the same time they limit any potential gain that
might result should the value of the currency increase.
If a devaluation is generally anticipated, a portfolio may not be able
to contract to sell the currency at a price above the devaluation level
it anticipates.
Foreign Currency Options (Diversified Strategic Income, Emerging Growth
and International Equity Portfolios). The portfolios may purchase put
and call options on foreign currencies for the purpose of hedging
against changes in future currency exchange rates. Put options convey
the right to sell the underlying currency at a price that is
anticipated to be higher than the spot price of the currency at the
time the option expires. Call options convey the right to buy the
underlying currency at a price that is expected to be lower than the
spot price of the currency at the time the option expires.
A portfolio may use foreign currency options under the same
circumstances that it could use forward currency exchange transactions.
A decline in the U.S. dollar value of a foreign currency in which the
portfolio's securities are denominated, for example, will reduce the
U.S. dollar value of the securities, even if their value in the foreign
currency remains constant. In order to protect against such diminution
in the value of securities it holds, the portfolio may purchase put
options on the foreign currency. If the value of the currency does
decline, the portfolio will have the right to sell the currency for a
fixed amount in U.S. dollars and will thereby offset, in whole or in
part, the adverse effect on its securities that otherwise would have
resulted. Conversely, if a rise in the U.S. dollar value of a currency
in which securities to be acquired are denominated is projected,
thereby potentially increasing the cost of the securities, the
portfolio may purchase call options on the particular currency. The
purchase of these options could offset, at least partially, the effects
of the adverse movements in exchange rates. The benefit to the
portfolio derived from purchases of foreign currency options, like the
benefit derived from other types of options, will be reduced by the
amount of the premium and related transaction costs. In addition, if
currency exchange rates do not move in the direction or to the extent
anticipated, the portfolio could sustain losses on transactions in
foreign currency options that would require it to forego a portion or
all of the benefits of advantageous changes in the rates.
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 that are 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, except where at least two dealers make
a market in such securities) and in other securities that are not
readily marketable, including repurchase agreements maturing in more
than seven days. With respect to the Diversified Strategic Income
Portfolio, this restriction will not apply to securities subject to
Rule 144A of the 1933 Act. Restricted securities are generally
purchased at a discount from the market price of unrestricted
securities of the same issuer. Investments in restricted securities
are not readily marketable without some time delay. Investments in
securities which have no readily available market value are valued at
fair value as determined in good faith by the Fund's Board of Trustees.
Ordinarily, a Portfolio would invest in restricted securities only
when it receives the issuer's commitment to register the securities
without expense to the portfolio. However, registration and
underwriting expenses (which may range from 7% to 15% of the gross
proceeds of the securities sold) may be paid by the portfolio. A
portfolio position in restricted securities might adversely affect the
liquidity and marketability of such securities, and the portfolio might
not be able to dispose of its holdings in such securities at reasonable
price levels.
Reverse Repurchase Agreements (Diversified Strategic Income, Equity
Income, Intermediate High Grade and International Equity Portfolios).
The fund does not currently intend to commit more than 5% of the
portfolios' net assets to reverse repurchase agreements. The
portfolios 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 fund
pursuant to its agreement to repurchase them at a mutually agreed upon
date, price and rate of interest. At the time the portfolio enters
into a reverse repurchase agreement, it will establish and maintain a
segregated account with an approved custodian 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 fund 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 fund'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 with the Fund's Custodian, convertible preferred
stock or convertible debt securities in connection with short sales
against the box. The extent to which the portfolio may make short sales
of common stock may be limited by the requirements contained in Section
401(a) of the Code, for qualification as a regulated investment
company.
Lending of Portfolio Securities (Appreciation, Diversified Strategic
Income, Emerging Growth, Equity Index, Equity Income, Growth & Income,
Intermediate High Grade, International Equity and Total Return
Portfolios).. Consistent with applicable regulatory requirements, the
fund may lend portfolio securities to brokers, dealers and other
financial organizations that meet capital and other credit requirements
or other criteria established by the Board. The fund will not lend
portfolio 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 fund. From time to time, the fund 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, the fund 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. Although the generation of income is not the
primary investment goal of the fund, income received could be used to
pay the fund's expenses and would increase an investor's total return.
The fund will adhere to the following conditions whenever its
portfolio securities are loaned: (i) the fund 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) the fund must be able
to terminate the loan at any time; (iv) the fund 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) the fund 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 Fund'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 33 113% 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
that is in the initial stages of its industrialization cycle. Investing
in the equity and fixed-income markets of developing countries involves
exposure to economic structures that are generally less diverse and
mature, and to political systems that can be expected to have less
stability, than those of developed countries. Historical experience
indicates that the markets of developing countries have been more
volatile than the markets of the more mature economies of developed
countries; however, such markets often have provided higher rates of
return to investors.
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 that 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 Fund 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 Fund will suffer from having to reinvest in lower
yielding securities. Extension risk exists when the issuer may
exercise its right to pay principal on an obligation later than
scheduled, which would cause cash flows to be returned later than
expected. This typically results when interest rates have increased,
and a Fund 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 price 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 Fund 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 portfolios'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 Fund
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 (and not a true security
like a stock or a bond). 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.
Market risk: The instrument will decline in value or that an
alternative investment would have appreciated more, but this is no
different from the risk of investing in conventional securities.
Leverage and associated price volatility: Leverage causes
increased volatility in the price and magnifies the impact of adverse
market changes, but this risk may be consistent with the investment
objective of even a conservative portfolio in order to achieve an
average portfolio volatility that is within the expected range for that
type of portfolio.
Credit risk: The issuer of the instrument may default on its
obligation to pay interest and principal.
Liquidity and valuation risk: Many derivative instruments are
traded in institutional markets rather than on an exchange.
Nevertheless, many derivative instruments are actively traded and can
be priced with as much accuracy as conventional securities. Derivative
instruments that are custom designed to meet the specialized investment
needs of a relatively narrow group of institutional investors such as
the portfolios are not readily marketable and are subject to a
portfolio's restrictions on illiquid investments.
Correlation risk: There may be imperfect correlation between the
price of the derivative and the underlying asset. For example, there
may be price disparities between the trading markets for the derivative
contract and the underlying asset.
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 that 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. To the extent that a portfolio purchases
mortgage-related securities at a premium, mortgage foreclosures and
prepayments of principal by mortgagors (which may be made at any time
without penalty) may result in some loss of the portfolio's principal
investment to the extent of the premium paid. The yield of a portfolio
that invests in mortgage-related securities may be affected by
reinvestment of prepayments at higher or lower rates than the original
investment. In addition, like other debt securities, the values of
mortgage-related securities, including government and
government-related mortgage pools, will generally fluctuate in relation
to interest rates.
Asset-Backed Securities. The Diversified Strategic Income Portfolio
and Intermediate High Grade Portfolio may invest in as set- backed
securities arising through the grouping by governmental,
government-related and private organizations of loans, receivables and
other assets originated by various lenders. Interests in pools of these
assets differ from other forms of debt securities, which normally
provide for periodic payment of interest in fixed amounts with
principal paid at maturity or specifies call dates. Instead,
asset-backed securities provide periodic payments that generally
consist of both interest and principal payments.
The estimated life of an asset-backed security varies with the
prepayment experience with respect to the underlying debt instruments.
The rate of such prepayments, and hence the life of an asset-backed
security, will be primarily a function of current market interest
rates, although other economic and demographic factors may be involved.
For example, falling interest rates generally result in an increase in
the rate of prepayments of mortgage loans while rising interest rates
generally decrease the rate of prepayments. An acceleration of
prepayments m response to sharply falling interest rates will shorten
the security's average maturity and limit the potential appreciation in
the security's value relative to a conventional debt security.
Consequently, asset-backed securities are not as effective in locking
in high long-term yields. Conversely, in periods of sharply rising
rates, prepayments generally slow, increasing the security's average
life and its potential for price depreciation.
Government Stripped Mortgage-Backed Securities. The Intermediate High
Grade Portfolio may invest up to 10% of its total assets in government
stripped mortgage-backed securities issued and guaranteed by GAMA, 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 GAMA, FNMA or FHLMC, as the case may be. The certificates underlying
government stripped mortgage-backed securities represent all or part of
the beneficial interest in pools of mortgage loans.
Investing in government stripped mortgage-backed securities involves
the risks normally associated with investing in mortgage-backed
securities issued by government or government-related entities. See
"Mortgage-Related Securities" above. In addition, the yields on
government stripped mortgage-backed securities are extremely sensitive
to the prepayment experience on the mortgage loans underlying the
certificates collateralizing the securities. If a decline in prevailing
interest rates results in a rate of principal prepayments higher than
anticipated, distributions of principal will be accelerated, thereby
reducing the yield to maturity on interest-only government stripped
mortgage-backed securities and increasing the yield to maturity on
principal-only government stripped mortgage-backed securities.
Sufficiently high prepayment rates could result in the portfolio not
fully recovering its initial investment in an interest-only government
stripped mortgage-backed security. Government stripped mortgage-backed
securities are currently traded in an over-the-counter market
maintained by several large investment banking firms. There can be no
assurance that the portfolio will be able to effect a trade of a
government stripped mortgage-backed security at a time when it wishes
to do so, although the portfolio will acquire government stripped
mortgage-backed securities only if a secondary market for the
securities exists at the time of acquisition.
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 will adopt a single currency
- - the euro. For participating countries, EMU will mean sharing a
single currency and single official interest rate and adhering to
agreed upon limits on government borrowing. Budgetary decisions will
remain in the hands of each participating country, but will be 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 Funds'
portfolios.
Year 2000. The investment management services provided to each
portfolio by its adviser and the services provided by the administrator
depend on the smooth functioning of its computer systems and those of
its service providers. Many computer software systems in use today
cannot recognize the year 2000, but revert to 1900 or some other date,
due to the manner in which dates were encoded and calculated. That
failure could have a negative impact on each portfolio's operations,
including the handling of securities trades, pricing and account
services. The adviser and administrator has advised each portfolio that
it has been reviewing all of its computer systems and actively working
on necessary changes to its systems to prepare for the year 2000 and
expect that its systems will be compliant before that date. In
addition, the manager has been advised by each portfolio's custodian,
distributor, transfer agent and accounting service agent that they are
also in the process of modifying their systems with the same goal.
There can, however, be no assurance that the manager or any other
service provider will be successful, or that interaction with other
non-complying computer systems will not impair fund services at that
time.
Portfolio 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 8 have been adopted by
the fund with respect to the portfolios as fundamental policies for the
protection of shareholders. Under the 1940 Act, a portfolio's
fundamental policy may not be changed without the vote of a "majority"
of the outstanding voting securities of that portfolio. "Majority" is
defined in the 1940 Act as the lesser of (a) 67% or more of the shares
present at a fund meeting, if the holders of more than 50% of the
outstanding shares of that portfolio are present or represented by
proxy, or (b) more than 50% of the outstanding shares. A fundamental
policy affecting a particular portfolio may not be changed without the
vote of a majority of the outstanding shares of that portfolio. 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.
6. Making loans. This restriction does not apply to: (a) the
purchase of debt obligations in which the portfolio may invest
consistent with its investment objectives and policies; (b)
repurchase agreements; and (c) loans of its portfolio securities,
to the fullest extent permitted under the 1940 Act.
7. Invest more than 25% of its total assets in securities, the
issuers of which conduct their principal business activities in
the same industry. For purposes of this limitation, securities
of the U.S. government (including its agencies and
instrumentalities) and securities of state or municipal
governments and their political subdivisions are not considered
to be issued by members of any industry; provided that this
limitation shall not apply to the purchase of (a) with respect
to the Money Market Portfolio, U.S. dollar-denominated bank
instruments such as Cds, Tds, bankers' acceptances and letters of
credit that have been issued by U.S. banks or (b) with respect to
the Equity Income Portfolio, the securities of companies within
the utility industry.
8. Issuing "senior securities" as defined in the 1940 Act and
the rules, regulations and orders thereunder, except as permitted
under the 1940 Act and the rules, regulations and orders
thereunder.
9. Investing in oil, gas or other mineral exploration or
development programs, except that the portfolios may invest in
the securities of companies that invest in or sponsor these
programs.
10. 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.
11. Purchasing, writing or selling puts, calls, straddles,
spreads or combinations thereof, except as permitted under the
portfolio's investment goals and policies.
12. 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.
13. 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).
14. 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.)
15. Making investments for the purpose of exercising control or
management.
16. 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.
17. With regard to the Equity Income Portfolio, purchase 10% or
more of the voting securities of a public utility or public
utility holding company, so as to become a public utility holding
company as defined in the Public Utility Holding Company Act of
1935, as amended.
The percentage limitations contained in the restrictions listed above
apply at the time of purchases of securities.
Portfolio Turnover
The Money Market Portfolio may attempt to increase yields by trading to
take advantage of short-term market variations, which results in high
portfolio turnover. Because purchases and sales of money market
instruments are usually effected as principal transactions, this policy
does not result in high brokerage commissions to the portfolio. The
other portfolios do not intend to seek profits through short-term
trading. Nevertheless, the portfolios will not consider portfolio
turnover rate a limiting factor in making investment decisions.
A portfolio's turnover rate is calculated by dividing the lesser of
purchases or sales of its portfolio securities for the year by the
monthly average value of the portfolio's securities. Securities or
options with remaining maturities of one year or less on the date of
acquisition are excluded from the calculation. Under certain market
conditions, a portfolio authorized to engage in transactions in options
may experience increased portfolio turnover as a result of its
investment strategies. For instance, the exercise of a substantial
number of options written by a portfolio (due to appreciation of the
underlying security in the case of call options or depreciation of the
underlying security in the case of put options) could result in a
turnover rate in excess of 100%. A portfolio turnover rate of 100%
would occur if all of a portfolio's securities that are included in the
computation of turnover were replaced once during a period of one year.
The portfolios cannot accurately predict their portfolio turnover rates
but anticipate that annual turnover for each portfolio will not exceed
the following percentages: Intermediate High Grade Portfolio - 100%;
Diversified Strategic Income Portfolio - 100%; Equity Income Portfolio
- - 100%; Equity Index Portfolio - 20%; Growth & Income Portfolio - 50%;
Appreciation Portfolio - 50%; Total Return Portfolio - 100%; Emerging
Growth Portfolio - 100%; and International Equity Portfolio - 100%.
For regulatory purposes, the portfolio turnover rate for the Money
Market Portfolio will be considered 0%.
For the 1996, 1997 and 1998 fiscal years, the portfolio turnover rates
for portfolios having operations during the stated periods were as
follows:
Portfolio
December 31,
1996
December 31,
1997
December 31,
1998
Appreciation
39%
34%
%
Diversified Strategic
Income
10
47
Emerging Growth
84
102
Equity Income
28
42
Equity Index
7
6
Growth & Income
22
17
Intermediate High
Grade
116
66
International Equity
33
21
Total Return
82
75
Certain other practices that may be employed by a portfolio also could
result in high portfolio turnover. For example, portfolio securities
may be sold in anticipation of a rise in interest rates (market
decline) or purchased in anticipation of a decline in interest rates
(market rise) and later sold. In addition, a security may be sold and
another of comparable quality purchased at approximately the same time
to take advantage of what an 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 Smith
Barney
Appreciation
Diversified Strategic
Income
Emerging Growth
Equity Income
Equity Index
Growth & Income
International Equity
Total Return
Fiscal Year Ended December 31, 1997
Total Brokerage
Brokerage
Commissions
Portfolio
Commissions Paid
Paid to Smith
Barney
Appreciation
$76,960
$3,240
Diversified Strategic
Income
0
0
Emerging Growth
24,590
324
Equity Income
75,365
1,200
Equity Index
6,685
0
Growth & Income
157,715
0
International Equity
57,156
650
Total Return
46,446
14,850
Fiscal Year Ended December 31, 1996
Total Brokerage
Brokerage
Commissions
Portfolio
Commissions Paid
Paid to Smith
Barney
Appreciation
$97,345
$0
Diversified Strategic
Income
1,200
0
Emerging Growth
24,692
566
Equity Income
54,224
4,320
Equity Index
3,060
0
Growth & Income
6,360
60
International Equity
79,738
1,859
Total Return
338,129
6,000
Fiscal Year Ended December 31, 1998
% of Aggregate
Dollar
% of Aggregate
Amount of
Transactions
Brokerage
Commissions
Involving
Commissions
Portfolio
Paid to Smith
Barney Inc.
Paid to Smith
Barney Inc.
Appreciation
Diversified Strategic
Income
Emerging Growth
Equity Income
Equity Index
Growth & Income
International Equity
Total Return
In selecting brokers or dealers to execute securities transactions on
behalf of a portfolio, its adviser seeks the best overall terms
available. In assessing the best overall terms available for any
transaction, each adviser will consider the factors that the adviser
deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution
capability of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and on a continuing
basis. In addition, each advisory agreement between the Fund and an
adviser authorizes the adviser, in selecting brokers or dealers to
execute a particular transaction and in evaluating the best overall
terms available, to consider the brokerage and research services (as
those terms are defined in Section 28(e) of the Securities Exchange Act
of 1934) provided to the fund, the other portfolios and/or other
accounts over which the adviser or its affiliates exercise investment
discretion. The fees under the investment advisory agreements and the
sub-investment advisory and/or administration agreements between the
fund and the advisers and the sub-adviser and/or administrator,
respectively, are not reduced by reason of their receiving such
brokerage and research services. The fund's Board of Trustees, in its
discretion, may authorize the advisers to cause the portfolios to pay a
broker that provides such brokerage and research services a brokerage
commission in excess of that which another broker might have charged
for effecting the same transaction, in recognition of the value of such
brokerage and research services. The fund's Board of Trustees
periodically will review the commissions paid by the portfolios to
determine if the commissions paid over representative periods of time
were reasonable in relation to the benefits inuring to the fund.
To the extent consistent with applicable provisions of the 1940 Act and
the rules and exemptions adopted by the SEC thereunder, the fund's
Board of Trustees has determined that portfolio transactions for a
portfolio may be executed through 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.
Counsel and Auditors
Willkie Farr & Gallagher serves as counsel to the fund. Stroock &
Stroock & Lavan LLP serves as counsel to the Trustees who are not
interested persons of the fund.
KPMG Peat Marwick LLP, independent auditors, 345 Park Avenue, New York,
New York 10154, has been selected as the fund's independent auditors to
examine and report on the fund's financial statements and highlights
for the fiscal year ending December 31, 1998.
Organization of the Fund
The fund was organized as a business trust under the laws of the
Commonwealth of Massachusetts pursuant to a Master Trust Agreement
dated May 13, 1991, as amended from time to time (the "Trust
Agreement"). The fund commenced operations on October 16, 1991, under
the name Shearson Series Fund. On July 30, 1993, October 14, 1994 and
July 24, 1997, the Fund changed its name to Smith Barney Shearson
Series Fund, Smith Barney Series Fund, and Greenwich Street Series
Fund, respectively.
In the interest of economy and convenience, certificates representing
shares in the Fund are not physically issued. The transfer agent
maintains a record of each shareholder's ownership of fund shares.
Shares do not have cumulative voting rights, which means that holders
of more than 50% of the shares voting for the election of trustees can
elect all of the trustees. Shares are transferable but have no
preemptive, conversion or subscription rights. Annuity owners generally
vote by portfolio, except with respect to the election of trustees and
the selection of independent public accountants. The variable account
will vote the shares of the fund held by the variable account at
regular and special meetings of the shareholders of the various
portfolios in accordance with instructions received from the owners of
a variable annuity contract or a certificate evidencing interest in a
variable annuity (the "Contract"), offered by certain insurance
companies designated by the fund, having a voting interest in the
relevant subaccount (the "Subaccount"). For a discussion of the rights
of Contract owners concerning the voting of shares, please refer to the
Contract prospectus.
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
holdings 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 only be acquired by buying a Contract from a life insurance
company designated by the fund and directing the allocation of part or
all of the net purchase payment to one or more of ten subaccounts, each
of which invests in a portfolio as permitted under the Contract
prospectus. Investors should read this SAI and the fund's prospectus
dated April 30, 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, however,
Class II shares are subject to an annual distribution fee of 0.25% of
the daily net assets of the Class. However, surrender charges that may
be assessed under the Contract are described in the Contract
prospectus. Mortality and expense risk fees and other charges are also
described in the Contract prospectus.
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 fund would receive if it sold the
instrument.
The use by the Money Market Portfolio of the amortized cost method of
valuing its portfolio securities is permitted by a rule adopted by the
SEC. Under this rule, the portfolio must maintain a dollar-weighted
average portfolio maturity of ninety days or less, purchase only
instruments having remaining maturities of thirteen months or less, and
invest only in securities determined by the Board of Trustees of the
fund to be "Eligible Securities," as determined by the SEC, with
minimal credit risks. Pursuant to the rule, the fund's Board of
Trustees also has established procedures designed to stabilize, to the
extent reasonably possible, the portfolio's price per share as computed
for the purpose of sales and redemptions at $1.00. Such procedures
include review of the portfolio's holdings by the fund's Board of
Trustees, at such intervals as it may deem appropriate, to determine
whether the portfolio's net asset value calculated by using available
market quotations or market equivalents deviates from $1.00 per share
based on amortized cost.
The rule also provides that the extent of any deviation between the
portfolio's net asset value based upon available market quotations or
market equivalents and the $1.00 per share net asset value based on
amortized cost must be examined by the fund's Board of Trustees. In
the event that the fund's Board of Trustees determines that a deviation
exists that may result in material dilution or other unfair results to
investors or existing shareholders, pursuant to the rule the fund's
Board of Trustees must cause the portfolio to take such corrective
action as the fund's Board of Trustees regards as necessary and
appropriate, including: selling portfolio instruments prior to maturity
to realize capital gains or losses or to shorten average portfolio
maturity; withholding dividends or paying distributions from capital
gains; redeeming shares in kind; or establishing a net asset value per
share by using available market quotations.
PERFORMANCE DATA
From time to time, the fund may quote yield or total return in
advertisements or in reports and other communications to shareholders.
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 Diversified Strategic Income Portfolio and the Intermediate
High Grade Portfolio, from time to time, the Fund may advertise the 30-
day yield. The yield of a portfolio refers to the income generated by
an investment in such portfolio over the 30-day period identified in
the advertisement and is computed by dividing the net investment income
per share earned by the portfolio during the period by the net 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.
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 of the
measure period to the end of the measuring period. These figures
reflect changes in the price of the portfolio's shares and assume that
any income dividends and/or capital gains distributions made by the
portfolio during the period were reinvested in shares of the portfolio.
Figures will be given for recent one-, five- and ten-year periods (if
applicable), and may be given for other periods as well (such as from
commencement of the portfolio's operations or on a year-by-year basis).
When considering average annual total return figures for periods
longer than one year, it is important to note that the relevant
portfolio's annual total return for any one year in the period might
have been greater or less than the average for the entire period. A
portfolio also may use "aggregate" total return figures for various
periods, representing the cumulative change in value of an investment
in the portfolio for the specific period (again reflecting changes in a
portfolio's share prices and assuming reinvestment of dividends and
distributions). Aggregate total returns may be shown by means of
schedules, charts or graphs and may indicate subtotals of the various
components of total return (i.e., changes in value of initial
investment, income dividends and capital gains distributions).
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):
Per annum for
the
period from
commencement
One-Year
Period
Five-Year
Period
of operations
Portfolio
Ended
12/31/98
Ended
12/31/98
through
12/31/98
Appreciation*
Diversified Strategic
Income*
Emerging Growth**
Equity Income*
Equity Index*
Growth & Income*
Intermediate High Grade*
International Equity**
Total Return**
* Portfolio commenced operations on October 16, 1991.
** Portfolio commenced operations on December 3, 1993.
Aggregate Total Return
A portfolio's aggregate total return figure described in the prospectus
and shown below represents the cumulative change in the value of an
investment in a portfolio for the specified period and is computed by
the following formula:
ERV - P
P
Where: P = a hypothetical initial payment of
$10,000.
ERV = Ending Redeemable Value of a hypothetical
$10,000 investment made at the beginning
of the one-, five- or ten-year (or other)
period at the end of the one-, five- or
ten-year period (or fractional portion
thereof), assuming reinvestment of all
dividends and distributions.
The aggregate total returns for the portfolios then in existence were
as follows for the periods indicated (reflecting the waiver of
investment advisory and administration fees and reimbursement of
expenses):
Per annum for
the
Period from
Commencement
One-Year
Period
Five-Year
Period
of operations
Portfolio
Ended
12/31/98
Ended
12/31/98
Through
12/31/98
Appreciation*
Diversified Strategic
Income*
Emerging Growth**
Equity Income*
Equity Index*
Growth & Income*
Intermediate High Grade*
International Equity**
Total Return**
* 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.
To comply with regulations under Section 817(h) of the Code, each
portfolio will be required to diversify its investment so that on the
last day of each calendar quarter, or within 30 days thereafter, no
more than 55% of the value of its assets is represented by any one
investment, no more than 70% is represented by any two investments, no
more than 80% is represented by any three investments and no more than
90% is represented by any four investments. Generally, all securities
of the same issuer are treated as a single investment. For the
purposes of Section 817(h) of the Code, obligations of the United
States Treasury and each U.S. government agency or instrumentality are
treated as securities of separate issuers. Compliance with these
diversification rules will limit the ability of the Money Market and
Intermediate High Grade Portfolios, in particular, to invest more than
55% of their assets in securities issued by a single agency or
instrumentality of the U.S. government.
TAXES
Each portfolio will be treated as a separate taxpayer for federal
income tax purposes with the result that: (a) each portfolio must
qualify separately as a regulated investment company; and (b) the
amounts of investment income and capital gains earned will be
determined on a portfolio-by-portfolio (rather than on a fund-wide)
basis.
Regulated Investment Company Status
The fund intends that each portfolio will continue to qualify
separately each year as a "regulated investment company" under
Subchapter M of the Code. A qualified portfolio will not be liable for
federal income taxes to the extent that its taxable net investment
income and net realized capital gains are distributed to its
shareholders, provided that each portfolio receives annually at least
90% of its net investment income from dividends, interest, payments
with respect to securities loans and gains from the sale or other
disposition of stock or securities, or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies. In addition, each portfolio must distribute
at least 90% of its net investment income each year.
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 [ ],1998, Accession Number [
]
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
7
A-5
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 Portfolio 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").
(3) Registrant's Amendment No.4 to the Master
Trust Agreement is filed herewith.
(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 (to be filed by amendment).
(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 28 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 28 of officers and directors
of SBGCM, together with information as to any other
business, profession, vocation or employment of a
substantial nature engaged in by such officers and
directors during the past two years, is incorporated by
reference to Schedules A and D of FORM ADV filed by SBGCM
pursuant to the Advisers Act (SEC File No. 801-31824).
(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 28 of officers and directors
of VKAC, together with information as to any other
business, profession, vocation or employment of a
substantial nature engaged in by such officers and
directors during the past two fiscal years, is incorporated
by reference to Schedules A and D of FORM ADV filed by VKAC
pursuant to the Advisers Act (SEC File No. 801-1169).
(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 28 of officers and directors
of TIMCO, together with information as to any other
business, profession, vocation or employment of a
substantial nature engaged in by such officers and
directors during the past two fiscal years, is incorporated
by reference to Schedules A and D of Form ADV filed by
TIMCO pursuant to Advisers Act (SEC File No. 801-07212).
Item 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 and
the Investment Company Act of 1940, the Registrant 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 25th day of February, 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
February 25, 1999
/s/Lewis E. Daidone
Lewis E. Daidone
Senior Vice President
and Treasurer (Chief
Financial and
Accounting Officer)
February 25, 1999
/s/Herber Barg
Herbert Barg
Trustee
February 25, 1999
/s/Alfred J. Bianchetti
Alfred J. Bianchetti
Trustee
February 25, 1999
/s/Martin Brody
Martin Brody
Trustee
February 25, 1999
/s/Dwight B. Crane
Dwight B. Crane
Trustee
February 25, 1999
/s/Burt N. Dorsett
Burt N. Dorsett
Trustee
February 25, 1999
/s/Elliot S. Jaffe
Elliot S. Jaffe
Trustee
February 25, 1999
/s/Stephen E. Kaufman
Stephen E. Kaufman
Trustee
February 25, 1999
/s/Joseph J. McCann
Joseph J. McCann
Trustee
February 25, 1999
/s/Cornelius C. Rose, Jr.
Cornelius C. Rose, Jr.
Trustee
February 25, 1999
EXHIBIT INDEX
Exhibit No. Exhibit
(a) Amendment No. 4 to Master Trust Agreement
(j) Consent of Independent Auditors+
(n) Financial Data Schedule. +
+To be filed by further amendment.
SMITH BARNEY SHEARSON SERIES FUND
AMENDMENT NO. 4 TO THE MASTER TRUST AGREEMENT
(Change of Name of the Fund)
The undersigned, Secretary of Smith Barney Series Fund (the
"Fund"), does hereby certify that pursuant to Article I, Section 1.1
and Article VII, Section 7.3 of the Master Trust Agreement dated
May 13, 1991, the following votes were duly adopted by the Board of
Trustees at a Regular Meeting of the Board held on July 16, 1997:
VOTED: That the name of the Fund previously established and
designated pursuant to the Fund's Master Trust Agreement
be modified and amended as set forth below:
Current Name: Name as Amended:
Smith Barney Greenwich Street
Series Fund Series Fund
; and further
VOTED: That the appropriate officers of the Fund be, and each
hereby is, authorized to execute and file any notices
required to be filed reflecting the foregoing changes;
to execute amendments to the Fund's Master Trust
Agreement and By-Laws reflecting the foregoing change;
and to execute and file all requisite certificates,
documents and instruments and to take such other actions
required to cause said amendment to become effective and
to pay all requisite fees and expenses incident thereto.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand this 17th day of July, 1997.
/s/ Christina T. Sydor
Christina T. Sydor
Secretary