<PAGE>
GREENWICH STREET SERIES FUND
April 28, 2000
FIXED INCOME FUNDS EQUITY FUNDS
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Diversified Strategic Income Portfolio Emerging Growth Portfolio
Intermediate High Grade Portfolio International Equity Portfolio
Money Market Portfolio Appreciation Portfolio
Equity Index Portfolio
Growth & Income Portfolio
Equity Income Portfolio
Total Return Portfolio
Shares of each fund are offered only to insurance company separate accounts that
fund certain variable annuity and variable life insurance contracts. This
prospectus should be read together with the prospectus for those contracts.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Contents
Greenwich Street Series Fund consists of 10 separate investment funds, each
with its own investment objective and policies. Each fund offers different lev-
els of potential return and involves different levels of risk.
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<TABLE>
<CAPTION>
Investments, risks and performance Page
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<S> <C>
Emerging Growth Portfolio 2
International Equity Portfolio 4
Appreciation Portfolio 6
Equity Index Portfolio 8
Growth & Income Portfolio 10
Equity Income Portfolio 12
Total Return Portfolio 14
Diversified Strategic Income Portfolio 16
Intermediate High Grade Portfolio 18
Money Market Portfolio 20
More on the funds' investments 22
Management 25
Share transactions 27
Share price 27
Dividends, distributions and taxes 28
Financial highlights 29
</TABLE>
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The Managers:
SSB Citi Fund Management LLC (SSB Citi), Davis Skaggs Investment Management
(Davis Skaggs), a division of SSB Citi, and Travelers Investment Management
Company (TIMCO) are each the manager of one or more of the funds. SSB Citi and
TIMCO are affiliates of Salomon Smith Barney Inc. (Salomon Smith Barney) and a
subsidiary of Citigroup Inc. ("Citigroup). Citigroup businesses produce a broad
range of financial services.
SSB Citi, Davis Skaggs and TIMCO select investments for the funds for which
they serve as managers, except that SSB Citi has engaged Smith Barney Global
Capital Management, also an affiliate of Salomon Smith Barney and subsidiary of
Citigroup, 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.
1
<PAGE>
Investments, risks and performance
Emerging Growth Portfolio
Manager
SSB Citi is the manager
(Effective on February 10, 2000, the fund's board of trustees appointed SSB
Citi as the interim manager, pending shareholder approval.)
Portfolio Manager
Richard Freeman (since 2000)
Mr. Freeman is an investment officer of SSB Citi and a managing director of
Salomon Smith Barney.
Investment objective
Capital appreciation.
Principal investment strategies
Key investments
The fund invests primarily in common stocks of emerging growth companies,
without regard to market capitalization. These are domestic or foreign
companies the manager believes are in the early stages of their life cycles
and have the potential to become major enterprises. The fund may invest up to
20% of its assets in securities of foreign issuers.
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Selection process
The fund's primary approach is to seek what the manager
believes to be unusually attractive growth investments on
an individual company basis, while spreading investments
among many industries and sectors. The manager uses
fundamental analysis to identify individual companies it
believes offer exceptionally high prospects for growth. The
manager selects investments for their potential capital
appreciation; any ordinary income is incidental.
In selecting individual companies for investment, the
manager looks for:
. Above average earnings growth
. A pattern of reported earnings that exceed market
expectations
. Rising earnings estimates over the next several quarters
. High relative return on invested capital
The fund may also invest in special situations involving
new management, special products and techniques, unusual
developments, mergers or liquidations.
Greenwich Street Series Fund
2
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
. Stock prices decline generally
. Emerging growth companies fall out of favor with investors
. 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 the fund also invests a
significant portion of its assets in small and medium capitalization growth
companies.
Compared to large capitalization 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
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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 presented in the bar chart and the table were
produced by a prior manager. Performance figures do not reflect expenses
incurred from investing through a separate account; if those expenses had been
reflected, performance would have been lower. Please refer to the separate
account prospectus for more information on expenses.
Risk return bar chart
[BAR CHART APPEARS HERE]
% Total Return
1994 (7.48)%
1995 42.89%
1996 17.83%
1997 21.16%
1998 37.14%
1999 107.14%
Calendar year ended
December 31
The bar chart shows the fund's performance for each full calendar year since
inception. Performance figures presented in the bar chart were produced by a
prior manager.
Quarterly returns:
Highest:63.83% in 4th quarter 1999
Lowest:(12.54)% in 3rd quarter 1998
Risk return table
Average Annual Total Returns
(for the periods ended December 31, 1999)
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<TABLE>
<CAPTION>
One Five Since
year years inception*
- ------------------------------------------
<S> <C> <C> <C>
Fund 107.14% 42.10% 32.69%
NASDAQ
Composite Index 85.59% 40.17% 31.79%
</TABLE>
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* Inception date of 12/03/93
Index comparison begins on December 31, 1993
Performance figures presented in the table were produced by a prior manager.
Greenwich Street Series Fund
3
<PAGE>
Investments, risks and performance
International Equity Portfolio
Manager
SSB Citi is the manager
Portfolio Managers
Jeffrey Russell (since 1993)
James Conheady (since 1993)
Messrs. Russell and Conheady are investment officers of SSB Citi and managing
directors of Salomon Smith Barney
Investment objective
Total return on its assets from growth of capital and income.
Principal investment strategies
Key investments
The fund invests primarily in equity securities of foreign companies. Equity
securities include exchange traded and over-the-counter common stocks and
preferred shares, debt securities convertible into equity securities, and
warrants and rights relating to equity securities.
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Selection process
The manager emphasizes individual security selection while
diversifying the fund's investments across regions and
countries. While the manager selects investments primarily
for their capital appreciation potential, some investments
have an income component as well. Companies in which the
fund invests may have large, medium or small market
capitalizations and may operate in any market sector.
Depending on the manager's assessment of a country's or
sector's potential for long-term growth, the fund's
emphasis among foreign markets and types of companies may
vary.
In selecting individual companies for investment, the
manager looks for:
. Above average earnings growth
. High relative return on invested capital
. Experienced and effective management
. Effective research, product development and marketing
. Competitive advantages
. Strong financial condition or stable or improving credit
quality
By spreading the fund's investments across many
international markets, the manager seeks to reduce
volatility compared to an investment in a single region.
Unlike global mutual funds, which may allocate a
substantial portion of assets to the U.S. markets, the fund
invests substantially all of its assets in countries
outside of the U.S. In allocating assets among countries
and regions, the economic and political factors the manager
evaluates include:
. Low or decelerating inflation which creates a favorable
environment for securities markets
. Stable government with policies that encourage economic
growth, equity investment and development of securities
markets
. Currency stability
. The range of individual investment opportunities
Greenwich Street Series Fund
4
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
.Foreign stock prices decline
.Adverse governmental action or political, economic or market instability
occurs in a foreign country or region
.The currency in which a security is priced declines in value relative to the
U.S. dollar
. The manager's judgment about the attractiveness, value or potential
appreciation of a particular stock proves to be incorrect
Many foreign countries in which the fund invests have markets that are less
liquid and more volatile than markets in the U.S. In some foreign countries,
there is also less information available about foreign issuers and markets
because of less rigorous accounting and regulatory standards than in the U.S.
Currency fluctuations could erase investment gains or add to investment losses.
The risk of investing in foreign securities is greater in the case of emerging
markets.
Economic and Monetary Union (EMU) and the introduction of a single European
currency (the Euro), which began on January 1, 1999, may increase uncertainties
relating to investment in European markets. Among other things, EMU entails
sharing a single currency and official interest rate and adhering to limits on
government borrowing by participating countries. EMU is driven by the
expectation of economic benefits, however, there are significant risks
associated with EMU. Monetary and economic union on this scale has not been
attempted before, and there is uncertainty whether participating countries will
remain committed to EMU in the face of changing economic conditions.
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Fund Performance
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. The table shows how the fund's
average annual returns for different calendar periods compare to the return of
the Morgan Stanley EAFE Index ("EAFE Index"), an unmanaged broad-based index of
foreign stocks. Past performance does not necessarily indicate how the fund
will perform in the future. Performance figures do not reflect expenses
incurred from investing through a separate account; if those expenses had been
reflected, performance would have been lower. Please refer to the separate
account prospectus for more information on expenses.
Risk return bar chart
[BAR CHART APPEARS HERE]
% Total Return
1994 (8.36)%
1995 8.8%
1996 21.38%
1997 (2.18)%
1998 18.84%
1999 66.20%
Calendar years ended
December 31
The bar chart shows the fund's performance for each full calendar year since
inception.
Quarterly Returns:
Highest: 41.59% in 4th quarter 1999
Lowest: (17.14)% in 3rd quarter 1998
Risk return table
Average Annual Total Returns
(for the periods ended December 31, 1999)
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<TABLE>
<CAPTION>
One Five Since
year years inception*
- ------------------------------------
<S> <C> <C> <C>
Fund 66.20% 20.60% 15.09%
EAFE Index 26.96% 12.83% 11.97%
</TABLE>
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* Inception date of 12/03/93
Index comparison begins on December 31, 1993
Greenwich Street Series Fund
5
<PAGE>
Investments, risks and performance
Appreciation Portfolio
Manager
SSB Citi is the manager
Portfolio Manager
Harry D. Cohen (since 1991)
Mr. Cohen is an investment officer of SSB Citi and a managing director of
Salomon Smith Barney
Investment objective
Long-term appreciation of capital.
Principal investment strategies
Key investments
The fund invests primarily in equity securities of U.S. companies. The fund
typically invests in medium and large capitalization companies but may also
invest in small capitalization companies. Equity securities include exchange
traded and over-the-counter common stocks and preferred stocks, debt
securities convertible into equity securities, and warrants and rights
relating to equity securities.
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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
and value stocks, consisting primarily of blue chip
companies dominant in their industries. The fund may also
invest in companies with prospects for sustained earnings
growth and/or a cyclical earnings record.
In selecting individual companies for the fund's portfolio,
the manager looks for the following:
. Strong or rapidly improving balance sheets
. Recognized industry leadership
. Effective management teams that exhibit a desire to earn
consistent returns for shareholders
In addition, the manager considers the following
characteristics:
. Past growth records
. Future earnings prospects
. Technological innovation
. General market and economic factors
. Current yield or potential for dividend growth
Generally, companies in the fund's portfolio fall into one
of the following categories:
. Undervalued companies: companies with assets or earning
power that are either unrecognized or undervalued. The
manager generally looks for a catalyst that will unlock
these values. The manager also looks for companies that
are expected to have unusual earnings growth or whose
stocks appear likely to go up in value because of marked
changes in the way they do business (for example, a
corporate restructuring).
. Growth at a reasonable price: companies with superior
demonstrated and expected growth characteristics whose
stocks are available at a reasonable price. Typically,
there is strong recurring demand for these companies'
products.
The manager adjusts the amount held in cash reserves
depending on the manager's outlook for the stock market.
The manager will increase the fund's allocation to cash
when, in the manager's opinion, market valuation levels
become excessive. The manager may sometimes hold a
significant portion of the fund's assets in cash while
waiting for buying opportunities or to provide a hedge
against stock market declines.
Greenwich Street Series Fund
6
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
. The U.S. stock market declines
. Large and medium capitalization stocks or growth stocks are temporarily out
of favor
. An adverse event depresses the value of a company's stock
. The manager's judgment about the attractiveness, value or potential
appreciation of a particular stock or about the amount to hold in cash
reserves proves to be incorrect
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Fund Performance
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. The table shows how the fund's
average annual returns for different calendar periods compare to the return of
Standard & Poor's 500 Stock Price Index (the "S&P 500 Index"), an unmanaged
broad-based index of common stocks. Past performance does not necessarily
indicate how the fund will perform in the future. Performance figures do not
reflect expenses incurred from investing through a separate account; if those
expenses had been reflected, performance would have been lower. Please refer to
the separate account prospectus for more information on expenses.
Risk return bar chart
[BAR CHART APPEARS HERE]
% Total Return
1992 6.13%
1993 7.09%
1994 (1.12)%
1995 28.84%
1996 19.77%
1997 26.39%
1998 19.15%
1999 13.12%
Calendar years ended
December 31
The bar chart shows the fund's performance for each full calendar year since
inception.
Quarterly returns:
Highest:16.91% in 4th quarter 1998
Lowest:(9.65)% in 3rd quarter 1998
Risk return table
Average Annual Total Returns
(for the periods ended December 31, 1999)
<TABLE>
- ---------------------------------------
<CAPTION>
One Five Since
year years inception*
- ---------------------------------------
<S> <C> <C> <C>
Fund 13.12% 21.32% 14.77%
S&P 500 Index 21.03% 28.54% 20.23%
- ---------------------------------------
</TABLE>
* Inception date of 10/16/91
Index comparison begins on October 31, 1991
Greenwich Street Series Fund
7
<PAGE>
Investments, risks and performance
Equity Index Portfolio
Manager
TIMCO is the manager
Portfolio Manager
Sandip A. Bhagat (since 1994)
Mr. Bhagat is an investment officer of SSB Citi and president of TIMCO
Investment objective
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.
Principal investment strategies
Key investments
The fund invests at least 90% of its assets in common stocks included in the
S&P 500 Index. The fund holds stocks of substantially all of the companies in
the S&P 500 Index, including those companies headquartered outside the U.S.
The fund may purchase stock index futures and related options to hedge any
cash reserves in anticipation of purchasing additional stocks at a later date.
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Selection process
The fund is managed as a pure index fund. This means the
manager does not evaluate individual companies to identify
attractive investment candidates. Instead, the manager
attempts to mirror the composition of the S&P 500 Index as
closely as possible by adjusting the fund's portfolio as
necessary. With the exception of a portion of the assets
held in cash and liquid securities to meet redemptions, the
fund intends to be fully invested in common stocks.
The S&P 500 Index is one of the mostly widely used
benchmarks of U.S. equity performance. The index is
unmanaged and consists of 500 stocks chosen for market
capitalization, liquidity and industry group
representation. The index is market-value-weighted, so the
larger of the 500 companies have a bigger impact on the
performance of the index.
The fund's ability to replicate the performance of the S&P
500 will depend to some extent on the size of cash flows
into and out of the fund. The fund will make investment
changes to accommodate these cash flows and to maximize the
similarity of the fund's assets to those of the S&P 500.
Greenwich Street Series Fund
8
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investments in the fund, or the fund may
not perform as well as other investments, if:
. The S&P 500 Index declines, or performs poorly relative to other U.S. equity
indices or individual stocks
. An adverse company specific event, such as an unfavorable earnings report,
negatively affects the stock price of one of the larger companies in the S&P
500 Index
. The stocks of companies which comprise the S&P 500 Index fall out of favor
with investors
Because the fund is an index fund, it will not ordinarily sell a portfolio
security because of the security's poor performance. The fund normally buys or
sells a portfolio security only to reflect additions or deletions of stocks
comprising the S&P 500 Index or to adjust their relative weightings.
Although the manager seeks to replicate the performance of the S&P 500 Index,
the fund may underperform the index because:
. The fund incurs brokerage commissions and other expenses that do not apply to
the S&P 500 Index
. The performance of the fund's futures positions may not match that of the S&P
500 Index
. The prices of S&P 500 Index stocks may rise after the close of the stock
market and before the fund can invest cash from fund share purchases in these
stocks
- --------------------------------------------------------------------------------
Risk return bar chart
[BAR CHART APPEAR HERE]
% Total Return
1992 6.74%
1993 8.66%
1994 0.85%
1995 35.81%
1996 21.68%
1997 32.16%
1998 28.46%
1999 20.68%
Calendar years ended
December 31
The bar chart shows the Class I shares' performance for each full calendar year
since inception. Class II shares have different performance because of different
expenses. Class I share performance is shown because Class II
shares were offered on January 15, 1999. Class II shares do not yet have a
sufficient operating history to generate performance information.
Fund performance
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. The table shows how the fund's
average annual returns for different calendar periods compare to the return of
the S&P 500 Index, an unmanaged broad-based index of common stocks. Past
performance does not necessarily indicate how the fund will perform in the
future. Performance figures do not reflect expenses incurred from investing
through a separate account; if these expenses had been reflected, performance
would have been lower. Please refer to the separate account prospectus for more
information on expenses.
Quarterly returns:
Highest: 21.39% in 4th quarter 1998
Lowest: (9.92)% in 3rd quarter 1998
Risk return table
Average Annual Total Returns
(for the periods ended December 31, 1999)
<TABLE>
- ---------------------------------------
<CAPTION>
One Five Since
year years inception*
- ---------------------------------------
<S> <C> <C> <C>
Class I 20.68% 27.62% 19.11%
Class II N/A N/A 13.96%
S&P 500 Index 21.03% 28.54% 20.23%
- ---------------------------------------
</TABLE>
* Inception date of Class I shares is 10/16/91.
Inception date of Class II shares is 3/22/99.
Index comparison begins on October 31, 1991
Greenwich Street Series Fund
9
<PAGE>
Investments, risks and performance
Growth & Income Portfolio
Manager
SSB Citi is the manager
Portfolio Manager
R. Jay Gerken (since 1993)
Mr. Gerken is an investment officer of SSB Citi and a managing director of
Salomon Smith Barney
Investment objective
Income and long-term capital growth.
Principal investment strategies
Key investments
The fund invests primarily in equity securities, including convertible
securities, that provide dividend or interest income. However, it may also
invest in non-income producing stocks for potential appreciation in value. The
fund emphasizes U.S. stocks with large market capitalizations. The fund may
purchase below investment grade convertible securities (commonly known as
"junk bonds").
- --------------------------------------------------------------------------------
Selection process
The manager emphasizes individual security selection while
spreading the fund's investments among industries and
sectors. The manager uses quantitative analysis to
establish investment criteria based on objective
parameters, such as market capitalization, credit quality,
dividend growth, historic earnings, current yield and
industry diversification.
The manager then analyzes securities based on these
criteria, which influence the manager's buy and sell
decisions. In evaluating these criteria, the manager seeks
to identify companies with:
. A history of consistent dividend payments
. Relatively high dividend levels
. Capacity to raise dividends in the future
. Potential for capital appreciation
The manager may change the investment criteria from time to
time in response to changes in economic or market
conditions.
Greenwich Street Series Fund
10
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
. The U.S. stock market declines
. Rising interest rates depress the value of dividend paying stocks or debt
securities in the fund's portfolio
. Large capitalization companies fall out of favor with investors
. Companies in which the fund invests suffer unexpected losses or lower than
expected earnings, or pay lower than expected dividends
. The manager's judgment about the attractiveness, value or income potential of
a particular security proves to be incorrect
. The issuer of a debt security owned by the fund defaults on its obligation to
pay principal and/or interest or the security has its credit rating
downgraded. This risk is higher for below investment grade bonds. These bonds
are considered speculative because they have a higher risk of issuer default,
are subject to greater price volatility and may be illiquid
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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 and the
Variable Annuity Lipper Growth & Income Funds Peer Group Average ("Lipper
Average"), an average of the reinvested performance of growth and income funds
which underlie variable annuities. Past performance does not necessarily
indicate how the fund will perform in the future. Performance figures do not
reflect expenses incurred from investing through a separate account; if these
expenses had been reflected, performance would have been lower. Please refer to
the separate account prospectus for more information on expenses.
Risk return bar chart
[BAR CHART APPEAR HERE]
% Total Return
1992 8.44%
1993 9.09%
1994 (3.20)%
1995 30.49%
1996 19.83%
1997 22.94%
1998 11.88%
1999 10.66%
Calendar years ended
December 31
The bar chart shows the fund's performance for each full calendar year since
inception.
Quarterly returns:
Highest: 17.94% in 4th quarter 1998
Lowest: (14.29)% in 3rd quarter 1998
Risk return table
Average Annual Total Returns
(for the periods ended December 31, 1999)
<TABLE>
- ----------------------------------------
<CAPTION>
One Five Since
year years inception*
- ----------------------------------------
<S> <C> <C> <C>
Fund 10.66% 18.94% 13.17%
Lipper Average 15.08% 22.07% 16.59%
S&P 500 Index 21.03% 28.54% 20.23%
- ----------------------------------------
</TABLE>
* Inception date of 10/16/91
Index comparison begins on October 31, 1991
Greenwich Street Series Fund
11
<PAGE>
Investments, risks and performance
Equity Income Portfolio
Manager
SSB Citi is the manager
Portfolio Manager
Robert J. Brady (since 1998)
Mr. Brady is an investment officer of SSB Citi and a managing director of
Salomon Smith Barney
Investment objectives
Primary: Current income.
Secondary: Long-term capital appreciation.
Principal investment strategies
Key investments
The fund invests primarily in dividend-paying common stocks and other equity
securities of U.S. companies. Companies with dividend-paying stocks tend to
have large market capitalizations, but the fund also may invest in medium and
small capitalization stocks. Equity securities include preferred stocks and
securities convertible into common stock.
The fund may invest in non-dividend paying stocks and may invest up to 35% of
its assets in debt securities. Up to 10% of the fund's assets may be invested
in below investment grade bonds (commonly known as "junk bonds").
The fund normally concentrates 25% or more of its assets in equity and debt
securities of companies in the utility industry. These include securities of
companies principally engaged in the manufacture, production, generation,
transmission or sale of electric or gas energy, and companies principally
engaged in the communications field. A company is a utility company if at
least 50% of its assets consist of, or gross income or net profits result
from, utility operations or the company is regulated as a utility by a
government agency or authority. Communications companies include telephone,
telegraph, satellite, microwave and other companies regulated by governmental
agencies as utilities that provide public communication facilities.
- --------------------------------------------------------------------------------
Selection process
The manager emphasizes individual security selection,
seeking to identify companies having a consistent record of
long-term above average growth in earnings as well as
companies with favorable prospects for dividend growth and
capital appreciation.
In selecting individual companies for investment, the
manager looks for the following:
. Established operating history
. Low price/earnings ratio compared to the stocks included
in the S&P 500
. Strong balance sheet and other financial characteristics
. History of consistent dividend payments
Greenwich Street Series Fund
12
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if :
. The U.S. stock market declines
. Rising interest rates depress the value of dividend paying stocks or debt
securities in the fund's portfolio
. Large capitalization and utility companies fall out of favor with investors
. Companies in which the fund invests suffer unexpected losses or lower than
expected earnings, or pay lower than expected dividends
. The manager's judgment about the attractiveness, value or income potential of
a particular security proves to be incorrect
The fund concentrates its assets in the utility industry and, as a result, is
more susceptible to events affecting this industry than a fund that does not
concentrate. In particular, the following events could have a negative impact
on the fund's performance:
. The utility industry underperforms the market because of changes in
technology, costs of labor and materials, or internal or external competition
. Changes in the federal or state regulation of utility companies adversely
affect a company's competitive position, ability to raise prices or ability
to adapt to changing conditions
. Deregulation increases competition for utility customers
- --------------------------------------------------------------------------------
Fund performance
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. The table shows how the fund's
average annual returns for different calendar periods compare to the return of
the Variable Annuity Lipper Equity Income Funds Peer Group Average ("Lipper
Average"), an average of the reinvested performance of equity income funds
which underlie the variable annuities and the S&P 500 Index, an unmanaged
broad-based index of common stocks. Past performance does not necessarily
indicate how the fund will perform in the future. Performance figures do not
reflect expenses incurred from investing through a separate account; if these
expenses had been reflected, performance would have been lower. Please refer to
the separate account prospectus for more information on expenses.
Risk return bar chart
[BAR CHART APPEARS HERE]
% Total Return
1992 11.74%
1993 10.41%
1994 (10.20)%
1995 32.47%
1996 5.99%
1997 23.52%
1998 16.99%
1999 (4.75)%
Calendar years ended
December 31
The bar chart shows the fund's performance for each full calendar year since
inception.
Quarterly returns:
Highest:11.83% in 4th quarter 1997
Lowest:(8.12)% in 1st quarter 1994
Risk return table
Average Annual Total Returns
(for the periods ended December 31, 1999)
<TABLE>
- -----------------------------------------
<CAPTION>
One Five Since
year years inception*
- -----------------------------------------
<S> <C> <C> <C>
Fund (4.75)% 14.08% 9.98%
Lipper Average 8.75% 19.71% 15.74%
S&P 500 Index 21.03% 28.54% 20.23%
- -----------------------------------------
</TABLE>
* Inception date of 10/16/91
Index comparison begins on October 31, 1991
Greenwich Street Series Fund
13
<PAGE>
Investments, risks and performance
Total Return Portfolio
Manager
Davis Skaggs is the manager
Portfolio Manager
John G. Goode (since 1993)
Mr. Goode is an investment officer of SSB Citi and chairman and chief
investment officer of Davis Skaggs
Investment objective
Total return, consisting of long-term capital appreciation and income.
Principal investment strategies
Key investments
The fund invests primarily in dividend-paying common stocks of U.S. and
foreign companies. These companies tend to have large market capitalizations,
but the fund also may invest in medium and small capitalization stocks.
The fund may invest up to 35% of its assets in convertible bonds and preferred
stock, warrants and interest paying debt securities. Up to 10% of the fund's
assets may be invested in below investment grade bonds (commonly known as
"junk bonds").
- --------------------------------------------------------------------------------
Selection process
The manager emphasizes individual security selection while
spreading investments among many industries and sectors.
The manager uses fundamental analysis to identify
individual companies it believes offer favorable prospects
for dividend growth and capital appreciation.
In selecting individual companies for investment, the
manager looks for the following:
. Above average earnings growth
. High relative return on invested capital
. History of consistent dividend payments
. Strong financial condition or stable or improving credit
quality
. Experienced and effective management
. Effective research, product development and marketing
. Competitive advantages
Greenwich Street Series Fund
14
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
. The U.S. stock market declines
. Rising interest rates depress the value of dividend paying stocks or debt
securities in the fund's portfolio
. Large capitalization companies fall out of favor with investors
. Companies in which the fund invests suffer unexpected losses or lower than
expected earnings, or pay lower than expected dividends
. The manager's judgment about the attractiveness, value or income potential of
a particular security proves to be incorrect
. The issuer of a debt security owned by the fund defaults on its obligation to
pay principal and/or interest, or the security's credit rating is downgraded.
This risk is higher for below investment grade bonds. These bonds are
considered speculative because they have a higher risk of issuer default, are
subject to greater price volatility and may be illiquid
Because the fund seeks total return by emphasizing investments in dividend-
paying common stocks, it will not have as much investment flexibility as total
return funds that do not emphasize dividend-paying stocks.
- --------------------------------------------------------------------------------
Fund performance
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. The table shows how the fund's
average annual returns for different calendar periods compare to the return of
the S&P 500 Index, an unmanaged broad-based index of common stocks. Past
performance does not necessarily indicate how the fund will perform in the
future. Performance figures do not reflect expenses incurred from investing
through a separate account; if these expenses had been reflected, performance
would have been lower. Please refer to the separate account prospectus for more
information on expenses.
Risk return bar chart
[BAR CHART APPEARS HERE]
% Total Return
1994 7.40%
1995 25.04%
1996 25.33%
1997 16.84%
1998 4.97%
1999 22.02%
Calendar years ended
December 31
The bar chart shows the fund's performance for each full calendar year since
inception.
Quarterly returns:
Highest: 14.61% in 2nd quarter 1999
Lowest: (8.71)% in 3rd quarter 1998
Risk return table
Average Annual Total Returns
(for the periods ended December 31, 1999)
<TABLE>
- ---------------------------------------
<CAPTION>
One Five Since
year years inception*
- ---------------------------------------
<S> <C> <C> <C>
Fund 22.02% 18.59% 16.98%
S&P 500 Index 21.03% 28.54% 23.54%
- ---------------------------------------
</TABLE>
* Inception date of 12/03/93
Index comparison begins on December 31, 1993
Greenwich Street Series Fund
15
<PAGE>
Investments, risks and performance
Diversified Strategic Income Portfolio
Manager and subadviser
SSB Citi is the manager and Smith Barney Global Capital Management, Inc. is
the subadviser
Portfolio Managers (since)
James E. Conroy (1991)
John C. Bianchi (1991)
Simon R. Hildreth (1995)
Messrs. Hildreth, Conroy and Bianchi are investment officers of SSB Citi and
managing directors of Salomon Smith Barney. Mr. Hildreth is a managing
director of Smith Barney Global Capital Management, Inc.
Investment objective
High current income.
Principal investment strategies
Key investments
The fund invests primarily in three types of fixed income securities:
.U.S. government and mortgage-related securities
.foreign government securities
. corporate debt securities and non-convertible preferred stocks rated
below investment grade
Allocation: The fund currently expects to maintain approximately 50% of its
assets in government and mortgage-related securities, 25% in foreign
government securities and 25% in below investment grade corporate debt.
However, these percentages may vary significantly over time.
Maturity: The fund will invest primarily in intermediate-term and long-term
securities. As a result, the weighted average maturity of the fund's portfolio
is normally expected to be from four years to 12 years.
- --------------------------------------------------------------------------------
Selection process
Government and mortgage-related securities
In selecting government and mortgage-related securities, the
manager focuses on identifying undervalued sectors and securities.
Specifically, the manager:
. Emphasizes those sectors and maturities that seem to be most
undervalued based on the manager's economic and interest rate
outlook
. Monitors the yield spreads between U.S. Treasury and government
agency or instrumentality securities and purchases agency and
instrumentality securities when their additional yield justifies
their additional risk
. Uses research to uncover inefficient sectors of the government
and mortgage markets and adjusts portfolio positions to take
advantage of new information
. Measures the potential impact of supply/demand imbalances,
changes in the relative yields for securities with different
maturities, and changing prepayment patterns to identify
individual securities that balance potential return and risk
Foreign government securities
In selecting foreign government securities, the subadviser
considers and compares the relative yields of various foreign
government obligations. The subadviser diversifies this portion of
the portfolio by spreading assets among countries and regions. The
subadviser also attempts to preserve the U.S. dollar value of
securities by using currency derivatives to hedge foreign currency
exposure. In selecting securities, the subadviser looks for:
. Political and economic stability, and favorable inflation and
government deficit prospects
. Favorable yield and maturity
. Strong financial condition and high credit quality
. Low sensitivity to interest rate changes
Below investment grade corporate fixed income securities
In selecting below investment grade corporate securities, the
manager considers and compares the relative yields of various types
of obligations and employs a forward looking strategy seeking to
identify companies that exhibit favorable earnings prospects or
demonstrate a potential for higher ratings over time. The manager
looks for:
. ""Fallen angels" or companies that are repositioning in the
marketplace and which the manager believes are temporarily
undervalued
. Younger companies with smaller capitalizations that have
exhibited improving financial strength or improving credit
ratings over time
The subadviser also employs an active sell strategy to dispose of
securities that no longer meet the manager's investment criteria to
harvest gains for reinvestment in new securities.
Greenwich Street Series Fund
16
<PAGE>
Principal risks of investing in the fund
Investors could lose money in the fund, or the fund's performance could fall
below other investments, if:
. Interest rates increase, causing the prices of fixed income securities to
decline, reducing the value of the fund's portfolio
. As interest rates decline, the issuers of securities held by the fund may pay
principal earlier than scheduled or exercise a right to call the securities,
forcing the fund to reinvest in lower yielding securities. This is known as
prepayment or call risk
. As interest rates increase, slower than expected principal payments may
extend the average life of fixed income securities held by the fund, locking
in below market interest rates and reducing the value of these securities.
This is known as extension risk
. The issuer of a security owned by the fund defaults on its obligation to pay
principal and/or interest, or the security's credit rating is downgraded.
This risk is higher for below investment grade bonds, as described below
. Foreign government bond investments lose their value because of an increase
in market interest rates in one or more regions, a decline in a government's
credit rating or financial condition or a default by a government
. Adverse governmental action or political, economic or market instability
affects a foreign country or region
. An unhedged currency in which a security is priced declines in value relative
to the U.S. dollar
. The manager's or subadviser's judgment about the attractiveness, relative
yield, value or potential appreciation of a particular security, or the
proper allocation among types of investments, proves to be incorrect
Payments of principal and interest on mortgage pools issued by
instrumentalities of the U.S. government are not guaranteed by the U.S.
government. Although payments of principal and interest on mortgage pools
issued by some U.S. agencies are guaranteed, this guarantee does not apply to
losses resulting from declines in their market values.
Many foreign countries in which the fund invests have less liquid and more
volatile markets than in the U.S. In some of these foreign countries, there is
also less information available about foreign issuers and markets because of
less rigorous accounting and regulatory standards than in the U.S. Currency
fluctuations could erase investment gains or add to investment losses. The risk
of investing in foreign securities is greater in the case of less developed
countries.
Below investment grade bonds, which are commonly known as "junk bonds," are
speculative and their issuers may have diminished capacity to pay principal and
interest. These securities have a higher risk of default, tend to be less
liquid, and may be more difficult to value. Changes in economic conditions or
other circumstances are likely to weaken the capacity of issuers of these
securities to make principal and interest payments.
- --------------------------------------------------------------------------------
Fund performance
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. The table shows how the fund's
average annual returns for different calendar periods compare to the return of
an unmanaged, blended index consisting of three broad-based components: Merrill
Lynch GNMA Master Index (35%), Merrill Lynch Global Bond Index (35%) and
Merrill Lynch High Yield Master II Index (30%). Lehman Brothers Aggregate Bond
Index ("Lehman Brothers Index"), an unmanaged index are composed of the Lehman
Intermediate Government/Corporate Bond Index and the Mortgage-Backed Securities
Index and includes treasury issues, agency issues, corporate bond issues and
mortgage-backed securities. Past performance does not necessarily indicate how
the fund will perform in the future. Performance figures do not reflect
expenses incurred from investing through a separate account; if these expenses
had been reflected, performance would have been lower. Please refer to the
separate account prospectus for more information on expenses.
Risk return bar chart
[BAR CHART APPEARS HERE]
% Total Return
1992 1.42%
1993 12.56%
1994 (2.81)%
1995 16.18%
1996 11.16%
1997 8.14%
1998 6.41%
1999 1.72%
Calendar years ended
December 31
The bar chart shows the fund's performance for each full calendar year since
inception.
Quarterly returns:
Highest: 4.53% in 1st quarter 1993
Lowest:(2.29)% in 1st quarter 1994
Risk return table
Average Annual Total Returns
(for the periods ended December 31, 1999)
<TABLE>
- ------------------------------------------------
<CAPTION>
One Five Since
year years inception*
- ------------------------------------------------
<S> <C> <C> <C>
Fund 1.72% 8.62% 6.68%
Blended Index (0.09)% 8.08% 8.16%
Lehman Brothers Index (0.82)% 7.73% 6.91%
- ------------------------------------------------
</TABLE>
* Inception date 10/16/91
Index comparison begins on October 31, 1991
Greenwich Street Series Fund
17
<PAGE>
Investments, risks and perfomance
Intermediate High Grade Portfolio
Manager
SSB Citi is the manager.
Portfolio Manager
Denis Doherty (since 1998)
Mr. Doherty is an investment officer of SSB Citi and a director of Salomon
Smith Barney
Investment objective
As high a level of current income as is consistent with protection of capital.
Principal investment strategies
Key investments
The fund invests primarily in U.S. government securities and high-grade
corporate bonds of U.S. issuers. The fund may also invest up to 35% of its
assets in other fixed income securities.
U.S. government securities include U.S. Treasury securities and mortgage-
related securities. Mortgage-related securities issued by federal agencies or
instrumentalities may be backed by the full faith and credit of the U.S.
Treasury, by the right of the issuer to borrow from the U.S. government or
only by the credit of the issuer itself.
Credit Quality: The fund invests primarily in high-grade bonds rated
within the three highest rating categories by a nationally recognized rating
organization, or, if unrated, judged by the manager to be of comparable credit
quality. The fund may invest up to 35% of its assets in securities that are
not high grade if they are at least investment grade.
Maturity: The fund's average weighted maturity generally will be between three
and 10 years, depending on the manager's outlook for interest rates. However,
the fund may invest in individual securities of any maturity.
- --------------------------------------------------------------------------------
Selection process
U.S. government securities
In selecting U.S. government securities, the manager
focuses on identifying undervalued sectors and securities.
Specifically, the manager:
. Monitors the yield spreads between U.S. Treasury and
government agency or instrumentality securities and
purchases agency and instrumentality securities when
their additional yield justifies their additional risk
. Uses research to uncover inefficient sectors of the
government and mortgage markets and adjusts portfolio
positions to take advantage of new information
. Measures the potential impact of supply/demand
imbalances, yield curve shifts and changing prepayment
patterns to identify individual securities that balance
potential return and risk
Corporate bonds
In selecting high-grade corporate bonds, the manager
emphasizes individual bond selection while diversifying the
fund's investments across a range of issuers, industries
and maturity dates. In selecting individual corporate
bonds, the manager:
. Uses fundamental credit analysis to estimate the relative
value and attractiveness of various companies and bonds
. Identifies undervalued corporate bond issues and attempts
to identify bonds that may be subject to credit upgrades
and avoid bonds that may be subject to credit downgrades
For both U.S. government securities and corporate bonds,
the manager emphasizes those sectors and maturities that
seem most undervalued based on the manager's economic and
interest rate outlook. The manager buys and sells
securities in order to adjust portfolio maturity. The
manager also makes ongoing adjustments based on the
relative values or overall investment merits of individual
bonds or changes in the creditworthiness of an issuer.
Greenwich Street Series Fund
18
<PAGE>
Principal risks of investing in the fund
Investors could lose money in the fund, or the fund's performance could fall
below other possible investments, if:
. Interest rates increase, causing the prices of fixed income securities to
decline, reducing the value of the fund's portfolio. The fund has greater
sensitivity to changes in interest rates than a fund investing in securities
with shorter maturities
. The issuer of a security owned by the fund defaults on its obligation to pay
principal and/or interest, or the security's credit rating is downgraded
. As interest rates decline, the issuers of mortgage-related securities held by
the fund may pay principal earlier than scheduled or exercise a right to call
the securities, forcing the fund to reinvest in lower yielding securities.
This is known as prepayment or call risk
. As interest rates increase, slower than expected principal payments may
extend the average life of fixed income securities, locking in below-market
interest rates and reducing the value of these securities. This is known as
extension risk
. The manager's judgment about interest rates or the attractiveness, value or
income potential of a particular security proves incorrect
Payments of principal and interest on mortgage pools issued by
instrumentalities of the U.S. government are not guaranteed by the U.S.
government. Although payments of principal and interest on mortgage pools
issued by some U.S. agencies are guaranteed, this guarantee does not apply to
losses resulting from declines in the market value of these securities.
- --------------------------------------------------------------------------------
Fund performance
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. The table shows how the fund's
average annual returns for different calendar periods compare to the return of
the Lehman Government/Corporate Bond Index ("Lehman Index"). The Lehman Index
is a weighted composite of the Lehman Brothers Government Bond Index, which is
a broad-based index of all public debt obligations of the U.S. Government and
its agencies and has an average maturity of nine years the Lehman Brothers
Corporate Bond Index, which is comprised of all public fixed-rate non-
convertible investment grade domestic corporate debt, excluding collateralized
mortgage obligations. Past performance does not necessarily indicate how the
fund will perform in the future. Performance figures do not reflect expenses
incurred from investing through a separate account; if these expenses had been
reflected, performance would have been lower. Please refer to the separate
account prospectus for more information on expenses.
Risk return bar chart
[BAR CHART APPEARS HERE]
% Total Return
1992 5.28%
1993 8.00%
1994 (3.05)%
1995 17.76%
1996 1.69%
1997 8.67%
1998 6.79%
1999 (3.69)%
Calendar years ended
December 31
The bar chart shows the fund's performance for each full calendar year since
inception.
Quarterly returns:
Highest: 5.78% in 2nd quarter 1995
Lowest: (2.64)% in 1st quarter 1996
Risk return table
Average Annual Total Returns
(for the periods ended December 31, 1999)
<TABLE>
- --------------------------------------
<CAPTION>
One Five Since
year years inception*
- --------------------------------------
<S> <C> <C> <C>
Fund (3.69)% 6.00% 5.15%
Lehman Index (2.15)% 7.61% 6.99%
- --------------------------------------
</TABLE>
* Inception date 10/16/91
Index Comparison begins on October 31, 1991
Greenwich Street Series Fund
19
<PAGE>
Investments, risks and performance
Money Market Portfolio
Manager
SSB Citi is the manager.
Portfolio Manager
Phyllis Zahorodny (since 1991)
Ms. Zahorodny is an investment officer of SSB Citi and a managing director of
Salomon Smith Barney
Investment objective
Maximum current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
Principal investment strategies
Key investments
The fund invests in short-term money market securities, including U.S.
government securities, repurchase agreements, U.S. and foreign bank time
deposits, certificates of deposit and bankers' acceptances and high-quality
commercial paper and short-term corporate debt obligations of U.S. and foreign
issuers, including variable-rate and floating-rate securities. The fund
invests only in securities purchased with and payable in U.S. dollars.
Credit Quality: The fund invests exclusively in securities rated within the
two highest short-term rating categories by a nationally recognized ratings
organization.
Maturity: The fund normally maintains a dollar-weighted average maturity of 90
days or less. Individual investments must have a remaining maturity of 397
days or less.
- --------------------------------------------------------------------------------
Selection process
In selecting investments for the fund, the manager looks
for:
. The best relative values based on an analysis of yield,
price, interest rate sensitivity and credit quality
. Issuers offering minimal credit risk
. Maturities consistent with the manager's outlook for
interest rates
Under normal market conditions, the fund intends to
concentrate more than 25% of its assets in short-term bank
instruments.
Greenwich Street Series Fund
20
<PAGE>
Principal risks of investing in the fund
Although the fund seeks to preserve the value of your investment at $1 per
share, it is not guaranteed and it is possible to lose money.The fund could
underperform other short term debt instruments or money market funds, if:
. Interest rates rise sharply
. An issuer or guarantor of the fund's securities defaults, or has its credit
rating downgraded
. Adverse events in the banking industry reduce the value of the fund's
investments in bank instruments
. Sectors or issuers the fund has emphasized fail to perform as expected
. The value of the fund's foreign securities declines because of unfavorable
government actions or political instability
. The manager's judgment about the value or credit quality of a particular
security proves to be incorrect
- --------------------------------------------------------------------------------
Fund performance
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. The table shows how the fund's
average annual returns for different calendar periods compare to the return of
the 90-day Treasury bill. Past performance does not necessarily indicate how
the fund will perform in the future. Performance figures do not reflect
expenses incurred from investing through a Separate Account; if these expenses
had been reflected, performance would have been lower. Please refer to the
Separate Account prospectus for more information on expenses.
Risk return bar chart
[BAR CHART APPEARS HERE]
% Total Return
1992 2.75%
1993 2.37%
1994 3.56%
1995 5.31%
1996 4.80%
1997 4.47%
1998 4.40%
1999 4.03%
Calendar years ended
December 31
The bar chart shows the fund's performance for each full calendar year since
inception.
Quarterly returns:
Highest:1.30% in 3rd quarter 1995
Lowest:0.57% in 2nd quarter 1993
Risk return table
Average Annual Total Returns
(for the periods ended December 31, 1999)
<TABLE>
- --------------------------------------------
<CAPTION>
One Five Since
year years inception*
- --------------------------------------------
<S> <C> <C> <C>
Fund 4.03% 4.54% 3.88%
90 Day Treasury Bill 4.74% 5.11% 4.54%
- --------------------------------------------
</TABLE>
* Inception date 10/16/91
Index comparison begins on October 31, 1991
The funds 7-day yield as of December 31, 1999 was 4.69%. Call toll free 1-800-
451-2010 for the fund's current 7-day yield.
Greenwich Street Series Fund
21
<PAGE>
More on the Funds' Investments
Additional investments and investment techniques
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Greenwich Street Series Fund
International Equity Portfolio
Each fund de- The fund may invest up to 35% of its assets in debt securi-
scribes its ties of any credit quality or maturity of foreign corporate
investment ob- and governmental issuers, as well as U.S. government securi-
jective and ties and money market obligations of U.S. and foreign corpo-
its principal rate issuers.
investment
strategies and
risks under
"Investments,
risks and
performance."
Appreciation Portfolio
Although the fund intends to be fully invested in equity se-
curities, it may invest up to 35% of its total assets in debt
securities and money market instruments for cash management
or other purposes.
This section The fund may invest up to 10% of its net assets in securities
provides addi- of foreign issuers directly or in the form of American Depos-
tional infor- itory Receipts, European Depository Receipts or similar secu-
mation about rities representing interests in common stock of foreign is-
the funds' in- suers.
vestments and
certain port-
folio manage-
ment tech-
niques the
funds may use.
More informa-
tion about the
funds' invest-
ments and
portfolio man-
agement tech-
niques, some
of which en-
tail risk, is
included in
the statement
of additional
information
(SAI).
Equity Index Portfolio
The fund may invest up to 5% of its assets in equity securi-
ties not included in the S&P 500 to help approximate the re-
turn 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.
Although the fund invests primarily in fixed income securi-
ties, it may invest up to 20% of its assets in common stock
and other equity-related securities, including convertible
securities, preferred stock, warrants and rights.
Intermediate High Grade Portfolio
The fund may invest up to 10% of its assets in government
stripped mortgage-backed securities.
Greenwich Street Series Fund
22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Greenwich Street Series Fund
Equity Equity securities include exchange-traded and over-the-
investments counter (OTC) common and preferred stocks, warrants, rights,
Each equity convertible securities, depositary receipts and shares, trust
fund certificates, limited partnership interests, shares of other
investment companies, real estate investment trusts and eq-
uity participations.
- --------------------------------------------------------------------------------
Fixed income Fixed income securities include bonds, notes (including
investments structured notes), mortgage-related securities, asset-backed
Each fixed in- securities, convertible securities, Eurodollar and Yankee
come fund dollar instruments, preferred stocks and money market instru-
(other than ments. Fixed income securities may be issued by U.S. and for-
Money Market eign companies; U.S. and foreign banks; the U.S. government,
Portfolio) its agencies, authorities, instrumentalities or sponsored en-
and, to a lim- terprises; state and municipal governments; supranational or-
ited extent, ganizations; and foreign governments and their political sub-
each equity divisions. Fixed income securities may have all types of in-
fund terest rate payment and reset terms, including fixed rate,
adjustable rate, zero coupon, contingent, deferred, payment
in kind and auction rate features.
Mortgage-related securities may be issued by private compa-
nies or by agencies of the U.S. government and represent di-
rect or indirect participations in, or are collateralized by
and payable from, mortgage loans secured by real property.
Diversified These funds may invest in asset-backed securities. Asset-
Strategic In- backed securities represent participations in, or are secured
come Portfolio by and payable from, assets such as installment sales or loan
and Intermedi- contracts, leases, credit card receivables and other catego-
ate High Grade ries of receivables.
Portfolio
- --------------------------------------------------------------------------------
Credit quality of fixed income securities
If a security receives different ratings, a fund will treat
the securities as being rated in the highest rating category.
A fund may choose not to sell securities that are downgraded
below the fund's minimum acceptable credit rating after their
purchase. Each fund's credit standards also apply to
counterparties to OTC derivative contracts.
Below investment grade securities
Securities are below investment grade if:
. They are rated, respectively, below one of the top four
long-term rating categories by all the nationally
recognized rating organizations that have rated the
securities
. They have received comparable short-term ratings, or
. They are unrated securities the manager believes are of
comparable quality to below investment grade securities
Greenwich Street Series Fund
23
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Greenwich Street Series Fund
Risks of high yield, lower quality fixed income securities
Total Return
Portfolio, Eq- The issuers of lower quality bonds may be highly leveraged
uity Income and have difficulty servicing their debt, especially during
Portfolio, prolonged economic recessions or periods of rising interest
Growth & In- rates. The prices of lower quality securities are volatile
come Portfo- and may go down because of market perceptions of deteriorat-
lio, Diversi- ing creditworthiness or economic conditions. Lower quality
fied Strategic securities may become illiquid and are hard to value in down
Income Portfo- markets.
lio and Inter-
mediate High
Grade Portfo-
lio
- --------------------------------------------------------------------------------
Derivatives Each fund may, but need not, use derivative contracts, such
and hedging as futures and options on securities, securities indices or
techniques currencies; options on these futures; forward currency con-
tracts; and interest rate or currency swaps for any of the
following purposes:
All funds ex-
cept Money
Market Portfo-
lio
. To hedge against the economic impact of adverse changes in
the market value of its securities, because of changes in
stock market prices, currency exchange rates or interest
rates
. As a substitute for buying or selling securities
A derivative contract will obligate or entitle a fund to de-
liver or receive an asset or cash payment based on the change
in value of one or more securities, currencies or indices.
Even a small investment in derivative contracts can have a
big impact on a fund's stock market, currency and interest
rate exposure. Therefore, using derivatives can dispropor-
tionately increase losses and reduce opportunities for gains
when stock prices, currency rates or interest rates are
changing. A fund may not fully benefit from or may lose money
on derivatives if changes in their value do not correspond
accurately to changes in the value of the fund's holdings.
The other parties to certain derivative contracts present the
same types of credit risk as issuers of fixed income securi-
ties. Derivatives can also make a fund less liquid and harder
to value, especially in declining markets.
- --------------------------------------------------------------------------------
Defensive Each fund may depart from its principal investment strategies
investing in response to adverse market, economic or political condi-
tions by taking temporary defensive positions in all types of
money market and short-term debt securities. If a fund takes
a temporary defensive position, it may be unable to achieve
its investment goal.
- --------------------------------------------------------------------------------
Portfolio Each fund may engage in active and frequent trading to
turnover achieve its principal investment strategies. Frequent trading
also increases transaction costs, which could detract from a
fund's performance.
Greenwich Street Series Fund
24
<PAGE>
Management
The managers
SSB Citi Fund Management LLC (SSB Citi) (successor to SSBC Fund Management
Inc.)
Smith Barney Global Capital Management (Subadviser for Diversified Strategic
Income Portfolio)
Davis Skaggs Investment Management (Davis Skaggs)
Travelers Investment Management Company (TIMCO)
SSB Citi, located at 388 Greenwich Street, New York, New York 10013, acts as
investment manager to investment companies having aggregate assets as of March
31, 2000 in excess of $134 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, 2000 in excess of $1.1
billion. Davis Skaggs, located at 1 Sansone Place, San Francisco CA, 94104, is
a division of SSB Citi.
SSB Citi and TIMCO each are wholly owned subsidiaries of Citigroup. Citigroup
businesses produce a broad range of financial services--asset management,
banking and consumer finance, credit and charge cards, insurance, investments,
investment banking and trading--and use diverse channels to make them available
to consumer and corporate customers around the world. Smith Barney Global
Capital Management, a U.S. registered investment adviser located at Cottons
Centre, Hays Lane, London, England, engaged by SSB Citi as subadviser for
Diversified Strategic Income Portfolio, is also a wholly owned subsidiary of
Citigroup.
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, 1999
(as a percentage
of the fund's
Fund Manager average daily net assets)
--------------------------------------------------------------------------
<S> <C> <C>
Emerging Growth Portfolio SSB Citi* 0.75%
International Equity Portfolio SSB Citi 0.85%
Appreciation Portfolio SSB Citi 0.55%
Equity Index Portfolio TIMCO 0.15%
Growth & Income Portfolio SSB Citi 0.45%
Equity Income Portfolio SSB Citi 0.45%
Total Return Portfolio Davis Skaggs 0.55%
Diversified Strategic Income
Portfolio SSB Citi 0.45%
Intermediate High Grade Portfolio SSB Citi 0.40%
Money Market Portfolio** SSB Citi 0.13%
--------------------------------------------------------------------------
</TABLE>
* Effective on February 10, 2000, the fund's board of trustees appointed SSB
Citi as the interim manager to the Emerging Growth Portfolio, pending
shareholder approval.
** The manager had waived a portion of its management fee. Absent the
management fee waiver, the management fee waiver would be 0.30% of
the fund's average daily net assets.
For the Equity Index Portfolio, TIMCO and SSB Citi have voluntarily agreed to
limit the ratio of expenses to average net assets to 0.30%. TIMCO and/or
SSB Citi will reimburse fees for the amount that exceeds the limitation.
Smith Barney Global Capital Management, as subadviser to the Diversified
Strategic Income Portfolio, is paid a fee by SSB Citi at the annual percentage
of 0.15% of the value of the fund's average net assets.
Greenwich Street Series Fund
25
<PAGE>
Administrator
SSB Citi serves as administrator to each fund, performing certain account
maintenance and administrative services. As compensation for these services SSB
Citi normally 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, SSB Citi
receives a fee equal on an annual basis to 0.06% of the value of the fund's
average daily net assets.
Transfer agent and shareholder servicing agent
Citi Fiduciary Trust Company serves as each fund's transfer agent and
shareholder servicing agent (the "transfer agent"). Pursuant to a sub-transfer
agency and services agreement with the transfer agent, PFPC Global Fund
Services serves as each fund's sub-transfer agent (the "sub-transfer agent") to
render certain shareholder record keeping and accounting services and
functions.
Classes of Shares
The Equity Index Portfolio offers two classes of shares: Class I shares and
Class II shares. Each Class is offered at net asset value per share of that
Class. The shares of the Portfolio that were outstanding on January 15, 1999
have been designated Class I shares of the Portfolio.
Distribution plan
The Equity Index Portfolio has adopted a Rule 12b-1 distribution plan for its
Class II shares. Under the plan, the fund pays a distribution fee of 0.25% of
the daily net assets of Class II shares. These fees are an ongoing expense and,
over time, may cost you more than other types of sales charges.
Distributor
Greenwich Street Series Fund has entered into an agreement with CFBDS, Inc. to
distribute each fund's shares.
Greenwich Street Series Fund
26
<PAGE>
Share Transactions
Availability of the funds
Shares of the funds are available only through the purchase of variable annuity
or variable life insurance contracts issued by insurance companies through
their separate accounts. The separate accounts may or may not invest in all the
funds described in this prospectus.
The interests of different variable contract separate accounts investing in a
fund could conflict due to differences of tax treatment and other
considerations. The funds currently do not foresee any disadvantages to
investors arising from the fact that each fund may offer its shares to
different insurance company separate accounts that serve as the investment
medium for their variable annuity and variable life products. Nevertheless, the
board of trustees intends to monitor events to identify any material conflicts
which may arise, and to determine what action, if any, should be taken in
response to these conflicts. If a conflict were to occur, one or more insurance
companies' separate accounts might be required to withdraw their investments in
one or more funds and shares of another fund might be substituted. In addition,
the sale of shares may be suspended or terminated if required by law or
regulatory authority or if in the best interests of the funds' shareholders.
Redemption of shares
The redemption price of each fund's shares will be the net asset value next
determined after receipt by the fund of a redemption order from a separate
account. The fund will ordinarily pay redemption proceeds within one business
day, and must pay redemption proceeds within seven days after receipt of the
request in good order, except on a day when the New York Stock Exchange is
closed or as permitted by the Securities and Exchange Commission in
extraordinary circumstances.
Share Price
Each fund's net asset value is the value of its assets minus its liabilities.
Net asset value is calculated separately for each Class of the Equity Index
Portfolio. Each fund calculates its net asset value every day the New York
Stock Exchange is open. The Exchange is closed on certain holidays listed in
the SAI. 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. When reliable market prices or
quotations are not readily available, or when 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
Each fund intends to qualify and be taxed as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986 (the "Code"), as
amended. In order to qualify to be taxed as a regulated investment company,
each fund must meet certain income and diversification tests and distribution
requirements. As a regulated investment company meeting these requirements, a
fund will not be subject to federal income tax on its net investment income and
net capital gains that it distributes to its shareholders. All income and
capital gain distributions are automatically reinvested in additional shares of
the fund at net asset value and are includable in gross income of the separate
accounts holding these shares. See the accompanying separate account contract
prospectus for information regarding the federal income tax treatment of
distributions to the separate accounts and to holders of the contracts.
Each fund is also subject to asset diversification regulations promulgated by
the U.S. Treasury Department under the Code. The regulations generally provide
that, as of the end of each calendar quarter or within 30 days thereafter, no
more than 55% of the total assets of each fund may be represented by any one
investment, no more than 70% by any two investments, no more than 80% by any
three investments, and no more than 90% by any four investments. For this
purpose all securities of the same issuer are considered a single investment.
An alternative diversification test may be satisfied under certain
circumstances. If a fund fails to comply with these special diversification
requirements under the Code, the contracts invested in that fund would not be
treated as an 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.
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
Emerging Growth Portfolio
1999 1998(1) 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $19.63 $16.87 $15.83 $13.76 $ 9.63
- -----------------------------------------------------------------------------
Income (loss) from operations:
Net investment (loss) (2) (0.26) (0.15) (0.12) (0.10) (0.03)
Net realized and unrealized gain
(loss) 17.91 5.98 3.32 2.55 4.16
- -----------------------------------------------------------------------------
Total income (loss) from operations 17.65 5.83 3.20 2.45 4.13
- -----------------------------------------------------------------------------
Less distributions from:
Net investment income -- -- -- -- --
Net realized gains (4.17) (3.07) (2.16) (0.38) --
- -----------------------------------------------------------------------------
Total distributions (4.17) (3.07) (2.16) (0.38) --
- -----------------------------------------------------------------------------
Net asset value, end of year $33.11 $19.63 $16.87 $15.83 $13.76
- -----------------------------------------------------------------------------
Total return 107.14% 37.14% 21.16% 17.83% 42.89%
- -----------------------------------------------------------------------------
Net assets, end of year (millions) $ 27 $ 21 $ 20 $ 19 $ 17
- -----------------------------------------------------------------------------
Ratios to average net assets:
Expenses (2) 1.30% 1.28% 1.26% 1.27% 1.20%
Net investment loss (1.01) (0.88) (0.72) (0.64) (0.24)
- -----------------------------------------------------------------------------
Portfolio turnover rate 113% 98% 102% 84% 121%
- -----------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) The manager waived all or part of its fees for the year ended December 31,
1995. In addition, IDS Life reimbursed expenses of $5,265 for the year
ended December 31, 1995. If such fees had not been waived and expenses
reimbursed, the per share effect on net investment loss and the expense
ratios would have been as follows:
<TABLE>
-----------------------------------------------------------
<CAPTION>
Expense Ratios
Per Share Decreases to Without Waivers
Net Investment Income and Reimbursements
-----------------------------------------------------------
Portfolio 1995 1995
-----------------------------------------------------------
<S> <C> <C>
Emerging Growth $0.02 1.39%
-----------------------------------------------------------
</TABLE>
Greenwich Street Series Fund
29
<PAGE>
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
International Equity Portfolio
1999 1998(1) 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $13.94 $11.78 $12.07 $ 9.98 $9.21
- -----------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss) (2) (0.18) (0.03) (0.02) (0.02) 0.03
Net realized and unrealized gain
(loss) 8.56 2.25 (0.24) 2.15 0.78
- -----------------------------------------------------------------------------
Total income (loss) from operations 8.38 2.22 (0.26) 2.13 0.81
- -----------------------------------------------------------------------------
Less distributions from:
Net investment income (0.01) (0.06) (0.03) (0.04) (0.04)
Net realized gains (1.61) -- -- -- --
- -----------------------------------------------------------------------------
Total distributions (1.62) (0.06) (0.03) (0.04) (0.04)
- -----------------------------------------------------------------------------
Net asset value, end of year $20.70 $13.94 $11.78 $12.07 $9.98
- -----------------------------------------------------------------------------
Total return 66.20% 18.84% (2.18)% 21.38% 8.80%
- -----------------------------------------------------------------------------
Net assets, end of year (millions) $ 24 $ 23 $ 28 $ 33 $ 29
- -----------------------------------------------------------------------------
Ratios to average net assets:
Expenses (3) 1.33% 1.40% 1.31% 1.35% 1.43%
Net investment income (loss) (2) (0.33) (0.25) (0.23) (0.20) 0.35
- -----------------------------------------------------------------------------
Portfolio turnover rate 17% 30% 21% 33% 34%
- -----------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Includes realized gains and losses from foreign currency transactions for
the year ended December 31, 1995.
(3) During the two years ended December 31, 1995 and 1996, the fund has earned
credits from the custodian which reduced service fees incurred. If the
credits are taken into consideration, the ratio of expenses to average net
assets would have been 1.37% and 1.33%, respectively.
Greenwich Street Series Fund
30
<PAGE>
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
Appreciation Portfolio
1999 1998(1) 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $21.16 $18.73 $15.86 $14.39 $11.54
- -----------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.13 0.27 0.24 0.27 0.23
Net realized and unrealized gain
(loss) 2.62 3.24 3.90 2.60 3.04
- -----------------------------------------------------------------------------
Total income (loss) from operations 2.75 3.51 4.14 2.87 3.27
- -----------------------------------------------------------------------------
Less distributions from:
Net investment income (0.16) (0.22) (0.21) (0.25) (0.21)
Net realized gains (0.36) (0.86) (1.06) (1.15) (0.21)
- -----------------------------------------------------------------------------
Total distributions (0.52) (1.08) (1.27) (1.40) (0.42)
- -----------------------------------------------------------------------------
Net asset value, end of year $23.39 $21.16 $18.73 $15.86 $14.39
- -----------------------------------------------------------------------------
Total return 13.12% 19.15% 26.39% 19.77% 28.84%
- -----------------------------------------------------------------------------
Net assets, end of year (millions) $ 529 $ 246 $ 144 $ 101 $ 94
- -----------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.79% 0.80% 0.80% 0.85% 0.97%
Net investment income 1.18 1.36 1.68 1.59 1.65
- -----------------------------------------------------------------------------
Portfolio turnover rate 53% 22% 34% 39% 43%
- -----------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
Greenwich Street Series Fund
31
<PAGE>
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
Equity Index Portfolio
Class I Shares 1999 (1) 1998 (1) 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $29.99 $23.59 $18.36 $15.58 $11.69
- -----------------------------------------------------------------------------
Income from operations:
Net investment income (2) 0.39 0.36 0.12 0.22 0.25
Net realized and unrealized gain
(loss) 5.77 6.33 5.76 3.17 3.88
- -----------------------------------------------------------------------------
Total income from operations 6.16 6.69 5.88 3.39 4.13
- -----------------------------------------------------------------------------
Less distributions from:
Net investment income (0.12) (0.08) (0.17) (0.23) (0.23)
Net realized gains (0.17) (0.21) (0.48) (0.38) (0.01)
- -----------------------------------------------------------------------------
Total distributions (0.29) (0.29) (0.65) (0.61) (0.24)
- -----------------------------------------------------------------------------
Net asset value, end of year $35.86 $29.99 $23.59 $18.36 $15.58
- -----------------------------------------------------------------------------
Total return 20.68% 28.46% 32.16% 21.68% 35.81%
- -----------------------------------------------------------------------------
Net assets, end of year (millions) $ 655 $ 177 $ 35 $ 19 $ 15
- -----------------------------------------------------------------------------
Ratios to average net assets:
Expenses (3) 0.28% 0.30% 0.76% 1.06% 1.00%
Net investment income 1.20 1.36 1.08 1.37 1.84
- -----------------------------------------------------------------------------
Portfolio turnover rate 3% 5% 6% 7% 5%
- -----------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) For the year ended December 31, 1998, the administrator agreed to reimburse
expenses of $114,983. In addition, the manager waived all or part of its
fees for the year ended December 31, 1995. IDS Life also reimbursed
expenses of $6,842 for the year ended December 31, 1995. If such fees had
not been waived and expenses reimbursed, the per share effect on net
investment income and the expense ratios would have been as follows:
<TABLE>
-----------------------------------------------------------------------------
<CAPTION>
Expense Ratios
Per Share Decreases to Without Waivers
Net Investment Income and Reimbursements
-----------------------------------------------------------------------------
Portfolio 1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Index--Class I N/A $0.02 N/A N/A $0.02 N/A 0.42% N/A N/A 1.17%
-----------------------------------------------------------------------------
</TABLE>
(3) As a result of the 0.30% voluntary expense limitation for the ratio of
expenses to average net assets, which became effective during 1998, the
manager will reimburse fees for the amount that exceeds the limitation.
Greenwich Street Series Fund
32
<PAGE>
For a share of beneficial interest outstanding throughout the period ended
December 31;
<TABLE>
<CAPTION>
Equity Index Portfolio
Class II Shares 1999 (1)(2)
- ------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $31.71
- ------------------------------------------------------------
Income from operations:
Net investment income 0.24
Net realized and unrealized gain 4.15
- ------------------------------------------------------------
Total income from operations 4.39
- ------------------------------------------------------------
Less distributions from:
Net investment income (0.12)
Net realized gains (0.17)
- ------------------------------------------------------------
Total distributions (0.29)
- ------------------------------------------------------------
Net asset value, end of period $35.81
- ------------------------------------------------------------
Total return 13.96%++
- ------------------------------------------------------------
Net assets, end of period (millions) $ 27
- ------------------------------------------------------------
Ratios to average net assets:
Expenses 0.51%+
Net investment income 0.93+
- ------------------------------------------------------------
Portfolio turnover rate 3%
- ------------------------------------------------------------
</TABLE>
(1) For the period from March 22, 1999 (inception date) to December 31, 1999.
(2) Per share amounts have been calculated using the monthly average shares
method.
++Total return is not annualized as it may not be representative of the total
return for the year.
+ Annualized.
Greenwich Street Series Fund
33
<PAGE>
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
Growth & Income Portfolio
1999 1998 (1) 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $18.47 $18.54 $16.43 $13.73 $10.75
- -----------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.30 0.27 0.31 0.27 0.26
Net realized and unrealized gain
(loss) 1.49 1.93 3.41 2.45 2.99
- -----------------------------------------------------------------------------
Total income (loss) from operations 1.79 2.20 3.72 2.72 3.25
- -----------------------------------------------------------------------------
Less distributions from:
Net investment income (0.35) (0.33) (0.29) (0.02) (0.27)
Net realized gains (3.44) (1.94) (1.32) -- --
- -----------------------------------------------------------------------------
Total distributions (3.79) (2.27) (1.61) (0.02) (0.27)
- -----------------------------------------------------------------------------
Net asset value, end of year $16.47 $18.47 $18.54 $16.43 $13.73
- -----------------------------------------------------------------------------
Total return 10.66% 11.88% 22.94% 19.83% 30.49%
- -----------------------------------------------------------------------------
Net assets, end of year (millions) $24 $ 36 $ 43 $ 39 $ 35
- -----------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.80% 0.72% 0.77% 0.83% 0.98%
Net investment income 1.21 1.45 1.62% 1.67% 2.09%
- -----------------------------------------------------------------------------
Portfolio turnover rate 47% 13% 17% 22% 17%
- -----------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
<TABLE>
<CAPTION>
Equity Income Portfolio
1999 1998 (1) 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $16.38 $15.31 $13.01 $12.35 $ 9.87
- ------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.67 0.53 0.77 0.63 0.54
Net realized and unrealized gain
(loss) (1.15) 1.94 2.28 0.11 2.56
- ------------------------------------------------------------------------------
Total income (loss) from operations (0.48) 2.47 3.05 0.74 3.10
- ------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.77) (0.71) (0.75) (0.08) (0.62)
Net realized gains (3.07) (0.69) -- -- --
- ------------------------------------------------------------------------------
Total distributions (3.84) (1.40) (0.75) (0.08) (0.62)
- ------------------------------------------------------------------------------
Net asset value, end of year $12.06 $16.38 $15.31 $13.01 $12.35
- ------------------------------------------------------------------------------
Total return (4.75)% 16.99% 23.52% 5.99% 32.47%
- ------------------------------------------------------------------------------
Net assets, end of year (millions) $ 21 $ 37 $ 46 $ 46 $ 52
- ------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.87% 0.79% 0.77% 0.77% 0.95%
Net investment income 3.09 3.43 4.42 4.53 4.95
- ------------------------------------------------------------------------------
Portfolio turnover rate 3% 43% 42% 28% 33%
- ------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
Greenwich Street Series Fund
34
<PAGE>
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
Total Return Portfolio
1999 1998 (1) 1997 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $17.55 $17.62 $15.73 $12.75 $10.78
- ----------------------------------------------------------------------------
Income from operations:
Net investment income 0.42 0.49 0.37 0.26 0.43
Net realized and unrealized gain 3.37 0.38 2.26 2.97 2.19
- ----------------------------------------------------------------------------
Total income from operations 3.79 0.87 2.63 3.23 2.62
- ----------------------------------------------------------------------------
Less distributions from:
Net investment income (0.48) (0.43) (0.21) (0.07) (0.41)
Net realized gains (0.72) (0.51) (0.53) (0.18) (0.24)
- ----------------------------------------------------------------------------
Total distributions (1.20) (0.94) (0.74) (0.25) (0.65)
- ----------------------------------------------------------------------------
Net asset value, end of year $20.14 $17.55 $17.62 $15.73 $12.75
- ----------------------------------------------------------------------------
Total return 22.02% 4.97% 16.84% 25.33% 25.04%
- ----------------------------------------------------------------------------
Net assets, end of year (millions) $ 330 $ 298 $ 274 $ 172 $ 78
- ----------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.79% 0.79% 0.79% 0.83% 1.00%
Net investment income 2.07 2.79 3.24 3.06 3.80
- ----------------------------------------------------------------------------
Portfolio turnover rate 41% 72% 75% 82% 81%
- ----------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
Greenwich Street Series Fund
35
<PAGE>
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
Diversified Strategic Income Portfolio
1999 (1) 1998 (1) 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.90 $10.89 $10.98 $10.01 $ 9.18
- ------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (2) 0.73 0.69 0.77 0.88 0.74
Net realized and unrealized gain
(loss) (0.55) (0.01) 0.12 0.24 0.70
- ------------------------------------------------------------------------------
Total income (loss) from operations 0.18 0.68 0.89 1.12 1.44
- ------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.51) (0.67) (0.98) (0.15) (0.61)
Net realized gains (0.13) -- -- -- --
- ------------------------------------------------------------------------------
Total distributions (0.64) (0.67) (0.98) (0.15) (0.61)
- ------------------------------------------------------------------------------
Net asset value, end of year $10.44 $10.90 $10.89 $10.98 $10.01
- ------------------------------------------------------------------------------
Total return 1.72% 6.41% 8.14% 11.16% 16.18%
- ------------------------------------------------------------------------------
Net assets, end of year (millions) $ 74 $ 81 $ 63 $ 60 $ 59
- ------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.78% 0.78% 0.78% 0.84% 0.90%
Net investment income 6.88 6.38 7.29 7.94 7.73
- ------------------------------------------------------------------------------
Portfolio turnover rate 111% 86% 47% 106% 46%
- ------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Includes realized gains and losses from foreign currency transactions for
the year ended December 31, 1995.
Greenwich Street Series Fund
36
<PAGE>
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
Intermediate High Grade Portfolio
1999 1998 (1) 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.90 $10.89 $10.70 $10.60 $ 9.66
- ------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (2) 0.77 0.65 0.72 0.71 0.66
Net realized and unrealized gain
(loss) (1.17) 0.07 0.21 (0.53) 1.00
- ------------------------------------------------------------------------------
Total income (loss) from operations (0.40) 0.72 0.93 0.18 1.66
- ------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.81) (0.71) (0.74) (0.08) (0.72)
- ------------------------------------------------------------------------------
Total distributions (0.81) (0.71) (0.74) (0.08) (0.72)
- ------------------------------------------------------------------------------
Net asset value, end of year
(millions) $ 9.69 $10.90 $10.89 $10.70 $10.60
- ------------------------------------------------------------------------------
Total return (3.69)% 6.79% 8.67% 1.69% 17.76%
- ------------------------------------------------------------------------------
Net assets, end of year (millions) $ 9 $ 13 $ 15 $ 15 $ 16
- ------------------------------------------------------------------------------
Ratios to average net assets:
Expenses (2) 1.22% 0.93% 0.95% 0.90% 0.86%
Net investment income 5.46 5.82 6.28 6.35 6.63
- ------------------------------------------------------------------------------
Portfolio turnover rate 71% 60% 66% 116% 121%
- ------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) The manager waived all or part of its fees for the two years ended December
31, 1996. IDS Life reimbursed expenses of $3,006 for the year ended
December 31, 1995. If such fees had not been waived and expenses
reimbursed, the per share effect on net investment income and the expense
ratios would have been as follows:
<TABLE>
--------------------------------------------------------------------
<CAPTION>
Expense Ratios
Per Share Decreases to Without Waivers
Net Investment Income and Reimbursements
--------------------------------------------------------------------
Portfolio 1996 1995 1996 1995
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Intermediate High Grade $ 0.02 0.01 1.07% 0.94%
--------------------------------------------------------------------
</TABLE>
Greenwich Street Series Fund
37
<PAGE>
Greenwich Street Series Fund
Additional Information
Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about each fund's investments. These reports discuss the
market conditions and investment strategies that affected the funds'
performance.
The funds send one report to a household if more than one account has the same
address. Contact your participating life insurance company representative or
your Salomon Smith Barney Financial Consultant if you do not want this policy
to apply to you.
Statement of additional information. The statement of additional information
provides more detailed information about the fund. It is incorporated by
reference into this prospectus.
You can make inquiries about the funds or obtain shareholder reports or the
statement of additional information (without charge) by calling 1-800-451-2010
or writing to Greenwich Street Series Fund, 388 Greenwich Street, New York, New
York 10013.
Information about the funds (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's (the "Commission") Public Reference
Room in Washington, D.C. In addition, information on the operation of the
Public Reference Room may be obtained by calling the Commission at 1-202-942-
8090. Reports and other information about the funds are available on the EDGAR
Database on the Commission's Internet site at http://www.sec.gov. Copies of
this information may be obtained for a duplicating fee by electronic request at
the following E-mail address: [email protected], or by writing the
Commission's Public Reference Section, Washington, D.C. 20549-0102.
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 4/00
April 28, 2000
STATEMENT OF ADDITIONAL INFORMATION
GREENWICH STREET SERIES FUND
388 Greenwich Street,
New York, New York 10013
(800) 451-2010
This Statement of Additional Information ("SAI") is
not a prospectus and should be read in conjunction
with the prospectus of the Greenwich Street Series
Fund (the "fund") dated April 28, 2000, as amended or
supplemented from time to time), and is incorporated
by reference in its entirety into the prospectus.
Additional information about the fund's investments is
available in the fund's annual and semi-annual reports
to shareholders which are incorporated herein by
reference. The prospectus and copies of the reports
may be obtained free of charge by contacting a Salomon
Smith Barney Financial Consultant, or by writing or
calling Salomon Smith Barney Inc. at the address or
telephone number above.
TABLE OF CONTENTS
Management of the Fund 3
Trustees of the Trust and Executive Officers of the
Fund 4
Investment Advisers, Sub-Investment Adviser & Administrator 13
Investment Goals and Policies of Portfolios
Emerging Growth Portfolio 17
International Equity Portfolio 19
Appreciation Portfolio1 19
Equity Index Portfolio 19
Growth & Income Portfolio 20
Equity Income Portfolio 21
Total Return Portfolio 22
Diversified Strategic Income Portfolio 22
Intermediate High Grade Portfolio 23
Money Market Portfolio 24
Additional Investment Policies 24
Risk Factors 49
Investment Restrictions 58
Portfolio Turnover 61
Portfolio Transactions 62
Purchase of Shares 68
Redemption of Shares 69
Net Asset Value 70
Performance Data 71
Dividends, Distributions and Taxes 76
Organization of the Fund 78
Custodian, Transfer Agent and Sub-Transfer Agent 79
Financial Statements 80
Appendix A
The fund is a diversified, open-end management
investment company with ten portfolios, each with
separate goals and investment policies:
The Emerging Growth Portfolio's goal is to provide
capital appreciation. This portfolio invests primarily
in common stocks, both domestic and foreign,
considered by its investment adviser to be emerging
growth companies, without regard to market
capitalization.
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
SSB Citi Fund Management LLC
("SSB Citi" or "adviser" and
"administrator") successor to SSBC
Fund Management Inc.
Investment Adviser to Emerging
Growth, 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 SSB Citi ("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
CFBDS, Inc.
("CFBDS" or "distributor")
Distributor
PNC Bank, National Association
("PNC" or "custodian")
Custodian for Appreciation,
Emerging Growth, Equity Income,
Equity Index, Growth & Income,
Intermediate High Grade, Money
Market and Total Return Portfolios
Chase Manhattan Bank
("Chase" or "custodian")
Custodian for Diversified Strategic
Income and International Equity
Portfolios
Citi Fiduciary Trust Company
("transfer agent")
PFPC Global Fund Services
("PFPC" or "sub-transfer agent")
Transfer and Dividend Paying Agent
Sub-Transfer 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.
Herbert Barg, Trustee (Age 77). Private Investor.
His address is 273 Montgomery Avenue, Bala Cynwyd,
Pennsylvania 19004. Director/Trustee of sixteen
investment companies associated with Citigroup, Inc.
("Citigroup").
*Alfred J. Bianchetti, Trustee (Age 77). Retired;
formerly Senior Consultant to Dean Witter Reynolds
Inc. His address is 19 Circle End Drive, Ramsey, New
Jersey 07466. Director/Trustee of eleven investment
companies associated with Citigroup.
Martin Brody, Trustee (Age 78). 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. Director/Trustee of twenty-one
investment companies associated with Citigroup.
Dwight B. Crane, Trustee (Age 62). Professor, Harvard
Business School. His address is c/o Harvard Business
School, Soldiers Field Road, Boston, Massachusetts
02163. Director/Trustee of twenty-four investment
companies associated with Citigroup.
Burt N. Dorsett, Trustee (Age 69). Managing Partner
of Dorsett McCabe Management. Inc., an investment
counseling firm; 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. Director/Trustee of eleven
investment companies associated with Citigroup.
Elliot S. Jaffe, Trustee (Age 73). Chairman of the
Board and President of The Dress Barn, Inc. His
address is 30 Dunnigan Drive, Suffern, New York 10901.
Director/Trustee of eleven investment companies
associated with Citigroup.
Stephen E. Kaufman, Trustee (Age 68). Attorney. His
address is 277 Park Avenue, New York, New York 10172.
Director/Trustee of thirteen investment companies
associated with Citigroup.
Joseph J. McCann, Trustee (Age 69). Financial
Consultant; Retired Financial Executive, Ryan Homes,
Inc. His address is 200 Oak Park Place, Pittsburgh,
Pennsylvania 15243. Director/Trustee of eleven
investment companies associated with Citigroup.
*Heath B. McLendon, Trustee (Age 66). Chairman of the
Board, President and Chief Executive Officer; Managing
Director of Salomon Smith Barney; President of SSB
Citi and Travelers Investment Adviser, Inc. ("TIA");
Chairman or Co-Chairman of the Board of 71 investment
companies associated with Salomon Smith Barney. His
address is 7 World Trade Center, New York, New York
10048.
Cornelius C. Rose, Jr. Trustee (Age 67). 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. Director/Trustee
of eleven investment companies associated with
Citigroup.
Lewis E. Daidone (Age 42). Senior Vice President and
Treasurer; Managing Director of Salomon Smith Barney;
Chief Financial Officer of the Smith Barney Mutual
funds; Treasurer and Senior Vice President or
Executive Vice President of sixty-one investment
companies associated with Citigroup; Director and
Senior Vice President of SSB Citi and TIA. His address
is 388 Greenwich Street, New York, New York 10013.
Paul Brook (Age 46). Controller; Director of Salomon
Smith Barney; Controller or Assistant Treasurer of
forty-three investment companies associated with
Citigroup; from 1997-1998 Managing Director of AMT
Capital Services Inc.; prior to 1997 Partner with
Ernst & Young LLP. His address is 388 Greenwich
Street, New York, New York 10013.
Irving David (Age 39) Controller
Director of Salomon Smith Barney. Controller or
Assistant Treasurer of forty-three investment
companies associated with Citigroup; His address is
388 Greenwich Street, New York, New York 10013.
Christina T. Sydor (Age 49) Secretary; Managing
Director of Salomon Smith Barney; Secretary of sixty-
one investment companies associated with Citigroup;
General Counsel and Secretary of SSB Citi and TIA. Her
address is 388 Greenwich Street, New York, New York
10013.
Harry D. Cohen (Age 57). Vice President and
Investment Officer
Managing Director of Salomon Smith Barney; Investment
Officer of SSB Citi; Vice President of two investment
companies associated with Citigroup. His address is 7
World Trade Center, New York, New York 10048.
Scott Glasser (Age 33). Vice President and Investment
Officer
Director of Salomon Smith Barney; Investment Officer
of SSB Citi; Vice President of two investment
companies associated with Citigroup. His address is 7
World Trade Center, New York, New York 10048.
Sandip A. Bhagat (Age 39). Vice President and
Investment Officer
President of TIMCO; Vice President of four investment
companies associated with Citigroup; His address is
One Tower Square, Hartford, Connecticut 06183-2030.
John Lau (33) Vice President and Investment Officer
Portfolio Manager of TIMCO; His address is One Tower
Square, Hartford, Connecticut, 06183-2030.
John C. Bianchi (Age 44). Vice President and
Investment Officer
Managing Director of Salomon Smith Barney; Investment
Officer of SSB Citi; Vice President of six investment
companies associated with Citigroup. His address is
388 Greenwich Street, New York, New York 10013.
Robert Brady (Age 59). Vice President and Investment
Officer
Managing Director of Salomon Smith Barney; Investment
Officer of SSB Citi; Vice President of three
investment companies associated with Citigroup. His
address is 388 Greenwich Street, New York, New York
10013.
James Conheady (Age 64). Vice President and
Investment Officer
Managing Director of Salomon Smith Barney; Vice
President of four investment companies associated with
Citigroup. Investment Officer of SSB Citi; His address
is 7 World Trade Center, New York, New York 10048.
James E. Conroy (Age 49). Vice President and
Investment Officer
Managing Director of Salomon Smith Barney; Vice
President of four investment companies associated with
Citigroup; Investment Officer of SSB Citi; His
address is 388 Greenwich Street, New York, New York
10013.
Denis Doherty (Age 36). Vice President and Investment
Officer
Director of Salomon Smith Barney; Vice President of
two investment companies associated with Citigroup;
Investment Officer of SSB Citi; His address is 388
Greenwich Street, New York, New York 10013..
R. Jay Gerken (Age 48). Vice President and Investment
Officer
Managing Director of Salomon Smith Barney; Investment
Officer of SSB Citi; Vice President of four investment
companies associated with Citigroup; His address is
388 Greenwich Street, New York, New York 10013.
John G. Goode (Age 54). Vice President and
Investment Officer
Managing Director of Salomon Smith Barney; Chairman
and Chief Investment Officer of Davis Skaggs; Vice
President of two investment companies associated with
Citigroup; Investment Officer of SSB Citi. His address
is One Sansone Street, San Francisco, California
94104.
Simon Hildreth (Age 44). Vice President and Investment
Officer
Managing Director of Salomon Smith Barney; Vice
President of three investment companies associated
with Citigroup; Investment Officer of SSB Citi. His
address is Cottons Centre, Hays Lane, London, SE1 2QT,
U.K.
Richard A. Freeman (Age 45). Vice President and
Investment Officer
Managing Director of Salomon Smith Barney. Vice
President of three investment companies associated
with Citigroup; Investment Officer of SSB Citi; His
address is 388 Greenwich Street, New York, New York
10013.
Jeffrey Russell (Age 41). Vice President and
Investment Officer
Managing Director of Salomon Smith Barney; Vice
President of four investment companies associated with
Citigroup; Investment Officer of SSB Citi; His address
is 388 Greenwich Street, New York, New York 10013.
Phyllis Zahorodny (Age 41). Vice President and
Investment Officer
Managing Director of Salomon Smith Barney; Investment
Officer of SSB Citi; Vice President of four investment
companies associated with Citigroup. Her address is
388 Greenwich Street, New York, New York 10013.
As of April 7, 2000, the trustees and officers as a
group owned less than 1% of the outstanding common
stock of the trust. To the best knowledge of the
trustees, as of April 7, 2000, the following
shareholders or "groups" (as such term is defined in
Section 13(d) of the Securities Exchange Act of 1934,
as amended) owned beneficially or of record more than
5% of the shares of the following classes:
Shareholder
Percent Ownership
Money Market Portfolio
IDS Life Variable Account
For Shearson
Attn: Unit 229
IDS Tower 10
Minneapolis, MN 55402
Owned 4,327,677.580 shares
96.90%
Intermediate High Grade Portfolio
IDS Life Variable Account
For Shearson
Attn: Unit 229
IDS Tower 10
Minneapolis, MN 55402
Owned 798,932.702 shares
99.80%
Diversified Strategic Income Portfolio
Travelers Insurance Company
Separate Account QPN 401(k)-TIC
Travelers Insurance Company
Attn: Roger Ferland
One Tower Square
Hartford, CT 06183
Owned 4,432,551.014
64.91%
Diversified Strategic Income Portfolio
IDS Life Variable Account
For Shearson
Attn: Unit 229
IDS Tower 10
Minneapolis, MN 55402
Owned 2,395,768.386 shares
35.09%
Equity Index Portfolio - Class I
Travelers Insurance Company
Separate Account QPM 401(k)-TIC
Travelers Insurance Company
Attn: Roger Ferland 5 MS
One Tower Square
Hartford, CT 06183
Owned 20,444,633.472 shares
97.88%
Equity Index Portfolio - Class II
Travelers Insurance Company
Separate Account QPM 401(k)-TIC
Travelers Insurance Company
Attn: Roger Ferland 5 MS
One Tower Square
Hartford, CT 06183
Owned 1,064,635.884 shares
87.15%
First Citicorp Life Insurance Co.
800 Silver Lake Blvd.
Dover, DE 19904
Owned 138,400.743 shares
11.33%
Shareholder
Equity Income Portfolio
Percent Ownership
IDS Life Variable Account
For Shearson
Attn: Unit 229
IDS Tower 10
Minneapolis, MN 55402
Owned 1,493,173.052 shares
100%
Growth and Income Portfolio
IDS Life Variable Account
For Salomon Smith Barney
Attn: Unit 229
IDS Tower 10
Minneapolis, MN 55402
Owned 1,300,252.405 shares
100%
Appreciation Portfolio
Travelers Insurance Company
Separate Account QPM 401(k)-TIC
Travelers Insurance Company
Attn: Roger Ferland 5 MS
One Tower Square
Hartford, CT 06183
Owned 18,575,135.505 shares
73.65%
Shareholder
Appreciation Portfolio
Equitable Life of Iowa
Prime Elite
Attn: Gina Keck
604 Locust Street
Des Moines, Iowa 50306
Owned 4,091,319.515 shares
IDS Life Variable Account
For Salomon Smith Barney
Attn: Unit 229
IDS Tower 10
Minneapolis, MN 55402
Owned 2,554,746.631 shares
Percent Ownership
16.22%
10.13%
Total Return Portfolio
Travelers Insurance Company
Separate Account QPM 401(k)-TIC
Travelers Insurance Company
Attn: Roger Ferland 5 MS
One Tower Square
Hartford, CT 06183
Owned 14,629,522.185 shares
IDS Life Variable Account
For Salomon Smith Barney
Attn: Unit 229
IDS Tower 10
Minneapolis, MN 55402
Owned 1,091,619.259 shares
92.92%
6.93%
Shareholder
International Equity Portfolio
Percent Ownership
IDS Life Variable Account
For Salomon Smith Barney
Attn: Unit 229
IDS Tower 10
Minneapolis, MN 55402
Owned 1,052,362.235 shares
100%
Emerging Growth Portfolio
IDS Life Variable Account
For Salomon Smith Barney
Attn: Unit 229
IDS Tower 10
Minneapolis, MN 55402
Owned 713,042.535 shares
100%
No officer, director or employee of Salomon Smith
Barney, any of the portfolios' advisers or sub-
adviser, or any of their affiliates receives any
compensation from the fund for serving as an officer
or trustee of the fund. The fund pays each trustee
who is not a director, officer or employee of Salomon
Smith Barney, the advisers or any of their affiliates
a fee of $10,000 per annum plus $500 per in-person
meeting and $100 per telephonic meeting. The fund pays
a trustee emeritus who is not a trustee, officer or
employee of Salomon Smith Barney, the advisers, or any
of their affiliates a fee of $5,000 per annum plus
$250 per in person meeting and $50 per telephonic
meeting. Each trustee is reimbursed for travel and
out-of-pocket expenses incurred to attend such
meetings. For the fiscal year ended December 31, 1999,
the trustees were reimbursed, in the aggregate,
$14,438 for travel and out-of-pocket expenses.
For the fiscal year ended December 31, 1999, the
trustees of the fund were paid the following
compensation:
Aggregate
Compensation from Fund
Pension or Retirement
Benefits Accrued as part of
Fund Expenses
Compensation from Fund
And Fund Complex paid
to trustees
Number of funds for which trustee
Serves within Fund Complex
Herbert Barg**
$7,600
$0
$114,288
16
Alfred
Bianchetti*
7,100
0
53,900
11
Martin Brody**
6,500
0
138,600
21
Dwight B.
Crane**
7,600
0
155,363
24
Burt N. Dorsett*
**
7,600
0
57,950
11
Elliot S.
Jaffe**
6,100
0
45,100
11
Stephen E.
Kaufman**
7,500
0
110.650
13
Joseph J.
McCann**
7,600
0
58,050
11
Heath B.
McLendon *
0
0
0
71
Cornelius C.
Rose, Jr.**
7,100
0
53,500
11
* Designates an "interested" trustee.
** Designates member of Audit Committee.
+ Upon attainment of age 80, fund trustees are
required to change to emeritus status. Trustees
emeritus are entitled to serve in emeritus
status for a maximum of 10 years. Trustees
emeritus may attend meetings but have no voting
rights.
Investment Advisers, Sub-Investment Adviser and
Administrator
Each adviser serves as investment adviser to one or
more Portfolios pursuant to a separate written
agreement with each portfolio (an "Advisory
Agreement"). The Advisory Agreements for each of the
portfolios were approved by the Board Of Trustees,
including a majority of the trustees who are not
interested persons. Subject to the supervision and
direction of the trust's Board Of Trustees, each
adviser manages the portfolios in accordance with the
portfolio's stated investment objective and policies,
makes investment decisions for the portfolio, places
orders to purchase and sell securities, and employs
professional portfolio managers and securities
analysts who provide research services to the fund.
The adviser pays the salary of any officer and
employee who is employed by both it and the fund. Each
adviser bears all expenses in connection with the
performance of its services.
SSB Citi (successor to SSBC Fund Management Inc.) is a
wholly owned subsidiary of Salomon Smith Barney
Holdings Inc. (''Holdings''). Holdings is a wholly
owned subsidiary of Citigroup. SSB Citi was
incorporated on March 12, 1968 under the laws of
Delaware and converted to a Delaware limited liability
company in September 1999. As of March 31, 2000 SSB
Citi rendered investment advice to investment
companies that had aggregate assets under management
in excess of $134 billion. SSB Citi, Salomon Smith
Barney and Holdings are each located at 388 Greenwich
Street, New York, New York 10013. The term ''Smith
Barney'' in the title of the Company and the funds has
been adopted by permission of Salomon Smith Barney and
is subject to the right of Salomon Smith Barney to
elect that the Company stop using the term in any form
or combination of its name.
Global Capital Management, sub-adviser to Diversified
Strategic Income Portfolio, also is a subsidiary of
Citigroup. Davis Skaggs, adviser to the Total Return
Portfolio is a division of SSB Citi.
At a meeting of the Board of Trustees of the trust
held on January 31, 2000, the Trustees approved an
interim sub-advisory contract and subject to
shareholder approval, a new Advisory Agreement
("Agreement"), with SSB Citi, on behalf of the fund.
The Trustees also approved the termination of the
current advisory agreement with Van Kampen Asset
Management ("VKAM"). The interim advisory contract
commenced on February 10, 2000 and will terminate on
the later of 150 days or upon shareholder approval of
the Agreement. If the 150 days expires without
shareholder approval of the Agreement, SSB Citi would
manage the fund until the Board determines that
additional action is appropriate. Both the interim
advisory contract and the Agreement obligate SSB Citi
to provide investment advisory services to the fund.
The interim advisory contract is substantively
identical to the current advisory agreement with VKAM
in all material respects. There are no material
changes in its terms and conditions and no change in
fees. The Agreement, if approved by shareholders would
provide for fees to be paid by the Emerging Growth
Portfolio at a rate of 0.75% of the average daily net
assets, computed daily and paid monthly.
The Portfolios pay their respective advisers an
aggregate fee at an annual percentage of the value of
the relevant portfolio's average net assets as
follows:
Appreciation Portfolio
0.55%
Diversified Strategic Income
Portfolio
0.45%
Emerging Growth Portfolio
0.75%
Equity Income Portfolio
0.45%
Equity Index Portfolio
0.15%
Growth & Income Portfolio
0.45%
Intermediate High Grade
Portfolio
0.40%
International Equity
Portfolio
0.85%
Money Market Portfolio
0.30%
Total Return Portfolio
0.55%
Global Capital Management, as Sub-Adviser to the
Diversified Strategic Income Portfolio, is paid a fee
by SSB Citi, the portfolio's Adviser, at the annual
percentage of 0.15% of the value of the Portfolio's
average net assets. The management fees paid by the
Appreciation, Total Return, International Equity and
Emerging Growth Portfolios are higher than those fees
paid by most other investment companies, but not
necessarily higher than those paid by funds with
similar investment objectives and policies.
Each adviser and the sub-adviser pay the salaries of
all officers and employees who are employed by both it
and the fund, maintains office facilities for the fund
and bears all expenses in connection with the
performance of their respective services under their
Agreements with the fund.
The portfolios incurred the following investment
advisory fees for the years ended December 31, 1999,
1998 and 1997 by their respective adviser:
Portfolio
Adviser
12/31/99
12/31/98
12/31/97
Appreciation
SSB Citi
$2,049,520
$1,032,038
$662,865
Diversified Strategic
Income
SSB Citi
358,768
332,908
263,097
Emerging Growth*
SSB Citi
155,879
150,773
146,478
Equity Income
SSB Citi
134,493
192,581
194,623
Equity Index**
TIMCO
556,038
135,564
56,376
Growth & Income
SSB Citi
139,088
179,897
187,747
Intermediate High
Grade
SSB Citi
44,383
58,825
59,572
International Equity
SSB Citi
182,496
225,622
275,190
Money Market***
SSB Citi
14,405
14,675
16,034
Total Return
Davis Skaggs
1,718,707
1,607,515
1,220,026
* VKAM received the investment advisory fees for the past three
years.
** TIMCO and SSB Citi have voluntarily agreed to
limit the ratio of expenses to average net assets to
0.30%. TIMCO and/or SSB Citi
will reimburse fees for the amount that exceeds the
limitation.
*** SSB Citi waived $8,710 and $14, 675 of its investment
advisory fees for the fiscal years ended December 31, 1999 and
1998, respectively.
The fund bears expenses incurred in its operation,
including taxes, interest, brokerage fees and
commissions, if any; fees of trustees who are not
officers, directors, shareholders or employees of the
advisers, the sub-adviser or Salomon Smith Barney; SEC
fees and state blue sky qualification fees; charges of
custodians; transfer and dividend disbursing agents'
fees; certain insurance premiums; outside auditing and
legal expenses; costs of maintenance of corporate
existence; investor services (including allocated
telephone and personnel expenses); and costs of
preparation of corporate meetings and of preparation
and printing of prospectuses and shareholder reports
for regulatory purposes and for distribution to
shareholders.
Administrator
SSB Citi serves as administrator to each portfolio
pursuant to a separate written agreement with each
portfolio (the "Administration Agreement"). The
Administration Agreement was approved by the fund's
Board Of Trustees, including a majority of the
disinterested trustees.
As administrator, SSB Citi performs certain services
for the fund. As part of those services, SSB Citi
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.
SSB Citi bears all expenses in connection with the
performance of its services.
SSB Citi, as Administrator of the Portfolios, is paid
a fee at the annual percentage of 0.20% of the value
of each portfolio's average net assets, except with
respect to the Equity Index Portfolio, for which it is
paid a fee at an annual percentage of 0.06% of the
value of the Portfolio's average net assets.
The portfolios incurred the following administration
fees for the years ended December 31, 1999,1998 and
1997:
Portfolio
Administrator
12/31/99
12/31/98
12/31/97
Appreciation
SSB Citi
$745,280
$375,286
$241,042
Diversified Strategic
Income
SSB Citi
159,452
147,959
116.932
Emerging Growth
SSB Citi
41,568
40,206
39,061
Equity Income
SSB Citi
59,774
85,592
86,499
Equity Index*
SSB Citi
222,721
54,226
27,188
Growth & Income
SSB Citi
61,817
79,954
83,443
Intermediate High
Grade
SSB Citi
22,191
29,412
29,786
International Equity
SSB Citi
42,940
53,087
64,750
Money Market**
SSB Citi
7,610
9,784
10,689
Total Return
SSB Citi
624,984
584,551
443,646
* SSB Citi agreed to reimburse administration fees
in the amount of $114,983 for the fiscal year ended
December 31, 1998. TIMCO and SSB Citi have voluntarily
agreed to limit the ratio of expenses to average
net assets to 0.30%. TIMCO and/or SSB Citi will
reimburse fees for the amount that exceeds the
limitation.
** SSB Citi agreed to waive administration fees in the
amount of $5,806 for the fiscal year ended
December 31, 1999. SSB Citi waived all of its
administration fees for the fiscal years ended
December 31,1998.
Code of Ethics
Pursuant to Rule 17j-1 of the 1940 Act, the fund, its
investment advisers and principal underwriter have
adopted codes of ethics that permit personnel to
invest in securities for their own accounts, including
securities that may be purchased or held by the fund.
All personnel must place the interests of clients
first and avoid activities, interests and
relationships that might interfere with the duty to
make decisions in the best interests of the clients.
All personal securities transactions by employees must
adhere to the requirements of the codes and must be
conducted in such a manner as to avoid any actual or
potential conflict of interest, the appearance of such
a conflict, or the abuse of an employee's position of
trust and responsibility.
A copy of the fund's Code of Ethics is on file with
the Securities and Exchange Commission.
Auditors
KPMG LLP, independent auditors, 757 Third Avenue, New
York, New York 10017, 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, 2000.
Counsel
Willkie Farr & Gallagher, 787 Seventh Avenue, New
York, New York 10019, serves as counsel to the fund.
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New
York, New York, serves as counsel to the directors who
are not "interested persons" of the fund.
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 invests
primarily in common stocks of emerging growth
companies, without regard to market capitalization.
These are domestic or foreign companies the adviser
believes are in the early stages of their life cycles
and have the potential to become major enterprises.
Investments in such companies may offer greater
opportunities for growth of capital than larger, more
established companies, but also may involve certain
special risks. Emerging growth companies often have
limited product lines, markets or financial resources,
and they may be dependent upon one or a few key people
for management. The securities of such companies may
be subject to more abrupt or erratic market movements
than securities of larger, more established companies
or the market averages in general. While the
portfolio will invest primarily in common stocks, to a
limited extent it may invest in other securities such
as preferred stocks, convertible securities and
warrants.
The portfolio does not limit its investments to any
single group or type of security. The portfolio also
may invest in special situations involving new
management, special products and techniques, unusual
developments, mergers or liquidations. Investments in
unseasoned companies and special situations often
involve much greater risks than are inherent in
ordinary investments, because securities of such
companies may be more likely to experience unexpected
fluctuations in price.
The portfolio may invest in securities that have
above- average volatility of price movement. Because
prices of common stocks and other securities
fluctuate, the value of an investment in the portfolio
will vary based upon its investment performance. The
portfolio attempts to reduce overall exposure to risk
from declines in securities prices by spreading its
investments over many different companies in a variety
of industries. There is, however, no assurance that
the portfolio will be successful in achieving its
objective.
The portfolio may invest up to 20% of its total assets
in securities of foreign issuers. Additionally, the
portfolio may invest up to 15% of the value of its
total assets in restricted securities (i.e.,
securities that may not be sold without registration
under the Securities Act of 1933, as amended (the
"1933 Act")) and in other securities not having
readily available market quotations. The portfolio
may enter into repurchase agreements with domestic
banks and broker-dealers, which involve certain risks.
International Equity Portfolio
Goal - The International Equity Portfolio's goal is to
provide a total return on its assets from growth of
capital and income.
Investment Policies - Under normal market conditions,
the portfolio will invest at least 65% of its assets
in a diversified portfolio of equity securities
consisting of dividend and non-dividend paying common
stock, preferred stock, convertible debt and rights
and warrants to such securities, and up to 35% of its
assets in bonds, notes and debt securities (consisting
of securities issued in the Euro-currency markets or
obligations of the United States or foreign
governments and their political subdivisions) of
established non-United States issuers. Investments
may be made for capital appreciation or income, or any
combination of both for the purpose of achieving a
higher overall return than might otherwise be obtained
solely from investing for growth of capital or for
income. There is no limitation on the percentage or
amount of the portfolio's assets which may be invested
for growth or income and therefore, from time to time,
the investment emphasis may be placed solely or
primarily on growth of capital or solely or primarily
on income. In seeking to achieve its objective, the
portfolio presently expects to invest its assets
primarily in common stocks of established non-U.S.
companies which in the opinion of its adviser have
potential for growth of capital.
The portfolio will generally invest its assets broadly
among countries and will have represented in its
portfolio business activities in not less than three
different countries. Except as stated below, the
portfolio will invest at least 65% of its assets in
companies organized, or governments located in, any
area of the world other than the United States,
including the Far East (e.g., Hong Kong, Japan,
Malaysia and Singapore), Western Europe (e.g., France,
Germany, Italy, the Netherlands, Switzerland and the
United Kingdom), Central and South America (e.g.,
Chile, Mexico and Venezuela), Australia, Canada and
such other areas and countries as its adviser may
determine from time to time. The portfolio may invest
in securities issued by companies formerly party to
the Warsaw Pact. However, under unusual economic or
market conditions as determined by its adviser, for
defensive purposes the portfolio may temporarily
invest all or a major portion of its assets in U.S.
government securities or in debt or equity securities
of companies incorporated in and having their
principal business activities in the United States.
To the extent the portfolio's assets are invested for
temporary defensive purposes, such assets will not be
invested in a manner designed to achieve the
portfolio's investment objective.
It is expected that securities held by the portfolio
will ordinarily be traded on a stock exchange or other
market in the country in which the issuer is
principally based, but also may be traded on markets
in other countries including, in many cases, U. S.
securities exchanges and over-the-counter markets. To
the extent the portfolio's assets are not otherwise
invested as described above, the assets may be held in
cash, in any currency, or invested in U.S. or foreign,
high-quality money market instruments and their
equivalents.
Appreciation Portfolio
Goal - The Appreciation Portfolio's goal is long-term
appreciation of capital.
Investment Policies - The portfolio will attempt to
achieve its goal by investing primarily in equity and
equity-related securities believed to afford
attractive opportunities for appreciation.
Under normal market conditions, substantially all, but
not less than 65%, of the portfolio's assets will
consist of common stocks, but the portfolio may also
hold securities convertible into common stocks and
warrants. When the adviser believes that a
conservative or defensive investment posture is
warranted or when opportunities for capital
appreciation do not appear attractive, the portfolio
may invest temporarily in debt obligations, preferred
securities or short-term money market instruments.
The portfolio may from time to time lend its portfolio
securities and invest up to 10% of its assets (at the
time of investment) in foreign securities. The
portfolio may invest directly in foreign issuers or
invest in depository receipts.
Equity Index Portfolio
Goal - The Equity Index Portfolio's goal is to provide
investment results that, before deduction of operating
expenses, match the price and yield performance of
U.S. publicly traded common stocks, as measured by the
S&P 500 Index.
Investment Policies - The portfolio will seek to
achieve its goal by owning all 500 stocks in the S&P
500 Index in proportion to their actual market
capitalization weightings. The portfolio will be
reviewed daily and adjusted, when necessary, to
maintain security weightings as close to those of the
S&P 500 Index as possible, given the amount of assets
in the portfolio at that time. The portfolio may
invest up to 5% of its assets in equity securities
that are not included in the S&P 500 Index if the
adviser believes such investments will assist the
portfolio in approximating the return of the S&P 500
Index. The portfolio may use up to an additional 20%
of its assets to enter into stock index futures and
related options to increase efficiency, may lend
portfolio securities and write covered options to help
offset operating expenses, and may acquire money
market instruments. Portfolio turnover is expected to
be lower than for most other investment companies.
No attempt will be made to manage the portfolio in the
traditional sense using economic, financial and market
analysis, nor will the adverse financial situation of
an issuer necessarily result in the elimination of its
securities from the portfolio, unless the securities
are removed from the S&P 500 Index. From time to
time, administrative adjustments may be made in the
portfolio because of changes in the composition of the
S&P 500 Index. The adviser reserves the right to
remove an investment from the portfolio if, in its
opinion, the merit of the investment has been
substantially impaired by extraordinary events or
financial conditions.
The portfolio will use the S&P 500 Index as its
standard for performance comparison because the S&P
500 Index represents approximately 70% of the total
market value of all U.S. common stocks, is well known
to investors and is representative of the performance
of publicly traded U.S. common stocks.
The portfolio will invest in the common stocks of the
companies represented in the S&P 500 Index with the
goal of matching, before deduction of operating
expenses, the price and yield performance of the S&P
500 Index. The S&P 500 Index is composed of 500
selected common stocks, most of which are listed on
the New York Stock Exchange (the "NYSE"). S&P chooses
the stocks to be included in the S&P 500 Index solely
on a statistical basis. The S&P 500 Index is a
trademark of S&P and inclusion of a stock in the S&P
500 Index in no way implies an opinion by S&P as to
its attractiveness as an investment. S&P is neither a
sponsor nor in any way affiliated with the portfolio.
The portfolio's ability to replicate the performance
of the S&P 500 Index will depend to some extent on the
size of cash flows into and out of the portfolio.
Investment changes to accommodate these cash flows
will be made to maintain the similarity of the
portfolio's assets to the S&P 500 to the maximum
extent practicable.
Growth & Income Portfolio
Goal - The Growth & Income Portfolio's goal is income
and long-term capital growth.
Investment Policies - The portfolio will seek to
achieve its goal by investing in income-producing
equity securities, including dividend-paying common
stocks, securities that are convertible into common
stocks and warrants. Under normal market conditions,
the portfolio will invest substantially all, but not
less than 65%, of its assets in equity securities. The
portfolio may invest the remainder of its assets in
money market instruments, as well as in corporate
bonds, convertible securities and mortgage-related
securities rated investment grade or deemed to be of
comparable quality. The portfolio may enter into
repurchase agreements, lend portfolio securities,
enter into interest rate and stock index futures and
related options, purchase or sell securities on a
when-issued or delayed-delivery basis and write
covered options.
Equity Income Portfolio
Goal - The Equity Income Portfolio's primary goal is
current income. Long-term capital appreciation is a
secondary goal.
Investment Policies - The portfolio will seek to
achieve its goals principally through investment in
dividend-paying common stocks of companies whose
prospects for dividend growth and capital appreciation
are considered favorable by the adviser. The
portfolio will normally invest at least 65% of its
assets in equity securities. Under normal
circumstances, the portfolio will concentrate at least
25% of its assets in equity and debt securities of
companies in the utility industry. A company will be
considered to be in the utility industry if it is
principally engaged (i.e., at least 50% of a company's
assets consist of, or gross income or net profits
result from, utility operations or the company is
regulated as a utility by a government agency or
authority) in the manufacture, production, generation,
transmission and sale of electric and gas energy and
companies principally engaged in the communications
field, including entities such as telephone,
telegraph, satellite, microwave and other companies
regulated by governmental agencies as utilities that
provide communication facilities for the public
benefit.
Other types of securities that may be held by the
portfolio when deemed advisable by the adviser include
investment-grade debt securities such as bonds,
debentures and commercial paper, U.S. government
securities and money market instruments, and up to 10%
of the portfolio's assets may be invested in debt
securities rated as low as B by Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Ratings
Group ("S&P") or the equivalent by another nationally
recognized statistical rating organization ("NRSRO")
or in unrated securities deemed by the adviser to be
of comparable quality. When the outlook for common
stocks is not considered promising in the judgment of
the adviser, a substantial portion of the assets of
the portfolio may be held in these other types of
securities for temporary defensive purposes.
The portfolio may also invest in securities
convertible into or ultimately exchangeable for common
stock (i.e., convertible bonds or convertible
preferred stock) and may purchase common stocks that
do not provide current income but which offer
opportunities for capital appreciation and future
income. The portfolio also may enter into repurchase
agreements and reverse repurchase agreements, borrow
money, lend its portfolio securities, write covered
options on securities, purchase options on securities,
sell securities short against the box, purchase and
sell securities on a when-issued or delayed delivery
basis, and enter into interest rate futures contracts
and related options.
Total Return Portfolio
Goal - The Total Return Portfolio's goal is to provide
shareholders with total return, consisting of long-
term capital appreciation and income.
Investment Policies - The portfolio will seek to
achieve its goal by investing primarily in a
diversified portfolio of dividend-paying common
stocks. The portfolio may engage in various portfolio
strategies involving options to seek to increase its
return and to hedge its portfolio against movements in
the equity markets and interest rates. Because the
portfolio seeks total return by emphasizing
investments in dividend-paying common stocks, it will
not have as much investment flexibility as total
return funds which may pursue their objective by
investing in income and equity securities without such
an emphasis. The portfolio may also invest up to 10%
of its assets in securities rated less than investment
grade by Moody's, S&P or the equivalent by 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% 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.
Although the portfolio invests primarily in fixed
income securities, it may invest up to 20% of its
assets in common stock and other equity-related
securities, including convertible securities,
preferred stock, warrants and rights.
The portfolio generally will invest in intermediate-
and long-term fixed-income securities with the result
that, under normal market conditions, the weighted
average maturity of the portfolio's securities is
expected to be from four to in excess of 12 years.
Mortgage-related securities in which the portfolio may
invest, which include mortgage obligations
collateralized by mortgage loans or mortgage
pass-through certificates, will be rated no lower than
Aa by Moody's or AA by S&P or the equivalent from
another NRSRO, or if unrated, will be deemed by the
adviser to be of comparable quality. Under normal
market conditions, the portfolio's mortgage-related
holdings can be expected to consist primarily of
securities issued or guaranteed by the Government
National Mortgage Association ("GNMA"), the Federal
National Mortgage Association ("FNMA") and the Federal
Home Loan Mortgage Corporation ("FHLMC"). The
portfolio may invest up to 35% of its assets in
corporate fixed-income securities of U.S. issuers
rated Ba or lower by Moody's or BB or lower by S&P,
but not lower than Caa or CCC, respectively, or the
equivalent from another NRSRO, or in unrated
securities deemed by the adviser and the sub-adviser
to be of comparable quality. Special considerations
arising from investment in lower-rated and unrated
securities are described in "Special Considerations
and Risk Factors--Medium-, Lower- and Unrated
Securities."
The portfolio may also invest in fixed-income
securities issued by supranational organizations and
may engage in transactions in options, interest rate
futures contracts, options on interest rate futures
contracts, forward currency contracts, options on
foreign currencies and foreign currency futures
contracts. Up to 5% of the portfolio's assets may be
invested in developing countries.
Intermediate High Grade Portfolio
Goal - The Intermediate High Grade Portfolio's goal is
to provide as high a level of current income as is
consistent with the protection of capital.
Investment Policies - The portfolio will seek to
achieve its goal by investing, under normal
circumstances, substantially all, but not less than
65%, of its assets in U.S. government securities and
high-grade corporate bonds of U.S. issuers (i.e.,
bonds rated within the three highest rating categories
by Moody's, S&P, or the equivalent by 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 by another
NRSRO or unrated securities deemed by the adviser to
be comparable to securities rated below investment
grade. The portfolio may invest up to 10% of its
total assets in government stripped mortgage- backed
securities and may invest in floating- or
variable-rate demand notes.
Money Market Portfolio
Goal - The Money Market Portfolio's goal is maximum
current income to the extent consistent with the
preservation of capital and the maintenance of
liquidity.
Investment Policies - In seeking to achieve its goal,
the portfolio will invest in short-term money market
instruments, including: securities issued or
guaranteed by the U.S. government, its agencies and
instrumentalities ("U.S. government securities");
repurchase agreements, U.S. and foreign bank time
deposits, certificates of deposit and bankers'
acceptances; high-grade commercial paper of U.S. and
foreign issuers and other short-term corporate debt
obligations of such issuers that are comparable in
priority and security to such instruments, including
variable-rate and floating--rate instruments. Except
when maintaining a temporary defensive position, the
portfolio intends to invest more than 25% of its
assets in short-term bank instruments. The portfolio
will invest in money market instruments determined by
the adviser to present minimal credit risks and which
at the time of purchase are considered to be "Eligible
Securities," as defined by the SEC.
The portfolio will invest only in securities purchased
with and payable in U.S. dollars and that have (or,
pursuant to regulations adopted by the SEC, are deemed
to have) remaining maturities of 13 months or less at
the date of purchase by the portfolio. The portfolio
will maintain a dollar-weighted average portfolio
maturity of 90 days or less. The portfolio will
follow these policies to maintain a constant net asset
value of $ 1.00 per share, although there is no
assurance that it can do so on a continuing basis.
ADDITIONAL INVESTMENT POLICIES
EQUITY INVESTMENTS
Common Stocks (Appreciation, Diversified Strategic
Income, 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,
Diversified Strategic Income, Equity Income, Growth &
Income, Intermediate High Grade, International Equity
and Total Return Portfolios). The portfolios may
invest in convertible securities, which are fixed-
income securities that may be converted at either a
stated price or stated rate into underlying shares of
common stock. Convertible securities have general
characteristics similar to both fixed-income and
equity securities. Although to a lesser extent than
with fixed-income securities generally, the market
value of convertible securities tends to decline as
interest rates increase and, conversely, tends to
increase as interest rates decline. In addition,
because of the conversion feature, the market value of
convertible securities tends to vary with fluctuations
in the market value of the underlying common stocks
and, therefore, also will react to variations in the
general market for equity securities. A unique
feature of convertible securities is that as the
market price of the underlying common stock declines,
convertible securities tend to trade increasingly on a
yield basis and so may not experience market value
declines to the same extent as the underlying common
stock. When the market price of the underlying common
stock increases, the prices of the convertible
securities tend to rise as a reflection of the value
of the underlying common stock. While no securities
investments are without risk, investments in
convertible securities generally entail less risk than
investments in common stock of the same issuer.
As fixed-income securities, convertible securities
provide for a stable stream of income with generally
higher yields than common stocks. Of course, like all
fixed-income securities, there can be no assurance of
current income because the issuers of the convertible
securities may default on their obligations.
Convertible securities, however, generally offer lower
interest or dividend yields than non-convertible
securities of similar quality because of the potential
for capital appreciation. A convertible security, in
addition to providing fixed income, offers the
potential for capital appreciation through the
conversion feature, which enables the holder to
benefit from increases in the market price of the
underlying common stock. There can be no assurance of
capital appreciation, however, because securities
prices fluctuate.
Convertible securities generally are subordinated to
other similar but non-convertible securities of the
same issuer, although convertible bonds, as corporate
debt obligations, enjoy seniority in right of payment
to all equity securities, and convertible preferred
stock is senior to common stock of the same issuer.
Because of the subordination feature, however,
convertible securities typically have lower ratings
than similar non-convertible securities.
Preferred Stock (Appreciation, Diversified Strategic
Income, Emerging Growth, Equity Income, Intermediate
High Grade, International Equity and Total Return
Portfolios). The portfolios may invest in preferred
stocks, which, like debt obligations, are generally
fixed-income securities. Shareholders of preferred
stocks normally have the right to receive dividends at
a fixed rate when and as declared by the issuer's
board of directors, but do not participate in other
amounts available for distribution by the issuing
corporation. Preferred stock dividends must be paid
before common stock dividends and, for that reason,
preferred stocks generally entail less risk than
common stocks. Upon liquidation, preferred stocks are
entitled to a specified liquidation preference, which
is generally the same as the par or stated value, and
are senior in right of payment to common stock.
Preferred stocks are, however, equity securities in
the sense that they do not represent a liability of
the issuer and, therefore, do not offer as great a
degree of protection of capital or assurance of
continued income as investments in corporate debt
securities. In addition, preferred stocks are
subordinated in right of payment to all debt
obligations and creditors of the issuer and
convertible preferred stocks may be subordinated to
other preferred stock of the same issuer.
Warrants (Appreciation, Diversified Strategic Income,
Emerging Growth, Equity Income, Growth & Income,
International Equity and Total Return Portfolios).
The portfolios may invest in warrants. Because a
warrant does not carry with it the right to dividends
or voting rights with respect to the securities the
warrant holder is entitled to purchase, and because it
does not represent any rights to the assets of the
issuer, warrants may be considered more speculative
than certain other types of investments. Also, the
value of a warrant does not necessarily change with
the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to
its expiration date.
Real Estate Investment Trusts (Total Return and the
Intermediate High Grade Portfolios). The portfolios
may invest in real estate investment trusts ("REITs").
REITs are entities which either own properties or make
construction or mortgage loans. Equity trusts own real
estate directly and the value of and income earned by,
the trust depends upon the income of the underlying
properties and the rental income they earn. Equity
trusts may also include operating or finance
companies. Equity trusts can also realize capital
gains by selling properties that have appreciated in
value. Mortgage trusts can make construction,
development or long-term mortgage loans, and are
sensitive to the credit quality of the borrower.
Mortgage trusts derive their income from interest
payments. Hybrid trusts combine the characteristics of
both equity and mortgage trusts, generally by holding
both ownership interests and mortgage interests in
real estate. The values of securities issued by REITs
are affected by tax and regulatory requirements and by
perceptions of management skill. They are also subject
to heavy cash flow dependency, defaults by borrowers
or tenants, self-liquidation, the possibility of
failing to qualify for tax-free status under the
Internal Revenue Code of 1986, as amended (the
"Code"), and failing to maintain exemption from the
Investment Company Act of 1940, as amended.
American, European and Continental Depository Receipts
(Appreciation, Emerging Growth, Equity Income, Growth
& Income, International Equity and Total Return
Portfolios). The portfolios may invest in securities
of foreign issuers and U.S. issuers in the form of
American Depository Receipts ("ADRs") and European
Depository Receipts ("EDRs"). These securities may
not necessarily be denominated in the same currency as
the securities into which they may be converted. ADRs
are receipts typically issued by a U.S. bank or trust
company that evidence ownership of underlying
securities issued by a foreign corporation. EDRs,
which sometimes are referred to as Continental
Depository Receipts ("CDRs"), are receipts issued in
Europe, typically by foreign banks and trust
companies, that evidence ownership of either foreign
or U.S. securities. Generally, ADRs, in registered
form, are designed for use in U.S. securities markets
and EDRs and CDRs, in bearer form, are designed for
use in European securities markets.
FIXED INCOME SECURITIES
Bank Obligations (All Portfolios). U.S. commercial
banks organized under Federal law are supervised and
examined by the U.S. Comptroller of the Currency and
are required to be members of the Federal Reserve
System and to be insured by the Federal Deposit
Insurance Corporation ("FDIC"). U.S. banks organized
under state law are supervised and examined by state
banking authorities but are members of the Federal
Reserve System only if they elect to join. Most state
banks are insured by the FDIC (although such insurance
may not be of material benefit to a portfolio,
depending upon the principal amount of certificates of
deposit ("CDs") of each bank held by the portfolio)
and are subject to Federal examination and to a
substantial body of Federal law and regulation. As a
result of government regulations, U.S. branches of
U.S. banks are, among other things, generally required
to maintain specified levels of reserves and are
subject to other supervision and regulation designed
to promote financial soundness.
Obligations of foreign branches of U.S. banks and of
foreign branches of foreign banks, such as CDs and
time deposits ("TDs"), may be general obligations of
the parent bank in addition to the issuing branch, or
may be limited by the terms of a specific obligation
and governmental regulation. Such obligations are
subject to different risks than are those of U.S.
banks or U.S. branches of foreign banks. These risks
include foreign economic and political developments,
foreign governmental restrictions that may adversely
affect payment of principal and interest on the
obligations, foreign exchange controls and foreign
withholding and other taxes on interest income.
Foreign branches of U.S. banks and foreign branches of
foreign banks are not necessarily subject to the same
or similar regulatory requirements that apply to U.S.
banks, such as mandatory reserve requirements, loan
limitations and accounting, auditing and financial
record keeping requirements. In addition, less
information may be publicly available about a foreign
branch of a U.S. bank or about a foreign bank than
about a U.S. bank.
Obligations of U.S. branches of foreign banks may be
general obligations of the parent bank, in addition to
being general obligations of the issuing branch, or
may be limited by the terms of specific obligations
and by governmental regulation as well as governmental
action in the country in which the foreign bank is
headquartered. A U.S. branch of a foreign bank with
assets in excess of $1 billion may or may not be
subject to reserve requirements imposed by the Federal
Reserve System or by the state in which the branch is
located if the branch is licensed in that state. In
addition, branches licensed by the Comptroller of the
Currency and branches licensed by certain states may
or may not be required to (a) pledge to the regulator
an amount of its assets equal to 5% of its total
liabilities by depositing assets with a designated
bank within the state and (b) maintain assets within
the state in an amount equal to a specified percentage
of the aggregate amount of liabilities of the foreign
bank payable at or through all of its agencies or
branches within the state. The deposits of state
branches may not necessarily be insured by the FDIC.
In addition, there may be less publicly available
information about a U.S. branch of a foreign bank than
about a U.S. bank.
In view of the foregoing factors associated with the
purchase of CDs and TDs issued by foreign branches of
U.S. banks, by U.S. branches of foreign banks or by
foreign branches of foreign banks, the portfolios'
advisers will carefully evaluate such investments on a
case-by-case basis.
The Money Market Portfolio will not purchase TDs
maturing in more than six months and will limit its
investment in TDs maturing from two business days
through six months to 10% of its total assets. Except
when maintaining a temporary defensive position, the
portfolio will invest more than 25% of its assets in
short-term bank instruments of the types discussed
above.
The Money Market Portfolio may purchase a CD issued by
a bank, savings and loan association or similar
institution with less than $1 billion in assets (a
"Small Issuer CD") so long as (a) the issuer is a
member of the FDIC or Office of Thrift Supervision
(the "OTS") and is insured by the Savings Association
Insurance Fund (the "SAIF"), which is administered by
the FDIC and is backed by the full faith and credit of
the U.S. government, and (b) the principal amount of
the Small Issuer CD is fully insured and is no more
than $100,000. The Money Market Portfolio will at any
one time hold only one Small Issuer CD from any one
issuer.
Savings and loan associations whose CDs may be
purchased by the portfolios are supervised by the OTS
and are insured by SAIF. As a result, such savings and
loan associations are subject to regulation and
examination.
U.S. Government Securities (All Portfolios). The
Portfolios may invest in debt obligations of varying
maturities issued or guaranteed by the United States
government, its agencies or instrumentalities ("U.S.
Government Securities"). Direct obligations of the
U.S. Treasury include a variety of securities that
differ in their interest rates, maturities and dates
of issuance. U.S. Government Securities also include
securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Loan Administration,
Export-Import Bank of the United States, Small
Business Administration, GNMA, General Services
Administration, Central Bank for Cooperatives, Federal
Farm Credit Banks, Federal Home Loan Banks, FHLMC,
Federal Intermediate Credit Banks, Federal Land Banks,
FNMA, Maritime Administration, Tennessee Valley
Authority, District of Columbia Armory Board and
Student Loan Marketing Association. A portfolio may
also invest in instruments that are supported by the
right of the issuer to borrow from the U.S. Treasury
and instruments that are supported by the credit of
the instrumentality. Because the U.S. government is
not obligated by law to provide support to an
instrumentality it sponsors, a portfolio will invest
in obligations issued by such an instrumentality only
if the adviser determines that the credit risk with
respect to the instrumentality does not make its
securities unsuitable for investment by the portfolio.
The portfolios may invest up to 5% of their net assets
in U.S. government securities for which the principal
repayment at maturity, while paid in U.S. dollars, is
determined by reference to the exchange rate between
the U.S. dollar and the currency of one or more
foreign countries ("Exchange Rate-Related
Securities"). Exchange Rate-Related Securities are
issued in a variety of forms, depending on the
structure of the principal repayment formula. The
principal repayment formula may be structured so that
the securityholder will benefit if a particular
foreign currency to which the security is linked is
stable or appreciates against the U.S. dollar. In the
alternative, the principal repayment formula may be
structured so that the securityholder benefits if the
U.S. dollar is stable or appreciates against the
linked foreign currency. Finally, the principal
repayment formula can be a function of more than one
currency and, therefore, be designed in either of the
aforementioned forms or a combination of those forms.
Investments in Exchange Rate-Related Securities entail
special risks. There is the possibility of significant
changes in rates of exchange between the U.S. dollar
and any foreign currency to which an Exchange
Rate-Related Security is linked. If currency exchange
rates do not move in the direction or to the extent
anticipated at the time of purchase of the security,
the amount of principal repaid at maturity might be
significantly below the par value of the security,
which might not be offset by the interest earned by
the portfolios over the term of the security. The rate
of exchange between the U.S. dollar and other
currencies is determined by the forces of supply and
demand in the foreign exchange markets. These forces
are affected by the international balance of payments
and other economic and financial conditions,
government intervention, speculation and other
factors. The imposition or modification of foreign
exchange controls by the United States or foreign
governments, or intervention by central banks, could
also affect exchange rates. Finally, there is no
assurance that sufficient trading interest to create a
liquid secondary market will exist for particular
Exchange Rate-Related Securities due to conditions in
the debt and foreign currency markets. Illiquidity in
the forward foreign exchange market and the high
volatility of the foreign exchange market may from
time to time combine to make it difficult to sell an
Exchange Rate-Related Security prior to maturity
without incurring a significant price loss.
Commercial Paper (All Portfolios). Commercial paper
consists of short-term (usually from 1 to 270 days)
unsecured promissory notes issued by corporations in
order to finance their current operations. A variable
amount master demand note represents a direct
borrowing arrangement involving periodically
fluctuating rates of interest under a letter agreement
between a commercial paper issuer and an institutional
lender, such as a portfolio, pursuant to which the
lender may determine to invest varying amounts.
Transfer of such notes is usually restricted by the
issuer, and there is no secondary trading market for
such notes. A portfolio, therefore, may not invest in
a master demand note if as a result more than 10% of
the value of the portfolio's total assets would be
invested in such notes and other illiquid securities.
Money Market Instruments (All Portfolios). The Money
Market Portfolio will invest exclusively in money
market instruments. Each of the remaining portfolios
may, as a cash management tool, hold up to 20% (except
that each of the Total Return, Emerging Growth and
International Equity Portfolios may invest up to 35%)
of the value of its total assets in cash and invest in
short-term instruments and, for temporary defensive
purposes, may hold cash and invest in short-term
instruments without limitation.
Each portfolio may invest for temporary defensive
purposes in corporate and government bonds and notes
and money market instruments. Money market
instruments include: obligations issued or guaranteed
by the United States government, its agencies or
instrumentalities ("U.S. government securities");
certificates of deposit, time deposits and bankers'
acceptances issued by domestic banks (including their
branches located outside the United States and
subsidiaries located in Canada), domestic branches of
foreign banks, savings and loan associations and
similar institutions; high grade commercial paper; and
repurchase agreements with respect to the foregoing
types of instruments. Certificates of deposit ("CDs")
are short-term, negotiable obligations of commercial
banks. Time deposits ("TDs") are non-negotiable
deposits maintained in banking institutions for
specified periods of time at stated interest rates.
Bankers' acceptances are time drafts drawn on
commercial banks by borrowers, usually in connection
with international transactions. The fund may invest
in cash and in short-term instruments, and it may hold
cash and short-term instruments without limitation
when the manager determines that it is appropriate to
maintain a temporary defensive posture. Short-term
instruments in which the fund may invest include: (a)
obligations issued or guaranteed as to principal and
interest by the United States government, its agencies
or instrumentalities (including repurchase agreements
with respect to such securities); (b) bank obligations
(including certificates of deposit, time deposits and
bankers' acceptances of domestic or foreign banks,
domestic savings and loan associations and similar
institutions); (c) floating rate securities and other
instruments denominated in U.S. dollars issued by
international development agencies, banks and other
financial institutions, governments and their agencies
or instrumentalities and corporations located in
countries that are members of the Organization for
Foreign Cooperation and Development; and (d)
commercial paper rated no lower than A-2 by Standard &
Poor's Ratings Group ("S&P") or Prime-2 by Moody's
Investors Service, Inc. ("Moody's") or the equivalent
from another nationally recognized statistical rating
organization ("NRSRO") or, if unrated, of an issuer
having an outstanding, unsecured debt issue then rated
within the three highest rating categories. "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.A discussion of
the ratings categories of the NRSROs is contained in
the Appendix to the SAI.
The Money Market Portfolio generally may not invest
more than 5% of its total assets in the securities of
any one issuer, except for U.S. government securities.
In addition, the portfolio may not invest more than 5%
of its total assets in Eligible Securities that have
not received the highest rating from the Requisite
NRSROs and comparable unrated securities ("Second Tier
Securities") and may not invest more than 1% of its
total assets in the Second Tier Securities of any one
issuer. The portfolio may invest up to 25% of the
then-current value of the portfolio's total assets in
the securities of a single issuer for a period of up
to three business days, provided (a) the securities
are rated by the Requisite NRSROs in the highest
short-term rating category, are securities of issuers
that have received such rating with respect to other
short-term debt securities or are comparable unrated
securities, and (b) the portfolio does not make more
than one such investment at any one time.
Ratings as Investment Criteria (All Portfolios). In
general, the ratings of Moody's, S&P and other NRSROs
represent the opinions of these agencies as to the
quality of securities that they rate. Such ratings,
however, are relative and subjective, and are not
absolute standards of quality. Nor do such ratings
evaluate the market value risk of the securities.
These ratings will be used by the portfolios as
initial criteria for the selection of portfolio
securities, but the portfolios also will rely upon the
independent advice of their respective advisers to
evaluate potential investments. Among the factors
that will be considered are the long-term ability of
the issuer to pay principal and interest and general
economic trends. The Appendix to this SAI contains
further information concerning the ratings of Moody's,
S&P and other NRSROs.
Subsequent to its purchase by a portfolio, an issue of
securities may cease to be rated or its rating may be
reduced below the minimum required for purchase by the
portfolio. In addition, it is possible that Moody's,
S&P or another NRSRO might not change its rating of a
particular issue to reflect subsequent events. None
of these events will require sale of such securities
by the portfolio, but the relevant adviser will
consider such events in determining whether the
portfolio should continue to hold the securities.
In addition, to the extent the rating given by
Moody's, S&P or another NRSRO changes as a result of
changes in such organization or its rating system, or
because of a corporate reorganization of such
organization, a portfolio will attempt to use
comparable ratings as standards for its investments in
accordance with its investment goal and policies.
The Money Market Portfolio is prohibited from
purchasing a security unless that security is (a)
rated by at least two NRSROs (such as Moody's or S&P)
within the highest rating assigned to short-term debt
securities (or, if not rated or rated by only one
agency, is determined to be of comparable quality) or
(b) rated by at least two NRSROs within the two
highest ratings assigned to short-term debt securities
(or, if not rated or rated by only one agency, is
determined to be of comparable quality) and not more
than 5% of the assets of the portfolio will be
invested in such securities. Comparable quality shall
be determined in accordance with procedures
established by the Board of Trustees of the fund.
Zero Coupon Securities (Diversified Strategic Income
and the Intermediate High Grade Portfolios). A zero
coupon security is a debt obligation that does not
entitle the holder to any periodic payments of
interest prior to maturity and therefore is issued and
traded at a discount from its face amount. Zero coupon
securities may be created by separating the interest
and principal components of securities issued or
guaranteed by the United States government or one of
its agencies or instrumentalities ("U.S. Government
securities") or issued by private corporate issuers.
The discount from face value at which zero coupon
securities are purchased varies depending on the time
remaining until maturity, prevailing interest rates
and the liquidity of the security. Because the
discount from face value is known at the time of
investment, investors holding zero coupon securities
until maturity know the total amount of their
investment return at the time of investment. In
contrast, a portion of the total realized return from
conventional interest-paying obligations comes from
the reinvestment of periodic interest. Because the
rate to be earned on these reinvestments may be higher
or lower than the rate quoted on the interest-paying
obligations at the time of the original purchase, the
investor's return on reinvestments is uncertain even
if the securities are held to maturity. This
uncertainty is commonly referred to as reinvestment
risk. With zero coupon securities, however, there are
no cash distributions to reinvest, so investors bear
no reinvestment risk if they hold the zero coupon
securities to maturity; holders of zero coupon
securities, however, forego the possibility of
reinvesting at a higher yield than the rate paid on
the originally issued security. With both zero coupon
and interest-paying securities, there is no
reinvestment risk on the principal amount of the
investment.
Zero coupon securities of the type held by the
portfolios can he sold prior to their due date in the
secondary market at their then prevailing market value
which, depending on prevailing levels of interest
rates and the time remaining to maturity, may be more
or less than the securities' "accreted value;" that
is, their value based solely on the amount due at
maturity and accretion of interest to date. The market
prices of zero coupon securities are generally more
volatile than the market prices of securities that pay
interest periodically and, accordingly, are likely to
respond to a greater degree to changes in interest
rates than do non-zero coupon securities having
similar maturities and yields
Medium-, Lower- and Unrated Securities (Intermediate
High Grade, Diversified Strategic Income, Equity
Income, Growth & Income and Total Return Portfolios).
The Intermediate High Grade, Diversified Strategic
Income, Equity Income, Growth & Income and Total
Return Portfolios may invest in medium- or lower-rated
securities and unrated securities of comparable
quality. Generally, these securities offer a higher
current yield than is offered by higher-rated
securities, but also will likely have some quality and
protective characteristics that, in the judgement of
the rating organizations, are outweighed by large
uncertainties or major risk exposures to adverse
conditions and are predominantly speculative with
respect to the issuer's capacity to pay interest and
repay principal in accordance with the terms of the
obligation. The market values of certain of these
securities also tend to be more sensitive to
individual corporate developments and changes in
economic conditions than higher quality securities. In
addition, medium- and lower-rated securities and
comparable unrated securities generally present a
higher degree of credit risk. Issuers of medium-,
lower-rated and comparable unrated securities are
often highly leveraged and may not have more
traditional methods of financing available to them so
that their ability to service their debt obligations
during a major economic downturn or during sustained
periods of rising interest rates may be impaired. The
risk of loss due to default by such issuers is
significantly greater because medium- and lower-rated
securities and comparable unrated securities are
generally unsecured and frequently are subordinated to
the prior payment of senior indebtedness. In light of
these risks, each portfolio's adviser, in evaluating
the creditworthiness of an issue, whether rated or
unrated, will take various factors established by the
fund's Board of Trustees into consideration, which may
include, as applicable, the issuer's financial
resources, its sensitivity to economic conditions and
trends, the operating history of and the community
support for the facility financed by the issue, the
ability of the issuer's management and regulatory
matters.
The markets in which medium- and lower-rated or
comparable unrated securities are traded are generally
more limited than those in which higher-rated
securities are traded. The existence of limited
markets for these securities may restrict the
availability of securities for a portfolio to purchase
and also may have the effect of limiting the ability
of the portfolio to (a) obtain accurate market
quotations for purposes of valuing securities and
calculating net asset value and (b) sell securities at
their fair value either to meet redemption requests or
to respond to changes in the economy or the financial
markets. The market for medium-, lower-rated and
comparable unrated securities is relatively new and
has not fully weathered a major economic recession.
Any such recession, however, would disrupt severely
the market for such securities and adversely affect
the value of such securities, and could adversely
affect the ability of the issuers of such securities
to repay principal and pay interest thereon.
Fixed-income securities, including medium, lower-rated
and comparable unrated securities, frequently have
call or buy-back features that permit their issuers to
call or repurchase the securities from their holders,
such as a portfolio. If an issuer exercises these
rights during periods of declining interest rates, the
portfolio may have to replace the security with a
lower-yielding security resulting in a decreased
return to the portfolio.
The market values of securities in lower rating
categories are more volatile than that of higher
quality securities, and the markets in which medium-
and lower-rated or comparable unrated securities are
traded are more limited than those in which
higher-rated securities are traded. Adverse publicity
and investor perceptions may also have a negative
impact on the value and liquidity of lower-rated,
high-yield securities, especially in a limited trading
market.
Subsequent to its purchase by a portfolio, an issue of
securities may cease to be rated or its rating may be
reduced below the minimum required for purchase by the
portfolio. Neither event will require sale of such
securities by the portfolio involved, but it's adviser
will consider such event in its determination of
whether the portfolio should continue to hold the
securities.
Securities rated Ba by Moody's or BB by S&P or the
equivalent from another NRSRO have speculative
characteristics with respect to their capacity to pay
interest and repay principal. Securities rated B
generally lack the characteristics of a desirable
investment and assurance of interest and principal
payments over any long period of time may be small.
Securities rated Caa or CCC are of poor standing.
These issues may be in default or present elements of
danger with respect to principal or interest
Floating- and Variable-Rate Demand Notes (Money Market
Portfolio). The Money Market Portfolio may acquire
floating- and variable-rate demand notes of corporate
issuers. Although floating- and variable-rate demand
notes are frequently not rated by credit rating
agencies, unrated notes purchased by the portfolio
must be determined by it's adviser to be of comparable
quality at the time of purchase to instruments rated
"high quality" (i.e., within the two highest rating
categories) by any NRSRO. Moreover, while there may be
no active secondary market with respect to a
particular floating- or variable-rate demand note
purchased by the portfolio, the portfolio may, upon
the notice specified in the note, demand payment of
the principal of and accrued interest on the note at
any time and may resell the note at any time to a
third party. The absence of such an active secondary
market, however, could make it difficult for the
portfolio to dispose of a particular floating- or
variable- rate demand note in the event the issuer of
the note defaulted on its payment obligations, and the
portfolio could, for this or other reasons, suffer a
loss to the extent of the default.
When-Issued Securities and Delayed-Delivery
Transactions (Diversified Strategic Income, Emerging
Growth, Equity Income, Growth & Income, Intermediate
High Grade, International Equity and Total Return
Portfolios) The portfolios may purchase securities on
a "when-issued" basis, for delayed delivery (i.e.,
payment or delivery occur beyond the normal settlement
date at a stated price and yield) or on a forward
commitment basis. No portfolio intends to engage in
these transactions for speculative purposes, but only
in furtherance of its investment goal. These
transactions occur when securities are purchased or
sold by the portfolios with payment and delivery
taking place in the future to secure what is
considered an advantageous yield and price to the
portfolios at the time of entering into the
transaction. The payment obligation and the interest
rate that will be received on when-issued securities
are fixed at the time the buyer enters into the
commitment. Because of fluctuations in the value of
securities purchased or sold on a when-issued,
delayed-delivery 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 portfolio's incurring a loss or
missing an opportunity to obtain a price considered to
be advantageous.
Mortgage-Related Securities (Diversified Strategic
Income, Growth & Income, and Intermediate High Grade
Portfolios). The mortgage pass-through securities in
which these portfolios may invest may be backed by
adjustable-rate, as well as conventional, mortgages.
Those backed by adjustable-rate mortgages bear
interest at a rate that is adjusted monthly, quarterly
or annually. The average maturity of pass-through
pools of mortgage-related securities varies with the
maturities of the underlying mortgage instruments. In
addition, a pool's stated maturity may be shortened by
unscheduled payments on the underlying mortgages.
Factors affecting mortgage prepayments include
interest rate levels, general economic and social
conditions, the location of the mortgaged property and
the age of the mortgage. Because prepayment rates of
individual mortgage pools vary widely, it is not
possible to accurately predict the average life of a
particular pool. Pools of mortgages with varying
maturities or different characteristics will have
varying average life assumptions and the prepayment
experience of securities backed by adjustable-rate
mortgages may vary from those backed by fixed-rate
mortgages.
Mortgage-related securities may be classified as
private, governmental or government-related, depending
on the issuer or guarantor. Private mortgage-related
securities represent pass-through pools consisting
principally of conventional residential mortgage loans
created by non-governmental issuers, such as
commercial banks, savings and loan associations and
private mortgage insurance companies. Government
mortgage-related securities are backed by the full
faith and credit of the United States. GNMA, the
principal guarantor of such securities, is a wholly
owned U.S. government corporation within the
Department of Housing and Urban Development.
Government-related mortgage-related securities are not
backed by the full faith and credit of the United
States. Issuers of such securities include FNMA and
FHLMC. FNMA is a government-sponsored corporation
owned entirely by private stockholders, which is
subject to general regulation by the Secretary of
Housing and Urban Development. Pass-through
securities issued by FNMA are guaranteed as to timely
payment of principal and interest by FNMA. FHLMC is a
corporate instrumentality of the United States, the
stock of which is owned by the Federal Home Loan
Banks. Participation certificates representing
interests in mortgages from the FHLMC national
portfolio are guaranteed as to the timely payment of
interest and ultimate collection of principal by
FHLMC.
The portfolios expect that private, governmental or
government-related entities may create mortgage loan
pools offering pass-through investments in addition to
those described above. The mortgages underlying these
securities may be alternative mortgage instruments;
that is, mortgage instruments whose principal or
interest payments may vary or whose terms to maturity
may be shorter than previously customary. As new
types of mortgage-related securities are developed and
offered to investors, the portfolios, consistent with
their investment goals and policies, will consider
making investments in such new types of securities.
Forward Roll Transactions (Intermediate High Grade and
Diversified Strategic Income Portfolios). In order to
enhance current income, the Intermediate High Grade
and Diversified Strategic Income Portfolios may enter
into forward roll transactions with respect to
mortgage- related securities issued by GNMA, FNMA and
FHLMC. In a forward roll transaction, a portfolio
sells a mortgage security to a financial institution,
such as a bank or broker-dealer, and simultaneously
agrees to repurchase a similar security from the
institution at a later date at an agreed-upon price.
The mortgage securities that are repurchased will bear
the same interest rate as those sold, but generally
will be collateralized by different pools of mortgages
with different prepayment histories than those sold.
During the period between the sale and repurchase, the
portfolio will not be entitled to receive interest and
principal payments on the securities sold. Proceeds of
the sale will be invested in short-term instruments,
particularly repurchase agreements, and the income
from these investments, together with any additional
fee income received on the sale, will generate income
for the portfolio exceeding the yield on the
securities sold. Forward roll transactions involve the
risk that the market value of the securities sold by a
portfolio may decline below the repurchase price of
those securities. When a portfolio enters into a
forward roll transaction, it will place in a
segregated account on the fund's books cash, U.S.
government securities, equity securities or debt
obligations of any grade having a value equal to or
greater than the repurchase price (including accrued
interest) provided such securities have been
determined by the adviser to be liquid and
unencumbered, and are marked to market daily pursuant
to guidelines established by the trustees, and will
subsequently monitor the account to insure that such
equivalent value is maintained. Forward roll
transactions are considered to be borrowings by a
portfolio.
Floating- and Variable-Rate Obligations (Money Market
Portfolio). The Money Market Portfolio may purchase
floating-rate and variable-rate obligations, including
participation interests therein. Variable-rate
obligations provide for a specified periodic
adjustment in the interest rate, while floating-rate
obligations have an interest rate that changes
whenever there is a change in the external interest
rate. The portfolio may purchase floating-rate and
variable-rate obligations that carry a demand feature
that would permit the portfolio to tender them back to
the issuer or remarketing agent at par value prior to
maturity. Frequently, floating-rate and variable-rate
obligations are secured by letters of credit or other
credit support arrangements provided by banks.
Eurodollar or Yankee Obligations (All Portfolios).
Each portfolio including the Money Market Portfolio
may invest in Eurodollar and Yankee obligations.
Eurodollar bank obligations are dollar-denominated
debt obligations issued outside the U.S. capital
markets by foreign branches of U.S. banks and by
foreign banks. Yankee obligations are
dollar-denominated obligations issued in the U.S.
capital markets by foreign issuers. Eurodollar (and
to a limited extent, Yankee) obligations are subject
to certain sovereign risks. One such risk is the
possibility that a foreign government might prevent
U.S.dollars from leaving the country. Other risks
include: adverse political and economic developments
in a foreign country; the extent and quality of
government regulation of financial markets and
institutions; the imposition of foreign withholding
taxes; and expropriation or nationalization of foreign
issuers.
DERIVATIVE CONTRACTS
As described in the prospectus, certain of the
portfolios may enter into various types of securities,
index and currency futures, options and related
contracts in order to hedge the existing or
anticipated value of its portfolio. No portfolio is
required to enter into hedging transactions with
regard to its foreign currency-denominated securities
and a portfolio will not do so unless deemed
appropriate by its adviser. This method of protecting
the value of the portfolio's securities against a
decline in the value of a currency does not eliminate
fluctuations in the underlying prices of the
securities. It simply establishes a rate of exchange
which one can achieve at some future point in time.
Each portfolio will invest in these instruments only
in markets believed by its adviser to be active and
sufficiently liquid.
Options on Securities (Diversified Strategic Income,
Emerging Growth, Equity Income, Equity Index, Growth &
Income, Intermediate High Grade, International Equity,
and Total Return Portfolios). The portfolios may
engage in writing covered put and call options and may
enter into closing transactions. The Intermediate
High Grade, Diversified Strategic Income, Equity
Income, Total Return, International Equity and
Emerging Growth Portfolios also may purchase put and
call options.
The principal reason for writing covered call options
on securities is to attempt to realize, through the
receipt of premiums, a greater return than would be
realized on the securities alone. In return for a
premium, the writer of a covered call option forfeits
the right to any appreciation in the value of the
underlying security above the strike price for the
life of the option (or until a closing purchase
transaction can be effected). Nevertheless, the call
writer retains the risk of a decline in the price of
the underlying security. Similarly, the principal
reason for writing covered put options is to realize
income in the form of premiums. The writer of a
covered put option accepts the risk of a decline in
the price of the underlying security. The size of the
premiums a portfolio may receive may be adversely
affected as new or existing institutions, including
other investment companies, engage in or increase
their option-writing activities.
Options written by a portfolio normally will have
expiration dates between one and nine months from the
date written. The exercise price of the options may
be below, equal to or above the market values of the
underlying securities at the times the options are
written. In the case of call options, these exercise
prices are referred to as "in-the-money," "at-the-
money" and "out-of-the-money," respectively. A
portfolio may write (a) in-the-money call options when
its adviser expects that the price of the underlying
security will remain flat or decline moderately during
the option period, (b) at-the-money call options when
its adviser expects that the price of the underlying
security will remain flat or advance moderately during
the option period and (c) out-of-the-money call
options when its adviser expects that the price of the
underlying security may increase but not above a price
equal to the sum of the exercise price plus the
premiums received from writing the call option. In any
of the preceding situations, if the market price of
the underlying security declines and the security is
sold at this lower price, the amount of any realized
loss will be offset wholly or in part by the premium
received. Out-of-the-money, at-the-money and in-the-
money put options (the reverse of call options as to
the relation of exercise price to market price) may be
utilized in the same market environments that such
call options are used in equivalent transactions.
So long as the obligation of a portfolio as the writer
of an option continues, the portfolio may be assigned
an exercise notice by the broker-dealer through which
the option was sold, requiring the portfolio to
deliver, in the case of a call, or take delivery of,
in the case of a put, the underlying security against
payment of the exercise price. This obligation
terminates when the option expires or the portfolio
effects a closing purchase transaction. A portfolio
can no longer effect a closing purchase transaction
with respect to an option once it has been assigned an
exercise notice. To secure its obligation to deliver
the underlying security when it writes a call option,
or to pay for the underling security when it writes a
put option, a portfolio will be required to deposit in
escrow the underlying security or other assets in
accordance with the rules of the Options Clearing
Corporation ("Clearing Corporation") and of the
securities exchange on which the option is written.
An option position may be closed out only where there
exists a secondary market for an option of the same
series on a recognized securities exchange or in the
over-the-counter market. Because of this and current
trading conditions, the Intermediate High Grade,
Diversified Strategic Income, Equity Income, Total
Return, International Equity and Emerging Growth
Portfolios expect to purchase not only call or put
options issued by the Clearing Corporation, but also
options in the domestic and foreign over-the-counter
markets. Portfolios with the authority to write
options expect to do so only if a secondary market
exists on a U.S. securities exchange or in the over-
the-counter market.
A portfolio may realize a profit or loss upon entering
into a closing transaction. In cases in which a
portfolio has written an option, it will realize a
profit if the cost of the closing purchase transaction
is less than the premium received upon writing the
option and will incur a loss if the cost of the
closing purchase transaction exceeds the premium
received upon writing the option. Similarly, when a
portfolio has purchased an option and engages in a
closing sale transaction, whether the portfolio
realizes a profit or loss will depend upon whether the
amount received in the closing sale transaction is
more or less than the premium that the portfolio
initially paid for the original option plus the
related transaction costs.
Although a portfolio generally will purchase or write
only those options for which its adviser believes
there is an active secondary market so as to
facilitate closing transactions, there is no assurance
that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist
for any particular option or at any particular time,
and for some options no such secondary market may
exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In the past,
for example, higher than anticipated trading activity
or order flow or other unforeseen events have at times
rendered inadequate certain of the facilities of the
Clearing Corporation and securities exchanges which
have resulted in the institution of special
procedures, such as trading rotations, restrictions on
certain types of orders or trading halts or
suspensions in one or more options. There can be no
assurance that similar events, or events that may
otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it
might not be possible to effect closing transactions
in particular options. If, as a covered call option
writer, a portfolio is unable to effect a closing
purchase transaction in a secondary market, it will
not be able to sell the underlying security until the
option expires or it delivers the underlying security
upon exercise.
Securities exchanges generally have established
limitations governing the maximum number of calls and
puts of each class which may be held or written, or
exercised within certain time periods, by an investor
or group of investors acting in concert (regardless of
whether the options are written on the same or
different securities exchanges or are held, written or
exercised in one or more accounts or through one or
more brokers). It is possible that the portfolios and
other clients of their respective advisers and certain
of their affiliates may be considered to be such a
group. A securities exchange may order the
liquidation of positions found to be in violation of
these limits and it may impose certain other
sanctions.
In the case of options written by a portfolio that are
deemed covered by virtue of the portfolio's holding
convertible or exchangeable preferred stock or debt
securities, the time required to convert or exchange
and obtain physical delivery of the underlying common
stocks with respect to which the portfolio has written
options may exceed the time within which the portfolio
must make delivery in accordance with an exercise
notice. In these instances, a portfolio may purchase
or temporarily borrow the underlying securities for
purposes of physical delivery. By so doing, the
portfolio will not bear any market risk, because the
portfolio will have the absolute right to receive from
the issuer of the underlying security an equal number
of shares to replace the borrowed stock, but the
portfolio may incur additional transaction costs or
interest expenses in connection with any such purchase
or borrowing.
Additional risks exist with respect to certain of the
U.S. government securities for which a portfolio may
write covered call options. If a portfolio writes
covered call options on mortgage-backed securities,
the securities it holds as cover may, because of
scheduled amortization or unscheduled prepayments,
cease to be sufficient cover. The portfolio will
compensate for the decline in the value of the cover
by purchasing an appropriate additional amount of
those securities.
Stock Index Options (Appreciation, 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 (Appreciation, 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 Appreciation, Equity Index, Equity
Income, Growth & Income, Total Return, International
Equity and Emerging Growth Portfolios may enter into
stock index futures contracts. The Diversified
Strategic Income, Emerging Growth and International
Equity Portfolios may enter into foreign currency
futures contracts. The portfolios may enter into
related options traded on a U.S. exchange or board of
trade.
An interest rate futures contract provides for the
future sale by one party and the purchase by another
party of a certain amount of a specific financial
instrument (debt security) at a specified price, date,
time and place. Similarly, a foreign currency futures
contract provides for the future sale by one party and
the purchase by another party of a certain amount of a
particular currency at a specified price, date, time
and place. A stock index futures contract is an
agreement pursuant to which two parties agree to take
or make delivery of an amount of cash equal to the
difference between the value of the index at the close
of the last trading day of the contract and the price
at which the index contract was originally written.
No physical delivery of the underlying securities in
the index is made.
The purpose of the acquisition or sale of a futures
contract by a portfolio, other than the Equity Index,
Total Return, International Equity and Emerging Growth
Portfolios, is to mitigate the effects of fluctuations
in the value of its securities caused by anticipated
changes in interest rates, market conditions or
currency values without actually buying or selling the
securities. Of course, because the value of portfolio
securities will far exceed the value of the futures
contracts entered into by a portfolio, an increase in
the value of the futures contracts could only
mitigate, but not totally offset, the decline in the
value of the portfolio.
No consideration is paid or received by a portfolio
upon entering into a futures contract. Initially, a
portfolio will be required to deposit with the broker
an amount of cash or cash equivalents equal to
approximately 1% to 10% of the contract amount (this
amount is subject to change by the board of trade on
which the contract is traded and members of such board
of trade may charge a higher amount). This amount,
known as "initial margin," is in the nature of a
performance bond or good faith deposit on the contract
and is returned to a portfolio upon termination of the
futures contract, assuming all contractual obligations
have been satisfied. Subsequent payments, known as
"variation margin," to and from the broker will be
made daily as the price of the securities, currency or
index underlying the futures contract fluctuates,
making the long and short positions in the futures
contract more or less valuable, a process known as
"marking-to-market." At any time prior to expiration
of a futures contract, a portfolio may elect to close
the position by taking an opposite position, which
will operate to terminate the portfolio's existing
position in the contract.
Several risks are associated with the use of futures
contracts as a hedging device. Successful use of
futures contracts by a portfolio is subject to the
ability of its adviser to predict correctly movements
in interest rates, changes in market conditions or
fluctuations in currency values. These predictions
involve skills and techniques that may be different
from those involved in the management of the portfolio
being hedged. In addition, there can be no assurance
that there will be a correlation between movements in
the price of the underlying securities, index or
currency and movements in the price of the securities
or currency that is the subject of a hedge. A
decision of whether, when and how to hedge involves
the exercise of skill and judgment, and even a well-
conceived hedge may be unsuccessful to some degree
because of market behavior or unexpected trends in
interest rates or currency values.
Although the portfolios intend to enter into futures
contracts only if there is an active market for such
contracts, there is no assurance that an active market
will exist for the contracts at any particular time.
Most U.S. futures exchanges and boards of trade limit
the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the
daily limit has been reached in a particular contract,
no trades may be made that day at a price beyond that
limit. It is possible that futures contract prices
could move to the daily limit for several consecutive
trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
In such event, and in the event of adverse price
movements, a portfolio would be required to make daily
cash payments of variation margin, and an increase in
the value of the portion of the portfolio being
hedged, if any, may partially or completely offset
losses on the futures contract. As described above,
however, there is no guarantee that the price of the
securities or value of the currency being hedged will,
in fact, correlate with the price movements in a
futures contract and thus provide an offset to losses
on the futures contract.
If a portfolio has hedged against the possibility of a
change in interest rates, market conditions or
currency values adversely affecting the value of
securities held in its portfolio and interest rates,
market conditions or currency values move in a
direction opposite to that which has been anticipated,
the portfolio will lose part or all of the benefit of
the increased value of securities or currencies it has
hedged because it will have offsetting losses in its
futures positions. Additionally, if in such
situations the portfolio has insufficient cash, it may
have to sell securities to meet daily variation margin
requirements at a time when it may be disadvantageous
to do so. These sales of securities may, but will not
necessarily, be at increased prices that reflect the
change in interest rates, market conditions or
currency values, as the case may be.
Options on Futures Contracts. An option on a futures
contract, as contrasted with the direct investment in
such a contract, gives the purchaser the right, in
return for the premium paid, to assume a position in
the underlying futures contract at a specified
exercise price at any time prior to the expiration
date of the option. Upon exercise of an option, the
delivery of the futures position by the writer of the
option to the holder of the option will be accompanied
by delivery of the accumulated balance in the writer's
futures margin account, which represents the amount by
which the market price of the futures contract
exceeds, in the case of a call, or is less than, in
the case of put, the exercise price of the option on
the futures contract. The potential for loss related
to the purchase of an option on a futures contract is
limited to the premium paid for the option plus
transaction costs. Because the value of the option is
fixed at the point of sale, there are no daily cash
payments to reflect changes in the value of the
underlying contract; however, the value of the option
does change daily and that change would be reflected
in the net asset value of a portfolio holding the
options.
The portfolios may purchase and write put and call
options on futures contracts traded on a U.S. exchange
or board of trade as a hedge against changes in the
value of their portfolio securities, or, in the case
of the Equity Index Portfolio, in anticipation of the
purchase of securities, and may enter into closing
transactions with respect to such options to terminate
existing positions. There is no guarantee that such
closing transactions can be effected.
Several risks are associated with options on futures
contracts. The ability to establish and close out
positions on such options will be subject to the
existence of a liquid market. In addition, the
purchase of put or call options will be based upon
predictions by an adviser as to anticipated trends,
and such predictions could prove to be incorrect.
Even if an adviser's expectations are correct, there
may be an imperfect correlation between the change in
the value of the options and of the portfolio
securities being hedged.
Currency Exchange Transactions (Diversified Strategic
Income, Emerging Growth, and International Equity
Portfolios). The portfolios' dealings in forward
currency exchange will be limited to hedging involving
either specific transactions or portfolio positions.
Transaction hedging is the forward purchase or sale of
currency with respect to specific receivables or
payables of the portfolio, generally arising in
connection with the purchase or sale of its portfolio
securities. Position hedging is the forward sale of
currency with respect to portfolio security positions
denominated or quoted in the currency. The portfolios
may not position hedge with respect to a particular
currency to an extent greater than the aggregate
market value at any time of the securities held in its
portfolio denominated or quoted in or currently
convertible (such as through exercise of an option or
consummation of a forward contract) into that
particular currency. If a portfolio enters into a
transaction hedging or position hedging transaction,
it will cover the transaction through one or more of
the following methods: (a) ownership of the underlying
currency or an option to purchase such currency; (b)
ownership of an option to enter into an offsetting
forward contract; (c) entering into a forward contract
to purchase currency being sold or to sell currency
being purchased, provided such covering contract is
itself covered by one of these methods, unless the
covering contract closes out the first contract; or
(d) depositing into a segregated account on the fund's
books cash or readily marketable securities in an
amount equal to the value of the portfolio's total
assets committed to the consummation of the forward
contract and not otherwise covered. In the case of
transaction hedging, any securities placed in the
account must be liquid debt securities. In any case,
if the value of the securities placed in the
segregated account declines, additional cash or
securities will be placed in the account so that the
value of the account will equal the above amount.
Hedging transactions may be made from any foreign
currency into U.S. dollars or into other appropriate
currencies.
At or before the maturity of a forward contract, the
portfolio either may sell a portfolio security and
make delivery of the currency, or retain the security
and offset its contractual obligation to deliver the
currency by purchasing a second contract pursuant to
which the portfolio will obtain, on the same maturity
date, the same amount of the currency it is obligated
to deliver. If the portfolio retains the portfolio
security and engages in an offsetting transaction, at
the time of execution of the offsetting transaction,
it will incur a gain or loss to the extent movement
has occurred in forward contract prices. Should
forward prices decline during the period between the
portfolio's entering into a forward contract for the
sale of a currency and the date it enters into an
offsetting contract for the purchase of the currency,
the portfolio will realize a gain to the extent that
the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to
purchase. Should forward prices increase, the
portfolio will realize a loss to the extent the price
of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
The cost to a portfolio of engaging in currency
transactions varies with factors such as the currency
involved, the length of the contract period and the
market conditions then prevailing. Because
transactions in currency exchange are usually
conducted on a principal basis, no fees or commissions
are involved. The use of forward currency contracts
does not eliminate fluctuations in the underlying
prices of the securities, but it does establish a rate
of exchange that can be achieved in the future. In
addition, although forward currency contracts limit
the risk of loss due to a decline in the value of the
hedged currency, at the same time they limit any
potential gain might result should the value of the
currency increase.
If a devaluation is generally anticipated, a portfolio
may not be able to contract to sell the currency at a
price above the devaluation level it anticipates.
Foreign Currency Options (Diversified Strategic
Income, Emerging Growth and International Equity
Portfolios). The portfolios may purchase put and call
options on foreign currencies for the purpose of
hedging against changes in future currency exchange
rates. Put options convey the right to sell the
underlying currency at a price that is anticipated to
be higher than the spot price of the currency at the
time the option expires. Call options convey the
right to buy the underlying currency at a price that
is expected to be lower than the spot price of the
currency at the time the option expires.
A portfolio may use foreign currency options under the
same circumstances it could use forward currency
exchange transactions. A decline in the U.S. dollar
value of a foreign currency in which the portfolio's
securities are denominated, for example, will reduce
the U.S. dollar value of the securities, even if their
value in the foreign currency remains constant. In
order to protect against such diminution in the value
of securities it holds, the portfolio may purchase put
options on the foreign currency. If the value of the
currency does decline, the portfolio will have the
right to sell the currency for a fixed amount in U.S.
dollars and will thereby offset, in whole or in part,
the adverse effect on its securities that otherwise
would have resulted. Conversely, if a rise in the
U.S. dollar value of a currency in which securities to
be acquired are denominated is projected, thereby
potentially increasing the cost of the securities, the
portfolio may purchase call options on the particular
currency. The purchase of these options could offset,
at least partially, the effects of the adverse
movements in exchange rates. The benefit to the
portfolio derived from purchases of foreign currency
options, like the benefit derived from other types of
options, will be reduced by the amount of the premium
and related transaction costs. In addition, if
currency exchange rates do not move in the direction
or to the extent anticipated, the portfolio could
sustain losses on transactions in foreign currency
options that would require it to forego a portion or
all of the benefits of advantageous changes in the
rates.
OTHER PRACTICES
Repurchase Agreements (All portfolios). The Money
Market Portfolio will enter into repurchase agreements
with respect to U.S. government securities and each
other portfolio may engage in repurchase agreement
transactions on portfolio securities, in each case
with banks which are the issuers of instruments
acceptable for purchase by the portfolio and with
certain dealers on the Federal Reserve Bank of New
York's list of reporting dealers. The portfolios may
agree to purchase securities from a bank or recognized
securities dealer and simultaneously commit to resell
the securities to the bank or dealer at an agreed-upon
date and price reflecting a market rate of interest
unrelated to the coupon rate or maturity of the
purchased securities ("repurchase agreements"). The
portfolios would maintain custody of the underlying
securities prior to their repurchase; thus, the
obligation of the bank or dealer to pay the repurchase
price on the date agreed to would be, in effect,
secured by such securities. If the value of such
securities were less than the repurchase price, plus
interest, the other party to the agreement would be
required to provide additional collateral so that at
all times the collateral is at least 102% of the
repurchase price plus accrued interest. Default by or
bankruptcy of a seller would expose the fund to
possible loss because of adverse market action,
expenses and/or delays in connection with the
disposition of the underlying obligations. The
financial institutions with which the fund may enter
into repurchase agreements will be banks and non-bank
dealers of U.S. Government securities listed on the
Federal Reserve Bank of New York's list of reporting
dealers, if such banks and non-bank dealers are deemed
creditworthy by the portfolios' adviser. The adviser
will continue to monitor creditworthiness of the
seller under a repurchase agreement, and will require
the seller to maintain during the term of the
agreement the value of the securities subject to the
agreement to equal at least 102% of the repurchase
price (including accrued interest). In addition, the
adviser will require that the value of this
collateral, after transaction costs (including loss of
interest) reasonably expected to be incurred on a
default, be equal to 102% or greater than the
repurchase price (including accrued premium) provided
in the repurchase agreement or the daily amortization
of the difference between the purchase price and the
repurchase price specified in the repurchase
agreement. The adviser will mark-to-market daily the
value of the securities. Repurchase agreements are
considered to be loans by the fund under the 1940 Act.
Restricted Securities (All portfolios). Each
portfolio may invest up to 10% (15% in the case of the
Total Return, Emerging Growth, International Equity,
Intermediate High Grade and Diversified Strategic
Income Portfolios) of the value of its net assets in
restricted securities (i.e., securities which may not
be sold without registration under the 1933 Act) and
in other securities that are not readily marketable,
including repurchase agreements maturing in more than
seven days. With respect to the Diversified Strategic
Income, Money Market and Intermediate High Grade
Portfolios, this restriction will not apply to
securities subject to Rule 144A of the 1933 Act.
Restricted securities are generally purchased at a
discount from the market price of unrestricted
securities of the same issuer. Investments in
restricted securities are not readily marketable
without some time delay. Investments in securities
which have no readily available market value are
valued at fair value as determined in good faith by
the fund's Board Of Trustees. Ordinarily, a portfolio
would invest in restricted securities only when it
receives the issuer's commitment to register the
securities without expense to the portfolio. However,
registration and underwriting expenses (which may
range from 7% to 15% of the gross proceeds of the
securities sold) may be paid by the portfolio. A
portfolio position in restricted securities might
adversely affect the liquidity and marketability of
such securities, and the portfolio might not be able
to dispose of its holdings in such securities at
reasonable price levels.
Reverse Repurchase Agreements (Diversified Strategic
Income, Equity Income, Intermediate High Grade and
International Equity Portfolios). The fund does not
currently intend to commit more than 5% of the
portfolio's net assets to reverse repurchase
agreements. A portfolio may enter into reverse
repurchase agreements with the same parties with whom
it may enter into repurchase agreements. Reverse
repurchase agreements involve the sale of securities
held by the portfolio pursuant to its agreement to
repurchase them at a mutually agreed upon date, price
and rate of interest. At the time a portfolio enters
into a reverse repurchase agreement, it will establish
and maintain a segregated account on the fund's books
containing cash or liquid securities having a value
not less than the repurchase price (including accrued
interest). The assets contained in the segregated
account will be marked-to-market daily and additional
assets will be placed in such account on any day in
which the assets fall below the repurchase price (plus
accrued interest). The portfolio's liquidity and
ability to manage its assets might be affected when it
sets aside cash or portfolio securities to cover such
commitments. Reverse repurchase agreements involve
the risk that the market value of the securities
retained in lieu of sale may decline below the price
of the securities the portfolio has sold but is
obligated to repurchase. If the buyer of securities
under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its
trustee or receiver may receive an extension of time
to determine whether to enforce the portfolio's
obligation to repurchase the securities, and the
portfolio's use of the proceeds of the reverse
repurchase agreement may effectively be restricted
pending such decision.
Short Sales Against the Box (Emerging Growth, Equity
Income, International Equity and Total Return
Portfolios). The portfolios may enter into a short
sale of common stock such that when the short position
is open the portfolio involved owns an equal amount of
preferred stocks or debt securities, convertible or
exchangeable, without payment of further
consideration, into an equal number of shares of the
common stock sold short. This kind of short sale,
which is described as "against the box," will be
entered into by a portfolio for the purpose of
receiving a portion of the interest earned by the
executing broker from the proceeds of the sale. The
proceeds of the sale will be held by the broker until
the settlement date when the portfolio delivers the
convertible or exchangeable securities to close out
its short position. Although prior to delivery a
portfolio will have to pay an amount equal to any
dividends paid on the common stock sold short, the
portfolio will receive the dividends from the
preferred stock or interest from the debt securities
convertible or exchangeable into the stock sold short,
plus a portion of the interest earned from the
proceeds of the short sale. The portfolio will
deposit, in a segregated account on its books,
convertible preferred stock or convertible debt
securities in connection with short sales against the
box.
Lending of Portfolio Securities (Appreciation,
Diversified Strategic Income, Emerging Growth, Equity
Index, Equity Income, Growth & Income, Intermediate
High Grade, International Equity and Total Return
Portfolios) Consistent with applicable regulatory
requirements, a portfolio may lend securities to
brokers, dealers and other financial organizations
that meet capital and other credit requirements or
other criteria established by the Board. A portfolio
will not lend securities to affiliates of the adviser
unless they have applied for and received specific
authority to do so from the SEC. Loans of portfolio
securities will be collateralized by cash, letters of
credit or U.S. Government Securities, which are
maintained at all times in an amount equal to at least
102% of the current market value of the loaned
securities. Any gain or loss in the market price of
the securities loaned that might occur during the term
of the loan would be for the account of the portfolio.
From time to time, a portfolio may return a part of
the interest earned from the investment of collateral
received for securities loaned to the borrower and/or
a third party that is unaffiliated with the fund and
that is acting as a "finder."
By lending its securities, a portfolio can increase
its income by continuing to receive interest and any
dividends on the loaned securities as well as by
either investing the collateral received for
securities loaned in short-term instruments or
obtaining yield in the form of interest paid by the
borrower when U.S. Government Securities are used as
collateral. Income received could be used to pay a
portfolio's expenses and would increase an investor's
total return. A portfolio will adhere to the following
conditions whenever its portfolio securities are
loaned: (i) a portfolio must receive at least 102%
cash collateral or equivalent securities of the type
discussed in the preceding paragraph from the
borrower; (ii) the borrower must increase such
collateral whenever the market value of the securities
rises above the level of such collateral; (iii) a
portfolio must be able to terminate the loan at any
time; (iv) a portfolio must receive reasonable
interest on the loan, as well as any dividends,
interest or other distributions on the loaned
securities and any increase in market value; (v) a
portfolio may pay only reasonable custodian fees in
connection with the loan; and (vi) voting rights on
the loaned securities may pass to the borrower,
provided, however, that if a material event adversely
affecting the investment occurs, the board must
terminate the loan and regain the right to vote the
securities. Loan agreements involve certain risks in
the event of default or insolvency of the other party
including possible delays or restrictions upon a
portfolio's ability to recover the loaned securities
or dispose of the collateral for the loan.
Borrowing (All portfolios). Each portfolio may borrow
from banks for temporary or emergency purposes, but
not for leverage, in an amount up to 33 1/3% of its
assets, and may pledge its assets to the same extent
in connection with such borrowings. Whenever
borrowings from banks exceed 5% of the value of the
assets of a portfolio, the portfolio will not make any
additional investments. The International Equity
Portfolio may borrow for investment purposes, provided
that any transactions constituting borrowing by the
portfolio may not exceed one-third of its assets.
Except for the limitations on borrowing, the
investment guidelines set forth in this paragraph may
be changed at any time without shareholder consent by
vote of the Board Of Trustees of the fund.
Foreign Securities (All Portfolios). Each portfolio
may invest in obligations of companies and governments
of foreign nations, which involve certain risks in
addition to the usual risks inherent in U.S.
investments. These risks include those resulting from
revaluation of currencies; future adverse political
and economic developments and the possible imposition
of currency exchange blockages or other foreign
governmental laws or restrictions; reduced
availability of public information concerning issuers;
and the lack of uniform accounting, auditing and
financial reporting standards or of other regulatory
practices and requirements comparable to those
applicable to U.S. companies. The performance of a
portfolio investing in foreign securities may be
adversely affected by fluctuations in value of one or
more foreign currencies relative to the U.S. dollar.
Moreover, securities of many foreign companies may be
less liquid and their prices more volatile than those
of securities of comparable U.S. companies. In
addition, with respect to certain foreign countries,
there is the possibility of expropriation,
nationalization, confiscatory taxation and limitations
on the use or removal of funds or other assets of a
portfolio, including the withholding of dividends.
Foreign securities may be subject to foreign
government taxes that could reduce the return on such
securities. Changes in foreign currency exchange rates
may affect the value of portfolio securities and the
appreciation or depreciation of investments.
Investment in foreign securities may also result in
higher expenses due to the cost of converting foreign
currency to U.S. dollars, the payment of fixed
brokerage commissions on foreign exchanges, which are
generally higher than commissions on U.S. exchanges,
and the expense of maintaining securities with foreign
custodians.
In addition, the Diversified Strategic Income
Portfolio may invest up to 5% of its total assets in
securities traded in markets of developing countries.
A developing country is generally considered to be a
country in the initial stages of its industrialization
cycle. Investing in the equity and fixed-income
markets of developing countries involves exposure to
economic structures that are generally less diverse
and mature, and to political systems that can be
expected to have less stability, than those of
developed countries. Historical experience indicates
that the markets of developing countries have been
more volatile than the markets of the more mature
economies of developed countries; however, such
markets often have provided higher rates of return to
investors.
Leverage (International Equity Portfolio). The
International Equity Portfolio may borrow from banks,
on a secured or unsecured basis, up to one- third of
the value of its assets. If the portfolio borrows and
uses the proceeds to make additional investments,
income and appreciation from such investments will
improve its performance if they exceed the associated
borrowing costs but impair its performance if they are
less than such borrowing costs. This speculative
factor is known as "leverage."
Leverage creates an opportunity for increased returns
to shareholders of the portfolio but, at the same
time, creates special risks. For example, leverage may
exaggerate changes in the net asset value of the
portfolio's shares and in the portfolio's yield.
Although the principal or stated value of such
borrowings will be fixed, the portfolio's assets may
change in value during the time the borrowing is
outstanding. Leverage will create interest or dividend
expenses for the portfolio that can exceed the income
from the assets retained. To the extent the income or
other gain derived from securities purchased with
borrowed fluids exceed the interest or dividends the
portfolio will have to pay in respect thereof, the
portfolio's net income or other gain will be greater
than if leverage had not been used. Conversely, if the
income or other gain from the incremental assets is
not sufficient to cover the cost of leverage, the net
income or other gain of the portfolio will be less
than if leverage had not been used. If the amount of
income from the incremental securities is insufficient
to cover the cost of borrowing, securities might have
to be liquidated to obtain required fluids. Depending
on market or other conditions, such liquidations could
be disadvantageous to the portfolio.
RISK FACTORS
General. Investors should realize that risk of loss
is inherent in the ownership of any securities and
that each portfolio's net asset value will fluctuate,
reflecting fluctuations in the market value of its
portfolio positions.
Fixed Income Securities. Investments in fixed income
securities may subject the portfolios to risks,
including the following.
Interest Rate Risk. When interest rates
decline, the market value of fixed income securities
tends to increase. Conversely, when interest rates
increase, the market value of fixed income securities
tends to decline. The volatility of a security's
market value will differ depending upon the security's
duration, the issuer and the type of instrument.
Default Risk/Credit Risk. Investments in fixed
income securities are subject to the risk that the
issuer of the security could default on its
obligations, causing a portfolio to sustain losses on
such investments. A default could impact both interest
and principal payments.
Call Risk and Extension Risk. Fixed income
securities may be subject to both call risk and
extension risk. Call risk exists when the issuer may
exercise its right to pay principal on an obligation
earlier than scheduled, which would cause cash flows
to be returned earlier than expected. This typically
results when interest rates have declined and a
portfolio will suffer from having to reinvest in lower
yielding securities. Extension risk exists when the
issuer exercises its right to pay principal on an
obligation later than expected. This typically results
when interest rates have increased, and a portfolio
will suffer from the inability to invest in higher
yield securities.
Lower Rated and Below Investment Grade Fixed Income
Securities. Securities which are rated BBB by S&P or
Baa by Moody's are generally regarded as having
adequate capacity to pay interest and repay principal,
but may have some speculative characteristics.
Securities rated below Baa by Moody's or BBB by S&P
may have speculative characteristics, including the
possibility of default or bankruptcy of the issuers of
such securities, market price volatility based upon
interest rate sensitivity, questionable
creditworthiness and relative liquidity of the
secondary trading market. Because high yield bonds
have been found to be more sensitive to adverse
economic changes or individual corporate developments
and less sensitive to interest rate changes than
higher-rated investments, an economic downturn could
disrupt the market for high yield bonds and adversely
affect the value of outstanding bonds and the ability
of issuers to repay principal and interest. In
addition, in a declining interest rate market, issuers
of high yield bonds may exercise redemption or call
provisions, which may force a portfolio, to the extent
it owns such securities, to replace those securities
with lower yielding securities. This could result in
a decreased return.
Subsequent to its purchase by a portfolio, an issue of
securities may cease to be rated or its rating may be
reduced below the minimum required for purchase by the
portfolio. In addition, it is possible that Moody's,
S&P and other ratings agencies might not timely change
their ratings of a particular issue to reflect
subsequent events.
Foreign Securities. Investments in securities of
foreign issuers involve certain risks not ordinarily
associated with investments in securities of domestic
issuers. Such risks include fluctuations in foreign
exchange rates, future political and economic
developments, and the possible imposition of exchange
controls or other foreign governmental laws or
restrictions. Since each portfolio will invest heavily
in securities denominated or quoted in currencies
other than the U.S. dollar, changes in foreign
currency exchange rates will, to the extent the
portfolio does not adequately hedge against such
fluctuations, affect the value of securities in its
portfolio and the unrealized appreciation or
depreciation of investments so far as U.S. investors
are concerned. In addition, with respect to certain
countries, there is the possibility of expropriation
of assets, confiscatory taxation, political or social
instability or diplomatic developments which could
adversely affect investments in those countries.
There may be less publicly available information about
a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting,
auditing, and financial reporting standards and
requirements comparable to or as uniform as those of
U.S. companies. Foreign securities markets, while
growing in volume, have, for the most part,
substantially less volume than U.S. markets, and
securities of many foreign companies are less liquid
and their prices more volatile than securities of
comparable U.S. companies. Transaction costs on
foreign securities markets are generally higher than
in the U.S. There is generally less government
supervision and regulation of exchanges, brokers and
issuers than there is in the U.S. A portfolio might
have greater difficulty taking appropriate legal
action in foreign courts. Dividend and interest income
from foreign securities will generally be subject to
withholding taxes by the country in which the issuer
is located and may not be recoverable by the portfolio
or the investors. Capital gains are also subject to
taxation in some foreign countries.
Currency Risks. The U.S. dollar value of securities
denominated in a foreign currency will vary with
changes in currency exchange rates, which can be
volatile. Accordingly, changes in the value of the
currency in which a portfolio's investments are
denominated relative to the U.S. dollar will affect
the portfolio's net asset value. Exchange rates are
generally affected by the forces of supply and demand
in the international currency markets, the relative
merits of investing in different countries and the
intervention or failure to intervene of U.S. or
foreign governments and central banks. However,
currency exchange rates may fluctuate based on factors
intrinsic to a country's economy. Some emerging
market countries also may have managed currencies,
which are not free floating against the U.S. dollar.
In addition, emerging markets are subject to the risk
of restrictions upon the free conversion of their
currencies into other currencies. Any devaluations
relative to the U.S. dollar in the currencies in which
a portfolio's securities are quoted would reduce the
portfolio's net asset value per share.
Economic and Monetary Union (EMU). EMU began on
January 1, 1999 when 11 European countries adopted a
single currency -- the Euro. EMU may create new
economic opportunities for investors, such as lower
interest rates, easier cross-border mergers,
acquisitions and similar restructurings, more
efficient distribution and product packaging and
greater competition. Budgetary decisions remain in
the hands of each participating country, but are
subject to each country's commitment to avoid
"excessive deficits" and other more specific budgetary
criteria. A European Central Bank is responsible for
setting the official interest rate within the Euro
zone. EMU and the introduction of the Euro, however,
present unique risks and uncertainties for investors
in EMU-participating countries, including: (i)
monetary and economic union on this scale has never
before been attempted; (ii) there is uncertainty
whether participating countries will remain committed
to EMU in the face of changing economic conditions;
(iii) instability within EMU may increase the
volatility of European markets and may adversely
affect the prices of securities of European issuers in
the funds' portfolios; (iv) there is uncertainty
concerning the fluctuation of the Euro relative to
non-Euro currencies during the transition period from
January 1, 1999 to December 31, 2000, and beyond; and
(v) there is no assurance that interest rate, tax and
labor regimes of EMU-participating countries will
converge over time. These and other factors may cause
market disruption and could adversely affect European
securities and currencies held by the funds.
Special Risks of Countries in the Asia Pacific Region.
Certain of the risks associated with international
investments are heightened for investments in these
countries. For example, some of the currencies of
these countries have experienced devaluations relative
to the U.S. dollar, and adjustments have been made
periodically in certain of such currencies. Certain
countries, such as Indonesia, face serious exchange
constraints. Jurisdictional disputes also exist, for
example, between South Korea and North Korea. In
addition, Hong Kong reverted to Chinese administration
on July 1, 1997. The long-term effects of this
reversion are not known at this time.
Securities of Developing/Emerging Markets Countries.
A developing or emerging markets country generally is
considered to be a country that is in the initial
stages of its industrialization cycle. Investing in
the equity markets of developing countries involves
exposure to economic structures that are generally
less diverse and mature, and to political systems that
can be expected to have less stability, than those of
developed countries. Historical experience indicates
that the markets of developing countries have been
more volatile than the markets of the more mature
economies of developed countries; however, such
markets often have provided higher rates of return to
investors.
One or more of the risks discussed above could affect
adversely the economy of a developing market or a
portfolio's investments in such a market. In Eastern
Europe, for example, upon the accession to power of
Communist regimes in the past, the governments of a
number of Eastern European countries expropriated a
large amount of property. The claims of many property
owners against those of governments may remain
unsettled. There can be no assurance that any
investments that a portfolio might make in such
emerging markets would not be expropriated,
nationalized or otherwise confiscated at some time in
the future. In such an event, the portfolio could
lose its entire investment in the market involved.
Moreover, changes in the leadership or policies of
such markets could halt the expansion or reverse the
liberalization of foreign investment policies now
occurring in certain of these markets and adversely
affect existing investment opportunities.
Many of a portfolio's investments in the securities of
emerging markets may be unrated or rated below
investment grade. Securities rated below investment
grade (and comparable unrated securities) are the
equivalent of high yield, high risk bonds, commonly
known as "junk bonds." Such securities are regarded as
predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in
accordance with the terms of the obligations and
involve major risk exposure to adverse business,
financial, economic, or political conditions.
Derivative Instruments. In accordance with its
investment policies, each portfolio may invest in
certain derivative instruments which are securities or
contracts that provide for payments based on or
"derived" from the performance of an underlying asset,
index or other economic benchmark. Essentially, a
derivative instrument is a financial arrangement or a
contract between two parties. Transactions in
derivative instruments can be, but are not
necessarily, riskier than investments in conventional
stocks, bonds and money market instruments. A
derivative instrument is more accurately viewed as a
way of reallocating risk among different parties or
substituting one type of risk for another. Every
investment by a portfolio, including an investment in
conventional securities, reflects an implicit
prediction about future changes in the value of that
investment. Every portfolio investment also involves
a risk that the portfolio manager's expectations will
be wrong. Transactions in derivative instruments
often enable a portfolio to take investment positions
that more precisely reflect the portfolio manager's
expectations concerning the future performance of the
various investments available to the portfolio.
Derivative instruments can be a legitimate and often
cost-effective method of accomplishing the same
investment goals as could be achieved through other
investment in conventional securities.
Derivative contracts include options, futures
contracts, forward contracts, forward commitment and
when-issued securities transactions, forward foreign
currency exchange contracts and interest rate,
mortgage and currency swaps. The following are the
principal risks associated with derivative
instruments.
Each derivative instrument purchased for a portfolio's
portfolio is reviewed and analyzed by the portfolio's
adviser to assess the risk and reward of each such
instrument in relation the portfolio's investment
strategy. The decision to invest in derivative
instruments or conventional securities is made by
measuring the respective instrument's ability to
provide value to the portfolio and its shareholders.
Special Risks of Using Futures Contracts and Options
on Futures Contracts. The prices of futures contracts
are volatile and are influenced by, among other
things, actual and anticipated changes in interest
rates, which in turn are affected by fiscal and
monetary policies and national and international
political and economic events.
At best, the correlation between changes in prices of
futures contracts and of the securities or currencies
being hedged can be only approximate. The degree of
imperfection of correlation depends upon circumstances
such as: variations in speculative market demand for
futures and for debt securities or currencies,
including technical influences in futures trading; and
differences between the financial instruments being
hedged and the instruments underlying the standard
futures contracts available for trading, with respect
to interest rate levels, maturities, and
creditworthiness of issuers. A decision of whether,
when, and how to hedge involves skill and judgment,
and even a well-conceived hedge may be unsuccessful to
some degree because of unexpected market behavior or
interest rate trends.
Because of the low margin deposits required, futures
trading involves an extremely high degree of leverage.
As a result, a relatively small price movement in a
futures contract may result in immediate and
substantial loss, as well as gain, to the investor.
For example, if at the time of purchase, 10% of the
value of the futures contract is deposited as margin,
a subsequent 10% decrease in the value of the futures
contract would result in a total loss of the margin
deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15%
decrease would result in a loss equal to 150% of the
original margin deposit, if the futures contract were
closed out. Thus, a purchase or sale of a futures
contract may result in losses in excess of the amount
invested in the futures contract. A portfolio,
however, would presumably have sustained comparable
losses if, instead of the futures contract, it had
invested in the underlying financial instrument and
sold it after the decline. Where a portfolio enters
into futures transactions for non-hedging purposes, it
will be subject to greater risks and could sustain
losses which are not offset by gains on other
portfolio assets.
Furthermore, in the case of a futures contract
purchase, in order to be certain that each portfolio
has sufficient assets to satisfy its obligations under
a futures contract, the portfolio segregates on its
books and commits to back the futures contract an
amount of cash and liquid securities equal in value to
the current value of the underlying instrument less
the margin deposit.
Most U.S. futures exchanges limit the amount of
fluctuation permitted in futures contract prices
during a single trading day. The daily limit
establishes the maximum amount the price of a futures
contract may vary either up or down from the previous
day's settlement price at the end of a trading
session. Once the daily limit has been reached in a
particular type of futures contract, no trades may be
made on that day at a price beyond that limit. The
daily limit governs only price movement during a
particular trading day and therefore does not limit
potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract
prices have occasionally moved to the daily limit for
several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of
futures positions and subjecting some futures traders
to substantial losses.
As with options on debt securities, the holder of an
option may terminate his position by selling an option
of the same series. There is no guarantee that such
closing transactions can be effected. The portfolio
will be required to deposit initial margin and
maintenance margin with respect to put and call
options on futures contracts described above, and, in
addition, net option premiums received will be
included as initial margin deposits.
In addition to the risks which apply to all options
transactions, 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. A portfolio will not purchase
options on futures contracts on any exchange unless
and until, in the investment advisor's opinion, the
market for such options had developed sufficiently
that the risks in connection with options on futures
contracts are not greater than the risks in connection
with futures contracts. Compared to the use of
futures contracts, the purchase of options on futures
contracts involves less potential risk to the
portfolio because the maximum amount of risk is the
premium paid for the options (plus transaction costs).
However, there may be circumstances when the use of an
option on a futures contract would result in a loss to
the portfolio when the use of a futures contract would
not, such as when there is no movement in the prices
of debt securities. Writing an option on a futures
contract involves risks similar to those arising in
the sale of futures contracts, as described above.
Non-Publicly Traded and Illiquid Securities. Each
portfolio may purchase securities that are not
publicly traded. The sale of securities that are not
publicly traded is typically restricted under federal
securities laws. As a result, a portfolio may be
forced to sell these securities at less than fair
market value or may not be able to sell them when its
adviser believes it desirable to do so. The
portfolios' investments in illiquid securities are
subject to the risk that should a portfolio desire to
sell any of these securities when a ready buyer is not
available at a price that the portfolio deems
representative of their value, the value of the
portfolio's net assets could be adversely affected.
Mortgage-Related Securities. If a portfolio purchases
mortgage-related securities at a premium, mortgage
foreclosures and prepayments of principal by
mortgagors (which may be made at any time without
penalty) may result in some loss of the portfolio's
principal investment to the extent of the premium
paid. The yield of a portfolio that invests in
mortgage-related securities may be affected by
reinvestment of prepayments at higher or lower rates
than the original investment. In addition, like other
debt securities, the values of mortgage-related
securities, including government and
government-related mortgage pools, will generally
fluctuate in relation to interest rates.
Asset-Backed Securities. The Diversified Strategic
Income Portfolio and Intermediate High Grade Portfolio
may invest in asset-backed securities arising through
the grouping by governmental, government-related and
private organizations of loans, receivables and other
assets originated by various lenders. Interests in
pools of these assets differ from other forms of debt
securities, which normally provide for periodic
payment of interest in fixed amounts with principal
paid at maturity or specified call dates. Instead,
asset-backed securities provide periodic payments that
generally consist of both interest and principal
payments.
The estimated life of an asset-backed security varies
with the prepayment experience with respect to the
underlying debt instruments. For example, falling
interest rates generally result in an increase in the
rate of prepayments of mortgage loans while rising
interest rates generally decrease the rate of
prepayments. An acceleration of prepayments in
response to sharply falling interest rates will
shorten the security's average maturity and limit the
potential appreciation in the security's value
relative to a conventional debt security.
Consequently, asset-backed securities are not
effective in locking in high long-term yields.
Conversely, in periods of sharply rising rates,
prepayments generally slow, increasing the security's
average life and its potential for price depreciation.
The rate of such prepayments, and hence the life of an
asset-backed security, will be primarily a function of
current market interest rates, although other economic
and demographic factors may be involved.
Government Stripped Mortgage-Backed Securities. The
Intermediate High Grade Portfolio may invest up to 10%
of its total assets in government stripped
mortgage-backed securities issued and guaranteed by
GNMA, FNMA or FHLMC. These securities represent
beneficial ownership interests in either periodic
principal distributions ("principal-only") or interest
distributions ("interest-only") on mortgage-backed
certificates issued by GNMA, FNMA or FHLMC, as the
case may be. The certificates underlying government
stripped mortgage-backed securities represent all or
part of the beneficial interest in pools of mortgage
loans.
Investing in government stripped mortgage-backed
securities involves the risks normally associated with
investing in mortgage-backed securities issued by
government or government-related entities. See
"Mortgage-Related Securities" above. In addition, the
yields on government stripped mortgage-backed
securities are extremely sensitive to the prepayment
experience on the mortgage loans underlying the
certificates collateralizing the securities. If a
decline in prevailing interest rates results in a rate
of principal prepayments higher than anticipated,
distributions of principal will be accelerated,
thereby reducing the yield to maturity on
interest-only government stripped mortgage-backed
securities and increasing the yield to maturity on
principal-only government stripped mortgage-backed
securities. Sufficiently high prepayment rates could
result in the portfolio not fully recovering its
initial investment in an interest-only government
stripped mortgage-backed security. Government stripped
mortgage-backed securities are currently traded in an
over-the-counter market maintained by several large
investment banking firms. There can be no assurance
that the portfolio will be able to effect a trade of a
government stripped mortgage-backed security when it
wishes to do so, although the portfolio will acquire
government stripped mortgage-backed securities only if
a secondary market for the securities exists at the
time of acquisition.
Concentration. The Money Market Portfolio will
concentrate at least 25% of its assets in the banking
industry and the Equity Income Portfolio will
concentrate at least 25% of its assets in the utility
industry, provided that, if, at some future date,
adverse economic conditions prevail in either of those
industries, the relevant portfolio may temporarily
invest less than 25% of its assets in the affected
industry for defensive purposes. Because of its
concentration policy, either of these portfolios may
be subject to greater risk and market fluctuation than
a fund that had securities representing a broader
range of investment alternatives. The Money Market and
Equity Income Portfolios' concentration policies are
fundamental policies that cannot be changed without
the approval of a majority of the relevant portfolio's
outstanding voting securities.
Securities of Unseasoned Issuers. The Diversified
Strategic Income, Total Return, International Equity
and Emerging Growth Portfolios may invest in
securities of unseasoned issuers, which may have
limited marketability and, therefore, may be subject
to wide fluctuations in market value. In addition,
certain securities may lack a significant operating
history and may be dependent on products or services
without an established market share.
Investment in Utility Securities. The Equity Income
Portfolio is subject to risks that are inherent in the
utility industry, including: difficulty in obtaining
an adequate return on invested capital; difficulty in
financing large construction programs during an
inflationary period; restrictions on operations and
increased cost and delays attributable to
environmental considerations and regulation;
difficulty in raising capital in adequate amounts on
reasonable terms in periods of high inflation and
unsettled capital markets; increased costs and reduced
availability of certain types of fuel; occasionally
reduced availability and high costs of natural gas for
resale; the effects of energy conservation; the
effects of a national energy policy and lengthy
delays; and greatly increased costs and other problems
associated with the design, construction, licensing,
regulation and operation of nuclear facilities for
electric generation (including, among other
considerations, the problems associated with the use
of radioactive materials and the disposal of
radioactive wastes). Costs incurred by utilities, such
as fuel costs, are subject to immediate market action
resulting from political or military forces operating
in geographic regions where oil production is
concentrated, such as the Persian Gulf, while the
rates of return of utility companies are generally
subject to review and limitation by state public
utility commissions, which results ordinarily in a lag
between costs and return. There are substantial
differences between the regulatory practices and
policies of various jurisdictions, and any given
regulatory agency may make major shifts in policy from
time to time. There is no assurance that regulatory
authorities will grant rate increases in the future or
that such increases will be adequate to permit the
payment of dividends on common stocks. Additionally,
existing and possible future regulatory legislation
may make it even more difficult for these utilities to
obtain adequate relief. The issuers of certain
securities in the portfolio may own or operate nuclear
generating facilities. Governmental authorities may
from time to time review existing policies and impose
additional requirements governing the licensing,
construction and operation of nuclear power plants.
Each of the above-referenced risks could adversely
affect the ability and inclination of public utilities
to declare or pay dividends and the ability of holders
of common stock to realize any value from the assets
of the issuer upon liquidation or bankruptcy. Many, if
not all, of the utilities that are issuers of the
securities expected to be included in the portfolio
have been experiencing one or more of these problems
in varying degrees. Moreover, price disparities within
selected utility groups and discrepancies in relation
to averages and indices have occurred frequently for
reasons not directly related to the general movements
or price trends of utility common stocks. Causes of
these discrepancies include changes in the overall
demand for and supply of various securities (including
the potentially depressing effect of new stock
offerings) and changes in investment objectives,
market expectations or cash requirements of other
purchasers and sellers of securities.
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 adviser deems it desirable to purchase
or sell securities or to engage in options
transactions. High portfolio turnover involves
correspondingly greater transaction costs, including
any brokerage commissions, which are borne directly by
the respective portfolio and may increase the
recognition of short-term, rather than long-term,
capital gains if securities are held for one year or
less and may be subject to applicable income taxes.
INVESTMENT RESTRICTIONS
The investment restrictions numbered 1 through 7 have
been adopted by the fund with respect to the
portfolios as fundamental policies for the protection
of shareholders. Under the 1940 Act, a portfolio's
fundamental policy may not be changed without the vote
of a "majority" of the outstanding voting securities
of that portfolio. "Majority" is defined in the 1940
Act as the lesser of (a) 67% or more of the shares
present at a fund meeting, if the holders of more than
50% of the outstanding shares of that portfolio are
present or represented by proxy, or (b) more than 50%
of the outstanding shares. A fundamental policy
affecting a particular portfolio may not be changed
without the vote of a majority of the outstanding
shares of that portfolio. The remaining restrictions
are non-fundamental policies and may be changed by
vote of a majority of the fund's Board Of Trustees at
any time.
The investment policies adopted by the fund prohibit a
portfolio from:
1. Investing in a manner that would cause it to
fail to be a "diversified company" under the
1940 Act and the rules, regulations and orders
thereunder.
2. Borrowing money, except that (a) the
portfolio may borrow from banks for temporary or
emergency (not leveraging) purposes, including
the meeting of redemption requests which might
otherwise require the untimely disposition of
securities, and (b) the portfolio may, to the
extent consistent with its investment policies,
enter into reverse repurchase agreements,
forward roll transactions and similar investment
strategies and techniques. To the extent that
it engages in transactions described in (a) and
(b), the portfolio will be limited so that no
more than 33 1/3% of the value of its total
assets (including the amount borrowed), valued
at the lesser of cost or market, less
liabilities (not including the amount borrowed),
is derived from such transactions.
3. Engaging in the business of underwriting
securities issued by other persons, except to
the extent that the fund may technically be
deemed to be an underwriter under the 1933 Act,
in disposing of portfolio securities.
4. Purchasing or selling real estate, real
estate mortgages, commodities or commodity
contracts, but this restriction shall not
prevent the portfolio from (a) investing in
securities of issuers engaged in the real estate
business or the business of investing in real
estate (including interests in limited
partnerships owning or otherwise engaging in the
real estate business or the business of
investing in real estate) and securities which
are secured by real estate or interests therein;
(b) holding or selling real estate received in
connection with securities it holds or held;
(c) trading in futures contracts and options on
futures contracts (including options on
currencies to the extent consistent with the
portfolios' investment objective and policies);
or (d) investing in real estate investment trust
securities.
5. Making loans. This restriction does not
apply to: (a) the purchase of debt obligations
in which the portfolio may invest consistent
with its investment objectives and policies; (b)
repurchase agreements; and (c) loans of its
portfolio securities, to the fullest extent
permitted under the 1940 Act.
6. Invest more than 25% of its total assets in
securities, the issuers of which conduct their
principal business activities in the same
industry. For purposes of this limitation,
securities of the U.S. government (including its
agencies and instrumentalities) and securities
of state or municipal governments and their
political subdivisions are not considered to be
issued by members of any industry; provided
that this limitation shall not apply to the
purchase of (a) with respect to the Money
Market Portfolio, U.S. dollar-denominated bank
instruments such as certificates of deposit,
time deposits, bankers' acceptances and letters
of credit that have been issued by U.S. banks or
(b) with respect to the Equity Income Portfolio,
the securities of companies within the utility
industry.
7. Issuing "senior securities" as defined in
the 1940 Act and the rules, regulations and
orders thereunder, except as permitted under the
1940 Act and the rules, regulations and orders
thereunder.
8. Investing in oil, gas or other mineral
exploration or development programs, except that
the portfolios may invest in the securities of
companies that invest in or sponsor these
programs.
9. Purchasing any securities on margin (except
for such short-term credits as are necessary for
the clearance of purchases and sales of
portfolio securities) or sell any securities
short (except "against the box"). For purposes
of this restriction, the deposit or payment by
the portfolio of underlying securities and other
assets in escrow and collateral agreements with
respect to initial or maintenance margin in
connection with futures contracts and related
options and options on securities, indexes or
similar items is not considered to be the
purchase of a security on margin.
10. Purchasing, writing or selling puts, calls,
straddles, spreads or combinations thereof,
except as permitted under the portfolio's
investment goals and policies.
11. Purchasing restricted securities, illiquid
securities or other securities that are not
readily marketable if more than 10% (15% in the
case of the Total Return, International Equity,
Emerging Growth, Intermediate High Grade
Portfolio and Diversified Strategic Income
Portfolios) of the total assets of the portfolio
would be invested in such securities. However,
with respect to the Money Market Portfolio,
Diversified Strategic Income Portfolio and the
Intermediate High Grade Portfolio this
restriction will not apply to securities subject
to Rule 144A of the 1933 Act if two or more
dealers make a market in such securities.
12. Investing more than 10% of its total assets
in time deposits maturing in more than seven
calendar days (in the case of the Money Market
Portfolio, time deposits. maturing from two
business days through six months).
13. Purchasing any security if as a result the
portfolio would then have more than 5% of its
total assets invested in securities of companies
(including predecessors) that have been in
continuous operation for less than three years.
(For purposes of this limitation, issuers
include predecessors, sponsors, controlling
persons, general partners, guarantors and
originators of underlying assets.)
14. Making investments for the purpose of
exercising control or management.
15. Investing in warrants (except as permitted
under the portfolio's investment goals and
policies or other than warrants acquired by the
portfolio as part of a unit or attached to
securities at the time of purchase) if, as a
result, the investments (valued at the lower of
cost or market) would exceed 5% of the value of
the portfolio's net assets or if, as a result,
more than 2% (5% in the case of the
International Equity Portfolio) of the
portfolio's net assets would be invested in
warrants not listed on a recognized U.S. or
foreign exchange to the extent permitted by
applicable state securities laws.
16. With regard to the Equity Income
Portfolio, purchase 10% or more of the voting
securities of a public utility or public utility
holding company, so as to become a public
utility holding company as defined in the Public
Utility Holding Company Act of 1935, as amended.
17. Investing in securities of other
investment companies registered or required to
be registered under the 1940 Act, except as they
may be acquired as part of a merger,
consolidation, reorganization, acquisition of
assets or an offer of exchange or as otherwise
permitted by law.
The percentage limitations contained in the
restrictions listed above apply at the time of
purchases of securities.
Portfolio Turnover
The Money Market Portfolio may attempt to increase
yields by trading to take advantage of short-term
market variations, which results in high portfolio
turnover. Because purchases and sales of money market
instruments are usually effected as principal
transactions, this policy does not result in high
brokerage commissions to the portfolio. The other
portfolios do not intend to seek profits through
short-term trading. Nevertheless, the portfolios will
not consider portfolio turnover rate a limiting factor
in making investment decisions.
A portfolio's turnover rate is calculated by dividing
the lesser of purchases or sales of its portfolio
securities for the year by the monthly average value
of the portfolio's securities. Securities or options
with remaining maturities of one year or less on the
date of acquisition are excluded from the calculation.
Under certain market conditions, a portfolio
authorized to engage in transactions in options may
experience increased portfolio turnover as a result of
its investment strategies. For instance, the exercise
of a substantial number of options written by a
portfolio (due to appreciation of the underlying
security in the case of call options or depreciation
of the underlying security in the case of put options)
could result in a turnover rate in excess of 100%. A
portfolio turnover rate of 100% would occur if all of
a portfolio's securities that are included in the
computation of turnover were replaced once during a
period of one year.
The portfolios cannot accurately predict their
portfolio turnover rates but anticipate that annual
turnover for each portfolio normally 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 1999 and 1998 fiscal years, the portfolio
turnover rates for portfolios having operations during
the stated periods were as follows:
Portfolio
12/31/99
12/31/98
Appreciation
53%
22%
Diversified Strategic
Income
111%
86%
Emerging Growth
113%
98%
Equity Income
3%
43%
Equity Index
3%
5%
Growth & Income
47%
13%
Intermediate High
Grade
71%
60%
International Equity
17%
30%
Total Return
41%
72%
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 tables 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, 1999
Portfolio
Total Brokerage
Commissions Paid
Brokerage Commissions
Paid to Salomon Smith
Barney
Appreciation
$313,489
$14,055
Diversified Strategic
Income
0
0
Emerging Growth
2,237
1,596
Equity Income
22,951
0
Equity Index
227,643
0
Growth & Income
13,496
208
International Equity
43,861
1,403
Total Return
515,873
64,233
Portfolio
% of Aggregate
Brokerage
Commissions
Paid to Salomon
Smith Barney
% of Aggregate
Dollar Amount of
Transactions
Involving
Commissions
Paid to Salomon
Smith Barney
Appreciation
4.48%
2.26%
Diversified Strategic Income
0.00%
0.00%
Emerging Growth
7.13%
2.33%
Equity Income
0.00%
0.00%
Equity Index
0.00%
0.00%
Growth & Income
1.54%
1.05%
International Equity
3.20%
4.30%
Total Return
12.45%
9.72%
Fiscal Year Ended December 31, 1998
Portfolio
Total Brokerage
Commissions Paid
Brokerage Commissions
Paid to Salomon Smith
Barney
Appreciation
$0
$0
Diversified Strategic
Income
0
0
Emerging Growth
26,923
853
Equity Income
78,529
600
Equity Index
62,186
0
Growth & Income
21,272
300
International Equity
53,838
1,393
Total Return
515,729
26,965
Portfolio
% of Aggregate
Brokerage
Commissions
Paid to Salomon
Smith Barney
% of Aggregate
Dollar Amount of
Transactions
Involving
Commissions
Paid to Salomon
Smith Barney
Appreciation
0%
0%
Diversified
Strategic
Income
0%
0%
Emerging Growth
3.17%
0.95%
Equity Income
0.76%
0.48%
Equity Index
0%
0%
Growth & Income
1.41%
0.96%
International Equity
2.59%
4.60%
Total Return
5.23%
3.20%
Fiscal Year Ended December 31, 1997
Portfolio
Total Brokerage
Commissions Paid
Brokerage Commissions
Paid to Salomon Smith
Barney
Appreciation
$76,960
$3,240
Diversified Strategic
Income
0
0
Emerging Growth
24,590
324
Equity Income
75,365
1,200
Equity Index
6,685
0
Growth & Income
157,715
0
International Equity
57,156
650
Total Return
46,446
14,850
Portfolio
% of Aggregate
Brokerage
Commissions
Paid to Salomon
Smith Barney
% of Aggregate
Dollar Amount of
Transactions
Involving
Commissions
Paid to Salomon
Smith Barney
Appreciation
0.04%
0%
Diversified Strategic
Income
0
0
Emerging Growth
1.32
0.95%
Equity Income
1.59
3.08%
Equity Index
0.03
0
Growth & Income
0
0
International Equity
1.14
2.43%
Total Return
3.71
2.98%
In selecting brokers or dealers to execute securities
transactions on behalf of a portfolio, its adviser
seeks the best overall terms available. In assessing
the best overall terms available for any transaction,
each adviser will consider the factors the adviser
deems relevant, including the breadth of the market in
the security, the price of the security, the financial
condition and execution capability of the broker or
dealer and the reasonableness of the commission, if
any, for the specific transaction and on a continuing
basis. In addition, each advisory agreement between
the Fund and an adviser authorizes the adviser, in
selecting brokers or dealers to execute a particular
transaction and in evaluating the best overall terms
available, to consider the brokerage and research
services (as those terms are defined in Section 28(e)
of the Securities Exchange Act of 1934) provided to
the portfolio, the other portfolios and/or other
accounts over which the adviser or its affiliates
exercise investment discretion. The fees under the
investment advisory agreements and the sub-investment
advisory and/or administration agreements between the
fund and the advisers and the sub-adviser and/or
administrator, respectively, are not reduced by reason
of their receiving such brokerage and research
services. The fund's Board of Trustees, in its
discretion, may authorize the advisers to cause the
portfolios to pay a broker that provides such
brokerage and research services a brokerage commission
in excess of that which another broker might have
charged for effecting the same transaction, in
recognition of the value of such brokerage and
research services. The fund's Board of Trustees
periodically will review the commissions paid by the
portfolios to determine if the commissions paid over
representative periods of time were reasonable in
relation to the benefits inuring to the portfolio.
For the fiscal year ended December 31, 1999, the
following table sets forth certain information
regarding a portfolio's payment of brokerage
commissions and brokerage transactions to brokers
because of research services provided:
Portfolio
Total Brokerage
Commissions Paid
Amount of Transactions
Involving Commissions
Paid to Brokers
Appreciation
$4,592
$1,949,325
Emerging Growth
126
160,870
Growth and Income
175
193,820
Total Return
105,363
30,413,473
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.
PURCHASE OF SHARES
The fund offers its shares of capital stock on a
continuous basis. Shares can be acquired only by
buying a Contract from a life insurance company
designated by the fund and directing the allocation of
part or all of the net purchase payment to one or more
of ten subaccounts, each of which invests in a
portfolio as permitted under the Contract prospectus.
Investors should read this SAI and the fund's
prospectus dated April 28, 2000 along with the
Contract prospectus.
Sales Charges and Surrender Charges
The fund does not assess any sales charge, either when
it sells or when it redeems shares of the portfolio.
Surrender charges may be assessed under the Contract,
as described in the Contract prospectus. Mortality
and expense risk fees and other charges are also
described in that prospectus. Shares of the fund are
currently offered exclusively to Contract owners.
On January 15, 1999, the existing shares of the Equity
Index Portfolio were redesignated as Class I shares.
The fund created a separate class of shares designated
as Class II shares. Class II shares are sold without
an initial sales charge, but are subject to an annual
distribution fee of 0.25% of the daily net assets of
the Class. Surrender charges that may be assessed
under the Contract are described in the Contract
prospectus. Mortality and expense risk fees and other
charges are also described in the Contract prospectus.
Distribution Arrangements for the Equity Index
Portfolio
The fund has adopted a plan pursuant to Rule 12b-1
under the 1940 Act for the Class II shares of the
Equity Index Portfolio (the "Plan"). Pursuant to the
Plan, the portfolio may pay Salomon Smith Barney (for
remittance to a Participating Insurance Company) for
various costs incurred or paid by such company in
connection with the distribution of Class II Shares of
the portfolio. Depending on the Participating
Insurance Company's corporate structure and applicable
state law, Salomon Smith Barney may remit payments to
the Participating Insurance Company's affiliated
broker-dealer or other affiliated company rather than
the Participating Insurance Company itself.
The Plan provides that the fund, on behalf of the
portfolio, shall pay Salomon Smith Barney a fee of up
to 0.25% of the average daily net assets of the
portfolio attributable to the Class II shares. Under
the terms of the Plan, the fund is authorized to make
payments quarterly to Salomon Smith Barney for
remittance to a Participating Insurance Company, in
order to pay or reimburse such Participating Insurance
Company for distribution expenses incurred or paid by
such Participating Insurance Company.
The total distribution fees paid by Class II shares of
Equity Index Portfolio for the fiscal period ended
December 31, 1999 were $14,001.
Expenses payable pursuant to the Plan may include, but
are not necessarily limited to: (a) the printing and
mailing of fund prospectuses, statements of additional
information, any supplements thereto and shareholder
reports for existing and prospective Contract owners;
(b) those relating to the development, preparation,
printing and mailing of fund advertisements, sales
literature and other promotional materials describing
and/or relating to the fund and including materials
intended for use within the Participating Insurance
Company, or for broker-dealer only use or retail use;
(c) holding seminars and sales meetings designed to
promote the distribution of fund shares; (d) obtaining
information and providing explanations to Contract
owners regarding fund investment objectives and
policies and other information about the fund and its
portfolios, including the performance of the
portfolios; (e) training sales personnel regarding the
fund; (f) compensating sales personnel in connection
with the allocation of cash values and premiums of the
Contracts to the fund; (g) personal service and/or
maintenance of Contract owner accounts with respect to
fund shares attributable to such accounts; and (h)
financing any other activity that the fund's Board of
Trustees determines is primarily intended to result in
the sale of shares.
REDEMPTION OF SHARES
The fund will redeem any shares presented by the
Subaccounts, its sole shareholders, for redemption.
The Subaccounts' policy on when or whether to buy or
redeem fund shares is described in the Contract
prospectus.
Payment upon redemption of shares of a portfolio is
normally made within three days of receipt of such
request. The right of redemption of shares of a
portfolio may be suspended or the date of payment
postponed (a) for any periods during which the New
York Stock Exchange is closed (other than for
customary weekend and holiday closings); (b) when
trading in the markets the portfolio customarily
utilizes is restricted, or an emergency, as defined by
the rules and regulations of the SEC, exists, making
disposal of the portfolio's investments or
determination of its net asset value not reasonably
practicable; or (c) for such other periods as the SEC
by order may permit for the protection of the
portfolio's shareholders.
Should the redemption of shares of a portfolio be
suspended or postponed, the fund's Board of Trustees
may make a deduction from the value of the assets of
the portfolio to cover the cost of future liquidations
of the assets so as to distribute fairly these costs
among all owners of the Contract.
NET ASSET VALUE
As noted in the prospectus, the fund will not
calculate the net asset value of the portfolios on
certain holidays. On those days, securities held by a
portfolio may nevertheless be actively traded, and the
value of the portfolio's shares could be significantly
affected.
Because of the need to obtain prices as of the close
of trading on various exchanges throughout the world,
the calculation of the net asset values of certain
portfolios may not take place contemporaneously with
the determination of the prices of some of their
respective portfolio securities used in such
calculation. A security that is listed or traded on
more than one exchange is valued at the quotation on
the exchange determined to be the primary market for
such security. All assets and liabilities initially
expressed in foreign currency values will be converted
into U.S. dollar values at the mean between the bid
and offered quotations of such currencies against U.S.
dollars as last quoted by any recognized dealer. If
such quotations are not available, the rate of
exchange will be determined in good faith by the
fund's Board of Trustees. In carrying out the Board's
valuation policies, the administrator may consult with
an independent pricing service (the "Pricing Service")
retained by the fund.
Debt securities of U.S. issuers (other than U.S.
government securities and short-term investments) are
valued by the administrator, after consultation with
the Pricing Service. When, in the judgment of the
Pricing Service, quoted bid prices for investments are
readily available and are representative of the bid
side of the market, these investments are valued at
the mean between the quoted bid prices and asked
prices. Investments for which, in the judgment of the
Pricing Service, there are no readily obtainable
market quotations are carried at fair value as
determined by the Pricing Service. The procedures of
the Pricing Service are reviewed periodically by the
officers of the fund under the general supervision and
responsibility of the fund's Board of Trustees.
The Money Market Portfolio
The valuation of the portfolio securities of the Money
Market Portfolio is based upon their amortized cost,
which does not take into account unrealized capital
gains or losses. Amortized cost valuation involves
initially valuing an instrument at its cost and
thereafter assuming a constant amortization to
maturity of any discount or premium regardless of the
impact of fluctuating interest rates on the market
value of the instrument. While this method provides
certainty in valuation, it may result in periods
during which value, as determined by amortized cost,
is higher or lower than the price a portfolio would
receive if it sold the instrument.
The use by the Money Market Portfolio of the amortized
cost method of valuing its portfolio securities is
permitted by a rule adopted by the SEC. Under this
rule, the portfolio must maintain a dollar-weighted
average portfolio maturity of ninety days or less,
purchase only instruments having remaining maturities
of thirteen months or less, and invest only in
securities determined by the Board of Trustees of the
fund to be "Eligible Securities," as determined by the
SEC, with minimal credit risks. Pursuant to the rule,
the fund's Board of Trustees also has established
procedures designed to stabilize, to the extent
reasonably possible, the portfolio's price per share
as computed for the purpose of sales and redemptions
at $1.00. Such procedures include review of the
portfolio's holdings by the fund's Board of Trustees,
at such intervals as it may deem appropriate, to
determine whether the portfolio's net asset value
calculated by using available market quotations or
market equivalents deviates from $1.00 per share based
on amortized cost.
The rule also provides that the extent of any
deviation between the portfolio's net asset value
based upon available market quotations or market
equivalents and the $1.00 per share net asset value
based on amortized cost must be examined by the fund's
Board Of Trustees. If the fund's Board of Trustees
determines that a deviation exists that may result in
material dilution or other unfair results to investors
or existing shareholders, pursuant to the rule the
fund's Board of Trustees must cause the portfolio to
take such corrective action as the fund's Board of
Trustees regards as necessary and appropriate,
including: selling portfolio instruments prior to
maturity to realize capital gains or losses or to
shorten average portfolio maturity; withholding
dividends or paying distributions from capital gains;
redeeming shares in kind; or establishing a net asset
value per share by using available market quotations.
PERFORMANCE DATA
From time to time, the fund may quote yield or total
return in advertisements or in reports and other
communications to shareholders.
Yield
The Money Market Portfolio may, from time to time,
include the yield and effective yield in
advertisements or reports to shareholders or
prospective investors. Current yield for the
portfolio will be based on income received by a
hypothetical investment over a given seven-day period
(less expenses accrued during the period), and then
"annualized" (i.e., assuming that the seven-day yield
would be received for 52 weeks, stated in terms of an
annual percentage return on the investment).
"Effective yield" for the portfolio will be calculated
in a manner similar to that used to calculate yield,
but will reflect the compounding effect of earnings on
reinvested dividends. For the seven-day period ended
December 31, 1999, the yield for the Money Market
Portfolio was 4.69% (the effective yield was 4.80%).
For the Diversified Strategic Income Portfolio, the
Total Return Portfolio and the Intermediate High Grade
Portfolio, from time to time, the Fund may advertise
the 30-day yield. The yield of a portfolio refers to
the income generated by an investment in such
portfolio over the 30-day period identified in the
advertisement and is computed by dividing the net
investment income per share earned by the portfolio
during the period by the net assets value per share on
the last day of the period. This income is
"annualized" by assuming that the amount of income is
generated each month over a one-year period and is
compounded semi-annually. The annualized income is
then shown as a percentage of the net asset value.
For the thirty-day period ended December 31, 1999, the
yields for the Diversified Strategic Income Portfolio,
the Total Return Portfolio and the Intermediate High
Grade Portfolio were 7.58%, 1.76% and 3.97%,
respectively.
Average Annual Total Return
From time to time, a portfolio other than the Money
Market Portfolio may advertise its "average annual
total return" over various periods of time. Such
total return figure shows the average percentage
change in value of an investment in the portfolio from
the beginning to the end of the measuring period.
These figures reflect changes in the price of the
portfolio's shares and assume that any income
dividends and/or capital gains distributions made by
the portfolio during the period were reinvested in
shares of the portfolio. Figures will be given for
recent one-, five- and ten-year periods (if
applicable), and may be given for other periods as
well (such as from commencement of the portfolio's
operations or on a year-by-year basis). When
considering average annual total return figures for
periods longer than one year, it is important to note
that the relevant portfolio's annual total return for
any one year in the period might have been greater or
less than the average for the entire period. A
portfolio also may use "aggregate" total return
figures for various periods, representing the
cumulative change in value of an investment in the
portfolio for the specific period (again reflecting
changes in a portfolio's share prices and assuming
reinvestment of dividends and distributions).
Aggregate total returns may be shown by means of
schedules, charts or graphs and may indicate subtotals
of the various components of total return (i.e.,
changes in value of initial investment, income
dividends and capital gains distributions).
A portfolio's "average annual total return" figure
shown below is computed according to a formula
prescribed by the SEC. The formula can be expressed
as follows:
P(1 + T)n = ERV
Where: P = a hypothetical
initial payment of $1,000.
T = average annual total
return.
n = number of years
ERV = Ending Redeemable Value
of a hypothetical $1,000
payment made at the beginning
of the one-, five- or ten-year
(or other) period at the end
of the one-, five- or ten-year
(or other) period (or
fractional portion thereof).
The ERV assumes complete redemption of the
hypothetical investment at the end of the measuring
period. A portfolio's net investment income changes
in response to fluctuations in interest rates and the
expenses of the portfolio.
The average annual total returns for the portfolios
then in existence were as follows for the periods
indicated (reflecting the waivers of investment
advisory and administration fees and reimbursement of
expenses):
Portfolio
Adviser
1 Year
Ended
12/31/99
5 Years
Ended
12/31/99
Since
Commencement
Appreciation*
SSB Citi
13.12%
21.32%
14.77%
Diversified Strategic
Income*
SSB Citi
1.72%
8.62%
6.68%
Emerging Growth** +
SSB Citi
107.14%
42.10%
32.69%
Equity Income*
SSB Citi
(4.75)%
14.08%
9.98%
Equity Index-Class I*
TIMCO
20.68%
27.62%
19.11%
Equity Index-Class
II***
TIMCO
N/A
N/A
13.96%
Growth & Income*
SSB Citi
10.66%
18.94%
13.17%
Intermediate High
Grade*
SSB Citi
(3.69)%
6.00%
5.15%
International
Equity**
SSB Citi
66.20%
20.60%
15.09%
Money Market*
SSB Citi
4.03%
4.54%
3.88%
Total Return**
Davis
Skaggs
22.02%
18.59%
16.98%
* Portfolio commenced operations on October 16,
1991.
** Portfolio commenced operations on December 3,
1993.
*** Portfolio commenced operations on March 22,
1999.
+ Performance produced by VKAM.
Aggregate Total Return
A portfolio's aggregate total return figure described
in the prospectus and shown below represents the
cumulative change in the value of an investment in a
portfolio for the specified period and is computed by
the following formula:
ERV - P
P
Where: P = a hypothetical
initial payment of $10,000.
ERV = Ending
Redeemable Value of a
hypothetical $10,000
investment made at the
beginning of the one-,
five- or ten-year (or
other) period at the end
of the one-, five- or
ten-year period (or
fractional portion
thereof), assuming
reinvestment of all
dividends and
distributions.
The aggregate total returns for the portfolios then in
existence were as follows for the periods indicated
(reflecting the waiver of investment advisory and
administration fees and reimbursement of expenses):
Portfolio
Adviser
1 Year
Ended
12/31/99
5 Years
Ended
12/31/99
Since
Commencement
Appreciation*
SSB Citi
13.12%
162.87%
209.98%
Diversified Strategic
Income*
SSB Citi
1.72%
51.17%
70.08%
Emerging Growth** +
SSB Citi
107.14%
479.48%
458.10%
Equity Income*
SSB Citi
(4.75)%
93.24%
118.50%
Equity Index-Class
I*
TIMCO
20.68%
238.55%
320.52%
Equity Index-Class
II***
TIMCO
N/A
N/A
13.96%
Growth & Income*
SSB Citi
10.66%
137.99%
176.33%
Intermediate High
Grade*
SSB Citi
(3.69)%
33.85%
51.09%
International
Equity**
SSB Citi
66.20%
155.14%
134.98%
Money Market*
SSB Citi
4.03%
24.88%
36.75%
Total Return**
Davis
Skaggs
22.02%
134.51%
159.43%
* Portfolio commenced operations on October 16,
1991.
** Portfolio commenced operations on December 3,
1993.
*** Portfolio commenced operations on March 22,
1999.
+ Performance produced by VKAM.
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.
In reports or other communications to shareholders or
in advertising material, a portfolio may compare its
performance with that of other mutual funds as listed
in the rankings prepared by Lipper Analytical
Services, Inc. or similar independent services that
monitor the performance of mutual funds, or with other
appropriate indices of investment securities, such as
the S&P 500, Salmon Brothers World Government Bond
Index, Lehman Brothers Government Bond Index and
Lehman Brothers Mortage-Backed Securities Index, with
the Consumer Price Index, Dow Jones Industrial Average
and NASDAQ, or with investment or savings vehicles.
The performance information may also include
evaluations of the portfolios published by nationally
recognized ranking services and by financial
publications that are also nationally recognized, such
as Barron's, Business Week, Forbes, Fortune,
Institutional Investor, Investor's Business Daily,
Kiplinger's Personal Finance Magazine, Money,
Morningstar Mutual Fund Values, Mutual Fund
Forecaster, The New York Times, Stranger's Investment
Advisor, USA Today, U.S. News & World Report and The
Wall Street Journal. Such comparative performance
information will be stated in the same terms in which
the comparative data or indices are stated. Any such
advertisement also would include the standard
performance information required by the SEC as
described above. For these purposes, the performance
of the portfolios, as well as the performance of other
mutual funds or indices, do not reflect sales charges,
the inclusion of which would reduce a portfolio's
performance.
A portfolio may also utilize performance information
in hypothetical illustrations provided in narrative
form. These hypotheticals will be accompanied by the
standard performance information required by the SEC
as described above.
No person has been authorized to give any information
or to make any representations other than those
contained in the prospectus, this SAI or the fund's
official sales literature in connection with the
offering of the fund's shares, and, if given or made,
such other information or representations must not be
relied upon as having been authorized by the fund.
The prospectus does not constitute an offer in any
state in which, or to any person to whom, the offer
may not lawfully be made.
DIVIDENDS AND DISTRIBUTIONS
Net Investment Income. Dividends and distributions
will be automatically reinvested, without a sales
charge, in the shareholder's account at net asset
value in additional shares of the portfolio that paid
the dividend or distribution, unless the shareholder
instructs the portfolio to pay all dividends and
distributions in cash. Net investment income,
including dividends on stocks and interest on bonds or
other securities the fund holds, is distributed to the
shareholders of the portfolios as follows:
? monthly for the Money Market
Portfolio;
? annually for the Appreciation,
Diversified Strategic Income,
Emerging Growth, Equity Income,
Equity Index, Growth & Income,
Intermediate High Grade,
International Equity and Total
Return Portfolios.
Capital Gains. Distributions of any net realized
capital gains of the portfolios will be paid annually
shortly after the close of the fiscal year in which
they are earned.
TAXES
Each portfolio will be treated as a separate taxpayer
for federal income tax purposes with the result that:
(a) each portfolio must qualify separately as a
regulated investment company; and (b) the amounts of
investment income and capital gains earned will be
determined on a portfolio-by-portfolio (rather than on
a fund-wide) basis.
Regulated Investment Company Status
The fund intends that each portfolio will continue to
qualify separately each year as a "regulated
investment company" under Subchapter M of the Code. A
qualified portfolio will not be liable for federal
income taxes to the extent its taxable net investment
income and net realized capital gains are distributed
to its shareholders, provided each portfolio receives
annually at least 90% of its net investment income
from dividends, interest, payments with respect to
securities loans and gains from the sale or other
disposition of stock or securities, or foreign
currencies, or other income derived with respect to
its business of investing in such stock, securities or
currencies. In addition, each portfolio must
distribute at least 90% of its net investment income
each year.
On December 31, 1999, the unused capital loss
carryovers, by portfolio, were approximately as
follows: Intermediate High Grade Portfolio, $511,000
and Diversified Strategic Income Portfolio,
$1,725,000. For Federal income tax purposes, these
amounts are available to be applied against future
capital gains of the portfolio that has the
carryovers, if any, that are realized prior to the
expiration of the applicable carryover. The
carryovers expire as follows:
FUND
December 31,
(in thousands)
2002
2003
2004
2005
2006
2007
Intermediate
High Grade
$288
$0
$5
$24
$84
$110
Diversified
Strategic
Income
$0
$0
$0
$0
$0
$1,725,000
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 agency or instrumentality of
the Federal government 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.
Organization of the Fund
The fund was organized as a business trust under the
laws of the Commonwealth of Massachusetts pursuant to
a Master Trust Agreement dated May 13, 1991, as
amended from time to time (the "Trust Agreement").
The fund commenced operations on October 16, 1991,
under the name Shearson Series Fund. On July 30,
1993, October 14, 1994 and July 24, 1997, the Fund
changed its name to Smith Barney Shearson Series Fund,
Smith Barney Series Fund, and Greenwich Street Series
Fund, respectively.
In the interest of economy and convenience,
certificates representing shares in the fund are not
physically issued. The transfer agent maintains a
record of each shareholder's ownership of fund shares.
Shares do not have cumulative voting rights, which
means that holders of more than 50% of the shares
voting for the election of trustees can elect all of
the trustees. Shares are transferable but have no
preemptive, conversion or subscription rights. Annuity
owners generally vote by portfolio, except with
respect to the election of trustees and the selection
of independent public accountants. The variable
account will vote the shares of the fund held by the
variable account at regular and special meetings of
the shareholders of the various portfolios in
accordance with instructions received from the owners
of a variable annuity contract or a certificate
evidencing interest in a variable annuity (the
"Contract"), offered by certain insurance companies
designated by the fund, having a voting interest in
the relevant subaccount (the "Subaccount"). For a
discussion of the rights of Contract owners concerning
the voting of shares, please refer to the Contract
prospectus.
The fund offers shares of beneficial interest of
separate series with a par value of $.001 per share.
Shares of ten series have been authorized, which
represent the interests in the ten portfolios
described in the prospectus and this SAI. When
matters are submitted for shareholder vote,
shareholders of each portfolio will have one vote for
each full share owned and proportionate, fractional
votes for fractional shares held.
The participating life insurance company sends a semi-
annual report and an audited annual report to each
owner of a Contract, each of which includes a list of
the investment securities held by the portfolios at
the end of the period covered. Contract owners may
make inquiries regarding the fund and its portfolios,
including the current performance of the portfolios,
to a representative of a participating life insurance
company or their Salomon Smith Barney Financial
Consultant.
There will be no meetings of shareholders for the
purpose of electing trustees unless and until such
time as less than a majority of the trustees holding
office have been elected by shareholders, at which
time the trustees then in office will call a
shareholders' meeting for the election of trustees.
Under the 1940 Act, shareholders of record of no less
than two-thirds of the outstanding shares of the fund
may remove a trustee through a declaration in writing
or by vote cast in person or by proxy at a meeting
called for that purpose. Under the Trust Agreement,
the trustees are required to call a meeting of
shareholders for the purpose of voting upon the
question of removal of any such trustee when requested
in writing to do so by the shareholders of record of
not less than 10% of the fund's outstanding shares.
In addition, shareholders who meet certain criteria
will be assisted by the fund in communicating with
other shareholders in seeking the holding of such a
meeting.
Massachusetts law provides that shareholders could,
under certain circumstances, be held personally liable
for the obligations of the fund. However, the Trust
Agreement disclaims shareholder liability for acts or
obligations of the fund and requires that notice of
such disclaimer be given in each agreement, obligation
or instrument entered into or executed by the fund or
a trustee. The Trust Agreement provides for
indemnification from the fund's property for all
losses and expenses of any shareholder held personally
liable for the obligations of the fund. Thus, the
risk of a Contract owner incurring financial loss on
account of shareholder liability is limited to
circumstances in which the fund would be unable to
meet its obligations, a possibility that the fund's
management believes is remote. Upon payment of any
liability incurred by the fund, the shareholder paying
the liability will be entitled to reimbursement from
the general assets of the fund. The trustees intend
to conduct the operations of the fund in such a way so
as to avoid, as far as possible, ultimate liability of
the shareholders for liabilities of the fund.
CUSTODIAN, TRANSFER AGENT AND SUB-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.
Citi Fiduciary Trust Company, located at 388 Greenwich
Street, New York, New York 10013, 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.
PFPC Global Fund Services, located at P.O. Box 9699,
Providence, RI 02940-9699, serves as the trust's sub-
transfer agent. Under the transfer agency agreement,
the sub-transfer agent maintains the shareholder
account records for the trust, handles certain
communications between shareholders and the trust and
distributes dividends and distributions payable by the
trust. For these services, the sub-transfer agent
receives a monthly fee computed on the basis of the
number of shareholder accounts it maintains for the
trust 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, 1999 is incorporated herein by reference
in its entirety. The annual report was filed on March
8, 2000, Accession Number 91155-00-184.
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.
<PAGE>
Greenwich Street Series Fund
- --------------------
Prospectus
- --------------------
April 28, 2000
Equity Index Portfolio
- --------------------------------------------------------------------------------
Class I Shares
Shares of the fund are offered only to insurance company separate accounts that
fund certain variable annuity and variable life insurance contracts. This
prospectus should be read together with the prospectus for those contracts.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Contents
Greenwich Street Series Fund consists of 10 separate investment funds, each
with its own investment objective and policies. This prospectus relates to one
of those funds--the Equity Index Portfolio--Class I Shares.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
- ----------------------------------------
<S> <C>
Investments, risks and performance 2
More on the fund's investments 4
Management 6
Share transactions 7
Share price 7
Dividends, distributions and taxes 8
Financial highlights 9
</TABLE>
- --------------------------------------------------------------------------------
The Manager:
Travelers Investment Management Company (TIMCO) is the manager of the fund. The
manager is an affiliate of Salomon Smith Barney Inc. (Salomon Smith Barney) and
a subsidiary of Citigroup Inc. (Citigroup). Citigroup businesses produce a
broad range of financial services.
TIMCO, as manager of the fund, selects investments for the fund.
SSB Citi Fund Management LLC (SSB Citi) (successor to SSBC Fund Management
Inc.) is the fund's administrator.
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.
1
<PAGE>
Investments, risks and performance
Manager
TIMCO is the manager
Portfolio Manager
Sandip A. Bhagat (since 1994)
Mr. Bhagat is an investment officer of SSB Citi and president of TIMCO
Investment objective
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.
Principal investment strategies
Key investments
The fund invests at least 90% of
its assets in common stocks
included in the S&P 500 Index. The
fund holds stocks of substantially
all of the companies in the S&P 500
Index, including those companies
headquartered outside the U.S. The
fund may purchase stock index
futures and related options to
hedge any cash reserves in
anticipation of purchasing
additional stocks at a later date.
- --------------------------------------------------------------------------------
Selection process
The fund is managed as a pure index fund. This means the
manager does not evaluate individual companies to identify
attractive investment candidates. Instead, the manager
attempts to mirror the composition of the S&P 500 Index as
closely as possible by adjusting the fund's portfolio as
necessary. With the exception of a portion of the assets
held in cash and liquid securities to meet redemptions, the
fund intends to be fully invested in common stocks.
The S&P 500 Index is one of the mostly widely used
benchmarks of U.S. equity performance. The index is
unmanaged and consists of 500 stocks chosen for market
capitalization, liquidity and industry group
representation. The index is market-value-weighted, so the
larger of the 500 companies have a bigger impact on the
performance of the index.
The fund's ability to replicate the performance of the S&P
500 will depend to some extent on the size of cash flows
into and out of the fund. The fund will make investment
changes to accommodate these cash flows and to maximize the
similarity of the fund's assets to those of the S&P 500.
Greenwich Street Series Fund
2
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investments in the fund, or the fund may
not perform as well as other investments, if:
. The S&P 500 Index declines, or performs poorly relative to other U.S. equity
indexes or individual stocks
. An adverse company specific event, such as an unfavorable earnings report,
negatively affects the stock price of one of the larger companies in the S&P
500 Index
. The stocks of companies which comprise the S&P 500 Index fall out of favor
with investors
Because the fund is an index fund, it will not ordinarily sell a portfolio
security because of the security's poor performance. The fund normally buys or
sells a portfolio security only to reflect additions or deletions of stocks
comprising the S&P 500 Index or to adjust their relative weightings.
Although the manager seeks to replicate the performance of the S&P 500 Index,
the fund may underperform the index because:
. The fund incurs brokerage commissions and other expenses that do not apply to
the S&P 500 Index
. The performance of the fund's futures positions may not match that of the S&P
500 Index
. The prices of S&P 500 Index stocks may rise after the close of the stock
market and before the fund can invest cash from fund share purchases in these
stocks
- --------------------------------------------------------------------------------
Fund performance
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. The table shows how the fund's
average annual returns for different calendar periods compare to the return of
the S&P 500 Index, an unmanaged broad-based index of common stocks. Past
performance does not necessarily indicate how the fund will perform in the
future. Performance figures do not reflect expenses incurred from investing
through a separate account; if these expenses had been reflected, performance
would have been lower. Please refer to the separate account prospectus for more
information on expenses.
Risk return bar chart
[BAR CHART]
% Total Return
1992 1993 1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------ ------ ------ ------
6.74% 8.66% 0.85% 35.81% 21.68% 32.16% 28.46% 20.68%
Calendar years ended December 31
The bar chart shows the Class I shares' performance for each full calendar year
since inception.
Quarterly returns:
Highest: 21.39% in 4th quarter 1998
Lowest: (9.92)% in 3rd quarter 1998
Risk return table
Average Annual Total Returns
(for the periods ended December 31, 1999)
<TABLE>
- ---------------------------------------
<CAPTION>
One Five Since
year years inception*
- ---------------------------------------
<S> <C> <C> <C>
Class I 20.68% 27.62% 19.11%
S&P 500 Index 21.03% 28.54% 20.23%
- ---------------------------------------
</TABLE>
* Inception date of Class I shares is 10/16/91.
Index comparison begins on October 31, 1991
Greenwich Street Series Fund
3
<PAGE>
More on the Fund's Investments
Additional investments and investment techniques
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The fund may invest up to 5% of its assets in equity securi-
The fund de- ties not included in the S&P 500 to help approximate the re-
scribes its turn of the S&P 500.
investment ob-
jective and
its principal
investment
strategies and
risks under
"Investments,
risks and per-
formance."
This section
provides addi-
tional infor-
mation about
the fund's in-
vestments and
certain port-
folio manage-
ment tech-
niques the
fund may use.
More informa-
tion about the
fund's invest-
ments and
portfolio man-
agement tech-
niques, some
of which en-
tail risk, is
included in
the statement
of additional
information
(SAI).
- --------------------------------------------------------------------------------
Equity
investments Equity securities include exchange-traded and over-the-
counter (OTC) 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 eq-
uity participations.
- --------------------------------------------------------------------------------
Fixed income Fixed income securities include bonds, notes (including
investments structured notes), mortgage-related securities, asset-backed
To a limited securities, convertible securities, Eurodollar and Yankee
extent. dollar instruments, preferred stocks and money market instru-
ments. Fixed income securities may be issued by U.S. and for-
eign companies; U.S. and foreign banks; the U.S. government,
its agencies, authorities, instrumentalities or sponsored en-
terprises; state and municipal governments; supranational or-
ganizations; and foreign governments and their political sub-
divisions. Fixed income securities may have all types of in-
terest rate payment and reset terms, including fixed rate,
adjustable rate, zero coupon, contingent, deferred, payment
in kind and auction rate features.
Mortgage-related securities may be issued by private compa-
nies or by agencies of the U.S. government and represent di-
rect or indirect participations in, or are collateralized by
and payable from, mortgage loans secured by real property.
Greenwich Street Series Fund
4
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Credit quality of fixed income securities
If a security receives different ratings, the fund will treat
the securities as being rated in the highest rating category.
The fund may choose not to sell securities that are down-
graded below the fund's minimum acceptable credit rating af-
ter their purchase. The fund's credit standards also apply to
counterparties to OTC derivative contracts.
Below investment grade securities
Securities are below investment grade if:
. They are rated, respectively, below one of the top four
long-term rating categories by all the nationally
recognized rating organizations that have rated the
securities
. They have received comparable short-term ratings, or
. They are unrated securities the manager believes are of
comparable quality to below investment grade securities
- --------------------------------------------------------------------------------
Derivatives The fund may, but need not, use derivative contracts, such as
and hedging futures and options on securities, securities indices or cur-
techniques rencies; options on these futures; forward currency con-
tracts; and interest rate or currency swaps for any of the
following 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 the fund to
deliver or receive an asset or cash payment based on the
change in value of one or more securities, currencies or in-
dices. Even a small investment in derivative contracts can
have a big impact on the fund's stock market, currency and
interest rate exposure. Therefore, using derivatives can dis-
proportionately increase losses and reduce opportunities for
gains when stock prices, currency rates or interest rates are
changing. The fund may not fully benefit from or may lose
money on derivatives if changes in their value do not corre-
spond accurately to changes in the value of the fund's hold-
ings. The other parties to certain derivative contracts pres-
ent the same types of credit risk as issuers of fixed income
securities. Derivatives can also make the fund less liquid
and harder to value, especially in declining markets.
- --------------------------------------------------------------------------------
Defensive
investing The fund may depart from its principal investment strategies
in response to adverse market, economic or political condi-
tions by taking temporary defensive positions in all types of
money market and short-term debt securities. If the fund
takes a temporary defensive position, it may be unable to
achieve its investment goal.
- --------------------------------------------------------------------------------
Portfolio The fund may engage in active and frequent trading to achieve
turnover its principal investment strategies. Frequent trading also
increases transaction costs, which could detract from the
fund's performance.
Greenwich Street Series Fund
5
<PAGE>
- --------------------------------------------------------------------------------
Management
The manager
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, 2000 in excess of $1.1 billion.
TIMCO is a wholly owned subsidiary of Citigroup. Citigroup businesses produce a
broad range of financial services--asset management, banking and consumer
finance, credit and charge cards, insurance, investments, investment banking
and trading--and use diverse channels to make them available to consumer and
corporate customers around the world.
Management fees
The 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, 1999
(as a percentage
of the fund's
Fund Manager average daily net assets)
----------------------------------------------------------
<S> <C> <C>
Equity Index Portfolio TIMCO 0.15%
----------------------------------------------------------
</TABLE>
Administrator
SSB Citi serves as administrator to the fund, performing certain account
maintenance and administrative services. As compensation for these services SSB
Citi receives a fee equal on an annual basis to 0.06% of the value of the
fund's average daily net assets.
TIMCO and SSB Citi have voluntarily agreed to limit the ratio of expenses to
average net assets to 0.30%. TIMCO and/or SSB Citi will reimburse fees for the
amount that exceeds the limitation.
Classes of Shares
The shares of the fund that were outstanding on January 15, 1999 have been
designated Class I Shares of the Portfolio.
Transfer agent and shareholder servicing agent
Citi Fiduciary Trust Company serves as the fund's transfer agent and
shareholder servicing agent (the "transfer agent"). Pursuant to a sub-transfer
agency and services agreement with the transfer agent, PFPC Global Fund
Services serves as the fund's sub-transfer agent (the "sub-transfer agent") to
render certain shareholder record keeping and accounting services and
functions.
Distributor
Greenwich Street Series Fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares.
Greenwich Street Series Fund
6
<PAGE>
Share Transactions
Availability of the fund
Shares of the fund are available only through the purchase of variable annuity
or variable life insurance contracts issued by insurance companies through
their separate accounts.
The interests of different variable contract separate accounts investing in the
fund could conflict due to differences of tax treatment and other
considerations. The fund currently does not foresee any disadvantages to
investors arising from the fact that the fund may offer its shares to different
insurance company separate accounts that serve as the investment medium for
their variable annuity and variable life products. Nevertheless, the board of
trustees intends to monitor events to identify any material conflicts which may
arise, and to determine what action, if any, should be taken in response to
these conflicts. If a conflict were to occur, one or more insurance companies'
separate accounts might be required to withdraw their investments in the fund
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 fund's shareholders.
Redemption of shares
The redemption price of the 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
The fund's net asset value is the value of its assets minus its liabilities.
The fund calculates its net asset value every day the New York Stock Exchange
is open. The Exchange is closed on certain holidays listed in the SAI. This
calculation is done when regular trading closes on the Exchange (normally 4:00
p.m., Eastern time). If the Exchange closes early, each fund accelerates the
calculation of its net asset value to the actual closing time.
The fund generally values its portfolio securities based on market prices or
quotations. To the extent the fund holds securities denominated in a foreign
currency, the fund's currency conversions are done when the London stock
exchange closes. When reliable market prices or quotations are not readily
available, or when the value of a security has been materially affected by
events occurring after a foreign exchange closes, the fund 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.
Greenwich Street Series Fund
7
<PAGE>
Dividends, Distributions and Taxes
The fund intends to qualify and be taxed as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986 (the "Code"), as
amended. In order to qualify to be taxed as a regulated investment company, the
fund must meet certain income and diversification tests and distribution
requirements. As a regulated investment company meeting these requirements, the
fund will not be subject to federal income tax on its net investment income and
net capital gains that it distributes to its shareholders. All income and
capital gain distributions are automatically reinvested in additional shares of
the fund at net asset value and are includable in gross income of the separate
accounts holding these shares. See the accompanying separate account contract
prospectus for information regarding the federal income tax treatment of
distributions to the separate accounts and to holders of the contracts.
The fund is also subject to asset diversification regulations promulgated by
the U.S. Treasury Department under the Code. The regulations generally provide
that, as of the end of each calendar quarter or within 30 days thereafter, no
more than 55% of the total assets of the fund may be represented by any one
investment, no more than 70% by any two investments, no more than 80% by any
three investments, and no more than 90% by any four investments. For this
purpose all securities of the same issuer are considered a single investment.
An alternative diversification test may be satisfied under certain
circumstances. If the fund fails to comply with these special diversification
requirements under the Code, the contracts invested in that fund would not be
treated as an annuity, endowment or life insurance contracts under the Code.
Greenwich Street Series Fund
8
<PAGE>
Financial Highlights
The financial highlights tables are intended to help you understand the
performance of the 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 the 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 the fund assuming reinvestment of all dividends and distributions.
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
Equity Index Portfolio
Class I Shares 1999(1) 1998(1) 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $29.99 $23.59 $18.36 $15.58 $11.69
- -----------------------------------------------------------------------------
Income from operations:
Net investment income (2) 0.39 0.36 0.12 0.22 0.25
Net realized and unrealized gain
(loss) 5.77 6.33 5.76 3.17 3.88
- -----------------------------------------------------------------------------
Total income from operations 6.16 6.69 5.88 3.39 4.13
- -----------------------------------------------------------------------------
Less distributions from:
Net investment income (0.12) (0.08) (0.17) (0.23) (0.23)
Net realized gains (0.17) (0.21) (0.48) (0.38) (0.01)
- -----------------------------------------------------------------------------
Total distributions (0.29) (0.29) (0.65) (0.61) (0.24)
- -----------------------------------------------------------------------------
Net asset value, end of year $35.86 $29.99 $23.59 $18.36 $15.58
- -----------------------------------------------------------------------------
Total return 20.68% 28.46% 32.16% 21.68% 35.81%
- -----------------------------------------------------------------------------
Net assets, end of year (millions) $ 655 $ 177 $ 35 $ 19 $ 15
- -----------------------------------------------------------------------------
Ratios to average net assets:
Expenses (2)(3) 0.28% 0.30% 0.76% 1.06% 1.00%
Net investment income 1.20% 1.36 1.08 1.37% 1.84%
- -----------------------------------------------------------------------------
Portfolio turnover rate 3% 5% 6% 7% 5%
- -----------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) For the year ended December 31, 1998, the administrator agreed to reimburse
expenses of $114,983. In addition, the manager waived all or part of its
fees for the year ended December 31, 1995. IDS Life also reimbursed
expenses of $6,842 for the year ended December 31, 1995. If such fees had
not been waived and expenses reimbursed, the per share effect on net
investment income and the expense ratios would have been as follows:
<TABLE>
-------------------------------------------------------------------
<CAPTION>
Expense Ratios
Per Share Decreases to Without Waivers
Net Investment Income and Reimbursements
-------------------------------------------------------------------
Portfolio 1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Index N/A $0.02 N/A N/A $0.02 N/A 0.42 N/A N/A 1.17%
-------------------------------------------------------------------
</TABLE>
(3) As a result of the 0.30% voluntary expense limitation for the ratio of
expenses to average net assets, which became effective during 1998, the
manager will reimburse fees for the amount that exceeds the limitation.
Greenwich Street Series Fund
9
<PAGE>
Greenwich Street Series Fund
Additional Information
Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends one report to a household if more than one account has the same
address. Contact your participating life insurance company representative 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 fund or obtain shareholder reports or the
statement of additional information (without charge) by calling 1-800-451-2010
or writing to Greenwich Street Series Fund, 388 Greenwich Street, New York NY
10013.
Information about the fund (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's (the "Commission") Public Reference
Room in Washington D.C. In addition, information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR
Database on the Commission's Internet site at http://www.sec.gov. Copies of
this information may be obtained for a duplicating fee by electronic request at
the following E-mail address: [email protected], or by writing the
Commission's Public Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. The fund is not offering to sell its
shares to any person to whom the fund may not lawfully sell its shares.
Equity Index Portfolio
Class I Shares
L-21691 4/00
<PAGE>
Greenwich Street Series Fund
- --------------------
Prospectus
- --------------------
April 28, 2000
Equity Index Portfolio
- --------------------------------------------------------------------------------
Class II Shares
Shares of the fund are offered only to insurance company separate accounts that
fund certain variable annuity and variable life insurance contracts. This
prospectus should be read together with the prospectus for those contracts.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Contents
Greenwich Street Series Fund consists of 10 separate investment funds, each
with its own investment objective and policies. This prospectus relates to one
fund--the Equity Index Portfolio--Class II Shares.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
- ----------------------------------------
<S> <C>
Investments, risks and performance 2
More on the fund's investments 4
Management 6
Share transactions 7
Share price 7
Dividends, distributions and taxes 8
Financial highlights 9
</TABLE>
- --------------------------------------------------------------------------------
The Manager:
Travelers Investment Management Company (TIMCO) is the manager of the fund. The
manager is an affiliate of Salomon Smith Barney Inc. (Salomon Smith Barney) and
a subsidiary of Citigroup Inc. (Citigroup). Citigroup businesses produce a
broad range of financial services.
TIMCO, as manager of the fund, selects investments for the fund.
SSB Citi Fund Management LLC (SSB Citi) (successor to SSBC Fund Management
Inc.) is the fund's administrator.
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.
1
<PAGE>
Investments, risks and performance
Manager
TIMCO is the manager
Portfolio Manager
Sandip A. Bhagat (since 1994)
Mr. Bhagat is an investment officer of SSB Citi and president of TIMCO
Investment objective
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.
Prinicipal investment strategies
Key investments
The fund invests at least 90% of
its assets in common stocks
included in the S&P 500 Index. The
fund holds stocks of substantially
all of the companies in the S&P 500
Index, including those companies
headquartered outside the U.S. The
fund may purchase stock index
futures and related options to
hedge any cash reserves in
anticipation of purchasing
additional stocks at a later date.
- --------------------------------------------------------------------------------
Selection process
The fund is managed as a pure index fund. This means the
manager does not evaluate individual companies to identify
attractive investment candidates. Instead, the manager
attempts to mirror the composition of the S&P 500 Index as
closely as possible by adjusting the fund's portfolio as
necessary. With the exception of a portion of the assets
held in cash and liquid securities to meet redemptions, the
fund intends to be fully invested in common stocks.
The S&P 500 Index is one of the mostly widely used
benchmarks of U.S. equity performance. The index is
unmanaged and consists of 500 stocks chosen for market
capitalization, liquidity and industry group
representation. The index is market-value-weighted, so the
larger of the 500 companies have a bigger impact on the
performance of the index.
The fund's ability to replicate the performance of the S&P
500 will depend to some extent on the size of cash flows
into and out of the fund. The fund will make investment
changes to accommodate these cash flows and to maximize the
similarity of the fund's assets to those of the S&P 500.
Greenwich Street Series Fund
2
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investments in the fund, or the fund may
not perform as well as other investments, if:
. The S&P 500 Index declines, or performs poorly relative to other U.S. equity
indexes or individual stocks
. An adverse company specific event, such as an unfavorable earnings report,
negatively affects the stock price of one of the larger companies in the S&P
500 Index
. The stocks of companies which comprise the S&P 500 Index fall out of favor
with investors
Because the fund is an index fund, it will not ordinarily sell a portfolio
security because of the security's poor performance. The fund normally buys or
sells a portfolio security only to reflect additions or deletions of stocks
comprising the S&P 500 Index or to adjust their relative weightings.
Although the manager seeks to replicate the performance of the S&P 500 Index,
the fund may underperform the index because:
. The fund incurs brokerage commissions and other expenses that do not apply to
the S&P 500 Index
. The performance of the fund's futures positions may not match that of the S&P
500 Index
. The prices of S&P 500 Index stocks may rise after the close of the stock
market and before the fund can invest cash from fund share purchases in these
stocks
- --------------------------------------------------------------------------------
Fund performance
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. The table shows how the fund's
average annual returns for different calendar periods compare to the return of
the S&P 500 Index, an unmanaged broad-based index of common stocks. Past
performance does not necessarily indicate how the fund will perform in the
future. Performance figures do not reflect expenses incurred from investing
through a separate account; if these expenses had been reflected, performance
would have been lower. Please refer to the separate account prospectus for more
information on expenses.
Risk return bar chart
[BAR CHART]
% Total Return
1992 1993 1994 1995 1996 1997 1998 1999
- ----- ----- ------ ------ ------ ------ ------ -----
6.74% 8.66% 0.85% 35.81% 21.68% 32.18% 28.46% 20.68%
Calendar year ended December 31
The bar chart shows the Class I shares' performance for each full calendar year
since inception. Class II shares have different performance because of different
expenses. Class I share performance is shown because Class II shares were
offered on January 15, 1999. Class II shares do not yet have a sufficient
operating history to generate the performance information.
Quarterly returns:
Highest: 21.39% in 4th quarter 1998
Lowest: (9.92)% in 3rd quarter 1998
Risk return table
Average Annual Total Returns
(for the periods ended December 31, 1999)
<TABLE>
- ---------------------------------------
<CAPTION>
One Five Since
year years inception*
- ---------------------------------------
<S> <C> <C> <C>
Class I 20.68% 27.62% 19.11%
Class II N/A N/A 13.96%
S&P 500 Index 21.03% 28.54% 20.23%
- ---------------------------------------
</TABLE>
* Inception date of Class I shares is 10/16/91.
* Inception date of Class II shares is 3/22/99.
Index comparison begins on October 31, 1991
Greenwich Street Series Fund
3
<PAGE>
More on the Fund's Investments
Additional investments and investment techniques
- --------------------------------------------------------------------------------
The fund may invest up to 5% of its assets in equity securi-
The fund de- ties not included in the S&P 500 to help approximate the re-
scribes its turn of the S&P 500.
investment ob-
jective and
its principal
investment
strategies and
risks under
"Investments,
risks and per-
formance."
This section
provides addi-
tional infor-
mation about
the fund's in-
vestments and
certain port-
folio manage-
ment tech-
niques the
fund may use.
More informa-
tion about the
fund's invest-
ments and
portfolio man-
agement tech-
niques, some
of which en-
tail risk, is
included in
the statement
of additional
information
(SAI).
- --------------------------------------------------------------------------------
Equity
investments Equity securities include exchange-traded and over-the-
counter (OTC) 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 eq-
uity participations.
- --------------------------------------------------------------------------------
Fixed income
investments To Fixed income securities include bonds, notes (including
a limited structured notes), mortgage-related securities, asset-backed
extent securities, convertible securities, Eurodollar and Yankee
dollar instruments, preferred stocks and money market instru-
ments. Fixed income securities may be issued by U.S. and for-
eign companies; U.S. and foreign banks; the U.S. government,
its agencies, authorities, instrumentalities or sponsored en-
terprises; state and municipal governments; supranational or-
ganizations; and foreign governments and their political sub-
divisions. Fixed income securities may have all types of in-
terest rate payment and reset terms, including fixed rate,
adjustable rate, zero coupon, contingent, deferred, payment
in kind and auction rate features.
Mortgage-related securities may be issued by private compa-
nies or by agencies of the U.S. government and represent di-
rect or indirect participations in, or are collateralized by
and payable from, mortgage loans secured by real property.
- --------------------------------------------------------------------------------
Credit quality of fixed income securities
If a security receives different ratings, the fund will treat
the securities as being rated in the highest rating category.
The fund may choose not to sell securities that are down-
graded below the fund's minimum acceptable credit rating af-
ter their purchase. The fund's credit standards also apply to
counterparties to OTC derivative contracts.
Greenwich Street Series Fund
4
<PAGE>
- --------------------------------------------------------------------------------
Below investment grade securities
Securities are below investment grade if:
. They are rated, respectively, below one of the top four
long-term rating categories by all the nationally
recognized rating organizations that have rated the
securities
. They have received comparable short-term ratings, or
. They are unrated securities the manager believes are of
comparable quality to below investment grade securities
- --------------------------------------------------------------------------------
Derivatives The fund may, but need not, use derivative contracts, such as
and hedging futures and options on securities, securities indices or cur-
techniques rencies; options on these futures; forward currency con-
tracts; and interest rate or currency swaps for any of the
following 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 de-
liver or receive an asset or cash payment based on the change
in value of one or more securities, currencies or indices.
Even a small investment in derivative contracts can have a
big impact on the fund's stock market, currency and interest
rate exposure. Therefore, using derivatives can dispropor-
tionately increase losses and reduce opportunities for gains
when stock prices, currency rates or interest rates are
changing. The fund may not fully benefit from or may lose
money on derivatives if changes in their value do not corre-
spond accurately to changes in the value of the fund's hold-
ings. The other parties to certain derivative contracts pres-
ent the same types of credit risk as issuers of fixed income
securities. Derivatives can also make the fund less liquid
and harder to value, especially in declining markets.
- --------------------------------------------------------------------------------
Defensive The fund may depart from its principal investment strategies
investing in response to adverse market, economic or political condi-
tions by taking temporary defensive positions in all types of
money market and short-term debt securities. If the fund
takes a temporary defensive position, it may be unable to
achieve its investment goal.
- --------------------------------------------------------------------------------
Portfolio The fund may engage in active and frequent trading to achieve
turnover its principal investment strategies. Frequent trading also
increases transaction costs, which could detract from the
fund's performance.
Greenwich Street Series Fund
5
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Management
The manager
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, 2000 in excess of $1.1 billion.
TIMCO is a wholly owned subsidiary of Citigroup. Citigroup businesses produce a
broad range of financial services--asset management, banking and consumer
finance, credit and charge cards, insurance, investments, investment banking
and trading--and use diverse channels to make them available to consumer and
corporate customers around the world.
Management fees
The 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, 1999
(as a percentage
of the fund's average
Fund Manager daily net assets)
------------------------------------------------------
<S> <C> <C>
Equity Index Portfolio TIMCO 0.15%
------------------------------------------------------
</TABLE>
Administrator
SSB Citi serves as administrator to the fund, performing certain account
maintenance and administrative services. As compensation for these services SSB
Citi receives a fee equal on an annual basis to 0.06% of the value of the
fund's average daily net assets.
TIMCO and SSB Citi have voluntarily agreed to limit the ratio of expenses to
average net assets to 0.30%. TIMCO and/or SSB Citi will reimburse fees for the
amount that exceeds the limitation.
Distribution plan
The fund has adopted a Rule 12b-1 distribution plan for its Class II shares.
Under the plan, the fund pays a distribution fee of 0.25% of the daily net
assets of Class II shares. These fees are an ongoing expense and, over time,
may cost you more than other types of sales charges.
Transfer agent and shareholder servicing agent
Citi Fiduciary Trust Company serves as the fund's transfer agent and
shareholder servicing agent (the "transfer agent"). Pursuant to a sub-transfer
agency and services agreement with the transfer agent, PFPC Global Fund
Services serves as the fund's sub-transfer agent (the "sub-transfer agent") to
render certain shareholder record keeping and accounting services and
functions.
Distributor
Greenwich Street Series Fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares.
Greenwich Street Series Fund
6
<PAGE>
Share Transactions
Availability of the fund
Shares of the fund are available only through the purchase of variable annuity
or variable life insurance contracts issued by insurance companies through
their separate accounts.
The interests of different variable contract separate accounts investing in the
fund could conflict due to differences of tax treatment and other
considerations. The fund currently does not foresee any disadvantages to
investors arising from the fact that the fund may offer its shares to different
insurance company separate accounts that serve as the investment medium for
their variable annuity and variable life products. Nevertheless, the board of
trustees intends to monitor events to identify any material conflicts which may
arise, and to determine what action, if any, should be taken in response to
these conflicts. If a conflict were to occur, one or more insurance companies'
separate accounts might be required to withdraw their investments in one or
more funds and shares of another fund might be substituted. In addition, the
sale of shares may be suspended or terminated if required by law or regulatory
authority or if in the best interests of the fund's shareholders.
Redemption of shares
The redemption price of the 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
The fund's net asset value is the value of its assets minus its liabilities.
The 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). The Exchange is closed on certain holidays
listed in the SAI. If the Exchange closes early, the fund accelerates the
calculation of its net asset value to the actual closing time.
The fund generally values its portfolio securities based on market prices or
quotations. To the extent the fund holds securities denominated in a foreign
currency, the fund's currency conversions are done when the London stock
exchange closes. When reliable market prices or quotations are not readily
available, or when the value of a security has been materially affected by
events occurring after a foreign exchange closes, the fund 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.
Greenwich Street Series Fund
7
<PAGE>
Dividends, Distributions and Taxes
The fund intends to qualify and be taxed as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986 (the "Code"), as
amended. In order to qualify to be taxed as a regulated investment company,
each fund must meet certain income and diversification tests and distribution
requirements. As a regulated investment company meeting these requirements, the
fund will not be subject to federal income tax on its net investment income and
net capital gains that it distributes to its shareholders. All income and
capital gain distributions are automatically reinvested in additional shares of
the fund at net asset value and are includable in gross income of the separate
accounts holding these shares. See the accompanying separate account contract
prospectus for information regarding the federal income tax treatment of
distributions to the separate accounts and to holders of the contracts.
The fund is also subject to asset diversification regulations promulgated by
the U.S. Treasury Department under the Code. The regulations generally provide
that, as of the end of each calendar quarter or within 30 days thereafter, no
more than 55% of the total assets of the fund may be represented by any one
investment, no more than 70% by any two investments, no more than 80% by any
three investments, and no more than 90% by any four investments. For this
purpose all securities of the same issuer are considered a single investment.
An alternative diversification test may be satisfied under certain
circumstances. If the fund fails to comply with these special diversification
requirements under the Code, the contracts invested in that fund would not be
treated as an annuity, endowment or life insurance contracts under the Code.
Greenwich Street Series Fund
8
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the
performance of the 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.
For a share of beneficial interest outstanding throughout the period ended
December 31:
<TABLE>
<CAPTION>
Equity Index Portfolio
Class II Shares 1999 (1)(2)
- ------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $31.71
- ------------------------------------------------------------
Income from operations:
Net investment income 0.24
Net realized and unrealized gain 4.15
- ------------------------------------------------------------
Total income from operations 4.39
- ------------------------------------------------------------
Less distributions from:
Net investment income (0.12)
Net realized gains (0.17)
- ------------------------------------------------------------
Total distributions (0.29)
- ------------------------------------------------------------
Net asset value, end of period $35.81
- ------------------------------------------------------------
Total return 13.96%++
- ------------------------------------------------------------
Net assets, end of period (millions) $ 27
- ------------------------------------------------------------
Ratios to average net assets:
Expenses 0.51%+
Net investment income 0.93+
- ------------------------------------------------------------
Portfolio turnover rate 3%
- ------------------------------------------------------------
</TABLE>
(1) For the period from March 22, 1999 (inception date) to December 31, 1999.
(2) Per share amounts have been calculated using the monthly average shares
method.
++Total return is not annualized as it may not be representative of the total
return for the year.
+ Annualized.
Greenwich Street Series Fund
9
<PAGE>
Greenwich Street Series Fund
Additional Information
Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends one report to a household if more than one account has the same
address. Contact your participating life insurance company representative 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 fund or obtain shareholder reports or the
statement of additional information (without charge) by calling 1-800-451-2010
or writing to Greenwich Street Series Fund, 388 Greenwich Street, New York NY
10013.
Information about the fund (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's (the "Commission") Public Reference
Room in Washington, D.C. In addition, information on the operation of the
Public Reference Room may be obtained by calling the Commission at 1-202-942-
8090. Reports and other information about the funds are available on the EDGAR
Database on the Commission's Internet site at http://www.sec.gov. Copies of
this information may be obtained for a duplicating fee by electronic request at
the following E-mail address: [email protected], or by writing the
Commission's Public Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. The fund is not offering to sell its
shares to any person to whom the fund may not lawfully sell its shares.
Equity Index Portfolio
Class II Shares
(Investment Company Act file no. 811-6310)
L-21692 4/00
<PAGE>
Greenwich Street Series Fund
- ----------------
Prospectus
- ----------------
April 28, 2000
Total Return Portfolio
- --------------------------------------------------------------------------------
Shares of the fund are offered only to insurance company separate accounts that
fund certain variable annu-ity and variable life insurance contracts. This
prospectus should be read together with the prospectus for those contracts.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Contents
Greenwich Street Series Fund consists of 10 separate investment funds, each
with its own investment objective and policies. This prospectus relates only to
one fund--the Total Return Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
- ----------------------------------------
<S> <C>
Investments, risks and performance 2
More on the fund's investments 4
Management 6
Share transactions 6
Share price 7
Dividends, distributions and taxes 7
Financial highlights 8
</TABLE>
- --------------------------------------------------------------------------------
The Manager:
Davis Skaggs Investment Management (Davis Skaggs) is the manager of the fund.
The manager is a division of SSB Citi Fund Management LLC, (SSB Citi)
(successor to SSBC Fund Management Inc.). SSB Citi is an affiliate of Salomon
Smith Barney Inc. (Salomon Smith Barney) and a subsidiary of Citigroup Inc.
(Citigroup). Citigroup businesses produce a broad range of financial services.
Davis Skaggs selects investments for the fund as manager.
SSB Citi is the fund's administrator.
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.
1
<PAGE>
Investments, risks and performance
Manager
Davis Skaggs is the manager
Portfolio Manager
John G. Goode (since 1993)
Mr. Goode is an investment officer of SSB Citi and chairman and chief
investment officer of Davis Skaggs
Investment objective
Total return, consisting of long-term capital appreciation and income.
Principal investment strategies
Key investments
The fund invests primarily in dividend-paying common stocks of U.S. and
foreign companies. These companies tend to have large market capitalizations,
but the fund also may invest in medium and small capitalization stocks.
The fund may invest up to 35% of its assets in convertible bonds and preferred
stock, warrants and interest paying debt securities. Up to 10% of the fund's
assets may be invested in below investment grade bonds (commonly known as
"junk bonds").
- --------------------------------------------------------------------------------
Selection process
The manager emphasizes individual security selection while
spreading investments among many industries and sectors.
The manager uses fundamental analysis to identify
individual companies it believes offer favorable prospects
for dividend growth and capital appreciation.
In selecting individual companies for investment, the
manager looks for the following:
. Above average earnings growth
. High relative return on invested capital
. History of consistent dividend payments
. Strong financial condition or stable or improving credit
quality
. Experienced and effective management
. Effective research, product development and marketing
. Competitive advantages
Greenwich Street Series Fund
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:
. The U.S. stock market declines
. Rising interest rates depress the value of dividend paying stocks or debt
securities in the fund's portfolio
. Large capitalization companies fall out of favor with investors
. Companies in which the fund invests suffer unexpected losses or lower than
expected earnings, or pay lower than expected dividends
. The manager's judgment about the attractiveness, value or income potential of
a particular security proves to be incorrect
. The issuer of a debt security owned by the fund defaults on its obligation to
pay principal and/or interest, or the security's credit rating is downgraded.
This risk is higher for below investment grade bonds. These bonds are
considered speculative because they have a higher risk of issuer default, are
subject to greater price volatility and may be illiquid
Because the fund seeks total return by emphasizing investments in dividend-
paying common stocks, it will not have as much investment flexibility as total
return funds that do not emphasize dividend-paying stocks.
- --------------------------------------------------------------------------------
Fund performance
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. The table shows how the fund's
average annual returns for different calendar periods compare to the return of
the S&P 500 Index, an unmanaged broad-based index of common stocks. Past
performance does not necessarily indicate how the fund will perform in the
future. Performance figures do not reflect expenses incurred from investing
through a separate account; if these expenses had been reflected, performance
would have been lower. Please refer to the separate account prospectus for more
information on expenses.
Risk return bar chart
---------------------
[BAR CHART]
% Total Return
1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------ ------
7.40% 25.04% 25.33% 16.84% 4.97% 22.02%
Calendar years ended December 31
The bar chart shows the fund's performance for each full calendar year since
inception.
Quarterly returns:
Highest: 14.61% in 2nd quarter 1999
Lowest: (8.71)% in 3rd quarter 1998
Risk return table
Average Annual Total Returns
(for the periods ended December 31, 1999)
<TABLE>
- ---------------------------------------
<CAPTION>
One Five Since
year years inception*
- ---------------------------------------
<S> <C> <C> <C>
Fund 22.02% 18.59% 16.98%
S&P 500 Index 21.03% 28.54% 23.54%
- ---------------------------------------
</TABLE>
* Inception date of 12/03/93
Index comparison begins on December 31, 1993
Greenwich Street Series Fund
3
<PAGE>
More on the Fund's Investments
Additional investments and investment techniques
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The fund describes its investment objective and its principal
investment strategies and risks under "Investments, risks and
performance."
- --------------------------------------------------------------------------------
This section provides additional information about the fund's
investments and certain portfolio management techniques the
fund may use. More information about the fund's investments
and portfolio management techniques, some of which entail
risk, is included in the statement of additional information
(SAI).
- --------------------------------------------------------------------------------
Equity Equity securities include exchange-traded and over-the-
investments counter (OTC) 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 eq-
uity participations.
- --------------------------------------------------------------------------------
Fixed income Fixed income securities include bonds, notes (including
investments structured notes), mortgage-related securities, asset-backed
securities, convertible securities, Eurodollar and Yankee
dollar instruments, preferred stocks and money market instru-
ments. Fixed income securities may be issued by U.S. and for-
eign companies; U.S. and foreign banks; the U.S. government,
its agencies, authorities, instrumentalities or sponsored en-
terprises; state and municipal governments; supranational or-
ganizations; and foreign governments and their political sub-
divisions. Fixed income securities may have all types of in-
terest rate payment and reset terms, including fixed rate,
adjustable rate, zero coupon, contingent, deferred, payment
in kind and auction rate features.
Mortgage-related securities may be issued by private compa-
nies or by agencies of the U.S. government and represent di-
rect or indirect participations in, or are collateralized by
and payable from, mortgage loans secured by real property.
- --------------------------------------------------------------------------------
Credit quality of fixed income securities
If a security receives different ratings, the fund will treat
the securities as being rated in the highest rating category.
The fund may choose not to sell securities that are down-
graded below the fund's minimum acceptable credit rating af-
ter their purchase. The 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
Greenwich Street Series Fund
4
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
. They have received comparable short-term ratings, or
. They are unrated securities the manager believes are of
comparable quality to below investment grade securities
- --------------------------------------------------------------------------------
Risks of high yield, lower quality fixed income securities
The issuers of lower quality bonds may be highly leveraged
and have difficulty servicing their debt, especially during
prolonged economic recessions or periods of rising interest
rates. The prices of lower quality securities are volatile
and may go down because of market perceptions of deteriorat-
ing creditworthiness or economic conditions. Lower quality
securities may become illiquid and are hard to value in down
markets.
- --------------------------------------------------------------------------------
Derivatives The fund may, but need not, use derivative contracts, such as
and hedging futures and options on securities, securities indices or cur-
techniques rencies; options on these futures; forward currency con-
tracts; and interest rate or currency swaps for any of the
following 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 de-
liver or receive an asset or cash payment based on the change
in value of one or more securities, currencies or indices.
Even a small investment in derivative contracts can have a
big impact on the fund's stock market, currency and interest
rate exposure. Therefore, using derivatives can dispropor-
tionately increase losses and reduce opportunities for gains
when stock prices, currency rates or interest rates are
changing. The fund may not fully benefit from or may lose
money on derivatives if changes in their value do not corre-
spond accurately to changes in the value of the fund's hold-
ings. The other parties to certain derivative contracts pres-
ent the same types of credit risk as issuers of fixed income
securities. Derivatives can also make the fund less liquid
and harder to value, especially in declining markets.
- --------------------------------------------------------------------------------
Defensive The fund may depart from its principal investment strategies
investing in response to adverse market, economic or political condi-
tions by taking temporary defensive positions in all types of
money market and short-term debt securities. If the fund
takes a temporary defensive position, it may be unable to
achieve its investment goal.
- --------------------------------------------------------------------------------
Portfolio The fund may engage in active and frequent trading to achieve
turnover its principal investment strategies. Frequent trading also
increases transaction costs, which could detract from the
fund's performance.
Greenwich Street Series Fund
5
<PAGE>
Management
The manager
Davis Skaggs, located at 1 Sansone Place, San Francisco CA is a division of SSB
Citi. SSB Citi is an investment manager to investment companies having
aggregate assets as of March 31, 2000 in excess of $134 billion.
SSB Citi is a wholly owned subsidiary of Citigroup. Citigroup businesses
produce a broad range of financial services-asset management, banking and
consumer finance, credit and charge cards, insurance, investments, investment
banking and trading-and use diverse channels to make them available to consumer
and corporate customers around the world.
Management fees
The 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, 1999
(as a percentage
of the fund's
Fund Manager average daily net assets)
---------------------------------------------------------------
<S> <C> <C>
Total Return Portfolio Davis Skaggs 0.55%
---------------------------------------------------------------
</TABLE>
Administrator
SSB Citi serves as administrator to the fund, performing certain account
maintenance and administrative services. As compensation for these services SSB
Citi receives a fee equal on an annual basis to 0.20% of the fund's average
daily net assets.
Transfer agent and shareholder servicing agent
Citi Fiduciary Trust Company serves as the fund's transfer agent and
shareholder servicing agent (the "transfer agent"). Pursuant to a sub-transfer
agency and services agreement with the transfer agent, PFPC Global Fund
Services serves as the fund's sub-transfer agent (the "sub-transfer agent") to
render certain shareholder record keeping and accounting services and
functions.
Distributor
Greenwich Street Series Fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares.
Share Transactions
Availability of the fund
Shares of the fund are available only through the purchase of variable annuity
or variable life insurance contracts issued by insurance companies through
their separate accounts.
The interests of different variable contract separate accounts investing in the
fund could conflict due to differences of tax treatment and other
considerations. The fund currently does not foresee any disadvantages to
investors arising from the fact that the fund may offer its shares to different
insurance company separate accounts that serve as the investment medium for
their variable annuity and variable life products. Nevertheless, the board of
trustees intends to monitor events to identify any material conflicts which may
arise, and to determine what action, if any, should be taken in response to
these conflicts. If a conflict were to occur, one or more insurance companies'
separate accounts might be required to withdraw their investments in the fund
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 fund's shareholders.
Greenwich Street Series Fund
6
<PAGE>
Redemption of shares
The redemption price of the 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
The fund's net asset value is the value of its assets minus its liabilities.
The fund calculates its net asset value every day the New York Stock Exchange
is open. The Exchange is closed on certain holidays listed in the SAI. This
calculation is done when regular trading closes on the Exchange (normally 4:00
p.m., Eastern time). If the Exchange closes early, the fund accelerates the
calculation of its net asset value to the actual closing time.
The fund generally values its portfolio securities based on market prices or
quotations. To the extent the fund holds securities denominated in a foreign
currency, the fund's currency conversions are done when the London stock
exchange closes. When reliable market prices or quotations are not readily
available, or when the value of a security has been materially affected by
events occurring after a foreign exchange closes, the fund 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.
Dividends, Distributions and Taxes
The fund intends to qualify and be taxed as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986 (the "Code"), as
amended. In order to qualify to be taxed as a regulated investment company, the
fund must meet certain income and diversification tests and distribution
requirements. As a regulated investment company meeting these requirements, the
fund will not be subject to federal income tax on its net investment income and
net capital gains that it distributes to its shareholders. All income and
capital gain distributions are automatically reinvested in additional shares of
the fund at net asset value and are includable in gross income of the separate
accounts holding these shares. See the accompanying separate account contract
prospectus for information regarding the federal income tax treatment of
distributions to the separate accounts and to holders of the contracts.
The fund is also subject to asset diversification regulations promulgated by
the U.S. Treasury Department under the Code. The regulations generally provide
that, as of the end of each calendar quarter or within 30 days thereafter, no
more than 55% of the total assets of the fund may be represented by any one
investment, no more than 70% by any two investments, no more than 80% by any
three investments, and no more than 90% by any four investments. For this
purpose all securities of the same issuer are considered a single investment.
An alternative diversification test may be satisfied under certain
circumstances. If the fund fails to comply with these special diversification
requirements under the Code, the contracts invested in that fund would not be
treated as an annuity, endowment or life insurance contracts under the Code.
Greenwich Street Series Fund
7
<PAGE>
Financial Highlights
The financial highlights tables are intended to help you understand the
performance of the fund for the past five years. The information in the
following table was audited by KPMG LLP, independent accountants, whose report,
along with the 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 the fund assuming reinvestment of all dividends
and distributions.
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
Total Return Portfolio
1999 1998 (1) 1997 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $17.55 $17.62 $15.73 $12.75 $10.78
- ----------------------------------------------------------------------------
Income from operations:
Net investment income (2) 0.42 0.49 0.37 0.26 0.43
Net realized and unrealized gain 3.37 0.38 2.26 2.97 2.19
- ----------------------------------------------------------------------------
Total income from operations 3.79 0.87 2.63 3.23 2.62
- ----------------------------------------------------------------------------
Less distributions from:
Net investment income (0.48) (0.43) (0.21) (0.07) (0.41)
Net realized gains (0.72) (0.51) (0.53) (0.18) (0.24)
- ----------------------------------------------------------------------------
Total distributions (1.20) (0.94) (0.74) (0.25) (0.65)
- ----------------------------------------------------------------------------
Net asset value, end of year $20.14 $17.55 $17.62 $15.73 $12.75
- ----------------------------------------------------------------------------
Total return 22.02% 4.97% 16.84% 25.33% 25.04%
- ----------------------------------------------------------------------------
Net assets, end of year (millions) $330 $ 298 $ 274 $ 172 $ 78
- ----------------------------------------------------------------------------
Ratios to average net assets:
Expenses (2) 0.79% 0.79% 0.79% 0.83% 1.00%
Net investment income 2.07 2.79 3.24 3.06 3.80
- ----------------------------------------------------------------------------
Portfolio turnover rate 41% 72% 75% 82% 81%
- ----------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
Greenwich Street Series Fund
8
<PAGE>
Greenwich Street Series Fund
Additional Information
Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends one report to a household if more than one account has the same
address. Contact your participating life insurance company representative 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 fund or obtain shareholder reports or the
statement of additional information (without charge) by calling 1-800-451-2010
or writing to Greenwich Street Series Fund, 388 Greenwich Street, New York, NY
10013.
Information about the fund (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's (the "Commission") Public Reference
Room in Washington, D.C. In addition, information on the operation of the
Public Reference Room may be obtained by calling the Commission at 1-202-942-
8090. Reports and other information about the fund are available on the EDGAR
Database on the Commission's Internet site at http://www.sec.gov. Copies of
this information may be obtained for a duplicating fee by electronic request at
the following E-mail address: [email protected], or by writing the
Commission's Public Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. The fund is not offering to sell its
shares to any person to whom the fund may not lawfully sell its shares.
Total Return Portfolio
(Investment Company Act file no. 811-6310)
L-21693 4/00
<PAGE>
Greenwich Street Series Fund
- ----------------
Prospectus
- ----------------
April 28, 2000
Fixed Income Fund Equity Fund
- -------------------------------------- ---------------------------------------
Diversified Strategic Income Portfolio Appreciation Portfolio
Shares of each fund are offered only to insurance company separate accounts that
fund certain variable annuity and variable life insurance contracts. This
prospectus should be read together with the prospectus for those contracts.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Contents
Greenwich Street Series Fund consists of 10 separate investment funds, each
with its own investment objective and policies. This prospectus relates to two
of those funds--the Appreciation Portfolio and the Diversified Strategic Income
Portfolio. Each fund offers different levels of potential return and involves
different levels of risk.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investments, risks and performance Page
- --------------------------------------------
<S> <C>
Appreciation Portfolio 2
Diversified Strategic Income Portfolio 4
More on the funds' investments 6
Management 9
Share transactions 10
Share price 10
Dividends, distributions and taxes 11
Financial highlights 12
</TABLE>
- --------------------------------------------------------------------------------
The Managers:
SSB Citi Fund Management LLC (SSB Citi) (successor to SSBC Fund Management
Inc.), is the manager of the funds. The manager is an affiliate of Salomon
Smith Barney Inc. (Salomon Smith Barney) and a subsidiary of Citigroup Inc.
(Citigroup). Citigroup businesses produce a broad range of financial services.
SSB Citi selects investments for the funds for which it serves as manager,
except that SSB Citi has engaged Smith Barney Global Capital Management, also
an affiliate of Salomon Smith Barney and subsidiary of Citigroup, as subadviser
to select investments for the 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.
1
<PAGE>
Investments, risks and performance
Appreciation Portfolio
Manager
SSB Citi is the manager
Portfolio Manager
Harry D. Cohen (since 1991)
Mr. Cohen is an investment officer of SSB Citi and a managing director of
Salomon Smith Barney
Investment objective
Long-term appreciation of capital.
Principal investment strategies
Key investments
The fund invests primarily in equity securities of U.S. companies. The fund
typically invests in medium and large capitalization companies but may also
invest in small capitalization companies. Equity securities include exchange
traded and over-the-counter common stocks and preferred stocks, debt
securities convertible into equity securities, and warrants and rights
relating to equity securities.
- --------------------------------------------------------------------------------
Selection process
The manager's investment strategy consists of individual
company selection and management of cash reserves. The
manager looks for investments among a strong core of growth
and value 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
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:
. The U.S. stock market declines
. Large and medium capitalization stocks or growth stocks are temporarily out
of favor
. An adverse event depresses the value of a company's stock
. The manager's judgment about the attractiveness, value or potential
appreciation of a particular stock or about the amount to hold in cash
reserves proves to be incorrect
- --------------------------------------------------------------------------------
Fund Performance
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. The table shows how the fund's
average annual returns for different calendar periods compare to the return of
Standard & Poor's 500 Stock Price Index (the "S&P 500 Index"), an unmanaged
broad-based index of common stocks. Past performance does not necessarily
indicate how the fund will perform in the future. Performance figures do not
reflect expenses incurred from investing through a separate account; if those
expenses had been reflected, performance would have been lower. Please refer to
the separate account prospectus for more information on expenses.
Risk return bar chart
[BAR CHART]
% Total Return
1992 1993 1994 1995 1996 1997 1998 1999
- ----- ----- ------ ------ ------ ------ ------ -----
6.13% 7.03% (-1.12%) 28.84% 19.77% 26.39% 19.15% 13.12%
Calendar year ended December 31
The bar chart shows the fund's performance for each full calendar year since
inception.
Quarterly returns:
Highest:16.91% in 4th quarter 1998
Lowest:(9.65)% in 3rd quarter 1998
Risk return table
Average Annual Total Returns
(for the periods ended December 31, 1999)
<TABLE>
- ---------------------------------------
<CAPTION>
One Five Since
year years inception*
- ---------------------------------------
<S> <C> <C> <C>
Fund 13.12% 21.32% 14.77%
S&P 500 Index 21.03% 28.54% 20.23%
- ---------------------------------------
</TABLE>
* Inception date of 10/16/91
Index comparison begins on October 31, 1991
Greenwich Street Series Fund
3
<PAGE>
Investments, risks and performance
Diversified Strategic Income Portfolio
Manager and subadviser
SSB Citi is the manager and Smith Barney Global Capital Management, Inc. is
the subadviser
Portfolio Managers (since)
James E. Conroy (1991)
John C. Bianchi (1991)
Simon R. Hildreth (1995)
Messrs. Hildreth, Conroy and Bianchi are investment officers of SSB Citi and
managing directors of Salomon Smith Barney. Mr. Hildreth is also a managing
director of Smith Barney Global Capital Management, Inc.
Investment objective
High current income.
Principal investment strategies
Key investments
The fund invests primarily in three types of fixed income securities:
.U.S. government and mortgage-related securities
.foreign government securities
. corporate debt securities and non-convertible preferred stocks rated
below investment grade
Allocation: The fund currently expects to maintain approximately 50% of its
assets in government and mortgage-related securities, 25% in foreign
government securities and 25% in below investment grade corporate debt.
However, these percentages may vary significantly over time.
Maturity: The fund will invest primarily in intermediate-term and long-term
securities. As a result, the weighted average maturity of the fund's portfolio
is normally expected to be from four years to 12 years.
- --------------------------------------------------------------------------------
Selection process
Government and mortgage-related securities
In selecting government and mortgage-related securities, the
manager focuses on identifying undervalued sectors and securities.
Specifically, the manager:
. Emphasizes those sectors and maturities that seem to be most
undervalued based on the manager's economic and interest rate
outlook
. Monitors the yield spreads between U.S. Treasury and government
agency or instrumentality securities and purchases agency and
instrumentality securities when their additional yield justifies
their additional risk
. Uses research to uncover inefficient sectors of the government
and mortgage markets and adjusts portfolio positions to take
advantage of new information
. Measures the potential impact of supply/demand imbalances,
changes in the relative yields for securities with different
maturities, and changing prepayment patterns to identify
individual securities that balance potential return and risk
Foreign government securities
In selecting foreign government securities, the subadviser
considers and compares the relative yields of various foreign
government obligations. The subadviser diversifies this portion of
the portfolio by spreading assets among countries and regions. The
subadviser also attempts to preserve the U.S. dollar value of
securities by using currency derivatives to hedge foreign currency
exposure. In selecting securities, the subadviser looks for:
. Political and economic stability, and favorable inflation and
government deficit prospects
. Favorable yield and maturity
. Strong financial condition and high credit quality
. Low sensitivity to interest rate changes
Below investment grade corporate fixed income securities
In selecting below investment grade corporate securities, the
manager considers and compares the relative yields of various types
of obligations and employs a forward looking strategy seeking to
identify companies that exhibit favorable earnings prospects or
demonstrate a potential for higher ratings over time. The manager
looks for:
. ""Fallen angels" or companies that are repositioning in the
marketplace and which the manager believes are temporarily
undervalued
. Younger companies with smaller capitalizations that have
exhibited improving financial strength or improving credit
ratings over time
The subadviser also employs an active sell strategy to dispose of
securities that no longer meet the manager's investment criteria to
harvest gains for reinvestment in new securities.
Greenwich Street Series Fund
4
<PAGE>
Principal risks of investing in the fund
Investors could lose money in the fund, or the fund's performance could fall
below other investments, if:
. Interest rates increase, causing the prices of fixed income securities to
decline, reducing the value of the fund's portfolio
. As interest rates decline, the issuers of securities held by the fund may pay
principal earlier than scheduled or exercise a right to call the securities,
forcing the fund to reinvest in lower yielding securities. This is known as
prepayment or call risk
. As interest rates increase, slower than expected principal payments may
extend the average life of fixed income securities held by the fund, locking
in below market interest rates and reducing the value of these securities.
This is known as extension risk
. The issuer of a security owned by the fund defaults on its obligation to pay
principal and/or interest, or the security's credit rating is downgraded.
This risk is higher for below investment grade bonds, as described below
. Foreign government bond investments lose their value because of an increase
in market interest rates in one or more regions, a decline in a government's
credit rating or financial condition or a default by a government
. Adverse governmental action or political, economic or market instability
affects a foreign country or region
. An unhedged currency in which a security is priced declines in value relative
to the U.S. dollar
. The manager's or subadviser's judgment about the attractiveness, relative
yield, value or potential appreciation of a particular security, or the
proper allocation among types of investments, proves to be incorrect
Payments of principal and interest on mortgage pools issued by
instrumentalities of the U.S. government are not guaranteed by the U.S.
government. Although payments of principal and interest on mortgage pools
issued by some U.S. agencies are guaranteed, this guarantee does not apply to
losses resulting from declines in their market values.
Many foreign countries in which the fund invests have less liquid and more
volatile markets than in the U.S. In some of these foreign countries, there is
also less information available about foreign issuers and markets because of
less rigorous accounting and regulatory standards than in the U.S. Currency
fluctuations could erase investment gains or add to investment losses. The risk
of investing in foreign securities is greater in the case of less developed
countries.
Below investment grade bonds, which are commonly known as "junk bonds," are
speculative and their issuers may have diminished capacity to pay principal and
interest. These securities have a higher risk of default, tend to be less
liquid, and may be more difficult to value. Changes in economic conditions or
other circumstances are likely to weaken the capacity of issuers of these
securities to make principal and interest payments.
- --------------------------------------------------------------------------------
Fund performance
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. The table shows how the fund's
average annual returns for different calendar periods compare to the return of
an unmanaged, blended index consisting of three broad-based components: Merrill
Lynch GNMA Master Index (35%), Merrill Lynch Global Bond Index (35%) and
Merrill Lynch High Yield Master II Index (30%). Lehman Brothers Aggregate Bond
Index ("Lehman Brothers Index"), an unmanaged index are composed of the Lehman
Intermediate Government/Corporate Bond Index and the Mortgage-Backed Securities
Index and includes treasury issues, agency issues, corporate bond issues and
mortgage-backed securities. Past performance does not necessarily indicate how
the fund will perform in the future. Performance figures do not reflect
expenses incurred from investing through a separate account; if these expenses
had been reflected, performance would have been lower. Please refer to the
separate account prospectus for more information on expenses.
Risk return bar chart
[BAR CHART]
1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ----
1.42% 12.56% (-2.81%) 16.18% 11.16% 8.14% 6.41% 1.72%
Calendar years ended December 31
The bar chart shows the fund's performance for each full calendar year since
inception.
Quarterly returns:
Highest: 4.53% in 1st quarter 1993
Lowest: (2.29)% in 1st quarter 1994
Risk return table
Average Annual Total Returns
(for the periods ended December 31, 1999)
<TABLE>
- ------------------------------------------------
<CAPTION>
One Five Since
year years inception*
- ------------------------------------------------
<S> <C> <C> <C>
Fund 1.72% 8.62% 6.68%
Blended Index (0.09)% 8.08% 8.16%
Lehman Brothers Index (0.82)% 7.73% 6.91%
- ------------------------------------------------
</TABLE>
* Inception date 10/16/91
Index comparison begins on October 31, 1991
Greenwich Street Series Fund
5
<PAGE>
More on the Funds' Investments
Additional investments and investment techniques
- --------------------------------------------------------------------------------
Appreciation Portfolio
Each fund de- Although the fund intends to be fully invested in equity se-
scribes its curities, it may invest up to 35% of its total assets in debt
investment ob- securities and money market instruments for cash management
jective and or other purposes.
its principal
investment
strategies and
risks under
"Investments,
risks and per-
formance."
The fund may invest up to 10% of its net assets in securities
of foreign issuers directly or in the form of American Depos-
itory Receipts, European Depository Receipts or similar secu-
rities representing interests in common stock of foreign is-
suers.
Diversified Strategic Income Portfolio
The fund may invest up to 35% of its assets in corporate
This section fixed income securities of U.S. issuers rated Ba or lower by
provides addi- Moody's or BB or lower by S&P, but not lower than Caa or CCC,
tional infor- respectively; or, if unrated, judged by the subadviser to be
mation about within this quality range. The fund may invest up to 5% of
the funds' in- its assets in securities of less developed countries.
vestments and
certain port-
folio manage-
ment tech-
niques the
funds may use.
More informa-
tion about the
funds' invest-
ments and
portfolio man-
agement tech-
niques, some
of which en-
tail risk, is
included in
the statement
of additional
information
(SAI).
- --------------------------------------------------------------------------------
Equity Equity securities include exchange-traded and over-the-
investments counter (OTC) common and preferred stocks, warrants, rights,
Appreciation convertible securities, depositary receipts and shares, trust
Portfolio certificates, limited partnership interests, shares of other
investment companies, real estate investment trusts and eq-
uity participations.
Diversified Although the fund invests primarily in fixed income securi-
Strategic ties, it may invest up to 20% of its assets in common stock
IncomePortfolio and other equity-related securities, including convertible
securities, preferred stock, warrants and rights.
- --------------------------------------------------------------------------------
Fixed income Fixed income securities include bonds, notes (including
investments structured notes), mortgage-related securities, asset-backed
Diversified securities, convertible securities, Eurodollar and Yankee
Strategic In- dollar instruments, preferred stocks and money market instru-
come Portfolio ments. Fixed income securities may be issued by U.S. and for-
and, to a lim- eign companies; U.S. and foreign banks; the U.S. government,
ited extent, its agencies, authorities, instrumentalities or sponsored en-
the Apprecia- terprises; state and municipal governments; supranational or-
tion Portfolio ganizations; and foreign governments and their political sub-
divisions. Fixed income securities may have all types of in-
terest rate payment and reset terms, including fixed rate,
adjustable rate, zero coupon, contingent, deferred, payment
in kind and auction rate features.
Mortgage-related securities may be issued by private compa-
nies or by agencies of the U.S. government and represent di-
rect or indirect participations in, or are collateralized by
and payable from, mortgage loans secured by real property.
Diversified The fund may invest in asset-backed securities. Asset-backed
Strategic In- securities represent participations in, or are secured by and
come Portfolio payable from, assets such as installment sales or loan con-
tracts, leases, credit card receivables and other categories
of receivables.
Greenwich Street Series Fund
6
<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, or
. They are unrated securities the manager believes are of
comparable quality to below investment grade securities
Risks of high yield, lower quality fixed income securities
Diversified
Strategic In- The issuers of lower quality bonds may be highly leveraged
come Portfolio and have difficulty servicing their debt, especially during
prolonged economic recessions or periods of rising interest
rates. The prices of lower quality securities are volatile
and may go down because of market perceptions of deteriorat-
ing creditworthiness or economic conditions. Lower quality
securities may become illiquid and are hard to value in down
markets.
- --------------------------------------------------------------------------------
Derivatives Each fund may, but need not, use derivative contracts, such
and hedging as futures and options on securities, securities indices or
techniques currencies; options on these futures; forward currency con-
tracts; and interest rate or currency swaps for any of the
following purposes:
. To hedge against the economic impact of adverse changes in
the market value of its securities, because of changes in
stock market prices, currency exchange rates or interest
rates
. As a substitute for buying or selling securities
A derivative contract will obligate or entitle a fund to de-
liver or receive an asset or cash payment based on the change
in value of one or more securities, currencies or indices.
Even a small investment in derivative contracts can have a
big impact on a fund's stock market, currency and interest
rate exposure. Therefore, using derivatives can dispropor-
tionately increase losses and reduce opportunities for gains
when stock prices, currency rates or interest rates are
changing. A fund may not fully benefit from or may lose money
on derivatives if changes in their value do not correspond
accurately to changes in the value of the fund's holdings.
The other parties to certain derivative contracts present the
same types of credit risk as issuers of fixed income securi-
ties. Derivatives can also make a fund less liquid and harder
to value, especially in declining markets.
Greenwich Street Series Fund
7
<PAGE>
- --------------------------------------------------------------------------------
Defensive Each fund may depart from its principal investment strategies
investing in response to adverse market, economic or political condi-
tions by taking temporary defensive positions in all types of
money market and short-term debt securities. If a fund takes
a temporary defensive position, it may be unable to achieve
its investment goal.
- --------------------------------------------------------------------------------
Portfolio Each fund may engage in active and frequent trading to
turnover achieve its principal investment strategies. Frequent trading
also increases transaction costs, which could detract from a
fund's performance.
- --------------------------------------------------------------------------------
Greenwich Street Series Fund
8
<PAGE>
Management
The managers
SSB Citi Fund Management LLC (SSB Citi) (successor to SSBC Fund Management
Inc.)
Smith Barney Global Capital Management (Subadviser for Diversified Strategic
Income Portfolio)
SSB Citi, located at 388 Greenwich Street, New York, New York 10013, acts as
investment manager to investment companies having aggregate assets as of March
31, 2000 in excess of $134 billion.
SSB Citi, is a wholly owned subsidiary of Citigroup. Citigroup businesses
produce a broad range of financial services--asset management, banking and
consumer finance, credit and charge cards, insurance, investments, investment
banking and trading--and use diverse channels to make them available to
consumer and corporate customers around the world. Smith Barney Global Capital
Management, a U.S. registered investment adviser, located at Cottons Centre,
Hays Lane, London, England, engaged by SSB Citi as subadviser for Diversified
Strategic Income Portfolio, is also a wholly owned subsidiary of Citigroup.
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, 1999
(as a percentage
of the fund's
Fund Manager average daily net assets)
---------------------------------------------------------------------------
<S> <C> <C>
Appreciation Portfolio SSB Citi 0.55%
Diversified Strategic Income Portfolio SSB Citi 0.45%
---------------------------------------------------------------------------
</TABLE>
Smith Barney Global Capital Management, as subadviser to the Diversified
Strategic Income Portfolio, is paid a fee by SSB Citi at the annual percentage
of 0.15% of the value of the fund's average net assets.
Administrator
SSB Citi serves as administrator to each fund, performing certain account
maintenance and administrative services. As compensation for these services SSB
Citi receives a fee equal on an annual basis to 0.20% of each fund's average
daily net assets.
Transfer agent and shareholder servicing agent
Citi Fiduciary Trust Company serves as each fund's transfer agent and
shareholder servicing agent (the "transfer agent"). Pursuant to a sub-transfer
agency and services agreement with the transfer agent, PFPC Global Fund
Services serves as each fund's sub-transfer agent (the "sub-transfer agent") to
render certain shareholder record keeping and accounting services and
functions.
Distributor
Greenwich Street Series Fund has entered into an agreement with CFBDS, Inc. to
distribute each fund's shares.
Greenwich Street Series Fund
9
<PAGE>
Share Transactions
Availability of the funds
Shares of the funds are available only through the purchase of variable annuity
or variable life insurance contracts issued by insurance companies through
their separate accounts. The separate accounts may or may not invest in all the
funds described in this prospectus.
The interests of different variable contract separate accounts investing in a
fund could conflict due to differences of tax treatment and other
considerations. The funds currently do not foresee any disadvantages to
investors arising from the fact that each fund may offer its shares to
different insurance company separate accounts that serve as the investment
medium for their variable annuity and variable life products. Nevertheless, the
board of trustees intends to monitor events to identify any material conflicts
which may arise, and to determine what action, if any, should be taken in
response to these conflicts. If a conflict were to occur, one or more insurance
companies' separate accounts might be required to withdraw their investments in
one or more funds and shares of another fund might be substituted. In addition,
the sale of shares may be suspended or terminated if required by law or
regulatory authority or if in the best interests of the funds' shareholders.
Redemption of shares
The redemption price of each fund's shares will be the net asset value next
determined after receipt by the fund of a redemption order from a separate
account. The fund will ordinarily pay redemption proceeds within one business
day, and must pay redemption proceeds within seven days after receipt of the
request in good order, except on a day when the New York Stock Exchange is
closed or as permitted by the Securities and Exchange Commission in
extraordinary circumstances.
Share Price
Each fund's net asset value is the value of its assets minus its liabilities.
Each fund calculates its net asset value every day the New York Stock Exchange
is open. The Exchange is closed on certain holidays listed in the SAI. 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. When reliable market prices or quotations are not readily
available, or when 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.
Greenwich Street Series Fund
10
<PAGE>
Dividends, Distributions and Taxes
Each fund intends to qualify and be taxed as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986 (the "Code"), as
amended. In order to qualify to be taxed as a regulated investment company,
each fund must meet certain income and diversification tests and distribution
requirements. As a regulated investment company meeting these requirements, a
fund will not be subject to federal income tax on its net investment income and
net capital gains that it distributes to its shareholders. All income and
capital gain distributions are automatically reinvested in additional shares of
the fund at net asset value and are includable in gross income of the separate
accounts holding these shares. See the accompanying separate account contract
prospectus for information regarding the federal income tax treatment of
distributions to the separate accounts and to holders of the contracts.
Each fund is also subject to asset diversification regulations promulgated by
the U.S. Treasury Department under the Code. The regulations generally provide
that, as of the end of each calendar quarter or within 30 days thereafter, no
more than 55% of the total assets of each fund may be represented by any one
investment, no more than 70% by any two investments, no more than 80% by any
three investments, and no more than 90% by any four investments. For this
purpose all securities of the same issuer are considered a single investment.
An alternative diversification test may be satisfied under certain
circumstances. If a fund fails to comply with these special diversification
requirements under the Code, the contracts invested in that fund would not be
treated as an annuity, endowment or life insurance contracts under the Code.
Greenwich Street Series Fund
11
<PAGE>
Financial Highlights
The financial highlights tables are intended to help you understand the
performance of each fund for the past five years. The information in the
following tables was audited by KPMG LLP, independent accountants, whose
report, along with each fund's financial statements, are included in the annual
report (available upon request). Certain information reflects financial results
for a single share. Total return represents the rate that a shareholder would
have earned (or lost) on a share of a fund assuming reinvestment of all
dividends and distributions.
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
Appreciation Portfolio
1999 1998(1) 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $21.16 $18.73 $15.86 $14.39 $11.54
- -----------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.13 0.27 0.24 0.27 0.23
Net realized and unrealized gain
(loss) 2.62 3.24 3.90 2.60 3.04
- -----------------------------------------------------------------------------
Total income (loss) from operations 2.75 3.51 4.14 2.87 3.27
- -----------------------------------------------------------------------------
Less distributions from:
Net investment income (0.16) (0.22) (0.21) (0.25) (0.21)
Net realized gains (0.36) (0.86) (1.06) (1.15) (0.21)
- -----------------------------------------------------------------------------
Total distributions (0.52) (1.08) (1.27) (1.40) (0.42)
- -----------------------------------------------------------------------------
Net asset value, end of year $23.39 $21.16 $18.73 $15.86 $14.39
- -----------------------------------------------------------------------------
Total return 13.12% 19.15% 26.39% 19.77% 28.84%
- -----------------------------------------------------------------------------
Net assets, end of year (millions) $ 529 $ 246 $ 144 $ 101 $ 94
- -----------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.79% 0.80% 0.80% 0.85% 0.97%
Net investment income 1.18 1.36 1.68 1.59 1.65
- -----------------------------------------------------------------------------
Portfolio turnover rate 53% 22% 34% 39% 43%
- -----------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
Greenwich Street Series Fund
12
<PAGE>
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
Diversified Strategic Income Portfolio
1999 (1) 1998 (1) 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.90 $10.89 $10.98 $10.01 $ 9.18
- ------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (2) 0.73 0.69 0.77 0.88 0.74
Net realized and unrealized gain
(loss) (0.55) (0.01) 0.12 0.24 0.70
- ------------------------------------------------------------------------------
Total income (loss) from operations 0.18 0.68 0.89 1.12 1.44
- ------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.51) (0.67) (0.98) (0.15) (0.61)
Capital (0.13) -- -- -- --
- ------------------------------------------------------------------------------
Total distributions (0.64) (0.67) (0.98) (0.15) (0.61)
- ------------------------------------------------------------------------------
Net asset value, end of year $10.44 $10.90 $10.89 $10.98 $10.01
- ------------------------------------------------------------------------------
Total return 1.72% 6.41% 8.14% 11.16% 16.18%
- ------------------------------------------------------------------------------
Net assets, end of year (millions) $ 74 $ 81 $ 63 $ 60 $ 59
- ------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.78% 0.78% 0.78% 0.84% 0.90%
Net investment income (2) 6.88 6.38 7.29 7.94 7.73
- ------------------------------------------------------------------------------
Portfolio turnover rate 111% 86% 47% 106% 46%
- ------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Includes realized gains and losses from foreign currency transactions for
the year ended December 31, 1995.
Greenwich Street Series Fund
13
<PAGE>
Greenwich Street Series Fund
Additional Information
Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about each fund's investments. These reports discuss the
market conditions and investment strategies that affected the funds'
performance.
The funds send one report to a household if more than one account has the same
address. Contact your participating life insurance company representative if
you do not want this policy to apply to you.
Statement of additional information. The statement of additional information
provides more detailed information about the fund. It is incorporated by
reference into this prospectus.
You can make inquiries about the funds or obtain shareholder reports or the
statement of additional information (without charge) by calling 1-800-451-2010
or writing to Greenwich Street Series Fund, 388 Greenwich Street, New York, NY
10013.
Information about the funds (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's (the "Commission") Public Reference
Room in Washington, D.C. In addition, information on the operation of the
Public Reference Room may be obtained by calling the Commission at 1-202-942-
8090. Reports and other information about the funds are available on the EDGAR
Database on the Commission's Internet site at http://www.sec.gov. Copies of
this information may be obtained for a duplicating fee by electronic request at
the following E-mail address: [email protected], or by writing the
Commission's Public Reference Section, Washington, D.C. 20549-0102.
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.
Appreciation Portfolio
Diversified Strategic Income Portfolio
(Investment Company Act file no. 811-6310)
L-21694 4/00
