Registration No. 33-40603
811-6310
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 18 [X]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 21 [X]
GREENWICH STREET SERIES FUND
(Exact name of Registrant as specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices) (Zip Code)
(212) 816-6474
Registrant's Telephone Number, including area code
Christina T. Sydor, 388 Greenwich Street, New York, New York 10013
(Name and Address of Agent for Service)
Continuous
(Approximate Date of Proposed Public Offering)
It is proposed that this filing becomes effective (check
appropriate box):
[ ]Immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on April 28, 2000 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective
date for a previously filed post-effective amendment
Part A
PROSPECTUS
<PAGE>
GREENWICH STREET SERIES FUND
April 28, 2000
FIXED INCOME FUNDS EQUITY FUNDS
- -------------------------------------- --------------------------------
Diversified Strategic Income Portfolio Emerging Growth Portfolio
Intermediate High Grade Portfolio International Equity Portfolio
Money Market Portfolio Appreciation Portfolio
Equity Index Portfolio
Growth & Income Portfolio
Equity Income Portfolio
Total Return Portfolio
Shares of each fund are offered only to insurance company separate accounts that
fund certain variable annuity and variable life insurance contracts. This
prospectus should be read together with the prospectus for those contracts.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Contents
Greenwich Street Series Fund consists of 10 separate investment funds, each
with its own investment objective and policies. Each fund offers different lev-
els of potential return and involves different levels of risk.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investments, risks and performance Page
- --------------------------------------------
<S> <C>
Emerging Growth Portfolio 2
International Equity Portfolio 4
Appreciation Portfolio 6
Equity Index Portfolio 8
Growth & Income Portfolio 10
Equity Income Portfolio 12
Total Return Portfolio 14
Diversified Strategic Income Portfolio 16
Intermediate High Grade Portfolio 18
Money Market Portfolio 20
More on the funds' investments 22
Management 25
Share transactions 27
Share price 27
Dividends, distributions and taxes 28
Financial highlights 29
</TABLE>
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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.
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
<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>
- --------------------------------------------------------------------------------
* 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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
<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>
- --------------------------------------------------------------------------------
* 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.
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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
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
- --------------------------------------------------------------------------------
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, 1998)
<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.
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
PART B
STATEMENT OF ADDITIONAL INFORMATION
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 Management and Other Services 12
Investment Objective and Management Policies
Emerging Growth Portfolio 15
International Equity Portfolio 16
Appreciation Portfolio 17
Equity Index Portfolio 18
Growth & Income Portfolio 19
Equity Income Portfolio 19
Total Return Portfolio 20
Diversified Strategic Income Portfolio 20
Intermediate High Grade Portfolio 21
Money Market Portfolio 22
Additional Investment Policies 22
Risk Factors 46
Investment Restrictions...... ...............................55
Portfolio Turnover.................. .........................58
Portfolio Transactions.................. .....................59
Purchase of Shares .............................................65
Redemption of Shares 66
Net Asset Value 67
Performance Data ...................................................... .68
Dividends, Distributions and Taxes 74
Custodian, Transfer Agent and Sub-Transfer Agent 75
Financial Statements ...................................................76
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 to be emerging growth
companies, without regard to market capitalization by its investment
adviser.
The International Equity Portfolio's goal is to provide total return
on its assets from growth of capital and income. This portfolio
invests in a diversified portfolio of equity securities of
established non-U.S. issuers.
The Appreciation Portfolio's goal is long-term appreciation of
capital. This portfolio invests primarily in equity securities.
The Equity Index Portfolio's goal is to provide investment results
that, before deduction of operating expenses, match the price and
yield performance of U.S. publicly traded common stocks, as measured
by the Standard & Poor's Daily Price Index of 500 Common Stocks (the
"S&P 500 Index"). This portfolio invests in the common stocks of
companies represented in the S&P 500 Index.
The Growth & Income Portfolio's goal is income and long-term capital
growth. This portfolio invests primarily in dividend-paying equity
securities meeting certain specified investment criteria.
The Equity Income Portfolio's primary goal is current income, with
a secondary goal of long-term capital appreciation. This portfolio
invests primarily in dividend-paying common stocks, concentrating in
securities of companies in the utility industry.
The Total Return Portfolio's goal is to provide shareholders with
total return, consisting of long-term capital appreciation and
income. This portfolio invests primarily in a diversified portfolio
of dividend-paying common stocks.
The Diversified Strategic Income Portfolio's goal is high current
income. This portfolio invests primarily in three types of fixed-
income securities: U.S. government and mortgage-related securities,
foreign government bonds and corporate bonds rated below investment
grade.
The Intermediate High Grade Portfolio's goal is to provide as high
a level of current income as is consistent with the protection of
capital. This portfolio invests in high-quality intermediate-term
U.S. government securities and corporate bonds of U.S. issuers.
The Money Market Portfolio's goal is maximum current income to the
extent consistent with the preservation of capital and the
maintenance of liquidity. This portfolio invests in high-quality
short-term money market instruments.
MANAGEMENT OF THE FUND
The executive officers of the fund are employees of certain of the
organizations that provide services to the fund. These
organizations are as follows:
Name
Service
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. As of April 7, 2000, trustees and officers of the fund as
a group owned no shares of the fund.
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.
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.
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.
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;
prior to October 1993, fixed income analyst with Bear, Stearns & Co.
Inc; 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. prior to 1995, Senior Portfolio Manager
for TIMCO. His address is One Tower Square, Hartford, Connecticut
06183-2030.
John Lau (33) Vice President and Investment Officer
Portfolio Manager of TIMCO; prior to 1995, Lead Engineer of
knowledge-based engineering projects at United Technologies, Pratt
and Whitney Aircraft Engine Division. 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 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
Intermediate High Grade Portfolio
IDS Life Variable Account
For Shearson
Attn: Unit 229
IDS Tower 10
Minneapolis, MN 55402
Owned 1,112,958.457 shares
99.73%
Diversified Strategic Income Portfolio
IDS Life Variable Account
For Shearson
Attn: Unit 229
IDS Tower 10
Minneapolis, MN 55402
Owned 3,744,547.468 shares
50.29%
Diversified Strategic Income Portfolio
Travelers Insurance Company
Separate Account QPM 401(k)-TIC
Travelers Insurance Company
Attn: Roger Ferland 5 MS
One Tower Square
Hartford, CT 06183
Owned 3,701,697.701 shares
49.71%
Equity Index Portfolio - Class I
Travelers Insurance Company
Separate Account QPM 401(k)-TIC
Travelers Insurance Company
Attn: Roger Ferland 5 MS
One Tower Square
Hartford, CT 06183
Owned 7,716,388.469 shares
91.76%
IDS Life Variable Account
For Shearson
Attn: Unit 229
IDS Tower 10
Minneapolis, MN 55402
Owned 693,030.737 shares
8.24%
Equity Income Portfolio
IDS Life Variable Account
For Shearson
Attn: Unit 229
IDS Tower 10
Minneapolis, MN 55402
Owned 2,022,467.519 shares
100%
Shareholder
Growth and Income Portfolio
Percent Ownership
IDS Life Variable Account
For Salomon Smith Barney
Attn: Unit 229
IDS Tower 10
Minneapolis, MN 55402
Owned 1,300,250.727 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%
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
16.22%
10.13%
Shareholder
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
Percent Ownership
92.92%
6.93%
International Equity Portfolio
IDS Life Variable Account
For Salomon Smith Barney
Attn: Unit 229
IDS Tower 10
Minneapolis, MN 55402
Owned 1,041,010.457 shares
98.92%
Emerging Growth Portfolio
IDS Life Variable Account
For Salomon Smith Barney
Attn: Unit 229
IDS Tower 10
Minneapolis, MN 55402
Owned 696,186.619 shares
97.64%
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:
Pension or
Compensation
Number of
Retirement
From Fund
Funds for
Aggregate
Benefits
Accrued
And Fund
Which Trustee
Compensat
ion
As part of
Complex
Serves Within
Name of Person
from Fund
+
Fund
Expenses
Paid to
Directors
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.
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 manager
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 in up to 10% of its
assets (at the time of investment) in foreign securities. The
portfolio may invest directly in foreign issuers or invest in
depository receipts.
Equity Index Portfolio
Goal - The Equity Index Portfolio's goal is to provide investment
results that, before deduction of operating expenses, match the
price and yield performance of U.S. publicly traded common stocks,
as measured by the S&P 500 Index.
Investment Policies - The portfolio will seek to achieve its goal by
owning all 500 stocks in the S&P 500 Index in proportion to their
actual market capitalization weightings. The portfolio will be
reviewed daily and adjusted, when necessary, to maintain security
weightings as close to those of the S&P 500 Index as possible,
given the amount of assets in the portfolio at that time. The
portfolio may invest up to 5% of its assets in equity securities
that are not included in the S&P 500 Index if the adviser believes
such investments will assist the portfolio in approximating the
return of the S&P 500 Index. The portfolio may use up to an
additional 20% of its assets to enter into stock index futures and
related options to increase efficiency, may lend portfolio
securities and write covered options to help offset operating
expenses, and may acquire money market instruments. Portfolio
turnover is expected to be lower than for most other investment
companies.
No attempt will be made to manage the portfolio in the traditional
sense using economic, financial and market analysis, nor will the
adverse financial situation of an issuer necessarily result in the
elimination of its securities from the portfolio, unless the
securities are removed from the S&P 500 Index. From time to time,
administrative adjustments may be made in the portfolio because of
changes in the composition of the S&P 500 Index. The adviser
reserves the right to remove an investment from the portfolio if, in
its opinion, the merit of the investment has been substantially
impaired by extraordinary events or financial conditions.
The portfolio will use the S&P 500 Index as its standard for
performance comparison because the S&P 500 Index represents
approximately 70% of the total market value of all U.S. common
stocks, is well known to investors and is representative of the
performance of publicly traded U.S. common stocks.
The portfolio will invest in the common stocks of the companies
represented in the S&P 500 Index with the goal of matching, before
deduction of operating expenses, the price and yield performance of
the S&P 500 Index. The S&P 500 Index is composed of 500 selected
common stocks, most of which are listed on the New York Stock
Exchange (the "NYSE"). S&P chooses the stocks to be included in the
S&P 500 Index solely on a statistical basis. The S&P 500 Index is a
trademark of S&P and inclusion of a stock in the S&P 500 Index in no
way implies an opinion by S&P as to its attractiveness as an
investment. S&P is neither a sponsor nor in any way affiliated with
the portfolio.
The portfolio's ability to replicate the performance of the S&P 500
Index will depend to some extent on the size of cash flows into and
out of the portfolio. Investment changes to accommodate these cash
flows will be made to maintain the similarity of the portfolio's
assets to the S&P 500 to the maximum extent practicable.
Growth & Income Portfolio
Goal - The Growth & Income Portfolio's goal is income and long-term
capital growth.
Investment Policies - The portfolio will seek to achieve its goal by
investing in income-producing equity securities, including
dividend-paying common stocks, securities that are convertible into
common stocks and warrants. Under normal market conditions, the
portfolio will invest substantially all, but not less than 65%, of
its assets in equity securities. The portfolio may invest the
remainder of its assets in money market instruments, as well as in
corporate bonds, convertible securities and mortgage-related
securities rated investment grade or deemed to be of comparable
quality. The portfolio may enter into repurchase agreements, lend
portfolio securities, enter into interest rate and stock index
futures and related options, purchase or sell securities on a
when-issued or delayed-delivery basis and write covered options.
Equity Income Portfolio
Goal - The Equity Income Portfolio's primary goal is current income.
Long-term capital appreciation is a secondary goal.
Investment Policies - The portfolio will seek to achieve its goals
principally through investment in dividend-paying common stocks of
companies whose prospects for dividend growth and capital
appreciation are considered favorable by the adviser. The portfolio
will normally invest at least 65% of its assets in equity
securities. Under normal circumstances, the portfolio will
concentrate at least 25% of its assets in equity and debt securities
of companies in the utility industry. A company will be considered
to be in the utility industry if it is principally engaged (i.e., at
least 50% of a company's assets consist of, or gross income or net
profits result from, utility operations or the company is regulated
as a utility by a government agency or authority) in the
manufacture, production, generation, transmission and sale of
electric and gas energy and companies principally engaged in the
communications field, including entities such as telephone,
telegraph, satellite, microwave and other companies regulated by
governmental agencies as utilities that provide communication
facilities for the public benefit.
Other types of securities that may be held by the portfolio when
deemed advisable by the adviser include investment-grade debt
securities such as bonds, debentures and commercial paper, U.S.
government securities and money market instruments, and up to 10% of
the portfolio's assets may be invested in debt securities rated as
low as B by Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Ratings Group ("S&P") or the equivalent by another nationally
recognized statistical rating organization ("NRSRO") or in unrated
securities deemed by the adviser to be of comparable quality. When
the outlook for common stocks is not considered promising in the
judgment of the adviser, a substantial portion of the assets of the
portfolio may be held in these other types of securities for
temporary defensive purposes.
The portfolio may also invest in securities convertible into or
ultimately exchangeable for common stock (i.e., convertible bonds or
convertible preferred stock) and may purchase common stocks that do
not provide current income but which offer opportunities for capital
appreciation and future income. The portfolio also may enter into
repurchase agreements and reverse repurchase agreements, borrow
money, lend its portfolio securities, write covered options on
securities, purchase options on securities, sell securities short
against the box, purchase and sell securities on a when-issued or
delayed delivery basis, and enter into interest rate futures
contracts and related options.
Total Return Portfolio
Goal - The Total Return Portfolio's goal is to provide shareholders
with total return, consisting of long- term capital appreciation and
income.
Investment Policies - The portfolio will seek to achieve its goal by
investing primarily in a diversified portfolio of dividend-paying
common stocks. The portfolio may engage in various portfolio
strategies involving options to seek to increase its return and to
hedge its portfolio against movements in the equity markets and
interest rates. Because the portfolio seeks total return by
emphasizing investments in dividend-paying common stocks, it will
not have as much investment flexibility as total return funds which
may pursue their objective by investing in income and equity
securities without such an emphasis. The portfolio may also invest
up to 10% of its assets in securities rated less than investment
grade by Moody's, S&P or the equivalent of another NRSRO or, in
unrated securities deemed by the adviser to be of comparable
quality. The portfolio may invest up to 35% of its assets in
interest-paying debt securities such as U.S. government securities,
and other securities, including convertible bonds, convertible
preferred stock and warrants. The portfolio also may lend its
portfolio securities and enter into short sales against the box.
Diversified Strategic Income Portfolio
Goal - The Diversified Strategic Income Portfolio's goal is high
current income.
Investment Policies - The portfolio will seek to achieve its goal
through allocating and reallocating its assets primarily among three
types of fixed-income securities: U.S. government and
mortgage-related securities, foreign government securities and
corporate securities rated below investment grade. Under current
market conditions, the adviser expects to maintain 50% of the
portfolio's assets in government and mortgage-securities, 25% in
foreign government securities and 25% of its assets in high-yield
corporate securities. The portions of the portfolio's assets
invested in each type of security will vary from time to time and,
at any given time, the portfolio may be entirely invested in a
single type of fixed-income security. Under normal circumstances,
substantially all, but not less than 65%, of the portfolio's assets
will be invested in fixed-income securities, including
non-convertible preferred stocks.
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 from another NRSRO or, if not rated, believed by the
adviser to be of comparable quality).
Under normal market conditions, the average weighted maturity of the
portfolio's assets will be from three to ten years. The portion of
the portfolio's assets not invested in intermediate-term U.S.
government securities and U.S. corporate bonds may be invested in
long- or short-term U.S. government and corporate obligations,
convertible securities and preferred stock that is not convertible
into common stock. The portfolio may not hold securities rated
lower than Baa by Moody's or BBB by S&P, or the equivalent of
another NRSRO or unrated securities deemed to be comparable to
securities rated below investment grade. The portfolio may invest
up to 10% of its total assets in government stripped mortgage-
backed securities and may invest in floating- or variable-rate
demand notes.
Money Market Portfolio
Goal - The Money Market Portfolio's goal is maximum current income
to the extent consistent with the preservation of capital and the
maintenance of liquidity.
Investment Policies - In seeking to achieve its goal, the portfolio
will invest in short-term money market instruments, including:
securities issued or guaranteed by the U.S. government, its agencies
and instrumentalities ("U.S. government securities"); repurchase
agreements, U.S. and foreign bank time deposits, certificates of
deposit and bankers' acceptances; high-grade commercial paper of
U.S. and foreign issuers and other short-term corporate debt
obligations of such issuers that are comparable in priority and
security to such instruments, including variable-rate and
floating--rate instruments. Except when maintaining a temporary
defensive position, the Portfolio intends to invest more than 25% of
its assets in short-term bank instruments. The portfolio will
invest in money market instruments determined by the adviser to
present minimal credit risks and which at the time of purchase are
considered to be "Eligible Securities," as defined by the SEC.
The portfolio will invest only in securities purchased with and
payable in U.S. dollars and that have (or, pursuant to regulations
adopted by the SEC, are deemed to have) remaining maturities of 13
months or less at the date of purchase by the portfolio. The
portfolio will maintain a dollar-weighted average portfolio maturity
of 90 days or less. The portfolio will follow these policies to
maintain a constant net asset value of $ 1.00 per share, although
there is no assurance that it can do so on a continuing basis.
ADDITIONAL INVESTMENT POLICIES
EQUITY INVESTMENTS
Common Stocks (Appreciation, Emerging Growth, Equity Income, Equity
Index, Growth & Income, International Equity and Total Return
Portfolios). Common stocks are shares of a corporation or other
entity that entitle the holder to a pro rata share of the profits of
the corporation, if any, without preference over any other
shareholder or class of shareholders, including holders of the
entity's preferred stock and other senior equity. Common stock
usually carries with it the right to vote and frequently an
exclusive right to do so.
Convertible Securities (Appreciation, Emerging Growth, 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. Short-term instrument
with respect to other short-term debt securities and comparable
unrated securities. "Requisite NRSROs" means (a) any two NRSROs that
have issued a rating with respect to a security or class of debt
obligations of an issuer, or (b) one NRSRO, if only one NRSRO has
issued such a rating at the time that the Portfolio acquires the
security. Currently, there are five NRSROs: S&P, Moody's, Fitch
IBCA, Inc., Duff and Phelps Credit Rating Co. and Thomson BankWatch.
A discussion of the ratings categories of the NRSROs is contained in
the Appendix to the SAI.
The Money Market Portfolio generally may not invest more than 5% of
its total assets in the securities of any one issuer, except for
U.S. government securities. In addition, the portfolio may not
invest more than 5% of its total assets in Eligible Securities that
have not received the highest rating from the Requisite NRSROs and
comparable unrated securities ("Second Tier Securities") and may not
invest more than 1% of its total assets in the Second Tier
Securities of any one issuer. The portfolio may invest up to 25% of
the then-current value of the portfolio's total assets in the
securities of a single issuer for a period of up to three business
days, provided (a) the securities are rated by the Requisite NRSROs
in the highest short-term rating category, are securities of issuers
that have received such rating with respect to other short-term debt
securities or are comparable unrated securities, and (b) the
portfolio does not make more than one such investment at any one
time.
Ratings as Investment Criteria (All Portfolios). In general, the
ratings of Moody's, S&P and other NRSROs represent the opinions of
these agencies as to the quality of securities that they rate. Such
ratings, however, are relative and subjective, and are not absolute
standards of quality. Nor do such ratings evaluate the market value
risk of the securities. These ratings will be used by the
portfolios as initial criteria for the selection of portfolio
securities, but the portfolios also will rely upon the independent
advice of their respective advisers to evaluate potential
investments. Among the factors that will be considered are the
long-term ability of the issuer to pay principal and interest and
general economic trends. The Appendix to this SAI contains further
information concerning the ratings of Moody's, S&P and other NRSROs.
Subsequent to its purchase by a portfolio, an issue of securities
may cease to be rated or its rating may be reduced below the minimum
required for purchase by the portfolio. In addition, it is possible
that Moody's, S&P or another NRSRO might not change its rating of a
particular issue to reflect subsequent events. None of these events
will require sale of such securities by the portfolio, but the
relevant adviser will consider such events in determining whether
the portfolio should continue to hold the securities.
In addition, to the extent the rating given by Moody's, S&P or
another NRSRO changes as a result of changes in such organization or
its rating system, or because of a corporate reorganization of such
organization, a portfolio will attempt to use comparable ratings as
standards for its investments in accordance with its investment goal
and policies.
The Money Market Portfolio is prohibited from purchasing a security
unless that security is (a) rated by at least two NRSROs (such as
Moody's or S&P) within the highest rating assigned to short-term
debt securities (or, if not rated or rated by only one agency, is
determined to be of comparable quality) or (b) rated by at least two
NRSROs within the two highest ratings assigned to short-term debt
securities (or, if not rated or rated by only one agency, is
determined to be of comparable quality) and not more than 5% of the
assets of the portfolio will be invested in such securities.
Comparable quality shall be determined in accordance with procedures
established by the Board of Trustees of the fund.
Zero Coupon Securities (Diversified Strategic Income and the
Intermediate High Grade Portfolios). The Diversified Strategic
Income Portfolio and the Intermediate High Grade Portfolio may
invest in zero coupon securities. A zero coupon security is a debt
obligation that does not entitle the holder to any periodic payments
of interest prior to maturity and therefore is issued and traded at
a discount from its face amount. Zero coupon securities may be
created by separating the interest and principal components of
securities issued or guaranteed by the United States government or
one of its agencies or instrumentalities ("U.S. Government
securities") or issued by private corporate issuers. The discount
from face value at which zero coupon securities are purchased varies
depending on the time remaining until maturity, prevailing interest
rates and the liquidity of the security. Because the discount from
face value is known at the time of investment, investors holding
zero coupon securities until maturity know the total amount of their
investment return at the time of investment. In contrast, a portion
of the total realized return from conventional interest-paying
obligations comes from the reinvestment of periodic interest.
Because the rate to be earned on these reinvestments may be higher
or lower than the rate quoted on the interest-paying obligations at
the time of the original purchase, the investor's return on
reinvestments is uncertain even if the securities are held to
maturity. This uncertainty is commonly referred to as reinvestment
risk. With zero coupon securities, however, there are no cash
distributions to reinvest, so investors bear no reinvestment risk if
they hold the zero coupon securities to maturity; holders of zero
coupon securities, however, forego the possibility of reinvesting at
a higher yield than the rate paid on the originally issued security.
With both zero coupon and interest-paying securities, there is no
reinvestment risk on the principal amount of the investment.
Zero coupon securities of the type held by the portfolios can he
sold prior to their due date in the secondary market at their then
prevailing market value which, depending on prevailing levels of
interest rates and the time remaining to maturity, may be more or
less than the securities' "accreted value;" that is, their value
based solely on the amount due at maturity and accretion of interest
to date. The market prices of zero coupon securities are generally
more volatile than the market prices of securities that pay interest
periodically and, accordingly, are likely to respond to a greater
degree to changes in interest rates than do non-zero coupon
securities having similar maturities and yields
Medium-, Lower- and Unrated Securities (Intermediate High Grade,
Diversified Strategic Income, Equity Income, Growth & Income and
Total Return Portfolios). The Intermediate High Grade, Diversified
Strategic Income, Equity Income, Growth & Income and Total Return
Portfolios may invest in medium- or lower-rated securities and
unrated securities of comparable quality. Generally, these
securities offer a higher current yield than is offered by
higher-rated securities, but also will likely have some quality and
protective characteristics that, in the judgement of the rating
organizations, are outweighed by large uncertainties or major risk
exposures to adverse conditions and are predominantly speculative
with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. The market
values of certain of these securities also tend to be more sensitive
to individual corporate developments and changes in economic
conditions than higher- quality securities. In addition, medium- and
lower-rated securities and comparable unrated securities generally
present a higher degree of credit risk. Issuers of medium-,
lower-rated and comparable unrated securities are often highly
leveraged and may not have more traditional methods of financing
available to them so that their ability to service their debt
obligations during a major economic downturn or during sustained
periods of rising interest rates may be impaired. The risk of loss
due to default by such issuers is significantly greater because
medium- and lower-rated securities and comparable unrated securities
are generally unsecured and frequently are subordinated to the prior
payment of senior indebtedness. In light of these risks, each
portfolio's adviser, in evaluating the creditworthiness of an issue,
whether rated or unrated, will take various factors established by
the fund's Board of Trustees into consideration, which may include,
as applicable, the issuer's financial resources, its sensitivity to
economic conditions and trends, the operating history of and the
community support for the facility financed by the issue, the
ability of the issuer's management and regulatory matters.
The markets in which medium- and lower-rated or comparable unrated
securities are traded are generally more limited than those in which
higher-rated securities are traded. The existence of limited markets
for these securities may restrict the availability of securities for
a portfolio to purchase and also may have the effect of limiting the
ability of the portfolio to (a) obtain accurate market quotations
for purposes of valuing securities and calculating net asset value
and (b) sell securities at their fair value either to meet
redemption requests or to respond to changes in the economy or the
financial markets. The market for medium-, lower-rated and
comparable unrated securities is relatively new and has not fully
weathered a major economic recession. Any such recession, however,
would disrupt severely the market for such securities and adversely
affect the value of such securities, and could adversely affect the
ability of the issuers of such securities to repay principal and pay
interest thereon.
Fixed-income securities, including medium., lower-rated and
comparable unrated securities, frequently have call or buy-back
features that permit their issuers to call or repurchase the
securities from their holders, such as a portfolio. If an issuer
exercises these rights during periods of declining interest rates,
the portfolio may have to replace the security with a lower-yielding
security resulting in a decreased return to the portfolio.
The market values of securities in lower rating categories are more
volatile than that of higher quality securities, and the markets in
which medium- and lower-rated or comparable unrated securities are
traded are more limited than those in which higher-rated securities
are traded. Adverse publicity and investor perceptions may also have
a negative impact on the value and liquidity of lower-rated,
high-yield securities, especially in a limited trading market.
Subsequent to its purchase by a portfolio, an issue of securities
may cease to be rated or its rating may be reduced below the minimum
required for purchase by the portfolio. Neither event will require
sale of such securities by the portfolio involved, but it's adviser
will consider such event in its determination of whether the
portfolio should continue to hold the securities.
Securities rated Ba by Moody's or BB by S&P or the equivalent from
another NRSRO have speculative characteristics with respect to their
capacity to pay interest and repay principal. Securities rated B
generally lack the characteristics of a desirable investment and
assurance of interest and principal payments over any long period of
time may be small. Securities rated Caa or CCC are of poor standing.
These issues may be in default or present elements of danger with
respect to principal or interest
Floating- and Variable-Rate Demand Notes (Money Market Portfolio).
The Money Market Portfolio may acquire floating- and variable-rate
demand notes of corporate issuers. Although floating- and
variable-rate demand notes are frequently not rated by credit rating
agencies, unrated notes purchased by the portfolio must be
determined by it's adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" (i.e., within the
two highest rating categories) by any NRSRO. Moreover, while there
may be no active secondary market with respect to a particular
floating- or variable-rate demand note purchased by the portfolio,
the portfolio may, upon the notice specified in the note, demand
payment of the principal of and accrued interest on the note at any
time and may resell the note at any time to a third party. The
absence of such an active secondary market, however, could make it
difficult for the portfolio to dispose of a particular floating- or
variable- rate demand note in the event the issuer of the note
defaulted on its payment obligations, and the portfolio could, for
this or other reasons, suffer a loss to the extent of the default.
When-Issued Securities and Delayed-Delivery Transactions
(Diversified Strategic Income, Emerging Growth, Equity Income,
Growth & Income, Intermediate High Grade, International Equity and
Total Return Portfolios) The portfolios may purchase securities on
a "when-issued" basis, for delayed delivery (i.e., payment or
delivery occur beyond the normal settlement date at a stated price
and yield) or on a forward commitment basis. No portfolio intends
to engage in these transactions for speculative purposes, but only
in furtherance of its investment goal. These transactions occur
when securities are purchased or sold by the portfolios with payment
and delivery taking place in the future to secure what is considered
an advantageous yield and price to the portfolios at the time of
entering into the transaction. The payment obligation and the
interest rate that will be received on when-issued securities are
fixed at the time the buyer enters into the commitment. Because of
fluctuations in the value of securities purchased or sold on a
when-issued, delayed-delivery basis or forward commitment basis, the
prices obtained on such securities may be higher or lower than the
prices available in the market on the dates when the investments are
actually delivered to the buyers.
When the portfolios agree to purchase when-issued or delayed-
delivery securities, the fund will set aside cash or liquid
securities equal to the amount of the commitment in a segregated
account on the fund's books. Normally, the portfolio will set aside
portfolio securities to satisfy a purchase commitment, and in such
a case the portfolio may be required subsequently to place
additional assets in the segregated account in order to ensure that
the value of the account remains equal to the amount of the
portfolio's commitment. The assets contained in the segregated
account will be marked-to-market daily. It may be expected that the
portfolio's net assets will fluctuate to a greater degree when it
sets aside portfolio securities to cover such purchase commitments
than when it sets aside cash. When the portfolio engages in
when-issued or delayed-delivery transactions, it relies on the other
party to consummate the trade. Failure of the seller to do so may
result in the portfolios' incurring a loss or missing an opportunity
to obtain a price considered to be advantageous.
Mortgage-Related Securities (Diversified Strategic Income, Growth &
Income, and Intermediate High Grade Portfolios). The mortgage pass-
through securities in which these portfolios may invest may be
backed by adjustable-rate, as well as conventional, mortgages. Those
backed by adjustable-rate mortgages bear interest at a rate that is
adjusted monthly, quarterly or annually. The average maturity of
pass-through pools of mortgage-related securities varies with the
maturities of the underlying mortgage instruments. In addition, a
pool's stated maturity may be shortened by unscheduled payments on
the underlying mortgages. Factors affecting mortgage prepayments
include interest rate levels, general economic and social
conditions, the location of the mortgaged property and the age of
the mortgage. Because prepayment rates of individual mortgage pools
vary widely, it is not possible to accurately predict the average
life of a particular pool. Pools of mortgages with varying
maturities or different characteristics will have varying average
life assumptions and the prepayment experience of securities backed
by adjustable-rate mortgages may vary from those backed by fixed-
rate mortgages.
Mortgage-related securities may be classified as private,
governmental or government-related, depending on the issuer or
guarantor. Private mortgage-related securities represent pass-
through pools consisting principally of conventional residential
mortgage loans created by non-governmental issuers, such as
commercial banks, savings and loan associations and private mortgage
insurance companies. Government mortgage-related securities are
backed by the full faith and credit of the United States. GNMA, the
principal guarantor of such securities, is a wholly owned U.S.
government corporation within the Department of Housing and Urban
Development. Government-related mortgage-related securities are not
backed by the full faith and credit of the United States. Issuers
of such securities include FNMA and FHLMC. FNMA is a government-
sponsored corporation owned entirely by private stockholders, which
is subject to general regulation by the Secretary of Housing and
Urban Development. Pass-through securities issued by FNMA are
guaranteed as to timely payment of principal and interest by FNMA.
FHLMC is a corporate instrumentality of the United States, the
stock of which is owned by the Federal Home Loan Banks.
Participation certificates representing interests in mortgages from
the FHLMC national portfolio are guaranteed as to the timely payment
of interest and ultimate collection of principal by FHLMC.
The portfolios expect that private, governmental or government-
related entities may create mortgage loan pools offering pass-
through investments in addition to those described above. The
mortgages underlying these securities may be alternative mortgage
instruments; that is, mortgage instruments whose principal or
interest payments may vary or whose terms to maturity may be shorter
than previously customary. As new types of mortgage-related
securities are developed and offered to investors, the portfolios,
consistent with their investment goals and policies, will consider
making investments in such new types of securities.
Forward Roll Transactions (Intermediate High Grade and Diversified
Strategic Income Portfolios). In order to enhance current income,
the Intermediate High Grade and Diversified Strategic Income
Portfolios may enter into forward roll transactions with respect to
mortgage- related securities issued by GNMA, FNMA and FHLMC. In a
forward roll transaction, a portfolio sells a mortgage security to
a financial institution, such as a bank or broker-dealer, and
simultaneously agrees to repurchase a similar security from the
institution at a later date at an agreed-upon price. The mortgage
securities that are repurchased will bear the same interest rate as
those sold, but generally will be collateralized by different pools
of mortgages with different prepayment histories than those sold.
During the period between the sale and repurchase, the portfolio
will not be entitled to receive interest and principal payments on
the securities sold. Proceeds of the sale will be invested in
short-term instruments, particularly repurchase agreements, and the
income from these investments, together with any additional fee
income received on the sale, will generate income for the portfolio
exceeding the yield on the securities sold. Forward roll
transactions involve the risk that the market value of the
securities sold by a portfolio may decline below the repurchase
price of those securities. When a portfolio enters into a forward
roll transaction, it will place in a segregated account on the
fund's books cash, U.S. government securities, equity securities or
debt obligations of any grade having a value equal to or greater
than the repurchase price (including accrued interest) provided such
securities have been determined by the adviser to be liquid and
unencumbered, and are marked to market daily pursuant to guidelines
established by the trustees, and will subsequently monitor the
account to insure that such equivalent value is maintained. Forward
roll transactions are considered to be borrowings by a portfolio.
Floating- and Variable-Rate Obligations (Money Market Portfolio).
The Money Market Portfolio may purchase floating-rate and variable-
rate obligations, including participation interests therein.
Variable-rate obligations provide for a specified periodic
adjustment in the interest rate, while floating-rate obligations
have an interest rate that changes whenever there is a change in the
external interest rate. The portfolio may purchase floating-rate
and variable-rate obligations that carry a demand feature that would
permit the portfolio to tender them back to the issuer or
remarketing agent at par value prior to maturity. Frequently,
floating-rate and variable-rate obligations are secured by letters
of credit or other credit support arrangements provided by banks.
Eurodollar or Yankee Obligations (All Portfolios including the Money
Market Portfolio). Each portfolio including the Money Market
Portfolio may invest in Eurodollar and Yankee obligations.
Eurodollar bank obligations are dollar-denominated debt obligations
issued outside the U.S. capital markets by foreign branches of U.S.
banks and by foreign banks. Yankee obligations are
dollar-denominated obligations issued in the U.S. capital markets by
foreign issuers. Eurodollar (and to a limited extent, Yankee)
obligations are subject to certain sovereign risks. One such risk
is the possibility that a foreign government might prevent
U.S.dollars from leaving the country. Other risks include: adverse
political and economic developments in a foreign country; the extent
and quality of government regulation of financial markets and
institutions; the imposition of foreign withholding taxes; and
expropriation or nationalization of foreign issuers.
DERIVATIVE CONTRACTS
As described in the prospectus, certain of the portfolios may enter
into various types of securities, index and currency futures,
options and related contracts in order to hedge the existing or
anticipated value of its portfolio. No portfolio is required to
enter into hedging transactions with regard to its foreign currency-
denominated securities and a portfolio will not do so unless deemed
appropriate by its adviser. This method of protecting the value of
the portfolio's securities against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices of
the securities. It simply establishes a rate of exchange which one
can achieve at some future point in time. Each portfolio will
invest in these instruments only in markets believed by its adviser
to be active and sufficiently liquid.
Options on Securities (Diversified Strategic Income, Emerging
Growth, Equity Income, Equity Index, Growth & Income, Intermediate
High Grade, International Equity, and Total Return Portfolios). The
portfolios may engage in the writing of covered put and call options
and may enter into closing transactions. The Intermediate High
Grade, Diversified Strategic Income, Equity Income, Total Return,
International Equity and Emerging Growth Portfolios also may
purchase put and call options.
The principal reason for writing covered call options on securities
is to attempt to realize, through the receipt of premiums, a greater
return than would be realized on the securities alone. In return
for a premium, the writer of a covered call option forfeits the
right to any appreciation in the value of the underlying security
above the strike price for the life of the option (or until a
closing purchase transaction can be effected). Nevertheless, the
call writer retains the risk of a decline in the price of the
underlying security. Similarly, the principal reason for writing
covered put options is to realize income in the form of premiums.
The writer of a covered put option accepts the risk of a decline in
the price of the underlying security. The size of the premiums a
portfolio may receive may be adversely affected as new or existing
institutions, including other investment companies, engage in or
increase their option-writing activities.
Options written by a portfolio normally will have expiration dates
between one and nine months from the date written. The exercise
price of the options may be below, equal to or above the market
values of the underlying securities at the times the options are
written. In the case of call options, these exercise prices are
referred to as "in-the-money," "at-the-money" and "out-of-the-
money," respectively. A portfolio may write (a) in-the-money call
options when its adviser expects that the price of the underlying
security will remain flat or decline moderately during the option
period, (b) at-the-money call options when its adviser expects that
the price of the underlying security will remain flat or advance
moderately during the option period and (c) out-of-the-money call
options when its adviser expects that the price of the underlying
security may increase but not above a price equal to the sum of the
exercise price plus the premiums received from writing the call
option. In any of the preceding situations, if the market price of
the underlying security declines and the security is sold at this
lower price, the amount of any realized loss will be offset wholly
or in part by the premium received. Out-of-the-money, at-the-money
and in-the-money put options (the reverse of call options as to the
relation of exercise price to market price) may be utilized in the
same market environments that such call options are used in
equivalent transactions.
So long as the obligation of a portfolio as the writer of an option
continues, the portfolio may be assigned an exercise notice by the
broker-dealer through which the option was sold, requiring the
portfolio to deliver, in the case of a call, or take delivery of, in
the case of a put, the underlying security against payment of the
exercise price. This obligation terminates when the option expires
or the portfolio effects a closing purchase transaction. A
portfolio can no longer effect a closing purchase transaction with
respect to an option once it has been assigned an exercise notice.
To secure its obligation to deliver the underlying security when it
writes a call option, or to pay for the underling security when it
writes a put option, a portfolio will be required to deposit in
escrow the underlying security or other assets in accordance with
the rules of the Options Clearing Corporation ("Clearing
Corporation") and of the securities exchange on which the option is
written.
An option position may be closed out only where there exists a
secondary market for an option of the same series on a recognized
securities exchange or in the over-the-counter market. Because of
this and current trading conditions, the Intermediate High Grade,
Diversified Strategic Income, Equity Income, Total Return,
International Equity and Emerging Growth Portfolios expect to
purchase not only call or put options issued by the Clearing
Corporation, but also options in the domestic and foreign over-the-
counter markets. Portfolios with the authority to write options
expect to do so only if a secondary market exists on a U.S.
securities exchange or in the over-the-counter market.
A portfolio may realize a profit or loss upon entering into a
closing transaction. In cases in which a portfolio has written an
option, it will realize a profit if the cost of the closing purchase
transaction is less than the premium received upon writing the
option and will incur a loss if the cost of the closing purchase
transaction exceeds the premium received upon writing the option.
Similarly, when a portfolio has purchased an option and engages in
a closing sale transaction, whether the portfolio realizes a profit
or loss will depend upon whether the amount received in the closing
sale transaction is more or less than the premium that the portfolio
initially paid for the original option plus the related transaction
costs.
Although a portfolio generally will purchase or write only those
options for which its adviser believes there is an active secondary
market so as to facilitate closing transactions, there is no
assurance that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist for any
particular option or at any particular time, and for some options no
such secondary market may exist. A liquid secondary market in an
option may cease to exist for a variety of reasons. In the past,
for example, higher than anticipated trading activity or order flow
or other unforeseen events have at times rendered inadequate certain
of the facilities of the Clearing Corporation and securities
exchanges which have resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types
of orders or trading halts or suspensions in one or more options.
There can be no assurance that similar events, or events that may
otherwise interfere with the timely execution of customers' orders,
will not recur. In such event, it might not be possible to effect
closing transactions in particular options. If, as a covered call
option writer, a portfolio is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the
underlying security upon exercise.
Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each class which
may be held or written, or exercised within certain time periods, by
an investor or group of investors acting in concert (regardless of
whether the options are written on the same or different securities
exchanges or are held, written or exercised in one or more accounts
or through one or more brokers). It is possible that the portfolios
and other clients of their respective advisers and certain of their
affiliates may be considered to be such a group. A securities
exchange may order the liquidation of positions found to be in
violation of these limits and it may impose certain other sanctions.
In the case of options written by a portfolio that are deemed
covered by virtue of the portfolio's holding convertible or
exchangeable preferred stock or debt securities, the time required
to convert or exchange and obtain physical delivery of the
underlying common stocks with respect to which the portfolio has
written options may exceed the time within which the portfolio must
make delivery in accordance with an exercise notice. In these
instances, a portfolio may purchase or temporarily borrow the
underlying securities for purposes of physical delivery. By so
doing, the portfolio will not bear any market risk, because the
portfolio will have the absolute right to receive from the issuer of
the underlying security an equal number of shares to replace the
borrowed stock, but the portfolio may incur additional transaction
costs or interest expenses in connection with any such purchase or
borrowing.
Additional risks exist with respect to certain of the U.S.
government securities for which a portfolio may write covered call
options. If a portfolio writes covered call options on mortgage-
backed securities, the securities it holds as cover may, because of
scheduled amortization or unscheduled prepayments, cease to be
sufficient cover. The portfolio will compensate for the decline in
the value of the cover by purchasing an appropriate additional
amount of those securities.
Stock Index Options (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 Portfolio and
Diversified Strategic Income Portfolios) of the value of its net
assets in restricted securities (i.e., securities which may not be
sold without registration under the 1933 Act) and in other
securities that are not readily marketable, including repurchase
agreements maturing in more than seven days. With respect to the
Diversified Strategic Income Portfolio, this restriction will not
apply to securities subject to Rule 144A of the 1933 Act. Restricted
securities are generally purchased at a discount from the market
price of unrestricted securities of the same issuer. Investments in
restricted securities are not readily marketable without some time
delay. Investments in securities which have no readily available
market value are valued at fair value as determined in good faith by
the fund's board of trustees. Ordinarily, a portfolio would invest
in restricted securities only when it receives the issuer's
commitment to register the securities without expense to the
portfolio. However, registration and underwriting expenses (which
may range from 7% to 15% of the gross proceeds of the securities
sold) may be paid by the portfolio. A portfolio position in
restricted securities might adversely affect the liquidity and
marketability of such securities, and the portfolio might not be
able to dispose of its holdings in such securities at reasonable
price levels.
Reverse Repurchase Agreements (Diversified Strategic Income, Equity
Income, Intermediate High Grade and International Equity
Portfolios). The fund does not currently intend to commit more than
5% of the portfolio's net assets to reverse repurchase agreements.
A portfolio may enter into reverse repurchase agreements with the
same parties with whom it may enter into repurchase agreements.
Reverse repurchase agreements involve the sale of securities held by
the portfolio pursuant to its agreement to repurchase them at a
mutually agreed upon date, price and rate of interest. At the time
a portfolio enters into a reverse repurchase agreement, it will
establish and maintain a segregated account on the fund's books
containing cash or liquid securities having a value not less than
the repurchase price (including accrued interest). The assets
contained in the segregated account will be marked-to-market daily
and additional assets will be placed in such account on any day in
which the assets fall below the repurchase price (plus accrued
interest). The portfolio's liquidity and ability to manage its
assets might be affected when it sets aside cash or portfolio
securities to cover such commitments. Reverse repurchase agreements
involve the risk that the market value of the securities retained in
lieu of sale may decline below the price of the securities the
portfolio has sold but is obligated to repurchase. If the buyer of
securities under a reverse repurchase agreement files for bankruptcy
or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the
portfolio's obligation to repurchase the securities, and the
portfolio's use of the proceeds of the reverse repurchase agreement
may effectively be restricted pending such decision.
Short Sales Against the Box (Emerging Growth, Equity Income,
International Equity and Total Return Portfolios). The portfolios
may enter into a short sale of common stock such that when the short
position is open the portfolio involved owns an equal amount of
preferred stocks or debt securities, convertible or exchangeable,
without payment of further consideration, into an equal number of
shares of the common stock sold short. This kind of short sale,
which is described as "against the box," will be entered into by a
portfolio for the purpose of receiving a portion of the interest
earned by the executing broker from the proceeds of the sale. The
proceeds of the sale will be held by the broker until the settlement
date when the portfolio delivers the convertible or exchangeable
securities to close out its short position. Although prior to
delivery a portfolio will have to pay an amount equal to any
dividends paid on the common stock sold short, the portfolio will
receive the dividends from the preferred stock or interest from the
debt securities convertible or exchangeable into the stock sold
short, plus a portion of the interest earned from the proceeds of
the short sale. The portfolio will deposit, in a segregated account
on its books, convertible preferred stock or convertible debt
securities in connection with short sales against the box.
Lending of Portfolio Securities (Appreciation, Diversified Strategic
Income, Emerging Growth, Equity Index, Equity Income, Growth &
Income, Intermediate High Grade, International Equity and Total
Return Portfolios) Consistent with applicable regulatory
requirements, a portfolio may lend securities to brokers, dealers
and other financial organizations that meet capital and other credit
requirements or other criteria established by the Board. A
portfolio will not lend securities to affiliates of the adviser
unless they have applied for and received specific authority to do
so from the SEC. Loans of portfolio securities will be
collateralized by cash, letters of credit or U.S. Government
Securities, which are maintained at all times in an amount equal to
at least 102% of the current market value of the loaned securities.
Any gain or loss in the market price of the securities loaned that
might occur during the term of the loan would be for the account of
the a portfolio. From time to time, a portfolio may return a part of
the interest earned from the investment of collateral received for
securities loaned to the borrower and/or a third party that is
unaffiliated with the fund and that is acting as a "finder."
By lending its securities, a portfolio can increase its income by
continuing to receive interest and any dividends on the loaned
securities as well as by either investing the collateral received
for securities loaned in short-term instruments or obtaining yield
in the form of interest paid by the borrower when U.S. Government
Securities are used as collateral. Income received could be used to
pay a portfolio's expenses and would increase an investor's total
return. A portfolio will adhere to the following conditions whenever
its portfolio securities are loaned: (i) a portfolio must receive
at least 102% cash collateral or equivalent securities of the type
discussed in the preceding paragraph from the borrower; (ii) the
borrower must increase such collateral whenever the market value of
the securities rises above the level of such collateral; (iii) a
portfolio must be able to terminate the loan at any time; (iv) a
portfolio must receive reasonable interest on the loan, as well as
any dividends, interest or other distributions on the loaned
securities and any increase in market value; (v) a portfolio may pay
only reasonable custodian fees in connection with the loan; and (vi)
voting rights on the loaned securities may pass to the borrower,
provided, however, that if a material event adversely affecting the
investment occurs, the board must terminate the loan and regain the
right to vote the securities. Loan agreements involve certain risks
in the event of default or insolvency of the other party including
possible delays or restrictions upon a portfolio's ability to
recover the loaned securities or dispose of the collateral for the
loan.
Borrowing (All portfolios). Each portfolio may borrow from banks
for temporary or emergency purposes, but not for leverage, in an
amount up to 33 1/3% of its assets, and may pledge its assets to the
same extent in connection with such borrowings. Whenever borrowings
from banks exceed 5% of the value of the assets of a portfolio, the
portfolio will not make any additional investments. The
International Equity Portfolio may borrow for investment purposes,
provided that any transactions constituting borrowing by the
portfolio may not exceed one-third of its assets. Except for the
limitations on borrowing, the investment guidelines set forth in
this paragraph may be changed at any time without shareholder
consent by vote of the board of trustees of the fund.
Foreign Securities (All Portfolios). Each portfolio may invest in
obligations of companies and governments of foreign nations, which
involve certain risks in addition to the usual risks inherent in
U.S. investments. These risks include those resulting from
revaluation of currencies; future adverse political and economic
developments and the possible imposition of currency exchange
blockages or other foreign governmental laws or restrictions;
reduced availability of public information concerning issuers; and
the lack of uniform accounting, auditing and financial reporting
standards or of other regulatory practices and requirements
comparable to those applicable to U.S. companies. The performance of
a portfolio investing in foreign securities may be adversely
affected by fluctuations in value of one or more foreign currencies
relative to the U.S. dollar. Moreover, securities of many foreign
companies may be less liquid and their prices more volatile than
those of securities of comparable U.S. companies. In addition, with
respect to certain foreign countries, there is the possibility of
expropriation, nationalization, confiscatory taxation and
limitations on the use or removal of funds or other assets of a
portfolio, including the withholding of dividends. Foreign
securities may be subject to foreign government taxes that could
reduce the return on such securities. Changes in foreign currency
exchange rates may affect the value of portfolio securities and the
appreciation or depreciation of investments. Investment in foreign
securities may also result in higher expenses due to the cost of
converting foreign currency to U.S. dollars, the payment of fixed
brokerage commissions on foreign exchanges, which are generally
higher than commissions on U.S. exchanges, and the expense of
maintaining securities with foreign custodians.
In addition, the Diversified Strategic Income Portfolio may invest
up to 5% of its total assets in securities traded in markets of
developing countries. A developing country is generally considered
to be a country in the initial stages of its industrialization
cycle. Investing in the equity and fixed-income markets of
developing countries involves exposure to economic structures that
are generally less diverse and mature, and to political systems that
can be expected to have less stability, than those of developed
countries. Historical experience indicates that the markets of
developing countries have been more volatile than the markets of the
more mature economies of developed countries; however, such markets
often have provided higher rates of return to investors.
Leverage (International Equity Portfolio). The International Equity
Portfolio may borrow from banks, on a secured or unsecured basis, up
to one- third of the value of its assets. If the portfolio borrows
and uses the proceeds to make additional investments, income and
appreciation from such investments will improve its performance if
they exceed the associated borrowing costs but impair its
performance if they are less than such borrowing costs. This
speculative factor is known as "leverage."
Leverage creates an opportunity for increased returns to
shareholders of the portfolio but, at the same time, creates special
risks. For example, leverage may exaggerate changes in the net asset
value of the portfolio's shares and in the portfolio's yield.
Although the principal or stated value of such borrowings will be
fixed, the portfolio's assets may change in value during the time
the borrowing is outstanding. Leverage will create interest or
dividend expenses for the portfolio that can exceed the income from
the assets retained. To the extent the income or other gain derived
from securities purchased with borrowed fluids exceed the interest
or dividends the portfolio will have to pay in respect thereof, the
portfolio's net income or other gain will be greater than if
leverage had not been used. Conversely, if the income or other gain
from the incremental assets is not sufficient to cover the cost of
leverage, the net income or other gain of the portfolio will be less
than if leverage had not been used. If the amount of income from the
incremental securities is insufficient to cover the cost of
borrowing, securities might have to be liquidated to obtain required
fluids. Depending on market or other conditions, such liquidations
could be disadvantageous to the portfolio.
RISK FACTORS
General. Investors should realize that risk of loss is inherent in
the ownership of any securities and that each Portfolio's net asset
value will fluctuate, reflecting fluctuations in the market value of
its portfolio positions.
Fixed Income Securities. Investments in fixed income securities may
subject the portfolios to risks, including the following.
Interest Rate Risk. When interest rates decline, the market
value of fixed income securities tends to increase. Conversely,
when interest rates increase, the market value of fixed income
securities tends to decline. The volatility of a security's market
value will differ depending upon the security's duration, the issuer
and the type of instrument.
Default Risk/Credit Risk. Investments in fixed income
securities are subject to the risk that the issuer of the security
could default on its obligations, causing a portfolio to sustain
losses on such investments. A default could impact both interest and
principal payments.
Call Risk and Extension Risk. Fixed income securities may be
subject to both call risk and extension risk. Call risk exists when
the issuer may exercise its right to pay principal on an obligation
earlier than scheduled, which would cause cash flows to be returned
earlier than expected. This typically results when interest rates
have declined and a portfolio will suffer from having to reinvest in
lower yielding securities. Extension risk exists when the issuer
exercises its right to pay principal on an obligation later than
expected. This typically results when interest rates have increased,
and a portfolio will suffer from the inability to invest in higher
yield securities.
Lower Rated and Below Investment Grade Fixed Income Securities.
Securities which are rated BBB by S&P or Baa by Moody's are
generally regarded as having adequate capacity to pay interest and
repay principal, but may have some speculative characteristics.
Securities rated below Baa by Moody's or BBB by S&P may have
speculative characteristics, including the possibility of default or
bankruptcy of the issuers of such securities, market price
volatility based upon interest rate sensitivity, questionable
creditworthiness and relative liquidity of the secondary trading
market. Because high yield bonds have been found to be more
sensitive to adverse economic changes or individual corporate
developments and less sensitive to interest rate changes than
higher-rated investments, an economic downturn could disrupt the
market for high yield bonds and adversely affect the value of
outstanding bonds and the ability of issuers to repay principal and
interest. In addition, in a declining interest rate market, issuers
of high yield bonds may exercise redemption or call provisions,
which may force a portfolio, to the extent it owns such securities,
to replace those securities with lower yielding securities. This
could result in a decreased return.
Subsequent to its purchase by a portfolio, an issue of securities
may cease to be rated or its rating may be reduced below the minimum
required for purchase by the portfolio. In addition, it is possible
that Moody's, S&P and other ratings agencies might not timely change
their ratings of a particular issue to reflect subsequent events.
Foreign Securities. Investments in securities of foreign issuers
involve certain risks not ordinarily associated with investments in
securities of domestic issuers. Such risks include fluctuations in
foreign exchange rates, future political and economic developments,
and the possible imposition of exchange controls or other foreign
governmental laws or restrictions. Since each portfolio will invest
heavily in securities denominated or quoted in currencies other than
the U.S. dollar, changes in foreign currency exchange rates will, to
the extent the portfolio does not adequately hedge against such
fluctuations, affect the value of securities in its portfolio and
the unrealized appreciation or depreciation of investments so far as
U.S. investors are concerned. In addition, with respect to certain
countries, there is the possibility of expropriation of assets,
confiscatory taxation, political or social instability or diplomatic
developments which could adversely affect investments in those
countries.
There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not be
subject to accounting, auditing, and financial reporting standards
and requirements comparable to or as uniform as those of U.S.
companies. Foreign securities markets, while growing in volume,
have, for the most part, substantially less volume than U.S.
markets, and securities of many foreign companies are less liquid
and their prices more volatile than securities of comparable U.S.
companies. Transaction costs on foreign securities markets are
generally higher than in the U.S. There is generally less
government supervision and regulation of exchanges, brokers and
issuers than there is in the U.S. A portfolio might have greater
difficulty taking appropriate legal action in foreign courts.
Dividend and interest income from foreign securities will generally
be subject to withholding taxes by the country in which the issuer
is located and may not be recoverable by the portfolio or the
investors. Capital gains are also subject to taxation in some
foreign countries.
Currency Risks. The U.S. dollar value of securities denominated in
a foreign currency will vary with changes in currency exchange
rates, which can be volatile. Accordingly, changes in the value of
the currency in which a portfolio's investments are denominated
relative to the U.S. dollar will affect the portfolio's net asset
value. Exchange rates are generally affected by the forces of
supply and demand in the international currency markets, the
relative merits of investing in different countries and the
intervention or failure to intervene of U.S. or foreign governments
and central banks. However, currency exchange rates may fluctuate
based on factors intrinsic to a country's economy. Some emerging
market countries also may have managed currencies, which are not
free floating against the U.S. dollar. In addition, emerging
markets are subject to the risk of restrictions upon the free
conversion of their currencies into other currencies. Any
devaluations relative to the U.S. dollar in the currencies in which
a portfolio's securities are quoted would reduce the portfolio's net
asset value per share.
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 transaction,
there are several special risks relating to options on futures
contracts. The ability to establish and close out positions on such
options will be subject to the development and maintenance of a
liquid secondary market. It is not certain that this market will
develop. The portfolio will not purchase options on futures
contracts on any exchange unless and until, in the investment
advisor's opinion, the market for such options had developed
sufficiently that the risks in connection with options on futures
contracts are not greater than the risks in connection with futures
contracts. Compared to the use of futures contracts, the purchase
of options on futures contracts involves less potential risk to the
portfolio because the maximum amount of risk is the premium paid for
the options (plus transaction costs). However, there may be
circumstances when the use of an option on a futures contract would
result in a loss to the portfolio when the use of a futures contract
would not, such as when there is no movement in the prices of debt
securities. Writing an option on a futures contract involves risks
similar to those arising in the sale of futures contracts, as
described above.
Non-Publicly Traded and Illiquid Securities. Each portfolio may
purchase securities that are not publicly traded. The sale of
securities that are not publicly traded is typically restricted
under federal securities laws. As a result, a portfolio may be
forced to sell these securities at less than fair market value or
may not be able to sell them when its adviser believes it desirable
to do so. The portfolios' investments in illiquid securities are
subject to the risk that should a portfolio desire to sell any of
these securities when a ready buyer is not available at a price that
the portfolio deems representative of their value, the value of the
portfolio's net assets could be adversely affected.
Mortgage-Related Securities. If a portfolio purchases mortgage-
related securities at a premium, mortgage foreclosures and
prepayments of principal by mortgagors (which may be made at any
time without penalty) may result in some loss of the portfolio's
principal investment to the extent of the premium paid. The yield of
a portfolio that invests in mortgage-related securities may be
affected by reinvestment of prepayments at higher or lower rates
than the original investment. In addition, like other debt
securities, the values of mortgage-related securities, including
government and government-related mortgage pools, will generally
fluctuate in relation to interest rates.
Asset-Backed Securities. The Diversified Strategic Income Portfolio
and Intermediate High Grade Portfolio may invest in asset-backed
securities arising through the grouping by governmental,
government-related and private organizations of loans, receivables
and other assets originated by various lenders. Interests in pools
of these assets differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts
with principal paid at maturity or specified call dates. Instead,
asset-backed securities provide periodic payments that generally
consist of both interest and principal payments.
The estimated life of an asset-backed security varies with the
prepayment experience with respect to the underlying debt
instruments. For example, falling interest rates generally result in
an increase in the rate of prepayments of mortgage loans while
rising interest rates generally decrease the rate of prepayments. An
acceleration of prepayments in response to sharply falling interest
rates will shorten the security's average maturity and limit the
potential appreciation in the security's value relative to a
conventional debt security. Consequently, asset-backed securities
are not effective in locking in high long-term yields. Conversely,
in periods of sharply rising rates, prepayments generally slow,
increasing the security's average life and its potential for price
depreciation. The rate of such prepayments, and hence the life of an
asset-backed security, will be primarily a function of current
market interest rates, although other economic and demographic
factors may be involved.
Government Stripped Mortgage-Backed Securities. The Intermediate
High Grade Portfolio may invest up to 10% of its total assets in
government stripped mortgage-backed securities issued and guaranteed
by GNMA, FNMA or FHLMC. These securities represent beneficial
ownership interests in either periodic principal distributions
("principal-only") or interest distributions ("interest-only") on
mortgage-backed certificates issued by GNMA, FNMA or FHLMC, as the
case may be. The certificates underlying government stripped
mortgage-backed securities represent all or part of the beneficial
interest in pools of mortgage loans.
Investing in government stripped mortgage-backed securities involves
the risks normally associated with investing in mortgage-backed
securities issued by government or government-related entities. See
"Mortgage-Related Securities" above. In addition, the yields on
government stripped mortgage-backed securities are extremely
sensitive to the prepayment experience on the mortgage loans
underlying the certificates collateralizing the securities. If a
decline in prevailing interest rates results in a rate of principal
prepayments higher than anticipated, distributions of principal will
be accelerated, thereby reducing the yield to maturity on
interest-only government stripped mortgage-backed securities and
increasing the yield to maturity on principal-only government
stripped mortgage-backed securities. Sufficiently high prepayment
rates could result in the portfolio not fully recovering its initial
investment in an interest-only government stripped mortgage-backed
security. Government stripped mortgage-backed securities are
currently traded in an over-the-counter market maintained by several
large investment banking firms. There can be no assurance that the
portfolio will be able to effect a trade of a government stripped
mortgage-backed security when it wishes to do so, although the
portfolio will acquire government stripped mortgage-backed
securities only if a secondary market for the securities exists at
the time of acquisition.
Concentration. The Money Market Portfolio will concentrate at least
25% of its assets in the banking industry and the Equity Income
Portfolio will concentrate at least 25% of its assets in the utility
industry, provided that, if, at some future date, adverse economic
conditions prevail in either of those industries, the relevant
portfolio may temporarily invest less than 25% of its assets in the
affected industry for defensive purposes. Because of its
concentration policy, either of these portfolios may be subject to
greater risk and market fluctuation than a fund that had securities
representing a broader range of investment alternatives. The Money
Market and Equity Income Portfolios' concentration policies are
fundamental policies that cannot be changed without the approval of
a majority of the relevant portfolio's outstanding voting
securities.
Securities of Unseasoned Issuers. The Diversified Strategic Income,
Total Return, International Equity and Emerging Growth Portfolios
may invest in securities of unseasoned issuers, which may have
limited marketability and, therefore, may be subject to wide
fluctuations in market value. In addition, certain securities may
lack a significant operating history and may be dependent on
products or services without an established market share.
Investment in Utility Securities. The Equity Income Portfolio is
subject to risks that are inherent in the utility industry,
including: difficulty in obtaining an adequate return on invested
capital; difficulty in financing large construction programs during
an inflationary period; restrictions on operations and increased
cost and delays attributable to environmental considerations and
regulation; difficulty in raising capital in adequate amounts on
reasonable terms in periods of high inflation and unsettled capital
markets; increased costs and reduced availability of certain types
of fuel; occasionally reduced availability and high costs of natural
gas for resale; the effects of energy conservation; the effects of
a national energy policy and lengthy delays; and greatly increased
costs and other problems associated with the design, construction,
licensing, regulation and operation of nuclear facilities for
electric generation (including, among other considerations, the
problems associated with the use of radioactive materials and the
disposal of radioactive wastes). Costs incurred by utilities, such
as fuel costs, are subject to immediate market action resulting from
political or military forces operating in geographic regions where
oil production is concentrated, such as the Persian Gulf, while the
rates of return of utility companies are generally subject to review
and limitation by state public utility commissions, which results
ordinarily in a lag between costs and return. There are substantial
differences between the regulatory practices and policies of various
jurisdictions, and any given regulatory agency may make major shifts
in policy from time to time. There is no assurance that regulatory
authorities will grant rate increases in the future or that such
increases will be adequate to permit the payment of dividends on
common stocks. Additionally, existing and possible future regulatory
legislation may make it even more difficult for these utilities to
obtain adequate relief. The issuers of certain securities in the
portfolio may own or operate nuclear generating facilities.
Governmental authorities may from time to time review existing
policies and impose additional requirements governing the licensing,
construction and operation of nuclear power plants.
Each of the above-referenced risks could adversely affect the
ability and inclination of public utilities to declare or pay
dividends and the ability of holders of common stock to realize any
value from the assets of the issuer upon liquidation or bankruptcy.
Many, if not all, of the utilities that are issuers of the
securities expected to be included in the portfolio have been
experiencing one or more of these problems in varying degrees.
Moreover, price disparities within selected utility groups and
discrepancies in relation to averages and indices have occurred
frequently for reasons not directly related to the general movements
or price trends of utility common stocks. Causes of these
discrepancies include changes in the overall demand for and supply
of various securities (including the potentially depressing effect
of new stock offerings) and changes in investment objectives, market
expectations or cash requirements of other purchasers and sellers of
securities.
Portfolio Turnover. Each portfolio may purchase or sell securities
without regard to the length of time the security has been held and
thus may experience a high rate of portfolio turnover. A 100%
turnover rate would occur, for example, if all the securities in a
portfolio were replaced in a period of one year. Under certain
market conditions, the portfolio may experience a high rate of
portfolio turnover. This may occur, for example, if a portfolio
writes a substantial number of covered call options and the market
prices of the underlying securities appreciate. The rate of
portfolio turnover is not a limiting factor when the manager deems
it desirable to purchase or sell securities or to engage in options
transactions. High portfolio turnover involves correspondingly
greater transaction costs, including any brokerage commissions,
which are borne directly by the respective portfolio and may
increase the recognition of short-term, rather than long-term,
capital gains if securities are held for one year or less and may be
subject to applicable income taxes.
INVESTMENT RESTRICTIONS
The investment restrictions numbered 1 through 7 have been adopted
by the fund with respect to the portfolios as fundamental policies
for the protection of shareholders. Under the 1940 Act, a
portfolio's fundamental policy may not be changed without the vote
of a "majority" of the outstanding voting securities of that
portfolio. "Majority" is defined in the 1940 Act as the lesser of
(a) 67% or more of the shares present at a fund meeting, if the
holders of more than 50% of the outstanding shares of that portfolio
are present or represented by proxy, or (b) more than 50% of the
outstanding shares. A fundamental policy affecting a particular
portfolio may not be changed without the vote of a majority of the
outstanding shares of that portfolio. The remaining restrictions
are non-fundamental policies and may be changed by vote of a
majority of the fund's board of trustees at any time.
The investment policies adopted by the fund prohibit a portfolio
from:
1. Investing in a manner that would cause it to fail to be a
"diversified company" under the 1940 Act and the rules,
regulations and orders thereunder.
2. Borrowing money, except that (a) the portfolio may borrow
from banks for temporary or emergency (not leveraging)
purposes, including the meeting of redemption requests which
might otherwise require the untimely disposition of
securities, and (b) the portfolio may, to the extent
consistent with its investment policies, enter into reverse
repurchase agreements, forward roll transactions and similar
investment strategies and techniques. To the extent that it
engages in transactions described in (a) and (b), the
portfolio will be limited so that no more than 33 1/3% of the
value of its total assets (including the amount borrowed),
valued at the lesser of cost or market, less liabilities (not
including the amount borrowed), is derived from such
transactions.
3. Engaging in the business of underwriting securities issued
by other persons, except to the extent that the fund may
technically be deemed to be an underwriter under the 1933 Act,
in disposing of portfolio securities.
4. Purchasing or selling real estate, real estate mortgages,
commodities or commodity contracts, but this restriction shall
not prevent the portfolio from (a) investing in securities of
issuers engaged in the real estate business or the business of
investing in real estate (including interests in limited
partnerships owning or otherwise engaging in the real estate
business or the business of investing in real estate) and
securities which are secured by real estate or interests
therein; (b) holding or selling real estate received in
connection with securities it holds or held; (c) trading in
futures contracts and options on futures contracts (including
options on currencies to the extent consistent with the
portfolios' investment objective and policies); or (d)
investing in real estate investment trust securities.
5. Making loans. This restriction does not apply to: (a) the
purchase of debt obligations in which the portfolio may invest
consistent with its investment objectives and policies; (b)
repurchase agreements; and (c) loans of its portfolio
securities, to the fullest extent permitted under the 1940
Act.
6. Invest more than 25% of its total assets in securities, the
issuers of which conduct their principal business activities
in the same industry. For purposes of this limitation,
securities of the U.S. government (including its agencies and
instrumentalities) and securities of state or municipal
governments and their political subdivisions are not
considered to be issued by members of any industry; provided
that this limitation shall not apply to the purchase of (a)
with respect to the Money Market Portfolio, U.S. dollar-
denominated bank instruments such as certificates of deposit,
time deposits, bankers' acceptances and letters of credit that
have been issued by U.S. banks or (b) with respect to the
Equity Income Portfolio, the securities of companies within
the utility industry.
7. Issuing "senior securities" as defined in the 1940 Act and
the rules, regulations and orders thereunder, except as
permitted under the 1940 Act and the rules, regulations and
orders thereunder.
8. Investing in oil, gas or other mineral exploration or
development programs, except that the portfolios may invest in
the securities of companies that invest in or sponsor these
programs.
9. Purchasing any securities on margin (except for such short-
term credits as are necessary for the clearance of purchases
and sales of portfolio securities) or sell any securities
short (except "against the box"). For purposes of this
restriction, the deposit or payment by the portfolio of
underlying securities and other assets in escrow and
collateral agreements with respect to initial or maintenance
margin in connection with futures contracts and related
options and options on securities, indexes or similar items is
not considered to be the purchase of a security on margin.
10. Purchasing, writing or selling puts, calls, straddles,
spreads or combinations thereof, except as permitted under the
portfolio's investment goals and policies.
11. Purchasing restricted securities, illiquid securities or
other securities that are not readily marketable if more than
10% (15% in the case of the Total Return, International
Equity, Emerging Growth, Intermediate High Grade Portfolio and
Diversified Strategic Income Portfolios) of the total assets
of the portfolio would be invested in such securities.
However, with respect to the Money Market Portfolio,
Diversified Strategic Income Portfolio and the Intermediate
High Grade Portfolio this restriction will not apply to
securities subject to Rule 144A of the 1933 Act if two or more
dealers make a market in such securities.
12. Investing more than 10% of its total assets in time
deposits maturing in more than six months seven calendar days
(in the case of the Money Market Portfolio, time deposits.
maturing from two business days through six months).
13. Purchasing any security if as a result the portfolio
would then have more than 5% of its total assets invested in
securities of companies (including predecessors) that have
been in continuous operation for less than three years. (For
purposes of this limitation, issuers include predecessors,
sponsors, controlling persons, general partners, guarantors
and originators of underlying assets.)
14. Making investments for the purpose of exercising control
or management.
15. Investing in warrants (except as permitted under the
portfolio's investment goals and policies or other than
warrants acquired by the portfolio as part of a unit or
attached to securities at the time of purchase) if, as a
result, the investments (valued at the lower of cost or
market) would exceed 5% of the value of the portfolio's net
assets or if, as a result, more than 2% (5% in the case of the
International Equity Portfolio) of the portfolio's net assets
would be invested in warrants not listed on a recognized U.S.
or foreign exchange to the extent permitted by applicable
state securities laws.
16. With regard to the Equity Income Portfolio, purchase 10%
or more of the voting securities of a public utility or public
utility holding company, so as to become a public utility
holding company as defined in the Public Utility Holding
Company Act of 1935, as amended.
17. Investing in securities of other investment companies
registered or required to be registered under the 1940 Act,
except as they may be acquired as part of a merger,
consolidation, reorganization, acquisition of assets or an
offer of exchange or as otherwise permitted by law.
The percentage limitations contained in the restrictions listed
above apply at the time of purchases of securities.
Portfolio Turnover
The Money Market Portfolio may attempt to increase yields by trading
to take advantage of short-term market variations, which results in
high portfolio turnover. Because purchases and sales of money
market instruments are usually effected as principal transactions,
this policy does not result in high brokerage commissions to the
portfolio. The other portfolios do not intend to seek profits
through short-term trading. Nevertheless, the portfolios will not
consider portfolio turnover rate a limiting factor in making
investment decisions.
A portfolio's turnover rate is calculated by dividing the lesser of
purchases or sales of its portfolio securities for the year by the
monthly average value of the portfolio's securities. Securities or
options with remaining maturities of one year or less on the date of
acquisition are excluded from the calculation. Under certain market
conditions, a portfolio authorized to engage in transactions in
options may experience increased portfolio turnover as a result of
its investment strategies. For instance, the exercise of a
substantial number of options written by a portfolio (due to
appreciation of the underlying security in the case of call options
or depreciation of the underlying security in the case of put
options) could result in a turnover rate in excess of 100%. A
portfolio turnover rate of 100% would occur if all of a portfolio's
securities that are included in the computation of turnover were
replaced once during a period of one year.
The portfolios cannot accurately predict their portfolio turnover
rates but anticipate that annual turnover for each portfolio
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
Total Brokerage
Brokerage Commissions
Portfolio
Commissions Paid
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
Portfoio
% of Aggregate
Brokerage Commissions
Paid to Salomon Smith
Barney
% of Aggregate Dollar
Amount of Transactions
Involving Commissions
Paid to Salomon Smith Barney
Inc.
Appreciation
0%
0%
Diversified
Strategic
Income
0%
0%
Emerging Growth
3.17%
0.95%
Equity Income
0.76%
0.48%
Equity Index
0%
0%
Growth & Income
1.41%
0.96%
International Equity
2.59%
4.60%
Total Return
5.23%
3.20%
Fiscal Year Ended December 31, 1997
Portfolio
Total Brokerage
Commissions Paid
Brokerage Commissions
Portfolio
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 Inc.
% of Aggregate
Dollar Amount of
Transactions
Involving
Commissions
Paid to Salomon
Smith Barney Inc.
Appreciation
0.04%
0%
Diversified Strategic
Income
0
0
Emerging Growth
1.32
0.95%
Equity Income
1.59
3.08%
Equity Index
0.03
0
Growth & Income
0
0
International Equity
1.14
2.43%
Total Return
3.71
2.98%
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:
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.
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.
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
- --
$5
$24
$84
$110
Diversified
Strategic
Income
- --
- --
- --
- --
- --
$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.
Part C
OTHER INFORMATION
Information required to be included in Part C is set forth under
the appropriate item, so numbered in Part C of this Registration
Statement.
This Registration Statement contains ten Portfolios of Greenwich
Street Series Fund (the "Fund"). Numerous other versions of the
Prospectuses will be created from this Registration Statement.
The distribution system for each version of the Prospectus is
different. These Prospectuses will be filed pursuant to Rule 497.
GREENWICH STREET SERIES FUND
PART C - OTHER INFORMATION
Item 23. Exhibits
All references are to the Registrant's Registration
Statement on Form N-1A (the "Registration Statement")
as filed with the SEC on May 16, 1991 (File Nos. 33-
40603 and 811-6310).
(a) (1)Registrant's Master Trust Agreement and Amendment
Nos. 1 and 2 are incorporated by reference to Post-
Effective Amendment No. 6 to the Registrant's
Registration Statement as filed with the SEC on
December 1, 1993 ("Post-Effective Amendment No. 6").
(2)Registrant's Amendments No.3 and No. 4 to the
Master
Trust Agreement are incorporated by reference to Post-
Effective Amendment No. 15 as filed with the SEC on
December 24, 1998 ("Post-Effective Amendment No. 15").
(b) Registrant's by-laws are incorporated by reference to
the Registration Statement.
(c) Specimen certificates for shares of beneficial
interest in the Money Market Portfolio, Intermediate
High Grade Portfolio, Diversified Strategic Income
Portfolio, Equity Income Portfolio, Equity Index
Portfolio, Growth and Income Portfolio and
Appreciation Portfolio is incorporated by reference to
Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement as filed with the SEC on July
10, 1991 ("Pre-Effective Amendment No. 1").
(d) (1) Investment Advisory Agreement dated April 1, 1995
between the Registrant and Travelers Investment
Management Company relating to Equity Index Portfolio,
is incorporated by reference to Post-Effective
Amendment No. 10 to the Registrant's Registration
Statement as filed with the SEC on May 3, 1995 ("Post-
Effective Amendment No. 10").
(2) Investment Advisory Agreements dated July 30, 1993
between the Registrant and Greenwich Street Advisors
relating to Money Market, Intermediate High Grade,
Diversified Strategic Income, Equity Income and Growth
and Income Portfolios and between the Registrant and
Smith Barney Shearson Asset Management relating to
Appreciation Portfolio dated July 30, 1993, are
incorporated by reference to Post-Effective Amendment
No. 4 to the Registrant's Registration Statement as
filed with the SEC on October 22, 1993 ("Post
Effective Amendment No. 4").
(3) Investment Advisory Agreement with Smith Barney
Shearson Asset Management relating to Total Return
Portfolio, dated November 23, 1993, is incorporated by
reference to Post-Effective Amendment No. 6.
(4) Investment Advisory Agreement with Smith, Barney
Advisers, Inc. relating to International Equity
Portfolio, dated November 23, 1993, is incorporated by
reference to Post-Effective Amendment No. 6.
(5) Investment Advisory Agreement with American Capital
Asset Management, Inc. relating to Emerging Growth
Portfolio, is incorporated by reference to Post-
Effective Amendment No. 10.
(6) Form of Investment Advisory Agreement with Greenwich
Street Advisors relating to Diversified Strategic
Income Portfolio dated March 21, 1994 is incorporated
by reference to Post-Effective Amendment No. 9 to the
Registration Statement as filed with the SEC on May 1,
1994 ("Post-Effective Amendment No. 9").
(7) Form of Sub-Investment Advisory Agreement with Smith
Barney Global Capital Management Inc. relating to
Diversified Strategic Income Portfolio dated March 21,
1994 is incorporated by reference to Post-Effective
Amendment No. 9.
(e) (1) Distribution Agreement with Smith Barney Shearson
Inc., dated July 30, 1993, is incorporated by
reference to Post-Effective Amendment No. 4.
(2) Distribution Agreement with CFBDS, Inc. dated October
8, 1998 is incorporated by reference to Post-Effective
Amendment No. 15.
(f) Not Applicable.
(g) (1) Form of Custody Agreement between the Registrant and
PNC Bank, National Association is incorporated by
reference to Post-Effective Amendment No. 11 to the
Registration Statement as filed with the SEC on
September 6, 1995 ("Post-Effective Amendment No. 11").
(2) Form of Custody Agreement between the Registrant and
The Chase Manhattan Bank is incorporated by reference
to Post-Effective Amendment No. 13 to the Registration
Statement as filed with the SEC on April 29, 1997
("Post-Effective Amendment No. 13").
(h) (1) Administration Agreements dated June 4, 1994 with
Smith Barney Mutual Funds Management Inc. relating to
Money Market, Intermediate High Grade, Diversified
Strategic Income, Equity Income, Equity Index, Growth
and Income, Appreciation, Total Return, Emerging
Growth and International Equity Portfolios are
incorporated by reference to Post-Effective Amendment
No. 10.
(2) Transfer Agency Agreement between the Registrant
and The Shareholder Services Group, Inc. dated August
2, 1993 is incorporated by reference to Post-Effective
Amendment No. 7 to the Registrant's Registration
Statement as filed with the SEC on March 1, 1994
("Post-Effective Amendment No. 7").
(i) Not applicable
(j) Consent of Independent Accountants (filed
herewith).
(k) Not Applicable.
(l) Purchase Agreement is incorporated by reference to
Pre-Effective Amendment No. 3 to the Registration
Statement filed with the SEC on October 15, 1991.
(m) Form of Distribution Plan pursuant to Rule 12b-1 for
the Equity Index Portfolio is incorporated by
reference to Post-Effective Amendment No. 15
(n) Financial Data Schedule (filed by herewith).
(o) Rule 18f-3 Plan is incorporated by reference to Post-
Effective Amendment No. 15.
(p) (1) Code of Ethics - North America
(2) Code Of Ethics - London (filed
herewith)
Item 24. Persons Controlled by or under Common Control with
Registrant
The Registrant is not controlled directly or
indirectly by any person. Information with respect to
the Registrant's investment advisers and subadviser is
set forth under the caption "Management" in the
prospectus included in Part A of this amendment to the
Registration Statement on Form N-1A.
Item 25. Indemnification
The response to this item is incorporated by reference
to Pre-Effective Amendment No. 3
Item 26 . Business and Other Connections of
Investment Adviser
(a) Investment Adviser-SSB Citi Fund Management LLC
(successor to SSBC Fund Management Inc.) ("SSB Citi")
formerly known as Mutual Management Corp.
SSB Citi was incorporated in December 1968 under the
laws of the State of Delaware and converted to a
Delaware limited liability company in 1999. SSB Citi
is a wholly owned subsidiary of Salomon Smith Barney
Holdings Inc., formerly known as Smith Barney Holdings
Inc., which in turn is a wholly owned subsidiary of
Citigroup Inc. ("Citigroup"). SSB Citi is registered
as an investment adviser under the Investment Advisers
Act of 1940 (the "1940 Act").
The list required by this Item 26 of officers and
directors of SSB Citi together with information as to
any other business, profession, vocation or employment
of a substantial nature engaged in by such officers
and directors during the past two years, is
incorporated by reference to Schedules A and D of Form
ADV filed by SSB Citi pursuant to the Investment
Advisers Act of 1940 Act (the "Advisers Act") (SEC
File No. 801-8314).
(b). Investment Adviser - - Smith Barney Global Capital
Management, Inc.
Investment Adviser - - Smith Barney Global Capital
Management, Inc. ("SBGCM") was incorporated on January
22, 1988 under the laws of the State of Delaware.
SBGCM is an indirect wholly owned subsidiary of Smith
Barney Holdings Inc., which in turn is a wholly owned
subsidiary of Citigroup. SBGCM is an investment
adviser registered with the Securities and Exchange
Commission in the United States and with the
Investment Management Regulatory Organization Limited
in the United Kingdom. SBGCM conducts its operations
primarily in the United Kingdom.
The list required by this Item 26 of officers and
directors of SBGCM, together with information as to
any other business, profession, vocation or employment
of a substantial nature engaged in by such officers
and directors during the past two years, is
incorporated by reference to Schedules A and D of FORM
ADV filed by SBGCM pursuant to the Advisers Act (SEC
File No. 801-31824).
(c). Investment Adviser -- Travelers Investment Management
Company
Travelers Investment Management Company ("TIMCO"), is
located at One Tower Square, Hartford, Connecticut
06183, and has been in the investment counseling
business since 1976. TIMCO is a wholly owned
subsidiary of Citigroup.
The list required by this Item 26 of officers and
directors of TIMCO, together with information as to
any other business, profession, vocation or employment
of a substantial nature engaged in by such officers
and directors during the past two fiscal years, is
incorporated by reference to Schedules A and D of Form
ADV filed by TIMCO pursuant to Advisers Act (SEC File
No. 801-07212).
Item 27. Principal Underwriters
(a) CFBDS, Inc., ("CFBDS") the Registrant's
Distributor, is also the distributor for the
following Smith Barney funds: Concert Investment
Series, Consulting Group Capital Markets Funds,
Smith Barney Adjustable Rate Government Income Fund,
Smith Barney Aggressive Growth Fund Inc., Smith Barney
Appreciation Fund Inc., Smith Barney Arizona
Municipals Fund Inc., Smith Barney California
Municipals Fund Inc., Smith Barney Concert
Allocation Series Inc., Smith Barney Equity
Funds, Smith Barney Fundamental Value Fund Inc.,
Smith Barney Funds, Inc., Smith Barney Income
Funds, Smith Barney Institutional Cash
Management Fund, Inc., Smith Barney Investment
Funds Inc., Smith Barney Investment Trust, Smith
Barney Managed Governments Fund Inc., Smith
Barney Managed Municipals Fund Inc., Smith
Barney Massachusetts Municipals Fund, Smith
Barney Money Funds, Inc., Smith Barney Muni
Funds, Smith Barney Municipal Money Market Fund,
Inc., Smith Barney New Jersey Municipals Fund
Inc., Smith Barney Oregon Municipals Fund Inc.,
Smith Barney Principal Return Fund, Smith Barney
Sector Series Inc., Smith Barney Small Cap Blend
Fund, Inc., Smith Barney Telecommunications
Trust, Smith Barney Variable Account Funds,
Smith Barney World Funds, Inc., Travelers Series
Fund Inc., and various series of unit investment
trusts.
CFBDS also serves as the distributor for the
following funds: The Travelers Fund UL for Variable
Annuities, The Travelers Fund VA for Variable
Annuities, The Travelers Fund BD for Variable
Annuities, The Travelers Fund BD II for Variable
Annuities, The Travelers Fund BD III for Variable
Annuities, The Travelers Fund BD IV for Variable
Annuities, The Travelers Fund ABD for Variable
Annuities, The Travelers Fund ABD II for Variable
Annuities, The Travelers Separate Account PF for
Variable Annuities, The Travelers Separate Account
PF II for Variable Annuities, The Travelers
Separate Account QP for Variable Annuities, The
Travelers Separate Account TM for Variable
Annuities, The Travelers Separate Account TM II for
Variable Annuities, The Travelers Separate Account
Five for Variable Annuities, The Travelers Separate
Account Six for Variable Annuities, The Travelers
Separate Account Seven for Variable Annuities, The
Travelers Separate Account Eight for Variable
Annuities, The Travelers Fund UL for Variable
Annuities, The Travelers Fund UL II for Variable
Annuities, The Travelers Variable Life Insurance
Separate Account One, The Travelers Variable Life
Insurance Separate Account Two, The Travelers
Variable Life Insurance Separate Account Three, The
Travelers Variable Life Insurance Separate Account
Four, The Travelers Separate Account MGA, The
Travelers Separate Account MGA II, The Travelers
Growth and Income Stock Account for Variable
Annuities, The Travelers Quality Bond Account for
Variable Annuities, The Travelers Money Market
Account for Variable Annuities, The Travelers Timed
Growth and Income Stock Account for Variable
Annuities, The Travelers Timed Short-Term Bond
Account for Variable Annuities, The Travelers Timed
Aggressive Stock Account for Variable Annuities,
The Travelers Timed Bond Account for Variable
Annuities.
In addition, CFBDS, the Registrant's Distributor,
is also the distributor for CitiFunds Multi-State
Tax Free Trust, CitiFunds Premium Trust, CitiFunds
Institutional Trust, CitiFunds Tax Free Reserves,
CitiFunds Trust I, CitiFunds Trust II, CitiFunds
Trust III, CitiFunds International Trust, CitiFunds
Fixed Income Trust, CitiSelect VIP Folio 200,
CitiSelect VIP Folio 300, CitiSelect VIP Folio 400,
CitiSelect VIP Folio 500, CitiFunds Small Cap
Growth VIP Portfolio. CFBDS is also the placement
agent for Large Cap Value Portfolio, Small Cap
Value Portfolio, International Portfolio, Foreign
Bond Portfolio, Intermediate Income Portfolio,
Short-Term Portfolio, Growth & Income Portfolio,
U.S. Fixed Income Portfolio, Large Cap Growth
Portfolio, Small Cap Growth Portfolio,
International Equity Portfolio, Balanced Portfolio,
Government Income Portfolio, Tax Free Reserves
Portfolio, Cash Reserves Portfolio and U.S.
Treasury Reserves Portfolio.
In addition, CFBDS is also the distributor for the
following Salomon Brothers funds: Salomon Brothers
Opportunity Fund Inc., Salomon Brothers Investors
Fund Inc., Salomon Brothers Capital Fund Inc.,
Salomon Brothers Series Funds Inc., Salomon
Brothers Institutional Series Funds Inc., Salomon
Brothers Variable Series Funds Inc.,SSB Citi Funds Inc.
In addition, CFBDS is also the distributor for the
Centurion Funds, Inc.
(b) The information required by this Item 27 with
respect to each director and officer of CFBDS is
incorporated by reference to Schedule A of Form BD
filed by CFBDS pursuant to the Securities and
Exchange Act of 1934 (File No. 8-32417).
(c) Not applicable.
Item 28. Location of Accounts and Records
(1) SSB Citi Fund Management LLC
388 Greenwich Street
New York, New York 10013
(Records relating to its function as Investment
Adviser and Administrator)
(2) Smith Barney Global Capital Management Inc.
Cottons Centre
Hays Lane
London, U.K. W1V-9LA
(Records relating to its function as Sub- Investment
Adviser)
(3) Travelers Investment Management Company
One Tower Square
Hartford, CT 06183-2030
(Records relating to its function as Investment
Adviser)
(4) CFBDS, Inc.
21 Milk Street, 5th Floor
Boston, MA 02109
(Records relating to its function as Distributor)
(5) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, PA 19103
(Records relating to its function as Custodian)
(6) Chase Manhattan Bank
4 Metrotech Center
Brooklyn , NY 11245
(Records relating to its function as Custodian)
(7) Citi Fiduciary Trust Company
388 Greenwich Street
New York, New York 10013
(Records relating to its function as Transfer Agent
and Dividend Paying Agent)
(8) PFPC Global Fund Services
P. O. Box 9699
Providence, RI 02940-9699
(Records relating to its function as Sub-Transfer
Agent )
Item 29. Management Services
There are no management related services contracts not
discussed on Part A or Part B.
Item 30. Undertakings
None
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
(the "1933 Act") and the Investment Company Act of 1940, the
Registrant certifies that it meets all the requirements for
effectiveness of this Registration Statement pursuant to Rule
485(b) under
the 1933 Act and has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the
undersigned, and where applicable, the true and lawful attorney-in-
fact, thereto duly authorized, in the City of New York and State of
New York on the 25th day of April, 2000.
GREENWICH STREET SERIES FUND
By: /s/Heath B. McLendon
Heath B. McLendon
Chairman of the Board
WITNESS our hands on the date set forth below.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement has been
signed below by the following persons in the capacities and as of
the dates indicated.
/s/Heath B. McLendon
Heath B. McLendon
Chairman of the Board
and Chief Executive
Officer
April 25, 2000
/s/Lewis E. Daidone
Lewis E. Daidone
Senior Vice President
and Treasurer (Chief
Financial and
Accounting Officer)
April 25, 2000
/s/Herber Barg*
Herbert Barg
Trustee
April 25, 2000
/s/Alfred J. Bianchetti*
Alfred J. Bianchetti
Trustee
April 25, 2000
/s/Martin Brody*
Martin Brody
Trustee
April 25, 2000
/s/Dwight B. Crane*
Dwight B. Crane
Trustee
April 25, 2000
/s/Burt N. Dorsett*
Burt N. Dorsett
Trustee
April 25, 2000
/s/Elliot S. Jaffe*
Elliot S. Jaffe
Trustee
April 25, 2000
/s/Stephen E. Kaufman*
Stephen E. Kaufman
Trustee
April 25, 2000
/s/Joseph J. McCann*
Joseph J. McCann
Trustee
April 25, 2000
/s/Cornelius C. Rose, Jr.*
Cornelius C. Rose, Jr.
Trustee
April 25, 2000
* Signed by Heath B. McLendon, their duly authorized
attorney-in-fact, pursuant to power
of attorney dated February 27, 1995.
/s/ Heath B. McLendon
Heath B. McLendon
EXHIBIT INDEX
Exhibit No. Exhibit
(j) Consent of Independent Auditors
(n) Financial Data Schedules
(o) (1)Code of Ethics - North America
(2)Code of Ethics - London
Independent Auditors' Consent
To the Shareholders and Board of Trustees of
Greenwich Street Series Fund:
We consent to the incorporation by reference, with respect to the portfolios
listed below for the Greenwich Street Series Funds (the Funds), in this
Prospectus and Statement of Additional Information,
of our report dated February 11, 2000, on the statement of assets and
liabilities as of December 31,
1999 and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year
period then ended and the financial highlights for each
of the years in the five-year period then ended.
These financial statements and financial highlights
and our report thereon are included in the Annual Report of the Funds
as filed on Form N-30D.We also consent to the references to our firm under
the headings "Financial Highlights" in the
Prospectus and "Auditors" in the Statement of additional information.
Portfolio
Diversified Strategic Income Portfolio
Intermediate High Grade Portfolio
Money Market Portfolio
Emerging Growth Portfolio
International Equity Portfolio
Appreciation Portfolio
Equity Index Portfolio
Growth and Income Portfolio
Equity Income Portfolio
Total Return Portfolio
KPMG LLP
New York, New York
April 24, 2000
PERSONAL INVESTMENT POLICY
FOR
SSB CITI ASSET MANAGEMENT GROUP - NORTH AMERICA
AND CERTAIN REGISTERED INVESTMENT COMPANIES
SSB Citi Asset Management Group ("SSB Citi") , and
those U.S.-registered investment companies advised or
managed by SSB Citi that have adopted this policy
("Funds"), have adopted this policy on securities
transactions in order to accomplish two goals: first,
to minimize conflicts and potential conflicts of
interest between employees of SSB Citi and SSB Citi's
clients (including the Funds), and between Fund
directors or trustees and their Funds, and second, to
provide policies and procedures consistent with
applicable law, including Rule 17j-1 under the
Investment Company Act of 1940, to prevent fraudulent
or manipulative practices with respect to purchases or
sales of securities held or to be acquired by client
accounts. All U.S. employees of SSB Citi, including
employees who serve as Fund officers or directors, and
all directors or trustees ("directors") of each Fund,
are Covered Persons under this policy. Other Covered
Persons are described in Section II below.
I. Statement of Principles - All SSB Citi employees
owe a fiduciary duty to SSB Citi's clients when
conducting their personal investment
transactions. Employees 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 Fund directors
owe a fiduciary duty to each Fund of which they
are a director and to that Fund's shareholders
when conducting their personal investment
transactions. At all times and in all matters
Fund directors shall place the interests of
their Funds before their personal interests.
The fundamental standard to be followed in
personal securities transactions is that Covered
Persons may not take inappropriate advantage of
their positions.
All personal securities transactions by Covered
Persons shall adhere to the requirements of this
policy and shall 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 the person's position of trust and
responsibility. While this policy is designed
to address both identified conflicts and
potential conflicts, it cannot possibly be
written broadly enough to cover all potential
situations. In this regard, Covered Persons are
expected to adhere not only to the letter, but
also the spirit of the policies contained
herein.
Employees are reminded that they also are
subject to other Citigroup policies, including
policies on insider trading, the purchase and
sale of securities listed on any applicable SSB
Citi restricted list, the receipt of gifts and
service as a director of a publicly traded
company. Employees must never trade in a
security or commodity while in possession of
material, non-public information about the
issuer or the market for those securities or
commodities, even if the employee has satisfied
all other requirements of this policy.
The reputation of SSB Citi and its employees for
straightforward practices and integrity is a
priceless asset, and all employees have the duty
and obligation to support and maintain it when
conducting their personal securities
transactions.
II. Applicability - SSB Citi Employees - This policy
applies to all U.S. employees of SSB Citi,
including part-time employees. Each employee,
including employees who serve as Fund officers
or directors, must comply with all of the
provisions of the policy applicable to SSB Citi
employees unless otherwise indicated. Certain
employees are considered to be "investment
personnel" (i.e., portfolio managers, traders
and research analysts (and each of their
assistants)), and as such, are subject to
certain additional restrictions outlined in the
policy. All other employees of SSB Citi are
considered to be "advisory personnel."
Generally, temporary personnel and consultants
working in any SSB Citi business are subject to
the same provisions of the policy as full-time
employees, and their adherence to specific
requirements will be addressed on a case-by-case
basis.
The personal investment policies, procedures and
restrictions referred to herein also apply to an
employee's spouse and minor children. The
policies also apply to any other account over
which the employee is deemed to have beneficial
ownership. This includes: accounts of any
immediate family members sharing the same
household as the employee; accounts of persons
or other third parties for whom the employee
exercises investment discretion or gives
investment advice; a legal vehicle in which the
employee has a direct or indirect beneficial
interest and has power over investment
decisions; accounts for the benefit of a third
party (e.g., a charity) which may be directed by
the employee (other than in the capacity of an
employee); and any account over which the
employee may be deemed to have control. For a
more detailed description of beneficial
ownership, see Exhibit A attached hereto.
These policies place certain restrictions on the
ability of an employee to purchase or sell
securities that are being or have been purchased
or sold by an SSB Citi managed fund or client
account. The restrictions also apply to
securities that are "related" to a security
being purchased or sold by an SSB Citi managed
fund or client account. A "related security" is
one whose value is derived from the value of
another security (e.g., a warrant, option or an
indexed instrument).
Fund Directors - This policy applies to all
directors of Funds that have adopted this
policy. The personal investment policies,
procedures and restrictions that specifically
apply to Fund directors apply to all accounts
and securities in which the director has direct
or indirect beneficial ownership. See Exhibit A
attached hereto for a more detailed description
of beneficial ownership.
Securities are defined as stocks, notes, bonds,
closed-end mutual funds, debentures, and other
evidences of indebtedness, including senior
debt, subordinated debt, investment contracts,
commodity contracts, futures and all derivative
instruments such as options, warrants and
indexed instruments, or, in general, any
interest or instrument commonly known as a
"security."
III. Enforcement - It is the responsibility of each
Covered Person to act in accordance with a high
standard of conduct and to comply with the
policies and procedures set forth in this
document. SSB Citi takes seriously its
obligation to monitor the personal investment
activities of its employees. Any violation of
this policy by employees will be considered
serious, and may result in disciplinary action,
which may include the unwinding of trades,
disgorgement of profits, monetary fine or
censure, and suspension or termination of
employment. Any violation of this policy by a
Fund director will be reported to the Board of
Directors of the applicable Fund, which may
impose such sanctions as it deems appropriate.
IV. Opening and Maintaining Employee Accounts - All
employee brokerage accounts, including spouse
accounts, accounts for which the employee is
deemed to have beneficial ownership, and any
other accounts over which the employee and/or
spouse exercise control, must be maintained
either at Salomon Smith Barney ("SSB") or at
Citicorp Investment Services ("CIS"). For
spouses or other persons who, by reason of their
employment, are required to conduct their
securities, commodities or other financial
transactions in a manner inconsistent with this
policy, or in other exceptional circumstances,
employees may submit a written request for an
exemption to the Compliance Department. If
approval is granted, copies of trade
confirmations and monthly statements must be
sent to the Compliance Department. In addition,
all other provisions of this policy will apply.
V. Excluded Accounts and Transactions - The
following types of accounts/transactions need
not be maintained at SSB or CIS, nor are they
subject to the other restrictions of this
policy:
1. Accounts at outside mutual funds that
hold only shares of open-end funds
purchased directly from that fund
company. Note: transactions relating to
closed-end funds are subject to the
pre-clearance, blackout period and
other restrictions of this policy;
2. Estate or trust accounts in which an
employee or related person has a
beneficial interest, but no power to
affect investment decisions. There
must be no communication between the
account(s) and the employee with regard
to investment decisions prior to
execution. The employee must direct
the trustee/bank to furnish copies of
confirmations and statements to the
Compliance Department;
3. Fully discretionary accounts managed by
either an internal or external
registered investment adviser are
permitted and may be custodied away
from SSB and CIS if (i) the employee
receives permission from the Regional
Director of Compliance and the unit's
Chief Investment Officer, and (ii)
there is no communication between the
manager and the employee with regard to
investment decisions prior to
execution. The employee must designate
that copies of trade confirmations and
monthly statements be sent to the
Compliance Department;
4. Employees may participate in direct
investment programs which allow the
purchase of securities directly from
the issuer without the intermediation
of a broker/dealer provided that the
timing and size of the purchases are
established by a pre-arranged,
regularized schedule (e.g., dividend
reinvestment plans). Employees must
pre-clear the transaction at the time
that the dividend reinvestment plan is
being set up. Employees also must
provide documentation of these
arrangements and direct periodic
(monthly or quarterly) statements to
the Compliance Department; and
5. In addition to the foregoing, the
following types of securities are
exempted from pre-clearance, blackout
periods, reporting and short-term
trading requirements: open-ended mutual
funds; open-end unit investment trusts;
U.S. Treasury bills, bonds and notes;
mortgage pass-throughs (e.g. Ginnie
Maes) that are direct obligations of
the U.S. government; bankers
acceptances; bank certificates of
deposit; commercial paper; and high
quality short-term debt instruments
(meaning any instrument that has a
maturity at issuance of less than 366
days and that is rated in one of the
two highest rating categories by a
nationally recognized statistical
rating organization, such as S&P or
Moody's), including repurchase
agreements.
VI. Securities Holding Period/Short-Term Trading -
Securities transactions must be for investment
purposes rather than for speculation.
Consequently, employees may not profit from the
purchase and sale, or sale and purchase, of the
same or equivalent securities within sixty (60)
calendar days, calculated on a First In, First
Out (FIFO) basis (i.e., the security may be sold
on the 61st day). Citigroup securities received
as part of an employee's compensation are not
subject to the 60-day holding period. All
profits from short-term trades are subject to
disgorgement. However, with the prior written
approval of both a Chief Investment Officer and
the Regional Director of Compliance, and only in
rare and/or unusual circumstances, an employee
may execute a short-term trade that results in a
significant loss or in break-even status.
VII. Pre-Clearance - All SSB Citi employees must pre-
clear all personal securities transactions (see
Section V for a listing of accounts,
transactions and securities that do not require
pre-clearance). A copy of the pre-clearance form
is attached as Exhibit B. In addition,
employees are prohibited from engaging in more
than twenty (20) transactions in any calendar
month, except with prior written approval from
their Chief Investment Officer, or designee. A
transaction must not be executed until the
employee has received the necessary approval.
Pre-clearance is valid only on the day it is
given. If a transaction is not executed on the
day pre-clearance is granted, it is required
that pre-clearance be sought again on a
subsequent day (i.e., open orders, such as limit
orders, good until cancelled orders and stop-
loss orders, must be pre-cleared each day until
the transaction is effected). In connection
with obtaining approval for any personal
securities transaction, employees must describe
in detail any factors which might be relevant to
an analysis of the possibility of a conflict of
interest. Any trade that violates the pre-
clearance process may be unwound at the
employee's expense, and the employee will be
required to absorb any resulting loss and to
disgorge any resulting profit.
In addition to the foregoing, the CGAM NA
Director of Global Equity Research, or his
designate, must approve all personal securities
transactions for members of the CGAM Research
Department prior to pre-clearance from the
Compliance Department as set forth in this
section. Pre-approval by the Director of
Research, or his designate, is in addition to
and does not replace the requirement for the
pre-clearance of all personal securities
transactions.
VIII. Blackout Periods - No Covered Person shall
purchase or sell, directly or indirectly, any
security in which he/she has, or by reason of
the transaction acquires, any direct or indirect
beneficial ownership if he/she has knowledge at
the time of such transaction that the security
is being purchased or sold, or is being
considered for purchase or sale, by a managed
fund or client account or in the case of a Fund
director, by the director's Fund. In addition,
the following Blackout Periods apply to the
categories of SSB Citi employees listed below:
1. Portfolio Managers and Portfolio Manager
Assistants - may not buy or sell any
securities for personal accounts seven (7)
calendar days before or after managed
funds or client accounts he/she manages
trade in that security.
2. Traders and Trader Assistants - may not
buy or sell any securities for personal
accounts three (3) calendar days before or
seven (7) calendar days after managed
funds or client accounts he/she executes
trades for trade in that security.
3. Research Analysts and Research Assistants
- - may not buy or sell any securities for
personal accounts: seven (7) calendar days
before or after the issuance of or a
change in any recommendation; or seven (7)
calendar days before or after any managed
fund or client account about which the
employee is likely to have trading or
portfolio information (as determined by
the Compliance Department) trades in that
security.
4. Advisory Personnel (see Section II for
details) - may not buy or sell any
securities for personal accounts on the
same day that a managed fund or client
account about which the employee is likely
to have trading or portfolio information
(as determined by the Compliance
Department) trades in that security.
5. Unit Trust Personnel - all employees
assigned to the Unit Trust Department are
prohibited from transacting in any
security when a SSB Citi-sponsored Unit
Trust portfolio is buying the same (or a
related) security, until seven business
days after the later of the completion of
the accumulation period or the public
announcement of the trust portfolio.
Similarly, all UIT employees are
prohibited from transacting in any
security held in a UIT (or a related
security) seven business days prior to the
liquidation period of the trust.
Employees in the above categories may also be
considered Advisory Personnel for other
accounts about which the employee is likely
to have trading or portfolio information (as
determined by the Compliance Department).
Any violation of the foregoing provisions
will require the employee's trade to be
unwound, with the employee absorbing any
resulting loss and disgorging any resulting
profit. Advisory personnel are subject to
the unwinding of the trade provision;
however, they may not be required to absorb
any resulting loss (at the discretion of the
Compliance Department and the employee's
supervisor). Please be reminded that,
regardless of the provisions set forth above,
all employees are always prohibited from
effecting personal securities transactions
based on material, non-public information.
Blackout period requirements shall not apply
to any purchase or sale, or series of related
transactions involving the same or related
securities, involving 500 or fewer shares in
the aggregate if the issuer has a market
capitalization (outstanding shares multiplied
by the current price per share) greater than
$10 billion and is listed on a U.S. Stock
Exchange or NASDAQ. Note: Pre-clearance is
still required. Under certain circumstances,
the Compliance Department may determine that
an employee may not rely upon this "Large
Cap/De Minimis" exemption. In such a case,
the employee will be notified prior to or at
the time the pre-clearance request is made.
IX. Prohibited Transactions - The following
transactions by SSB Citi employees are
prohibited without the prior written approval
from the Chief Investment Officer, or designee,
and the Regional Compliance Director:
1. The purchase of private placements; and
2. The acquisition of any securities in an
initial public offering (new issues of
municipal debt securities may be
acquired subject to the other
requirements of this policy (e.g., pre-
clearance).)
X. Transactions in Options and Futures - SSB Citi
employees may buy or sell derivative instruments
such as individual stock options, options and
futures on indexes and options and futures on
fixed-income securities, and may buy or sell
physical commodities and futures and forwards on
such commodities. These transactions must
comply with all of the policies and restrictions
described in this policy, including pre-
clearance, blackout periods, transactions in
Citigroup securities and the 60-day holding
period. However, the 60-day holding period does
not apply to individual stock options that are
part of a hedged position where the underlying
stock has been held for more than 60 days and
the entire position (including the underlying
security) is closed out.
XI. Prohibited Recommendations - No Covered Person
shall recommend or execute any securities
transaction by any managed fund or client
account, or, in the case of a Fund director, by
the director's Fund, without having disclosed,
in writing, to the Chief Investment Officer, or
designee, any direct or indirect interest in
such securities or issuers, except for those
securities purchased pursuant to the "Large
Cap/De Minimis" exemption described in Section
VIII above. Prior written approval of such
recommendation or execution also must be
received from the Chief Investment Officer, or
designee. The interest in personal accounts
could be in the form of:
1. Any direct or indirect beneficial
ownership of any securities of such
issuer;
2. Any contemplated transaction by the
person in such securities;
3. Any position with such issuer or its
affiliates; or
4. Any present or proposed business
relationship between such issuer or its
affiliates and the person or any party
in which such person has a significant
interest.
XII. Transactions in Citigroup Securities - Unless an
SSB Citi employee is a member of a designated
group subject to more restrictive provisions, or
is otherwise notified to the contrary, the
employee may trade in Citigroup securities
without restriction (other than the pre-
clearance and other requirements of this
policy), subject to the limitations set forth
below.
Employees whose jobs are such that they
know about Citigroup's quarterly earnings
prior to release may not engage in any
transactions in Citigroup securities
during the "blackout periods" beginning on
the first day of a calendar quarter and
ending on the second business day
following the release of earnings for the
prior quarter. Members of the SSB Citi
Executive Committee and certain other
senior SSB Citi employees are subject to
these blackout periods.
Stock option exercises are permitted
during a blackout period (but the
simultaneous exercise of an option and
sale of the underlying stock is
prohibited). With regard to exchange
traded options, no transactions in
Citigroup options are permitted except to
close or roll an option position that
expires during a blackout period.
Charitable contributions of Citigroup
securities may be made during the blackout
period, but an individual's private
foundation may not sell donated Citigroup
common stock during the blackout period.
"Good 'til cancelled" orders on Citigroup
stock must be cancelled before entering a
blackout period and no such orders may be
entered during a blackout period.
No employee may engage at any time in any
personal transactions in Citigroup
securities while in possession of material
non-public information. Investments in
Citigroup securities must be made with a
long-term orientation rather than for
speculation or for the generation of
short-term trading profits. In addition,
please note that employees may not engage
in the following transactions:
? Short sales of Citigroup securities;
? Purchases or sales of options ("puts" or
"calls") on Citigroup securities,
except writing a covered call at a time
when the securities could have been
sold under this policy;
? Purchases or sales of futures on
Citigroup securities; or
? Any transactions relating to Citigroup
securities that might reasonably appear
speculative.
The number of Citigroup shares an employee
is entitled to in the Citigroup Stock
Purchase Plan is not treated as a long
stock position until such time as the
employee has given instructions to
purchase the shares of Citigroup. Thus,
employees are not permitted to use options
to hedge their financial interest in the
Citigroup Stock Purchase Plan.
Contributions into the firm's 401(k) Plan
are not subject to the restrictions and
prohibitions described in this policy.
XIII. Acknowledgement and Reporting Requirements - SSB
Citi Employees - All new SSB Citi employees must
certify that they have received a copy of this
policy, and have read and understood its
provisions. In addition, all SSB Citi employees
must:
1. Acknowledge receipt of the policy and
any modifications thereof, in writing
(see Exhibit C for the form of
Acknowledgement);
2. Within 10 days of becoming an SSB Citi
employee, disclose in writing all
information with respect to all
securities beneficially owned and any
existing personal brokerage
relationships (employees must also
disclose any new brokerage
relationships whenever established).
Such information should be provided on
the form attached as Exhibit D;
3. Direct their brokers to supply, on a
timely basis, duplicate copies of
confirmations of all personal
securities transactions (Note: this
requirement may be satisfied through
the transmission of automated feeds);
4. Within 10 days after the end of each
calendar quarter, provide information
relating to securities transactions
executed during the previous quarter
for all securities accounts (Note:
this requirement may be satisfied
through the transmission of automated
feeds);
5. Submit an annual holdings report
containing similar information that
must be current as of a date no more
than 30 days before the report is
submitted, and confirm at least
annually all brokerage relationships
and any and all outside business
affiliations (Note: this requirement
may be satisfied through the
transmission of automated feeds or the
regular receipt of monthly brokerage
statements); and
6. Certify on an annual basis that he/she
has read and understood the policy,
complied with the requirements of the
policy and that he/she has pre-cleared
and disclosed or reported all personal
securities transactions and securities
accounts required to be disclosed or
reported pursuant to the requirements
of the policy.
Fund Directors - Fund Directors shall deliver
the information required by Items 1 through 6 of
the immediately preceding paragraph, except that
a Fund director who is not an "interested
person" of the Fund within the meaning of
Section 2(a)(19) of the Investment Company Act
of 1940, and who would be required to make
reports solely by reason of being a Fund
Director, is not required to make the initial
and annual holdings reports required by Items 2
and 5. Also, a "non-interested" Fund Director
need not supply duplicate copies of
confirmations of personal securities
transactions required by Item 3, and need only
make the quarterly transactions reports required
by Item 4 as to any security if at the time of a
transaction by the Director in that security,
he/she knew or in the ordinary course of
fulfilling his/her official duties as a Fund
Director should have known that, during the 15-
day period immediately preceding or following
the date of that transaction, that security is
or was purchased or sold by that Director's Fund
or was being considered for purchase or sale by
that Director's Fund.
Disclaimer of Beneficial Ownership - The reports
described in Items 4 and 5 above may contain a
statement that the reports shall not be
construed as an admission by the person making
the reports that he/she has any direct or
indirect beneficial ownership in the securities
to which the reports relate.
XIV. Handling of Disgorged Profits - Any amounts that
are paid/disgorged by an employee under this
policy shall be donated by SSB Citi to one or
more charities. Amounts donated may be
aggregated by SSB Citi and paid to such charity
or charities at the end of each year.
XV. Confidentiality - All information obtained from
any Covered Person pursuant to this policy shall
be kept in strict confidence, except that such
information will be made available to the
Securities and Exchange Commission or any other
regulatory or self-regulatory organization or to
the Fund Boards of Directors to the extent
required by law, regulation or this policy.
XVI. Other Laws, Rules and Statements of Policy -
Nothing contained in this policy shall be
interpreted as relieving any person subject to
the policy from acting in accordance with the
provision of any applicable law, rule or
regulation or, in the case of SSB Citi
employees, any statement of policy or procedure
governing the conduct of such person adopted by
Citigroup, its affiliates and subsidiaries.
XVII. Retention of Records - All records relating to
personal securities transactions hereunder and
other records meeting the requirements of
applicable law, including a copy of this policy
and any other policies covering the subject
matter hereof, shall be maintained in the manner
and to the extent required by applicable law,
including Rule 17j-1 under the 1940 Act. The
Compliance Department shall have the
responsibility for maintaining records created
under this policy.
XVIII. Monitoring - SSB Citi takes seriously its
obligation to monitor the personal investment
activities of its employees and to review the
periodic reports of all Covered Persons.
Employee personal investment transaction
activity will be monitored by the Compliance
Department. All noted deviations from the
policy requirements will be referred back to the
employee for follow-up and resolution (with a
copy to be supplied to the employee's
supervisor). Any noted deviations by Fund
directors will be reported to the Board of
Directors of the applicable Fund for
consideration and follow-up as contemplated by
Section III hereof.
XIX. Exceptions to the Policy - Any exceptions to
this policy must have the prior written approval
of both the Chief Investment Officer and the
Regional Director of Compliance. Any questions
about this policy should be directed to the
Compliance Department.
XX. Board Review - Fund management and SSB Citi
shall provide to the Board of Directors of each
Fund, on a quarterly basis, a written report of
all material violations of this policy, and at
least annually, a written report and
certification meeting the requirements of Rule
17j-1 under the 1940 Act.
XXI. Other Codes of Ethics - To the extent that any
officer of any Fund is not a Covered Person
hereunder, or an investment subadviser of or
principal underwriter for any Fund and their
respective access persons (as defined in Rule
17j-1) are not Covered Persons hereunder, those
persons must be covered by separate codes of
ethics which are approved in accordance with
applicable law.
XXII. Amendments - SSB Citi Employees - Unless
otherwise noted herein, this policy shall become
effective as to all SSB Citi employees on March
30, 2000. This policy may be amended as to SSB
Citi employees from time to time by the
Compliance Department. Any material amendment
of this policy shall be submitted to the Board
of Directors of each Fund for approval in
accordance with Rule 17j-1 under the 1940 Act.
Fund Directors - This policy shall become
effective as to a Fund upon the approval and
adoption of this policy by the Board of
Directors of that Fund in accordance with Rule
17j-1 under the 1940 Act or at such earlier date
as determined by the Secretary of the Fund. Any
material amendment of this policy that applies
to the directors of a Fund shall become
effective as to the directors of that Fund only
when the Board of Directors of that Fund has
approved the amendment in accordance with Rule
17j-1 or at such earlier date as determined by
the Secretary of the Fund.
March 15, 2000
EXHIBIT A
EXPLANATION OF BENEFICIAL OWNERSHIP
You are considered to have "Beneficial Ownership" of
Securities if you have or share a direct or indirect
"Pecuniary Interest" in the Securities.
You have a "Pecuniary Interest" in Securities if you
have the opportunity, directly or indirectly, to
profit or share in any profit derived from a
transaction in the Securities.
The following are examples of an indirect Pecuniary
Interest in Securities:
1. Securities held by members of your
immediate family sharing the same
household; however, this presumption may
be rebutted by convincing evidence that
profits derived from transactions in these
Securities will not provide you with any
economic benefit.
"Immediate family" means any child,
stepchild, grandchild, parent, stepparent,
grandparent, spouse, sibling, mother-in-
law, father-in-law, son-in-law, daughter-
in-law, brother-in-law, or sister-in-law,
and includes any adoptive relationship.
2. Your interest as a general partner in
Securities held by a general or limited
partnership.
3. Your interest as a manager-member in the
Securities held by a limited liability
company.
You do not have an indirect Pecuniary Interest in
Securities held by a corporation, partnership,
limited liability company or other entity in which
you hold an equity interest, unless you are a
controlling equityholder or you have or share
investment control over the Securities held by the
entity.
The following circumstances constitute Beneficial
Ownership by you of Securities held by a trust:
1. Your ownership of Securities as a trustee
where either you or members of your
immediate family have a vested interest in
the principal or income of the trust.
2. Your ownership of a vested interest in a
trust.
3. Your status as a settlor of a trust,
unless the consent of all of the
beneficiaries is required in order for you
to revoke the trust.
The foregoing is a summary of the meaning of
"beneficial ownership". For purposes of the
attached policy, "beneficial ownership" shall be
interpreted in the same manner as it would be in
determining whether a person is subject to the
provisions of Section 16 of the Securities Exchange
Act of 1934 and the rules and regulations thereunder
PERSONAL INVESTMENT POLICY
FOR
SSB CITI ASSET MANAGEMENT GROUP, LONDON
SSB Citi Asset Management Group ("SSB Citi") , has adopted this
policy on securities transactions in order to accomplish two
goals: first, to minimize conflicts and potential conflicts of
interest between employees of SSB Citi and SSB Citi's clients
including registered investment companies under the United States
Investment Company Act of 1940 ("Funds") and, to provide policies
and procedures consistent with applicable law, including but not
restricted to the insider dealing provisions of the Criminal
Justice Act 1993 and Rule 17j-1 under the United States Investment
Company Act of 1940, to prevent fraudulent or manipulative
practices with respect to purchases or sales of securities held or
to be acquired by client accounts. All London employees of SSB
Citi are Covered Persons under this policy.
I. Statement of Principles - All SSB Citi employees owe a
fiduciary duty to SSB Citi's clients when conducting their
personal investment transactions. Employees 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. The
fundamental standard to be followed in personal securities
transactions is that Covered Persons may not take
inappropriate advantage of their positions.
All personal securities transactions by Covered Persons
shall adhere to the requirements of this policy and shall 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 the person's position of trust and
responsibility. While this policy is designed to address
both identified conflicts and potential conflicts, it cannot
possibly be written broadly enough to cover all potential
situations. In this regard, Covered Persons are expected to
adhere not only to the letter, but also the spirit of the
policies contained herein.
Employees are reminded that they also are subject to other
Citigroup policies, including policies on insider trading,
the purchase and sale of securities listed on any applicable
SSB Citi restricted list, the receipt of gifts and service
as a director of a publicly traded company. Employees must
never trade in a security or commodity while in possession
of material, non-public information about the issuer or the
market for those securities or commodities, even if the
employee has satisfied all other requirements of this
policy.
The reputation of SSB Citi and its employees for
straightforward practices and integrity is a priceless
asset, and all employees have the duty and obligation to
support and maintain it when conducting their personal
securities transactions.
II. Applicability - SSB Citi Employees - This policy applies to
all London employees of SSB Citi, including part-time
employees. Each employee must comply with all of the
provisions of the policy applicable to SSB Citi employees
unless otherwise indicated. Certain employees are considered
to be "investment personnel" (i.e., portfolio managers, and
research analysts (and their assistants), and as such, are
subject to certain additional restrictions outlined in the
policy.
Generally, temporary personnel and consultants working in
any SSB Citi business are subject to the same provisions of
the policy as full-time employees, and their adherence to
specific requirements will be addressed on a case-by-case
basis.
The personal investment policies, procedures and
restrictions referred to herein also apply to an employee's
spouse and minor children. The policies also apply to any
other account over which the employee is deemed to have
beneficial ownership. This includes: accounts of any
immediate family members sharing the same household as the
employee; accounts of persons or other third parties for
whom the employee exercises investment discretion or gives
investment advice; a legal vehicle in which the employee has
a direct or indirect beneficial interest and has power over
investment decisions; accounts for the benefit of a third
party (e.g., a charity) which may be directed by the
employee (other than in the capacity of an employee); and
any account over which the employee may be deemed to have
control. For a more detailed description of beneficial
ownership, see Exhibit A attached hereto.
These policies place certain restrictions on the ability of
an employee to purchase or sell securities that are being or
have been purchased or sold by an SSB Citi managed fund or
client account. The restrictions also apply to securities
that are "related" to a security being purchased or sold by
an SSB Citi managed fund or client account. A "related
security" is one whose value is derived from the value of
another security (e.g., a warrant, option or an indexed
instrument).
Securities are defined as stocks, notes, bonds, closed-end
mutual funds, debentures, and other evidences of
indebtedness, including senior debt, subordinated debt,
investment contracts, commodity contracts, futures and all
derivative instruments such as options, warrants and indexed
instruments, or, in general, any interest or instrument
commonly known as a "security."
III. Enforcement - It is the responsibility of each Covered
Person to act in accordance with a high standard of conduct
and to comply with the policies and procedures set forth in
this document. SSB Citi takes seriously its obligation to
monitor the personal investment activities of its employees.
Any violation of this policy by employees will be considered
serious, and may result in disciplinary action, which may
include the unwinding of trades, disgorgement of profits,
monetary fine or censure, and suspension or termination of
employment.
IV. Opening and Maintaining Employee Accounts - Approval must be
obtained from the Compliance Department prior to the opening
of a brokerage account. If approval is granted, copies of
trade confirmations and monthly statements must be sent to
the Compliance Department.
V. Excluded Accounts and Transactions - The following types of
accounts/transactions are not subject to the other
restrictions of this policy:
1. Accounts at outside mutual funds that hold only
shares of open-end funds purchased directly from
that fund company. Note: transactions relating to
closed-end funds are subject to the pre-clearance,
blackout period and other restrictions of this
policy;
2. Estate or trust accounts in which an employee or
related person has a beneficial interest, but no
power to affect investment decisions. There must
be no communication between the account(s) and the
employee with regard to investment decisions prior
to execution. The employee must direct the
trustee/bank to furnish copies of confirmations and
statements to the Compliance Department;
3. Fully discretionary accounts managed by either an
internal or external registered investment adviser
are permitted if there is no communication between
the manager and the employee with regard to
investment decisions prior to execution. The
employee must designate that copies of trade
confirmations and monthly statements be sent to the
Compliance Department;
4. Employees may participate in direct investment
programmes which allow the purchase of securities
directly from the issuer without the intermediation
of a broker/dealer provided that the timing and
size of the purchases are established by a pre-
arranged, regularized schedule (e.g., dividend
reinvestment plans). Employees must pre-clear the
transaction at the time that the dividend
reinvestment plan is being set up. Employees also
must provide documentation of these arrangements
and direct periodic (monthly or quarterly)
statements to the Compliance Department; and
5. In addition to the foregoing, the following types
of securities are exempted from pre-clearance,
blackout periods, reporting and short-term trading
requirements: open-ended mutual funds; open-end
unit investment trusts; U.K gilts, U.S. Treasury
bills, bonds and notes; mortgage pass-throughs
(e.g. Ginnie Maes) that are direct obligations of
the U.S. government; bankers acceptances; bank
certificates of deposit; commercial paper; and high
quality short-term debt instruments (meaning any
instrument that has a maturity at issuance of less
than 366 days and that is rated in one of the two
highest rating categories by a nationally
recognized statistical rating organization, such as
S&P or Moody's), including repurchase agreements.
VI. Securities Holding Period/Short-Term Trading - Securities
transactions must be for investment purposes rather than for
speculation. Consequently, employees may not profit from
the purchase and sale, or sale and purchase, of the same or
equivalent securities within sixty (60) calendar days,
calculated on a First In, First Out (FIFO) basis (i.e., the
security may be sold on the 61st day). Citigroup securities
received as part of an employee's compensation are not
subject to the 60-day holding period. All profits from
short-term trades are subject to disgorgement. However,
with the prior written approval of both European Head of
Investment and the Regional Director of Compliance, and only
in rare and/or unusual circumstances, an employee may
execute a short-term trade that results in a significant
loss.
VII. Pre-Clearance - All SSB Citi employees must pre-clear all
personal securities transactions (see Section V for a
listing of accounts, transactions and securities that do not
require pre-clearance). A copy of the pre-clearance form is
attached as Exhibit B. In addition, employees are
prohibited from engaging in more than twenty (20)
transactions in any calendar month, except with prior
written approval from European Head of Investment, or
designee. A transaction must not be executed until the
employee has received the necessary approval. Pre-clearance
is valid only on the day it is given. If a transaction is
not executed on the day pre-clearance is granted, it is
required that pre-clearance be sought again on a subsequent
day (i.e., open orders, such as limit orders, good until
cancelled orders and stop-loss orders, must be pre-cleared
each day until the transaction is effected). In connection
with obtaining approval for any personal securities
transaction, employees must describe in detail any factors
which might be relevant to an analysis of the possibility of
a conflict of interest. Any trade that violates the pre-
clearance process may be unwound at the employee's expense,
and the employee will be required to absorb any resulting
loss and to disgorge any resulting profit.
In addition to the foregoing, the CGAM NA Director of Global
Equity Research, or his designate, must approve all personal
securities transactions for members of the CGAM Research
Department prior to pre-clearance from the Compliance
Department as set forth in this section. Pre-approval by
the Director of Research, or his designate, is in addition
to and does not replace the requirement for the pre-
clearance of all personal securities transactions.
VIII. Blackout Periods - No Covered Person shall purchase or sell,
directly or indirectly, any security in which he/she has, or
by reason of the transaction acquires, any direct or
indirect beneficial ownership if he/she has knowledge at the
time of such transaction that the security is being
purchased or sold, or is being considered for purchase or
sale, by a managed fund or client account or in the case of
a Fund director, by the director's Fund. The following
Blackout Periods apply to the categories of SSB Citi
employees listed below:
? All employees - may not buy or sell any securities for
personal accounts seven (7) calendar days before or
after managed funds or client accounts that the firm
manages trade in that security.
Additionally:
? Research Analysts and Research Assistants - may not
buy or sell any securities for personal accounts seven
(7) calendar days before or after the issuance of or a
change in any recommendation; or seven (7) calendar
days before or after any managed fund or client
account about which the employee is likely to have
trading or portfolio information (as determined by the
Compliance Department) trades in that security.
Any violation of the foregoing provisions will require the
employee's trade to be unwound, with the employee absorbing
any resulting loss and disgorging any resulting profit.
Please be reminded that, regardless of the provisions set
forth above, all employees are always prohibited from
effecting personal securities transactions based on
material, non-public information.
Blackout period requirements shall not apply to any purchase
or sale, or series of related transactions involving the
same or related securities, involving 500 or fewer shares in
the aggregate if the issuer has a market capitalisation
(outstanding shares multiplied by the current price per
share) greater than $10 billion and is listed on a U.S or
European Stock Exchange or NASDAQ. Note: Pre-clearance is
still required. Under certain circumstances, the Compliance
Department may determine that an employee may not rely upon
this "Large Cap/De Minimis" exemption. In such a case, the
employee will be notified prior to or at the time the pre-
clearance request is made.
IX. Prohibited Transactions - The following transactions by SSB
Citi employees are prohibited without the prior written
approval from the European Head of Investment, or designee,
and the Regional Compliance Director:
1. The purchase of private placements; and
2. The acquisition of any securities in an initial
public offering (new issues of municipal debt
securities may be acquired subject to the other
requirements of this policy (e.g., pre-clearance).)
X. Transactions in Options and Futures - SSB Citi employees may
buy or sell derivative instruments such as individual stock
options, options and futures on indexes and options and
futures on fixed-income securities, and may buy or sell
physical commodities and futures and forwards on such
commodities. These transactions must comply with all of the
policies and restrictions described in this policy,
including pre-clearance, blackout periods, transactions in
Citigroup securities and the 60-day holding period.
However, the 60-day holding period does not apply to
individual stock options that are part of a hedged position
where the underlying stock has been held for more than 60
days and the entire position (including the underlying
security) is closed out.
XI. Prohibited Recommendations - No Covered Person shall
recommend or execute any securities transaction by any
managed fund or client account, or, in the case of a Fund
director, by the director's Fund, without having disclosed,
in writing, to the European Head of Investment, or designee,
any direct or indirect interest in such securities or
issuers, except for those securities purchased pursuant to
the "Large Cap/De Minimis" exemption described in Section
VIII above. Prior written approval of such recommendation
or execution also must be received from the European Head of
Investment, or designee. The interest in personal accounts
could be in the form of:
1. Any direct or indirect beneficial ownership of any
securities of such issuer;
2. Any contemplated transaction by the person in such
securities;
3. Any position with such issuer or its affiliates; or
4. Any present or proposed business relationship
between such issuer or its affiliates and the
person or any party in which such person has a
significant interest.
XII. Transactions in Citigroup Securities - Unless an SSB Citi
employee is a member of a designated group subject to more
restrictive provisions, or is otherwise notified to the
contrary, the employee may trade in Citigroup securities
without restriction (other than the pre-clearance and other
requirements of this policy), subject to the limitations set
forth below.
Employees whose jobs are such that they know about
Citigroup's quarterly earnings prior to release may
not engage in any transactions in Citigroup securities
during the "blackout periods" beginning on the first
day of a calendar quarter and ending on the second
business day following the release of earnings for the
prior quarter. Members of the SSB Citi Executive
Committee in New York and certain other senior SSB
Citi employees are subject to these blackout periods.
Stock option exercises are permitted during a blackout
period (but the simultaneous exercise of an option and
sale of the underlying stock is prohibited). With
regard to exchange traded options, no transactions in
Citigroup options are permitted except to close or
roll an option position that expires during a blackout
period. Charitable contributions of Citigroup
securities may be made during the blackout period, but
an individual's private foundation may not sell
donated Citigroup common stock during the blackout
period.
No employee may engage at any time in any personal
transactions in Citigroup securities while in
possession of material non-public information.
Investments in Citigroup securities must be made with
a long-term orientation rather than for speculation or
for the generation of short-term trading profits. In
addition, please note that employees may not engage in
the following transactions:
? Short sales of Citigroup securities;
? Purchases or sales of options ("puts" or "calls") on
Citigroup securities, except writing a covered call
at a time when the securities could have been sold
under this policy;
? Purchases or sales of futures on Citigroup
securities; or
? Any transactions relating to Citigroup securities
that might reasonably appear speculative.
The number of Citigroup shares an employee is entitled
to in the Citigroup Stock Purchase Plan is not treated
as a long stock position until such time as the
employee has given instructions to purchase the shares
of Citigroup. Thus, employees are not permitted to
use options to hedge their financial interest in the
Citigroup Stock Purchase Plan.
XIII. Acknowledgement and Reporting Requirements - SSB Citi
Employees - All new SSB Citi employees must certify that
they have received a copy of this policy, and have read and
understood its provisions. In addition, all SSB Citi
employees must:
1. Acknowledge receipt of the policy and any
modifications thereof, in writing (see Exhibit C
for the form of Acknowledgement);
2. Within 10 days of becoming an SSB Citi employee,
disclose in writing all information with respect to
all securities beneficially owned and any existing
personal brokerage relationships (employees must
also disclose any new brokerage relationships
whenever established). Such information should be
provided on the form attached as Exhibit D;
3. Direct their brokers to supply, on a timely basis,
duplicate copies of confirmations of all personal
securities transactions (Note: this requirement may
be satisfied through the transmission of automated
feeds);
4. Within 10 days after the end of each calendar
quarter, provide information relating to securities
transactions executed during the previous quarter
for all securities accounts (Note: this
requirement may be satisfied through the
transmission of automated feeds);
5. Submit an annual holdings report containing similar
information that must be current as of a date no
more than 30 days before the report is submitted,
and confirm at least annually all brokerage
relationships and any and all outside business
affiliations (Note: this requirement may be
satisfied through the transmission of automated
feeds or the regular receipt of monthly brokerage
statements); and
6. Certify on an annual basis that he/she has read and
understood the policy, complied with the
requirements of the policy and that he/she has pre-
cleared and disclosed or reported all personal
securities transactions and securities accounts
required to be disclosed or reported pursuant to
the requirements of the policy.
Disclaimer of Beneficial Ownership - The reports described
in Items 4 and 5 above may contain a statement that the
reports shall not be construed as an admission by the person
making the reports that he/she has any direct or indirect
beneficial ownership in the securities to which the reports
relate.
XIV. Handling of Disgorged Profits - Any amounts that are
paid/disgorged by an employee under this policy shall be
donated to one or more charities.
XV. Confidentiality - All information obtained from any Covered
Person pursuant to this policy shall be kept in strict
confidence, except that such information will be made
available to the Financial Services Authority, Securities
and Exchange Commission, or any other regulatory or self-
regulatory organisation or to the Funds' Boards of Directors
to the extent required by law, regulation or this policy.
XVI. Other Laws, Rules and Statements of Policy - Nothing
contained in this policy shall be interpreted as relieving
any person subject to the policy from acting in accordance
with the provision of any applicable law, rule or regulation
or, in the case of SSB Citi employees, any statement of
policy or procedure governing the conduct of such person
adopted by Citigroup, its affiliates and subsidiaries.
XVII. Retention of Records - All records relating to personal
securities transactions hereunder and other records meeting
the requirements of applicable law, including a copy of this
policy and any other policies covering the subject matter
hereof, shall be maintained in the manner and to the extent
required by applicable law, including Rule 17j-1 under the
1940 Act. The Compliance Department shall have the
responsibility for maintaining records created under this
policy.
XVIII. Monitoring - SSB Citi takes seriously its obligation to
monitor the personal investment activities of its employees
and to review the periodic reports of all Covered Persons.
Employee personal investment transaction activity will be
monitored by the Compliance Department. All noted
deviations from the policy requirements will be referred
back to the employee for follow-up and resolution (with a
copy to be supplied to the employee's supervisor).
XIX. Exceptions to the Policy - Any exceptions to this policy
must have the prior written approval of both the European
Head of Investment and the Regional Director of Compliance.
Any questions about this policy should be directed to the
Compliance Department.
XX. Board Review - SSB Citi shall provide to the Board of
Directors of each Fund, on a quarterly basis, a written
report of all material violations of this policy, and at
least annually, a written report and certification meeting
the requirements of Rule 17j-1 under the 1940 Act.
XXI. Amendments - SSB Citi Employees - Unless otherwise noted
herein, this policy shall become effective as to all SSB
Citi employees on March 30, 2000. This policy may be
amended as to SSB Citi employees from time to time by the
Compliance Department. Any material amendment of this
policy shall be submitted to the Board of Directors of each
Fund for approval in accordance with Rule 17j-1 under the
1940 Act.
March 30, 2000
EXHIBIT A
EXPLANATION OF BENEFICIAL OWNERSHIP
You are considered to have "Beneficial Ownership" of Securities
if you have or share a direct or indirect "Pecuniary Interest"
in the Securities.
You have a "Pecuniary Interest" in Securities if you have the
opportunity, directly or indirectly, to profit or share in any
profit derived from a transaction in the Securities.
The following are examples of an indirect Pecuniary Interest in
Securities:
1. Securities held by members of your immediate family
sharing the same household; however, this presumption
may be rebutted by convincing evidence that profits
derived from transactions in these Securities will not
provide you with any economic benefit.
"Immediate family" means any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse,
sibling, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, and
includes any adoptive relationship.
2. Your interest as a general partner in Securities held
by a general or limited partnership.
3. Your interest as a manager-member in the Securities
held by a limited liability company.
You do not have an indirect Pecuniary Interest in Securities
held by a corporation, partnership, limited liability company
or other entity in which you hold an equity interest, unless
you are a controlling equityholder or you have or share
investment control over the Securities held by the entity.
The following circumstances constitute Beneficial Ownership by
you of Securities held by a trust:
1. Your ownership of Securities as a trustee where either
you or members of your immediate family have a vested
interest in the principal or income of the trust.
2. Your ownership of a vested interest in a trust.
3. Your status as a settlor of a trust, unless the
consent of all of the beneficiaries is required in
order for you to revoke the trust.
The foregoing is a summary of the meaning of "beneficial
ownership". For purposes of the attached policy, "beneficial
ownership" shall be interpreted in the same manner as it would
be in determining whether a person is subject to the provisions
of Section 16 of the Securities Exchange Act of 1934 and the
rules and regulations thereunder
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<NUMBER> 001
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<S> <C>
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,868,719
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 48,188
<TOTAL-LIABILITIES> 48,188
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<PAID-IN-CAPITAL-COMMON> 9,205,244
<SHARES-COMMON-STOCK> 910,251
<SHARES-COMMON-PRIOR> 1,215,059
<ACCUMULATED-NII-CURRENT> 605,649
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<ACCUMULATED-NET-GAINS> (634,378)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (355,964)
<NET-ASSETS> 8,820,531
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 739,621
<OTHER-INCOME> 0
<EXPENSES-NET> 134,716
<NET-INVESTMENT-INCOME> 604,905
<REALIZED-GAINS-CURRENT> (231,097)
<APPREC-INCREASE-CURRENT> (789,895)
<NET-CHANGE-FROM-OPS> (416,087)
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<DISTRIBUTIONS-OF-INCOME> (857,354)
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<NUMBER-OF-SHARES-REDEEMED> 410,417
<SHARES-REINVESTED> 88,387
<NET-CHANGE-IN-ASSETS> (4,421,738)
<ACCUMULATED-NII-PRIOR> 856,146
<ACCUMULATED-GAINS-PRIOR> (401,329)
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 66,574
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 134,716
<AVERAGE-NET-ASSETS> 11,083,582
<PER-SHARE-NAV-BEGIN> 10.90
<PER-SHARE-NII> 0.77
<PER-SHARE-GAIN-APPREC> (1.17)
<PER-SHARE-DIVIDEND> 0.81
<PER-SHARE-DISTRIBUTIONS> 0.00
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<EXPENSE-RATIO> 1.22
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<TABLE> <S> <C>
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<SERIES>
<NUMBER> 002
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
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<INVESTMENTS-AT-VALUE> 20,825,805
<RECEIVABLES> 423,589
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21,249,394
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 343,770
<TOTAL-LIABILITIES> 343,770
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,265,461
<SHARES-COMMON-STOCK> 1,733,036
<SHARES-COMMON-PRIOR> 2,289,068
<ACCUMULATED-NII-CURRENT> 921,639
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,011,697
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,706,827
<NET-ASSETS> 20,905,624
<DIVIDEND-INCOME> 813,130
<INTEREST-INCOME> 370,386
<OTHER-INCOME> 0
<EXPENSES-NET> 260,342
<NET-INVESTMENT-INCOME> 923,174
<REALIZED-GAINS-CURRENT> 3,011,697
<APPREC-INCREASE-CURRENT> (5,059,149)
<NET-CHANGE-FROM-OPS> (1,124,278)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,468,909
<DISTRIBUTIONS-OF-GAINS> 5,820,651
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 27,849
<NUMBER-OF-SHARES-REDEEMED> 1,140,761
<SHARES-REINVESTED> 556,880
<NET-CHANGE-IN-ASSETS> (16,589,303)
<ACCUMULATED-NII-PRIOR> 1,467,374
<ACCUMULATED-GAINS-PRIOR> 5,820,781
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 194,267
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 260,342
<AVERAGE-NET-ASSETS> 29,841,647
<PER-SHARE-NAV-BEGIN> 16.38
<PER-SHARE-NII> 0.67
<PER-SHARE-GAIN-APPREC> (1.15)
<PER-SHARE-DIVIDEND> 0.77
<PER-SHARE-DISTRIBUTIONS> 3.07
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.06
<EXPENSE-RATIO> 0.87
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000874835
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<SERIES>
<NUMBER> 003
<NAME> GREENWICH STREET SERIES FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
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<INVESTMENTS-AT-VALUE> 24,300,226
<RECEIVABLES> 615,035
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 24,915,261
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 577,113
<TOTAL-LIABILITIES> 577,113
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,106,298
<SHARES-COMMON-STOCK> 1,477,827
<SHARES-COMMON-PRIOR> 1,936,882
<ACCUMULATED-NII-CURRENT> 371,049
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,909,367
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,951,434
<NET-ASSETS> 24,338,148
<DIVIDEND-INCOME> 509,349
<INTEREST-INCOME> 110,830
<OTHER-INCOME> 0
<EXPENSES-NET> 247,309
<NET-INVESTMENT-INCOME> 372,870
<REALIZED-GAINS-CURRENT> 9,908,881
<APPREC-INCREASE-CURRENT> (7,236,500)
<NET-CHANGE-FROM-OPS> 3,045,251
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 576,238
<DISTRIBUTIONS-OF-GAINS> 5,700,078
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 34,368
<NUMBER-OF-SHARES-REDEEMED> 892,426
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<NET-CHANGE-IN-ASSETS> (11,442,752)
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<ACCUMULATED-GAINS-PRIOR> 5,700,000
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 247,309
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<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> 1.49
<PER-SHARE-DIVIDEND> 0.35
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<TABLE> <S> <C>
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<SERIES>
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<S> <C>
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 530,343,589
<PAYABLE-FOR-SECURITIES> 546,874
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 377,642
<TOTAL-LIABILITIES> 924,516
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 415,363,369
<SHARES-COMMON-STOCK> 22,636,591
<SHARES-COMMON-PRIOR> 11,611,924
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<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,982,575
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 103,656,257
<NET-ASSETS> 529,419,073
<DIVIDEND-INCOME> 3,692,595
<INTEREST-INCOME> 3,669,500
<OTHER-INCOME> 0
<EXPENSES-NET> 2,942,706
<NET-INVESTMENT-INCOME> 4,419,389
<REALIZED-GAINS-CURRENT> 7,651,687
<APPREC-INCREASE-CURRENT> 33,823,318
<NET-CHANGE-FROM-OPS> 45,894,394
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,558,655
<DISTRIBUTIONS-OF-GAINS> 5,751,430
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,629,480
<NUMBER-OF-SHARES-REDEEMED> 1,983,060
<SHARES-REINVESTED> 378,247
<NET-CHANGE-IN-ASSETS> 283,738,818
<ACCUMULATED-NII-PRIOR> 2,556,138
<ACCUMULATED-GAINS-PRIOR> 4,082,318
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,794,800
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,942,706
<AVERAGE-NET-ASSETS> 373,416,572
<PER-SHARE-NAV-BEGIN> 21.16
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> 2.62
<PER-SHARE-DIVIDEND> 0.16
<PER-SHARE-DISTRIBUTIONS> 0.36
<RETURNS-OF-CAPITAL> 0.00
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<SERIES>
<NUMBER> 005
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<S> <C>
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<PERIOD-END> DEC-31-1999
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<INVESTMENTS-AT-VALUE> 325,898,946
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<SENIOR-LONG-TERM-DEBT> 0
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<PAID-IN-CAPITAL-COMMON> 233,454,372
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<OTHER-INCOME> 0
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<NET-INVESTMENT-INCOME> 6,480,405
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<OVERDIST-NET-GAINS-PRIOR> 0
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<RETURNS-OF-CAPITAL> 0.00
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</TABLE>
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<SERIES>
<NUMBER> 006
<NAME> GREENWICH STREET SERIES FUND
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
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<SENIOR-LONG-TERM-DEBT> 0
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<SENIOR-EQUITY> 0
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<NET-ASSETS> 27,066,930
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<OTHER-INCOME> 0
<EXPENSES-NET> 270,545
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<APPREC-INCREASE-CURRENT> 5,642,402
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 3,686,844
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 80,677
<NUMBER-OF-SHARES-REDEEMED> 542,032
<SHARES-REINVESTED> 201,467
<NET-CHANGE-IN-ASSETS> 5,919,774
<ACCUMULATED-NII-PRIOR> (1,228)
<ACCUMULATED-GAINS-PRIOR> 3,668,544
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 197,447
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 270,545
<AVERAGE-NET-ASSETS> 20,800,479
<PER-SHARE-NAV-BEGIN> 19.63
<PER-SHARE-NII> (0.26)
<PER-SHARE-GAIN-APPREC> 17.91
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 4.17
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 33.11
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<CIK> 0000874835
<NAME> EQUITY INDEX PORTFOLIO - CLASS A
<SERIES>
<NUMBER> 007
<NAME> GREENWICH STREET SERIES FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<INVESTMENTS-AT-COST> 571,090,002
<INVESTMENTS-AT-VALUE> 679,882,577
<RECEIVABLES> 2,244,087
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<OTHER-ITEMS-ASSETS> 0
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<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 241,477
<TOTAL-LIABILITIES> 241,477
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 568,251,300
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<SHARES-COMMON-PRIOR> 5,907,470
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<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 263,935
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 108,914,712
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<OTHER-INCOME> 0
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<NET-INVESTMENT-INCOME> 4,456,219
<REALIZED-GAINS-CURRENT> 331,007
<APPREC-INCREASE-CURRENT> 76,043,177
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,244,775
<DISTRIBUTIONS-OF-GAINS> 1,767,887
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,557,783
<NUMBER-OF-SHARES-REDEEMED> 308,578
<SHARES-REINVESTED> 94,293
<NET-CHANGE-IN-ASSETS> 504,719,370
<ACCUMULATED-NII-PRIOR> 1,249,038
<ACCUMULATED-GAINS-PRIOR> 1,709,633
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 778,759
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<NAME> GREENWICH STREET SERIES FUND
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<NAME> GREENWICH STREET SERIES FUND
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