<PAGE> 1
Registration Statement No. 33-43628
811-6465
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 26
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 26
THE TRAVELERS SERIES TRUST
(Exact name of Registrant)
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (860) 277-0111
ERNEST J. WRIGHT
Secretary to the Board of Trustees
The Travelers Series Trust
One Tower Square
Hartford, Connecticut 06183
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box):
_______ immediately upon filing pursuant to paragraph (b).
__X____ on May 1, 1999 pursuant to paragraph (b).
_______ 60 days after filing pursuant to paragraph (a)(1).
_______ on __________ pursuant to paragraph (a)(1)
_______ 75 days after filing pursuant to paragraph (a)(2).
_______ on __________ pursuant to paragraph (a)(2) of Rule 485.
_______ on __________ pursuant to paragraph (a)(3) 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.
<PAGE> 2
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE> 3
THE TRAVELERS SERIES TRUST
Convertible Bond Portfolio
Disciplined Mid Cap Stock Portfolio
Disciplined Small Cap Stock Portfolio
Equity Income Portfolio
Federated High Yield Portfolio
Federated Stock Portfolio
Jurika & Voyles Core Equity Portfolio
Large Cap Portfolio
Lazard International Stock Portfolio
MFS Emerging Growth Portfolio
MFS Mid Cap Growth Portfolio
MFS Research Portfolio
NWQ Large Cap Portfolio
Social Awareness Portfolio
Strategic Stock Portfolio
Travelers Quality Bond Portfolio
U.S. Government Securities Portfolio
Utilities Portfolio
NOT ALL FUNDS CONTAINED IN THIS PROSPECTUS MAY BE AVAILABLE WITH YOUR CONTRACT.
PLEASE REFER TO YOUR CONTRACT PROSPECTUS FOR A LIST OF YOUR FUNDING OPTIONS.
The Travelers Series Trust (the "Trust") is an open-end management investment
company (mutual fund) consisting of multiple portfolios, each with its own
investment objectives and policies. Only the Portfolios (the "Fund(s)") listed
above are described in this prospectus.
Fund shares are offered only to separate accounts of The Travelers Insurance
Company and The Travelers Life and Annuity Company (together, "The Travelers").
The Funds serve as funding options for certain variable annuity and variable
life insurance contracts issued by The Travelers.
ONE TOWER SQUARE
HARTFORD, CONNECTICUT 06183
TELEPHONE 1-800-842-9368
PROSPECTUS
May 1, 1999
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THE SERIES TRUST SHARES
AS AN INVESTMENT AND HAS NOT DETERMINED THAT THIS PROSPECTUS IS COMPLETE OR
ACCURATE. IT IS AGAINST THE LAW FOR ANYONE TO TELL YOU OTHERWISE. AN INVESTMENT
IN A FUND IS NOT A DEPOSIT OF A BANK AND IS NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<PAGE> 4
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
GOALS AND INVESTMENTS
Convertible Bond Portfolio 3
Disciplined Mid Cap Stock Portfolio 4
Disciplined Small Cap Stock Portfolio 5
Equity Income Portfolio 6
Federated High Yield Portfolio 7
Federated Stock Portfolio 8
Jurika & Voyles Core Equity Portfolio 9
Large Cap Portfolio 10
Lazard International Stock Portfolio 11
MFS Emerging Growth Portfolio 12
MFS Mid Cap Growth Portfolio 13
MFS Research Portfolio 15
NWQ Large Cap Portfolio 16
Social Awareness Stock Portfolio 17
Strategic Stock Portfolio 18
Travelers Quality Bond Portfolio 19
U.S. Government Securities Portfolio 20
Utilities Portfolio 21
INVESTMENTS AND PRACTICES 22
MANAGEMENT 25
LEGAL PROCEEDINGS 30
YEAR 2000 COMPLIANCE 30
EURO CONVERSION 30
SHAREHOLDER TRANSACTIONS AND PRICING 31
TAX CONSEQUENCES OF DIVIDENDS AND DISTRIBUTIONS 32
FINANCIAL HIGHLIGHTS 33
APPENDIX A A-1
</TABLE>
The Travelers Series Trust
consists of 20 separate
investment Funds, each with
its own investment
objectives, strategies,
return potential and risks.
Only those funds listed to
the right are described in
this prospectus.
INVESTMENT ADVISER
Travelers Asset Management International Corporation ("TAMIC") and SSBC Fund
Management Inc. ("SSBC") each serve as investment adviser for certain of the
Funds. Both TAMIC and SSBC are indirect wholly owned subsidiaries of Citigroup
Inc. TAMIC has engaged subadvisers to provide an investment program for certain
Funds.
2
<PAGE> 5
CONVERTIBLE BOND PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
PORTFOLIO MANAGER: David A.
Tyson
FUND'S OBJECTIVE: Current income and capital
appreciation
KEY INVESTMENTS: Fixed-income securities
that may be converted into
common stock ("convertible
securities").
SELECTION PROCESS: The Fund invests at least 65% of its total assets in
convertible securities of companies of any size or industry. Some of these
securities may have a lower rating (junk bonds) or may be unrated. In evaluating
an issuer's creditworthiness, the adviser considers various factors, including:
- the issuer's financial resources
- sensitivity to economic conditions and trends
- regulatory matters
- ability of the issuer's management
PRINCIPAL RISKS: The Fund is most subject to fixed-income securities risk,
where market values move in the opposite direction of interest rates, and
lower-quality fixed-income risks, where market values are subject to credit
risks of issuers who may default or otherwise fail to make timely debt payments.
Another principal risk is equities risk, where market values may change
abruptly, sometimes unpredictably. For more information on the Fund's
investments and related risks, please see "Investments and Practices," the
Appendix to this prospectus and the Statement of Additional Information ("SAI").
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may
invest up to 35% of its total assets in combinations of nonconvertible
fixed-income securities and warrants or call options that together resemble
convertible securities ("synthetic securities"). The Fund may also write covered
call options. For a complete list of all investments available to the Fund,
please refer to Appendix A of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The table below shows how an investment in the Fund has varied over time. The
returns shown assume that any dividends and distributions have been reinvested
in the Fund. The returns are not reduced to reflect any variable insurance
contract charges or fees that may be assessed by The Travelers. The table
compares the Fund's performance with the Merrill Lynch Investment Grade
Convertible Bond Index ("ML Index"). Past performance can give some indication
of the Fund's risk but does not guarantee future results.
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
(The Fund commenced operations on May 1, 1998)
<TABLE>
<CAPTION>
Life of Fund
------------
<S> <C>
Convertible Bond 0.98%
ML Index 5.28%
</TABLE>
Best Quarter: 4th (98) 5.53 %
Worst Quarter: 3rd (98) (5.43)%
3
<PAGE> 6
DISCIPLINED MID CAP STOCK PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: Travelers
Investment
Management Company
("TIMCO")
PORTFOLIO MANAGER: Sandip
Bhagat
FUND'S OBJECTIVE: Growth of capital
KEY INVESTMENTS: Common stock of U.S.
companies
SELECTION PROCESS: The Fund invests primarily
in the stock of mid-size and smaller
companies, representing various industries.
The subadviser selects stock with a
qualitative screening process that seeks attractive relative value and earnings
growth. The subadviser manages the Fund to mirror the Standard & Poor's 400
Stock Index, a value-weighted stock index consisting of 400 mid-size companies.
With this approach, stocks are evaluated based on the following characteristics:
- price/earnings ratios and expected long-
term growth
- trends and magnitudes of earnings
- earnings surprises
- changes in analysts' earnings estimates
- overall contribution to total portfolio risk
- analysis of short-term price changes
- underpricing on a risk-adjusted basis
relative to the S&P 400 Index
PRINCIPAL RISKS: The Fund is most subject to equities risk, where market values
may change abruptly, sometimes unpredictably, and mid-size to smaller companies
risk, where market values may be more erratic and thinly traded than the general
market. For more information on the Fund's investments and related risks, please
see "Investments and Practices," the Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may
invest in various other types of securities and engage in other investment
techniques and strategies which are not the principal focus of the Fund. For a
complete list of all investments available to the Fund, please refer to Appendix
A of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with Standard & Poor's 400 Index. Past
performance can give some indication of the Fund's risk, but does not guarantee
future results.
[DISCIPLINED MID CAP STOCK PORTFOLIO GRAPH]
<TABLE>
<CAPTION>
'98'
<S> <C>
16.91
</TABLE>
The Fund commenced operations on April 1, 1997.
Best Quarter: 4th (98) 26.68 %
Worst Quarter: 3rd (98) (15.34)%
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
<TABLE>
<CAPTION>
1 year Life of Fund
-------- ------------
<S> <C> <C>
Disc. Mid Cap 16.91% 29.44%
S&P 400 19.11% 30.77%
</TABLE>
4
<PAGE> 7
DISCIPLINED SMALL CAP STOCK PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: TIMCO
PORTFOLIO MANAGER: Sandip
Bhagat
FUND'S OBJECTIVE: Long-term capital
appreciation
KEY INVESTMENTS: Common stock of small U.S.
companies
SELECTION PROCESS: The Fund invests primarily
in the stock of mid-size and small companies, representing various industries.
The Fund's subadviser selects stock with a qualitative screening process to
identify stocks of attractive relative value and earning growth. The subadviser
manages the Fund to mirror the Russell 2000(R) Stock Index in terms of overall
risk, economic sector weightings, and market capitalizations, although the Fund
is not limited to stocks that comprise the Index. With this approach, stocks are
evaluated based on the following characteristics:
- price/earnings ratios and expected long-
term growth
- trends and magnitudes of earnings
- earnings surprises
- changes in analysts' earnings estimates
- overall contribution to total portfolio risk
- analysis of short-term price changes
- underpricing on a risk-adjusted basis
relative to the Russell 2000 Index
PRINCIPAL RISKS: The Fund is most subject to equities risk, where market values
may change abruptly, sometimes unpredictably, and smaller companies risk, where
market values may be more erratic and stocks more thinly traded than the general
market. For more information on the Fund's investments and related risks, please
see "Investments and Practices," the Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may
invest in various other types of securities and engage in other investment
techniques and strategies which are not the principal focus of the Fund. For a
complete list of all investments available to the Fund, please refer to Appendix
A of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The table below shows how an investment in the Fund has varied over time. The
returns shown assume that any dividends and distributions have been reinvested
in the Fund. The returns are not reduced to reflect any variable insurance
contract charges or fees that may be assessed by The Travelers. The table
compares the Fund's performance with the Russell 2000 Index. Past performance
can give some indication of the Fund's risk, but does not guarantee future
results.
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
(The Fund commenced operations on May 1, 1998)
<TABLE>
<S> <C>
Life of Fund
------------
Disciplined Small Cap (11.04)%
Russell 2000 (11.94)%
</TABLE>
Best Quarter: 4th (98) 18.46 %
Worst Quarter: 3rd (98) (21.28)%
5
<PAGE> 8
EQUITY INCOME PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: Fidelity Management
& Research Company
PORTFOLIO MANAGER: Stephen
DuFour
FUND'S OBJECTIVE: Reasonable income
KEY INVESTMENTS: Income-producing equity
securities
SELECTION PROCESS: The Fund normally invests
at least 65% of its total assets in income-producing equity securities, which
tends to lead to investments in large cap "value" stocks. The Fund may invest in
companies of any size or industry. The Fund seeks to achieve a yield greater
than that of the S&P 500 Index. The Fund's subadviser uses a fundamental
analysis of each issuer's financial condition and industry position as well as
market and economic conditions to select investments. Factors for stock
selection include, but are not limited to, growth potential, earnings estimates
and strength of management. When choosing the Fund's investments, the subadviser
also considers the potential for capital appreciation.
PRINCIPAL RISKS: The Fund is most subject to equities risk, where market values
may change abruptly, sometimes unpredictably, dividend risk, where a company
might pay lower or no dividends, foreign and emerging markets securities risks,
where market values may be impacted by limited trading, currency exchange,
political or economic instability, or other factors. Other principal risks are
fixed-income securities risk, where market values move in the opposite direction
of interest rates, and lower-quality fixed-income risks, where market values are
subject to credit risks of issuers who may default or otherwise fail to make
timely debt payments. For more information on the Fund's investments and related
risks, please see "Investments and Practices," the Appendix to this prospectus
and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may also
invest in all types of domestic, foreign and emerging market securities (both
equity and bonds), including lower-rated fixed income securities. For a complete
list of all investments available to the Fund, please refer to Appendix A of
this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with the Russell 1000(R) and Russell
3000(R) Indices. Past performance can give some indication of the Fund's risk,
but does not guarantee future results.
YEAR-BY-YEAR % TOTAL RETURNS AS OF 12/31
[BAR GRAPH]
<TABLE>
<CAPTION>
EQUITY INCOME PORTFOLIO
-----------------------
<S> <C>
'97 32.05
'98 12.38
</TABLE>
The Fund commenced operations on August 30, 1996.
6
Best Quarter: 2nd (97) 16.07 %
Worst Quarter: 3rd (98) (12.33)%
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
<TABLE>
<CAPTION>
1 year Life of Fund
------ ------------
<S> <C> <C>
Equity Income 12.38 24.18
Russell 1000 27.02 32.39
Russell 3000 24.14 30.40
</TABLE>
7
<PAGE> 9
FEDERATED HIGH YIELD PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: Federated Investment
Counseling
PORTFOLIO MANAGERS: Mark E.
Durbiano
and Constantine
Kartsonas
FUND'S OBJECTIVE: High current income
KEY INVESTMENTS: Lower-quality fixed
income securities
SELECTION PROCESS: The Fund's subadviser
selects high-yield, high-risk corporate debt
obligations that are generally rated BBB or lower by Standard & Poor's Ratings
Group or Baa or lower by Moody's Investors Service, Inc., or, if unrated, are of
comparable quality. There is no minimum acceptable rating for the Fund's
investments, and the Fund may purchase or hold securities in the lowest rating
category, including securities in default. The Fund also may invest in debt
securities with equity features. The subadviser follows certain steps to
evaluate the risks associated with these lower-rated securities. These
techniques include:
- independent credit analysis
- judgment of other investment analysts
- analysis of issuer's financial soundness and anticipated cash flow
- markets issuers' current value of assets
- discussions with issuer's management
- analysis of current developments and trends in economy and financial
PRINCIPAL RISKS: The Fund is most subject to fixed-income securities risk,
where market values move in the opposite direction of interest rates, and
lower-quality fixed-income risks, where market values are subject to credit
risks of issuers who may default or otherwise fail to make timely debt payments.
Other principal risks may be foreign and emerging markets securities risks,
where market values may be impacted by limited trading, currency exchange,
political or economic instability, or other factors. For more information on the
Fund's investments and related risks, please see "Investment and Practices," the
Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may
invest in zero coupon and payment-in-kind bonds, foreign and emerging market
securities, and various asset-backed securities. For a complete list of all
investments available to the Fund, please refer to Appendix A of this
prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by the Travelers. The
table compares the Fund's performance with the Lehman Aggregate Bond Index. Past
performance can give some indication of the Fund's risk, but does not guarantee
future results.
YEAR-BY-YEAR % TOTAL RETURNS AS OF 12/31
[BAR GRAPH]
The Fund commenced operations on August 30, 1996.
<TABLE>
<S> <C> <C> <C>
Best Quarter: 3rd (97) 5.41 %
Worst Quarter: 3rd (98) (3.21)%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
<TABLE>
<CAPTION>
1 year Life of Fund
------ ------------
<S> <C> <C>
Federated High Yield 4.71% 11.80%
Lehman Agg. Bond 8.69% 9.99%
</TABLE>
8
<PAGE> 10
FEDERATED STOCK PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: Federated Investment
Counseling
PORTFOLIO MANAGER: Michael P.
Donnelly
FUND'S OBJECTIVE: Growth of income and
capital
KEY INVESTMENTS: Common stock of high
quality companies
SELECTION PROCESS: The Fund invests
primarily in companies selected on the basis of traditional research techniques,
including an analysis of the company's position in its industry, management
qualities and characteristics, and resources to finance growth. Companies with
similar characteristics may be grouped together in broad categories called
sectors. In determining the amount to invest in a security, the Adviser limits
the Fund's exposure to each business sector that comprises the S&P 500 Index.
The Fund's allocation to a sector will not be less than 50% or more than 200% of
the Index's allocation to that sector. Specific stocks are selected for the
following qualities:
- assessment of earnings
- dividend growth prospects
- assessment of the risk and volatility of the company's industry
- - companies in the top 25% of their industries with regard to revenues
- - superior product position
- - strong market shares
PRINCIPAL RISKS: The Fund is most subject to foreign and emerging markets
securities risks, where market values may be impacted by limited trading,
currency exchange, political or economic instability, or other factors. Another
principal risk may be sector risk, where clusters of stocks perform differently
from the general market. For more information on the Fund's investments and
related risks, please see "Investments and Practices," the Appendix to this
prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may also
invest in American Depositary Receipts (ADRs), which represent interests in
underlying securities issued by a foreign company. For a complete list of all
investments available to this Fund, please refer to Appendix A of this
prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with the S&P 500 Index. Past performance
can give some indication of the Fund's risk but does not guarantee future
performance.
YEAR-BY-YEAR % TOTAL RETURNS AS OF 12/31
[BAR GRAPH]
The Fund commenced operations on August 30, 1996.
Best Quarter: 4th (98) 16.48 %
Worst Quarter: 3rd (98) (10.90)%
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
<TABLE>
<CAPTION>
1 year Life of Fund
------ ------------
<S> <C> <C>
Federated Stock 17.84% 27.68%
S&P 500 28.58% 33.49%
</TABLE>
9
<PAGE> 11
JURIKA & VOYLES CORE EQUITY PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: Jurika & Voyles,
LLP
PORTFOLIO MANAGERS: Mark J. Nuti
Guy R.
Ellife
FUND'S OBJECTIVE: Long-term capital
appreciation
KEY INVESTMENTS: Common stock of mid-size to
large companies
SELECTION PROCESS: The Fund normally invests at least 65% of its assets in the
common stock of companies with market capitalizations of $500 million and over.
The Fund seeks value in quality companies normally offering relatively lower
price-to-earnings ratios and higher earnings growth rates. The subadviser
emphasizes in-house research, which includes personal contacts, site visits and
meetings with company management. The Fund's subadviser uses a growth and value
approach to evaluate stocks demonstrating potential capital growth based upon
the following characteristics:
- - earnings growth and predictability
- - high return on equity
- - leading/strong market positions
- - experienced management team
- - established record of profitability
- - strong financial position
- - strong cash flow
- - established industry position
- - management holds significant equity position
- - healthy balance sheet with low corporate debt
PRINCIPAL RISKS: The Fund is most subject to equities risk, where market values
may change abruptly, sometimes unpredictably, mid-size companies risk, where
market values may be more erratic than the general market, and foreign
securities risk, where markets may be impacted by limited trading, political or
economic instability, or other factors. For more information on the Fund's
investments and related risks, please see "Investments and Practices," the
Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may also
invest up to 25% of its total assets in U.S. dollar-denominated foreign
securities. For a complete list of all investments available to the Fund, please
refer to Appendix A of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The table below shows how an investment in the Fund has varied over time. The
returns shown assume that any dividends and distributions have been reinvested
in the Fund. The returns are not reduced to reflect any variable insurance
contract charges or fees that may be assessed by The Travelers. The table
compares the Fund's performance with the Russell Mid Cap(TM) and the Russell
3000 Indices. Past performance can give some indication of the Fund's risk, but
does not guarantee future results.
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31
(Fund commenced operations on July 20, 1998)
<TABLE>
<CAPTION>
Life of Fund
------------
<S> <C>
Jurika & Voyles Core Equity 3.08%
Russell Mid Cap (13.35)%
Russell 3000 3.24%
</TABLE>
Best Quarter: 4th (98) 17.68%
Worst Quarter: 4th (98) 17.68%
(Fund has only one full quarter
of performance)
10
<PAGE> 12
LARGE CAP PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: Fidelity Management
& Research Company
PORTFOLIO MANAGER: Karen
Firestone
FUND'S OBJECTIVE: Long-term growth of capital
KEY INVESTMENTS: Common stock of companies
with large capitalizations
SELECTION PROCESS: The Fund normally invests at least 65% of its total assets
in the equity securities of companies with market capitalizations of $1 billion
or more at the time of the Fund's investment. The Fund may invest in companies
of any industry and may invest in both foreign and domestic issuers. The Fund
may invest in either "growth" or "value" stocks. The subadviser uses a
fundamental analysis of each issuer's financial condition and industry position
as well as market and economic conditions to select investments. Factors for
stock selection include but are not limited to growth potential, earnings
estimates and strength of management.
PRINCIPAL RISKS: The Fund is most subject to equities risk, where market values
may change abruptly, sometimes unpredictably, and foreign and emerging markets
securities risks, where market values may be impacted by limited trading,
currency exchange, political or economic instability, or other factors. For more
information on the Fund's investments and related risks, please see "Investments
and Practices," the Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may also
invest in securities of companies with market capitalizations of less than $1
billion. For a complete list of all investments available to the Fund, please
refer to Appendix A of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with the S&P 500 Index. Past performance
can give some indication of the Fund's risk, but does not guarantee future
results.
YEAR-BY-YEAR % TOTAL RETURNS AS OF 12/31
[BAR GRAPH]
The Fund commenced operations on August 30, 1996.
Best Quarter: 4th (98) 23.56 %
Worst Quarter: 3rd (98) (7.32)%
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
<TABLE>
<CAPTION>
1 year Life of Fund
------ ------------
<S> <C> <C>
Large Cap 35.65% 31.56%
S&P 500 28.58% 33.49%
</TABLE>
11
<PAGE> 13
LAZARD INTERNATIONAL STOCK PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: Lazard Asset
Management
PORTFOLIO MANAGERS: Herbert W.
Gullquist
John R.
Reinsberg
FUND'S OBJECTIVE: Capital appreciation
KEY INVESTMENTS: Equity securities of
relatively large
non-U.S. companies
SELECTION PROCESS: The Fund's subadviser
invests primarily in companies based in
developed markets that the subadviser believes are undervalued based on their
return on total capital or equity, with 80% or more of its total assets invested
within at least three foreign countries. The Fund may invest in companies of any
size or industry. The Fund's portfolio manager uses a traditional, bottom-up
value approach to evaluate stocks demonstrating potential capital growth based
upon the following characteristics:
- low price to earnings ratio
- high yield
- inexpensive markets worldwide
- potential for management change
- potential to improve profitability
- unrecognized assets
- - strong financial position
- - strong cash flow
- - established industry position
- - industry with positive growth outlook
- - healthy balance sheet with low corporate debt
PRINCIPAL RISKS: The Fund is most subject to equities risk, where market values
may change abruptly, sometimes unpredictably, and foreign and emerging markets
securities risks, where market values may be impacted by limited trading,
currency exchange, political or economic instability, or other factors. For more
information on the Fund's investments and related risks, please see "Investments
and Practices," the Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund expects
to invest in fixed-income securities which are investment grade at time of
purchase, short-term money market instruments and convertible bonds. For a
complete list of all investments available to the Fund, please refer to Appendix
A of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with the Morgan Stanley Capital
International Europe, Australia and Far East GDP. Past performance can give some
indication of the Fund's risk, but does not guarantee future results.
YEAR-BY-YEAR % TOTAL RETURNS AS OF 12/31
[BAR GRAPH]
<TABLE>
<CAPTION>
LAZARD
INTERNATIONAL
STOCK PORTFOLIO
<S> <C>
'97 8.50
'98 12.59
</TABLE>
The Fund commenced operations on August 1, 1996.
Best Quarter: 4th (98) 17.15 %
Worst Quarter: 3rd (98) (16.78)%
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
<TABLE>
<CAPTION>
1 year Life of Fund
------ ------------
<S> <C> <C>
Lazard Int'l. Stock 12.59% 12.06%
MSCI EAFE GDP Index 20.00% 10.63%
</TABLE>
11
<PAGE> 14
MFS EMERGING GROWTH PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: Massachusetts
Financial Services
PORTFOLIO MANAGERS: John W.
Ballen,
Toni Y. Shimura and Stephen
Pesek
FUND'S OBJECTIVE: Long-term growth of capital
KEY INVESTMENTS: Common stock of U.S.
companies
SELECTION PROCESS: The Fund's subadviser
normally invests at
least 65% of its total assets in common stock
and related
securities such as preferred stock,
convertible securities and depositary receipts of emerging growth companies.
Emerging growth companies are those that the subadviser believes either are
early in their life cycle but have the potential to become major enterprises, or
are major enterprises whose rates of earnings growth are expected to accelerate.
Emerging growth companies can be of any size and represent all industries. The
Fund's adviser uses a bottom-up, as opposed to top-down, investment style in
managing the fund. This means that securities are selected based on fundamental
analysis performed by the portfolio manager and the subadviser's group of equity
research analysts.
PRINCIPAL RISKS: The Fund is most subject to equities risk, where market values
may change abruptly, sometimes unpredictably, smaller companies risk, where
market values may be more erratic and stocks more thinly traded than the general
market, and emerging growth risk, where companies may have limited product
lines, history, or resources. Other principal risks are foreign and emerging
markets securities risks, where market values may be impacted by limited
trading, currency exchange, political or economic instability, or other factors.
For more information on the Fund's investments and related risks, please see
"Investments and Practices," the Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund's
investments include securities traded in the over-the-counter markets. The Fund
may also invest up to 25% of its total assets in foreign and emerging market
securities. For a complete list of all investments available to this Fund,
please refer to Appendix A of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with the Russell 2000 and the Russell Mid
Cap Indices. Past performance can give some indication of the Fund's risk, but
does not guarantee future performance.
YEAR-BY-YEAR % TOTAL RETURNS AS OF 12/31
[MFS EMERGING GROWTH PORTFOLIO GRAPH]
The Fund commenced operations on August 30, 1996.
Best Quarter: 4th (98) 27.61 %
Worst Quarter: 3rd (98) (13.30)%
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
<TABLE>
<CAPTION>
1 year Life of Fund
-------- ------------
<S> <C> <C>
MFS Emerg. Growth 34.32 % 26.28%
Russell 2000 (2.55)% 12.03%
Russell Mid Cap 10.09 % 21.58%
</TABLE>
12
<PAGE> 15
MFS MID CAP GROWTH PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: Massachusetts
Financial
Services
PORTFOLIO MANAGER: Mark Regan
FUND'S OBJECTIVE: Long-term growth of capital
KEY INVESTMENTS: Equity securities of
companies with medium
market capitalization.
SELECTION PROCESS: The Fund normally invests at least 65% of its assets in
medium-sized common stock and related securities, such as preferred stock,
convertible securities, and depositary receipts of companies with above-average
growth potential. Medium-sized market capitalization companies are those with
market capitalizations at least $250 million but not exceeding the top range of
the Russell Midcap(TM) Growth Index ($38.54 billion as of the most recent
reconstitution of the Index on June 30, 1998) at the time of investment. The
index is a widely recognized, unmanaged index of mid-cap common stock prices.
Companies whose capitalization falls below the minimum or exceeds the maximum
dollar value after purchase continue to be considered medium-capitalization
companies for purposes of the Fund's 65% investment policy. These companies
represent all industries. The Fund's subadviser views growth companies to be
those it considers well run and poised for growth. The subadviser looks
particularly for companies that demonstrate:
- A strong franchise, strong cash flows, and a recurring revenue stream
- A solid industry position, where there is
potential for high profit margins
- - a strong management team with a clearly defined strategy
- - a catalyst that may accelerate growth
- - substantial barriers to new entry in the industry
The Fund's subadviser uses a bottom-up, as opposed to a top-down, investment
style in managing the Fund. This means that securities are selected based on
fundamental analysis performed by the Fund's portfolio manager and the
subadviser's group of equity research analysts.
PRINCIPAL RISKS: The Fund is most subject to equities risk, where market values
may change abruptly, sometimes unpredictably, mid-cap companies risk, where
market values may be more erratic and stocks more thinly traded than the general
market, and emerging growth risk, where companies may have limited product
lines, history, or resources. The Fund is subject to foreign and emerging
markets securities risks, where market values may be impacted by limited
trading, currency exchange, political or economic instability, or other factors.
Other principal risks are fixed-income securities risk, where market values move
in the opposite direction of interest rates, and lower-quality fixed-income
risks, where market values are subject to credit risks of issuers who may
default or otherwise fail to make timely debt payments. For more information on
the Fund's investments and related risks, please see "Investments and
Practices," the Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund's
investments may include securities traded in the over-the-counter markets, and
it generally invests up to 20% of its total assets in foreign securities. The
Fund may also invest in fixed-income securities, including up to 10% in lower-
quality fixed-income securities and comparable unrated securities ("junk
bonds"). For a complete list of all investments available to the Fund, please
refer to Appendix A of this prospectus.
13
<PAGE> 16
FUND PERFORMANCE
The table below shows how an investment in the Fund has varied over time. The
returns shown assume that any dividends and distributions have been reinvested
in the Fund. The returns are not reduced to reflect any variable insurance
contract charges or fees that may be assessed by The Travelers. The table
compares the Fund's performance with the Russell 2000, the Lipper Mid Cap Stock
and the Russell Mid Cap Growth Indices. Past performance can give some
indication of the Fund's risk, but does not guarantee future results.
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/98
(Fund commenced operations on March 23, 1998)
<TABLE>
<CAPTION>
Life of Fund
------------
<S> <C>
MFS Mid Cap Growth 0.50 %
Russell 2000 (10.01)%
Lipper Mid Cap 3.12 %
Russell Mid Cap Growth (12.70)%
</TABLE>
Best Quarter: 4th (98) 22.56 %
Worst Quarter: 3rd (98) (16.33)%
14
<PAGE> 17
MFS RESEARCH PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: Mass. Financial
Services
PORTFOLIO MANAGER: Investment
Committee
FUND'S OBJECTIVE: Long-term growth of
capital and future
income
KEY INVESTMENTS: Common stock and
convertible securities
SELECTION PROCESS: The Fund normally invests in at least 80% of its total
assets in common stock and related securities of companies of any size. A
committee of investment research analysts allocates the Fund's assets among
various industries. Individual analysts then select what they view as the
securities best suited to achieve the Fund's investment objective within their
assigned industry responsibility. The Fund focuses on companies that the
subadviser believes have favorable prospects for:
- - long-term growth
- - superior management
- - dominant or growing market share
- - attractive valuations based on current and expected earnings or cash flow
PRINCIPAL RISKS: The Fund is most subject to equities risk, where market values
may change abruptly, sometimes unpredictably, including smaller companies risk,
where market values may be more erratic and stocks more thinly traded than the
general market. Other principal risks are foreign and emerging markets
securities risks, where market values may be impacted by limited trading,
currency exchange, political or economic instability, or other factors. For more
information on the Fund's investments and related risks, please see "Investments
and Practices," the Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund's
investments may include securities traded on securities exchanges or in
over-the-counter markets and up to 20% of its total assets may be invested in
foreign securities. The Fund may also invest in fixed-income securities,
including up to 10% in lower-quality fixed-income securities and comparable
unrated securities ("junk bonds"). For a complete list of all investments
available to the Fund, please refer to Appendix A of this Prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The table below shows how an investment in the Fund has varied over time. The
returns shown assume that any dividends and distributions have been reinvested
in the Fund. The returns are not reduced to reflect any variable insurance
contract charges or fees that may be assessed by The Travelers. The table
compares the Fund's performance with the Standard & Poor's 500 Index. Past
performance can give some indication of the Fund's risk, but does not guarantee
future results.
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
(The Fund commenced operations on May 1, 1998)
<TABLE>
<CAPTION>
Life of Fund
------------
<S> <C>
MFS Research 5.77%
S & P 500 11.71%
</TABLE>
Best Quarter: 4th (98) 20.74 %
Worst Quarter: 3rd (98) (14.37)%
15
<PAGE> 18
NWQ LARGE CAP PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: NWQ Investment
Management Co.
PORTFOLIO MANAGER: Investment
Committee
FUND'S OBJECTIVE: Consistent, superior total
return with minimum risk to
principal
KEY INVESTMENTS: Common stock of large
companies
SELECTION PROCESS: The Fund normally invests at least 65% of its total assets
in the common stock of companies with above-average statistical value that are
in fundamentally attractive industries. The Fund's policy is to invest in a
universe of 1100 mid-to large size companies, generally based in the United
States. The Fund's subadviser uses a value business-trend analysis to research
industry and company fundamentals and screen for value characteristics. The
subadviser selects stocks demonstrating potential capital growth based upon the
following characteristics:
- - below-average price-to-earnings ratios
- - ratios above-average dividend yield
- - strong financial stability
- - industries/sectors with strong long-term fundamentals
- - below-average price-to-book
- - leading/strong market positions
- - normalized earnings to value cyclical companies
PRINCIPAL RISKS: The Fund is most subject to equities risk, where market values
may change abruptly, sometimes unpredictably. For more information on the Fund's
investments and related risks, please see "Investments and Practices," the
Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may
invest in various other types of securities and engage in other investment
techniques and strategies which are not the principal focus of the Fund. For a
complete list of all investments available to the Fund, please refer to Appendix
A of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The table below shows how an investment in the Fund has varied over time. The
returns shown assume that any dividends and distributions have been reinvested
in the Fund. The returns are not reduced to reflect any variable insurance
contract charges or fees that may be assessed by The Travelers. The table
compares the Fund's performance with the Standard & Poor's 500 and the Standard
& Poor's Barra Value Indices. Past performance can give some indication of the
Fund's risk, but does not guarantee future results.
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
(Fund commenced operations on July 20, 1998)
<TABLE>
<CAPTION>
Life of Fund
------------
<S> <C>
NWQ Large Cap (4.94 )%
S & P 500 (4.31 )%
S & P/Barra Value (1.60 )%
</TABLE>
Best Quarter: 4th (98) 11.31%
Worst Quarter: 4th (98) 11.31%
(Fund has only one full
quarter of performance)
16
<PAGE> 19
SOCIAL AWARENESS STOCK PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: SSBC
PORTFOLIO MANAGER: Robert J.
Brady
FUND'S OBJECTIVE: Long-term capital
appreciation and
retention of net investment
income.
KEY INVESTMENTS: Common stock of large and
mid-sized companies.
SELECTION PROCESS: The Fund seeks to invest in companies that meet our
investment screen and, when possible, certain social criteria. The Fund avoids
investing in companies if a significant portion of their revenues come from: (1)
producing tobacco, tobacco products, alcohol, or military defense systems, or
(2) providing military defense related services, or (3) gambling services. In
addition, to the extent he is able to find them, the manager seeks to invest in
companies with a record of environmental awareness, fairness in the workplace,
and sensitivity to the community. The Fund's manager uses a "growth at a
reasonable price" approach to evaluate stocks demonstrating potential capital
growth based upon the following characteristics:
- - earnings growth and predictability
- - leading/strong market positions
- - experienced management team
- - established record of profitability
- - strong financial position
- - established industry position
- - industry with positive growth outlook
PRINCIPAL RISKS: This Fund is most subject to equities risk, where market
values may change abruptly, sometimes unpredictably. For more information on the
Fund's investments and related risks, please see "Investments and Practices,"
the Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may also
invest in various other types of securities and engage in other investment
techniques and strategies which are not the principal focus of the Fund. For a
complete list of all investments available to the Fund, please refer to Appendix
A of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with S&P 500 Index. Past performance can
give some indication of risk but does not guarantee future performance.
YEAR-BY-YEAR % TOTAL RETURNS AS OF 12/31
The Fund commenced operations on May 1, 1992.
Best Quarter: 4th (98) 24.56 %
Worst Quarter: 3rd (98) (10.61) %
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
<TABLE>
<CAPTION>
1 year 5 year Life of Fund
------ ------ ------------
<S> <C> <C> <C>
Social Awareness 32.27% 21.26% 18.41%
S&P 500 28.58% 24.06% 20.52%
</TABLE>
17
<PAGE> 20
STRATEGIC STOCK PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: TIMCO
PORTFOLIO MANAGER: Philip
Johanson
FUND'S OBJECTIVE: Above-average total
return through capital
appreciation and
dividend income
KEY INVESTMENTS: Highest
dividend-yielding stocks from the Dow Jones
Industrial Average ("DJIA") and a sub-set of
the S&P Industrial Index (S&P).
SELECTION PROCESS: First, the subadviser ranks the 30 DJIA stocks by dividend
yield. The 10 highest dividend yielding stocks are selected. The other 15 stocks
which make up the portfolio are selected from the S&P as follows: Any S&P stocks
that are also in the DJIA are removed. Only those stocks that are ranked A or A+
by Standard & Poors are included. The remaining stocks are ranked by market
capitalization from highest to lowest, and the lowest 25% are eliminated. The
remaining stocks are then ranked according to dividend yield, and the highest 15
are selected. The 10 stocks from the DJIA and the 15 selected from the S&P are
combined to create the portfolio.
PRINCIPAL RISKS: The Fund is most subject to equities risk, where market values
may change abruptly, sometimes unpredictably, and dividend risk, where a company
might pay lower or no dividends. For more information on the Fund's investments
and related risks, please see "Investments and Practices," the Appendix to this
prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may also
engage in options on equity securities indices, futures contracts on these
indices, and options on futures, both for hedging purposes and to seek enhanced
gains. A complete list of all investment techniques available to this Fund is
contained in Appendix A of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The table below shows how an investment in the Fund has varied over time. The
returns shown assume that any dividends and distributions have been reinvested
in the Fund. The returns are not reduced to reflect any variable insurance
contract charges or fees that may be assessed by The Travelers. The table
compares the Fund's performance with the DJIA, the S&P Industrial Average, and
the S&P 500 Index. Past performance can give some indication of the Fund's risk,
but does not guarantee future results.
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
(The Fund commenced operations on May 1, 1998)
<TABLE>
<CAPTION>
Life of Fund
------------
<S> <C>
Strategic Stock (4.24)%
DJIA 2.62 %
S&P Industrial 15.30 %
S&P 500 11.71 %
</TABLE>
Best Quarter: 4th (98) 9.16 %
Worst Quarter: 3rd (98) (9.36)%
18
<PAGE> 21
TRAVELERS QUALITY BOND PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
PORTFOLIO MANAGER: F. Denney
Voss
FUND'S OBJECTIVE: Current income, moderate
capital volatility and
total return.
KEY INVESTMENTS: Investment-grade debt
securities.
SELECTION PROCESS: No more than 25% of the Fund's assets will be invested in
any one industry. The adviser weighs yield, maturity and credit and other risk
information in selecting investments. In selecting individual securities, the
adviser looks for favorable yield, maturity, issue classification and quality
characteristics. The adviser expects that the Fund's investments generally will
maintain an average duration of 5 years or less.
PRINCIPAL RISKS: The Fund is most subject to fixed-income securities risk,
where market values move in the opposite direction of interest rates. For more
information on the Fund's investments and related risks, please see "Investments
and Practices," the Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: Investment in
longer term obligations may be made if the adviser concludes that the investment
yields justify a longer term commitment. From time to time, the Fund may also
purchase new government or agency securities on a "when-issued" basis. For a
complete list of all investments available to the Fund, please refer to Appendix
A of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with the Lehman Intermediate
Government/Corporate Bond Index (LIG/CBI). Past performance can give some
indication of the Fund's risk, but does not guarantee future results.
YEAR-BY-YEAR % TOTAL RETURNS AS OF 12/31
[BAR GRAPH]
The Fund commenced operations on August 30, 1996.
Best Quarter: 3rd (98) 4.23 %
Worst Quarter: 1st (98) (0.19)%
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
<TABLE>
<CAPTION>
1 year Life of Fund
------ ------------
<S> <C> <C>
Quality Bond 8.49% 8.25%
LIG/CBI 8.44% 8.71%
</TABLE>
19
<PAGE> 22
U.S. GOVERNMENT SECURITIES PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
PORTFOLIO MANAGER: Richard John
FUND'S OBJECTIVE: Highest credit quality,
current income, and
total return.
KEY INVESTMENTS: U.S. Treasury notes and
bonds and obliga-
tions of U.S. government instrumentalities and federal agencies.
SELECTION PROCESS: The portfolio manager selects longer duration investments
with a focus on income. The portfolio manager considers factors such as
interest-rate trends and the yield curve. The Fund may buy when-issued or
to-be-announced securities. The instrumentalities, government sponsored
enterprises, and federal agency obligations in which the Fund may invest
include, but are not limited to, the following:
- - Government National Mortgage Association
- - Federal Housing Administration
- - Export-Import Bank of the United States
- - Small Business Administration
- - Student Loan Marketing Association
- - Tennessee Valley Authority
- - Resolution Funding Corporation
- - Farm Credit System
- - Federal National Mortgage Association
- - Federal Home Loan Mortgage Corporation
PRINCIPAL RISKS: The Fund is most subject to fixed-income securities risk,
where market values move in the opposite direction of interest rates. For more
information on the Fund's investments and related risks, please see "Investments
and Practices," the Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may
invest in various other types of securities and engage in other investment
techniques and strategies which are not the principal focus of the Fund. For a
complete list of all investments available to the Fund, please refer to Appendix
A of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with the Lehman Government Bond Index.
Past performance can give some indication of the Fund's risk, but does not
guarantee future results.
YEAR-BY-YEAR % TOTAL RETURNS AS OF
12/31
[% TOTAL RETURNS BAR GRAPH]
<TABLE>
<CAPTION>
'93' '94' '95' '96' '97' '98'
<S> <C> <C> <C> <C> <C> <C>
7.90 -5.64 24.42 1.46 12.62 10.20
</TABLE>
This Fund commenced operations on 1/24/1992.
Best Quarter: 2nd (95) 9.10%
Worst Quarter: 1st (96) (4.71)%
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
<TABLE>
<CAPTION>
1 year 5 years Life of Fund
------ ------- ------------
<S> <C> <C> <C>
U.S. Govt. 10.20% 8.13% 8.36%
Sec.
LGBI 9.85% 7.18% 8.02%
</TABLE>
20
<PAGE> 23
UTILITIES PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: SSBC
PORTFOLIO MANAGER: Robert Brady
FUND'S OBJECTIVE: Current income. Secondarily,
long-term capital
appreciation.
KEY INVESTMENTS: Equity and fixed-income
securities of companies
in the Utilities
industry.
SELECTION PROCESS: The Fund normally invests at least 65% of its total assets
in income-producing equity and fixed-income securities of utilities which derive
at least 50% of their assets from utility operations. Utilities include those
companies which are engaged in the manufacture, production, generation,
transmission and sale of electric and gas energy, and those engaged in the
communications field, including entities such as telephone, telegraph,
satellite, and microwave, and government-regulated utilities (excluding public
broadcasting) that provide public communication facilities. The Fund may invest
in companies of any size. In selecting stocks demonstrating above-average
dividend yield, the manager uses a value approach based upon the following
characteristics:
- sustainable dividend growth
- leading/strong market positions
- experienced management team
- established record of profitability
- - strong financial position
- - strong cash flow
- - attractive restructuring potential
PRINCIPAL RISKS: The Fund is most subject to equities risk, where market values
may change abruptly, sometimes unpredictably, and sector risk, where market
values are impacted by a concentration in utility stocks that perform
differently from the general market. The Fund may be subject to foreign and
emerging markets securities risks, where market values may be impacted by
limited trading, currency exchange, political or economic instability, or other
factors. Other principal risks may be fixed-income securities risk, where market
values move in the opposite direction of interest rates, and lower-quality
fixed-income risks, where market values are subject to credit risks of issuers
who may default or otherwise fail to make timely debt payments. For more
information on the Fund's investments and related risks, please see "Investments
and Practices," the Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may also
invest up to 35% of its assets in equity and fixed income securities of
non-utility companies, lower-quality fixed-income securities ("junk bonds") and
foreign (including emerging market) securities. For a complete list of all
investments available to the Fund, please refer to Appendix A of this
prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with the S&P 500 Index. Past performance
can give some indication of the Fund's risk, but does not guarantee future
results.
YEAR-BY-YEAR % TOTAL RETURNS AS OF 12/31
<TABLE>
<CAPTION>
UTILITIES
PORTFOLIO
<S> <C>
'95 29.29
'96 7.47
'97 25.29
'98 18.21
</TABLE>
The Fund commenced operations on February 4, 1994.
Best Quarter: 4th (97) 13.14 %
Worst Quarter: 3rd (96) (2.70) %
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
<TABLE>
<CAPTION>
1 year Life of Fund
------ ------------
<S> <C> <C>
Utilities Portfolio 18.21% 17.08%
S&P 500 28.58% 23.67%
</TABLE>
21
<PAGE> 24
INVESTMENTS AND PRACTICES
Each Fund invests in various instruments subject to its particular investment
policies. The Funds may invest in some or all of the following, as indicated
below and in the Statement of Additional Information. For a free copy of the
Statement of Additional Information, see the back cover of this prospectus. No
Fund guarantees that it will reach its investment objective, and you may lose
money by investing in any Fund.
EQUITIES
(All Funds except U.S.
Government Securities) Equity securities include common and preferred
stock, warrants, rights, depositary receipts and
shares, trust certificates, and real estate
instruments.
Equities are subject to market risk. Many factors
affect the stock market prices and dividend
payouts of equity investments. These factors
include general business conditions, investor
confidence in the economy, and current conditions
in a particular industry or company. Each company
determines whether or not to pay dividends on
common stock. Equity securities are subject to
financial risks relating to the issuer's earning
stability and overall financial soundness.
Smaller and emerging growth companies are
particularly sensitive to these factors.
Equity securities that are traded
over-the-counter may be more volatile than
exchange-listed stocks, and the Fund may
experience difficulty in purchasing or selling
these securities at a fair price.
SECTORS
(Federated Stock Portfolio,
MFS Emerging Growth,
Utilities Portfolio) Companies with similar characteristics may be
grouped together in broad categories called
sectors. Sector risk is the possibility that a
certain sector may perform differently than other
sectors or as the market as a whole. As the
adviser allocates more of the Fund's portfolio
holdings to a particular sector, the Fund's
performance will be more susceptible to any
economic business or other developments that
generally affect that sector.
Because the Utilities Fund concentrates its
investments in one industrial sector, its
investments may be subject to greater market risk
and market fluctuations that a fund investing in
a broader range of investment alternatives. The
Fund may be subject to risks that are inherent to
the utilities industry, such as:
- Difficulty in financing large construction
programs during an inflationary period
- Increased costs and reduced availability of
certain fuels
- Delays and increased costs associated with
nuclear power
An emerging growth fund may invest in fewer
sectors than other funds.
FIXED-INCOME INVESTMENTS
(All Funds) Each Fund may invest in fixed-income securities.
Fixed-income securities include U.S. government
securities, certificates of deposit, and
short-term money market instruments. Fixed-
income securities may have all types of interest
rate payment and reset terms, including fixed
rate, adjustable rate, zero coupon, contingent,
deferred, payment in kind and auction rate
features.
22
<PAGE> 25
The value of debt securities varies inversely
with interest rates. This means generally that
the value of these investments increases as
short-term interest rates fall and decreases as
short-term interest rates rise. Yields from
short-term securities normally may be lower than
yields from longer-term securities. A bond's
price is affected by its issuer's credit quality.
An issuer may not always make payments on a fixed
income security. Some fixed income securities,
such as mortgage-backed securities are subject to
prepayment risk, which occurs when an issuer can
prepay the principal owed on a security before
its maturity.
LOWER-RATED FIXED-INCOME SECURITIES (Jurika &
Voyles Core Equity, Large Cap, MFS Mid Cap
Growth, MFS Emerging Growth, Federated High
Yield, Equity Income, MFS Research)
High-yield, high-risk securities, commonly called
"junk bonds," and are considered speculative.
While generally providing greater income than
investments in higher-quality securities, these
securities will involve greater risk of principal
and income (including the possibility of default
or bankruptcy of the issuers of the security).
FOREIGN SECURITIES
(Convertible Bond, MFS
Emerging Growth, MFS
Mid Cap Growth, Federated
High Yield, Federated Stock,
Equity Income, Travelers
Quality Bond, Large Cap,
Lazard International,
MFS Research, Jurika & Voyles
Core Equity, NWQ Large Cap)
An investment in foreign securities involves risk
in addition to those of U.S. securities,
including possible political and economic
instability and the possible imposition of
exchange controls or other restrictions on
investments. The Fund also bears an "information"
risk associated with the different accounting,
auditing, and financial reporting standards in
many foreign countries. If a Fund invests in
securities denominated or quoted in currencies
other than the U.S. dollar, changes in foreign
currency rates relative to the U.S. dollar will
affect the U.S. dollar value of the Fund's
assets. Foreign securities may be less liquid
than U.S. securities.
EMERGING MARKET INVESTMENTS
(Convertible Bond, MFS
Emerging Growth, MFS Mid
Cap Growth, Federated High
Yield, Federated Stock,
Equity
Income, Large Cap, Lazard
International, MFS Research,
Jurika & Voyles Core Equity,
NWQ Large Cap) Emerging markets offer the potential of
significant gains but also involve greater risks
than investing in more developed countries.
Political or economic instability, lack of market
liquidity and government actions, such as
currency controls or seizure of private business
or property may be more likely in emerging
markets.
DERIVATIVES AND HEDGING
TECHNIQUES
(Convertible Bond, Travelers
Quality Bond, MFS Emerging
Growth, MFS Mid Cap Growth,
Federated Stock, Equity
Income,
Disciplined Mid Cap,
Disciplined
Small Cap, Large Cap, Lazard
International, MFS Research,
NWQ Large Cap, Strategic
Stock,
U.S. Government) A Fund may use derivative contracts, such as
futures and options on securities, for any of the
following purposes:
- To hedge against the economic impact of
adverse changes in the market value of its
securities, due to changes in stock market
prices, currency exchange rates or interest
rates;
- As a substitute for buying or selling
securities
- To enhance return
23
<PAGE> 26
Even a small investment in derivative contracts
can have a big impact on a Fund's stock market,
currency and interest rate exposure. Therefore,
using derivatives can disproportionately increase
losses and reduce opportunities for gain when
stock prices, currency rates or interest rates
are changing.
For a more complete description of derivative and
hedging techniques and their associated risks,
please refer to the Statement of Additional
Information.
OTHER RISK FACTORS
SELECTION RISK
(All Funds)
Fund investors are subject to selection risk in
that a strategy used, or stock selected, may fail
to have the desired effect. Specifically, stocks
believed to show potential for capital growth may
not achieve that growth. Strategies or
instruments used to hedge against a possible risk
or loss may fail to protect against the
particular risk or loss.
TEMPORARY DEFENSIVE POSITIONS
(All Funds)
The Funds may depart from principal investment
strategies in response to adverse market,
economic or political conditions by taking
temporary defensive positions in various types of
money market, preferred stock and short-term debt
securities. If a Fund takes a temporary defensive
position, it is not pursuing its investment goal.
PORTFOLIO TURNOVER
(Disciplined Mid Cap
Stock, Disciplined
Small Cap Stock,
U.S. Government
Securities) The Funds may actively trade portfolio securities
in an attempt to achieve their investment
objective. Active trading will cause the Funds to
have an increased portfolio turnover rate, which
is likely to generate shorter-term gains (losses)
for its shareholders, which are taxed at a higher
rate than longer-term gains (losses). Actively
trading portfolio securities increases the Funds'
trading costs and may have an adverse impact on
the Funds' performance.
NON-DIVERSIFICATION
(MFS Mid Cap Growth) The MFS Mid Cap Growth Portfolio is not
diversified, which means that it can invest a
higher percentage of its assets in any one issuer
than a diversified fund. Being non-diversified
may magnify the Fund's losses from adverse events
affecting a particular issuer.
INVESTMENT OBJECTIVES
(All Funds)
Each Fund's investment objective and, unless
noted as fundamental, its investment policies may
be changed by the Board without approval of
shareholders or holders of variable annuity and
variable life insurance contracts. A change in a
Fund's investment objective or policies may
result in the Fund having a different investment
objective or policies from those that a
policyowner selected as appropriate at the time
of investment.
24
<PAGE> 27
MANAGEMENT
INVESTMENT ADVISER
TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION ("TAMIC") provides
investment advice and, in general, supervises the management and investment
program for all the funds described in this prospectus except the Social
Awareness Stock Portfolio and the Utilities Portfolio. TAMIC is a registered
investment adviser that was incorporated in 1978. Its principal offices are
located at One Tower Square, Hartford, Connecticut, and it is an indirect wholly
owned subsidiary of Citigroup Inc. TAMIC also acts as an investment adviser or
subadviser for:
- other investment companies used to fund variable products
- individual and pooled pension and profit-sharing accounts
- domestic insurance companies affiliated with The Travelers Insurance
Company (which is affiliated with TAMIC)
- nonaffiliated insurance companies
For the year ended December 31, 1998, the Funds paid advisory fees to TAMIC as
indicated:
<TABLE>
<CAPTION>
FUND ANNUAL MANAGEMENT FEE*
(AS A PERCENTAGE OF THE FUND'S
AVERAGE DAILY NET ASSETS)
<S> <C>
Convertible Bond Portfolio................................ 0.60%**
Disciplined Mid Cap Stock Portfolio....................... 0.70%
Disciplined Small Cap Stock Portfolio..................... 0.80%**
Equity Income Portfolio................................... 0.75%
Federated High Yield Portfolio............................ 0.65%
Federated Stock Portfolio................................. 0.625%
Jurika & Voyles Core Equity Portfolio..................... 0.75%**
Large Cap Portfolio....................................... 0.75%
Lazard International Stock Portfolio...................... 0.825%
MFS Emerging Growth Portfolio............................. 0.75%
MFS Mid Cap Stock Portfolio............................... 0.80%**
MFS Research Portfolio.................................... 0.80%**
NWQ Large Cap Portfolio................................... 0.75%**
Strategic Stock Portfolio................................. 0.60%**
Travelers Quality Bond Portfolio.......................... 0.3233%
U.S. Government Securities Portfolio...................... 0.3233%
</TABLE>
SSBC FUND MANAGEMENT INC. ("SSBC") provides investment advice and, in general,
supervises and manages the investment program for the Social Awareness Stock
Portfolio and the Utilities Portfolio. SSBC is a registered investment adviser
and affiliate of The Travelers Insurance Company. It has been in the investment
counseling business since 1968. Its principal offices are located at 388
Greenwich Street, New York, New York, and it is a wholly owned subsidiary of
Citigroup Inc. SSBC also renders investment advice to a wide variety of
individual, institutional, and investment company clients.
For the year ended December 31, 1998, the Social Awareness Stock Portfolio paid
SSBC an amount equivalent on an annual basis a fee computed as follows:
<TABLE>
<CAPTION>
ANNUAL AGGREGATE NEW ASSET
MANAGEMENT FEE* VALUE OF THE FUND
<S> <C>
0.65% of the first $50,000,000 plus
0.55% of the next $50,000,000 plus
0.45% of the next $100,000,000 plus
0.40% of amounts over $200,000,000
</TABLE>
For the year ended December 31, 1998, the Utilities Portfolio paid SSBC an
amount equivalent on an annual basis to 0.65%* of its average daily net assets.
* Fee shown also reflects maximum annual management fee payable to investment
adviser. ** These funds were not operational for a full year in 1998.
Accordingly, the fee indicated is the contract rate.
25
<PAGE> 28
THE SUBADVISERS AND PORTFOLIO MANAGERS
TAMIC is the sole manager of the Convertible Bond Portfolio, Travelers Quality
Bond Portfolio, and the U.S. Government Securities Portfolio. Each of the other
Funds' investments are managed by a subadviser which is supervised by TAMIC. The
table below sets forth the name of each subadviser, if any, and portfolio
manager, including the business experience of each Fund's portfolio manager for
the past 5 years.
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------
FUND PORTFOLIO MANAGER BUSINESS EXPERIENCE
AND SUBADVISER (1994 TO PRESENT)
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BOND PORTFOLIO David A. Tyson Executive Vice President,
(since 5/98) Travelers Investment Group
TAMIC
(No subadviser)
- --------------------------------------------------------------------------------------------
DISCIPLINED MID CAP STOCK Sandip Bhagat President and Chief
PORTFOLIO (since 4/97) Executive Officer, TIMCO
TIMCO
One Tower Square
Hartford, CT
- --------------------------------------------------------------------------------------------
DISCIPLINED SMALL CAP Sandip Bhagat President and Chief
STOCK PORTFOLIO (since 5/98) Executive Officer, TIMCO
TIMCO
One Tower Square
Hartford, CT
- --------------------------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO Stephen DuFour Portfolio Manager
(since 3/99) for mutual funds and
Fidelity Management & other trust accounts
Research Co.("FMR") for FMR and Fidelity
82 Devonshire Street Management Trust Company
Boston, MA 02109-3614
- --------------------------------------------------------------------------------------------
FEDERATED HIGH YIELD Mark E. Durbiano Senior Vice President,
PORTFOLIO (since 8/96) Federated Investors
Federated Investment
Counseling
Federated Investors Tower
Pittsburgh, PA 15222-3779
Constantine Kartsonas Assistant Vice President,
(since 8/98) Federated Investors
Federated Investment
Counseling
Federated Investors Tower
Pittsburgh, PA 15222-3779
- --------------------------------------------------------------------------------------------
FEDERATED STOCK PORTFOLIO Michael P. Donnelly Vice President, Federated
(since 11/97) Investment Counseling
Federated Investment
Counseling
Federated Investors Tower
Pittsburgh, PA 15222-3779
- --------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------
FUND PORTFOLIO MANAGER BUSINESS EXPERIENCE
AND SUBADVISER (1994 TO PRESENT)
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C> <C>
JURIKA & VOYLES CORE Mark Nuti Vice President and
EQUITY PORTFOLIO (since 4/99) Principal, Jurika & Voyles
Jurika & Voyles
1999 Harrison Street, Suite Senior Investment Officer,
700 USL Capital Corporation
Oakland, CA 94612
Guy Eliffe, Vice President and
(since 4/99) Principal,
Jurika & Voyles Jurika & Voyles
1999 Harrison Street, Suite
700 Managing Director, National
Oakland, CA 94612 Mutual Funds Management
- --------------------------------------------------------------------------------------------
LARGE CAP PORTFOLIO Karen Firestone Portfolio Manager or
(since 5/98) Portfolio Analyst of mutual
Fidelity Management & funds and other trust
Research Co. accounts for FMR and for
82 Devonshire Street Fidelity Management Trust
Boston, MA 02109-3614 Company
- --------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL STOCK Herbert W. Gullquist Managing Director and Vice
PORTFOLIO (since 8/96) Chairman, Lazard Freres &
Lazard Asset Management Co. LLC
30 Rockefeller Plaza
New York, NY 10112 Chief Investment Officer,
Lazard Asset Management
John R. Reinsberg Managing Director, Lazard
(since 8/96) Freres & Co. LLC
Lazard Asset Management
30 Rockefeller Plaza
New York, NY 10112
- --------------------------------------------------------------------------------------------
MFS EMERGING GROWTH John W. Ballen President, MFS
PORTFOLIO (since 8/96)
Massachusetts Financial
Services Co. ("MFS")
500 Boylston Street
Boston, MA
Toni Y. Shimura Vice President, Investments
(since 8/96) MFS
MFS
500 Boylston Street
Boston, MA
Stephen Pesek Vice President, MFS
(since 1/99)
MFS Analyst, Fidelity
500 Boylston Street Investments
Boston, MA
- --------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 30
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------
FUND PORTFOLIO MANAGER BUSINESS EXPERIENCE
AND SUBADVISER (1994 TO PRESENT)
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C> <C>
MFS MID CAP GROWTH Mark Regan Vice President, MFS
PORTFOLIO (since 5/98)
MFS
500 Boylston Street
Boston, MA
- --------------------------------------------------------------------------------------------
MFS RESEARCH PORTFOLIO Investment Committee N/A
(since 5/98)
MFS
500 Boylston Street
Boston, MA
- --------------------------------------------------------------------------------------------
NWQ LARGE CAP PORTFOLIO Investment Committee Ted Freidel: Managing
(since 5/98) Director and Portfolio
Primary Responsibility: Manger, NWQ since 1983
E.C. ("Ted") Friedel and
Jeffrey M. Cohen
NWQ Investment Management Jeffrey M. Cohen: Vice
Co. President and Portfolio
2049 Century Park East, Manager, NWQ, since 1988
4th Floor
Los Angeles, CA 90067
- --------------------------------------------------------------------------------------------
SOCIAL AWARENESS STOCK Robert J. Brady (since 1994) Managing Director and
PORTFOLIO SSB Portfolio Manager, SSBC
(No subadviser) Vice President and Portfolio
Manager, SSBC
- --------------------------------------------------------------------------------------------
STRATEGIC STOCK PORTFOLIO Philip Johanson Vice President, Portfolio
(since 5/99) Management, TIMCO
TIMCO
One Tower Square Senior Vice President,
Hartford, CT 06183 Portfolio Manager,
Smith Barney Asset
Management
Assistant Portfolio Manager
Smith Barney Equity
Management
- --------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------
FUND PORTFOLIO MANAGER BUSINESS EXPERIENCE
AND SUBADVISER (1994 TO PRESENT)
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C> <C>
TRAVELERS QUALITY BOND F. Denney Voss Executive Vice President,
PORTFOLIO (since 3/95) Travelers Insurance Co.
TAMIC
(No subadviser) Senior Vice President,
TAMIC
- --------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES Richard John Senior Vice President, TAMIC
PORTFOLIO (since 1/99)
TAMIC
One Tower Square
Hartford, CT 06183
(No subadviser)
- --------------------------------------------------------------------------------------------
UTILITIES PORTFOLIO Robert J. Brady Managing Director and
(since 11/98) Portfolio Manager, SSBC
SSBC Vice President and Portfolio
(No subadviser) Manager, SSBC
- --------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE> 32
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Trust, and it has been
advised by TAMIC, TIMCO, Jurika & Voyles, Federated Investors, Fidelity
Management & Research, Lazard Freres & Co., LLC, Massachusetts Financial
Services and NWQ Investment Management Company that none of them have any
material pending legal proceedings affecting them.
YEAR 2000 COMPLIANCE
The Travelers Insurance Company ("the Company") is highly dependent on computer
systems and system applications for conducting its ongoing business functions.
In 1996, the Company began the process of identifying, assessing and
implementing changes to computer programs necessary to address the Year 2000
issue and developed a comprehensive plan to address the issue. This issue
involves the ability of computer systems that have time sensitive programs to
recognize properly the Year 2000. The inability to do so could result in major
failures or miscalculations that would disrupt the Company's ability to meet its
customer and other obligations on a timely basis.
The Company has achieved substantial compliance with respect to its business
critical systems in accordance with its Year 2000 plan and is in the process of
certification to validate compliance. The Company anticipates completing the
certification process by June 30, 1999. An ongoing re-certification process will
be put in place for third and fourth quarter 1999 to ensure all systems and
products remain compliant.
The total pre-tax cost associated with the required modifications and
conversions is expected to be between $25 million and $35 million and is being
expensed by the Company as incurred in the period 1996 through 1999. The Company
has incurred approximately $22 million to date on these efforts. The Company
also has third party customers, financial institutions, vendors and others with
which it conducts business and has confirmed their plans to address and resolve
Year 2000 issues on a timely basis. While it is likely that these efforts by
third party vendors and customers will be successful, it is possible that a
series of failures by third parties could have a material adverse effect on
certain operations of the Series Trust.
In addition, the Company is developing contingency plans to address perceived
risks associated with the Year 2000 effort. These include business resumption
plans to address the possibility of internal systems failures and the
possibility of failure of systems or processes outside the Company's control. As
of year-end 1998, the Company has completed initial business resumption
contingency plans which would enable business critical units to function
beginning January 1, 2000 in the event of an unexpected failure. Business
resumption contingency plans are expected to be finalized by June 30, 1999.
Preparations for the management of the date change will continue through 1999.
EURO CONVERSION
On January 1, 1999, 11 participating countries in the European Economic Monetary
Union (Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, and Spain) adopted the Euro as their official
currency. As of January 1, 1999, governments in participating countries now
issue new debt and redenominate existing debt in Euros, although corporations
may choose whether to issue stocks or bonds in Euros or the national currency.
The new European Central Bank (the "ECB") has assumed responsibility for a
uniform monetary policy in participating countries. Currency conversion occurs
through a "triangulation" process whereby an amount denominated in one national
currency is converted into Euros, which are then be converted into the second
national currency. The Euro conversion presents investors with unique risks and
uncertainties, including: (1) the readiness of Euro payment, clearing, and other
operational systems; (2) the legal treatment of debt instruments and financial
contracts denominated in or referring to existing national currencies rather
than the Euro; (3) exchange-rate fluctuations between the Euro and non-Euro
currencies during the transition period of January 1, 1999 through December 31,
2001 and beyond; (4) potential U.S. tax issues with respect to Fund
30
<PAGE> 33
securities; and (5) the ECB's abilities to manage monetary policies among the
participating countries. Three other EU member countries (Denmark, Greece, and
the United Kingdom) may convert to the Euro at a later date. These and other
factors could adversely affect the value of or income from Fund securities.
SHAREHOLDER TRANSACTIONS AND PRICING
Fund shares are currently sold only to insurance company separate accounts in
connection with the variable annuity and variable life insurance contracts
issued by The Travelers. The term "shareholder" as used in this prospectus
refers to any insurance company separate account that may use Fund shares as a
funding option now or in the future. Fund shares are not sold to the general
public. Fund shares are sold on a continuing basis without a sales charge at the
net asset value next computed after the Fund's custodian receives payment. The
separate accounts to which shares are sold, however, may impose sales and other
charges, as described in the appropriate contract prospectus.
The Trust currently issues 20 series or Funds, each with only one class of
shares. All shares participate equally in dividends and distributions and have
equal voting, liquidation and other rights. All shares of a Fund participate
equally in dividends and distributions and have equal voting liquidation and
other rights. When issued for the consideration described in the prospectus,
shares are fully paid and nonassessable by the Trust. Shares are redeemable,
transferable and freely assignable as collateral. (See the accompanying separate
account prospectus for a discussion of voting rights applicable to purchasers of
variable annuity and variable life insurance contracts.)
PRICING OF FUND SHARES
The offering price of Fund shares is the net asset value or NAV of a single
share. Normally NAV is computed as of the close of trading (usually 4:00 p.m.
Eastern time) each day the New York Stock Exchange ("Exchange") is open. NAV is
calculated by adding the value of a Fund's investments, cash and other assets,
subtracting its liabilities, and dividing the result by the number of shares
outstanding.
Each Fund's assets are valued primarily based on market value. Short-term money
market instruments with remaining maturities of sixty days or less are valued
using the amortized-cost method. This method approximates market value and
minimizes the effect of charges in a security's market value. Foreign securities
are valued on the basis of quotations from the primary market in which they are
traded; the value is then converted into U.S. dollars from the local currency.
In cases where market quotations are not readily available or, for foreign
securities, if the values have been materially impacted by events occurring
after the closing of a foreign market, an asset is valued at fair value as
determined in good faith by the Trust's Board of Trustees ("Board"). However,
this procedure is not used to determine the value of the securities owned by a
Fund if, in the opinion of the Board or the committee appointed by the Board,
some other method (e.g., closing over-the-counter bid prices in the case of debt
instruments traded off an exchange) would more accurately reflect the fair
market value of such securities.
PURCHASES AND REDEMPTIONS
Owners of variable annuity or variable life insurance contracts should follow
the purchase and redemption procedures described in the accompanying separate
account prospectus. The following is general information with regard to
purchases and redemptions of Fund shares by insurance company separate accounts.
Fund shares are purchased and redeemed at the NAV next determined after the Fund
receives a purchase or redemption order. NAVs are adjusted for fractions of a
cent. Upon redemption, a shareholder may receive more or less than the amount
paid at the time of purchase, depending upon changes in the value of the Fund's
investment portfolio between purchase and redemption.
31
<PAGE> 34
The Trust computes each Fund's NAV for purchases and redemptions as of the close
of the Exchange on the day that the Trust has received all proper documentation
from the shareholder. Redemption proceeds are normally wired or mailed either
the same or the next business day, but not more than seven days later.
The Trust retains the right to refuse a purchase order. The Trust may
temporarily suspend the redemption rights or postpone payments when the Exchange
is closed (other than on weekends and holidays), when trading on the Exchange is
restricted, or when permitted by the SEC.
TAX CONSEQUENCES OF DIVIDENDS AND DISTRIBUTIONS
Capital gains and dividends are distributed in cash or reinvested in additional
Fund shares, without a sales charge. The Trust expects that Fund shares will be
held under a variable annuity or variable life insurance contract. Under current
tax law, distributions that are left to accumulate in the variable annuity or
life insurance contract are not subject to federal income tax until they are
withdrawn from the contract. Contract purchasers should review the accompanying
contract prospectus for a discussion of the tax treatment applicable to variable
annuity or variable life insurance contracts.
Each Fund intends to make distributions of income and capital gains in order to
qualify each year as a regulated company under Subchapter M of the Internal
Revenue Code. Further, each Fund intends to meet certain diversification
requirements applicable to mutual funds underlying variable insurance products.
32
<PAGE> 35
FINANCIAL HIGHLIGHTS
CONVERTIBLE BOND PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance since the Fund's inception on May 1, 1998. Certain
information presents financial results for a single Fund share. The total
returns in the table represent the rate that a Fund investor would have earned
(or lost) on an investment in the Fund (assuming reinvestment of all dividends
and distributions). The information for the year ended December 31, 1998 was
audited by KPMG LLP, independent auditors, whose report and the Fund's financial
statements are included in the annual report to shareholders, which is available
upon request.
<TABLE>
<CAPTION>
MAY 1, 1998(1) TO
DECEMBER 31, 1998
<S> <C>
Net Asset Value,
Beginning of Period....................... $10.00
Income from Investment Operations:
Net Investment Income(2)................ 0.22
Net Losses on Securities
(both realized and unrealized).......... (0.12)
------
Total Income from Investment
Operations.............................. 0.10
Less Distributions:
Dividends (from net investment
Income)................................. (0.22)
Distributions (from capital gains)...... (0.02)
------
Total distributions....................... (0.24)
Net Asset Value, End of
------
Period.................................... $ 9.86
------
TOTAL RETURN(3)........................... 0.98%
Net Assets, End of Period
(thousands)............................. $4,617
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net
Assets (with reimbursement)(2)(4)....... 0.80%
Ratio of Expenses to Average Net Asset
Value (without reimbursement)(2)(4)..... 1.86%
Ratio of Net Investment Income to
Average Net Assets(4)................... 4.31%
Portfolio turnover rate................. 7%
</TABLE>
(1) Date operations commenced.
(2) Travelers has agreed to reimburse the Portfolio for expenses in the amount
of $24,996 for the period ended December 31, 1998. If such expenses were not
reimbursed, the per share decrease in net investment income would have been
$0.05.
(3) Total return is not annualized as it may not be representative of the total
return for the year.
(4) Annualized
33
<PAGE> 36
FINANCIAL HIGHLIGHTS
DISCIPLINED MID CAP STOCK PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 2 periods. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information was audited by KPMG LLP, independent auditors,
whose report and the Fund's financial statements are included in the annual
report to shareholders, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------- APRIL 1, 1997(1)TO
1998 DECEMBER 31, 1997
<S> <C> <C>
Net Asset Value,
Beginning of Period....................... $ 12.47 $10.00
Income from Investment Operations:
Net Investment Income(2)................ 0.04 0.06
Net Gains on Securities
(both realized and unrealized).......... 2.05 3.37
------- ------
Total Income from Investment
Operations.............................. 2.09 3.43
Less Distributions:
Dividends (from net investment
Income)................................. -- (0.06)
Distributions (from capital gains)...... (0.22) (0.90)
------- ------
Total distributions..................... (0.22) (0.96)
------- ------
Net Asset Value, End of
Period.................................... $ 14.34 $12.47
------- ------
TOTAL RETURN(3)........................... 16.91% 34.38%
Net Assets, End of Period
(thousands)............................. $19,460 $6,169
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net
Assets(with reimbursement)(2)(4)........ 0.95% 0.95%
Ratio of Expenses to Net
Average Assets (without
reimbursement)(2)(4).................... 1.22% 1.82%
Ratio of Net Investment Income to
Average Net Assets(4)................... 0.48% 0.85%
Portfolio turnover rate................. 109% 74%
</TABLE>
(1) Date operations commenced.
(2) Travelers has waived all or a portion of its fees for the year ended
December 31, 1998, and the period ended December 31, 1997. In addition,
Travelers has reimbursed the Fund for $3,564 of the Fund's expenses for the
period ended December 31, 1997. If such fees were not waived and expenses
not reimbursed, the per share decrease in net investment income would have
been $0.02 for the year ended December 31, 1998, and $0.08 for the period
ended December 31, 1997.
(3) Total return is actual and has not been annualized for periods of less than
one year, as it may not be representative of the total return for the year.
The total return would have been lower had expenses not been reduced during
the period shown or if separate account charges had been reflected.
(4) Annualized for periods of less than one year.
34
<PAGE> 37
FINANCIAL HIGHLIGHTS
DISCIPLINED SMALL CAP STOCK PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance since the Fund's inception on May 1, 1998. Certain
information presents financial results for a single Fund share. The total
returns in the table represent the rate that a Fund investor would have earned
(or lost) on an investment in the Fund (assuming reinvestment of all dividends
and distributions). The information was audited by KPMG LLP, independent
auditors, whose report and the Fund's financial statements are included in the
annual report to shareholders, which is available upon request.
<TABLE>
<CAPTION>
MAY 1, 1998(1) TO
DECEMBER 31, 1998
<S> <C>
Net Asset Value,
Beginning of Period....................... $ 10.00
Income from Investment Operations:
Net Investment Income(2)................ 0.03
Net Gains or Losses on Securities
(both realized and unrealized).......... (1.13)
-------
Total Income (loss) from Investment
Operations.............................. (1.10)
Less Distributions:
Dividends (from net investment
Income)................................. (0.03)
Distributions (from capital gains)...... (0.00)*
-------
Total distributions....................... (0.03)
-------
Net Asset Value, End of
Period.................................... $ 8.87
-------
TOTAL RETURN(3)........................... (11.04)%
Net Assets, End of Period
(thousands)............................. $ 5,162
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net
Assets (with reimbursement)(2)(4)....... 1.00%
Ratio of Expenses to Average
Net Assets (without
reimbursement)(2)(4).................... 2.98%
Ratio of Net Investment Income to
Average Net Assets(4)................... 0.64
Portfolio turnover rate................. 89%
</TABLE>
(1) Date operations commenced.
(2) Travelers has agreed to reimburse the Fund for expenses in the amount of
$45,146 for the period ended December 31, 1998. If such expenses were not
reimbursed, the per share decrease in net investment income would have been
$0.08.
(3) Total return is not annualized, as it may not be representative of the total
return for the year.
(4) Annualized
* Amount represents less than $0.01.
35
<PAGE> 38
FINANCIAL HIGHLIGHTS
EQUITY INCOME PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 3 periods. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information was audited by PricewaterhouseCoopers, LLP,
independent auditors, whose report and the Fund's financial statements are
included in the annual report to shareholders, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AUGUST 30, 1996(1) TO
1998 1997 DECEMBER 31, 1996
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period....................... $ 13.91 $ 11.09 $10.00
Income from Investment Operations:
Net Investment Income(2)................ 0.18(5) 0.21(5) 0.08
Net Gains or Losses on Securities
(both realized and unrealized).......... 1.53 3.32 1.09
------- ------- ------
Total from Investment
Operations.............................. 1.71 3.53 1.17
Less Distributions:
Dividends (from net investment
Income)................................. (0.13) (0.12) (0.08)
Distributions (from capital gains)...... (0.08) (0.59) --
------- ------- ------
Total distributions....................... (0.21) (0.71) (0.08)
------- ------- ------
Net Asset Value, End of Period............ $ 15.41 $ 13.91 $11.09
------- ------- ------
TOTAL RETURN(3)........................... 12.38% 32.05% 11.69%
Net Assets, End of Period
(thousands)............................. $79,198 $22,139 $3,600
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net Assets
(with reimbursement)(2)(4).............. 0.95% 0.95% 0.95%
Ratio of Expenses to Average Net Assets
(without reimbursement)(2)(4)........... 1.09% 1.90% 4.56%
Ratio of Net Income to Average Net
Assets(4)............................... 1.22% 1.60% 2.34%
Portfolio turnover rate................. 34% 52% 14%
</TABLE>
(1) Date operations commenced.
(2) Travelers has agreed to reimburse a portion of the Fund's expenses during
the period.
(3) Total return is actual and has not been annualized, as it may not be
representative of the total return for the year. The total return would have
been lower had expenses not been reduced during the period shown or if
separate account charges had been reflected.
(4) Annualized for periods of less than one year.
(5) Net investment income per share has been calculated based on average shares
outstanding during the period.
36
<PAGE> 39
FINANCIAL HIGHLIGHTS
FEDERATED HIGH YIELD PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 3 periods. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information for the years ended December 31, 1998 and 1997
was audited by KPMG LLP, independent auditors, whose report and the Fund's
financial statements are included in the annual report to shareholders, which is
available upon request. The other period presented was audited by other
independent auditors.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------ AUGUST 30, 1996(1)TO
1998 1997 DECEMBER 31, 1996
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period....................... $ 11.34 $ 10.42 $10.00
Income (loss) from Investment Operations:
Net Investment Income(2)................ 0.71 0.60 0.31
Net Gains (Losses) on Securities (both
realized and unrealized)................ (0.18) 1.01 0.46
------- ------- ------
Total Income from Investment
Operations.............................. 0.53 1.61 0.77
Less Distributions:
Dividends (from net investment
Income)................................. (0.71) (0.60) (0.31)
Distributions (from capital gains)...... (0.05) (0.09) (0.04)
------- ------- ------
Total distributions....................... (0.76) (0.69) (0.35)
------- ------- ------
Net Asset Value, End of Period............ $ 11.11 $ 11.34 $10.42
------- ------- ------
TOTAL RETURN(3)........................... 4.71% 15.45% 7.61%
Net Assets, End of Period (thousands)... $40,989 $14,049 $5.381
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net Assets
(with reimbursement)(2)(4)(5)........... 0.90% 0.95% 0.95%
Ratios of Expenses to Average Net
Assets (without
reimbursement)(2)(4)(5)................. 0.90% 1.14% 2.19%
Ratio of Net Investment Income to
Average Net Assets(4)................... 8.60% 8.82% 8.78%
Portfolio turnover rate................. 31% 43% 23%
</TABLE>
(1) Date operations commenced.
(2) Travelers has waived part or all of its fees for the year ended December 31,
1997 and the period ended December 31, 1996. In addition, Travelers has
reimbursed the Fund for $9,268 of the Fund's expenses for the period ended
December 31, 1996. If such fees were not waived and expenses not reimbursed,
the per share decrease in net investment income would have been $0.01 for
the year ended December 31, 1997 and $0.04 for the period ended December 31,
1996
(3) Total return is actual and has not been annualized for periods of less than
one year, as it may not be representative of the total return for the year.
The total return would have been lower had expenses not been reduced during
the period shown or if separate account charges had been reflected.
(4) Annualized for periods of less than one year.
(5) As a result of a voluntary expense limitation the ratio of expenses to
average net assets will not exceed 0.95%.
37
<PAGE> 40
FINANCIAL HIGHLIGHTS
FEDERATED STOCK PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 3 periods. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information for the years ended December 31, 1998 and 1997
was audited by KPMG LLP, independent auditors, whose report and the Fund's
financial statements are included in the annual report to shareholders, which is
available upon request. The other period presented was audited by other
independent auditors.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------ AUGUST 30, 1996(1) TO
1998 1997 DECEMBER 31, 1996
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period....................... $ 13.83 $ 11.10 $10.00
Income from Investment Operations:
Net Investment Income(2)................ 0.13 0.10 0.06
Net Gains on Securities (both realized
and unrealized)......................... 2.33 3.60 1.20
------- ------- ------
Total Income from Investment
Operations.............................. 2.46 3.70 1.26
Less Distributions:
Dividends (from net investment
Income)................................. (0.13) (0.10) (0.06)
Distributions (from capital gains)...... (0.50) (0.87) (0.09)
Capital................................. -- -- (0.01)
------- ------- ------
Total distributions....................... (0.63) (0.97) (0.16)
------- ------- ------
Net Asset Value, End of Period............ $ 15.66 $ 13.83 $11.10
------- ------- ------
TOTAL RETURN(3)........................... 17.84% 33.41% 12.61%
Net Assets, End of Period (thousands)... $35,420 $12,100 $3,380
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net Assets
(with reimbursement)(2)(4)(5)........... 0.91% 0.95% 0.95%
Ratio of Expenses to Average Net Assets
(without reimbursement)(2)(4)........... 0.91% 1.16% 3.03%
Ratio of Net Investment Income to
Average Net Assets(4)................... 1.14% 1.11% 1.55%
Portfolio turnover rate................. 31% 74% 11%
</TABLE>
(1) Date operations commenced.
(2) Travelers has waived part or all of its fees for the year ended December 31,
1997 and the period ended December 31, 1996. In addition, Travelers has
reimbursed the Fund for $15,460 of the Fund's expenses for the period ended
December 31, 1996. If such fees were not waived and expenses not reimbursed,
the per share decrease in net investment income would have been $0.02 for
the year ended December 31, 1997 and $0.08 for the period ended December 31,
1996.
(3) Total return is actual and has not been annualized, as it may not be
representative of the total return for the year. The total return would have
been lower had expenses not been reduced during the period shown or if
separate account charges had been reflected.
(4) Annualized for periods of less than one year.
(5) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.95%.
38
<PAGE> 41
FINANCIAL HIGHLIGHTS
JURIKA & VOYLES CORE EQUITY PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance since the Fund's inception on July 20, 1998.
Certain information presents financial results for a single Fund share. The
total returns in the table represent the rate that a Fund investor would have
earned (or lost) on an investment in the Fund (assuming reinvestment of all
dividends and distributions). The information was audited by KPMG LLP,
independent auditors, whose report and the Fund's financial statements are
included in the annual report to shareholders, which is available upon request.
<TABLE>
<CAPTION>
JULY 20, 1998(1) TO
DECEMBER 31, 1998
<S> <C>
Net Asset Value,
Beginning of Period....................... $10.00
Income from Investment Operations:
Net Investment Income(2)................ 0.04
Net Gains on Securities
(both realized and unrealized).......... 0.27
------
Total Income from Investment
Operations.............................. 0.31
Less Distributions:
Dividends (from net investment
Income)................................. (0.04)
Distributions (from capital gains)...... (0.00)*
------
Total distributions....................... (0.04)
------
Net Asset Value, End of Period............ $10.27
------
TOTAL RETURN(3)........................... 3.08%
Net Assets, End of Period
(thousands)............................. $6,169
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net
Assets (with reimbursement)(2)(4)....... 0.99%
Ratio of Expenses to Average Net Assets
(without reimbursement)(2)(4)........... 1.89%
Ratio of Net Investment Income to
Average Net Assets(4)................... 1.01
Portfolio turnover rate................. 26%
</TABLE>
(1) Date operations commenced.
(2) Travelers has agreed to reimburse the Portfolio for expenses in the amount
of $20,200 for the period ended December 31, 1998. If such expenses were not
reimbursed, the per share decrease in net investment income would have been
$0.03.
(3) Total return is not annualized, as it may not be representative of the total
return for the year.
(4) Annualized
* Amount represents less than $0.01 per share
39
<PAGE> 42
FINANCIAL HIGHLIGHTS
LARGE CAP PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 3 periods. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information was audited by PricewaterhouseCoopers, LLP,
independent auditors, whose report and the Fund's financial statements are
included in the annual report to shareholders, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------ AUGUST 30, 1996(1) TO
1998 1997 DECEMBER 31, 1996
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period....................... $ 13.50 $ 11.29 $10.00
Income from Investment Operations:
Net Investment Income(2)................ .04(5) 0.07(5) 0.04
Net Gains on Securities (both realized
and unrealized)......................... 4.73 2.54 1.29
------- ------- ------
Total Income from Investment
Operations.............................. 4.77 2.61 1.33
Less Distributions:
Dividends (from net investment
Income)................................. (0.02) (0.04) (0.04)
Distributions (from capital gains)...... (0.81) (0.36) --
------- ------- ------
Total distributions....................... (0.83) (0.40) (0.04)
------- ------- ------
Net Asset Value, End of Period............ $ 17.44 $ 13.50 $11.29
------- ------- ------
TOTAL RETURN(3)........................... 35.65% 23.41% 13.30%
Net Assets, End of Period
(thousands)............................. $52,599 $12,070 $3,411
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net Assets
(with reimbursement)(2)(4).............. 0.95% 0.95% 0.95%
Ratio of Expenses to Average Net Assets
(without reimbursement)(2)(4)........... 1.23% 2.65% 4.57%
Ratio of Net Investment Income to
Average Net Assets(4)................... .23% 0.55% 0.98%
Portfolio turnover rate................. 112% 60% 57%
</TABLE>
(1) Date operations commenced.
(2) Travelers has agreed to reimburse a portion of the Fund's expenses.
(3) Total return is actual and has not been annualized, as it may not be
representative of the total return for the year. The total return would have
been lower had expenses not been reduced during the period shown or if
separate account charges had been reflected.
(4) Annualized for periods of less than one year
(5) Net investment income per share has been calculated based on average shares
outstanding during the period.
40
<PAGE> 43
FINANCIAL HIGHLIGHTS
LAZARD INTERNATIONAL STOCK PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 3 periods. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information for the years ended December 31, 1998 and 1997
was audited by KPMG LLP, independent auditors, whose report and the Fund's
financial statements are included in the annual report to shareholders, which is
available upon request. The other period presented was audited by other
independent auditors.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------ AUGUST 1, 1996(2)TO
1998(1) 1997 DECEMBER 31, 1996
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period....................... $ 11.57 $ 10.78 $10.00
Income from Investment Operations:
Net Investment Income(3)................ 0.10 0.05 0.02
Net Gains on Securities (both realized
and unrealized)......................... 1.37 0.87 0.76
------- ------- ------
Total Income from Investment
Operations.............................. 1.47 0.92 0.78
Less Distributions:
Dividends (from net investment
Income)................................. (0.04) (0.09) --
Distributions (from capital gains)...... (0.12) (0.04) --
------- ------- ------
Total distributions....................... (0.16) (0.13) --
------- ------- ------
Net Asset Value, End of Period............ $ 12.88 $ 11.57 $10.78
------- ------- ------
TOTAL RETURN(4)........................... 12.59% 8.50% 7.80%
Net Assets, End of Period (thousands)... $53,008 $14,229 $4,322
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net
Assets (with reimbursement)(3)(5)(6).... 1.25% 1.25% 1.25%
Ratio of Expenses to Average Net Assets
(without reimbursement)(6).............. 1.25% 1.76% 2.87%
Ratio of Net Investment Income to
Average Net Assets(6)................... 0.78% 0.66% 0.42%
Portfolio turnover rate................. 44% 22% 9%
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the year.
(2) Date operations commenced.
(3)Travelers has waived part or all of its fees for the periods ended December
31, 1997 and December 31, 1996. In addition, Travelers has reimbursed the
Fund for $12,454 of the Fund's expenses for the period ended December 31,
1996. If such fees were not waived or expenses not reimbursed, the per share
decrease in net investment income for the year ended December 31, 1997 and
the period ended December 31, 1996 would have been $0.03 and $0.70,
respectively.
(4) Total return is actual and has not been annualized, as it may not be
representative of the total return for the year. The total return would have
been lower had expenses not been reduced during the period shown or if
separate account charges had been reflected.
(5) As a result of voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 1.25%.
(6) Annualized for periods of less than one year.
41
<PAGE> 44
FINANCIAL HIGHLIGHTS
MFS EMERGING GROWTH PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 3 periods. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information for the years ended December 31, 1998 and 1997
was audited by KPMG LLP, independent auditors, whose report and the Fund's
financial statements are included in the annual report to shareholders, which is
available upon request. The other period presented was audited by other
independent auditors.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------- AUGUST 30, 1996(1) TO
1998(2) 1997 DECEMBER 31, 1996
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period....................... $ 12.56 $ 10.55 $ 10.00
Income from Investment Operations:
Net Investment Income (loss)(3)......... (0.07) (0.03) 0.03
Net Gains or Losses on Securities (both
realized and unrealized)................ 4.38 2.26 0.57
-------- ------- -------
Total Income from Investment
Operations.............................. 4.31 2.23 0.60
Less Distributions:
Dividends (from net investment
Income)................................. -- -- (0.03)
Distributions (from capital gains)...... -- (0.21) (0.01)
Return of Capital....................... -- (0.01) (0.01)
-------- ------- -------
Total distributions....................... -- (0.22) (0.05)
-------- ------- -------
Net Asset Value, End of Period............ $ 16.87 $ 12.56 $ 10.55
-------- ------- -------
TOTAL RETURN(4)........................... 34.32% 21.15% 6.00%
Net Assets, End of Period (thousands)... $170,059 $70,347 $12,924
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net Assets
(with reimbursement)(3)(5).............. 0.89% 0.95% 0.95%
Ratio of Expenses to Average Net Assets
(without reimbursement)(3)(5)........... 0.89% 1.05% 2.09%
Ratio of Net Investment Income to
Average Net Assets(5)................... (0.47)% (0.40)% 0.55%
Portfolio turnover rate................. 77% 94% 49%
</TABLE>
(1) Date operations commenced.
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the year.
(3) Travelers has waived part or all of its fees for the year ended December 31,
1997 and the period ended December 31, 1996. In addition, Travelers has
reimbursed the Fund for $16,407 of the Fund's expenses for the period ended
December 31, 1996. If such fees were not waived and such expenses not
reimbursed, the per share decrease in net investment income would have been
$0.01 for the year ended December 31, 1997 and $0.06 for the period ended
December 31, 1996.
(4) Total return is actual and has not been annualized, as it may not be
representative of the total return for the year. The total return would have
been lower had expenses not been reduced during the period shown or if
separate account charges had been reflected.
(5) Annualized for periods of less than one year.
42
<PAGE> 45
FINANCIAL HIGHLIGHTS
MFS MID CAP GROWTH PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance since the fund's inception. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information was audited by KPMG LLP, independent auditors,
whose report and the Fund's financial statements are included in the annual
report to shareholders, which is available upon request.
<TABLE>
<CAPTION>
MAY 1, 1998(1) TO
DECEMBER 31, 1998
<S> <C>
Net Asset Value, Beginning of Period...... $ 10.00
Income from Investment Operations:
Net Investment Income (loss)(2)......... (0.02)
Net Gains or Losses on Securities (both
realized and unrealized)................ 0.07
-------
Total Income from Investment
Operations.............................. 0.05
Less Distributions:
Dividends (from net investment
Income)................................. --
-------
Total distributions....................... --
-------
Net Asset Value, End of Period............ $ 10.05
-------
TOTAL RETURN(3)........................... 0.50%
Net Assets, End of Period (thousands)..... $13,234
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net Assets
(with reimbursement)(2)(4).............. 1.00%
Ratio of Expenses to Average Net Assets
(without reimbursement)(2)(4)........... 1.62%
Ratio of Net Investment Loss to Average
Net Assets(4)........................... (0.25)%
Portfolio turnover rate................. 100%
</TABLE>
(1) Date operations commenced.
(2) Travelers has agreed to reimburse the Fund for expenses in the amount of
$32,634 for the period ended December 31, 1998. If such expenses were not
reimbursed, the per share decrease in net investment income would have been
$0.04.
(3) Total return is not annualized, as it may not be representative of the total
return for the year.
(4) Annualized
43
<PAGE> 46
FINANCIAL HIGHLIGHTS
MFS RESEARCH PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance since the fund's inception. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information was audited by KPMG LLP, independent auditors,
whose report and the Fund's financial statements are included in the annual
report to shareholders, which is available upon request.
<TABLE>
<CAPTION>
MARCH 23, 1998(1) TO
DECEMBER 31, 1998
<S> <C>
Net Asset Value, Beginning of Period...... $ 10.00
Income from Investment Operations:
Net Investment Income(2)................ 0.01
Net Gains on Securities (both realized
and unrealized)......................... 0.57
-------
Total Income from Investment
Operations.............................. 0.58
Less Distributions:
Dividends (from net investment
Income)................................. (0.02)
Distributions (from capital gains)...... (0.00)*
-------
Total distributions....................... (0.02)
-------
Net Asset Value, End of Period............ $ 10.56
-------
TOTAL RETURN(3)........................... 5.77%
Net Assets, End of Period (thousands)..... $37,870
RATIOS/SUPPLEMENTAL DATA()
Ratio of Expenses to Average Net Assets
(with reimbursement)(2)(4).............. 1.00%
Ratio of Expenses to Average
Net Assets (without
reimbursements)(2)(4)................... 1.37%
Ratio of Net Investment Income to
Average Net Assets(4)................... 0.42%
Portfolio turnover rate................. 54%
</TABLE>
(1) Date operations commenced.
(2) Travelers has agreed to reimburse the Fund for expenses in the amount of
$41,049 for the period ended December 31, 1998. If such expenses were not
reimbursed, the per share decrease in net investment income would have been
$0.01.
(3) Total return is not annualized, as it may not be representative of the total
return for the year.
(4) Annualized
* Amount represents less than $0.01 per share.
44
<PAGE> 47
FINANCIAL HIGHLIGHTS
NWQ LARGE CAP PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance since the Fund's inception on July 20, 1998.
Certain information presents financial results for a single Fund share. The
total returns in the table represent the rate that a Fund investor would have
earned (or lost) on an investment in the Fund (assuming reinvestment of all
dividends and distributions). The information was audited by KPMG LLP,
independent auditors, whose report and the Fund's financial statements are
included in the annual report to shareholders, which is available upon request.
<TABLE>
<CAPTION>
JULY 20, 1998(1) TO
DECEMBER 31, 1998
<S> <C>
Net Asset Value,
Beginning of Period....................... $10.00
Income (loss) from Investment Operations:
Net Investment Income(2)................ 0.05
Net Losses on Securities (both realized
and unrealized)......................... (0.54)
------
Total loss from Investment
Operations.............................. (0.49)
Less Distributions:
Dividends (from net investment
Income)................................. (0.05)
Distributions (from capital gains)...... (0.00)*
------
Total distributions....................... (0.05)
------
Net Asset Value, End of Period............ $ 9.46
------
TOTAL RETURN(3)........................... (4.94)%
Net Assets, End of Period (thousands)... $8,463
RATIOS/SUPPLEMENTAL DATA()
Ratio of Expenses to Average Net Assets
(with reimbursement)(2)(5)(4)........... 0.99%
Ratio of Expenses to Average Net Assets
(without reimbursement)(2)(4)........... 1.64%
Ratio of Net Investment Income to
Average Net Assets(4)................... 1.47
Portfolio turnover rate................. 2%
</TABLE>
(1) Date operations commenced.
(2) Travelers has agreed to reimburse the Portfolio for expenses in the amount
of $17,700 for the period ended December 31, 1998. If expenses were not
reimbursed, the per share decrease in net investment income would have been
$0.02.
(3) Total return is not annualized, as it may not be representative of the total
return for the year.
(4) Annualized
(5) As a result of a voluntary expense limitation, the ratio of expense to
average net assets will not exceed 1.00%.
* Amount represents less than $0.01.
45
<PAGE> 48
FINANCIAL HIGHLIGHTS
SOCIAL AWARENESS PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 5 years. Certain information presents
financial results for a single Fund share. The total returns in the table
represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information for the years ended December 31, 1998 and 1997
was audited by KPMG LLP, independent auditors, whose report and the Fund's
financial statements are included in the annual report to shareholders, which is
available upon request. All other years presented were audited by other
independent auditors.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year......................... $ 20.06 $ 15.76 $ 14.32 $11.05 $11.64
Income (loss) from Investment Operations:
Net Investment Income(1)................ 0.10 0.15 0.31 0.12 0.16
Net Gains (Losses) on Securities (both
realized and unrealized)................ 6.30 4.15 2.42 3.47 (0.45)
------- ------- ------- ------ ------
Total Income (loss) from Investment
Operations.............................. 6.40 4.30 2.73 3.59 (0.29)
Less Distributions(2):
Dividends (from net investment
Income)................................. (0.12) -- (0.43) (0.14) (0.24)
Distributions (from capital gains)...... (0.42) -- (0.86) (0.18) (0.06)
------- ------- ------- ------ ------
Total distributions....................... (0.54) -- (1.29) (0.32) (0.30)
------- ------- ------- ------ ------
Net Asset Value, End of Year.............. $ 25.92 $ 20.06 $ 15.76 $14.32 $11.05
------- ------- ------- ------ ------
TOTAL RETURN()............................ 32.27% 27.28% 19.98% 33.37% (2.69)%
Net Assets, End of Year (thousands)..... 39,482 $21,013 $11,040 $7,055 $3,879
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net Assets
(with reimbursement)(1)(3).............. 0.84% 0.98% 1.25% 1.25% 1.25%
Ratio of Expenses to Average Net Assets
(without reimbursement)(1)(3)........... 0.84% 0.98% 1.69% 1.75 3.34%
Ratio of Net Investment Income to
Average Net Assets...................... 0.63% 0.97% 0.43% 0.99% 1.43%
Portfolio turnover rate................. 14% 19% 26% 73% 137%
</TABLE>
(1) For the year ended December 31, 1996, Travelers reimbursed the Funds for
$25,093 in expenses. If expenses were not reimbursed, the per share decrease
in net investment income would have been $0.06.
(2) Distributions from realized gains include both net realized short-term and
long-term capital gains. Prior to 1996, net realized short-term capital
gains were included in distributions from net investment income.
(3) The ratios of expenses to average net assets for the years ended December
31, 1995 and 1994 reflect an expense reimbursement by Traveler's in
connection with voluntary expense limitations.
46
<PAGE> 49
FINANCIAL HIGHLIGHTS
STRATEGIC STOCK PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance since the Fund's inception on May 1, 1998. Certain
information presents financial results for a single Fund share. The total
returns in the table represent the rate that a Fund investor would have earned
(or lost) on an investment in the Fund (assuming reinvestment of all dividends
and distributions). The information was audited by KPMG LLP, independent
auditors, whose report and the Fund's financial statements are included in the
annual report to shareholders, which is available upon request.
<TABLE>
<CAPTION>
MAY 1, 1998(1) TO
DECEMBER 31, 1998
<S> <C>
Net Asset Value,
Beginning of Period....................... $ 10.00
Income (loss) from Investment Operations:
Net Investment Income(2)................ 0.12
Net Losses on Securities
(both realized and unrealized).......... (0.54)
-------
Total Income (loss) from Investment
Operations.............................. (0.42)
Less Distributions:
Dividends (from net investment
Income)................................. (0.12)
Distributions (from capital gains)...... --
Total distributions....................... (0.12)
-------
Net Asset Value, End of Period............ $ 9.46
-------
TOTAL RETURN(3)........................... (4.24)%
Net Assets, End of Period (thousands)... $ 6,887
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net Assets
(with reimbursement)(2)(4).............. 0.90%
Ratio of Expenses to Average Net Assets
(without reimbursement)(2)(4)........... 1.51%
Ratio of Net Investment Income to
Average Net Assets(4)................... 2.42%
Portfolio turnover rate................. 1%
</TABLE>
(1) Date operations commenced.
(2) Travelers has agreed to reimburse the Fund for expenses in the amount of
$21,016 for the period ended December 31, 1998. If such expenses were not
reimbursed, the per share decrease in net investment income would have been
$0.03.
(3) Total return is not annualized, as it may not be representative of the total
return for the year.
(4) Annualized
47
<PAGE> 50
FINANCIAL HIGHLIGHTS
TRAVELERS QUALITY BOND PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 3 periods. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information for the years ended December 31, 1998 and 1997
was audited by KPMG LLP, independent auditors, whose report and the Fund's
financial statements are included in the annual report to shareholders, which is
available upon request. All other periods presented were audited by other
independent auditors.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------- AUGUST 30, 1996(1) TO
1998 1997 DECEMBER 31, 1996
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period....................... $ 10.36 $10.10 $10.00
Income from Investment Operations:
Net Investment Income(2)................ 0.37 0.43 0.19
Net Gains on Securities
(both realized and unrealized).......... 0.51 0.29 0.16
------- ------ ------
Total from Investment Operations........ 0.88 0.72 0.35
Less Distributions:
Dividends (from net investment
Income)................................. (0.37) (0.43) (0.19)
Distributions (from capital gains)...... (0.11) (0.03) (0.06)
------- ------ ------
Total distributions....................... (0.48) (0.46) (0.25)
------- ------ ------
Net Asset Value, End of Period............ $ 10.76 $10.36 $10.10
------- ------ ------
TOTAL RETURN(3)........................... 8.49% 7.14% 3.56%
Net Assets, End of Period
(thousands)............................. $35,507 $9,468 $5,273
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net Assets
(with reimbursement)(2)(4)(5)........... 0.63% 0.75% 0.75%
Ratio of Expenses to Average Net Assets
(without reimbursement)(2)(4)(5)........ 0.63% 1.13% 1.76%
Ratio of Net Investment Income to
Average Net Assets(5)................... 5.51% 5.80% 5.62%
Portfolio turnover rate................. 364% 295% 35%
</TABLE>
(1) Date operations commenced.
(2) Travelers has waived all or part of its fees for the year ended December 31,
1997 and the period ended December 31, 1996. In addition, Travelers has
reimbursed the Fund for $10,091 of the Fund's expenses for the period ended
December 31, 1996. If such expenses were not reimbursed, the per share
decrease in net investment income would have been $0.03 for the year ended
December 31, 1997 and for the period ended December 31, 1996.
(3) Total return is actual and has not been annualized, as it may not be
representative of the total return for the year. The total return would have
been lower had expenses not been reduced during the period shown or if
separate account charges had been reflected.
(4) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.75%.
(5) Annualized for periods of less than one year.
48
<PAGE> 51
FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT SECURITIES PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 5 years. Certain information presents
financial results for a single Fund share. The total returns in the table
represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information for the years ended December 31, 1998 and 1997
was audited by KPMG LLP, independent auditors, whose report and the Fund's
financial statements are included in the annual report to shareholders, which is
available upon request. All other years presented were audited by other
independent auditors.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year......................... $ 11.65 $ 10.86 $ 12.43 $ 10.58 $ 11.63
Income (loss) from Investment Operations:
Net Investment Income................... 0.49 0.58 0.68 0.65 0.60
Net Gains (Losses) on Securities (both
realized and unrealized)................ 0.70 0.79 (0.52) 1.80 (1.23)
------- ------- ------- ------- -------
Total Income (loss) from Investment
Operations.............................. 1.19 1.37 0.16 2.45 (0.63)
Less Distributions(1):
Dividends (from net investment
Income)................................. (0.50) (0.58) (1.55) (0.60) (0.39)
Distributions (from capital gains)...... (0.54) -- (0.18) -- (0.03)
------- ------- ------- ------- -------
Total distributions....................... (1.04) (0.58) (1.73) (0.60) (0.42)
------- ------- ------- ------- -------
Net Asset Value, End of Year.............. $ 11.80 $ 11.65 $ 10.86 $ 12.43 $ 10.58
------- ------- ------- ------- -------
TOTAL RETURN()............................ 10.20% 12.62% 1.46% 24.42% (5.64)%
Net Assets, End of Year
(thousands)............................. $66,454 $35,279 $26,009 $28,192 $24,522
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net
Assets.................................. 0.45% 0.49% 0.62% 0.56% 0.71%
Ratio of Net Investment Income to
Average Net Assets...................... 5.31% 6.10% 5.68% 5.80% 5.56%
Portfolio turnover rate................. 349% 208% 501% 214% 16%
</TABLE>
(1) Distributions from realized gains include both net realized short-term and
long-term capital gains. Prior to 1996, net realized short-term capital
gains were included in distributions from net investment income.
49
<PAGE> 52
FINANCIAL HIGHLIGHTS
UTILITIES PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 5 years. Certain information presents
financial results for a single Fund share. The total returns in the table
represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information for the years ended December 31, 1998 and 1997
was audited by KPMG LLP, independent auditors, whose report and the Fund's
financial statements are included in the annual report to shareholders, which is
available upon request. All other periods presented were audited by other
independent auditors.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, FEBRUARY 4(1) TO
----------------------- DECEMBER 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $ 15.29 $ 12.22 $ 12.85 $ 10.17 $10.00
Income from Investment Operations:
Net Investment Income............ 0.37 0.46 0.47 0.48 0.35
Net Gains (Losses) on Securities
(both realized and unrealized)... 2.33 2.63 0.47 2.44 (0.18)
------- ------- ------- ------- ------
Total Income from Investment
Operations....................... 2.70 3.09 0.94 2.92 0.17
Less Distributions(2):
Dividends (from net investment
Income).......................... (0.42) (0.01) (0.84) (0.24) --
Distributions (from capital
gains)........................... (0.39) (0.01) (0.73) -- --
------- ------- ------- ------- ------
Total distributions................ (0.81) (0.02) (1.57) (0.24) --
------- ------- ------- ------- ------
Net Asset Value, End of Period..... $ 17.18 $ 15.29 $ 12.22 $ 12.85 $10.17
------- ------- ------- ------- ------
TOTAL RETURN....................... 18.21% 25.29% 7.47% 29.29% 1.70%(4)
Net Assets, End of Period
(thousands)...................... $32,909 $21,413 $18,214 $15,340 $5,757
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net
Assets (with reimbursement)(3)... 0.80% 1.06% 1.07% 1.25% 1.25%(5)
Ratio of Expenses to Average Net
Assets (without
reimbursement)(3)................ 0.80% 1.06% 1.07% 1.27% 3.49%(5)
Ratio of Net Investment Income to
Average Net Assets............... 3.06% 3.58% 3.88% 4.29% 3.86%(5)
Portfolio turnover rate.......... 51% 68% 39% 25% 32%
</TABLE>
(1) Date operations commenced.
(2) Distributions from realized gains include both net realized short-term and
long-term capital gains. Prior to 1996, net realized short-term capital
gains were included in distributions from net investment income.
(3) The ratios of expenses to average net assets for the year ended December 31,
1995 and the period ended December 31, 1994 reflect expense reimbursements
by Travelers in connection with voluntary expense limitations.
(4) Total return is actual and has not been annualized, as it may not be
representative of the total return for the year. The total return would have
been lower if separate account charges had been reflected.
(5) Annualized.
50
<PAGE> 53
APPENDIX A
Each Fund invests in various instruments subject to its particular investment
policies. The Funds invest in some or all of the following, as indicated below.
These techniques and practices are described together with their risks, in the
SAI.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENT TECHNIQUES LARGE DISCIPLINED DISCIPLINED STRATEGIC NWQ JURIKA & U.S. GOV'T
CAP MID CAP SMALL CAP STOCK LARGE CAP VOYLES SECURITIES
CORE EQUITY
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Affiliated Bank Transactions X
- ----------------------------------------------------------------------------------------------------------------------
American Depositary Receipts X X X
- ----------------------------------------------------------------------------------------------------------------------
Asset-Backed Mortgage
Securities X X
- ----------------------------------------------------------------------------------------------------------------------
Bankers Acceptances X X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Buying Put and Call Options X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Certificates of Deposit X X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Commercial Paper X X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Convertible Securities X X
- ----------------------------------------------------------------------------------------------------------------------
Corporate Asset-Backed
Securities X X
- ----------------------------------------------------------------------------------------------------------------------
Debt Securities X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Emerging Market Securities X X
- ----------------------------------------------------------------------------------------------------------------------
Equity Securities X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Floating & Variable Rate
Instruments X X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Foreign Securities X X X
- ----------------------------------------------------------------------------------------------------------------------
Forward Contracts on Foreign
Currency X X
- ----------------------------------------------------------------------------------------------------------------------
Futures Contracts X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
High-Yield, High Risk Bonds X X
- ----------------------------------------------------------------------------------------------------------------------
Illiquid Securities X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Indexed Securities X
- ----------------------------------------------------------------------------------------------------------------------
Index Futures Contracts X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Investment Company Securities X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Investment in Unseasoned
Companies X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Lending Portfolio Securities X X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Letters of Credit X X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Loan Participations X
- ----------------------------------------------------------------------------------------------------------------------
Options on Foreign Currencies X X
- ----------------------------------------------------------------------------------------------------------------------
Options on Index Futures
Contracts X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Options on Stock Indices X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Other Direct Indebtedness X
- ----------------------------------------------------------------------------------------------------------------------
Real Estate-Related Instruments X X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Repurchase Agreements X X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Reverse Repurchase Agreements X X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Short Sales "Against the Box" X X
- ----------------------------------------------------------------------------------------------------------------------
Short-Term Money Market
Instruments X X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Swap Agreements X
- ----------------------------------------------------------------------------------------------------------------------
Temporary Bank Borrowing X X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
U.S. Government Securities X X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Variable Amount Master Demand
Notes X X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
When-Issued and Delayed
Delivery Securities X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Writing Covered Call Options X X X X X
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
INVESTMENT TECHNIQUES LAZARD MFS
INTERNATIONAL RESEARCH
STOCK
- ---------------------------------------------------------------------
<S> <C> <C>
Affiliated Bank Transactions
- --------------------------------------------------------------------------------
American Depositary Receipts X X
- -------------------------------------------------------------------------------------------
Asset-Backed Mortgage
Securities
- ------------------------------------------------------------------------------------------------------
Bankers Acceptances X X
- -----------------------------------------------------------------------------------------------------------------
Buying Put and Call Options X X
- ----------------------------------------------------------------------------------------------------------------------
Certificates of Deposit X X
- ----------------------------------------------------------------------------------------------------------------------
Commercial Paper X X
- ----------------------------------------------------------------------------------------------------------------------
Convertible Securities X X
- ----------------------------------------------------------------------------------------------------------------------
Corporate Asset-Backed
Securities
- ----------------------------------------------------------------------------------------------------------------------
Debt Securities X X
- ----------------------------------------------------------------------------------------------------------------------
Emerging Market Securities X X
- ----------------------------------------------------------------------------------------------------------------------
Equity Securities X X
- ----------------------------------------------------------------------------------------------------------------------
Floating & Variable Rate
Instruments X X
- ----------------------------------------------------------------------------------------------------------------------
Foreign Securities X X
- ----------------------------------------------------------------------------------------------------------------------
Forward Contracts on Foreign
Currency X X
- ----------------------------------------------------------------------------------------------------------------------
Futures Contracts X X
- ----------------------------------------------------------------------------------------------------------------------
High-Yield, High Risk Bonds X
- ----------------------------------------------------------------------------------------------------------------------
Illiquid Securities X X
- ----------------------------------------------------------------------------------------------------------------------
Indexed Securities X
- ----------------------------------------------------------------------------------------------------------------------
Index Futures Contracts X X
- ----------------------------------------------------------------------------------------------------------------------
Investment Company Securities X X
- ----------------------------------------------------------------------------------------------------------------------
Investment in Unseasoned
Companies X X
- ----------------------------------------------------------------------------------------------------------------------
Lending Portfolio Securities X X
- ----------------------------------------------------------------------------------------------------------------------
Letters of Credit X X
- ----------------------------------------------------------------------------------------------------------------------
Loan Participations
- ----------------------------------------------------------------------------------------------------------------------
Options on Foreign Currencies X X
- ----------------------------------------------------------------------------------------------------------------------
Options on Index Futures
Contracts X X
- ----------------------------------------------------------------------------------------------------------------------
Options on Stock Indices X X
- ----------------------------------------------------------------------------------------------------------------------
Other Direct Indebtedness
- ----------------------------------------------------------------------------------------------------------------------
Real Estate-Related Instruments X X
- ----------------------------------------------------------------------------------------------------------------------
Repurchase Agreements X X
- ----------------------------------------------------------------------------------------------------------------------
Reverse Repurchase Agreements X X
- ----------------------------------------------------------------------------------------------------------------------
Short Sales "Against the Box" X
- ----------------------------------------------------------------------------------------------------------------------
Short-Term Money Market
Instruments X X
- ----------------------------------------------------------------------------------------------------------------------
Swap Agreements
- ----------------------------------------------------------------------------------------------------------------------
Temporary Bank Borrowing X X
- ----------------------------------------------------------------------------------------------------------------------
U.S. Government Securities X X
- ----------------------------------------------------------------------------------------------------------------------
Variable Amount Master Demand
Notes X X
- ----------------------------------------------------------------------------------------------------------------------
When-Issued and Delayed
Delivery Securities X X
- ----------------------------------------------------------------------------------------------------------------------
Writing Covered Call Options X X
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
A-1
<PAGE> 54
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTMENT TECHNIQUES UTILITIES CONV. EQUITY FED. FED. SOCIAL MFS MFS TRAV.
BOND INCOME HIGH STOCK AWARE- EMERG. MID CAP QUAL.
YIELD NESS GROWTH GROWTH BOND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Affiliated Bank Transactions X
- ---------------------------------------------------------------------------------------------------------------------------------
American Depositary Receipts X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Asset-Backed Mortgage Securities X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Bankers Acceptances X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Buying Put and Call Options X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Certificates of Deposit X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Commercial Paper X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Convertible Securities X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Corporate Asset-Backed Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Debt Securities X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Emerging Market Securities X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Equity Securities X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Floating & Variable Rate Instruments X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Foreign Securities X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Forward Contracts on Foreign Currency X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Futures Contracts X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
High-Yield, High Risk Bonds X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Illiquid Securities X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Indexed Securities X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Index Futures Contracts X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Company Securities X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Investment in Unseasoned Companies X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Lending Portfolio Securities X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Letters of Credit X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Loan Participations X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Options on Foreign Currencies X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Options on Index Futures Contracts X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Options on Stock Indices X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Other Direct Indebtedness X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Real Estate-Related Instruments X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Reverse Repurchase Agreements X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Short Sales "Against the Box" X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Short-Term Money Market Instruments X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Swap Agreements X
- ---------------------------------------------------------------------------------------------------------------------------------
Temporary Bank Borrowing X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Variable Amount Master Demand Notes X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
When-Issued & Delayed Delivery Securities X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Writing Covered Call Options X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-2
<PAGE> 55
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 56
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 57
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 58
THE TRAVELERS SERIES TRUST
Investors who want more information about the Fund can obtain a statement of
additional information ("SAI") which provides more detailed information on a
number of topics and is made a part of this prospectus. Additional information
about the Fund's investments is available in its annual and semi-annual reports
to shareholders. The Fund's annual report provides a discussion of the market
conditions and investment strategies that particularly impact the Fund's
performance over the past fiscal year. These documents are free of charge. To
obtain a copy, or ask other questions about the fund, do one of the following:
CALL -- 1-800-842-9368
- --------------------------------------------------------------------------------
WRITE -- ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
- --------------------------------------------------------------------------------
ACCESS THE SEC'S WEBSITE -- http://www.sec.gov
Investors may, for a fee, get text-only copies of the above documents from the
SEC Public Reference Room at 1-800-SEC-0330 or write to the SEC Public Reference
Room, Washington, DC 20549-6009
<PAGE> 59
THE TRAVELERS SERIES TRUST
ZERO COUPON BOND FUND PORTFOLIOS
(SERIES 2000 AND 2005)
GOAL -- HIGH CONSISTENT TOTAL RETURN
WITH PRESERVATION OF CAPITAL
The Travelers Series Trust (the "Trust") is an open-end management investment
company (mutual fund) consisting of multiple portfolios, each with its own
investment objective and policies. Only the portfolios (the "Funds") listed
above are described in this prospectus.
Fund shares are offered only to separate accounts of The Travelers Insurance
Company and The Travelers Life and Annuity Company (together, "The Travelers").
The Funds serve as funding options for certain variable annuity and variable
life insurance contracts issued by The Travelers.
ONE TOWER SQUARE
HARTFORD, CONNECTICUT 06183
TELEPHONE 1-800-842-9368
PROSPECTUS
May 1, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Goals and Investments.......... 2
Fund Performance............... 2
Investments and Practices...... 3
Management..................... 5
Investment Adviser.......... 5
Portfolio Manager........... 5
Legal Proceedings.............. 5
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Year 2000 Compliance........... 5
Euro Conversion................ 6
Shareholder Transactions and 6
Pricing......................
Tax Consequences of Dividends 8
and Distributions............
Financial Highlights........... 9
Appendix A..................... A-1
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THE FUND'S SHARES AS AN
INVESTMENT AND HAS NOT DETERMINED THAT THIS PROSPECTUS IS COMPLETE OR ACCURATE.
IT IS AGAINST THE LAW FOR ANYONE TO TELL YOU OTHERWISE. AN INVESTMENT IN THE
FUND IS NOT A DEPOSIT OF THE BANK AND IS NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<PAGE> 60
ZERO COUPON BOND FUND PORTFOLIOS (SERIES 2000 AND 2005)
Goals and Investments
INVESTMENT ADVISER: TAMIC
PORTFOLIO MANAGER: David A. Tyson
FUND'S OBJECTIVE: High consistent
total return with
preservation of
capital
KEY INVESTMENTS: Zero coupon
securities
SELECTION PROCESS: The Funds invest at least 65% of its assets in zero coupon
securities. A zero coupon security pays no cash income but is acquired at a
substantial discount from its value at maturity. These securities may be issued
by the U.S. Government, domestic corporations or foreign issuers. Each Fund also
may invest the remaining 35% of its assets in non-zero coupon securities, such
as common stock, bonds and money market instruments.
PRINCIPAL RISKS: Each Fund is most subject to fixed-income securities risk,
where market values move in the opposite direction of interest rates, and sector
risk, where market values are impacted by a concentration in zero coupon bonds
that tend to be more volatile than the general market. The Fund may be subject
to foreign markets securities risks, where market values may be impacted by
limited trading, currency exchange, political or economic instability, or other
factors. For more information on the Fund's investments and related risks,
please see "Investments and Practices," the Appendix to this prospectus and the
SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund's
investments include foreign securities. For a complete list of all investments
available to the Fund, please see Appendix A of this prospectus.
FUND PERFORMANCE
The charts and tables below show how an investment in each Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by Travelers. The tables
compare each Fund's performance with the Merrill Lynch Zero Coupon Index (5 year
and 10 year). Past performance can give some indication of each Fund's risk but
does not guarantee future results.
YEAR-BY YEAR % TOTAL RETURNS AS OF 12/31
(SERIES 2000)
[SERIES 2000 PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
ZERO COUPON
BOND FUND
PORTFOLIOS
(SERIES 2000)
<S> <C>
'96 2.76
'97 7.20
'98 7.58
</TABLE>
Fund commenced operations on October 11, 1995.
Best Quarter: 3rd (98) 3.49%
Worst Quarter: 1st (96) (1.51)%
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
<TABLE>
<CAPTION>
1 year Life of Fund
------ -------------
<S> <C> <C>
Zero Coupon 7.58% 6.41%
(Series 2000)
Merrill Lynch Zero (5 10.58% 10.42%
yr.)
</TABLE>
YEAR-BY-YEAR % TOTAL RETURNS AS OF 12/31
(SERIES 2005)
[SERIES 2000 PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
ZERO COUPON
BOND FUND
PORTFOLIOS
(SERIES 2005)
<S> <C>
'96 0.90
'97 11.63
'98 12.26
</TABLE>
Fund commenced operations on October 11, 1995.
Best Quarter: 3rd (98) 8.03%
Worst Quarter: 1st (96) (5.19)%
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
<TABLE>
<CAPTION>
1 year Life of Fund
------ -------------
<S> <C> <C>
Zero Coupon 12.26% 9.14%
(Series 2005)
Merrill Lynch Zero (10 15.52% 13.22%
yr.)
</TABLE>
2
<PAGE> 61
INVESTMENTS AND PRACTICES
The Funds invests in various instruments subject to their investment policy. The
Fund may invest in all of the following, as described in the overview for the
Funds, and in the Statement of Additional Information. For a free copy of the
Statement of Additional Information, see the back cover of this prospectus. No
Fund guarantees it will reach its investment objective, and you may lose money
by investing in any fund.
FIXED INCOME INVESTMENTS
The Fund may invest in fixed income securities.
Fixed income securities include U.S. Government
obligations, certificates of deposit, and
short-term money market instruments. Fixed income
securities may have all types of interest rate
payment and reset terms, including fixed rate,
adjustable rate, zero coupon, contingent,
deferred, payment in kind and auction rate
features.
Zero Coupon Securities:
If shares of a Fund are redeemed prior to the
Fund's maturity, an investor may experience a
significantly different investment return than
was anticipated at the time of purchase.
Because they do not pay interest, zero coupon
securities tend to be subject to greater
fluctuation of market value in response to
changes in interest rates.
Proceeds from the sale of zero securities may not
be reinvested at the same interest rate which was
available at the time of purchase.
Generally:
The value of debt securities varies inversely
with interest rates. This means generally that
the value of these investments increases as
short-term interest rates fall and decreases as
short-term interest rates rise. Yields from
short-term securities normally may be lower than
yields from longer-term securities. A bond's
price is affected by the credit quality of its
issuer. An issuer may not always make payments on
a fixed income security. Some fixed income
securities, such as mortgage-backed securities
are subject to prepayment risk, which occurs when
an issuer can prepay the principal owed on a
security before its maturity.
EQUITIES
The Fund may invest in equity securities. Equity
securities include common and preferred stocks,
warrants, rights, depository receipts and shares,
trust certificates, and real estate instruments.
Equities are subject to market risk. Many factors
affect the stock market prices and dividend
payouts of equity investments. These factors
include general business conditions, investor
confidence in the economy, and current conditions
in a particular industry or company.
FOREIGN SECURITIES
An investment in foreign securities involves risk
in addition to those of U.S. securities,
including possible political and economic
instability and the possible imposition of
exchange
3
<PAGE> 62
controls or other restrictions on investments.
The Fund also bears an "information" risk
associated with the different accounting,
auditing, and financial reporting standards in
many foreign countries. If a Fund invests in
securities denominated or quoted in currencies
other than the U.S. dollar, changes in foreign
currency rates relative to the U.S. dollar will
affect the U.S. dollar value of the Fund's
assets. Foreign securities may be less liquid
than U.S. securities.
DERIVATIVES AND HEDGING
TECHNIQUES
Derivative contracts, such as futures and options
on securities, may be used for any of the
following purposes:
- To hedge against the economic impact of
adverse changes in the market value of its
securities, due to changes in stock market
prices, currency exchange rates or interest
rates;
- As a substitute for buying or selling
securities
- To enhance return
Even a small investment in derivative contracts
can have a big impact on a fund's stock market,
currency and interest rate exposure. Therefore,
using derivatives can disproportionately increase
losses and reduce opportunities for gain when
stock prices, currency rates or interest rates
are changing.
For a more complete description of derivative and
hedging techniques and their associated risks,
please refer to the SAI.
SELECTION RISK
Fund investors are subject to selection risk in
that a strategy used, or stock selected, may fail
to have the desired effect. Specifically, stocks
believed to show potential for capital growth may
not achieve that growth. Strategies or
instruments used to hedge against a possible risk
or loss may fail to protect against the
particular risk or loss.
INVESTMENT OBJECTIVES
Each Fund's investment objective and, unless
noted as fundamental, its investment policies may
be changed by the Board without approval of
shareholders or holders of variable annuity and
variable life insurance contracts. A change in a
Fund's investment objective or policies may
result in the Fund having a different investment
objective or policies from those that a
policyowner selected as appropriate at the time
of investment.
4
<PAGE> 63
MANAGEMENT
INVESTMENT ADVISER
TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION ("TAMIC") provides
investment advice, and, in general, supervises and manages the investment
program for the funds described in this prospectus. TAMIC is a registered
investment adviser that was incorporated in 1978. Its principal offices are
located at One Tower Square, Hartford, Connecticut, and it is an indirect wholly
owned subsidiary of Citigroup, Inc. TAMIC also acts as an investment adviser or
subadviser for:
- other investment companies used to fund variable products
- individual and pooled pension and profit-sharing accounts
- domestic insurance companies affiliated with The Travelers Insurance
Company (which is affiliated with TAMIC)
- nonaffiliated insurance companies
For the year ended December 31, 1998, the Zero Coupon Bond Fund Portfolios each
paid TAMIC a fee equal on an annual basis to 0.10% of the average daily net
assets of each Portfolio. This percentage also reflects the maximum advisory fee
payable to TAMIC.
PORTFOLIO MANAGER
The Zero Coupon Bond Fund Portfolios are managed by David A. Tyson, Ph.D., CFA.
Mr. Tyson is currently Senior Vice President and the head of Traveler's
Portfolio Management Group. His previous responsibilities include managing The
Travelers Derivatives, Mortgage-Backed and Quantitative Investment Groups. Mr.
Tyson joined Travelers in 1985 and TAMIC in 1994.
LEGAL PROCEEDINGS
There are no material pending legal proceedings affecting the Trust, and it has
been advised by TAMIC and the Trust's principal underwriter that neither of them
have any material pending legal proceedings affecting them.
YEAR 2000 COMPLIANCE
Travelers ("the Company") is highly dependent on computer systems and system
applications for conducting its ongoing business functions. In 1996, the Company
began the process of identifying, assessing and implementing changes to computer
programs necessary to address the Year 2000 issue and developed a comprehensive
plan to address the issue. This issue involves the ability of computer systems
that have time sensitive programs to recognize properly the Year 2000. The
inability to do so could result in major failures or miscalculations that would
disrupt the Company's ability to meet its customer and other obligations on a
timely basis.
The Company has achieved substantial compliance with respect to its business
critical systems in accordance with its Year 2000 plan and is in the process of
certification to validate compliance. The Company anticipates completing the
certification process by June 30, 1999. An ongoing re-certification process will
be put in place for third and fourth quarter 1999 to ensure all systems and
products remain compliant.
5
<PAGE> 64
The total pre-tax cost associated with the required modifications and
conversions is expected to be between $25 million and $35 million and is being
expensed by the Company as incurred in the period 1996 through 1999. The Company
has incurred approximately $22 million to date on these efforts. The Company
also has third party customers, financial institutions, vendors and others with
which it conducts business and has confirmed their plans to address and resolve
Year 2000 issues on a timely basis. While it is likely that these efforts by
third party vendors and customers will be successful, it is possible that a
series of failures by third parties could have a material adverse effect on
certain operations of the Series Trust.
In addition, the Company is developing contingency plans to address perceived
risks associated with the Year 2000 effort. These include business resumption
plans to address the possibility of internal systems failures and the
possibility of failure of systems or processes outside the Company's control. As
of year-end 1998, the Company has completed initial business resumption
contingency plans which would enable business critical units to function
beginning January 1, 2000 in the event of an unexpected failure. Business
resumption contingency plans are expected to be finalized by June 30, 1999.
Preparations for the management of the date change will continue through 1999.
EURO CONVERSION
On January 1, 1999, 11 participating countries in the European Economic Monetary
Union (Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, and Spain) adopted the Euro as their official
currency. As of January 1, 1999, governments in participating countries now
issue new debt and redenominate existing debt in Euros, although corporations
may choose whether to issue stocks or bonds in Euros or the national currency.
The new European Central Bank (the "ECB") has assumed responsibility for a
uniform monetary policy in participating countries. Currency conversion occurs
through a "triangulation" process whereby an amount denominated in one national
currency is converted into Euros, which are then converted into the second
national currency. The Euro conversion presents investors with unique risks and
uncertainties, including: (1) the readiness of Euro payment, clearing, and other
operational systems; (2) the legal treatment of debt instruments and financial
contracts denominated in or referring to existing national currencies rather
than the Euro; (3) exchange-rate fluctuations between the Euro and non-Euro
currencies during the transition period of January 1, 1999 through December 31,
2001 and beyond; (4) potential U.S. tax issues with respect to Fund securities;
and (5) the ECB's abilities to manage monetary policies among the participating
countries. Three other EU member countries (Denmark, Greece, and the United
Kingdom) may convert to the Euro at a later date. These and other factors could
adversely affect the value of or income from Fund securities.
SHAREHOLDER TRANSACTIONS AND PRICING
Fund shares are currently sold only to insurance company separate accounts in
connection with the variable annuity and variable life insurance contracts
issued by The Travelers. The term "shareholder" as used in this prospectus refer
to any insurance company separate account that may use Fund shares as a funding
option now or in the future. Fund shares are not sold to the general public.
Fund shares are sold on a continuing basis without a sales charge at the net
asset value next computed after the Fund's custodian receives payment. The
separate accounts to which shares are sold, however, may impose sales and other
charges, as described in the appropriate contract prospectus.
6
<PAGE> 65
The Trust currently issues 20 series or Funds, each with only one class of
shares. All shares participate equally in dividends and distributions and have
equal voting, liquidation and other rights. All shares of a Fund participate
equally in dividends and distributions and have equal voting liquidation and
other rights. When issued for the consideration described in the prospectus,
shares are fully paid and nonassessable by the Trust. Shares are redeemable
transferable and freely assignable as collateral. (See the accompanying separate
account prospectus for a discussion of voting rights applicable to purchasers of
variable annuity and variable life insurance contracts.)
PRICING OF FUND SHARES
The offering price of Fund shares is the net asset value or NAV of a single
share. Normally NAV is computed as of the close of trading (usually 4:00 p.m.
Eastern time) each day the New York Stock Exchange ("Exchange") is open. NAV is
calculated by adding the value of a Fund's investments, cash and other assets,
subtracting its liabilities, and dividing the result by the number of shares
outstanding.
Each Fund's assets are valued primarily based on market value. Short-term money
market instruments with remaining maturities of sixty days or less are valued
using the amortized-cost method. This method approximates market value and
minimizes the effect of charges in a security's market value. Foreign securities
are valued on the basis of quotations from the primary market in which they are
traded; the value is then converted into U.S. dollars from the local currency.
In cases where market quotations are not readily available or, for foreign
securities, if the values have been materially impacted by events occurring
after the closing of a foreign market, an asset is valued at fair value as
determined in good faith by the Trust's Board of Trustees ("Board"). However,
this procedure is not used to determine the value of the securities owned by a
Fund if, in the opinion of the Board or the committee appointed by the Board,
some other method (e.g., closing over-the-counter bid prices in the case of debt
instruments traded off an exchange would more accurately reflect the fair market
value of such securities).
PURCHASES AND REDEMPTIONS
Owners of variable annuity or variable life insurance contracts should follow
the purchase and redemption procedures described in the accompanying separate
account prospectus. The following is general information with regard to
purchases and redemptions of Fund shares by insurance company separate accounts.
Fund shares are purchased and redeemed at the NAV next determined after the Fund
receives a purchase or redemption order. NAVs are adjusted for fractions of a
cent. Upon redemption, a shareholder may receive more or less than the amount
paid at the time of purchase, depending upon changes in the value of the Fund's
investment portfolio between purchase and redemption.
The Trust computes each Fund's NAV for purchases and redemptions as of the close
of the Exchange on the day that the Trust has received all proper documentation
from the shareholder. Redemption proceeds are normally wired or mailed either
the same or the next business day, but not more than seven days later.
The Trust retains the right to refuse a purchase order. The Trust may
temporarily suspend the redemption rights or postpone payments when the Exchange
is closed (other than on weekends and holidays), when trading on the Exchange is
restricted, or when permitted by the SEC.
7
<PAGE> 66
TAX CONSEQUENCES OF DIVIDENDS AND DISTRIBUTIONS
Capital gains and dividends are distributed in cash or reinvested in additional
Fund shares, without a sales charge. The Trust expects that Fund shares will be
held under a variable annuity or variable life insurance contract. Under current
tax law, distributions that are left to accumulate in the variable annuity or
life insurance contract are not subject to federal income tax until they are
withdrawn from the contract. Contract purchasers should review the accompanying
contract prospectus for a discussion of the tax treatment applicable to variable
annuity or variable life insurance contracts.
8
<PAGE> 67
FINANCIAL HIGHLIGHTS
ZERO COUPON BOND FUND PORTFOLIOS
The financial highlights table provides information to help you understand the
Funds' financial performance for the past 4 periods. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information for the years ended December 31, 1998 and 1997
was audited by KPMG LLP, independent auditors, whose report and the Fund's
financial statements are included in the annual report to shareholders, which is
available upon request. All other periods presented were audited by other
independent auditors.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- -----------------------
(SERIES 2000) (SERIES 2005)
OCTOBER 11, OCTOBER 11,
1995(1) TO 1995(1) TO
DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.................. $10.09 $ 9.96 $10.31 $10.00 $10.53 $ 9.97 $10.48 $10.00
Income (loss) from Investment
Operations:
Net Investment Income(3)(4)........ 0.59 0.59 0.50 0.13 0.55 0.60 0.48 0.13
Net Gains (Losses) on Securities
(both realized and unrealized)..... 0.17 0.13 (0.22) 0.18 0.74 0.56 (0.38) 0.35
------ ------ ------ ------ ------ ------ ------ ------
Total Income from Investment
Operations......................... 0.76 0.72 0.28 0.31 1.29 1.16 0.10 0.48
Less Distributions():
Dividends (from net investment
income)............................ (0.59) (0.59) (0.63) -- (0.56) (0.60) (0.61) --
------ ------ ------ ------ ------ ------ ------ ------
Total Distributions.................. (0.59) (0.59) (0.63) -- (0.56) (0.60) (0.61) --
------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of Period....... $10.26 $10.09 $ 9.96 $10.31 $11.26 $10.53 $ 9.97 $10.48
------ ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN(2)...................... 7.58% 7.20% 2.76% 3.10% 12.26% 11.63% 0.90% 4.80%
Net Assets, End of Period
(thousands)........................ $1,953 $1,757 $1,565 $1,029 $3,170 $2,357 $2,054 $1,050
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net
Assets (with
reimbursement)(3)(4)(5)(6)......... 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
Ratio of Expenses to Average Net
Assets (without
reimbursement)(3)(4)(5)(6)......... 2.09% 1.80% 2.49% 6.51% 1.61% 1.52% 2.17% 6.48%
Ratio of Net Investment Income to
Average Net Assets(6).............. 5.74% 5.88% 5.74% 5.61% 5.63% 6.11% 6.14% 5.89%
Portfolio turnover rate............ 0% 29% 33% 34% 3% 9% 17% 23%
</TABLE>
(1) Date operations commenced.
(2) Total return is actual and has not been annualized, as it may not be
representative of the total return for the year. The total return would have
been lower if separate account charges had been reflected.
(3) For the years ended December 31, 1998, 1997, and 1996, and the period ended
December 31, 1995, Travelers reimbursed the Series 2000 Fund for $35,705,
$27,177, $31,032 and $14,257 in expenses, respectively. If such expenses were
not reimbursed, the per share decrease of net investment income for the years
ended December 31, 1998, 1997 and 1996, and the period ended December 31, 1995
would have been $0.19 $0.16, $0.20 and $0.14, respectively.
9
<PAGE> 68
(4) For the years ended December 31, 1998, 1997 and 1996, and the period ended
December 31, 1995, Travelers reimbursed the Series 2005 Fund $38,063, $28,361,
$30,922, and $14,256 in expenses, respectively. If such expenses were not
reimbursed the per share decrease of net investment income for the years ended
December 31, 1998, 1997 and 1996, and the period ended December 31, 1995 would
have been $0.14, $0.13, $0.15 and $0.14, respectively.
(5) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.15%.
(6) Annualized.
10
<PAGE> 69
APPENDIX A
ZERO COUPON BOND FUND PORTFOLIOS
The Funds invest in various instruments subject to their investment objective.
The following techniques and practices are all available to the Funds, and are
described, together with their risks, in the SAI.
Investments and investment techniques available to the Fund:
American Depositary Receipts
Asset-Backed Mortgage Securities
Bankers Acceptances
Buying Put and Call Options
Certificates of Deposit
Commercial Paper
Convertible Securities
Corporate Asset-Backed Securities
Debt Securities
Emerging Market Securities
Equity Securities
Floating and Variable Rate Instruments
Foreign Securities
Futures Contracts
Illiquid Securities
Index Futures Contracts
Investment Company Securities
Investment in Unseasoned Companies
Options on Index Futures Contracts
Real Estate-Related Instruments
Repurchase Agreements
Short-Term Money Market Instruments
Temporary Bank Borrowing
U.S. Government Securities
Variable Amount Master Demand Notes
When-Issued Delayed Delivery Securities
Writing Covered Call Options
A-1
<PAGE> 70
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 71
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 72
TRAVELERS SERIES TRUST
ZERO COUPON BOND FUND PORTFOLIOS
(Series 2000 and Series 2005)
Investors who want more information about the Fund can obtain a statement of
additional information ("SAI") which provides more detailed information on a
number of topics and is made a part of this prospectus. Additional information
about the Fund's investments is available in its annual and semi-annual reports
to shareholders. The Fund's annual report provides a discussion of the market
conditions and investment strategies that particularly impact the Fund's
performance over the past fiscal year. These documents are free of charge. To
obtain a copy, or ask other questions about the fund, do one of the following:
CALL -- 1-800-842-9368
- --------------------------------------------------------------------------------
WRITE -- ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
- --------------------------------------------------------------------------------
ACCESS THE SEC'S WEBSITE -- http://www.sec.gov
Investors may, for a fee, get text-only copies of the above documents from the
SEC Public Reference Room at 1-800-SEC-0330 or write to the SEC Public Reference
Room, Washington, DC, 20549-6009
<PAGE> 73
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 74
STATEMENT OF ADDITIONAL INFORMATION
THE TRAVELERS SERIES TRUST
CONVERTIBLE BOND PORTFOLIO
DISCIPLINED MID CAP STOCK PORTFOLIO
DISCIPLINED SMALL CAP STOCK PORTFOLIO
EQUITY INCOME PORTFOLIO
FEDERATED HIGH YIELD PORTFOLIO
FEDERATED STOCK PORTFOLIO
JURIKA & VOYLES CORE EQUITY PORTFOLIO
LARGE CAP PORTFOLIO
LAZARD INTERNATIONAL STOCK PORTFOLIO
MFS EMERGING GROWTH PORTFOLIO
MFS MID CAP GROWTH PORTFOLIO
MFS RESEARCH PORTFOLIO
NWQ LARGE CAP PORTFOLIO
SOCIAL AWARENESS STOCK PORTFOLIO
STRATEGIC STOCK PORTFOLIO
TRAVELERS QUALITY BOND PORTFOLIO
U.S. GOVERNMENT SECURITIES PORTFOLIO
UTILITIES PORTFOLIO
ZERO COUPON BOND FUND PORTFOLIOS (SERIES 2000 AND 2005)
May 1, 1999
This Statement of Additional Information ("SAI") is not a prospectus. Investors
should read this SAI with the applicable The Travelers Series Trust's prospectus
dated May 1, 1999 and the 1998 annual shareholder report. Investors may obtain a
free copy of the prospectus and annual shareholder report by writing or calling
us at:
The Travelers Insurance Company
Annuity Services
One Tower Square
Hartford, Connecticut 06183-5030
Phone number 860-277-0111 (collect); or
800-842-9368 (toll free)
or by accessing the Securities and Exchange Commission's website at
http://www.sec.gov.
<PAGE> 75
TABLE OF CONTENTS
PAGE
Investment Objectives, Policies, Risks and Certain Restrictions........ 1
Investment Restrictions................................................ 31
Valuation and Pricing.................................................. 33
Distributions.......................................................... 34
Trustees and Officers.................................................. 34
Declaration of Trust................................................... 37
Investment Advisory Services........................................... 37
Redemptions in Kind.................................................... 46
Brokerage.............................................................. 46
Portfolio Turnover Rate................................................ 49
Fund Administration.................................................... 50
Shareholder Rights..................................................... 51
Tax Status............................................................. 51
Financial Statements................................................... 53
Additional Information................................................. 53
Appendix............................................................... 54
i
<PAGE> 76
INVESTMENT OBJECTIVES, POLICIES, RISKS AND CERTAIN RESTRICTIONS
The Travelers Series Trust is registered with the Securities and Exchange
Commission ("SEC"), as an open-end management investment company, and is
organized as a business trust under the laws of the Commonwealth of
Massachusetts. An Agreement and Declaration of Trust dated October 11, 1991 (the
"Declaration of Trust") authorizes the Board of Trustees ("Board") to divide the
Trust's shares into two or more series related to separate investment portfolios
(Funds) and further allows the Board to establish additional series at any time.
The Trust is currently divided into multiple Funds, each with its own investment
objective, policies and restrictions. Each Fund except MFS Mid Cap Growth
Portfolio is diversified under the Investment Company Act of 1940, as amended
(the "1940 Act"). There can be no assurance that a Fund will achieve its
investment objective.
Each Fund's investment objective and, unless noted as fundamental, its
investment policies may be changed by the Board without approval of shareholders
or holders of variable annuity and variable life insurance contracts. A change
in a Fund's investment objective or policies may result in the Fund having a
different investment objective or policies from those that a policyowner
selected as appropriate at the time of investment.
Listed below for quick reference are the other types of investments that each
Fund may make and its investment techniques. Any investments, policies and
restrictions generally are considered at the time of purchase; the sale of
instruments is not required in the event of a subsequent change in
circumstances. More detailed information about the Funds' investments and
investment techniques follows the chart.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE DISCIPLINED DISCIPLINED EQUITY FEDERATED FEDERATED
INVESTMENT TECHNIQUE BOND MID CAP SMALL CAP INCOME HIGH YIELD STOCK
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Affiliated Bank Transactions X
- -----------------------------------------------------------------------------------------------------------------------------
American Depositary Receipts X X X X
- -----------------------------------------------------------------------------------------------------------------------------
Asset-Backed Mortgage Securities X X X
- -----------------------------------------------------------------------------------------------------------------------------
Bankers' Acceptances X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------
Buying Put and Call Options X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------
Certificates of Deposit X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------
Commercial Paper X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------
Convertible Securities X X X
- -----------------------------------------------------------------------------------------------------------------------------
Corporate Asset-Backed Securities X X X X
- -----------------------------------------------------------------------------------------------------------------------------
Debt Securities X X X X X
- -----------------------------------------------------------------------------------------------------------------------------
Emerging Market Securities X X X X
- -----------------------------------------------------------------------------------------------------------------------------
Equity Securities X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------
Floating & Variable Rate Instruments X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------
Foreign Securities X X X X
- -----------------------------------------------------------------------------------------------------------------------------
Forward Contracts on Foreign Currency X
- -----------------------------------------------------------------------------------------------------------------------------
Futures Contracts X X X X X
- -----------------------------------------------------------------------------------------------------------------------------
High-Yield, High-Risk Bonds X X
- -----------------------------------------------------------------------------------------------------------------------------
Illiquid Securities X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------
Indexed Securities X X
- -----------------------------------------------------------------------------------------------------------------------------
Index Futures Contracts X X X X X
- -----------------------------------------------------------------------------------------------------------------------------
Investment Company Securities X X X X X
- -----------------------------------------------------------------------------------------------------------------------------
Investment in Unseasoned Companies X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------
Lending Portfolio Securities X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------
Letters of Credit X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------
Loan Participations X X X
- -----------------------------------------------------------------------------------------------------------------------------
Money Market Instruments X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE> 77
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE DISCIPLINED DISCIPLINED EQUITY FEDERATED FEDERATED
INVESTMENT TECHNIQUE BOND MID CAP SMALL CAP INCOME HIGH YIELD STOCK
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options on Foreign Currencies X
- ---------------------------------------------------------------------------------------------------------------------------
Options on Index Futures Contracts X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Options on Stock Indices X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Other Direct Indebtedness X X X
- ---------------------------------------------------------------------------------------------------------------------------
Real Estate-Related Instruments X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Reverse Repurchase Agreements X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Short-Term Money Market Instruments X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Short Sales "Against the Box" X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Swap Agreements X
- ---------------------------------------------------------------------------------------------------------------------------
Temporary Bank Borrowing X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Variable Amount Master Demand Notes X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
When-Issued & Delayed Delivery Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Writing Covered Call Options X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
LAZARD MFS MFS
INVESTMENT TECHNIQUE JURIKA & INTERNATIONAL EMERGING MID CAP MFS
VOYLES LARGE CAP STOCK GROWTH GROWTH RESEARCH
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Affiliated Bank Transactions X
- ---------------------------------------------------------------------------------------------------------------------------
American Depositary Receipts X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Asset-Backed Mortgage Securities X X
- ---------------------------------------------------------------------------------------------------------------------------
Bankers' Acceptances X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Buying Put and Call Options X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Certificates of Deposit X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Commercial Paper X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Convertible Securities X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Corporate Asset-Backed Securities X X X
- ---------------------------------------------------------------------------------------------------------------------------
Debt Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Emerging Market Securities X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Equity Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Floating & Variable Rate Instruments X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Foreign Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Forward Contracts on Foreign Currency X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Futures Contracts X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
High-Yield, High-Risk Bonds X X X
- ---------------------------------------------------------------------------------------------------------------------------
Illiquid Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Indexed Securities X X
- ---------------------------------------------------------------------------------------------------------------------------
Index Futures Contracts X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Investment Company Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Investment in Unseasoned Companies X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Lending Portfolio Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Letters of Credit X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------
Loan Participations X X
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 78
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
LAZARD MFS MFS
INVESTMENT TECHNIQUE JURIKA & INTERNATIONAL EMERGING MID CAP MFS
VOYLES LARGE CAP STOCK GROWTH GROWTH RESEARCH
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options on Foreign Currencies X X X X X
- -------------------------------------------------------------------------------------------------------------------------
Options on Index Futures Contracts X X X X X
- -------------------------------------------------------------------------------------------------------------------------
Options on Stock Indices X X X X X
- -------------------------------------------------------------------------------------------------------------------------
Other Direct Indebtedness X
- -------------------------------------------------------------------------------------------------------------------------
Real Estate-Related Instruments X X X X X X
- -------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements X X X X X X
- -------------------------------------------------------------------------------------------------------------------------
Reverse Repurchase Agreements X X X X X X
- -------------------------------------------------------------------------------------------------------------------------
Short Sales "Against the Box" X X X
- -------------------------------------------------------------------------------------------------------------------------
Short-Term Money Market Instruments X X X X X X
- -------------------------------------------------------------------------------------------------------------------------
Swap Agreements X
- -------------------------------------------------------------------------------------------------------------------------
Temporary Bank Borrowing X X X X X X
- -------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities X X X X X X
- -------------------------------------------------------------------------------------------------------------------------
Variable Amount Master Demand Notes X X X X X X
- -------------------------------------------------------------------------------------------------------------------------
When-Issued & Delayed Delivery Securities X X X X X X
- -------------------------------------------------------------------------------------------------------------------------
Writing Covered Call Options X X X X X
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
ZERO COUPON
INVESTMENT TECHNIQUE NWQ SOCIAL TRAVELERS U.S. BOND FUND
LARGE AWARENESS STRATEGIC QUALITY GOV'T (SERIES 2000
CAP STOCK STOCK BOND SECURITIES UTILITIES & 2005)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Affiliated Bank Transactions
- -------------------------------------------------------------------------------------------------------------------------------
American Depositary Receipts X X X X
- -------------------------------------------------------------------------------------------------------------------------------
Asset-Backed Mortgage Securities X X X
- -------------------------------------------------------------------------------------------------------------------------------
Bankers' Acceptances X X X X X X
- -------------------------------------------------------------------------------------------------------------------------------
Buying Put and Call Options X X X X
- -------------------------------------------------------------------------------------------------------------------------------
Certificates of Deposit X X X X X X X
- -------------------------------------------------------------------------------------------------------------------------------
Commercial Paper X X X X X X X
- -------------------------------------------------------------------------------------------------------------------------------
Convertible Securities X X X X X
- -------------------------------------------------------------------------------------------------------------------------------
Corporate Asset-Backed Securities X X
- -------------------------------------------------------------------------------------------------------------------------------
Debt Securities X X X X X X
- -------------------------------------------------------------------------------------------------------------------------------
Emerging Market Securities X X X
- -------------------------------------------------------------------------------------------------------------------------------
Equity Securities X X X X X X
- -------------------------------------------------------------------------------------------------------------------------------
Floating & Variable Rate Instruments X X X X X X X
- -------------------------------------------------------------------------------------------------------------------------------
Foreign Securities X X X X
- -------------------------------------------------------------------------------------------------------------------------------
Forward Contracts on Foreign Currency X X
- -------------------------------------------------------------------------------------------------------------------------------
Futures Contracts X X X X X X X
- -------------------------------------------------------------------------------------------------------------------------------
High-Yield, High-Risk Bonds X
- -------------------------------------------------------------------------------------------------------------------------------
Illiquid Securities X X X X X X
- -------------------------------------------------------------------------------------------------------------------------------
Indexed Securities X X
- -------------------------------------------------------------------------------------------------------------------------------
Index Futures Contracts X X X X X X X
- -------------------------------------------------------------------------------------------------------------------------------
Investment Company Securities X X X X X X
- -------------------------------------------------------------------------------------------------------------------------------
Investment in Unseasoned Companies X X X X X
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 79
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
ZERO COUPON
INVESTMENT TECHNIQUE NWQ SOCIAL TRAVELERS U.S. BOND FUND
LARGE AWARENESS STRATEGIC QUALITY GOV'T (SERIES 2000
CAP STOCK STOCK BOND SECURITIES UTILITIES & 2005)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lending Portfolio Securities X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
Letters of Credit X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
Loan Participations
- -----------------------------------------------------------------------------------------------------------------------------------
Options on Foreign Currencies X X
- -----------------------------------------------------------------------------------------------------------------------------------
Options on Index Futures Contracts X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
Options on Stock Indices X X X
- -----------------------------------------------------------------------------------------------------------------------------------
Other Direct Indebtedness X
- -----------------------------------------------------------------------------------------------------------------------------------
Real Estate-Related Instruments X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements X X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
Reverse Repurchase Agreements X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
Short Sales "Against the Box" X X
- -----------------------------------------------------------------------------------------------------------------------------------
Short-Term Money Market Instruments X X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
Swap Agreements
- -----------------------------------------------------------------------------------------------------------------------------------
Temporary Bank Borrowing X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities X X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
Variable Amount Master Demand Notes X X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
When-Issued & Delayed Delivery
Securities X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
Writing Covered Call Options X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following section explains more about the investments and investment
techniques listed above. It also includes a brief discussion about the specific
risks associated with a particular investment or investment technique.
MONEY MARKET INSTRUMENTS. Money market instruments are those with remaining
maturities of 397 days or less, such as commercial paper (including master
demand notes), bank certificates of deposit, bankers' acceptances, and U.S.
government securities, some of which may be subject to repurchase agreements.
SHORT-TERM MONEY MARKET INSTRUMENTS. Certain Portfolios, may at any time invest
funds awaiting investment or held as reserves for the purposes of satisfying
redemption requests, payment of dividends or making other distributions to
shareholders, in cash and short-term money market instruments. Short-term money
market instruments may include (i) short-term U.S. Government Securities and,
short-term obligations of foreign sovereign governments and their agencies and
instrumentalities, (ii) interest bearing savings deposits on, and certificates
of deposit and bankers' acceptances of, United States and foreign banks, (iii)
commercial paper of U.S. or of foreign issuers rated A-1 or higher by S&P or
Prime-1 by Moody's, issued by companies which have an outstanding debt issue
rated AA or higher by S&P or Aa or higher by Moody's or, if not rated,
determined by the Investment Subadviser to be of comparable quality to those
rated obligations which may be purchased by the Portfolios.
CERTIFICATES OF DEPOSIT. Certificates of deposit are receipts issued by a bank
in exchange for the deposit of funds. The issuer agrees to pay the amount
deposited plus interest to the bearer of the receipt on the date specified on
the certificate. The certificate can usually be traded in the secondary market
prior to maturity.
Certificates of deposit are limited to U.S. dollar-denominated certificates of
U.S. banks that have at least $1 billion in deposits as of the date of their
most recently published financial statements (including foreign branches of U.S.
banks, U.S. branches of foreign banks that are members of the Federal Reserve
System or the Federal Deposit Insurance Corporation, and savings and loan
associations that are insured by the Federal Deposit Insurance Corporation).
4
<PAGE> 80
The Funds do not acquire time deposits or obligations issued by the
International Bank for Reconstruction and Development, the Asian Development
Bank or the Inter-American Development Bank. Additionally, the Funds do not
currently intend to purchase such foreign securities (except to the extent that
certificates of deposit of foreign branches of U.S. banks may be deemed foreign
securities) or purchase certificates of deposit, bankers' acceptances or other
similar obligations issued by foreign banks.
OBLIGATIONS OF FOREIGN BRANCHES OF U.S. BANKS. The obligations of foreign
branches of U.S. banks may be general obligations of the parent bank as well as
of the issuing branch. They also may be limited by the terms of a specific
obligation and by government regulation. Payment of interest and principal upon
these obligations may also be affected by governmental action in the country of
domicile of the branch (generally referred to as sovereign risk). In addition,
if evidences of ownership of such securities are held outside the U.S., a Fund
is subject to the risks associated with the holding of such property overseas.
Various provisions of federal law governing domestic branches do not apply to
foreign branches of domestic banks.
OBLIGATIONS OF U.S. BRANCHES OF FOREIGN BANKS. Obligations of U.S. branches of
foreign banks may be general obligations of the parent bank as well as of the
issuing branch. They also may be limited by the terms of a specific obligation
and by federal and state regulation as well as by governmental action in the
country in which the foreign bank has its head office. In addition, there may be
less publicly available information about an U.S. branch of a foreign bank than
about a domestic bank.
BANKERS' ACCEPTANCES. Bankers' acceptances in which a Fund may invest are issued
by domestic banks (including their branches located outside the United States
and subsidiaries located in Canada), domestic branches of foreign banks, savings
and loan associations and similar institutions. Bankers' acceptances typically
arise from short-term credit arrangements designed to enable businesses to
obtain funds to finance commercial transactions. Generally, an acceptance is a
time draft drawn on a bank by an exporter or importer to obtain a stated amount
of funds to pay for specific merchandise. The draft is then "accepted" by the
bank that, in effect, unconditionally guarantees to pay the face value of the
instrument on its maturity date. The acceptance may then be held by the
accepting bank as an earning asset, or it may be sold in the secondary market at
the going rate of discount for a specific maturity. Although maturities for
acceptances can be as long as 270 days, most acceptances have maturities of six
months or less. Bankers' acceptances acquired by a Fund must have been accepted
by U.S. commercial banks, including foreign branches of U.S. commercial banks,
having total deposits at the time of purchase in excess of $1 billion and must
be payable in U.S. dollars.
COMMERCIAL PAPER RATINGS. The Funds' investments in commercial paper are limited
to those rated A-1 by S&P or PRIME-1 by Moody's. These and other ratings of
money market instruments are described as follows.
Commercial paper rated A-1 by S&P has the following characteristics. Liquidity
ratios are adequate to meet cash requirements. The issuer's long-term senior
debt is rated A or better, although in some cases BBB credits may be allowed.
The issuer has access to at least two additional channels of borrowing. Basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances. Typically, the issuer's industry is well established, and the
issuer has a strong position within the industry.
The rating PRIME-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
(1) evaluation of the management of the issuer; (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of ten years; (7)
financial strength of a parent company and the relationships which exist with
the issuer; and (8) recognition by the management of obligations which may be
present or may arise as a result of public preparations to meet such
obligations. Relative strength or weakness of the above factors determines how
the issuer's commercial paper is rated within various categories.
See the Appendix for information with respect to ratings for other debt or
equity securities.
U.S. GOVERNMENT SECURITIES. As used in this SAI, "U.S. government securities"
include securities issued by the U.S. Government, its agencies,
instrumentalities and government-sponsored enterprises. U.S. government
securities include a variety of Treasury securities that differ only in their
interest rates, initial maturities and dates of issuance. Treasury bills
5
<PAGE> 81
have initial maturities of one year or less; Treasury notes have initial
maturities of one to ten years; and Treasury bonds generally have initial
maturities of greater than ten years at the date of issuance.
U.S. government securities include direct obligations of the U.S. Treasury and
securities issued or guaranteed by the Federal Housing Administration,
Export-Import Bank of the U.S., Small Business Administration, Government
National Mortgage Association, Federal Home Loan Mortgage Corporation, The
Tennessee Valley Authority, Student Loan Marketing Association and Federal
National Mortgage Association.
Some U.S. government securities, such as Treasury bills and Government National
Mortgage Association pass-through certificates, are supported by the full faith
and credit of the U.S.; others, such as securities of Federal Home Loan Banks,
are supported by the right of the issuer to borrow from the Treasury; still
others, such as bonds issued by the Federal National Mortgage Association, a
private corporation, are supported only by the credit of the instrumentality.
Because the U.S. Government is not obligated by law to provide support to an
instrumentality or government-sponsored enterprise, a Fund will invest in those
U.S. government securities only when the Fund's investment adviser, Travelers
Asset Management International Corporation ("TAMIC"), determines that the credit
risk with respect to the instrumentality or enterprise does not make its
securities unsuitable investments. U.S. government securities will not include
international agencies or instrumentalities in which the U.S. Government, its
agencies, instrumentalities or government-sponsored enterprises participate,
such as the World Bank, the Asian Development Bank or the Inter-American
Development Bank, or issues insured by the Federal Deposit Insurance
Corporation.
WHEN-ISSUED SECURITIES. Certain Funds may, from time to time, purchase new-issue
government or agency securities on a "when-issued," "delayed-delivery," or
"to-be-announced" basis ("when-issued securities"). The prices of such
securities are fixed at the time the commitment to purchase is made and may be
expressed in either dollar-price or yield-maintenance terms. Delivery and
payment may be at a future date beyond customary settlement time. It is the
Funds' customary practice to make when-issued purchases for settlement no more
than 90 days beyond the commitment date.
The commitment to purchase a when-issued security may be viewed as a senior
security, which is marked to market and reflected in the Fund's net asset value
daily from the commitment date. While the adviser or subadviser intends for the
Fund to take physical delivery of these securities, offsetting transactions may
be made prior to settlement, if it is advantageous to do so. A Fund does not
make payment or begin to accrue interest on these securities until settlement
date. To invest its assets pending settlement, a Fund normally invests in
short-term money market instruments and other securities maturing no later than
the scheduled settlement date.
The Funds do not intend to purchase when-issued securities for speculative or
"leverage" purposes. Consistent with Section 18 of the 1940 Act and the position
of the SEC thereunder, when a Fund commits to purchase a security on a
when-issued basis, the adviser or subadviser identifies and places in a
segregated account high-grade money market instruments and other liquid
securities equal in value to the purchase cost of the when-issued securities.
The adviser and subadvisers believe that purchasing securities in this manner
will be advantageous to the Funds. However, this practice entails certain
additional risks, namely the default of the counterparty on its obligations to
deliver the security as scheduled. In this event, a Fund would experience a gain
or loss equal to the appreciation or depreciation in value from the commitment
date. The adviser and subadvisers employ a rigorous credit quality procedure in
determining the counterparties to deal with in purchasing when-issued securities
and, in some circumstances, require the counterparty to post cash or some other
form of security as margin to protect the value of the delivery obligation
pending settlement.
FLOATING AND VARIABLE RATE INSTRUMENTS: Obligations that have a floating or
variable rate of interest bear interest at rates that are not fixed, but vary
with changes in specified market rates or indices, such as the prime rate, and
at specified intervals. Certain of these obligations may carry a demand feature
that would permit the holder to tender them back to the issuer at par value
prior to maturity. Each Fund limits its purchases of floating and variable rate
obligations to those of the same quality as it otherwise is allowed to purchase.
The advisers or subadvisers monitor on an ongoing basis the ability of an issuer
of a demand instrument to pay principal and interest on demand. Each Funds'
right to obtain payment at par on a demand instrument can be affected by events
occurring between the date the Funds elect to demand payment and the date
payment is due. Those events may affect the ability of the issuer of the
instrument to make payment when due, except when such demand instruments permit
same-day settlement. To facilitate settlement, these same-day demand instruments
may be held in book entry form at a bank other than the Funds' custodian,
subject to a subcustodian agreement approved
6
<PAGE> 82
by the Portfolio between that bank and the Funds' custodian.
The floating and variable rate obligations that the Funds may purchase include
certificates of participation in obligations purchased from banks. A certificate
of participation gives a Fund an undivided interest in the underlying
obligations in the proportion that the Fund's interest bears to the total
principal amount of such obligations. Certain of such certificates of
participation may carry a demand feature that would permit the holder to tender
them back to the issuer prior to maturity.
VARIABLE AMOUNT MASTER DEMAND NOTES: Variable amount master demand notes are
unsecured obligations that permit the investment of fluctuating amounts by a
Fund at varying rates of interest pursuant to direct arrangements between the
Fund as lender and the issuer as borrower. Master demand notes permit daily
fluctuations in the interest rate and daily changes in the amounts borrowed.
Each Fund has the right to increase the amount under the note at any time up to
the full amount provided by the note agreement, or to decrease the amount, and
the borrower may repay up to the full amount of the note without penalty.
Because these types of notes are direct lending arrangements between the lender
and the borrower, it is not generally contemplated that such instruments will be
traded. Also, there is no secondary market for these notes, although they are
redeemable and thus repayable by the borrower at face value plus accrued
interest at any time. Accordingly, a Fund's right to redeem is dependent on the
ability of the borrower to pay principal and interest on demand. In connection
with master demand note arrangements, the advisers or subadvisers will consider
the earning power, cash flow and other liquidity ratios of the issuer. These
notes, as such, are not typically rated by credit rating agencies. Unless they
are so rated, each Fund will invest in them only if, at the time of an
investment, the issuer meets the criteria set forth for all other commercial
paper. Pursuant to procedures established by the adviser or subadviser, such
notes are treated as instruments maturing in one day and valued at their par
value. The advisers and subadvisers intend to continuously monitor factors
related to the ability of the borrower to pay principal and interest on demand.
VARIABLE RATE MASTER DEMAND NOTES. Variable rate master demand notes are
unsecured obligations that permit a Fund to invest different amounts at varying
interest rates under arrangements between the Fund (as lender) and the issuer of
the note (as borrower). Under the note, a Fund has the right at any time to
increase the amount up to the full amount provided by the note agreement, or to
decrease the amount, and the borrower has the right to repay at any time up to
the full amount of the note without penalty. Notes purchased by a Fund permit it
to demand payment of principal and accrued interest at any time (on not more
than seven days notice). Notes acquired by a Fund may have maturities of more
than one year, provided that: (1) the Fund is entitled to payment of principal
and accrued interest upon not more than seven days notice, and (2) the interest
rate on such notes is adjusted automatically at periodic intervals, which
normally do not exceed 31 days but may extend up to one year. The notes are
deemed to have a maturity equal to the longer of the period remaining to the
next interest-rate adjustment or the demand notice period. Because these notes
are direct lending arrangements between the lender and the borrower, the notes
normally are not traded and have no secondary market, although the notes are
redeemable and, thus, repayable at any time by the borrower at face value plus
accrued interest. Accordingly, a Fund's right to redeem depends on the
borrower's ability to pay interest on demand and repay principal. In connection
with variable rate master demand notes, an adviser or subadviser considers,
under standards established by the Board, earning power, cash flow and other
liquidity ratios of a borrower and monitors the ability of a borrower to pay
principal and interest on demand. These notes are not typically rated by credit
rating agencies. Unless rated, a Fund will invest in them only if the investment
adviser determines that the issuer meets the criteria established for commercial
paper.
ZERO COUPON BONDS AND STEP-UP BONDS. Zero coupon bonds do not pay interest. They
are sold at a substantial discount from face value. Additionally, zero coupon
bonds give the issuer the flexibility of reduced cash interest expense for
several years, and they give the purchaser the potential advantage of
compounding the coupons at a higher rate than might otherwise be available.
Zero coupon bonds are very risky, however, for the investor. Because the cash
flows from zero coupon bonds are deferred and because zero coupon bonds often
represent subordinated debt, their prices are more volatile than most other
bonds.
Step-up bonds are a variant of zero coupon bonds. Step-up bonds pay little or no
initial interest rate for several years and then a higher rate until maturity.
They are also issued at a discount from face value.
For tax purposes, a purchaser of zero coupon bonds owes income tax on the
interest that has accrued each year, even though the Fund has received no cash.
Certain federal tax law income and capital-gain distribution requirements may
have an adverse effect on a Fund to the extent it invests in zero coupon bonds.
7
<PAGE> 83
PAY-IN-KIND BONDS. Pay-in-kind bonds pay interest either in cash or in
additional securities at the issuer's option for a specified period. Like zero
coupon bonds, PIK bonds are designed to give the issuer flexibility in managing
cash flow. Unlike zero coupon bonds, however, PIK bonds offer the investor the
opportunity to sell the additional securities issued in lieu of interest and
thus obtain current income on the original investment. Certain federal tax law
income and capital gain distribution requirements may have an adverse effect on
a Fund to the extent that it invests in PIK bonds.
RESET BONDS. The interest rate on reset bonds is adjusted periodically to a
level that should allow the bonds to trade at a specified dollar level,
generally par or $101. The rate can usually be raised, but the bonds have a low
call premium, limiting the opportunity for capital gain. Some reset bonds have a
maximum rate, generally 2.5% or 3% above the initial rate.
INCREASING RATE NOTES. Increasing rate notes ("IRNs") have interest rates that
increase periodically (by 1/4% per quarter, for example). IRNs are generally
used as a temporary financing instrument since the increasing rate is an
incentive for the issuer to refinance with longer term debt.
EQUITY SECURITIES. By definition, equity securities include common and preferred
stocks, convertible securities, and warrants. Common stocks, the most familiar
type, represent an equity (ownership) interest in a corporation. Although equity
securities have a history of long-term growth in value, their prices fluctuate
based on changes in a company's financial condition and on overall market and
economic conditions. Smaller companies are especially sensitive to these
factors.
STOCKS. Certain Funds expect to remain fully invested in common stocks to the
extent practicable, and is therefore subject to the general risk of the stock
market. The value of a Fund's shares can be expected to fluctuate in response to
changes in market and economic conditions as well as the financial conditions
and prospects of the issuers in which it invests. Certain Funds also may invest
in stocks of smaller companies that may individually exhibit more price
volatility than the broad market averages. Although equity securities have
historically demonstrated long-term growth in value, their prices fluctuate
based on changes in a company's financial condition and general economic
conditions. This is especially true in the case of smaller companies. Moreover,
Funds may invest in stocks of growth-oriented companies that intend to reinvest
earnings rather than pay dividends. A Fund may make investments in stocks that
may at times have limited market liquidity and whose purchase or sale would
result in above average transaction costs. Another factor that would increase
the fundamental risk of investing in smaller companies is the lack of publicly
available information due to their relatively short operating record as public
companies.
Investing in medium capitalization stocks may involve greater risk than
investing in large capitalization stocks, since they can be subject to more
abrupt or erratic movements. However, they tend to involve less risk than stocks
of small capitalization companies.
The nature of investing in emerging growth companies involves greater risk than
is customarily associated with investments in more established companies.
Emerging growth companies often have limited product lines, markets or financial
resources, and they may be dependent on one-person management. In addition,
there may be less research available on many promising small and medium sized
emerging growth companies making it more difficult to find and analyze these
companies. The securities of emerging growth companies may have limited
marketability and may be subject to more abrupt or erratic market movements than
securities of larger, more established growth companies or the market averages
in general. Shares of a Fund, therefore, are subject to greater fluctuation in
value than shares of a conservative equity portfolio or of a growth portfolio
that invests entirely in proven growth stocks.
CONVERTIBLE SECURITIES. Convertible securities may include corporate notes or
preferred stock but ordinarily are long-term debt obligations of an issuer that
are convertible at a stated price or exchange rate into the issuer's common
stock. Convertible securities have characteristics similar to both common stock
and debt obligations. Although to a lesser degree than with debt securities, the
market value of convertible securities tends to decline as interest rates
increase and, conversely, 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
stock and, therefore, reacts to variations in the general stock market. However,
when the market price of the common stock underlying a convertible security
exceeds the conversion price, the price of the convertible security tends to
reflect the value of the
8
<PAGE> 84
underlying common stock. As the market price of the underlying common stock
declines, the convertible security tends to trade increasingly on a yield basis,
and thus may not depreciate to the same extent as the underlying common stock.
As fixed-income securities, convertible securities are investments that provide
a stable stream of income with generally higher yields than common stocks. Like
all fixed-income securities, there can be no assurance of the current income
because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower interest or dividend
yields than non-convertible securities of similar quality because of the
potential through the conversion feature for capital appreciation. There can be
no assurance of capital appreciation because securities prices fluctuate.
Convertible securities generally are subordinated to other similar but
not-convertible debt of the same issuer, although convertible bonds enjoy
seniority payment rights over all equity securities. Convertible preferred stock
is senior to the issuer's common stock. Because of the conversion feature,
however, convertible securities typically have lower ratings than similar
non-convertible securities.
A synthetic convertible security is comprised of two distinct securities that
together resemble convertible securities. Synthetic convertible securities
combine non-convertible bonds or preferred stock with warrants or stock call
options. The options that form a portion of the convertible security are listed
on a securities exchange or on the National Association of Securities Dealers
Automated Quotations Systems. The two components of a synthetic convertible
security generally are not offered as a unit but may be purchased and sold by a
Fund at different times. Synthetic convertible securities differ from
convertible securities in that each component of a synthetic convertible
security has a separate market value and responds differently from the other to
market fluctuations. Investing in synthetic convertible securities involves the
risks normally involved in holding the securities comprising the synthetic
convertible security.
DEBT SECURITIES. Debt securities held by a Fund may be subject to several types
of investment risk, including market or interest rate risk, which relates to the
change in market value caused by fluctuations in prevailing interest rates and
credit risk, which relates to the ability of the issuer to make timely interest
payments and to repay the principal upon maturity. Call or income risk relates
to corporate bonds during periods of falling interest rates, and involves the
possibility that securities with high interest rates will be prepaid or "called"
by the issuer prior to maturity. Investment-grade debt securities are generally
regarded as having adequate capacity to pay interest and repay principal, but
have speculative characteristics. Below-investment-grade debt securities
(sometimes referred to as "high-yield/high-risk" or "junk" bonds) have greater
speculative characteristics. Adverse business, financial, or economic conditions
will likely impair capacity or willingness to pay interest and repay principal.
The yield on debt instruments over a period of time should reflect prevailing
interest rates, which depend on a number of factors, including government action
in the capital markets, government fiscal and monetary policy, needs of
businesses for capital goods for expansion, and investor expectations as to
future inflation. The yield on a particular debt instrument is also affected by
the risk that the issuer will be unable to pay principal and interest.
Certain Funds may invest in corporate debt obligations that may be rated below
the three highest rating categories of a nationally recognized statistical
rating organization (AAA, AA, or A for S&P and Aaa, Aa, or A for Moody's (see
the Appendix for more information) or, if unrated, of comparable quality and may
have speculative characteristics or be speculative. Lower-rated or comparable
unrated bonds are commonly referred to as "junk bonds". There is no minimum
acceptable rating for a security to be purchased or held by certain Funds, and a
Fund may, from time to time, purchase or hold securities rated in the lowest
rating category and may include bonds in default. Credit ratings evaluate the
safety of the principal and interest payments but not the market value of high
yield bonds. Further, the value of such bonds is likely to fluctuate over time.
Lower-rated bonds usually offer higher yields with greater risks than
higher-rated bonds. Lower-rated bonds have more risk associated with them that
the issuer of such bonds will default on principal and interest payments. This
is because of reduced creditworthiness and increased risk of default.
Lower-rated securities generally tend to reflect short-term corporate and market
developments to a greater extent than higher-rated securities that react
primarily to fluctuations in the general level of interest rates. Short-term
corporate and market developments affecting the price or liquidity of
lower-rated securities could include adverse news affecting major issuers,
underwriters, or dealers of lower-rated corporate debt
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obligations. In addition, since there are fewer investors in lower-rated
securities, it may be harder to sell the securities at an optimum time.
As a result of these factors, lower-rated securities tend to have more price
volatility and carry more risk to principal and income than higher-rated
securities.
An economic downturn may adversely affect the value of some lower-rated bonds.
Such a downturn may especially affect highly leveraged companies or companies in
cyclically sensitive industries, where deterioration in a company's cash flow
may impair its ability to meet its obligations to pay principal and interest to
bondholders in a timely fashion. From time to time, as a result of changing
conditions, issuers of lower-rated bonds may seek or may be required to
restructure the terms and conditions of securities they have issued. As a result
of these restructuring, holders of lower-rated securities may receive less
principal and interest than they had bargained for at the time such bonds were
purchased. In the event of a restructuring, a Fund may bear additional legal or
administrative expenses in order to maximize recovery from an issuer.
Additionally, an increase in interest rates may also adversely impact the value
of high yield bonds.
The secondary trading market for lower rated bonds is generally less liquid than
the secondary trading market for higher-rated bonds. Adverse publicity and the
perception of investors relating to issuers, underwriters, dealers or underlying
business conditions, whether or not warranted by fundamental analysis, may
affect the price or liquidity of lower-rated bonds. On occasion, therefore, it
may become difficult to price or dispose of a particular security in the
portfolio.
A Fund may, from time to time, own zero coupon bonds and pay-in-kind securities.
A zero coupon bond makes no periodic interest payments and the entire obligation
becomes due only upon maturity. Pay-in-kind securities make periodic payments in
the form of additional securities as opposed to cash. The price of zero coupon
bonds and pay-in-kind securities is generally more sensitive to fluctuations in
interest rates than are conventional bonds. Additionally, federal tax law
requires that interest on zero coupon bonds be reported as income to the Fund
even though it receives no cash interest until the maturity or payment date of
such securities.
Many corporate debt obligations, including many lower rated bonds, permit the
issuers to call the security and therefore redeem their obligations earlier than
the stated maturity dates. Issuers are more likely to call bonds during periods
of declining interest rates. In these cases, if a Fund owns a bond that is
called, the Fund will receive its return of principal earlier than expected and
would likely be required to reinvest the proceeds at a lower interest rate, thus
reducing income to the Fund.
EVALUATING THE RISKS OF LOWER-RATED SECURITIES. A Fund's adviser or subadviser
will follow certain steps to evaluate the risks associated with investing in
lower-rated securities. These techniques include:
CREDIT RESEARCH. The adviser or subadviser performs its own
credit analysis in addition to using nationally recognized statistical
rating organizations and other sources, including discussions with the
issuer's management, the judgment of other investment analysts, and its
own informed judgment. The credit analysis will consider the issuer's
financial soundness, its responsiveness to changes in interest rates
and business conditions, and its anticipated cash flow, interest or
dividend coverage and earnings. In evaluating an issuer, the adviser or
subadviser places special emphasis on the estimated current value of
the issuer's assets rather than historical costs.
DIVERSIFICATION. A Fund generally invests in securities of
many different issuers, industries, and economic sectors to reduce
portfolio risk.
ECONOMIC ANALYSIS. The adviser or subadviser will also analyze
current developments and trends in the economy and in the financial
markets. When investing in lower-rated securities, timing and selection
are critical and analysis of the business cycle can be important.
Achievement by a Fund investing in these bonds of its investment objective may
be more dependent on the credit analysis of a lower-rated bond than would be the
case if the Fund invested exclusively in higher-rated bonds.
EXCHANGE-TRADED FINANCIAL FUTURES. Certain Funds may use exchange-traded
financial futures contracts consisting of stock index futures contracts and
futures contracts on debt securities ("interest rate futures") as a hedge to
protect against
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changes in stock prices or interest rates. A stock index futures contract is a
contractual obligation to buy or sell a specified index of stock at a future
date for a fixed price.
A Fund will not purchase or sell futures contracts for which the aggregate
initial margin exceeds 5% of the fair market value of its assets, after taking
into account unrealized profits and losses on any such contracts which it has
entered into. When a futures contract is purchased, the Portfolio will set aside
an amount of cash and cash equivalents equal to the total market value of the
futures contract, less the amount of the initial margin. At no time will the
Portfolio's investments in such futures be used for speculative purposes.
All financial futures contracts will be traded on exchanges that are licensed
and regulated by the Commodity Futures Trading Commission ("CFTC"). To ensure
that its futures transactions meet CFTC standards, the Portfolio will enter into
futures contracts for hedging purposes only (i.e., for the purposes or with the
intent specified in CFTC regulations and interpretations, subject to the
requirements of the Securities and Exchange Commission).
The use of options, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may result in the loss of principal,
particularly where such instruments are traded for other than hedging purposes
(e.g., to enhance current yield).
STOCK INDEX FUTURES CONTRACTS. Certain Funds may purchase and sell stock index
futures contracts. Stock index futures contracts bind purchaser and seller to
deliver, at a future date specified in the contract, a cash amount equal to a
multiple of the difference between the value of a specified stock index on that
date and the settlement price specified by the contract. That is, the seller of
the futures contract must pay and the purchaser would receive a multiple of any
excess of the value of the index over the settlement price, and conversely, the
purchaser must pay and the seller would receive a multiple of any excess of the
settlement price over the value of the index. A public market currently exists
for stock index futures contracts based on the S&P 500 Index, the New York Stock
Exchange Composite Index, the Value Line Stock Index, and the Major Market
Index. It is expected that financial instruments related to broad-based indices,
in addition to those for which futures contracts are currently traded, will in
the future be the subject of publicly traded futures contracts. Each Fund may
purchase and sell stock index futures contracts on its benchmark index or
similar index.
Positions taken in the futures markets are not normally held until delivery or
cash settlement is required, but instead are liquidated through offsetting
transactions that may result in a gain or a loss. While futures positions taken
by a Fund are usually liquidated in this manner, a Fund may instead make or take
delivery of underlying securities whenever it appears economically advantageous
to do so. A clearing organization associated with the relevant exchange assumes
responsibility for closing out transactions and guarantees that, as between the
clearing members of the exchange, the sale and purchase obligations will be
performed with regard to all positions that remain open at the termination of
the contract.
When futures contracts are entered into by a Fund, either as the purchaser or
the seller of such contracts, the Fund is required to deposit with its custodian
in a segregated account in the name of the futures commission merchant ("FCM")
an initial margin of cash or U.S. Treasury bills equaling as much as 5% to 10%
or more of the contract settlement price. The nature of initial margin
requirements in futures transactions differs from traditional margin payments
made in securities transactions in that initial margins for futures contracts do
not involve the borrowing of funds by the customer to finance the transaction.
Instead, a customer's initial margin on a futures contract represents a good
faith deposit securing the customer's contractual obligations under the futures
contract. The initial margin deposit is returned, assuming these obligations
have been met, when the futures contract is terminated. In addition, subsequent
payments to and from the FCM, called "variation margin," are made on a daily
basis as the price of the underlying security or stock index fluctuates
reflecting the change in value in the long (purchase) or short (sale) positions
in the financial futures contract, a process known as "marking to market."
Futures contracts generally are not entered into to acquire the underlying asset
and generally are not held to maturity. Prior to the contract settlement date, a
Fund will normally close all futures positions by entering into an offsetting
transaction which operates to cancel the position held, and which usually
results in a profit or loss.
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OPTIONS ON STOCK INDEX FUTURES CONTRACTS. Certain Funds also may purchase call
and put options and write covered call and put options on stock index futures
contracts of the type into which the particular Fund is authorized to enter.
Covered put and call options on futures contracts will be covered in the same
manner as covered options on securities and securities indices. The Funds may
invest in such options for the purpose of closing out a futures position that
has become illiquid.
Options on futures contracts are traded on exchanges that are licensed and
regulated by the CFTC. A call option on a futures contract gives the purchaser
the right in return for the premium paid, to purchase a futures contract (assume
a "long" position) at a specified exercise price at any time before the option
expires. A put option gives the purchaser the right, in return for the premium
paid, to sell a futures contract (assume a "short" position), for a specified
exercise price, at any time before the option expires.
Unlike entering into a futures contract itself, purchasing options on futures
contracts allows a buyer to decline to exercise the option, thereby avoiding any
loss beyond forgoing the purchase price (or "premium") paid for the options.
Whether, in order to achieve a particular objective, the Fund enters into a
stock index futures contract, on the one hand, or an option contract on a stock
index futures contract, on the other, will depend on all the circumstances,
including the relative costs, liquidity, availability and capital requirements
of such futures and options contracts. Each Fund will consider the relative
risks involved, which may be quite different. These factors, among others, will
be considered in light of market conditions and the particular objective to be
achieved.
CERTAIN ADDITIONAL RISKS OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS.
In addition to the risks described in the Prospectus, the use of stock index
futures contracts and options on such futures contracts may entail the following
risks. First, although such instruments when used by a Fund are intended to
correlate with the Fund's portfolio securities, in many cases the futures
contracts or options on futures contracts used may be based on stock indices the
components of which are not identical to the portfolio securities owned or
intended to be acquired by the Fund. Second, due to supply and demand imbalances
and other market factors, the price movements of stock index futures contracts
and options thereon may not necessarily correspond exactly to the price
movements of the stock indices on which such instruments are based. Accordingly,
there is a risk that a Fund's transactions in those instruments will not in fact
offset the impact on the Fund of adverse market developments in the manner or to
the extent contemplated or that such transactions will result in losses to the
Fund which are not offset by gains with respect to corresponding portfolio
securities owned or to be purchased by that Fund.
To some extent, careful management of these strategies can minimize these risks.
For example, where price movements in a futures contract are expected to be less
volatile than price movements in the related portfolio securities owned or
intended to be acquired by a Fund, it may, in order to compensate for this
difference, use an amount of futures contracts which is greater than the amount
of such portfolio securities. Similarly, where the price movement of a futures
contract is anticipated to be more volatile, a Fund may use an amount of such
contracts which is smaller than the amount of portfolio securities to which such
contracts relate.
The risk that the hedging technique used will not actually or entirely offset an
adverse change in the value of a Fund's securities is particularly relevant to
futures contracts. A Fund, in entering into a futures purchase contract,
potentially could lose any or all of the contract's settlement price. In
addition, because stock index futures contracts require delivery at a future
date of an amount of cash equal to a multiple of the difference between the
value of a specified stock index on that date and the settlement price, an
algebraic relationship exists between any price movement in the underlying index
and the potential cost of settlement to a Fund. A small increase or decrease in
the value of the underlying index can, therefore, result in a much greater
increase or decrease in the cost to the Fund. Although the Funds intend to
establish positions in these instruments only when there appears to be an active
market, there is no assurance that a liquid market for such instruments will
exist when they seek to "close out" (i.e., terminate) a particular stock index
futures contract position. Trading in such instruments could be interrupted, for
example, because of a lack of either buyers or sellers. In addition, the futures
exchanges may suspend trading after the price of such instruments has risen or
fallen more than the maximum amount specified by the exchange. A Fund may be
able, by adjusting investment strategy in the cash or other contract markets, to
offset to some extent any adverse effects of being unable to liquidate a futures
position. Nevertheless, in some cases, a Fund may experience losses as a result
of such inability. Therefore it may have to liquidate other more advantageous
investments to meet its cash needs.
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In addition, FCMs or brokers in certain circumstances will have access to the
Funds' assets posted as margin in connection with these transactions as
permitted under the Act. The Funds will use only FCMs or brokers in whose
reliability and financial soundness they have full confidence and have adopted
certain other procedures and limitations to reduce the risk of loss with respect
to any assets which brokers hold or to which they may have access. Nevertheless,
in the event of a broker's insolvency or bankruptcy, it is possible that a Fund
could experience a delay or incur costs in recovering such assets or might
recover less than the full amount due. Also the value of such assets could
decline by the time the Fund could effect such recovery.
The success of these techniques depends, among other things, on the adviser's or
subadviser's ability to predict the direction and volatility of price movements
in the futures markets as well as the securities markets and on its ability to
select the proper type, time, and duration of futures contracts. There can be no
assurance that these techniques will produce their intended results. In any
event, the adviser or subadviser will use stock index futures contracts and
options thereon only when it believes the overall effect is to reduce, rather
than increase, the risks to which a Fund is exposed. These transactions also, of
course, may be more, rather than less, favorable to a Fund than originally
anticipated.
BUYING PUT AND CALL OPTIONS. Certain Funds may purchase put options on
securities held, or on futures contracts whose price volatility is expected to
closely match that of securities held, as a defensive measure to preserve
shareholders' capital when market conditions warrant. A Fund may purchase call
options on specific securities, or on futures contracts whose price volatility
is expected to closely match that of securities eligible for purchase by the
Fund, in anticipation of or as a substitute for the purchase of the securities
themselves. These options may be listed on a national exchange or executed in
the "over-the-counter" market with a broker-dealer as the counterparty. While
the investment adviser anticipates that the majority of option purchases and
sales will be executed on a national exchange, put or call options on specific
securities or for non-standard terms are likely to be executed directly with a
broker-dealer when it is advantageous to do so. Option contracts will be
short-term in nature, generally less than nine months in duration.
A Fund pays a premium in exchange for the right to purchase (call) or sell (put)
a specific number of shares of an equity security or futures contract at a
specified price (the strike price) on or before the expiration date of the
option contract. In either case, the Fund's risk is limited to the amount of the
option premium paid.
A Fund may sell put and call options prior to their expiration and, thereby,
realize a gain or loss. A call option expires worthless if the price of the
related security is below the contract strike price at the time of expiration; a
put option expires worthless if the price of the related security is above the
contract strike price at the time of expiration.
A Fund uses put and call options for bona fide hedging purposes only. The
adviser or subadviser identifies liquid securities sufficient to fulfill the
call option delivery obligation, and these securities are segregated in an
account. Similarly, the adviser or subadviser identifies deliverable securities
sufficient to fulfill the put option obligation, which also are segregated. In
the case of put options on futures contracts, the adviser or subadviser
identifies portfolio securities whose price volatility is expected to match that
of the underlying futures contract, and these securities are segregated.
WRITING COVERED CALL OPTIONS. Certain Funds may write or sell covered call
options. Certain Funds may also purchase index or individual equity call options
as an alternative to holding stocks or stock index futures or as a defensive
measure. By writing a call option, a Fund becomes obligated during the term of
the option to deliver the securities underlying the option upon payment of the
exercise price.
The Funds may only write "covered" options. This means that as long as a Fund is
obligated as the writer of a call option, it will own the underlying securities
subject to the option, or, in the case of call options on U.S. Treasury bills,
the Fund might own substantially similar U.S. Treasury bills.
Writing call options permits a Fund to obtain, through a receipt of premiums, a
greater current return than would be realized on the underlying securities
alone. The Fund receives a premium from writing a call option that it retains
whether or not the option is exercised. By writing a call option, a Fund might
lose the potential for gain on the underlying security while the option is open.
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Options on some securities are relatively new, and it is impossible to predict
the amount of trading interest that will exist in such options. There can be no
assurance that viable markets will develop or continue. The failure of such
markets to develop or continue could impair a Fund's ability to use such options
to achieve its investment objectives.
SWAPS. Swaps are over-the-counter (OTC) agreements that typically require
counterparties to make periodic payments to each other for a specified period.
The calculation of these payments is based on an agreed-upon amount, called the
notional amount, that generally is exchanged only in currency swaps. The
periodic payments may be a fixed or floating (variable) amount. Floating
payments may change with fluctuations in interest or currency rates or equity or
commodity prices, depending on the contract terms. Swaps are used to hedge a
risk or obtain more desirable financing terms, and they can be used to profit
from correctly anticipating rate and price movements.
FOREIGN AND EMERGING MARKETS SECURITIES. Certain Funds may invest in foreign
and/or emerging markets securities. These securities may include U.S.
dollar-denominated securities and debt securities of foreign governments
(including provinces and municipalities) or their agencies or instrumentalities,
securities issued or guaranteed by international organizations designated or
supported by multiple governments or entities to promote economic reconstruction
or development, and securities of foreign corporations and financial
institutions.
Certain Funds may invest in American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs") and European Depositary Receipts ("EDRs"), and
similar instruments providing for indirect investment in securities of foreign
issuers. Due to the absence of established securities markets in certain foreign
countries and restrictions in certain countries on direct investment by foreign
countries and restrictions in certain countries on direct investment by foreign
entities, a Fund may invest in certain issuers through the purchase of sponsored
and unsponsored ADRs or other similar securities, such as American Depositary
Shares, Global Depositary Shares of International Depositary Receipts. ADRs are
receipts typically issued by U.S. banks evidencing ownership of the underlying
securities into which they are convertible. These securities may or may not be
denominated in the same currency as the underlying securities. Unsponsored ADRs
may be created without the participation of the foreign issuer. Holders of
unsponsored ADRs generally bear all the costs of the ADR facility, whereas
foreign issuers typically bear certain costs in a sponsored ADR. The bank or
trust company depository of an unsponsored ADR may be under no obligation to
distribute shareholder communications received from the foreign issuer or to
pass through voting rights.
Subject to any limit on a Fund's investments in foreign securities, there may be
no limit on the amount of assets that may be invested in securities of issuers
domiciled in a single country or market. To the extent that a Fund's assets are
invested substantially in a single country or market, the Fund is more
susceptible to the risks of investing in that country or market than it would be
if its assets were geographically more diversified.
Investments in foreign securities may offer a Fund an opportunity to pursue the
performance potential of an overseas market. Such securities, however, also
entail risks in addition to the risks of U.S. securities. Foreign governments
may nationalize or expropriate assets or impose confiscatory taxes on an
investment. Civil wars or other political or financial instability or diplomatic
developments may affect the value of a Fund's foreign investments. Foreign
countries may impose currency exchange controls, foreign withholding taxes, or
other factors that may affect the value of an investment. Movement in foreign
currency exchange rates against the U.S. dollar may result in significant
changes in the value of overseas investments. Generally, if the U.S. dollar
weakens, the value of the foreign investment in U.S. dollars increases.
Conversely, when the U.S. dollar strengthens, the value of the foreign
investment in U.S. dollars decreases.
There is generally less information publicly available about a foreign issuer
than about a U.S. issuer, and foreign issuers generally are not subject to
accounting, auditing and financial reporting practices comparable with U.S.
practices. Some foreign securities or markets are more thinly traded and, as a
result, foreign securities may be less liquid and more volatile than U.S.
securities. Foreign settlement procedures and trade regulations may involve
risks and expenses not present in U.S. settlements.
The risks of investing in foreign securities may be intensified in the case of
investment in emerging markets. Securities of many issuers in emerging markets
may be less liquid and more volatile than comparable domestic securities.
Investment in emerging markets may be subject to delays in settlements,
resulting in periods when a portion of a Fund's assets is uninvested and no
return is earned thereon. Certain markets may require payment for securities
before delivery, and in such markets the Portfolio bears the risk that the
securities will not be delivered and that the payment will not be returned.
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In addition, many emerging market countries have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain of these countries.
In many cases, emerging market countries are among the world's largest debtors
to commercial banks, foreign governments, international financial organizations
and other financial institutions. In recent years, the governments of some of
these countries have encountered difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness.
Foreign securities transactions also include generally higher commission rates
and the risks of adverse changes in investment or exchange control regulations,
political instability that could affect U.S. investments in foreign countries,
and potential restrictions on the flow of international capital.
Additionally, dividends payable on foreign securities may be subject to foreign
taxes withheld prior to distribution. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payment positions.
Illiquid Securities. Each Fund may make investments in illiquid securities in an
amount not exceeding 15% of the Fund's total asset value. Illiquid securities
are those that are not readily marketable within seven days in the ordinary
course of business and include restricted securities that may not be publicly
sold without registration under the Securities Act of 1933 (the "1933 Act") and
Rule 144A securities. In most instances such securities are traded at a discount
from the market value of unrestricted securities of the same issuer until the
restriction is eliminated. If a Fund sells such portfolio securities, it may be
deemed an underwriter, as such term is defined in the 1933 Act, with respect to
those sales, and registration of such securities under the 1933 Act may be
required. The Funds will not bear the expense of such registration. In
determining securities subject to the percentage limitation, a Fund will
include, in addition to restricted securities, repurchase agreements maturing in
more than seven days and other securities not having readily available market
quotations, including options traded over-the-counter, certain mortgage related
securities and other securities subject to restrictions on resale.
RULE 144A SECURITIES. Certain Rule 144A securities may be considered illiquid
and, therefore, their purchase is subject to a Fund's limitation on the purchase
of illiquid securities, unless the adviser under guidelines approved by the
Board determines on an ongoing basis that an adequate trading market exists for
the securities. If qualified institutional buyers become uninterested for a time
in purchasing Rule 144A securities held by a Fund, the Fund's level of
illiquidity could increase. The Board has established standards and procedures
for determining the liquidity of Rule 144A securities and periodically monitors
the adviser's implementation of the standards and procedures. The ability to
sell to qualified institutional buyers under Rule 144A has developed in recent
years, and the adviser cannot predict how this market will develop.
LOANS OF SECURITIES TO BROKER DEALERS. The Fund may lend securities to brokers
and dealers pursuant to agreements requiring that the loans be continuously
secured by cash, liquid securities, or any combination of cash and liquid
securities, as collateral equal at all times in value to at least 102% of the
market value of the securities loaned. The Fund will not loan securities if,
after a loan, the aggregate of all outstanding securities loans exceeds one
third of the value of the Fund's total assets taken at their current market
value. The Fund continues to receive interest or dividends on the securities
loaned and simultaneously earns interest on the investment of any cash loan
collateral in U.S. Treasury notes, certificates of deposit, other high grade,
short-term obligations or interest-bearing cash equivalents. Although voting
rights attendant to securities loaned pass to the borrower, such loans may be
called at any time and will be called so that the Fund may vote the securities
if, in the opinion of the investment adviser, a material event affecting the
investment would occur. There may be risks of delay in receiving additional
collateral, in recovering the securities loaned, or even loss of rights in the
collateral should the borrower of the securities fail financially. However,
loans may be made only to borrowers deemed to be of good standing, under
standards approved by the Board of Trustees ("Board"), when the income to be
earned from the loan justifies the risks.
REPURCHASE AGREEMENTS. Each Fund may invest from time to time in repurchase
agreements with approved counterparties. Approved counterparties are limited to
national banks or broker-dealers on the Federal Reserve Bank of New York's list
of primary reporting dealers, in each case meeting the investment adviser's
credit quality standards as
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presenting minimal risk of default. All repurchase transactions must be
collateralized by U.S. government securities with market value no less than 102%
of the amount of the transaction, including accrued interest. Repurchase
transactions generally mature the next business day but, in the event of a
transaction of longer maturity, collateral will be marked-to-market daily and,
when required, the counterparty will provide additional cash or qualifying
collateral.
In executing a repurchase agreement, the Fund purchases eligible securities
subject to the counterparty's agreement to repurchase them on a mutually agreed
upon date and at a mutually agreed upon price. The purchase and resale prices
are negotiated with the counterparty on the basis of current short-term interest
rates, which may be more or less than the rate on the securities collateralizing
the transaction. The Fund will engage in repurchase agreements only where it
takes physical delivery or, in the case of "book-entry" securities, the security
is segregated in the counterparty's account at the Federal Reserve for the
benefit of the Fund, to perfect the Fund's claim to the collateral for the term
of the repurchase agreement in the event the counterparty fails to fulfill its
obligation.
As the securities collateralizing a repurchase transaction are generally of
longer maturity than the term of the transaction, in the event of default by the
counterparty on its obligation, the Fund would bear the risks of delay, adverse
market fluctuation and any transaction costs in disposing of the collateral.
REVERSE REPURCHASE AGREEMENTS: A reverse repurchase agreement transaction is
similar to borrowing cash. In a reverse repurchase agreement, a Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash and agrees on a stipulated date in the future to repurchase
the portfolio instrument by remitting the original consideration plus interest
at an agreed upon rate. The use of reverse repurchase agreements may enable a
Fund to avoid selling portfolio instruments at a time when a sale may be deemed
to be disadvantageous, but the ability to enter into reverse repurchase
agreements does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
The Funds will enter into reverse repurchase agreements only with parties whose
creditworthiness has been found satisfactory to the adviser or subadviser. Such
transactions may increase fluctuations in a Fund's yield or in the market value
of its assets.
When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled. During the period any
reverse repurchase agreements are outstanding, but only to the extent necessary
to assure completion of the reverse repurchase agreements, a Fund may restrict
the purchase of portfolio instruments to money market instruments maturing on or
before the expiration date of the reverse repurchase agreements.
TEMPORARY INVESTMENTS. Permissible temporary investments for defensive or cash
management purposes may include U.S. government securities and money market
instruments, including instruments of banks that are members of the Federal
Deposit Insurance Corporation with assets of at least $1 billion, such as
certificates of deposit, demand and time deposits, and bankers' acceptances;
prime commercial paper, including master demand notes; and repurchase agreements
secured by U.S. government securities.
Certain Funds may invest in debt obligations which involve equity features such
as conversion or exchange rights, warrants for the acquisition of common stock
of the same or a different issuer, participations based on revenues, sales or
profits, or the purchase of common stock in a unit transaction (where corporate
debt securities and common stock are offered as a unit).
TEMPORARY BANK BORROWING: Certain Funds may borrow from banks for temporary
purposes, including the meeting of redemption requests which might require the
untimely disposition of securities.
LETTERS OF CREDIT: Certain Funds may also engage in trades of municipal
obligations, certificates of participation therein, commercial paper and other
short-term obligations that are backed by irrevocable letters of credit issued
by banks which assume the obligation for payment of principal and interest in
the event of default by an issuer. Only banks the securities of which, in the
opinion of the Investment Subasviser, are of investment quality comparable to
other permitted investments of the Funds may be used for letter of credit-backed
investment.
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INVESTMENT IN UNSEASONED COMPANIES: Certain Funds may also invest Fund assets in
securities of companies that have operated for less than three years, including
the operations of predecessors. The Funds have undertaken that they will not
make investments that will result in more than 5% of total assets being invested
in the securities of newly formed companies and equity securities that are not
readily marketable. Investing in securities of unseasoned companies may, under
certain circumstances, involve greater risk than is customarily associated with
investment in more established companies.
REAL ESTATE-RELATED INSTRUMENTS: Some Funds may engage in the purchase and sale
of real estate related instruments including real estate investment trusts,
commercial and residential mortgage-backed securities, and real estate
financings. Real estate-related instruments are sensitive to factors such as
real estate values and property taxes, interest rates, cash flow of underlying
real estate assets, over building and the management skill and creditworthiness
of the issuer. Real estate-related instruments may also be affected by tax and
regulatory requirements, such as those relating to the environment.
CORPORATE ASSET-BACKED SECURITIES: Corporate asset-backed securities, issued by
trusts and special purpose corporations, are backed by a pool of assets, such as
credit card or automobile loan receivables, representing the obligations of a
number of different parties. Corporate asset-backed securities present certain
risks. For instance, in the case of credit care receivables, these securities
may not have the benefit of any security interest in the related collateral.
ASSET-BACKED MORTGAGE SECURITIES: Securities of this type include interests in
pools of lower-rated debt securities, or consumer loans or mortgages, or complex
instruments such as collateralized mortgage obligations and stripped
mortgage-backed securities. The value of these securities may be significantly
affected by changes in interest rates, the market's perception of the issuers,
and the creditworthiness of the parties involved. Some securities may have a
structure that makes their reaction to interest rates and other factors
difficult to predict, making their value highly volatile. These securities may
also be subject to prepayment risk.
LOAN PARTICIPATIONS AND OTHER DIRECT INDEBTEDNESS: By purchasing a loan
participation, a Fund acquires some or all of the interest of a bank or other
lending institution in a loan to a corporate borrower. Many such loans are
secured, and most impose restrictive covenants which must be met by the
borrower. These loans are made generally to finance internal growth, mergers,
acquisitions, stock repurchases, leveraged buy-outs and other corporate
activities. Such loans may be in default at the time of purchase.
Some Funds may also purchase other direct indebtedness such as trade or other
claims against companies, which generally represent money owed by the company to
a supplier of goods and services. These claims may also be purchased at a time
when the company is in default. Certain of the loan participations and other
direct indebtedness acquired by these Funds may involve revolving credit
facilities or other standby financing commitments which obligate the Funds to
pay additional cash on a certain date or on demand.
The highly leveraged nature of many such loans and other direct indebtedness may
make such loans especially vulnerable to adverse changes in economic or market
conditions. Loan participations and other direct indebtedness may not be in the
form of securities or may be subject to restrictions on transfer, and only
limited opportunities may exist to resell such instruments. As a result, the
Funds may be unable to sell such investments at an opportune time or may have to
resell them at less than fair market value.
INVESTMENT COMPANY SECURITIES: Generally, the Funds may purchase and sell
securities of open and closed-end investment companies subject to the limits
prescribed under the 1940 Act.
AFFILIATED BANK TRANSACTIONS: Certain Funds may engage in transactions with
financial institutions that are, or may be considered to be "affiliated persons"
of the fund under the Investment Company Act of 1940. These transactions may
include repurchase agreements with custodian banks; short-term obligations of,
and repurchase agreements with, the 50 largest U.S. banks (measured by
deposits); municipal securities, U.S. government securities with affiliated
financial institutions that are primary dealers in these securities; short-term
currency transactions; and short-term borrowings. The Board of Trustees and the
subadvisers of Funds engaged in affiliated bank transactions have established
and will periodically review procedures applicable to transactions involving
affiliated financial institutions.
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INDEXED SECURITIES: Certain Funds may purchase securities whose prices are
indexed to the prices of other securities, securities indices, currencies,
precious metals or other commodities, or other financial indicators. Indexed
securities typically, but not always, are debt securities or deposits whose
value at maturity or coupon rate is determined by reference to a specific
instrument or statistic. Gold-indexed securities, for example, typically provide
for a maturity value that depends on the price of gold, resulting, in a security
whose price tends to rise and fall together with gold prices. Currency-indexed
securities typically are short-term to intermediate-term debt securities whose
maturity values or interest rates are determined by reference to the values of
one or more specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed securities
may be positively or negatively indexed; that is, their maturity value may
increase when the specified currency value increases, resulting in a security
that performs similarly to a foreign-denominated instrument, or their maturity
value may decline when foreign currencies increase, resulting in a security
whose price characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the Unites
States and abroad. At the same time, indexed securities are subject to the
credit risks associated with the issuer of the security, and their values may
decline substantially if the issuer's creditworthiness deteriorates. Recent
issuers of indexed securities have included banks, corporations, and certain
U.S. government agencies. Indexed securities may be more volatile than the
underlying instruments.
SHORT SALES "AGAINST THE BOX": Some Funds may enter into a short sale against
the box. If a Fund decides to enter into such transitions, it will be required
to set aside securities equivalent in kind and amount to the securities sold
short (or securities convertible or exchangeable into such securities) and will
be required to hold such securities while the short sale is outstanding.
CONVERTIBLE BOND PORTFOLIO
Convertible Bond Portfolio's investment objective is to seek current income and
capital appreciation by investing in convertible securities and in combinations
of nonconvertible fixed-income securities and warrants or call options that
together resemble convertible securities ("synthetic convertible securities").
Under normal circumstances, the Fund invests at least 65% of its assets in
convertible securities. It may invest up to 35% of its assets in synthetic
convertible securities and in equity and debt securities that are not
convertible into common stock.
The Fund is not required to sell securities to conform to this 65% limitation
and may retain, on a temporary basis, securities received upon conversion of
convertible securities or upon exercise of warrants or call options that are
components of synthetic convertible securities pending an orderly disposition,
to establish long-term holding periods for tax purposes, or for other reasons.
Other investments are allowed, including, but not limited to, unlimited
investments in synthetic convertible securities and in equity and debt
securities that are not convertible into common stock, when deemed appropriate
by the adviser for temporary defensive purposes and up to 10% of its assets to
purchase put options on securities for hedging purposes.
The Fund will not invest in fixed-income securities that are rated lower than B
by Moody's or S&P or comparable unrated securities.
In pursuing its objective, Convertible Bond Portfolio currently is subject to
fundamental investment policies and operating (non-fundamental) investment
policies described below under "Investment Restrictions".
DISCIPLINED MID CAP STOCK PORTFOLIO
Disciplined Mid Cap Stock Portfolio's investment objective is to seek growth of
capital by investing primarily in a broadly diversified portfolio of U.S. common
stocks. As discussed in the prospectus, the subadviser selects stocks of
companies with capitalizations ranging generally from $1.5 billion to $5
billion. In order to achieve consistent relative performance,
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TIMCO manages the portfolio to mirror the overall risk, sector weightings and
style characteristics of the Standard & Poor's 400 Stock Index ("S&P 400
Index"). The S&P 400 Index is a value-weighted stock index consisting of 400
mid-sized U.S. companies.
The Fund's active investment strategy focuses primarily on individual stock
selection. In selecting the Fund's holdings, the subadviser applies a number of
computerized investment models to identify stocks that have a high probability
of outperforming their respective industry/sector peer groups within the S&P
400. These investment models incorporate a diverse set of valuation, earnings
and relative price variables to produce a comprehensive appraisal profile on
every stock in the universe of securities described above. Stocks that are
determined to be attractive based on a combination of quantitative and
fundamental criteria overweighted relative to the benchmark index. In general,
the discipline favors stocks that demonstrate an improving trend of earnings and
also appear attractive based on measures of fundamental value. While these
securities have the potential to outperform the securities represented in the
S&P 400, they may in fact be more volatile or have a lower return than the
benchmark index. Equity securities have historically demonstrated long-term
growth in value, but their prices fluctuate based on changes in a company's
financial condition and general economic conditions. This is especially true in
the case of smaller companies.
Under normal circumstances, the Fund seeks to maintain full exposure to its
stock universe. The Fund's investments in exchange-traded stock index futures
contracts, to provide equity exposure to the Fund's cash position, are not
generally expected to impact more than 20% of the Fund's assets any one time.
In pursuing its objective, Disciplined Mid Cap Portfolio currently is subject to
fundamental investment policies and operating (non-fundamental) investment
policies described below under "Investment Restrictions".
DISCIPLINED SMALL CAP STOCK PORTFOLIO
Disciplined Small Cap Stock Portfolio's investment objective is to seek
long-term capital appreciation by investing primarily (at least 65% of its total
assets) in the common stocks of U.S. companies with relatively small market
capitalizations at the time of investment. As discussed in the prospectus, the
subadviser selects stocks of small capitalization companies that fall in the
lowest 20% of market capitalization, currently those with a median market
capitalization of $1.5 billion or less. Stocks are selected based on a
disciplined quantitative screening process that seeks a combination of
attractive relative value and earnings growth.
In order to provide consistent relative performance, the Fund holds a portfolio
that is comparable to the Russell 2000 Stock Index in terms of overall risk,
economic sector weightings, and market capitalization. The Russell 2000 is a
broad-based index of the smaller cap segment of the U.S. stock market. By
linking its investment strategy to the Russell 2000 Stock Index, the Fund
provides diversified exposure to the universe of stocks that comprise the lowest
20% of market capitalization of publicly traded companies in the U.S. with
capitalizations of less than $1.5 billion. However, the Fund is not an index
fund and is not limited to investing in the stocks that comprise the Russell
2000 Stock Index. Over time, the Fund is expected to exhibit performance
volatility that is similar to that of the Russell 2000 Stock Index. Of course,
there can be no assurance the Fund's total return, before or after expenses,
will match or exceed that of the Russell 2000 Stock Index.
The Fund's active investment strategy focuses primarily on individual stock
selection. In selecting the Fund's holdings, the subadviser applies a number of
computerized investment models to identify stocks that have a high probability
of outperforming their respective industry/sector peer groups within the Russell
2000. These investment models incorporate a diverse set of valuation, earnings
and relative price variables to produce a comprehensive appraisal profile on
every stock in the universe of securities described above. Stocks that are
determined to be attractive based on a combination of quantitative and
fundamental criteria overweighted relative to the benchmark index. In general,
the discipline favors stocks that demonstrate an improving trend of earnings and
also appear attractive based on measures of fundamental value. While these
securities have the potential to outperform the securities represented in the
Russell 2000, they may in fact be more volatile or have a lower return than the
benchmark index. Equity securities have historically demonstrated long-term
growth in value, but their prices fluctuate based on changes in a company's
financial condition and general economic conditions. This is especially true in
the case of smaller companies.
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Under normal circumstances, the Fund seeks to maintain full exposure to its
stock universe. The Fund's investments in exchange-traded stock index futures
contracts, to provide equity exposure to the Fund's cash position, are not
generally expected to impact more than 20% of the Fund's assets any one time.
In pursuing its objective, Disciplined Small Cap Portfolio currently is subject
to fundamental investment policies and operating (non-fundamental) investment
policies described below under "Investment Restrictions".
EQUITY INCOME PORTFOLIO
Equity Income Portfolio's investment objective is to seek reasonable income by
investing primarily in income-producing equity securities. Normally, at least
65% of the Fund's total assets are invested in these securities. The Fund has
the flexibility, however, to invest the balance of its assets in all types of
domestic and foreign securities, including bonds. The Fund seeks to achieve a
yield greater than that of the Russell 1000 and Russell 3000. The Fund does not
expect to invest in debt securities of companies that do not have proven
earnings or credit. When choosing the Fund's investments, the subadviser also
considers the potential for capital appreciation.
The value of the Fund's domestic and foreign investments varies in response to
many factors. Stock values fluctuate in response to the activities of individual
companies and general market and economic conditions. The value of bonds
fluctuates based on changes in interest rates and in the credit quality of the
issuer. The Fund seeks to spread investment risk by diversifying its holdings
among many companies and industries.
The subadviser normally invests the Fund's assets according to its investment
strategy. The Fund also reserves the right to invest without limitation in
preferred stocks and investment-grade debt instruments for temporary, defensive
purposes.
The Fund may invest in money market securities, in a pooled account of
repurchase agreements, and in a money market fund available only to funds and
accounts managed by the subadviser or its affiliates, whose goal is to seek a
high level of current income while maintaining a stable $1.00 share price. A
major change in interest rates or a default in the money market fund's
investments could cause its share price to change.
ADJUSTING INVESTMENT EXPOSURE. The subadviser may use various investment
techniques to hedge the Fund's risks or to increase or decrease its exposure to
changing security prices, interest rates, currency exchange rates, commodity
prices, or other factors that affect security values, but there is no guarantee
that these strategies will work as intended.
The Fund generally purchases debt securities that are rated investment grade or
higher by a rating agency, or, if unrated, judged to be of equivalent quality by
the subadviser. The Fund may, however, invest up to 20% of its assets in lower
than Baa-quality debt securities. (See the Appendix for a discussion of agency
ratings.)
Equity Income Portfolio currently is subject to the following fundamental
investment restrictions. The Fund may not:
(1) with respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities of other
investment companies or securities issued or guaranteed by the
U.S. Government or any of its agencies or instrumentalities)
if, as a result; more than 5% of the Fund's total assets would
be invested in the securities of that issuer or the Fund would
hold more than 10% of the outstanding voting securities of
that issuer;
(2) issue senior securities, except as permitted under the 1940
Act;
(3) borrow money, except that the Fund may borrow money for
temporary or emergency purposes (not for leveraging or
investment) in an amount not exceeding 33-1/3% of its total
assets (including the amount borrowed) less liabilities (other
than borrowings). Any borrowings that come to exceed this
amount will be reduced within three days (not including
Sundays and holidays) to the extent necessary to comply with
the 33 1/3% limitation.
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(4) underwrite securities issued by others, except to the extent
that the Fund may be considered to be an underwriter within
the meaning of the 1933 Act in the disposition of restricted
securities;
(5) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its
agencies or instrumentalities) if, as a result, more than 25%
of the Fund's total assets would be invested in the securities
of companies whose principal business activities are in the
same industry;
(6) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall
not prevent the Fund from investing in securities or other
instruments backed by real estate or securities or companies
engaged in the real estate business);
(7) purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but
this shall not prevent the Fund from purchasing or selling
options and futures contracts or from investing in securities
or other instruments backed by physical commodities);
(8) lend any security or make any other loan if, as a result, more
than 33-1/3% of its total assets would be lent to other
parties, but this limitation does not apply to purchases of
debt securities or to repurchase agreements;
(9) the Fund may, notwithstanding any other fundamental investment
policy or limitation, invest all the assets in the securities
of a single open-end management investment company managed by
the subadviser or any affiliate or successor with
substantially the same investment objective, policies, and
limitations as the Fund.
The Fund also complies with the following non-fundamental investment policies.
- - The Fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and
amount to the securities sold short, and provided that transactions in
futures contracts and options are not deemed to constitute selling
securities short.
- - The Fund does not currently intend to purchase securities on margin,
except that it may obtain such short-term credits as are necessary for
the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures shall not
constitute purchasing securities on margin.
- - The Fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which the Subadviser or an
affiliate serves as investment adviser or (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements are
treated as borrowings for purposes of fundamental investment limitation
definitions). The Fund will not borrow money in excess of 33 1/3% of
net assets so long as this limitation is required for certification by
certain state insurance departments. Any borrowings that come to exceed
this amount will be reduced within seven days (not including Sundays
and holidays) to the extent necessary to comply with the 33 1/3%
limitation. The Fund will not borrow from other funds advised by the
subadviser or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the Fund's total
assets.
- - The Fund does not currently intend to purchase any security if, as a
result, more than 15% of its nets assets would be invested in
securities that are deemed to be illiquid because they are subject to
legal or contractual restrictions on resale or because they cannot be
sold or disposed of in the ordinary course of business at approximately
the prices at which they are valued.
- - The Fund does not currently intend to lend assets other than securities
to other parties, except by: (a) lending money (up to 5% of the Fund's
net assets) to a registered investment company or portfolio for which
the subadviser or an affiliate serves as investment adviser, or (b)
acquiring loans, loan participations (where such participations have
not been securitized), or other forms of direct debt instrument and, in
connection therewith, assuming any associated unfunded commitments of
the sellers. (This limitation does not apply to purchases of debt
securities or to repurchase agreements.)
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- - The Fund does not currently intend to invest all of its assets in the
securities of a single open-end management investment company
sub-advised by the subadviser or an affiliate or successor with
substantially the same fundamental investment objective, policies, and
limitations as the Fund.
FEDERATED HIGH YIELD PORTFOLIO
Federated High Yield Portfolio's investment objective is to seek high current
income by investing primarily in a professionally managed, diversified portfolio
of fixed income securities. The Fund generally invests in lower-rated corporate
debt obligations. The Fund's investment objective is fundamental.
The Fund invests primarily in fixed-rate corporate debt obligations. The
fixed-rate corporate debt obligations in which the Fund may invest are expected
to be lower-rated. Permitted investments currently include, but are not limited
to, those listed on the chart on Investment Techniques above and the following:
- - corporate debt obligations having fixed or floating rates of interest
and that are rated BBB or lower by nationally recognized statistical
rating organizations or comparable unrated securities;
- - preferred stocks;
- - equipment trust and lease certificates;
- - zero coupon bonds;
- - pay-in-kind securities;
- - general obligations of any state, territory, or possession of the
United States, or their political subdivisions; and
- - equity securities, including synthetic convertible securities and
warrants, rights and options.
Under adverse market conditions or to minimize potential losses, the subadviser
may assume a temporary defensive position and invest the Fund's assets in cash,
cash items, and shorter-term, higher-quality debt securities.
The Fund is aggressively managed, and, therefore, the value of its shares is
subject to greater fluctuation and investments in its shares involve the
assumption of a higher degree of risk than would be the case with an investment
in a conservative equity fund or a growth fund investing entirely in proven
growth equities.
In pursuing its objective, Federated High Yield Portfolio currently is subject
to fundamental investment policies and operating (non-fundamental) investment
policies described below under "Investment Restrictions".
FEDERATED STOCK PORTFOLIO
Federated Stock Portfolio's investment objective is to provide growth of income
and capital by investing principally in a professionally managed and diversified
portfolio of common stock of high-quality companies. These companies generally
are leaders in their industries and are characterized by sound management and
the ability to finance expected growth. This investment objective cannot be
changed without the approval of shareholders.
The Fund's investment approach is based on the conviction that, over the long
term, the economy will continue to expand and develop and that this economic
growth will be reflected in the growth of the revenues and earnings of major
corporations. The Fund invests primarily in common stocks of companies selected
by the subadviser on the basis of traditional research techniques, including
assessment of earnings and dividend growth prospects and of the risk and
volatility of the company's industry. Ordinarily, these companies are in the top
25% of their industries with regard to revenues. Other factors, such as product
position or market share, which the subadviser may consider, may outweigh
revenues. Other permitted investments include,but are not limited to: preferred
stocks, corporate bonds, notes, and warrants of these companies; and ADRs (in an
amount of not more than 10% of its assets).
In pursuing its objective, Federated Stock Portfolio currently is subject to
fundamental investment policies and operating (non-fundamental) investment
policies described below under "Investment Restrictions".
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JURIKA & VOYLES CORE EQUITY PORTFOLIO
Jurika & Voyles Core Equity Portfolio's investment objective is to seek
long-term capital appreciation. The Fund invests primarily in the common stock
of quality companies of all market capitalizations that offer current value and
significant future growth potential.
The Fund invests at least 65% of its total assets in the common stock of
companies having market capitalizations at the time of purchase of $500 million
and over. The subadviser expects generally that at least 80% of the Fund's
equity holdings will fall within this capitalization range. The average and
median market capitalizations of securities held by the Fund will fluctuate over
time as a result of market valuation levels and the availability of specific
investment opportunities.
The Fund seeks value in quality companies normally offering lower
price-to-earnings multiples and higher earnings growth rates than the S&P 500 or
other relevant benchmark. Quality companies generally show significant potential
for future growth in earnings, a strong competitive advantage, a clearly defined
business focus, strong financial health, and/or management ownership.
The subadviser emphasizes in-house research, which includes personal contacts,
site visits and meetings with company management. In unusual circumstances,
economic, monetary and other factors, the Fund may assume a temporary, defensive
position during which all or a substantial portion of the Fund's assets may be
invested in cash and short-term instruments.
Although the Fund may not participate with other Funds on a joint basis in any
trading account in securities, the subadviser may aggregate orders and average
prices for the sale or purchase of securities with other accounts it manages to
reduce brokerage costs.
The Fund may invest up to 35% of its total assets in investment-grade debt
securities. The Fund may invest up to 5% net assets in securities denominated in
foreign currencies and up to 25% of its total assets in ADRs, but it will limit
its investments in any one foreign country to 5% of its total assets. Other
investments are allowed, including those described in the prospectus and this
SAI. Subject to the investment restrictions set forth below, the Fund may invest
in indexed securities (up to 5% of its total assets) and warrants.
Mortgage-backed and asset-backed securities in which the Fund may invest may
include CMOs and REMICs.
In pursuing its objective, Jurika & Voyles Core Equity Portfolio currently is
subject to fundamental investment policies and operating (non-fundamental)
investment policies described below under "Investment Restrictions".
LARGE CAP PORTFOLIO
Large Cap Portfolio's investment objective is to seek long-term growth of
capital by investing primarily in equity securities of companies with large
market capitalizations. The subadviser normally invests at least 65% of the
Fund's total assets in equity securities of companies with large market
capitalizations. For purposes of the Fund's investment policies, large market
capitalization companies are defined as those companies with market
capitalizations of $1 billion or more at the time of the Fund's investment.
Companies whose market capitalization falls below this level after purchase
continue to be considered large-capitalized for purposes of the 65% policy. The
Fund invests primarily in common stocks. Other investments are allowed,
including those described in the prospectus and this SAI. The subadviser, on
behalf of the Fund, may invest in, or write (as applicable), various futures and
option-related techniques and instruments and swap agreements.
The Fund also reserves the right to invest without limitation in preferred
stocks and investment-grade debt instruments for temporary, defensive purposes.
Current holdings and recent investment strategies are described in the Fund's
financial reports, which are sent to shareholders twice a year.
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Purchase of a debt security is consistent with the Fund's debt quality policy if
it is rated at least investment-grade debt by Moody's or S&P, or, if unrated,
judged to be of equivalent quality by the subadviser. The Fund currently intends
to limit its investments in lower-than-Baa-quality debt securities to less than
35% of its assets.
The Fund may invest in money market securities, in a pooled account of
repurchase agreements, and in a money market fund available only to funds and
accounts managed by the subadviser or its affiliates, whose goal is to seek a
high level of current income while maintaining a stable $1.00 share price. A
major change in interest rates or a default on the money market fund's
investments could cause its share price to change.
ADJUSTING INVESTMENT EXPOSURE. The Fund may use various investment techniques to
hedge a portion of its risks, but there can be no guarantee that these
strategies will work as intended. These techniques include transactions in
options (listed on a national exchange) and futures and forward contracts on a
variety of instruments and indices. The Fund seeks to spread investment risk by
diversifying its holdings among companies and industries. The Fund may not buy
all of these instruments or use all of these techniques, and those described in
the prospectus, to the full extent permitted unless the subadviser believes that
doing so will help achieve the Fund's goals.
In pursuing its objective, Large Cap Portfolio currently is subject to the
following fundamental investment policies. The Fund will not:
(1) with respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities of other
investment companies or securities issued or guaranteed by the
U.S. Government or any of its agencies or instrumentalities)
if, as a result, more than 5% of the Fund's total assets would
be invested in the securities of that issuer, or the Fund
would hold more than 10% of the outstanding voting securities
of that issuer;
(2) issue senior securities, except as permitted under the 1940
Act;
(3) borrow money, except that the Fund may borrow money for
temporary or emergency purposes (not for leveraging or
investment) in an amount not exceeding 33-1/3% of its total
assets (including the amount borrowed) less liabilities (other
than borrowings). Any borrowings that come to exceed this
amount will be reduced within three days (not including
Sundays and holidays) to the extent necessary to comply with
the 33 1/3% limitation.
(4) underwrite securities issued by others, except to the extent
that the Fund may be considered to be an underwriter within
the meaning of the 1933 Act in the disposition of restricted
securities;
(5) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its
agencies or instrumentalities) if, as a result, more than 25%
of the Fund's total assets would be invested in the securities
of companies whose principal business activities are in the
same industry;
(6) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall
not prevent the Fund from investing in securities or other
instruments backed by real estate or securities or companies
engaged in the real estate business);
(7) purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but
this shall not prevent the Fund from purchasing or selling
options and futures contracts or from investing in securities
or other instruments backed by physical commodities);
(8) lend any security or make any other loan if, as a result, more
than 33-1/3% of its total assets would be lent to other
parties, but this limitation does not apply to purchases of
debt securities or to repurchase agreements;
(9) the Fund may, notwithstanding any other fundamental investment
policy or limitation, invest all the assets in the securities
of a single open-end management investment company managed by
the subadviser
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<PAGE> 100
or any affiliate or successor with substantially the same
investment objective, policies, and limitations as the Fund.
The Fund also complies with the following non-fundamental investment policies:
- - The Fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and
amount to the securities sold short, and provided that transactions in
future contracts and options are not deemed to constitute selling
securities short.
- - The Fund does not currently intend to purchase securities on margin,
except that it may obtain such short-term credits as are necessary for
the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures shall not
constitute purchasing securities on margin.
- - The Fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which the Subadviser or an
affiliate serves as investment adviser or (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements are
treated as borrowings for purposes of fundamental investment limitation
definitions). The Fund will not borrow money in excess of 33 1/3% of
net assets so long as this limitation is required for certification by
certain state insurance departments. Any borrowings that come to exceed
this amount will be reduced within seven days (not including Sundays
and holidays) to the extent necessary to comply with 33 1/3%
limitation. The Fund will not borrow from other funds advised by the
subadviser or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of its total assets.
- - The Fund does not currently intend to purchase any security if, as a
result, more than 15% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the
prices at which they are valued.
- - The Fund does not currently intend to lend assets other than securities
to other parties, except by: (a) lending money (up to 5% of the Fund's
net assets) to a registered investment company or portfolio for which
the subadviser or an affiliate serves as investment adviser, or (b)
acquiring loans, loan participations (where such participations have
not been securitized), or other forms of direct debt instruments and,
in connection therewith, assuming any associated unfunded commitments
of the sellers. (This limitation does not apply to purchases of debt
securities or to repurchase agreements.)
- - The Fund does not currently intend to invest all of its assets in the
securities of a single open-end management investment company
sub-advised by Fidelity Management & Research Company or an affiliate
or successor with substantially the same fundamental investment
objective, policies, and limitations as the Portfolio.
LAZARD INTERNATIONAL STOCK PORTFOLIO
Lazard International Stock Portfolio's investment objective is to seek long-term
capital appreciation through investing primarily in the equity securities of
relatively large non-U.S. companies. The Fund invests principally in the common
stocks of non-U.S. companies (although the Fund may have substantial investments
in American Depositary Receipts ("ADRs") and Global Depositary Receipts
("GDRs"), convertible bonds, and other convertible securities.
There is no requirement, however, that the Fund invest exclusively in equity
securities, and, if the subadviser deems it to be advisable, the Fund may invest
up to 20% of its total asset value in fixed-income securities and short-term
money market instruments. The Fund will not invest in fixed-income securities
rated lower than investment grade at time of purchase.
Currently the subadviser intends to invest the Fund's assets in companies based
in developed markets that the subadviser believes are undervalued based on their
return on total capital or equity. Under normal market conditions, the Fund
invests at least 80% of the value of its total assets in the equity securities
of companies within at least three different countries (not including the United
States). The percentage of the Fund's assets invested in particular geographic
sectors may shift from time to time in accordance with the subadviser's
judgment.
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In selecting the Fund's investments, the subadviser seeks to identify
inexpensive securities in markets world-wide through traditional measures of
value, including low price to earnings ratio, high yield, unrecognized assets,
potential for management change and/or the potential to improve profitability.
In addition, the subadviser seeks to identify financially productive and
undervalued companies in those markets. The subadviser focuses on individual
stock selection (a "bottom-up" approach) rather than on forecasting stock market
trends (a "top-down" approach).
The subadviser recognizes that some of the best opportunities are in securities
not generally followed by investment professionals. Thus, the subadviser relies
on its research capability and also maintains a dialogue with foreign brokers
and with the management of foreign companies in an effort to gather the type of
"local knowledge" that it believes is critical to successful investment abroad.
To this end, the subadviser communicates with its affiliates in London and Tokyo
for information concerning current business trends, as well as for a better
understanding of the management of local businesses. The information supplied by
these affiliates is limited to statistical and factual information, advice
regarding economic factors and trends or advice as to occasional transactions in
specific securities.
The Fund may enter into foreign currency exchange forward contracts to hedge
against anticipated changes in foreign currency exchange rates. The Fund may
invest up to 20% of its total assets in investment-grade fixed-income securities
at the time of purchase and short-term money market instruments. In addition,
the Fund may invest in letters of credit and in emerging or unseasoned
companies.
When the subadviser believes that business or financial conditions warrant, the
Fund may assume a temporary defensive position and invest without limit in the
equity securities of U.S. companies, U.S. government securities, or short-term
money market instruments or cash.
In pursuing its objective, Lazard International Stock Portfolio currently is
subject to fundamental investment policies and operating (non-fundamental)
investment policies described below under "Investment Restrictions".
MFS EMERGING GROWTH PORTFOLIO
MFS Emerging Growth Portfolio's investment objective is to seek to provide
long-term growth of capital. Dividend and interest income from portfolio
securities, if any, are incidental to the Fund's investment objective. The
Fund's policy is to invest primarily (i.e., at least 65% of its assets under
normal circumstances) in common stocks of companies that are early in their life
cycle but appear to have the potential to become major enterprises (emerging
growth companies). Such companies generally are expected to show earnings growth
over time that is well above the growth rate of the overall economy and the rate
of inflation and have the products, management and market opportunities that are
usually necessary to become more widely recognized as growth companies. However,
the Fund may also invest in more established companies whose rates of earnings
growth are expected to accelerate because of special factors, such as
rejuvenated management, new products, changes in consumer demand, or basic
changes in the economic environment.
The Fund is aggressively managed, and, therefore, the value of its shares is
subject to greater fluctuation and investments in its shares involve the
assumption of a higher degree of risk than would be the case with an investment
in a conservative equity fund or a growth fund investing entirely in proven
growth equities.
The Fund invests primarily in common stocks. The Fund may invest or engage in
the following:
- - convertible securities and warrants when relative values make such
purchases appear attractive either as individual issues or as types of
securities in certain economic environments;
- - ADRs and foreign, including emerging markets, securities (up to 15% of
its total assets) that may be traded on foreign exchanges (currently the
subadviser expects generally to invest between 0% to 10% in such
securities.);
- - foreign currency and forward foreign currency exchange contracts for the
purchase or sale of foreign currency for hedging purposes and
non-hedging purposes, including transactions entered into for the
purpose of profiting from anticipated changes in foreign currency
exchange rates, as well as options on foreign currencies;
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<PAGE> 102
- - covered call and put options and may purchase call and put options on
securities and stock indices in an effort to increase current income and
for hedging purposes;
- - stock index futures contracts and options on these instruments for
hedging and non-hedging purposes, subject to applicable law; and
- - up to 5% of the Fund's total assets in lower-quality fixed-income
securities ('junk bonds").
For defensive purposes under unusual market conditions, as a reserve for future
investments, or to meet liquidity needs, the subadviser may temporarily invest
some or all of the Fund's assets. Temporary investments may include but are not
limited to cash or cash equivalents, such as short-term money market
instruments, commercial paper, bank obligations, short-term notes, U.S.
government securities, certificates of participation and trust certificates
representing interests in U.S. government securities, and related repurchase
agreements.
In pursuing its objective, MFS Emerging Growth Portfolio currently is subject to
fundamental investment policies and operating (non-fundamental) investment
policies described below under "Investment Restrictions".
MFS MID CAP GROWTH PORTFOLIO
MFS Mid Cap Growth Portfolio's investment objective is to seek to obtain long
term growth of capital. It seeks to achieve its objective by investing, under
normal market conditions, at least 65% of its total assets in equity securities
of companies with medium-market capitalization that the subadviser believes have
above-average growth potential. Medium-market capitalization companies have a
market capitalization equal to or exceeding $250 million but not exceeding the
top range of the Russell Midcap(TM) Growth Index at the time of the Fund's
investment.
The Russell Midcap(TM) Growth Index is a widely recognized, unmanaged index of
mid-cap common stock prices. Companies whose capitalization falls outside this
range after purchase continue to be considered medium-capitalization companies
for the purposes of the Fund's 65% policy.
Consistent with its investment objective, the Fund may invest in up to 20% of
its net assets in nonconvertible high-risk, high-yield fixed-income securities
that are in the lower rating categories (rated Ba or lower by Moody's or BB or
lower by S&P or Fitch Investors Service, Inc. ("Fitch") and comparable unrated
securities (collectively, commonly known as "junk bonds"). Further, the Fund
also may invest up to 20% of its net assets in foreign and emerging markets
securities that are not traded on a U.S. exchange (not including ADRs).
Other investments are allowed, including those described in the Prospectus and
this SAI. The description of these techniques and the associated risks appear in
the prospectus. Subject to its investment objective and the investment
restrictions set forth below, the Fund may invest in or engage in the following:
- - Brady Bonds
- - indexed securities
The Fund is non-diversified. As a result, the amount of the Fund's assets that
may be invested in the securities of any one issuer is limited only by the
Fund's investment restrictions and the diversification requirements imposed by
the Internal Revenue Code of 1986, as amended. Since the Fund may invest a
relatively high percentage of its assets in a limited number of issuers, it may
be more susceptible to any economic, political or regulatory occurrence and to
the financial conditions of the issuers in which it invests.
For defensive purposes under unusual market conditions, as a reserve for future
investments, or to meet liquidity needs, the subadviser may temporarily invest
some or all of the Fund's assets. Temporary investments may include but are not
limited to cash or cash equivalents, such as short-term money market
instruments, commercial paper, bank obligations, short-term notes, U.S.
government securities, certificates of participation and trust certificates
representing interests in U.S. government securities, and related repurchase
agreements.
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<PAGE> 103
In pursuing its objective, MFS Mid Cap Growth Portfolio currently is subject to
fundamental investment policies. and operating (non-fundamental) investment
policies described below under "Investment Restrictions".
MFS RESEARCH PORTFOLIO
MFS Research Portfolio's investment objective is to provide long-term growth of
capital and future income. The Fund's securities are selected by a committee of
investment research analysts from the subadviser and from MFS International
(U.K.) Limited. The committee allocates the Fund's assets among industries.
Individual analysts are then responsible for selecting from within their
assigned industry responsibility the securities they view as best suited to meet
the Fund's investment objective .
The Fund's policy is to invest a substantial proportion of its assets in the
common stocks or securities convertible into common stocks of companies believed
to possess better than average prospects for long-term growth. A smaller
proportion of the assets may be invested in bonds, short-term obligations,
preferred stocks or common stocks whose principal characteristic is income
production rather than growth. Such securities may also offer opportunities for
growth of capital as well as income. In the case of both growth stocks and
income issues, emphasis is placed on the selection of progressive, well-managed
companies.
Other investments are allowed, including, but not limited to, those described
below. Subject to its investment objective and the fundamental restrictions set
forth below, the Fund may invest in or engage in the following:
- - foreign and emerging market securities (not more than 20% of the Fund's
net assets)
- - investment-grade securities (as rated by Moody's, S&P or Fitch)
- - high-yield, high-risk securities, commonly known as junk bonds (rated
Ba or lower by Moody's or BB or lower by S&P or Fitch) and comparable
unrated securities (not more than 10% of the Fund's net assets)
- - warrants (not more than 5% of the Fund's net assets)
In pursuing its objective, MFS Research Portfolio currently is subject to
fundamental investment policies and operating (non-fundamental) investment
policies described below under "Investment Restrictions".
NWQ LARGE CAP PORTFOLIO
NWQ Large Cap Portfolio's investment objective is to achieve consistent,
superior total return with minimum risk to principal. The Fund invests, under
normal circumstances, at least 65% of its total assets in the common stocks of
companies with above-average statistical value that are in fundamentally
attractive industries and that, in the subadviser's opinion, are undervalued at
the time of purchase. The Fund may also invest in other equity-related
securities consisting of convertible bonds, convertible preferred stocks, rights
and warrants. The Fund's policy is to invest in a universe of 1100 companies of
medium to large capitalization. Companies with market capitalization under $1
billion are limited to 10% of the Fund's total assets.
The subadviser uses statistical measures to screen for the companies with the
best value characteristics such as below-average price-to-earnings and
price-to-book ratios, above-average dividend yield and strong financial
stability. Further, the subadviser uses normalized earnings to value cyclical
companies, focuses on quality of earnings, looks for investment in relative
value, and concentrates in industries/sectors with strong long-term
fundamentals. As used in this discussion, "fundamentals" vary by industry and
relate to factors such as supply and demand, market share, economics,
distribution channels, barriers to entry, and organizational factors. An
economic "sector" consists of a variety of industries having some similar
business characteristics; for example, the producer durables sector includes
industries such as aerospace, heavy machinery, and electrical equipment.
In order to capture value, the subadviser uses a multi-disciplined approach to
identify market sectors that are early in their cycle of fundamental
improvement, investor recognition and market exploitation. In its
decision-making process, the subadviser uses business-trend analyses to research
industry and company fundamentals. The results are analyzed for the
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<PAGE> 104
impact of changing worldwide product demand/supply, direction of inflation and
interest rates, and expansion/contraction of business cycles. Once the
investment team identifies those industries/sectors with positive fundamentals,
companies are screened for value characteristics such as below-average
price-to-earnings and price-to-book ratios and above-average dividend yield.
Company visits and interviews with management help to verify the value in these
potential investments. The subadviser also uses numerous independent firms, as
well as in-house resources, for economic, industry and securities research. The
Fund will be concentrated in those industries with positive fundamentals and
seeks to minimize risk by avoiding industries with deteriorating long-term
fundamentals.
The Fund expects the majority of its investments to be companies based in the
United States. However, from time to time, shares of foreign-based companies may
be purchased if they pass the selection process outlined above.
Other investments are allowed, including, but not limited to, those described
below. Subject to its investment objective and the restrictions set forth below,
the Fund may invest up to 20% of its total assets in foreign securities such as
U.S. dollar-denominated securities of foreign issuers and ADRs.
The Fund will not invest in any security issued by a commercial bank unless: (1)
the bank has total assets of at least $1 billion, or the equivalent in other
currencies; (2) for U.S. banks, it is a member of the Federal Deposit Insurance
Corporation; and, (3) for foreign branches of U.S. banks, the security is
comparable in quality to other debt securities the Fund may purchase.
In pursuing its investment objective, NWQ Large Cap Portfolio currently is
subject to fundamental investment policies and operating (non-fundamental)
investment policies described below under "Investment Restrictions".
SOCIAL AWARENESS STOCK PORTFOLIO
Social Awareness Stock Portfolio's investment objective is long-term capital
appreciation and retention of net investment income. The Fund seeks to fulfill
this objective by selecting investments, primarily common stocks, that SSBC Fund
Management Inc. ("SSBC") (formerly Mutual Management Corp. ("MMC") determines
meet its investment screen, based on analysis of data, and, to the extent
possible, certain social criteria. SSBC has discretion to determine the source
for the data.
The Fund's assets generally are invested in equity securities, primarily common
stocks, diversified across industries and companies. For defensive purposes or
for temporary investment of cash flows, however, the Fund may invest in bonds,
notes or other evidence of indebtedness, issued publicly or placed privately,
deemed to be of suitable credit quality, including U.S. government securities.
SOCIAL CRITERIA. SSBC uses certain supportive social criteria in seeking common
stocks that are acceptable investments for the Fund. Supportive criteria are
such factors as favorable attitudes toward preserving the environment, waste
management strategies, and supportive employee work environments. Companies are
avoided as unacceptable investments for the Fund if a significant portion of
their revenues, as determined by SSBC, is derived from: (1) producing tobacco,
tobacco products, alcohol, or military defense systems; or (2) providing
military defense related services or gambling services. These investment
restrictions are not fundamental and may be changed without shareholder
approval.
The Fund's principal objective does not preclude it from realizing short-term
gains when the subadviser believes that conditions suggest the Fund's long-term
goal is best accomplished by such short-term transactions. Further, if a company
fails to meet the Fund's social criteria after it has purchased the company's
common stock or if the Fund inadvertently acquires a security that is not an
acceptable investment, SSBC may determine to sell such securities within a
reasonable period of time. However, the subadviser does not anticipate engaging
in active and frequent trading as it generally manages the Fund in a "buy and
hold" style.
OPERATING POLICIES. Changes in the Fund's investments may be made from time to
time to take into account changes in the outlook for particular industries or
companies. The Fund's investments will not be concentrated in any one industry,
which
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<PAGE> 105
means that no more than twenty-five percent of the value of its assets will be
invested in any one industry. While the Fund may occasionally invest in foreign
securities through ADRs, it is not anticipated that such investments will, at
any time, account for more than ten percent of its investment portfolio.
The Fund's assets generally are kept fully invested except that: (1) sufficient
cash may be kept on hand reasonably to provide for variable annuity contract
obligations, and (2) reasonable amounts of cash, U.S. government or other liquid
securities, such as short-term bills and notes, may be held for limited periods,
pending investments in accordance with its investment policies. When the
subadviser determines that investments of other types may be advantageous for
defensive purposes or for temporary investment of cash flows, however,
investments may be made in cash and cash investments, bonds, notes, or other
evidence of indebtedness, issues publicly or placed privately, deemed to be of
suitable credit quality, including U.S. government securities.
The Fund does not intend to make short sales of securities or make purchases on
margins, except for short-term credits that are necessary for the clearance of
transactions, except as permitted under the 1940 Act.
In pursuing its objective, Social Awareness Stock Portfolio currently is subject
to fundamental investment policies and operating (non-fundamental) investment
policies described below under "Investment Restrictions".
STRATEGIC STOCK PORTFOLIO
Strategic Stock Portfolio's investment objective is to provide investors with an
above average total return through a combination of potential capital
appreciation and dividend income. As summarized in the prospectus, the Fund
invests primarily in a portfolio of actively traded, dividend paying equity
securities comprised of high dividend yield stocks periodically selected from:
(1) the companies included in the Dow Jones Industrial Average (the "DJIA"), and
(2) the companies included in a selected subset of the S&P Industrial Index(TM).
The Fund is not designed to parallel or correlate with, nor is the share price
expected to parallel or correlate with any movements in, the DJIA or the S&P
Industrial Index. The Fund invests according to the following selection process.
First, the subadviser begins with the Dow Jones Industrial Average (Universe
#1). The 30 DJIA stocks are ranked according to their dividend yield, and the
subadviser selects the 10 highest dividend-yielding stocks. Next, the subadviser
examines the S&P Industrial Index (Universe #2) to: (1) remove any stocks that
are in the DJIA, and (2) eliminate all stocks that are not rated A or A+ by S&P.
Then the subadviser ranks the remaining stocks by market capitalization from
highest to lowest, eliminating the lowest 25%. The subadviser then ranks the
remaining stocks according to their dividend yield and selects the 15 highest
yielding stocks. The Fund's investment portfolio comprises 25 stocks: 10
selected from the DJIA and 15 from the S&P Industrial Index.
HOW THE FUND WORKS
The Fund consists of approximately equal values of 25 stocks (as described
above) and remains relatively fixed for about a year, at which time the Fund is
adjusted to reflect the new 25 stocks and their weightings. Although the Fund
adjusts annually, it is designed for the long-term. The subadviser recommends a
holding period for at least three to five years.
Application of the strategic selection process is subject to and limited by the
Fund's other investment policies and restrictions. This includes restrictions
and limitations required for the Fund to maintain its status as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended, and those required by the 1940 Act (such as issuer diversification
requirements and industry concentration limitations).
The Fund generally follows a "buy and hold" strategy. Except to raise cash for
operational purposes, the Fund ordinarily does not sell securities or reevaluate
its portfolio investments except as periodically determined by the subadviser.
Only a portion of the Fund's assets may be reviewed and adjusted for any given
period. As a result, although the Fund may dispose of a security in certain
events (e.g., defaulting on payments; a decline in the security's price), the
company's adverse financial condition does not necessarily result in its
elimination from the Fund prior to scheduled review except under extraordinary
circumstances. Similarly, securities held by the Fund ordinarily are not to be
sold for the purpose of taking advantage of market fluctuations or changes in
anticipated rate of appreciation.
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<PAGE> 106
The subadviser intends to maintain the ratio of shares of the strategic
securities by purchasing and/or selling approximately proportionate amounts of
securities from the Fund in response to purchases made or redemptions requested.
Subject to its investment objective and the restrictions set forth below, the
Fund may invest in or engage in the following:
- - up to 5% of its total assets in options on equity securities indices,
futures contracts on such indices, and options on such futures contracts
both for hedging purposes and seeking to enhance gain; and
- - up to 5% of its total assets in securities of other registered
investment companies that seek to provide investment results that
generally correspond to the performance of securities included in one or
more broad market indices.
Pending investment and for temporary defensive purposes the Fund may invest
without limit in short-term, high quality fixed income securities and in
money-market instruments.
In pursuing its objective, Strategic Stock Portfolio currently is subject to
fundamental investment policies and operating (non-fundamental) investment
policies described below under "Investment Restrictions".
Note: The DJIA is the property of Dow Jones & Company, Inc. Dow Jones & Company,
Inc. has not granted a license for use by Strategic Stock Portfolio. Dow Jones &
Company, Inc. has not participated in any way in the creation of the Strategic
Stock Portfolio or in the selection of the stocks included in its investment
portfolio and has not approved any information herein relating thereto.
"Standard & Poor's", "S&P", and "S&P Industrial Index are trademarks of The
McGraw-Hill Companies, Inc., which have not been licensed for use by Strategic
Stock Portfolio. It is not sponsored, managed, sold or promoted by Standard &
Poor's.
TRAVELERS QUALITY BOND PORTFOLIO
Travelers Quality Bond Portfolio's investment objective is to seek current
income, moderate capital volatility and total return. The Fund's assets are
primarily invested in debt obligations, including, but not limited to:
- - treasury bills;
- - repurchase agreements;
- - commercial paper and other short term instruments;
- - bank certificates of deposit and bankers' acceptances; and
- - publicly traded debt securities, including bonds, notes, and
debentures; and
- - equipment trust certificates.
Permissible securities may carry certain equity features such as conversion or
exchange rights or warrants for the acquisition of stocks of the same or a
different issuer, or participation based on revenues, sales or profits. The
adviser anticipates that the Fund will maintain an average portfolio duration
not exceeding five years. In the case of mortgage-backed securities, the
estimated average life of cash flows will be used instead of average duration.
Investment in longer-term obligations may be made if the investment adviser
concludes that the investment yields justify a longer-term commitment. No more
than 25% of the value of the Fund's assets will be invested in any one industry.
The Fund is actively managed, and investments may be sold prior to maturity if
the adviser deems it to be advantageous in light of factors such as market
conditions or brokerage costs. While the Fund's investments are generally not
listed securities, there are firms that make markets in the type of debt
instruments that the Fund holds. The adviser anticipates no problems of
liquidity with the Fund's investments.
From time to time, the Fund may commit to purchase when-issued securities. The
Fund also may purchase and sell interest-rate futures contracts to hedge against
changes in interest rates that might otherwise have an adverse effect upon the
value of the portfolio securities.
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In pursuing its objective, Travelers Quality Bond Portfolio currently is subject
to investment policies and operating (non-fundamental) investment policies
described below under "Investment Restrictions".
U.S. GOVERNMENT SECURITIES PORTFOLIO
U.S. Government Securities Portfolio's investment objective is the selection of
investments from the point of view of an investor concerned primarily with
highest credit quality, current income and total return. To achieve this
objective, the Fund invests primarily in U.S. government securities, which
includes obligations of the U.S. Government and of its agencies,
instrumentalities, and government-sponsored enterprises as defined above.
Not all U.S. government securities are backed by the full faith and credit of
the United States. For example, obligations issued by Fannie Mae are supported
by its right to borrow from the U.S. Treasury. Other U.S. government securities,
such as those issued by the Federal Farm Credit Banks Funding Agency, are backed
only by the credit of the issuing entity. Although U.S. government securities
generally are considered to be high quality, there is no assurance that the U.S.
Government would provide financial assistance to an agency, instrumentality or
government-sponsored enterprise if it were not obligated by law to do so.
The Fund may purchase put and call options and other instruments and strategies
described above, including futures contracts as a hedge against changes in
interest rates.
In pursuing its objective, U.S. Government Securities currently is subject to
fundamental investment policies and operating (non-fundamental) investment
policies described below under "Investment Restrictions".
UTILITIES PORTFOLIO
Utilities Portfolio's primary investment objective is to provide current income.
Long-term capital appreciation is a secondary objective. The Fund seeks to
achieve its objectives by investing in equity and debt securities of companies
in the utility industries. For these purposes "utility industries" are comprised
of companies that are principally engaged (derive at least 50% of their assets,
gross income or net profits from utility operations or that are regulated as a
utility by a government agency or authority) in the manufacture, production,
generation, transmission and sale of electric and gas energy. Utility industries
also include 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 but not those in public
broadcasting. The Fund invests primarily in utility equity and debt securities
that are expected to have a sustainable rate of dividend growth and a high rate
of return, as determined by the adviser.
Under normal market conditions, the Fund invests at least 65% of its assets in
such securities. The Fund may invest up to 35% of its assets in equity and debt
securities of non-utility companies believed to afford a reasonable opportunity
for achieving the Fund's investment objective. When the adviser believes that
market conditions warrant, the Fund may adopt a temporary defensive posture and
may invest, without limit, in debt securities (whether or not they are utility
securities) such as rated or unrated bonds, debentures and commercial paper,
U.S. government securities, and money market instruments.
The Fund may invest up to 10% of its assets in securities rated BB or B by S&P
or Ba or B by Moody's whenever the adviser believes that the incremental yield
on such securities is advantageous to the Fund in comparison to the additional
risk involved. Yields on lower-rated fixed-income securities generally are
higher than the yields available on higher-rated securities. Investments in
lower-rated securities may be subject to greater market fluctuations, however,
and greater risks of loss of income or principal (including the possibility of
default by, or bankruptcy of, the issuers of such securities) than higher-rated
securities. Lower-rated securities also may have speculative characteristics. In
addition, the Fund may enter into repurchase agreements.
In pursuing its objective, Utilities Portfolio currently is subject to
fundamental investment policies and operating (non-fundamental) investment
policies described below under "Investment Restrictions".
32
<PAGE> 108
ZERO COUPON BOND FUND PORTFOLIOS (SERIES 2000 AND 2005)
The objective of each Zero Coupon Bond Fund Portfolio is to provide as high an
investment return as is consistent with the preservation of capital. Each
Portfolio's investment objective is fundamental.
Each Fund seeks to return a reasonably assured targeted dollar amount,
predictable at the time of investment, on a specific target date in the future
by investing in primarily zero coupon securities that pay no cash income but are
acquired by the Fund at substantial discounts from their value at maturity. The
Funds may not be appropriate for investors who do not plan to have their
premiums invested in Fund shares for the long-term or until maturity.
Under normal circumstances, each Fund invests at least 65% of its net assets in
"Stripped Securities", a term used collectively for stripped Treasury
securities, stripped government securities, stripped corporate securities and
stripped Eurodollar obligations and other stripped securities, all described
below. Stripped Securities may consist of:
(l) debt obligations issued by the U.S. Treasury that have been
stripped of their unmatured interest coupons, interest coupons
that have been stripped from debt obligations issued by the
U.S. Treasury, and receipts and certificates for stripped debt
obligations and stripped coupons, including U.S. government
trust certificates (collectively, "Stripped Treasury
Securities") (but currently not anticipated to be in excess of
55% of a Fund's assets);
(2) other zero coupon securities issued by the U.S. government and
its agencies and instrumentalities, by a variety of tax-exempt
issuers such as state and local governments and their agencies
and instrumentalities and by "mixed-ownership government
corporations" (collectively, "Stripped Government
Securities");
(3) zero coupon securities issued by domestic corporations which
consist of corporate debt obligations without interest
coupons, and, if available, interest coupons that have been
stripped from corporate debt obligations, and receipts and
certificates for such stripped debt obligations and stripped
coupons (collectively, "Stripped Corporate Securities");
(4) zero coupon securities issued by certain entities which
consist of stripped debt obligations and stripped coupons of
asset-backed securities, which zero coupon-type securities may
exist today or may be developed in the future. These
securities may be illiquid and are subject to the 15%
limitation for such securities.
(5) stripped Eurodollar obligations, which are debt securities
denominated in U.S. dollars that are issued by foreign
issuers, often subsidiaries of domestic corporations
("Stripped Eurodollar Obligations").
The remaining 35% of each Fund's assets may be invested in non-zero coupon
securities such as common stock and other equity securities, bonds and other
debt securities, and money market instruments. In addition, neither Fund will
purchase illiquid securities, including restricted or other securities that are
not readily marketable (such as repurchase agreements with maturities in excess
of seven days) if more than 15% of the Fund's total assets would be invested in
such securities.
In pursuing its objective, each Zero Coupon Bond Fund Portfolio follows
fundamental investment policies and operating (non-fundamental) investment
policies described below under "Investment Restrictions".
INVESTMENT RESTRICTIONS
Subject to shareholder approval at a meeting held April 30, 1999, the Funds
(generally excluding Equity Income and Large Cap Portfolios and except as
indicated otherwise below) adopted the following investment policies as
fundamental (those that may not be changed without shareholder approval). Each
Fund may not:
33
<PAGE> 109
FUNDAMENTAL POLICIES
Each of the Trust's Portfolios (including Equity Income and Large Cap
Portfolios), irrespective of any fundamental or non-fundamental, operating
investment policies, may invest all or a portion of its assets in one or more
investment companies without a shareholder vote.
1. DIVERSIFICATION: (except MFS Mid Cap Growth Portfolio) with respect to 75% of
its assets, purchase a security other than a security issued or guaranteed by
the U.S. Government, its agencies, instrumentalities, or government-sponsored
enterprises or a security of an investment company if, as a result: (1) more
than 5% of the Fund's total assets would be invested in the securities of a
single issuer, or (2) the Fund would own more than 10% of the outstanding voting
securities of any single issuer.
2. INDUSTRY CONCENTRATION: (except Utilities Portfolio) purchase a security if,
as a result, more than 25% of the Fund's total assets would be invested in
securities of issuers conducting their principal business activities in the same
industry. For purposes of this policy, there is no limit on: (1) investments in
U. S. government securities, in repurchase agreements covering U. S. government
securities, in securities issued by the states, territories or possessions of
the United States ("municipal securities") or in foreign government securities;
or (2) investment in issuers domiciled in a single jurisdiction. Notwithstanding
anything to the contrary, to the extent permitted by the 1940 Act, the Fund may
invest in one or more investment companies; provided that, except to the extent
that it invests in other investment companies pursuant to Section 12(d)(1)(A) of
the 1940 Act, the Fund treats the assets of the investment companies in which it
invests as its own for purposes of this policy.
3. BORROWING: borrow money if, as a result, outstanding borrowings would exceed
an amount equal to one-third of the Fund's total assets.
4. REAL ESTATE: purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Fund from investing in securities or other instruments backed by real estate or
in securities of companies engaged in the real estate business).
5. LENDING: make loans to other parties if, as a result, more than one third of
its total assets would be loaned to other parties. For purposes of this policy,
entering into repurchase agreements, lending securities and acquiring any debt
security are not deemed to be the making of loans.
6. COMMODITIES: purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall not
prevent the Fund from purchasing or selling options and futures contracts and
options on futures or from investing in securities or other instruments backed
by physical commodities).
7. UNDERWRITING: be an underwriter (as that term is defined in the 1933 Act) of
securities issued by other persons except, to the extent that in connection with
the disposition of its assets, the Fund may be deemed to be an underwriter.
8. SENIOR SECURITIES: issue any class of senior securities except to the extent
consistent with the 1940 Act.
NON-FUNDAMENTAL POLICIES
The following investment policies are non-fundamental policies that each Fund
(generally excluding Equity Income and Large Cap Portfolios and except as
otherwise noted below) currently complies with:
1. MFS MID CAP GROWTH PORTFOLIO is "non-diversified" as that term is defined in
the 1940 Act. To the extent required to qualify as a regulated investment
company under the Code, the Fund may not purchase a security (other than a U.S.
government security or a security of an investment company) if, as a result: (1)
with respect to 50% of its assets, more than 5% of the Fund's total assets would
be invested in the securities of any single issuer; (2) with respect to 50% of
its assets, the Fund would own more than 10% of the outstanding securities of
any single issuer; or (3) more than 25% of the Fund's total assets would be
invested in the securities of any single issuer.
2. BORROWING: for purpose of the borrowing limitation, the following are not
treated as borrowings to the extent
34
<PAGE> 110
they are fully collateralized: (1) the delayed delivery of purchased securities
(such as the purchase of when-issued securities); (2) reverse repurchase
agreements; (3) dollar-roll transactions; and (4) the lending of securities
("leverage transactions"). (See Fundamental Policy No. 3 "Borrowing.")
3. LIQUIDITY: No Fund will invest more than 15% of its net assets in: (1)
securities that cannot be disposed of within seven days at their then-current
value; (2) repurchase agreements not entitling the holder to payment of
principal within seven days; and, (3) securities subject to restrictions on the
sale of the securities to the public without registration under the 1933 Act
("restricted securities") that are not readily marketable. Each Fund may treat
certain restricted securities as liquid pursuant to guidelines adopted by the
Trust's Board of Trustees.
4. EXERCISING CONTROL OF ISSUERS: No Fund will make investments for the purpose
of exercising control of an issuer. Investments by a Fund in entities created
under the laws of foreign countries solely to facilitate investment in
securities in that country will not be deemed the making of investments for the
purpose of exercising control.
5. OTHER INVESTMENT COMPANIES: No Fund will invest in securities of another
investment company, except to the extent permitted by the 1940 Act and the
rules, and regulations and exemptions thereunder.
6. SHORT SALES:
a. For Disciplined Mid Cap Stock, MFS Research, and U.S. Government
Securities Portfolios, no Fund will sell securities short,
unless it owns or has the right to obtain securities equivalent
in kind and amount to the securities sold short (short sales
"against the box"), and provided that transactions in futures
contracts and options on futures are not deemed to constitute
selling securities short.
b. For Disciplined Small Cap and Strategic Stock Portfolios, no
Fund will make short sales of securities except in conformity
with applicable law and regulations, and unless after such sale
(excluding the value of any securities sold short
against-the-box), the market value of all securities sold short
does not exceed 25% of the Fund's total asset value, and the
Fund's aggregate short sales of a particular class of an
issuer's securities do not exceed 25% of the then outstanding
securities of that class of the issuer's securities, and
provided that transactions in futures contracts and options on
futures are not deemed to constitute selling securities short.
c. For Utility, Zero Coupon Bond Fund 2000, and Zero Coupon Bond
Fund 2005 Portfolios, no Fund will make short sales of
securities or maintain a short position, except to the extent of
5% of the Fund's net assets (excluding the value of any
securities sold short against-the-box), and provided that
transactions in futures contracts and options on futures are not
deemed to constitute selling securities short.
d. For Federated High Yield Portfolio, the Fund will not sell
securities short except, under strict limitations, the Fund may
maintain open short positions so long as not more than 10% of
the value of its net assets is held as collateral for those
positions, and provided that transactions in options, and
futures contracts and options on futures are not deemed to
constitute selling securities short.
7. PURCHASING ON MARGIN: No Fund will purchase securities on margin, except that
the Fund may use short-term credit for the clearance of its portfolio
transactions, and provided that initial and variation margin payments in
connection with futures contracts and options on futures contracts or other
permissible investments.
8. LENDING: No Fund will lend a security if, as a result, the amount of loaned
securities would exceed an amount equal to one-third of the Fund's total assets.
9. PLEDGING: No Fund will pledge its assets except as permitted by the 1940 Act.
35
<PAGE> 111
VALUATION AND PRICING
VALUATION. We determine current value for the Fund's portfolio securities as
follows: securities traded on national securities markets are valued at the
closing prices on such markets; securities for which no sales prices were
reported and U.S. government and agency obligations are valued at the mean
between the last reported bid and ask prices or on the basis of quotations
received from unaffiliated reputable brokers or other recognized sources; and,
securities that have a remaining maturity of more than 60 days are valued at
prices based on market quotations for securities of similar type, yield and
maturity. The Fund values short-term money market instruments with maturities of
60 days or less at amortized cost (original purchase cost as adjusted for
amortization of premium or accretion of discount) which, when combined with
accrued interest receivable, approximates market. All other investments are
valued at fair value as determined in good faith by the Board.
PRICING. We compute the Fund's net asset value per share as of the close of
trading on each day on which the New York Stock Exchange ("Exchange") is open.
The net asset value per share is arrived at by determining the value of the
Fund's assets, subtracting its liabilities, and dividing the result by the
number of shares outstanding. Fund shares are redeemed at the redemption value
next determined after the Fund receives a redemption request. The redemption
value is the net asset value adjusted for fractions of a cent and may be more or
less than the shareholder's cost depending upon changes in the value of the
Fund's portfolio between purchase and redemption.
We compute the Fund's redemption value as of the close of the Exchange at the
end of the day on which it has received all proper documentation from the
shareholder. Redemption proceeds are normally wired or mailed either the same or
the next business day, but in no event later than seven days thereafter.
The Fund may temporarily suspend the right to redeem its shares when: (1) the
Exchange is closed, other than customary weekend and holiday closings; (2)
trading on the Exchange is restricted; (3) an emergency exists as determined by
the SEC so that disposal of the Fund's investments or determination of its net
asset value is not reasonably practicable; or (4) the SEC, for the protection of
shareholders, so orders.
DISTRIBUTIONS
The Trust intends to distribute dividends from each Fund's net investment income
and all net realized capital gains annually in shares or, at the option of the
shareholder, in cash. When a Fund makes a distribution, it intends to distribute
only its net capital gains and such income as has been predetermined to be
taxable as ordinary income. Therefore, net investment income distributions will
not be made on the basis of distributable income as computed on the Fund's books
but will be made on a federal income tax basis.
TRUSTEES AND OFFICERS
Under Massachusetts law, the Trust's Board has absolute and exclusive control
over the management and disposition of all assets of the Funds. Subject to the
provisions of the Declaration of Trust, the business and affairs of the Funds
are managed by the trustees or other parties so designated by the trustees.
The Fund's trustees and officers are listed below.
<TABLE>
<CAPTION>
Name and Position Principal Occupation During Last Five Years
With the Fund
<S> <C>
*Heath B. McLendon Managing Director (1993-present), Smith Barney, Inc. ("Smith Barney");
Chairman and Trustee Chairman (1993-present), Smith Barney Strategy Advisors, Inc.; President
388 Greenwich Street and Director (1994-present), Mutual Management Corp.; Director and
New York, New York President (1996-present), Travelers Investment Adviser, Inc.; Chairman and
Age 65 Director of forty-one investment companies associated with Smith Barney;
Chairman, Board of Trustees, Drew University; Advisory Director, First
Empire State Corporation; Chairman, Board of Managers, seven Variable
Annuity Separate Accounts of The Travelers Insurance Company+;
</TABLE>
36
<PAGE> 112
<TABLE>
<S> <C>
Chairman, Board of Trustees, five Mutual Funds sponsored by The Travelers
Insurance Company++; prior to July 1993, Senior Executive Vice President
of Shearson Lehman Brothers Inc.
Knight Edwards Of Counsel (1988-present), Partner (1956-1988), Edwards & Angell,
Trustee Attorneys; Member, Advisory Board (1973-1994), thirty-one mutual funds
154 Arlington Avenue sponsored by Keystone Group, Inc.; Member, Board of Managers, seven
Providence, Rhode Island Variable Annuity Separate Accounts of The Travelers Insurance Company+;
Age 75 Trustee, five Mutual Funds sponsored by The Travelers Insurance Company.++
Robert E. McGill, III Retired manufacturing executive. Director (1983-1995), Executive Vice
Trustee President (1989-1994) and Senior Vice President, Finance and
295 Hancock Street Administration (1983-1989), The Dexter Corporation (manufacturer of
Williamstown, Massachusetts specialty chemicals and materials); Vice Chairman (1990-1992), Director
Age 67 (1983-1995), Life Technologies, Inc. (life science/biotechnology
products); Director, (1994-present), The Connecticut Surety Corporation
(insurance); Director (1995-present), Chemfab Corporation (specialty materials
manufacturer); Director (1999-present), Ravenwoods Winery, Inc.; Member, Board
of Managers, seven Variable Annuity Separate Accounts of The Travelers
Insurance Company+; Trustee, five Mutual Funds sponsored by The Travelers
Insurance company.++
Lewis Mandell Dean, School of Management (1998-present), University at Buffalo; Dean,
Trustee College of Business Administration (1995-1998), Marquette University;
160 Jacobs Hall Professor of Finance (1980-1995) and Associate Dean (1993-1995), School of
Buffalo, New York Business Administration, and Director, Center for Research and Development
Age 56 in Financial Services (1980-1995), University of Connecticut; Director
(1992-present), GZA Geoenvironmental Tech, Inc. (engineering services);
Member, Board of Managers, seven Variable Annuity Separate Accounts of The
Travelers Insurance Company+; Trustee, five Mutual Funds sponsored by The
Travelers Insurance Company.++
Frances M. Hawk, CFA, CFP Private Investor, (1997-present); Portfolio Manager (1992-1997, HLM
Trustee Management Company, Inc. (investment management); Assistant Treasurer,
28 Woodland Street Pensions and Benefits. Management (1989-1992), United Technologies
Boston, Massachusetts Corporation (broad-based designer and manufacturer of high technology
Age 51 products); Member, Board of Managers, seven Variable Annuity Separate
Accounts of The Travelers Insurance Company+; Trustee, five Mutual Funds
sponsored by The Travelers Insurance Company.++
Ernest J. Wright Vice President and Secretary (1996-present), Assistant Secretary
Secretary to the Board (1994-1996), Counsel (1987-present), The Travelers Insurance Company;
One Tower Square Secretary, Board of Managers, seven Variable Annuity Separate Accounts of
Hartford, Connecticut The Travelers Insurance Company+; Secretary, Board of Trustees, five
Age 58 Mutual Funds sponsored by The Travelers Insurance Company.++
Kathleen A. McGah Assistant Secretary and Counsel (1995-present), The Travelers Insurance
Assistant Secretary to the Company; Assistant Secretary, Board of Managers, seven Variable Annuity
Board Separate Accounts of The Travelers Insurance Company+; Assistant
One Tower Square Secretary, Board of Trustees, five Mutual Funds sponsored by The Travelers
Hartford, Connecticut Insurance Company.++ Prior to January 1995, Counsel, ITT Hartford Life
Age 48 Insurance Company.
</TABLE>
37
<PAGE> 113
<TABLE>
<S> <C>
Lewis E. Daidone Managing Director of Smith Barney, Senior Vice President and Treasurer of
Treasurer 41 investment companies associated with Smith Barney, and Director and
388 Greenwich Street Vice President of SSBC and TIA; Treasurer, Board of Trustees, five Mutual
New York, New York Funds sponsored by The Travelers Insurance Company.++ Age 40
Irving David Vice President of Smith Barney, Asset Management Division (March
Controller 1994-present); Controller, Board of Trustees, five Mutual Funds sponsored
388 Greenwich Street by The Travelers Insurance Company.++
New York, NY
Age 37
</TABLE>
+ These seven Variable Annuity Separate Accounts are: 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 and The Travelers Timed Bond Account for
Variable Annuities.
++ These five Mutual Funds are: Capital Appreciation Fund, Money Market
Portfolio, High Yield Bond Trust, Managed Assets Trust and The
Travelers Series Trust.
* Mr. McLendon is an "interested person" within the meaning of the 1940 Act
by virtue of his position as Managing Director of Salomon Smith Barney,
Inc., an indirect wholly owned subsidiary of Citigroup Inc. and also owns
shares and options to purchase shares of Citigroup Inc., the indirect
parent of The Travelers Insurance Company.
COMMITTEES. To operate more efficiently, the Board established two operating
committees. The Nominating Committee recommends candidates for the nomination as
members of the Board. The Audit Committee reviews the scope and results of the
Fund's annual audits with the Fund's independent accountants and recommends the
engagement of the accountants. For the year ended December 31, 1998, the members
of the Nominating and Audit Committees were Knight Edwards, Robert E. McGill
III, Lewis Mandell, and Frances M. Hawk. Trustees do not receive any additional
compensation for their committee services.
COMPENSATION. Members of the Board who are also officers or employees of
Citigroup Inc. or its subsidiaries are not entitled to any fee for their
services to the Fund. Members of the Board who are not affiliated as employees
of Citigroup, Inc. or its subsidiaries receive an aggregate retainer of $19,000
for service on the Boards of the five Mutual Funds sponsored by The Travelers
Insurance Company and the seven Variable Annuity Separate Accounts established
by The Travelers Insurance Company. They also receive an aggregate fee of $2,500
for each meeting of such Boards attended. Board Members with 10 years of service
may agree to provide services as an emeritus director at age 72 or upon reaching
80 years of age and will receive 50% of the annual retainer and 50% of meeting
fees, if attended. The chart below shows the compensation paid to Board Members
for the year ended December 31, 1998.
38
<PAGE> 114
COMPENSATION TABLE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Aggregate Pension or Retirement Total Compensation From
Compensation From Benefits Accrued As Fund and Fund Complex
Name of Person, Position Fund(1) Part of Fund Expenses Paid to Directors
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Heath B. McLendon N/A N/A N/A
Chairman and Trustee
- --------------------------------------------------------------------------------------------------------------
Knight Edwards $10,500 N/A $31,500
Trustee
- --------------------------------------------------------------------------------------------------------------
Robert E. McGill, III $11,125 N/A $34,000
Trustee
- --------------------------------------------------------------------------------------------------------------
Lewis Mandell $11,125 N/A $34,000
Trustee
- --------------------------------------------------------------------------------------------------------------
Frances M. Hawk, CFA, CFP $11,125 N/A $34,000
Trustee
- --------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------
(1) No compensation was deferred for any Trustee or Officer under a deferred
compensation plan.
DECLARATION OF TRUST
The Trust is organized as a Massachusetts business trust. Pursuant to certain
decisions of the Supreme Judicial Court of Massachusetts, shareholders of such a
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the trust. However, even if the Trust were held to be a
partnership, the possibility of its shareholders incurring financial loss for
that reason appears remote because the Declaration of Trust contains an express
disclaimer of shareholder liability for the Trust's obligations and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by the Trust or the trustees, and because
the Declaration of Trust provides for indemnification out of Trust property for
any shareholder held personally liable for the obligations of the Trust.
INVESTMENT ADVISORY SERVICES
As described above, the Board monitors the activities of those entities that
provide investment management and subadvisory services to the Funds. TAMIC and
SSBC, both referred at times as the "advisers", provide investment supervision
to certain Funds described herein in accordance with each Fund's investment
objectives, policies and restrictions. The advisers' responsibilities generally
include the following:
(1) engaging the services of one or more firms to serve as
investment adviser to the Funds;
(2) reviewing from time to time the investment policies and
restrictions of the Funds in light of the Fund's performance
and otherwise and after consultation with the Board,
recommending any appropriate changes to the Board;
(3) supervising the investment program prepared for the Funds by
the subadviser;
(4) monitoring, on a continuing basis, the performance of the
Fund's securities;
(5) arranging for the provision of such economic and statistical
data as the advisers shall determine or as may be requested by
the Board; and
(6) providing the Board with such information concerning important
economic and political developments as the advisers deem
appropriate or as the Board requests.
39
<PAGE> 115
TAMIC
TAMIC is a registered investment adviser which has provided investment advisory
services since its incorporation in 1978. TAMIC is an indirect wholly owned
subsidiary of Citigroup Inc., and its principal offices are located at One Tower
Square, Hartford, Connecticut, 06183. TAMIC also provides investment advice to
individual and pooled pension and profit-sharing accounts and non-affiliated
insurance companies.
For serving as investment adviser to the Trust, TAMIC receives a fee, equal to
the average daily net asset of each of the following Funds. Investment advisory
fees are computed daily and are paid monthly, (except for the Zero Coupon Bond
Fund Portfolios, which are paid weekly):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
ADVISORY FEE
PAID TO TAMIC SUBADVISORY FEE
% OF AVERAGE DAILY PAID BY TAMIC
FUND NET ASSETS TO SUBADVISERS EXPENSE CAP
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Convertible Bond 0.60% N/A 0.80%
- ---------------------------------------------------------------------------------------------------------------------
Disciplined Mid Cap Stock 0.70% 0.35% 0.95%
- ---------------------------------------------------------------------------------------------------------------------
Disciplined Small Cap Stock 0.80% 0.40% 1.00%
- ---------------------------------------------------------------------------------------------------------------------
Equity Income 0.75% 0.45% 0.95%
- ---------------------------------------------------------------------------------------------------------------------
Federated High Yield 0.65% 0.40% 0.95%
- ---------------------------------------------------------------------------------------------------------------------
Federated Stock 0.625% 0.375% 0.95%
- ---------------------------------------------------------------------------------------------------------------------
Jurika & Voyles Core Equity 0.75% 0.375% 1.00%
- ---------------------------------------------------------------------------------------------------------------------
Large Cap 0.75% 0.45% 0.95%
- ---------------------------------------------------------------------------------------------------------------------
Lazard International Stock 0.825% 0.475% 1.25%
- ---------------------------------------------------------------------------------------------------------------------
MFS Emerging Growth 0.75% 0.375% 0.95%
- ---------------------------------------------------------------------------------------------------------------------
MFS Mid Cap Growth 0.80% 0.375% 1.00%
- ---------------------------------------------------------------------------------------------------------------------
MFS Research 0.80% 0.375% 1.00%
- ---------------------------------------------------------------------------------------------------------------------
NWQ Large Cap 0.75% 0.375% 1.00%
- ---------------------------------------------------------------------------------------------------------------------
Strategic Stock 0.60% 0.20% 0.90%
- ---------------------------------------------------------------------------------------------------------------------
Travelers Quality Bond 0.3233% N/A 0.75%
- ---------------------------------------------------------------------------------------------------------------------
U. S. Government Securities 0.3233% N/A 1.25%
- ---------------------------------------------------------------------------------------------------------------------
Zero Coupon Bond Fund (Series 2000) 0.10% N/A 0.15%
- ---------------------------------------------------------------------------------------------------------------------
Zero Coupon Bond Fund (Series 2005) 0.10% N/A 0.15%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE> 116
The investment advisory fees paid to TAMIC by each Fund during the last three
fiscal years were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
FUNDS 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Convertible Bond $ 14,036 $ * $ *
- ------------------------------------------------------------------------------------------------------------------
Disciplined Mid Cap Stock $ 75,088 $ 22,265 $ *
- ------------------------------------------------------------------------------------------------------------------
Disciplined Small Cap Stock $ 18,102 $ * $ *
- ------------------------------------------------------------------------------------------------------------------
Equity Income $385,866 $ 80,431 $ 8,203
- ------------------------------------------------------------------------------------------------------------------
Federated High Yield $185,665 $ 50,231 $ 11,448
- ------------------------------------------------------------------------------------------------------------------
Federated Stock $155,197 $ 46,078 $ 6,901
- ------------------------------------------------------------------------------------------------------------------
Jurika & Voyles Core Equity $ 16,506 $ * $ *
- ------------------------------------------------------------------------------------------------------------------
Large Cap $210,887 $ 44,240 $ 8,211
- ------------------------------------------------------------------------------------------------------------------
Lazard International Stock $246,573 $ 65,044 $ 13,997
- ------------------------------------------------------------------------------------------------------------------
MFS Emerging Growth $837,712 $287,384 $ 15,666
- ------------------------------------------------------------------------------------------------------------------
MFS Mid Cap Growth $ 41,903 $ * $ *
- ------------------------------------------------------------------------------------------------------------------
MFS Research $ 88,733 $ * $ *
- ------------------------------------------------------------------------------------------------------------------
NWQ Large Cap $ 20,050 $ * $ *
- ------------------------------------------------------------------------------------------------------------------
Strategic Stock $ 20,263 $ * $ *
- ------------------------------------------------------------------------------------------------------------------
Travelers Quality Bond $ 68,452 $ 20,799 $ 5,626
- ------------------------------------------------------------------------------------------------------------------
U.S. Government Securities $156,432 $ 86,779 $ 86,625
- ------------------------------------------------------------------------------------------------------------------
Zero Coupon Bond Fund (Series 2000) $ 1,833 $ 1,645 $ 1,335
- ------------------------------------------------------------------------------------------------------------------
Zero Coupon Bond Fund (Series 2005) $ 2,601 $ 2,066 $ 1,556
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* The Funds were not operational in those years.
SSBC FUND MANAGEMENT INC. (SSBC)
SSBC, an indirect wholly owned subsidiary of Citigroup Inc., furnishes
investment management and advisory services to Social Awareness Stock Portfolio
in accordance with the terms of an investment advisory agreement dated May 1,
1995, which was approved by shareholders at a meeting held on April 28, 1995.
For furnishing investment management and advisory services to the Fund, SSBC is
paid an annual fee at the rate set forth in the advisory fee schedule below.
The fee is computed daily and paid weekly.
41
<PAGE> 117
<TABLE>
<CAPTION>
ANNUAL MANAGEMENT FEE FUND'S AGGREGATE NET ASSET VALUE
<S> <C> <C>
0.65% of the first $ 50,000,000, plus
0.55% of the next $ 50,000,000, plus
0.45% of the next $100,000,000, plus
0.40% of amounts over $200,000,000.
</TABLE>
The total advisory fees paid to SSBC by Social Awareness Stock Portfolio for the
years ended December 31, 1996, 1997, and 1998 were $58,250, $104,002 and
$189,593, respectively.
Under a management agreement with the Fund, The Travelers has agreed to
reimburse the Fund for the amount by which its aggregate annual expenses,
including investment advisory fees but excluding brokerage commissions, interest
charges and taxes, exceed 1.25% of the Fund's average net assets for any year.
For the year ended December 31, 1998, the Fund received no reimbursement from
The Travelers.
SSBC also manages the day-to-day investment operations of Utilities Portfolio
under an investment advisory agreement approved by the Board. Under the
agreement, SSBC is responsible for furnishing or causing to be furnished to
Utilities Portfolio advice and assistance with respect to the acquisition,
holding or disposal of securities, and recommendations with respect to other
aspects and affairs of its portfolio. Utilities Portfolio pays SSBC an advisory
fee at the annual rate of 0.65% for its services as investment adviser. The fee
is computed daily and paid monthly.
The total advisory fees paid to SSBC by Utilities Portfolio for the years ended
December 31, 1996, 1997 and 1998 were $113,601, $116,989, and $168,378,
respectively.
Under a management agreement with the Fund, The Travelers has agreed to
reimburse the Fund for the amount by which its aggregate annual expenses,
including investment advisory fees but excluding brokerage commissions, interest
charges and taxes, exceed 1.25% of the Fund's average net assets for any year.
For the year ended December 31, 1998, the Fund received no reimbursement from
The Travelers.
MANAGEMENT OF SOCIAL AWARENESS STOCK AND UTILITIES PORTFOLIOS. Robert J. Brady
has serves as the portfolio manager to Social Awareness Stock Portfolio since
1994 and Utilities Portfolio since November of 1998. Mr. Brady is a Managing
Director and Portfolio Manager of SSBC. Mr. Brady is a Chartered Financial
Analyst.
INVESTMENT SUBADVISERS
Under the terms of investment subadvisory agreements, each subadviser provides
an investment program for the Funds. The subadvisers make all determinations
with respect to the purchase and sale of the portfolio securities (subject to
the terms and conditions of the particular Fund's investment objective,
policies, and restrictions and to the supervision of the Board and TAMIC) and
places, in the Fund's name, call orders for execution of the portfolio
transactions. In addition, Fidelity Management & Research Company ("FMR") and
Lazard Asset Management also are authorized to execute the orders. In the case
of the other subadvisers, TAMIC is responsible for executing the orders.
For services rendered to the Portfolios, each subadviser charges a fee to TAMIC.
No Fund pays any portion of a subadviser's fee, nor does a Fund have any
obligation or responsibility to do so.
SUBADVISER: FEDERATED INVESTMENT COUNSELING
FEDERATED HIGH YIELD PORTFOLIO, FEDERATED STOCK PORTFOLIO
Federated Investment Counseling ("Federated") a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the 1940
Act. It is a subsidiary of Federated Investors, Inc. All of the Class A (voting)
shares of Federated Investors, Inc. are owned by a trust, the trustees of which
are John F. Donahue, Chairman and Trustee of
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<PAGE> 118
Federated Investors, Inc., Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors, Inc.
Federated and other subsidiaries of Federated Investors, Inc. serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $139 billion as of December 31, 1998 invested
across more than 280 funds under management and/or administration by its
subsidiaries, as of December 31, 1998, Federated Investors, Inc. is one of the
largest mutual fund investment managers in the United States. With more than
1,900 employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide.
FEDERATED HIGH YIELD PORTFOLIO. Federated acts as subadviser for Federated High
Yield Portfolio under an investment subadvisory agreement between TAMIC and
Federated. In its capacity as subadviser, Federated continually conducts
investment research and supervision for the Fund and is responsible for the
purchase or sale of portfolio instruments, for which Federated receives an
annual fee from TAMIC.
Under the subadvisory agreement with TAMIC, Federated is paid an advisory fee at
the annual rate of 0.40% of the Fund's average daily net assets. The fee is
accrued daily and paid monthly. For the years ended December 31, 1996, 1997, and
1998, the subadvisory fees TAMIC paid Federated for the Federated High Yield
Portfolio were $7,045, $30,911, and $114,255, respectively.
MANAGEMENT OF THE FEDERATED HIGH YIELD PORTFOLIO. Mark E. Durbiano serves as the
portfolio manager to Federated High Yield Portfolio along with Constantine
Kartsonas. Mr. Durbiano joined Federated Investors in 1982 and has been a Senior
Vice President of a Federated affiliate since January of 1996. Mr. Durbiano is a
Chartered Financial Analyst.
Constantine Kartsonas, who also serves as portfolio manager, joined Federated
Investors in 1994 as an investment analyst. Mr. Kartsonas has been an Assistant
Vice President of the Fund's subadvisers since January 1997. Mr. Kartsonas is a
Chartered Financial Analyst.
FEDERATED STOCK PORTFOLIO. Federated also serves as subadviser to Federated
Stock Portfolio. Under a subadvisory agreement with TAMIC, Federated continually
conducts investment research and supervision for the Fund and is responsible for
the purchase or sale of portfolio instruments. Under the agreement, TAMIC pays
Federated a subadvisory fee at the annual rate of 0.375% of the Fund's average
daily net assets. The fee is accrued daily and paid monthly. For the years ended
December 31, 1996, 1997, and 1998, the subadvisory fees TAMIC paid Federated for
the Federated Stock Portfolio were $4,141, $27,647, and $93,118, respectively.
MANAGEMENT OF FEDERATED STOCK PORTFOLIO. Michael P. Donnelly serves as manager.
He joined Federated Investors in 1989 as an investment analyst and has been a
Vice President since 1994. Mr. Donnelly is a Chartered Financial Analyst.
SUBADVISER: FIDELITY MANAGEMENT & RESEARCH COMPANY
EQUITY INCOME PORTFOLIO
LARGE CAP PORTFOLIO
Fidelity Management & Research Company ("FMR") serves as the subadviser to
Equity Income and Large Cap Portfolios under a subadvisory agreement with TAMIC.
FMR is an investment adviser registered as such with the SEC. Its principal
office is located at 82 Devonshire Street, Boston, MA 02109-3614.
All of the stock of FMR is owned by FMR Corp., which was organized in 1972.
Through ownership of voting common stock and the execution of a shareholder's
voting agreement, Edward C. Johnson 3d, Johnson family members, and various
trusts for the benefit of the Johnson family form a controlling group with
respect to FMR Corp.
EQUITY INCOME PORTFOLIO. Under the agreement with TAMIC, FMR is paid a
subadvisory fee at the annual rate of 0.45% of the Fund's average daily net
assets. The fee is accrued daily and paid monthly. For the years ended December
31, 1996, 1997, and 1998, the subadvisory fees TAMIC paid FMR were $4,923,
$48,431, and $231,520, respectively.
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<PAGE> 119
MANAGEMENT OF EQUITY INCOME PORTFOLIO. Steve DuFour is portfolio manager of the
Equity Income Portfolio. He also manages the equity portion of Fidelity Balanced
Fund and serves a sector leader for the natural resources equity research group.
Mr. Dufour joined Fidelity in 1992.
LARGE CAP PORTFOLIO. FMR also serves as subadviser to the Large Cap Portfolio
under a subadvisory agreement with TAMIC. Under the agreement, FMR is paid a
subadvisory fee at the annual rate of 0.45% of the Fund's average daily net
assets. The fee is accrued daily and paid monthly. For the years ended December
31, 1996, 1997, and 1998, the subadvisory fees TAMIC paid FMR for Equity Income
Portfolio were $4,927, $26,651, and $126,532, respectively.
MANAGEMENT OF LARGE CAP PORTFOLIO. Karen Firestone is the manager of Large Cap
Portfolio. Ms. Firestone also manages mutual funds and other investment accounts
for Fidelity Management Trust Company. She joined Fidelity in 1983.
FMR SUBSUBADVISORY ARRANGEMENTS. FMR has subsubadvisory agreements with FMR U.K.
and FMR Far East. TAMIC is also a party to these agreements in its capacity as
investment adviser. These subsubadvisers provide FMR with investment research
and advice on issuers based outside the United States. Under the subsubadvisory
agreements, FMR pays FMR U.K. and FMR Far East fees equal to 110% of the costs
of providing these services.
The subsubadvisers may also provide investment management services. In return,
FMR pays FMR U.K. and FMR Far East a fee equal to 50% of its management fee rate
with respect to a Fund's investments that the subsubadviser manages on a
discretionary basis.
SECURITIES TRANSACTIONS. Equity Income and Large Cap Portfolios' subadviser is
authorized to use research services provided by and to place portfolio
transactions with brokerage firms that have provided assistance in the
distribution of Fund shares or shares of other funds advised by the subadviser
to the extent permitted by law. The subadviser may use research services
provided by and place transactions through its affiliates, Fidelity Brokerage
Services, Inc. (FBSI) and Fidelity Brokerage Services (FBS), subsidiaries of FMR
Corp., if the commissions are fair and reasonable and comparable to commissions
charged by non-affiliated, qualified brokerage firms for similar services.
Equity Income and Large Cap Portfolios' subadviser may allocate brokerage
transactions to broker-dealers who have entered into arrangements with the
subadviser under which the broker-dealer allocates a portion of the commissions
paid by either Fund toward payment of its expenses, such as transfer agent fees
or custodian fees. The transaction quality must, however, comply with the
requirements of Section 1l(a) of the Securities Act of 1934, as amended, which
prohibit members of national securities exchanges from executing exchange
transactions for accounts which they or their affiliates manage, unless certain
requirements are satisfied. Under the Section 11(a) requirements, the Board has
authorized FBSI to execute portfolio transactions on national securities
exchanges in accordance with approved procedures and applicable SEC rules.
SUBADVISER: JURIKA & VOYLES L.P.
JURIKA & VOYLES CORE EQUITY PORTFOLIO
Jurika & Voyles serves as investment subadviser to Jurika & Voyles Core Equity
Portfolio under a subadvisory agreement with TAMIC. Jurika & Voyles is a
professional investment management firm founded in 1983 by William K. Jurika and
Glenn C. Voyles. As of December 31, 1998, Jurika & Voyles had discretionary
management authority with respect to approximately $5 billion of assets for
various clients including corporations, pension plans, 401(k) plans, profit
sharing plans, trusts and estates, foundations and charitable endowments, and
high net worth individuals. The principal business address of the subadviser is
1999 Harrison Street, Suite 700, Oakland California 94612.
Jurika & Voyles is affiliated with Nvest L.P. ("Nvest"), a publicly traded
limited partnership affiliated with Metropolitan Life Insurance Company. Nvest
is a holding company for several investment management firms including Loomis,
Sayles & Company, L.P.; Reich & Tang Asset Management, L.P.; Copley Real Estate
Advisors, Inc.; Back Bay Advisors, L.P.; Harris Associates, L.P.; Vaughan,
Nelson, Scarborough & McConnell, L.P.; and Westpeak Investment Advisors, L.P.
(Nvest's subsidiaries) and an affiliated firm, Capital Growth Management Limited
Partnership.
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<PAGE> 120
Under the agreement, TAMIC pays Jurika & Voyles a subadvisory fee at the annual
rate of 0.375% of the Fund's average daily net assets. The fee is accrued daily
and paid monthly. Since the Portfolio was new, no subadvisory fees were paid in
1997. For the year ended December 31, 1998, the subadvisory fees TAMIC paid
Jurika & Voyles for Jurika & Voyles Core Equity Portfolio were $8,253.
MANAGEMENT OF JURIKA & VOYLES CORE EQUITY PORTFOLIO. Guy Elliffe and Mark Nuti
and are the portfolio managers for the Jurika & Voyles Core Equity Portfolio.
Mr. Elliffe, CFA is the Senior Investment Officer for Jurika & Voyles and
directs the research department and has primary research responsibilities for
financial stocks. He joined Jurika & Voyles in November of 1995. Before joining
Jurika & Voyles, he worked at National Mutual Funds Management as Managing
Director of Equities. He is a Chartered Financial Analyst.
Mr. Nuti, CFA, CPA, is a Vice President and portfolio manager concentrating his
efforts on Wrap-Fee portfolios. He joined Jurika & Voyles in March of 1996.
Prior to joining Jurika & Voyles, he was a Senior Investment Officer at USL
Capital Corporation, where managed leveraged loans, high yield bonds and price
placement transactions. Mr. Nuti also spent four years at KPMG LLP as a
Supervising Senior Accountant. He is also a Chartered Financial Analyst as well
as a Certified Public Accountant.
SUBADVISER: LAZARD ASSET MANAGEMENT
LAZARD INTERNATIONAL STOCK PORTFOLIO
Lazard Asset Management ("Lazard"), 30 Rockefeller Plaza, New York, New York
10112, has entered into an investment subadvisory agreement (the "Lazard
Subadvisory Agreement") with TAMIC to provide subadvisory services to Lazard
International Stock Portfolio. Under the Lazard Subadvisory Agreement, Lazard
regularly provides the Fund with investment research, advice and supervision and
continuously furnishes an investment program for the Fund consistent with its
investment objective and policies, including the purchase, retention and
disposition of securities.
Lazard is a division of Lazard Freres & Co. LLC ("Lazard Freres"), a New York
limited liability company, which is registered as an investment adviser with the
SEC and is a member of the New York, American and Midwest Stock Exchanges.
Lazard Freres provides its clients with a wide variety of investment banking,
brokerage and related services.
Lazard Freres performs such brokerage services in conformity with Rule 10f-3,
17a-7 and 17e-1 under the 1940 Act and procedures adopted by the Board.
TAMIC pays Lazard a subadvisory fee at the annual rate of 0.475% of the Fund's
average daily net asset value. The fee is accrued daily and paid monthly. For
the years ended December 31, 1996, 1997, and 1998, the subadvisory fees TAMIC
paid Lazard were $6,719, $37,450, and $141,966, respectively.
MANAGEMENT OF LAZARD INTERNATIONAL STOCK PORTFOLIO. Herbert W. Gullquist and
John R. Reinsberg are primarily responsible for the day-to-day management of the
Fund's assets. Mr. Gullquist, a Managing Director and Vice-Chairman of Lazard
Freres, is Lazard's Chief Investment Officer and has been with Lazard since
1982. He is responsible for monitoring all investment activity to ensure
adherence to Lazard's investment philosophy and guidelines. Mr. Reinsberg is a
Managing Director of Lazard Freres and has been with Lazard since 1991. He is
responsible for international/global equity management and overseeing the
day-to-day operations of Lazard's international equity investment team.
SUBADVISER: MASSACHUSETTS FINANCIAL SERVICES COMPANY ("MFS")
MFS EMERGING GROWTH PORTFOLIO
MFS MID CAP GROWTH PORTFOLIO
MFS RESEARCH PORTFOLIO
MFS, a registered investment adviser, along with its predecessor organizations
has provided investment advisory services since 1924. Its principal offices are
located at 500 Boylston Street, Boston, Massachusetts. MFS is America's oldest
mutual fund organization. MFS is a subsidiary of Sun Life of Canada (U.S.)
Financial Services Holding, Inc., which in turn is an indirect wholly owned
subsidiary of Sun Life Assurance Company of Canada ("Sun Life"). Net assets
under the MFS's management were approximately $102.9 billion on behalf of
approximately 3.8 million investor accounts as of
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<PAGE> 121
January 31, 1999. As of such date, the MFS organization managed approximately
$73.6 billion of assets invested in equity securities and approximately $24.6
billion of assets invested in fixed-income securities. Approximately $4.7
billion of the assets managed by MFS are invested in securities of foreign
issuers and non-U.S. dollar denominated securities of U.S. issuers.
MFS EMERGING GROWTH PORTFOLIO. For services as subadviser to MFS Emerging Growth
Portfolio, TAMIC pays MFS a subadvisory fee at an annual rate of 0.375% of the
Fund's average daily net asset value. The fee is accrued daily and paid monthly.
For the years ended December 31, 1996, 1997, and 1998, the subadvisory fees
TAMIC paid MFS for the MFS Emerging Growth Portfolio were $7,833, $143,692, and
$418,856, respectively.
MANAGEMENT OF MFS EMERGING GROWTH PORTFOLIO. John W. Ballen, President of MFS
and Chief Investment Officer, serves as the portfolio manager for MFS Emerging
Growth Portfolio. Mr. Ballen also serves as a portfolio manager to certain
retail mutual funds offered by MFS. He has acted in that capacity for MFS since
l986.
Toni Y. Shimura also is charged with portfolio management of the Fund. Ms.
Shimura, who joined MFS in 1987, has been an MFS Vice President - Investments
since 1992. She also has managed MFS Emerging Growth Series, part of MFS
Variable Insurance Trust(sm), since November of 1995.
MFS MID CAP GROWTH PORTFOLIO. MFS also serves as subadviser to MFS Mid Cap
Growth Portfolio since March 1998. TAMIC pays MFS a subadvisory fee at an annual
rate of 0.375% of the Fund's average daily net asset value. The fee is accrued
daily and paid monthly. MFS Mid Cap Portfolio paid no subadvisory fees in 1997.
For the year ended December 31, 1998, the subadvisory fees TAMIC paid MFS for
MFS Mid Cap Growth Portfolio were $19,642.
MANAGEMENT OF MFS MID CAP GROWTH PORTFOLIO. Mark Regan is the investment
professional responsible for the daily operations of MFS Mid Cap Growth
Portfolio. Mr. Regan is an MFS Senior Vice President and has been employed by
MFS as a portfolio manager since 1989.
MFS RESEARCH PORTFOLIO. MFS also serves as the subadviser to MFS Research
Portfolio. TAMIC pays MFS a subadvisory fee at an annual rate of 0.375% of the
Fund's average daily net asset value. The fee is accrued daily and paid monthly.
MFS Research Portfolio paid no subadvisory fees in 1997. For the year ended
December 31, 1998, the subadvisory fees TAMIC paid MFS for the MFS Research
Portfolio were $41,593.
MANAGEMENT OF MFS RESEARCH PORTFOLIO. MFS Research Portfolio is managed by a
committee of various equity research analysts employed by MFS.
SUBADVISER: NWQ INVESTMENT MANAGEMENT COMPANY
NWQ LARGE CAP PORTFOLIO
NWQ Investment Management Company ("NWQ") serves as subadviser for NWQ Large Cap
Portfolio. NWQ was founded in 1982 and is located at 2049 Century Park East, 4th
Floor, Los Angeles, California 90067. It is a wholly owned subsidiary of United
Asset Management and provides investment management services to institutional
clients and high net worth individuals. As of the December 31, 1998, NWQ had
over $8.1 billion in assets under management.
Under the agreement, TAMIC pays NWQ a subadvisory fee at the annual rate of
0.375% of the Fund's average daily net assets. The fee is accrued daily and paid
monthly. Since the Fund was new, no subadvisory fees were paid in 1997. For the
year ended December 31, 1998, the subadvisory fees TAMIC paid NWQ for NWQ Large
Cap Portfolio were $10,025.
MANAGEMENT OF NWQ LARGE CAP PORTFOLIO. An investment committee is responsible
for the investment process and decisions of NWQ Large Cap Portfolio. E.C. (Ted)
Friedel, CFA, is primarily responsible for the Fund's day-to-day management,
with the assistance of the investment committee. The committee comprises Mr.
Friedel, Jon D. Bosse, CFA; Justin T. Clifford, David A. Polak, CFA; Phyllis G.
Thomas, CFA. Mr. Friedel is a managing director of NWQ and portfolio manager
with twenty-seven years of investment experience. He is a member of the
Association for Investment Management and Research.
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SUBADVISER: THE TRAVELERS INVESTMENT MANAGEMENT COMPANY ("TIMCO")
DISCIPLINED MID CAP STOCK PORTFOLIO
DISCIPLINED SMALL CAP STOCK PORTFOLIO
STRATEGIC STOCK PORTFOLIO
TIMCO, located at One Tower Square, Hartford, CT 06183-2030, serves as the
investment subadviser to Disciplined Mid Cap Stock, Disciplined Small Cap Stock
and Strategic Stock Portfolios. A registered investment adviser since 1971,
TIMCO has been in the investment counseling business since 1967 and renders
investment advice to a number of institutional accounts as well as various
registered investment companies and insurance company separate accounts that had
total assets under management as of December 31, 1998 in excess of $2.8 billion.
Subject to the supervision and direction of the Board, TIMCO manages each Fund
in accordance with its stated investment objective, policies, and restrictions,
makes investment decisions for the Funds, places orders to purchase and sell
securities, and employs professional portfolio managers and securities analysts
who provide the Funds with research services.
DISCIPLINED MID CAP STOCK PORTFOLIO. Under the agreement for Disciplined Mid Cap
Stock Portfolio, TIMCO is paid a subadvisory fee, accrued daily and payable
monthly, at the annual rate of 0.35% of the Fund's average daily net assets. For
the period ended December 31, 1997 and the year ended December 31, 1998, the
subadvisory fees TAMIC paid TIMCO for Disciplined Mid Cap Stock Portfolio were
$11,132 and $37,544, respectively.
DISCIPLINED SMALL CAP STOCK PORTFOLIO. Under the agreement for Disciplined Small
Cap Stock Portfolio, TIMCO is paid a subadvisory fee, accrued daily and payable
monthly, at the annual rate of 0.40% of the Fund's average daily net assets.
Since the Portfolio was new, no subadvisory fees were paid in 1997. For the year
ended December 31, 1998, the subadvisory fees TAMIC paid TIMCO for Disciplined
Small Cap Stock Portfolio were $9,051.
STRATEGIC STOCK PORTFOLIO. Under the agreement, TIMCO is paid a subadvisory fee,
accrued daily and payable monthly, at the annual rate of 0.20% of the Strategic
Stock Portfolio's average daily net assets. Since the Fund was new, no
subadvisory fees were paid in 1997. For the period/year ended December 31, 1998,
the subadvisory fees TAMIC paid TIMCO for Strategic Stock Portfolio were $6,754.
MANAGEMENT OF DISCIPLINED MID CAP STOCK AND DISCIPLINED SMALL CAP STOCK
PORTFOLIOS. Sandip Bhagat, President and Chief Executive Officer of TIMCO, is
primarily responsible for the Funds' day-to-day operations, including making all
investment decisions. Mr. Bhagat has provided various investment advisory and
management services, research and trading since joining TIMCO in 1987. He is
also Managing Director and Head of Quantitative Equity Strategies at Smith
Barney Asset Management. Mr. Bhagat is also a member of the Research Committee
of the Institute for Quantitative Research in Finance, the Board of Directors of
Chicago Quantitative Alliance, the Association of Investment Management and
Research, the New York Society of Quantitative Analysts and the Hartford Society
of Financial Analysts. He is a Chartered Financial Analyst since 1991.
MANAGEMENT OF STRATEGIC STOCK PORTFOLIO. Philip Johanson is responsible for the
Fund's day-to-day operations, including making all investment decisions. He
was appointed a Vice President of TIMCO in April of 1999. He currently is a
Senior Vice President and Portfolio Manager of the Structured Portfolios Group
of Smith Barney Asset Management. From 1987 to 1996, he was Assistant Portfolio
Manager with Smith Barney Equity Management, during which time he performed both
fundamental and technical research primarily on large-cap growth stocks and
acquired an advanced knowledge of portfolio management applications.
THE ADVISORY AGREEMENTS
Under the terms of their respective advisory and subadvisory agreements, the
parties to such agreements shall:
(1) obtain and evaluate pertinent economic, statistical and
financial data and other information relevant to the Funds'
investment policies, affecting the economy generally and
individual companies or industries, the securities of which
are included in the investment portfolios or are under
consideration for inclusion therein;
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(2) be authorized to purchase supplemental research and other
services from brokers at an additional cost to the Funds;
(3) regularly furnish recommendations to the Board with respect to
an investment program for approval, modification or rejection
by the Board;
(4) take such steps as are necessary to implement the investment
programs approved by the Board; and
(5) regularly report to the Board with respect to implementation
of the approved investment programs and any other activities
in connection with the administration of the Funds' assets.
As required by the 1940 Act, each advisory and subadvisory agreement will
continue in effect for a period more than two years from the date of its
execution only so long as its continuance is specifically approved at least
annually: (1) by a vote of a majority of the Board, or (2) by a vote of a
majority of the particular Fund's outstanding voting securities. In addition,
and in either event, the terms of the advisory and subadvisory agreements must
be approved annually by a vote of a majority of the trustees who are not parties
to, or interested persons of any party to, an advisory or subadvisory agreement,
cast in person at a meeting called for the purpose of voting on such approval
and at which the Board is furnished such information as may be reasonably
necessary to evaluate the terms of the agreements. The advisory and subadvisory
agreements further provide that they will terminate automatically upon
assignment; may be amended only with prior approval of a majority of the
particular Fund's outstanding voting securities; may be terminated without the
payment of any penalty at any time upon sixty days' notice by the Board or by a
vote of a majority of the particular Fund's outstanding voting securities; and
may not be terminated by TAMIC without prior approval of a new investment
advisory agreement by a vote of a majority of the particular Fund's outstanding
voting securities.
REDEMPTIONS IN KIND
If conditions arise that would make it undesirable for a Fund to pay for all
redemptions in cash, the Fund may authorize payment to be made in portfolio
securities or other property.
The Trust, however, has obligated the Funds under the 1940 Act to redeem for
cash all shares presented to a Fund for redemption by any one shareholder in a
90-day period up to $250,000, or 1% of the Fund's net assets if that is less,
valued for this purpose as the securities are valued in computing the Fund's net
asset value per share. Shareholders receiving securities or other property on
redemption may realize a gain or loss for tax purposes and will incur any costs
of sale, including brokerage charges, as well as the associated inconveniences.
BROKERAGE
Subject to approval of the Board, the policy of TAMIC, TIMCO, Lazard, MFS,
Federated, FMR, NWQ, Jurika & Voyles and SSBC (collectively, the "advisers"), in
executing transactions in the Funds' portfolio securities, is to seek best
execution of orders at the most favorable prices. The determination of what may
constitute best execution and price in the execution of a securities transaction
by a broker involves a number of considerations, including, without limitation:
- - the overall direct net economic result to the Funds, involving both
price paid or received and any commissions and other cost paid;
- - the efficiency with which the transaction is effected;
- - the ability to effect the transaction at all where a large block is
involved;
- - the availability of the broker to stand ready to execute potentially
difficult transactions in the future; and
- - the financial strength and stability of the broker. Such considerations
are judgmental and are weighed by management in determining the overall
reasonableness of brokerage commissions paid. Subject to the foregoing,
one factor in the selection of brokers is the receipt of research
services, analyses and reports concerning issuers, industries,
securities, economic factors and trends, and other statistical and
factual information. Any such research and other statistical and
factual information provided by brokers to the Funds and the advisers
is considered to be in addition to and not in lieu of services required
to be performed by the advisers under their respective advisory
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agreements. The cost, value and specific application of such
information are indeterminable, and it is not practical to allocate
these costs, value or specific allocations among the Funds and other
clients of an adviser (namely, TAMIC, TIMCO, Lazard, MFS, Federated,
FMR, NWQ, Jurika & Voyles or SSBC). Accordingly, the advisers or their
other clients may indirectly benefit from the availability of such
information. This situation may create a conflict of interest for an
adviser. Similarly, the Funds may indirectly benefit from information
made available as a result of transactions for other clients of an
adviser.
Purchases and sales of bonds and money market instruments usually are principal
transactions and normally are purchased directly from the issuer or from the
underwriter or market maker for the securities. There usually are no brokerage
commissions paid for such purchases. Purchases from the underwriters include the
underwriting commission or concession, and purchases from dealers serving as
market makers include the spread between the bid and asked prices. Where
transactions are made in the over-the-counter market, the advisers generally
deal with primary market makers unless more favorable prices are otherwise
obtainable. Brokerage fees are incurred in connection with futures transactions,
and the Funds are required to deposit and maintain funds with brokers as margin
to guarantee performance of future obligations.
Each adviser or subadviser may follow a policy of considering the sale of Fund
shares of the Trust a factor in the selection of broker-dealers to execute
portfolio transactions, subject to the requirements of best execution described
above.
The advisers' policies with respect to brokerage are and will be reviewed by the
Board periodically. Because of the possibility of further regulatory
developments affecting the securities exchanges and brokerage practices
generally, the foregoing practices may be changed, modified or eliminated.
Because the purchase and sale of bonds is a principal transaction there are no
brokerage commissions to report for Funds that buy bonds.
BROKERAGE COMMISSIONS
The following chart lists the total brokerage commissions paid by each Fund
during the last three years, and the total amount paid to brokers providing
research services and the total commission amount paid to such brokers for the
year ended December 31, 1998. Also provided is the dollar amount and percentage
of brokerage commissions paid to affiliated brokerage firms that provided
research services:
FUNDS
<TABLE>
<CAPTION>
Total Portfolio
Transactions
Associated with
Brokers Providing Commission paid
Research to Such Brokers for
1998 1997 1996 Services in 1998 Research in 1998
-------- ------- ------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
Convertible Bond Portfolio $ 687 $ * $ * $ 0 $ 0
Disciplined Mid Cap Stock Portfolio $ 36,366 $12,415 $ * $ 0 $ 0
Disciplined Small Cap Stock Portfolio $ 15,275 $ * $ * $11,549,265 $10,781
Equity Income Portfolio $ 45,474 $10,045 $ 1,653 $76,723,363 $ 0
Federated High Yield Portfolio $ 162 $ * $ * $ 0 $ 0
Federated Stock Portfolio $ 39,535 $19,307 $ 3,416 $14,011,278 $16,166
Jurika & Voyles Core Equity Portfolio $ 6,837 $ * $ * $ 0 $ 0
Large Cap Portfolio $ 43,861 $ 4,263 $ 2,620 $72,294,817 $ 0
Lazard International Stock Portfolio $110,258 $34,726 $ 3,680 $12,909,961 $21,664
MFS Emerging Growth Portfolio $209,288 $97,918 $10,326 $ 0 $ 0
MFS Mid Cap Growth Portfolio $ 18,640 $ * $ * $ 0 $ 0
MFS Research Portfolio $ 37,238 $ * $ * $ 0 $ 0
NWQ Large Cap Portfolio $ 9,593 $ * $ * $ 0 $ 0
Strategic Stock Portfolio $ 5,354 $ * $ * $ 0 $ 0
</TABLE>
49
<PAGE> 125
FUNDS
<TABLE>
<CAPTION>
Total Portfolio
Transactions
Associated with
Brokers Providing Commission paid
Research to Such Brokers for
1998 1997 1996 Services in 1998 Research in 1998
-------- -------- -------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
Social Awareness Stock Portfolio $ 19,166 $ 12,571 $ 5,203 $202,895 $ 360
Travelers Quality Bond Portfolio $ 0 $ 0 $ 8,148 $ 0 $ 0
U.S. Government Securities Portfolio $ 0 $ 0 $ 0 $ 0 $ 0
Utilities Portfolio $ 0 $ 38,325 $ 26,559 $759,170 $ 1,350
Zero Coupon Bond Fund Portfolio (Series 2000) $ 0 $ 0 $ 0 $ 0 $ 0
Zero Coupon Bond Fund Portfolio (Series 2005) $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
* The Funds were not operational in those years.
No formula was used in placing such transactions, and no specific amount of
transactions was allocated for research services. Brokerage business placed with
brokers affiliated with any of the advisers or subadvisers during 1998 follows.
BROKERAGE BUSINESS PLACED WITH AFFILIATED BROKERS
<TABLE>
<CAPTION>
% of Fund's Aggregate
Dollar Amount of
Transactions Involving
$ Amount of % of Total Commission Per
Affiliated Broker Commission Paid Commission Paid Affiliated Broker
- ---------------------------- --------------- --------------- ----------------------
<S> <C> <C> <C>
DISCIPLINED MID CAP STOCK
Smith Barney $ 596.00 1.64% Less than 1%
DISCIPLINED SMALL CAP STOCK
Smith Barney $ 642.00 4.2% 4%
FEDERATED STOCK
Smith Barney Inc. $ 196.00 0.50% Less than 1%
MFS RESEARCH
Citibank $ 59.00 0.16% Less than 1%
</TABLE>
50
<PAGE> 126
PORTFOLIO TURNOVER RATE
Although certain Funds do not intend to invest for the purpose of seeking
short-term profits, a Fund's investment adviser or subadviser may sell its
securities whenever the adviser or subadviser believes it is appropriate to do
so in light of the Fund's investment objective, without regard to the length of
time a particular security may have been held.
The following table shows significant variations in the portfolio turnover rates
for the Funds for the past two years.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FUND 1997 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Convertible Bond N/A* 7%
- --------------------------------------------------------------------------------
Disciplined Mid Cap Stock 74% 109%
- --------------------------------------------------------------------------------
Disciplined Small Cap Stock N/A* 89%
- --------------------------------------------------------------------------------
Equity Income 52% 34%
- --------------------------------------------------------------------------------
Federated High Yield 43% 31%
- --------------------------------------------------------------------------------
Federated Stock 74% 31%
- --------------------------------------------------------------------------------
Jurika & Voyles Core Equity N/A* 26%
- --------------------------------------------------------------------------------
Large Cap 60% 112%
- --------------------------------------------------------------------------------
Lazard International Stock 22% 44%
- --------------------------------------------------------------------------------
MFS Emerging Growth 94% 77%
- --------------------------------------------------------------------------------
MFS Mid Cap Growth N/A* 100%
- --------------------------------------------------------------------------------
MFS Research N/A* 54%
- --------------------------------------------------------------------------------
NWQ Large Cap N/A* 2%
- --------------------------------------------------------------------------------
Social Awareness Stock 19% 14%
- --------------------------------------------------------------------------------
Strategic Stock N/A* 1%
- --------------------------------------------------------------------------------
Travelers Quality Bond 295% 364%
- --------------------------------------------------------------------------------
U.S. Government Securities 208% 349%
- --------------------------------------------------------------------------------
Utilities 68% 51%
- --------------------------------------------------------------------------------
Zero Coupon Bond Fund, 2000 29% 0%
- --------------------------------------------------------------------------------
Zero Coupon Bond Fund, 2005 9% 3%
- --------------------------------------------------------------------------------
</TABLE>
* Fund had not commenced operations in 1997.
51
<PAGE> 127
FUND ADMINISTRATION
The Trust, on behalf of all of the Funds, (except Equity Income and Large Cap
Portfolios) entered into an administrative services agreement during 1996,
whereby Travelers Insurance is responsible for each Fund's pricing and
bookkeeping services at an annualized rate of 0.06% of the Fund's daily net
assets. The Travelers Insurance Company at its expense may appoint a
subadministrator to perform these services. The subadministrator may be
affiliated with The Travelers Insurance Company. SSBC, an affiliate of Travelers
Insurance, has been appointed to serve in this capacity.
The administrative fees the Trust paid SSBC for each Fund during the last three
calendar years were:
<TABLE>
<CAPTION>
FUNDS 1998 1997 1996
------- ------- --------
<S> <C> <C> <C>
Convertible Bond $ 1,403 $ * $ *
Disciplined Mid Cap Stock $ 6,436 $ 1,907 $ *
Disciplined Small Cap Stock $ 1,358 $ * $ *
Federated High Yield $17,138 $ 4,637 $ 1,057
Federated Stock $14,899 $ 4,424 $ 662
Jurika & Voyles Core Equity $ 1,320 $ * $ *
Lazard International Stock $17,955 $ 4,730 $ 1,031
MFS Emerging Growth $67,017 $22,991 $ 1,253
MFS Mid Cap Growth $ 3,145 $ * $ *
MFS Research $ 6,655 $ * $ *
NWQ Large Cap $ 1,604 $ * $ *
Social Awareness Stock $17,501 $ 9,600 $23,155
Strategic Stock $ 2,026 $ * $ *
Travelers Quality Bond $12,704 $ 3,860 $ 1,043
U.S. Government Securities $28,818 $17,467 $24,429
Utilities $15,543 $ 9,580 $23,970
Zero Coupon Bond Fund (Series 2000) $ 1,103 $ 999 $ 0
Zero Coupon Bond Fund (Series 2005) $ 1,566 $ 1,243 $ 0
</TABLE>
* The Funds were not operational in those years.
The Trust, on behalf of Equity Income and Large Cap Portfolios entered into a
service agent agreement with Fidelity Service Company to provide pricing and
bookkeeping services to the two Funds at the annual rate of 0.06% of each Fund's
daily net assets under $500 million and 0.03% over $500 million. Each Fund pays
a minimum total annual fee of $60,000. For the period ended December 31, 1996
and the years ended December 31, 1997 and 1998, the fund administration fees for
Large Cap Portfolio were $20,052, $60,002, and $60,099, respectively and for
Equity Income Portfolio were $20,052, $60,008, and $60,174, respectively.
SHAREHOLDER RIGHTS
Fund shares are currently sold only to insurance company separate accounts in
connection with variable annuity and variable life insurance contracts issued by
the Travelers Insurance Company and its affiliates. Shares are not sold to the
general public. Fund shares are sold on a continuing basis, without a sales
charge, at the net asset value next computed after payment is made by the
insurance company to the Fund's custodian. However, separate accounts to which
shares are sold may impose sales and other charges, as described in the
appropriate contract prospectus.
The Trust currently issues 20 series of shares, each representing interests in a
Fund. Shareholders of each series participate equally in dividends and
distributions and have equal voting, liquidation and other rights. When issued
for the consideration described in the prospectus, shares are fully paid and
nonassessable by the Trust and have no preference, conversion, exchange or
preemptive rights.
52
<PAGE> 128
Shareholders are entitled to one vote for each full share owned and fractional
votes for fractional shares. Shares are redeemable, transferable and freely
assignable as collateral. There are no sinking fund provisions. (See the
accompanying separate account prospectus for a discussion of voting rights
applicable to purchasers of variable life insurance contracts.)
In the event that a Fund serves as an investment vehicle for both variable
annuity and variable life insurance contracts, an irreconcilable material
conflict may conceivably arise between contract owners of different separate
accounts investing in the Fund due to differences in tax treatment, management
of the Fund's investments, or other considerations. The Trust's Board will
monitor events in order to identify any material conflicts between variable
annuity contract owners and variable life insurance policy owners, and will
determine what action, if any, should be taken in the event of such a conflict.
TAX STATUS
GENERAL TAX INFORMATION
Each Fund qualified in its last taxable year as a regulated investment company
("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), and each Fund intends to so qualify as long as such qualification is in
the best interests of shareholders. If each Fund qualifies as a regulated
investment company and the Trust distributes substantially all of its net income
and gains to its shareholders (which it intends to do), then under the
provisions of Subchapter M, the Trust should have little or no income taxable to
it under the Code.
Each Fund must meet several requirements to maintain its status as a regulated
investment company. These requirements include the following: (1) at least 90%
of a Fund's gross income must be derived from dividends, interest, payments with
respect to securities loaned, and gains from the sale or disposition of
securities; and (2) at the close of each quarter of a Fund's taxable year, (a)
at least 50% of the value of the Fund's total assets must consist of cash, U.S.
government securities and other securities (no more than 5% of the value of the
Fund may consist of such other securities of any one issuer, and the Fund must
not hold more than 10% of the outstanding voting stock of any issuer), and (b) a
Fund must not invest more than 25% of the value of its total assets in the
securities of any one issuer (other than U.S. government securities).
In order to maintain the qualification of a Fund's status as a regulated
investment company, the investment adviser or subadviser may, in its business
judgment, restrict a Fund's ability to enter into stock index futures contracts
or options on such futures contracts or engage in short-term trading and
transactions in securities (including stock index futures contracts and options
on such futures contracts). For the same reason, the investment adviser or
subadviser may, in its business judgment, require a Fund to defer the closing
out of a contract beyond the time when it might otherwise be advantageous to do
so.
Each Fund also intends to comply with section 817(h) of the Code and the
regulations issued thereunder, which impose certain investment diversification
requirements on life insurance companies' separate accounts (such as the
accounts) that are used to fund benefits under variable life insurance and
variable annuity contracts. These requirements are in addition to the
requirements of subchapter M and of the 1940 Act, and may affect the securities
in which a Fund may invest. In order to comply with the current or future
requirements of section 817(h) (or related Code provisions), the Trust may be
required, e.g., to alter the investment objectives of one or more of the Funds.
No such change of investment objectives will take place without notice to the
shareholders of an affected Fund, the approval of a majority of the outstanding
voting shares, and the approval of the SEC, to the extent legally required.
TAXATION OF FOREIGN INVESTMENTS
Funds investing in foreign securities or currencies may be required to pay
withholding or other taxes to foreign governments. Foreign tax withholding from
dividends and interest, if any, is generally at a rate between 10% and 35%. The
investment yield of any Fund that invests in foreign securities or currencies is
reduced by these foreign taxes. Shareholders bear the cost of any foreign tax
withholding but may not be able to claim a foreign tax credit or deduction for
these foreign taxes. Funds investing in securities of passive foreign investment
companies may be subject to U.S. Federal income taxes and interest charges, and
the investment yield of a Fund making such investments is reduced by these taxes
and interest charges. Shareholders bear the cost of these taxes and interest
charges but may not be able to claim a deduction for these amounts.
53
<PAGE> 129
ADDITIONAL TAX CONSIDERATIONS
If a Fund failed to qualify as a regulated investment company, owners of
variable life insurance and annuity contracts based on the Fund: (1) might be
taxed currently on the investment earnings under their contracts and thereby
lose the benefit of tax deferral, and (2) the Fund might incur additional taxes.
In addition, if a Fund failed to comply with the diversification requirements of
section 817(h) of the Code and the regulations thereunder, owners of variable
life insurance and annuity contracts based on the Fund would be taxed on the
investment earnings under their contracts and thereby lose the benefit of tax
deferral. Accordingly, compliance with the above rules is carefully monitored by
the Funds' investment advisers or subadvisers and it is intended that each Fund
will comply with these rules as they exist or as they may be modified from time
to time. Compliance with the tax requirements described above may result in a
reduction in the return under a Fund, since, to comply with the above rules, the
investments utilized (and the time at which such investments are entered into
and closed out) may be different from what the Fund's investment adviser might
otherwise believe to be desirable.
It is not feasible to comment on all of the federal tax consequences concerning
the Funds. No further discussion of those consequences is included herein. For
information concerning the federal income tax consequences to the owners of
variable life insurance and annuity contracts, see the prospectuses for the
contracts.
The following is a partial list of publications that may be noted in the Funds'
sales literature or shareholder materials that contain articles describing
investment results or other data relative to one or more of the insurance
products that purchase Fund shares. Other publications may also be cited.
Across the Board Advertising Age
American Banker Barron's
Best's Review Broker World
Business Insurance Business Month
Business Week Changing Times
Consumer Reports The Economist
Financial Planning Financial World
Forbes Fortune
Inc. Institutional Investor
Insurance Forum Insurance Sales
Insurance Week Journal of Accountancy
Journal of the American Society of CLU & ChFC Journal of Commerce
Life Insurance Selling Life Association News
Manager's Magazine MarketFacts
Money Morningstar, Inc.
National Underwriter Nation's Business
New Choices (formerly 50 Plus) The New York Times
Pensions & Investments Pension World
Rough Notes Round the Table
U.S. Banker VARDs
The Wall Street Journal Working Woman
54
<PAGE> 130
FINANCIAL STATEMENTS
Each Fund's fiscal year end is December 31st. Financial statements for the
Funds' annual and semi-annual periods will be distributed to shareholders of
record. The financial statements of the Registrant and the Report of Independent
Accountants are contained in the Fund's Annual Report, which is incorporated in
the Statement of Additional Information by reference.
KPMG LLP, 345 Park Avenue, New York, NY 10154 is the independent auditor for all
the Funds except Large Cap and Equity Income Portfolios. The financial
statements for the Funds have been examined and audited by KPMG LLP for the
fiscal year ending December 31, 1998.
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110, is
the independent auditors for Large Cap and Equity Income Portfolios. The
financial statements for these two Funds have been audited by
PricewaterhouseCoopers LLP, for the fiscal year ending December 31, 1998.
ADDITIONAL INFORMATION
On April 1, 1999, the Travelers Insurance Company and its affiliates owned 100%
of the Trust's outstanding shares. The Travelers Insurance Company is a stock
insurance company chartered in 1864 in Connecticut and continuously engaged in
the insurance business since that time. It is a wholly owned subsidiary of The
Travelers Insurance Group Inc., which is indirectly owned, through a wholly
owned subsidiary, by Citigroup Inc., a bank holding company. The Company's Home
Office is located at One Tower Square, Hartford, Connecticut 06183, telephone
number 860-277-0111.
First Data Investor Services Group, Inc., 53 State Street, Boston, MA, 02109
serves as transfer agent and dividend disbursing agent for all of the Funds
except Large Cap and Equity Income Portfolios, for which Fidelity Investment
Institutional Operations Company, Inc. ("FIIOC"), 82 Devonshire Street, Boston,
MA 02109 acts as transfer agent and dividend disbursing agent.
PNC Bank NA, 200 Stevens Drive, Lester, PA, 19113 and Morgan Stanley Trust
Company, One Pierrepont Plaza, Brooklyn, NY 11201 serve as the custodians of all
securities and cash of all the Funds except Lazard, Large Cap and Equity Income
Portfolios. For Large Cap and Equity Income Portfolios, Brown Brothers Harriman
and Co. serves as the custodian. For Lazard International Stock Portfolio, the
custodian is Chase Manhattan Bank, N.A., Chase MetroTech Center, Brooklyn, New
York 11245.
Except as otherwise stated in its prospectus or as required by law, the Series
Trust reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
No dealer, salesman or other person is authorized to give any information or to
make any representation not contained in the Series Trust's prospectus, this SAI
or any supplemental sales literature issued by the Series Trust, and no person
is entitled to rely on any information or representation not contained therein.
The Trust's prospectuses and this SAI omit certain information contained in the
Trust's registration statement filed with the Securities and Exchange Commission
that may be obtained from the Commission's principal office in Washington, D.C.
upon payment of the fee prescribed by the Rules and Regulations promulgated by
the Commission. Otherwise, investors may obtain the Trust's registration
statement for free by accessing the SEC's website at http://www.sec.gov.
55
<PAGE> 131
APPENDIX
COMMERCIAL PAPER RATINGS
The Fund's investments in commercial paper are limited to those rated A-1 or A-2
by S&P or PRIME-1 or PRIME-2 by Moody's. These ratings and other money market
instruments are described as follows.
Commercial paper rated A-1 by S&P has the following characteristics: liquidity
ratios are adequate to meet cash requirements. The issuer's long-term senior
debt is rated A or better, although in some cases BBB credits may be allowed.
The issuer has access to at least two additional channels of borrowing. Basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances. Typically, the issuer's industry is well established and the
issuer has a strong position within the industry.
Commercial paper rated A-2 by S&P indicates that capacity for timely payment is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated A-1.
Commercial paper rated PRIME-1 is the highest commercial paper rating assigned
by Moody's. Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public
preparations to meet such obligations. Relative strength or weakness of the
above factors determines how the issuer's commercial paper is rated within
various categories.
Commercial paper rated PRIME-2 has a strong capacity for repayment of short-term
promissory obligations.
COMMON AND PREFERRED STOCK RATINGS
MOODY'S COMMON STOCK RATINGS
Moody's presents a concise statement of the important characteristics of a
company and an evaluation of the grade (quality) of its common stock. Data
presented include: (a) capsule stock information which reveals short and long
term growth and yield afforded by the indicated dividend, based on a recent
price; (b) a long term price chart which shows patterns of monthly stock price
movements and monthly trading volumes; (c) a breakdown of a company's capital
account which aids in determining the degree of conservatism or financial
leverage in a company's balance sheet; (d) interim earnings for the current year
to date, plus three previous years; (e) dividend information; (f) company
background; (g) recent corporate developments; (h) prospects for a company in
the immediate future and the next few years; and (i) a ten year comparative
statistical analysis.
This information provides investors with information on what a company does, how
it has performed in the past, how it is performing currently and what its future
performance prospects appear to be.
These characteristics are then evaluated and result in a grading, or indication
of quality. The grade is based on an analysis of each company's financial
strength, stability of earnings and record of dividend payments. Other
considerations include conservativeness of capitalization, depth and caliber of
management, accounting practices, technological capabilities and industry
position. Evaluation is represented by the following grades:
(1) High Grade
(2) Investment Grade
(3) Medium Grade
(4) Speculative Grade
56
<PAGE> 132
MOODY'S PREFERRED STOCK RATINGS
Preferred stock ratings and their definitions are as follows:
1. aaa: An issue that is rated aaa is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
2. aa: An issue that is rated aa is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance that earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
3. a: An issue that is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the aaa
and aa classification, earnings and asset protection are, nevertheless, expected
to be maintained at adequate levels.
4. baa: An issue that is rated baa is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
5. ba: An issue that is rated ba is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
6. b: An issue that is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
7. caa: An issue that is rated caa is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
8. ca: An issue that is rated ca is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payments.
9. c: This is the lowest rated class of preferred or preference stock. Issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating classification:
the modifier 1 indicates that the security ranks in the higher end of its
generic rating category, the modifier 2 indicates a midrange ranking, and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
CORPORATE BOND RATINGS
S&P CORPORATE BOND RATINGS
An S&P corporate bond rating is a current assessment of the creditworthiness of
an obligor, including obligors outside the United States, with respect to a
specific obligation. This assessment may take into consideration obligors such
as guarantors, insurers, or lessees. Ratings of foreign obligors do not take
into account currency exchange and related uncertainties. The ratings are based
on current information furnished by the issuer or obtained by S&P from other
sources it considers reliable.
The ratings are based, in varying degrees, on the following considerations:
a. Likelihood of default capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
b. Nature of and provisions of the obligation; and
c. Protection afforded by and relative position of the obligation in the event
of bankruptcy, reorganization or other
57
<PAGE> 133
arrangement under the laws of bankruptcy and other laws affecting creditors'
rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of credit quality,
ratings from AA to A may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories.
Bond ratings are as follows:
1. AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
2. AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
3. 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.
4. BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Although 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.
5. BB, B, CCC, CC and C - Debt rated BB, B, CCC, CC and 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 likely will have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
MOODY'S CORPORATE BOND RATINGS
Moody's ratings are as follows:
1. 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-edge". 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 not likely to impair the
fundamentally strong position of such issues.
2. 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. Aa bonds are rated lower than Aaa bonds because margins of
protection may not be as large as in Aaa securities, 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.
3. 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
which suggest a susceptibility to impairment sometime in the future.
4. Baa - Bonds that are rated Baa are considered as medium grade obligations,
that is, 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.
5. Ba - Bonds that 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.
6. B - Bonds that 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.
58
<PAGE> 134
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from AA through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a midrange ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
FITCH CORPORATE BOND RATINGS
Fitch ratings are as follows -
1. AAA - Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
2. AA - Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA." Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-l+."
3. A - Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
4. BBB - Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
5. BB - Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
6. B - Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflect the obligor's limited margin of safety
and the need for reasonable business and economic activity through out the life
of the issue.
7. CCC - Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
8. CC - Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
9. C - Bonds are in imminent default in payment of interest or principal.
10. DDD, DD AND D - Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
PLUS (+) MINUS (-) - Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA," "DDD," "DD," or "D" categories.
59
<PAGE> 135
STATEMENT OF ADDITIONAL INFORMATION
THE TRAVELERS SERIES TRUST
CONVERTIBLE BOND PORTFOLIO
DISCIPLINED MID CAP STOCK PORTFOLIO
DISCIPLINED SMALL CAP STOCK PORTFOLIO
EQUITY INCOME PORTFOLIO
FEDERATED HIGH YIELD PORTFOLIO
FEDERATED STOCK PORTFOLIO
JURIKA & VOYLES CORE EQUITY PORTFOLIO
LARGE CAP PORTFOLIO
LAZARD INTERNATIONAL STOCK PORTFOLIO
MFS EMERGING GROWTH PORTFOLIO
MFS MID CAP GROWTH PORTFOLIO
MFS RESEARCH PORTFOLIO
NWQ LARGE CAP PORTFOLIO
SOCIAL AWARENESS STOCK PORTFOLIO
STRATEGIC STOCK PORTFOLIO
TRAVELERS QUALITY BOND PORTFOLIO
U.S. GOVERNMENT SECURITIES PORTFOLIO
UTILITIES PORTFOLIO
ZERO COUPON BOND FUND PORTFOLIOS (SERIES 2000 AND 2005)
60
<PAGE> 136
PART C
OTHER INFORMATION
EXHIBITS
(a) Agreement and Declaration of Trust. (Incorporated herein by reference
to Exhibit 1 to Post-Effective Amendment No. 13 to the Registration
Statement on Form N-1A filed on April 3, 1996.)
(b) By-Laws. (Incorporated herein by reference to Exhibit 2 to
Post-Effective Amendment No. 13 to the Registration Statement on Form
N-1A, filed April 3, 1996.)
(d)(1) Investment Advisory Agreement between the U.S. Government Securities
Portfolio and Travelers Asset Management International Corporation.
(Incorporated herein by reference to Exhibit 5(a) to Post-Effective
Amendment No. 13 to the Registration Statement on Form N-1A, filed
April 3, 1996.)
(d)(2) Investment Advisory Agreement between the Social Awareness Stock
Portfolio and Mutual Management Corp. (formerly known as Smith Barney
Mutual Fund Management Inc.). (Incorporated herein by reference to
Exhibit 5(b) to Post-Effective Amendment No. 11 to the Registration
Statement on Form N-1A filed on April 25, 1995.)
(d)(3) Investment Advisory Agreement between the Utilities Portfolio and
Mutual Management Corp. (formerly known as Smith Barney Mutual Fund
Management Inc.). (Incorporated herein by reference to Exhibit 5(c) to
Post-Effective Amendment No. 11 to the Registration Statement on Form
N-1A filed on April 25, 1995.)
(d)(4) Investment Advisory Agreement between the Zero Coupon Bond Fund
Portfolios of The Trust and Travelers Asset Management International
Corporation. (Incorporated herein by reference to Exhibit 5(d) to
Post-Effective Amendment No. 12 to the Registration Statement on N-1A
filed on June 2, 1995.)
(d)(5) Investment Advisory Agreement between MFS Emerging Growth Portfolio of
the Registrant and Travelers Asset Management International
Corporation. (Incorporated herein by reference to Exhibit 5(e) to
Post-Effective Amendment No. 16 to the Registration Statement on N-1A
filed on July 31, 1996.)
(d)(6) Investment Advisory Agreement between Federated High Yield Portfolio of
the Registrant and Travelers Asset Management International
Corporation. (Incorporated herein by reference to Exhibit 5(f) to
Post-Effective Amendment No. 16 to the Registration Statement on N-1A
filed on July 31, 1996.)
(d)(7) Investment Advisory Agreement between Federated Stock Portfolio of the
Registrant and Travelers Asset Management International Corporation.
(Incorporated herein by reference to Exhibit 5(g) to Post-Effective
Amendment No. 16 to the Registration Statement on N-1A filed on July
31, 1996.)
(d)(8) Investment Advisory Agreement between Lazard International Stock
Portfolio of the Registrant and Travelers Asset Management
International Corporation. (Incorporated herein by reference to Exhibit
5(h) to Post-Effective Amendment No. 16 to the Registration Statement
on N-1A filed on July 31, 1996.)
(d)(9) Investment Advisory Agreement between Large Cap Portfolio of the
Registrant and Travelers Asset Management International Corporation.
(Incorporated herein by reference to Exhibit
<PAGE> 137
5(i) to Post-Effective Amendment No. 16 to the Registration Statement
on N-1A filed on July 31, 1996.)
(d)(10) Investment Advisory Agreement between Equity Income Portfolio of the
Registrant and Travelers Asset Management International Corporation.
(Incorporated herein by reference to Exhibit 5(j) to Post-Effective
Amendment No. 16 to the Registration Statement on N-1A filed on July
31, 1996.)
(d)(11) Investment Advisory Agreement between Travelers Quality Bond Portfolio
of the Registrant and Travelers Asset Management International
Corporation. (Incorporated herein by reference to Exhibit 5(k) to
Post-Effective Amendment No. 16 to the Registration Statement on N-1A
filed on July 31, 1996.)
(d)(12) Sub-Advisory Agreement between Travelers Asset Management International
Corporation and Massachusetts Financial Services Company as Subadviser
to MFS Emerging Growth Portfolio. (Incorporated herein by reference to
Exhibit 5(l) to Post-Effective Amendment No. 16 to the Registration
Statement on N-1A filed on July 31, 1996.)
(d)(13) Sub-Advisory Agreement between Travelers Asset Management International
Corporation and Federated Investment Counseling as Subadviser to
Federated High Yield Portfolio. Incorporated herein by reference to
Exhibit 5(m) to Post-Effective Amendment No. 16 to the Registration
Statement on N-1A filed on July 31, 1996.)
(d)(14) Sub-Advisory Agreement between Travelers Asset Management International
Corporation and Federated Investment Counseling as Subadviser to
Federated Stock Portfolio. (Incorporated herein by reference to Exhibit
5(n) to Post-Effective Amendment No. 16 to the Registration Statement
on N-1A filed on July 31, 1996.)
(d)(15) Sub-Advisory Agreement between Travelers Asset Management International
Corporation and Lazard Freres Asset Management as Subadviser to Lazard
International Stock Portfolio. (Incorporated herein by reference to
Exhibit 5(o) to Post-Effective Amendment No. 16 to the Registration
Statement on N-1A filed on July 31, 1996.)
(d)(16) Sub-Advisory Agreement between Travelers Asset Management International
Corporation and Fidelity Management & Research Company as Subadviser to
Equity Income Portfolio and Large Cap Portfolio. (Incorporated herein
by reference to Exhibit 5(p) to Post-Effective Amendment No. 16 to the
Registration Statement on N-1A filed on July 31, 1996.)
(d)(17) Sub-Subadvisory Agreement between Fidelity Management & Research
Company and Fidelity Management & Research (U.K.) Inc. (Incorporated
herein by reference to Exhibit 5(q) to Post-Effective Amendment No. 16
to the Registration Statement on N-1A filed on July 31, 1996.)
(d)(18) Sub-Subadvisory Agreement between Fidelity Management & Research
Company and Fidelity Management & Research (Far East) Inc.
(Incorporated herein by reference to Exhibit 5(r) to Post-Effective
Amendment No. 16 to the Registration Statement on N-1A filed on July
31, 1996.)
(d)(19) Investment Advisory Agreement between The Mid Cap Disciplined Equity
Fund of the Registrant and Travelers Asset Management International
Corporation. (Incorporated herein by reference to Exhibit 5(s) to
Post-Effective Amendment No. 17 to the Registration Statement on N-1A
filed on October 31, 1996.)
(d)(20) Sub-Advisory Agreement between Travelers Asset Management International
Corporation and The Travelers Investment Management Company, as
Subadviser to the Mid-Cap
<PAGE> 138
Disciplined Equity Fund. (Incorporated herein by reference to Exhibit
5(t) to Post-Effective Amendment No. 17 to the Registration Statement
on N-1A filed on October 31, 1996.)
(d)(21) Investment Advisory Agreement between Travelers Asset Management
International Corporation and the MFS Mid Cap Growth Portfolio of the
Registrant. (Incorporated herein by reference to Exhibit 5(u) to
Post-Effective Amendment No. 21 to the Registration Statement on Form
N-1A filed on October 27, 1997.)
(d)(22) Sub-Advisory Agreement between Travelers Asset Management International
Corporation and Massachusetts Financial Services Corporation, as
Subadviser for MFS Mid Cap Growth Portfolio. (Incorporated herein by
reference to Exhibit 5(v) to Post-Effective Amendment No. 21 to the
Registration Statement on Form N-1A filed on October 27, 1997.)
(d)(23) Investment Advisory Agreement between Travelers Asset Management
International Corporation and the MFS Research Portfolio of the
Registrant. (Incorporated herein by reference to Exhibit 5(w) to
Post-Effective Amendment No. 21 to the Registration Statement on Form
N-1A filed on October 27, 1997.)
(d)(24) Sub-Advisory Agreement between Travelers Asset Management International
Corporation and Massachusetts Financial Service Corporation, as
Subadviser for MFS Research Portfolio. (Incorporated herein by
reference to Exhibit 5(x) to Post-Effective Amendment No. 21 to the
Registration Statement on Form N-1A filed on October 27, 1997.)
(d)(25) Form of Investment Advisory Agreement between Travelers Asset
Management International Corporation and the NWQ Large Cap Portfolio of
the Registrant. (Incorporated herein by reference to Exhibit 5(y) to
Post-Effective Amendment No. 23 to the Registration Statement on Form
N-1A filed on April 23, 1998.)
(d)(26) Form of Sub-Advisory Agreement between Travelers Asset Management
International Corporation and NWQ Investment Management Company, as
Subadviser for the NWQ Large Cap Portfolio. (Incorporated herein by
reference to Exhibit 5(z) to Post-Effective Amendment No. 23 to the
Registration Statement on Form N-1A filed on April 23, 1998.)
(d)(27) Form of Investment Advisory Agreement between Travelers Asset
Management International Corporation and the Jurika & Voyles Core
Equity Portfolio of the Registrant. (Incorporated herein by reference
to Exhibit 5(aa) to Post-Effective Amendment No. 23 to the Registration
Statement on Form N-1A filed on April 23, 1998.)
(d)(28) Form of Sub-Advisory Agreement between Travelers Asset Management
International Corporation and Jurika & Voyles Fund Group, as Subadviser
for the Jurika & Voyles All Cap Portfolio. (Incorporated herein by
reference to Exhibit 5(bb) to Post-Effective Amendment No. 23 to the
Registration Statement on Form N-1A filed on April 23, 1998.)
(d)(29) Form of Investment Advisory Agreement between Travelers Asset
Management International Corporation and the Disciplined Small Cap
Stock Portfolio of the Registrant. (Incorporated herein by reference to
Exhibit 5(cc) to Post-Effective Amendment No. 23 to the Registration
Statement on Form N-1A filed on April 23, 1998.)
(d)(30) Form of Sub-Advisory Agreement between Travelers Asset Management
International Corporation and The Travelers Investment Management
Company, as Subadviser for the Disciplined Small Cap Stock Portfolio.
(Incorporated herein by reference to Exhibit 5(dd) to Post-Effective
Amendment No. 23 to the Registration Statement on Form N-1A filed on
April 23, 1998.)
(d)(31) Form of Investment Advisory Agreement between Travelers Asset
Management International Corporation and the Strategic Stock Portfolio
of the Registrant. (Incorporated herein by
<PAGE> 139
reference to Exhibit 5(ee) to Post-Effective Amendment No. 23 to the
Registration Statement on Form N-1A filed on April 23, 1998.)
(d)(32) Form of Sub-Advisory Agreement between Travelers Asset Management
International Corporation and Travelers Investment Adviser, as
Subadviser for the Strategic Stock Portfolio. (Incorporated herein by
reference to Exhibit 5(ff) to Post-Effective Amendment No. 23 to the
Registration Statement on Form N-1A filed on April 23, 1998.)
(d)(33) Form of Investment Advisory Agreement between Travelers Asset
Management International Corporation and the Convertible Bond Portfolio
of the Registrant. (Incorporated herein by reference to Exhibit 5(gg)
to Post-Effective Amendment No. 23 to the Registration Statement on
Form N-1A filed on April 23, 1998.)
(g)(1) Custody Agreement between the Registrant and Chase Manhattan Bank,
N.A., Brooklyn, New York. (Incorporated herein by reference to Exhibit
8(a) to Post-Effective Amendment No. 19 to the Registration Statement
on Form N-1A filed on April 21, 1997.)
(g)(2) Custody Agreement between the Registrant and PNC Bank. (Incorporated
herein by reference to Exhibit 8(b) to Post-Effective Amendment No. 16
to the Registration Statement on Form N-1A filed on July 31, 1996.)
(g)(3) Custody Agreement between the Registrant and Bank of New York.
(Incorporated herein by reference to Exhibit 8(c) to Post-Effective
Amendment No. 16 to the Registration Statement on Form N-1A filed on
July 31, 1996.)
(g)(4) Form of Subcustody Agreement between Morgan Stanley Trust Company and
Subcustodians. (Incorporated herein by reference to Exhibit 8(d) to
Post-Effective Amendment No. 23 to the Registration Statement on Form
N-1A filed on April 23, 1998.)
(g)(5) Custody Agreement between the Registrant and Brown Brothers Harriman &
Co. (Incorporated herein by reference to Exhibit 8(e) to Post-Effective
Amendment No. 16 to the Registration Statement on Form N-1A filed on
July 31, 1996.)
(h)(1) Transfer and Recordkeeping Agreement between the Registrant and The
Travelers Insurance Company. (Incorporated herein by reference to
Exhibit 9 to Post-Effective Amendment No. 13 to the Registration
Statement on Form N-1A, filed April 3, 1996.)
(h)(2) Amendment to Transfer and Recordkeeping Agreement between the
Registrant and The Travelers Insurance Company. (Incorporated herein by
reference to Exhibit 9(b) to Post-Effective Amendment No. 16 to the
Registration Statement on Form N-1A filed on July 31, 1996.)
(h)(3) Transfer Agent Agreement between Fidelity Investments Institutional
Operations Company and the Equity Income Portfolio and Large Cap
Portfolio of the Registrant. (Incorporated herein by reference to
Exhibit 9(c) to Post-Effective Amendment No. 16 to the Registration
Statement on Form N-1A filed on July 31, 1996.)
(h)(4) Administrative Services Agreement between the Registrant and The
Travelers Insurance Company. (Incorporated herein by reference to
Exhibit 9(d) to Post-Effective Amendment No. 16 to the Registration
Statement on Form N-1A filed on July 31, 1996.) Amendments No. 1, 2, 3
and 4 to the Administrative Services Agreement between the Registrant
and The Travelers Insurance Company. (Incorporated herein by reference
to Exhibit 9(d) to Post-Effective Amendment No. 22 to the Registration
Statement on Form N-1A filed on February 12, 1998.)
<PAGE> 140
(h)(5) Service Agent Agreement between Fidelity Service Company and the Equity
Income Portfolio and Large Cap Portfolio of the Registrant.
(Incorporated herein by reference to Exhibit 9(e) to Post-Effective
Amendment No. 16 to the Registration Statement on Form N-1A filed on
July 31, 1996.)
(h)(6) Participation Agreement between the Registrant and The Travelers
Insurance Company. (Incorporated herein by reference to Exhibit 9(f) to
Post-Effective Amendment No. 19 to the Registration Statement on Form
N-1A filed on April 21, 1997.)
(h)(7) Form of Transfer Agency and Registrar Agreement between the Trust and
First Data Investor Services Group, Inc. (Incorporated herein by
reference to Exhibit 9(g) to Post-Effective Amendment No. 23 to the
Registration Statement on Form N-1A filed on April 23, 1998.)
(i) Opinion and Consent of Counsel. (Incorporated herein by reference to
the Registrant's most recent Rule 24f-2 Notice filing on March 25,
1998.)
(j)(1) Consent of KPMG LLP, Independent Certified Public Accountants.
(j)(2) Consent of PricewaterhouseCoopers LLP, Independent Accountants.
(j)(3) Powers of Attorney authorizing Ernest J. Wright, Secretary or Kathleen
A. McGah, Assistant Secretary as signatory for Heath B. McLendon,
Knight Edwards, Robert E. McGill III, Lewis Mandell, Frances M. Hawk
and Ian R. Stuart. (Incorporated herein by reference to Exhibit 11(b)
to Post-Effective Amendment No. 13 to the Registration Statement on
Form N-1A, filed April 3, 1996.)
(j)(4) Power of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as
signatory for Lewis E. Daidone. (incorporated herein by reference to
Exhibit 11 to Post-Effective Amendment No. 18 to the Registration
Statement on Form N-1A filed on February 24, 1997.)
(n) Financial Data Schedule.
Item 24. Persons Controlled By or Under Common Control With the Registrant
Not Applicable.
Item 25. Indemnification
Provisions for the indemnification of the Series Trust's Trustees and officers
are contained in and are incorporated by reference to the Series Trust's
Declaration of Trust, which was filed with Post-Effective Amendment No. 13 to
this Registration Statement as Exhibit 1.
Rule 484 Undertaking
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE> 141
Item 26. Business and Other Connections of Investment Advisers
U.S. GOVERNMENT SECURITIES PORTFOLIO
ZERO COUPON BOND PORTFOLIOS (SERIES 2000, 2005)
LARGE CAP PORTFOLIO
EQUITY INCOME PORTFOLIO
TRAVELERS QUALITY BOND PORTFOLIO
LAZARD INTERNATIONAL STOCK PORTFOLIO
MFS EMERGING GROWTH PORTFOLIO
MFS MID CAP GROWTH PORTFOLIO
MFS RESEARCH PORTFOLIO
FEDERATED HIGH YIELD PORTFOLIO
FEDERATED STOCK PORTFOLIO
DISCIPLINED MID CAP STOCK PORTFOLIO
DISCIPLINED SMALL CAP STOCK PORTFOLIO
NWQ LARGE CAP PORTFOLIO
JURIKA & VOYLES ALL CAP PORTFOLIO
STRATEGIC STOCK PORTFOLIO
CONVERTIBLE BOND PORTFOLIO
Officers and Directors of Travelers Asset Management International Corporation
(TAMIC), the Investment Adviser for the above Portfolios of The Travelers Series
Trust, are set forth in the following table:
<TABLE>
<CAPTION>
Name Position with TAMIC Travelers Investment Group*
- ---- ------------------- ---------------------------
<S> <C> <C>
Marc P. Weill Director and Chairman Executive President
Chief Investment Officer
David A. Tyson Director, President and Executive Vice President
Chief Investment Officer
Joseph E. Rueli, Jr. Director, Senior Vice President Senior Vice President
and Chief Financial Officer and Chief Financial Officer
F. Denney Voss Director and Senior Vice Senior Vice President
President Executive Vice President
John R. Britt Director and Secretary Senior Counsel
Gene Collins Senior Vice President Senior Vice President
Thomas Hajdukiewicz Senior Vice President Senior Vice President
Glenn N. Marchak Senior Vice President Senior Vice President
Joseph M. Mullally Senior Vice President Senior Vice President
Kathryn D. Karlic Senior Vice President Vice President
David R. Miller Senior Vice President First Vice President
Jordan M. Stitzer Senior Vice President Senior Vice President
David Amaral Vice President Trader
John R. Calcagni Vice President First Vice President
Allen R. Cantrell Vice President Vice President
A. William Carnduff Vice President Vice President
Angela Pellegrini Degis Vice President Vice President
Craig Farnsworth Vice President First Vice President
Bruce E. Fox Vice President Vice President
Carl Franzetti Vice President First Vice President
</TABLE>
<PAGE> 142
<TABLE>
<S> <C> <C>
Kothandaraman Ganesh Vice President Vice President
John F. Gilsenan Vice President First Vice President
Kimerly M. Polak Guerrero Vice President Vice President
John F. Green Vice President Vice President
Edward Hinchliffe III Vice President and Cashier Vice President
Richard E. John Vice President Vice President
Kurt Lin Vice President Vice President
David R. Martin Vice President Vice President
Paul A. Mataras Vice President Vice President
Emil J. Molinaro Vice President First Vice President
John W. Petchler Vice President First Vice President
Steven A. Rosen Vice President Vice President
Andrew Sanford Vice President Vice President
Eric L. Sappenfield Vice President Trader
Charles H. Silverstein Vice President Vice President
Robert Simmons Vice President Vice President
Joel Strauch Vice President Vice President
Teresa M. Torrey Vice President First Vice President
Pamela D. Westmoreland Vice President Vice President
William M. Gardner Assistant Vice President Private Placement Officer
Jeremy C. Hughes Assistant Vice President Trader
Matthew J. McInerny Assistant Vice President Private Placement Officer
Lisa A. Thomas Assistant Vice President Assistant Vice President
William H. White Treasurer Vice President and Treasurer
Charles B. Chamberlain Assistant Treasurer Assistant Treasurer
George M. Quaggin, Jr. Assistant Treasurer Assistant Treasurer
Marla A. Berman Assistant Secretary Assistant General Counsel
Andrew Feldman Assistant Secretary Senior Counsel, Corporate Staff
Millie Kim Assistant Secretary General Counsel
Patricia A. Uzzel Compliance Officer Assistant Vice President and
Investment Compliance Officer
Frank J. Fazzina Controller Vice Presient
</TABLE>
* Positions held with Travelers Investment Group Inc., 388 Greenwich
Street, New York, N.Y.
<PAGE> 143
SOCIAL AWARENESS STOCK PORTFOLIO
UTILITIES PORTFOLIO
Officers and Directors of SSBC Fund Management Inc. ("SSBC) (f/k/a Mutual
Management Corp.), the Investment Adviser for the Social Awareness Stock
Portfolio and Utilities Portfolio of The Travelers Series Trust, are set forth
in the following table:
<TABLE>
<CAPTION>
Name Position with SSBC* Other Business
- ---- ------------------- --------------
<S> <C> <C>
Heath B. McLendon Chairman, President and Managing Director of Salomon
Chief Executive Officer Smith Barney; Director of certain investment companies
managed by affiliates of Salomon Smith Barney;
Director, President and Chief Executive Officer of
Travelers Investment Adviser, Inc. ("TIA")
Lewis E. Daidone Director and Senior Managing Director of Salomon
Vice President Smith Barney, Senior Vice President and
Treasurer of certain investment companies
managed by affiliates of Salomon Smith
Barney; Director and Senior Vice President
of TIA.
A. George Saks Director Managing Director and Special
Counsel of Salomon Smith Barney.
Michael J. Day Treasurer Managing Director of Salomon
Smith Barney.
Christina T. Sydor General Counsel and Managing Director of Salomon
Secretary Smith Barney and Secretary of certain investment
companies managed by affiliates of Salomon
Smith Barney; General Counsel and Secretary
of TIA.
Virgil H. Cumming Chief Investment Officer Managing Director of Salomon
Smith Barney; Chief Investment
Officer of TIA
Audrey C. Pappas-Wragg Chief Compliance Officer First Vice President of Salomon Smith Barney; Chief
Compliance Officer of TIA.
</TABLE>
* Address: 388 Greenwich Street, New York, N.Y. 10013
<PAGE> 144
Officers and Directors of The Travelers Investment Management Company (TIMCO),
the Sub-Adviser for the Disciplined Mid Cap Stock, Disciplined Small Cap and
Strategic Stock Portfolios of The Travelers Series Trust, are set forth in the
following table:
<TABLE>
<CAPTION>
Name Position with TIMCO Other Business
- ---- ------------------- --------------
<S> <C> <C>
Thomas W. Jones Director and Chairman Vice Chairman
Citigroup Inc.*
Chief Executive Officer of
Smith Barney Asset
Management Division
Sandip A. Bhagat Director, President and **Not Applicable
Chief Executive Officer
Virgil H. Cumming Director Managing Director
Salomon Smith Barney Inc.*
Chief Investment Officer of
Smith Barney Asset
Management Division
Heath B. McLendon Director Managing Director
Salomon Smith Barney Inc.*
Philip A. Johanson Vice President Senior Vice President
Smith Barney Asset
Management Division
Emil J. Molinaro, Jr. Vice President Vice President
Citigroup Inc.**
Daniel B. Willey Vice President** Not Applicable
Gloria G. Williams Vice President** Not Applicable
John W. Lau Vice President** Not Applicable
Feng Zhang Vice President** Not Applicable
Maggie M. Copeland Vice President** Not Applicable
Michael Loura Assistant Vice President** Not Applicable
Yining Xia Assistant Vice President** Not Applicable
Alexander Romeo Assistant Vice President** Not Applicable
Michael F. Rosenbaum Corporate Secretary General Counsel to
Smith Barney Asset
Management Division
Michael J. Day Treasurer Managing Director
Salomon Smith Barney Inc.*
</TABLE>
* Address: 388 Greenwich Street, New York, New York 10013
** Address: One Tower Square, Hartford, Connecticut 01683
<PAGE> 145
Executive Officers and Directors of Massachusetts Financial Services Company,
the Sub-Adviser to MFS Emerging Growth Portfolio, MFS Mid Cap Growth Portfolio,
MFS Research Portfolio of the Registrant, are set forth in the following table:
<TABLE>
<CAPTION>
Position with MFS
Name Financial Services Co. Other Business
- ---- ---------------------- --------------
<S> <C> <C>
Jeffrey L. Shames Director, Chairman and -
Chief Executive Officer
John W. Ballen Director, President and -
Chief Investment Officer
John D. McNeil Director Chairman
Sun Life Assurance Company
of Canada
Donald A. Stewart Director President and Director
Sun Life Assurance Company
of Canada
Arnold D. Scott Director, Senior Executive -
Vice President and Secretary
Thomas J. Cashman, Jr. Director, Executive Vice President -
Joseph W. Dello Russo Director, Executive Vice President Director of Mutual Fund
Chief Financial Officer and Operations, The Boston
Chief Administrative Officer Company
Kevin R. Parke Director, Executive Vice President -
and Chief Equity Officer
William W. Scott, Jr. Director, Executive Vice President -
Stephen E. Cavan Senior Vice President, General -
Counsel and Assistant Secretary -
Robert T. Burns Senior Vice President, -
Associate General Counsel
and Assistant Secretary -
Thomas B. Hastings Vice President and Treasurer -
</TABLE>
<PAGE> 146
Lazard Freres & Co. LLC, serves as the investment subadviser to the Lazard
International Stock Portfolio. Lazard Freres is a limited liability company, an
organization for which its management is provided by General Members. Lazard
Asset Management is a division of Lazard Freres & Co. LLC.
<TABLE>
<CAPTION>
Position with Lazard
Name Freres & Co. LLC Other Business
- ---- ---------------- --------------
<S> <C> <C>
Eileen D. Alexanderson General Member -
William R. Araskog General Member -
F. Harlan Batrus General Member Director, Mutual of America Capital Corp., New York
NY; Director, Ryan Labs Inc., New York, NY
Owner, A. J. Technologies New York, NY
Gerardo Braggiotti General Member Managing Director of Lazard S.P.A., Milano, Italia;
Lazard Brothers & Co. Ltd. London, England
Patrick J. Callahan, Jr. General Member Director, Berry Metal Co. Harmony, PA; Director,
Michigan Wheel Corp. Southwest Grand Rapids,
MI; Director, Totation Dynamics Corp.
Hinsdale, IL; Director, BT Capital Corp. New
York, New York
Michel A. David-Weill General Member Chairman and Chief Executive Lazard Freres & Co. LLC
New York, NY; General Partners, Lazard
Freres & Cie, Paris, France' Chairman,
Lazard Partners, :L.P. New York, NY: Member
of Investment Advisory Board, Corporate
Advisers, L.P. New York, NY; Deputy
Chairman, Lazard Brothers & Co., Limited,
London, England; Director, The Dannon
Company, Inc., Long Island City,NY President
and Chairman of the Board, Eurafrance,
Paris, France; Director, Exor Group, Paris,
France; Director, Euralux, Luxembourg;
Director, Group Danone, Paris, France;
Director, ITT Industries, Inc. New York, NY;
Director, LA France S.A. Paris, France
Director, Pearson plc London, England
Director, Publicis, S.A. Paris, France
</TABLE>
<PAGE> 147
<TABLE>
<CAPTION>
Position with Lazard
Name Freres & Co. LLC Other Business
- ---- ---------------- --------------
<S> <C> <C>
Michael David-Weill (cont'd) Director, S.A. de la Rue Imperiale de Lyo, Lyon,
France; Premanent rep. Of LFC, Compagnie De Credit,
Paris, France; Director, Maison Lazard, S.A.
Paris, France; General Partner, Maison Lazard & Cie,
Paris, France; Chairman, Maison Lazard
Developpement, Paris, France; Gerant (Partner) of
Parteger, Parteman, Paetemiel, Partena, Paris,
France Director of IFI SpA and IFIL SpA, Torino,
Italy Director, Finds Partenaires-Gestion
Investments, Paris, France
John V. Doyle General Member -
Thomas F. Dunn General Member -
Norman Eig General Member Vice Chairman, Lazard Freres & Co. LLC, New York,
NY; Director, Chairman, The Lazard Funds, Inc. New
York, NY Director, Chairman, Lazard Retirement
Series, Inc., New York
Richard P. Emerson General Member -
Peter R. Ezersky General Member Director, Cakewalk LLC
Eli H. Fink General Member Partner, Vice Chairman, Deloitte & Touche, New York,
NY
Jonathan F. Foster General Member -
Robert P. Freeman General Member Vice President, Lazard Freres Real Estate Investors,
LLC, New York; Director, The Fortress Group, Inc.
McLean, VA; Director, ARV Assisted Living, Inc.;
Costa Mesa, CA
Albert H. Garner General Member -
James S. Gold General Member Director, Smart & Final, Inc. Los Angeles, CA
Director, The Hain Food Group Uniondale, New York
Jeffrey A. Golman General Member -
Steven J. Golub General Member Chief Financial Officer, Lazard Freres & Co. LLC
Director, Mineral Technologies, Inc., New York, NY
</TABLE>
<PAGE> 148
<TABLE>
<CAPTION>
Position with Lazard
Name Freres & Co. LLC Other Business
- ---- ---------------- --------------
<S> <C> <C>
Herbert W. Gullquist General Member Vice Chairman, Lazard Freres & Co., LLC, New York,
NY Director and President, The Lazard Funds, Inc.,
New York, NY; Director and President, Lazard
Retirement Series, New York, NY; Director, Lazard
Far East Investors Limited, Jersey, Channel
Islands; Director and President, Lazard
Asset Management (Canada), Inc. New York, NY
Director, Lazard Investment Funds Limited,
Dublin, Ireland; Director, Chief Investment
Officer & Treasurer, Lazard Pension
Management, Inc., New York, NY Director,
Lazard Asset Management Holdings Limited,
London, England; Director, Lazard Assert
Management Pacific Co., Sydney, Australia;
Director, Lazard Asset Management Limited,
London, England; Member of the Supervisory
Board of Lazard Asset Management
(Deutschland), GmbH, Germany; Managing
Director, Lazard Asset Management
(Deutschland) Germany; Director, Lazard
Asset Management (CI) Holdings Ltd. Jersey,
Channel Islands
Thomas R. Haack General Member -
Ira O. Handler General Member -
Yasushi Hatakeyma General Member -
Melvin L. Heineman General Member Director, Lazard Freres & Co. Ltd. London, England
Director, Lazard Asset Management Pacific Co.,
Sydney, Australia Director & Vice President,
Lazard Pension Management, Inc. New York, NY
Scott D. Hoffman General Member -
Robert E. Hougie General Member -
Kenneth M. Jacobs General Member Director, National Imaging Associates, Inc.
Director, ARV Assisted Living, Inc., Costa Mesa, CA
James L. Kempner General Member -
Ivan-Jacques Kerno General Member -
</TABLE>
<PAGE> 149
<TABLE>
<CAPTION>
Position with Lazard
Name Freres & Co. LLC Other Business
- ---- ---------------- --------------
<S> <C> <C>
Larry A. Kohn General Member -
Leo O. Kraus General Member -
Sandra A. Lamb General Member -
Michael S. Liss General Member Director, Celebrity Sightings, LLC
William R. Loomis, Jr. General Member Director, Minorco S.A., Luzembourg Director, Minorco
(U.S.A.) Inc. New York, NY; Director & Chairman,
Terra Industries, Inc., Sioux City, IA Director,
Englehard Corp. Iselin, New Jersey Director,
Ripplewood Holdings LLC., New York, NY
Jesse R. Lovejoy General Member -
Matthew J. Lustig General Member -
Thomas F. Lynch General Member -
Mark T. McMaster General Member -
Anthony E. Meyer General Member Managing Director, Lazard Freres Real Estate
Investors, LLC, New York, NY; Director of
Atlas Industrial Corp., Dermody Properties;
Alex Haagen Properties, Prometheus Realty
Investors LLC
Damon Mezzacappa General Member Vice Chairman, Lazard Freres & Co. LLC; Member of
Investment Advisory Board, Corporate Advisors, L.P.
New York, NY
Richard W. Moore, Jr. General Member -
Robert P. Morgenthau General Member Director & Vice President, Lazard Asset Management
(Canada), Inc. New York, NY Director, Lazard
Invetment Funds Limited, Dublin, Ireland;
Director, Lazard Fund Manager (CI) Limited,
Jersey, Channel Islands; Director, Lazard
Global Bond Fund plc, Lazard Global Equity
Fund plc, Lazard Global Liquidity Fund plc,
Lazard Strategic Yield Fund plc, Global
Funds Management plc, Dublin, Ireland;
Director, Lazard Asset Management (CI)
Holdings Ltd., Lazard Asset Management (CI)
Ltd, Lazard Investment Funds (CI) Ltd,
Lazard Funds Administration Services (CI)
Ltd., Jersey, Channel Islands; Director,
Lazard Fund Managers (CI) Ltd and Lazard
Investment Funds Ltd, Guernsey; Director,
Bitterroot Enterprises, Sunvalley, Idaho
</TABLE>
<PAGE> 150
<TABLE>
<CAPTION>
Position with Lazard
Name Freres & Co. LLC Other Business
- ---- ---------------- --------------
<S> <C> <C>
Steven J. Niemczyk General Member -
Hamish W. M. Norton General Member -
James A. Paduano General Member Director, Donovan Data Systems, Inc. New York, NY;
Director, Secure Products Inc., Summit, NJ
Adam P. Parten General Member -
Louis Perlmutter General Member -
Russell E. Planitzer General Member Director, Intersolv, Inc., Rockville, MD-
Steven L. Rattner General Member Executive Vice President and Director, Lazard Asset
Management Pacific Co., Sydney Australia
Member of the Supervisory Board, Lazard Asset
Management (Deutschland), Germany
John R. Reinsberg General Member -
Louis G. Rice General Member -
Luis E. Rinaldini General Member -
Bruno M. Roger General Member Supervisory Board Member, AXA, CAP Gemini Sogeti,
Compagnie De Credit, Compagnie De Saint-Gobain,
Paris, France Vice Chairman and CEO, Eurafrance,
France; Chairman and CEO, Financiere et
Industrielle Gaz, France; Board Member,
Fonds Partenaires Gestion, France; General
Partner, Lazard Freres & Cie, France,
Director without power of vote, LUMH-Moet
Hennessy Louis Vuitton, France; Director,
Marine-Wendel, France; Supervisory Board
Member, Pinault-Printemps-Redoute, France;
Director, Sidel, Paris, France; Board Member
Sofina, Bruzelles; Board Member Thomson CSF,
France; Director, Societe Francoise Generale
Immobiliere, France
Michael S. Rome General Member -
Stephen H. Sands General Member Director, Isogen LLC, Skila, Inc., National Imaging
Associates, Inc.
Gary S. Shedlin General Member -
Arthur P. Soloman General Member Director, Alexander Haagen, FAC, Berkshire Realty
Trust; Director, Cliveden, London, England
</TABLE>
<PAGE> 151
<TABLE>
<CAPTION>
Position with Lazard
Name Freres & Co. LLC Other Business
- ---- ---------------- --------------
<S> <C> <C>
David A. Tanner General Member Managing Director, E.M. Warburg, Pincus &
Co. LLC, New York, NY; Director, Golden
Books Family, New York, NY; Director,
Renaissance Re Holdings Ltd., Hamilton,
Bermuda; Director, Poserdon Resources Inc.,
Stamford, CT; Director, Charter Financial
Inc., New York, NY: Director, Classic
Sports, Inc., New York, NY;
David L. Tashjian General Member -
Joseph M. Thomas General Member -
Michael P. Trigubaff General Member Managing Director, Lazard Asset Management Pacific
Co., Sydney, Australia
Donald A. Wagner General Member -
Ali E. Wambold General Member Director, The Albert Fisher Group plc, England,
Director, Lazard Freres & Co. Ltd., London, England;
Director, Tomkins plc, London, England; Member of
Investment Advisory Board, Corporate Advisors L.P.,
New York, NY; Director, Lazard S.P.A., Milano,
Italia; Director, Lazard & Co. GmbH, Germany
Michael A. Weinstock General Member -
Antonio F. Weiss General Member -
Alexander E. Zagoreos General Member Director, The Egypt Trust, Luxembourg, Director,
Flemings Contintental Europeon, London, England;
Director, Gartmore Emerging Pacific, London,
England; Director, The Greek Process Fund,
Athens, Greece; Director, Jupiter
International Green Investment Trust plc,
London, England; Director, Latin American
Investment Trust plc, London, England;
Director, New Zealand Investment Trust plc,
Devon, England, Director, Taiwan
Opportunities Fund Ltd, Edinburgh, England;
Director, The World Trust Fund, Luxembourg;
Director, Lazard Select Investment Trust
Ltd., Jersey, Channel Islands; Director,
Ermitage Selz Fund, Lexembourg; Director,
Lazard Asset Management Egypt, Cairo, Egypt;
Director, Taiwan American Fund Limited,
Edinburgh, England
</TABLE>
<PAGE> 152
Executive Officers and Directors of Federated Investment Counseling, the
Sub-Adviser to Federated Stock Portfolio and Federated High Yield Portfolio of
the Registrant, are set forth in the following table:
<TABLE>
<CAPTION>
Position with Federated
Name Investment Counseling Other Business
- ---- --------------------- --------------
<S> <C> <C>
John F. Donahue Trustee -
J. Christopher Donahue Trustee -
John W. McGonigle Trustee -
Mark D. Olsen Trustee -
John B. Fisher President -
William D. Dawson, III Executive Vice President -
Henry A. Frantzen Executive Vice President -
J. Thomas Madden Executive Vice President -
Joseph M. Balestrino Senior Vice President -
David A. Briggs Senior Vice President -
Drew J. Collins Senior Vice President -
Jonathan C. Conley Senior Vice President -
Deborah A. Cuningham Senior Vice President -
Mark E. Durbiano Senior Vice President -
Jeff A. Kozemchak Senior Vice President -
Sandra L. McInerney Senior Vice President -
Susan M. Nason Senior Vice President -
Mary Jo Ochson Senior Vice President -
Robert J. Ostrowski Senior Vice President -
J. Scott Albrecht Vice President -
Todd A. Abraham Vice President -
Arthur J. Barry Vice President -
Randall S. Bauer Vice President -
Michael W. Casey Vice President -
Kenneth J. Cody Vice President -
Robert E. Cauley Vice President -
Alexandre de Bethmann Vice President -
B. Anthony Delserone Vice President -
Michael P. Donnelly Vice President -
Linda A. Duessel Vice President -
Donald T. Ellenberger Vice President -
Kathleen M. Foody-Malus Vice President -
Thomas M. Franks Vice President -
Edward C. Gonzales Vice President -
James E. Grefenstette Vice President -
Marc Halperin Vice President -
Patricia L. Heagy Vice Presidnet -
Susan R. Hill Vice President -
William R. Jamison Vice President -
Constantine Kartsonas Vice President -
Robert M. Kowit Vice President -
Richard J. Lazarchic Vice President -
</TABLE>
<PAGE> 153
<TABLE>
<CAPTION>
Position with Federated
Name Investment Counseling Other Business
- ---- --------------------- --------------
<S> <C> <C>
Steven J. Lehman Vice President -
Marian R. Marinack Vice President -
Jeffrey A. Petro Vice President -
Keith J. Sabol Vice President -
Scott B. Schermerhorn Vice President -
Frank Semack Vice President -
Aash M. Shah Vice President -
Michael W. Sirianni Vice President -
Christopher J. Smith Vice President -
Tracy P. Stouffer Vice President -
Edward J. Tiedge Vice President -
Paige M. Wilhelm Vice President -
Jolanta M. Wysocka Vice President -
George B. Wright Vice President -
Nancy J. Belz Assistant Vice President -
Lee Cunningham Assistant Vice President -
James H. Davis II Assistant Vice President -
Jacqueline A. Drastal Assistant Vice President -
Paul Drotch Assistant Vice President -
Salvatore A. Esposito Assistant Vice President -
Donna M. Fabiano Assistant Vice President -
Gary E. Falwell Assistant Vice President -
Eamonn G. Folan Assistant Vice President -
John T. Gentry Assistant Vice President -
John W. Harris Assistant Vice President -
Nathan H. Kehm Assistant Vice President -
John C. Kerber Assistant Vice President -
Grant K. McKay Assistant Vice President -
Natalie Metz Assistant Vice President -
Joseph M. Natoli Assistant Vice President -
James W. Schaub Assistant Vice President -
John Sheehy Assistant Vice President -
Matthew K. Stapen Assistant Vice President -
Timothy G. Trebilcock Assistant Vice President -
Diane Tolby Assistant Vice President -
Leo Vila Assistant Vice President -
Steven J. Wagner Assistant Vice President -
Lori Wolff Assistant Vice President -
G. Andrew Bonnewell Secretary -
Michael D. McLean Assistant Secretary -
Thomas R. Donahue Treasurer and Assistant Secretary -
Richard B. Fisher Assistant Treasurer -
</TABLE>
<PAGE> 154
Executive Officers and Directors of Fidelity Management & Research Company, the
Sub-Adviser to Equity Income Portfolio and Large Cap Portfolio of the
Registrant, are set forth in the following table:
<TABLE>
<CAPTION>
Position with Fidelity
Name Management & Research Other Business
- ---- --------------------- --------------
<S> <C> <C>
Edward C. Johnson 3d Director, Chairman of the Board -
Peter S. Lynch Director, Vice Chairman of the Board -
Robert C. Pozen Director and President -
Dwight D. Churchill Senior Vice President -
William Danoff Senior Vice President -
Richard B. Fentin Senior Vice President -
Bart Gronier Senior Vice President -
Boyce Greer Senior Vice President -
Richard Haberman Senior Vice President -
Fred Henning, Jr. Senior Vice President -
Abigail P. Johnson Senior Vice President -
Steven Kaye Senior Vice President -
Eric Roiter Vice President, General Counsel
and Clerk -
Richard A. Spillane Senior Vice President -
Robert E. Stansky Senior Vice President -
Beth F. Terrana Senior Vice President -
George A. Vanderheiden Senior Vice President -
Brian Clancy Treasurer
Stephen G. Manning Assistant Treasurer
Jay Freedman Assistant Clerk
</TABLE>
<PAGE> 155
DISCIPLINED MID CAP STOCK PORTFOLIO
DISCIPLINED SMALL CAP STOCK PORTFOLIO
STRATEGIC STOCK PORTFOLIO
Officers and Directors of The Travelers Investment Management Company (TIMCO),
the Sub-Adviser to the Disciplined Mid Cap Stock Portfolio the Disciplined Small
Cap Stock Portfolio and the Strategic Stock Portfolio of the Registrant, are set
forth in the following table:
<TABLE>
<CAPTION>
Name Position with TIMCO Other Business
- ---- ------------------- --------------
<S> <C> <C>
Thomas W. Jones Director and Chairman Vice Chairman
Travelers Group Inc.*
Chief Executive Officer
Asset Management Div.
Smith Barney Inc.
Sandip A. Bhagat Director, President and ** Not Applicable
Chief Executive Officer
Virgil H. Cumming Director Managing Director
Smith Barney Inc.*
Chief Investment Officer
Asset Management Div.
Smith Barney Inc.
Heath B. McLendon Director Managing Director
Smith Barney Inc.*
Jacob E. Hurwitz Senior Vice President** Not Applicable
Emil J. Molinaro, Jr. Vice President Vice President
Travelers Group Inc.**
Daniel B. Willey Vice President** Not Applicable
Gloria G. Williams Vice President** Not Applicable
John W. Lau Assistant Vice President** Not Applicable
Feng Zhang Assistant Vice President** Not Applicable
Michael F. Rosenbaum Corporate Secretary General Counsel to
Asset Management Div.
Smith Barney Inc.*
Michael Day Treasurer Managing Director
Smith Barney Inc.*
</TABLE>
* Address: 388 Greenwich Street, New York, New York 10013
** Address: One Tower Square, Hartford, Connecticut 01683
<PAGE> 156
Officers and Directors of NWQ Investment Management Company, the Sub-Adviser to
the NWQ Large Cap Portfolio of the Registrant, are set forth in the following
table:
<TABLE>
<CAPTION>
Position with NWQ
Name Investment Management Co. Other Business
- ---- ------------------------- --------------
<S> <C> <C>
David A. Polak, CFA President and Director -
Edward C. Friedel, CFA Managing Director and Director -
James H. Galbreath, CFA Managing Director and Director -
Mary-Gene Slaven Managing Director
Michael C. Mendez, CIMA Managing Director
Jon D. Bosse, CFA Managing Director
Phyllis G. Thomas, CFA Managing Director
Thomas J. Laird, CFA Managing Director
Justin T. Clifford Managing Directors
</TABLE>
<PAGE> 157
Officers and Directors of Jurika & Voyles L.P., the Sub-Adviser to the Jurika &
Voyles Core Equity Portfolio of the Registrant, are set forth in the following
table:
<TABLE>
<CAPTION>
Position with
Name Jurika & Voyles L.P. Other Business
- ---- -------------------- --------------
<S> <C> <C>
William K. Jurika Director and President --
Glenn C. Voyles Chairman and Executive Vice President --
Karl O. Mills Director and Executive Vice President --
Christopher L. Bittman Director and Senior Vice President --
Peter S. Voss Director --
G. Neal Ryland Director --
James R. Christensen Senior Vice President --
Guy R. Elliffe Vice President --
Peter A. Goetz Vice President --
</TABLE>
<PAGE> 158
Item 27. Principal Underwriter
Not Applicable.
Item 28. Location of Accounts and Records
(1) SSBC Fund Management Inc.
388 Greenwich Street
New York, NY 10013
(2) Fidelity Investments Institutional Operations Company
82 Devonshire Street
Boston, MA 02109
(3) Fidelity Service Company
82 Devonshire Street
Boston, MA 02109
(4) Chase Manhattan Bank, N.A.
Chase MetroTech Center
Brooklyn, NY
(5) PNC Bank, N.A.
200 Stevens Drive
Lester, PA 19113
(6) Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, NY 11201
(7) Brown Brothers Harriman & Company
40 Water Street
Boston, MA 02109
(8) First Data Investor Services Group, Inc.
53 State Street
Boston, MA 02109
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
The undersigned Registrant hereby undertakes to provide to each person to whom a
prospectus is delivered a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE> 159
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, The Travelers Series Trust, certifies that
it meets all the requirements for effectiveness of this post-effective amendment
to this Registration Statement pursuant to Rule 485(b) under the Securities Act
of 1933 and has duly caused this amendment to this Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Hartford and state of Connecticut, on the 28th day of April, 1999.
THE TRAVELERS SERIES TRUST
(Registrant)
By: *HEATH B. McLENDON
Heath B. McLendon
Chairman, Board of Trustees
Pursuant to the requirements of the Securities Act of 1933, this post-effective
amendment to this Registration Statement has been signed below by the following
persons in the capacities indicated on the 28th day of April, 1999.
*HEATH B. McLENDON Chairman of the Board
(Heath B. McLendon)
*KNIGHT EDWARDS Trustee
(Knight Edwards)
*ROBERT E. McGILL, III Trustee
(Robert E. McGill, III)
*LEWIS MANDELL Trustee
(Lewis Mandell)
*FRANCES M. HAWK Trustee
(Frances M. Hawk)
*LEWIS E. DAIDONE Treasurer
(Lewis E. Daidone)
*By: /s/Ernest J. Wright, Attorney-in-Fact
Secretary, Board of Trustees
<PAGE> 160
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
--- ----------- ----------------
<S> <C> <C>
j)(1) Consent of KPMG LLP, Independent Certified Public Electronically
Accountants.
(j)(2) Consent of PricewaterhouseCoopers LLP, Electronically
Independent Accountants
(n) Financial Data Schedule. Electronically
</TABLE>
<PAGE> 1
Exhibit (j)(1)
Independent Auditors' Consent
To the Shareholders and Board of Trustees of
The Travelers Series Trust
We consent to the use of our reports dated February 8, 1999, with respect to the
Portfolios listed below of The Travelers Series Trust, incorporated herein by
reference and to the references to our Firm under the headings "Financial
Highlights" in the Prospectus and "Financial Statements" in the Statement of
Additional Information.
Portfolios
Convertible Bond Portfolio
Disciplined Mid Cap Stock Portfolio
Disciplined Small Cap Stock Portfolio
Federated High Yield Portfolio
Federated Stock Portfolio
Jurika & Voyles Core Equity Portfolio
Lazard International Stock Portfolio
MFS Emerging Growth Portfolio
MFS Research Portfolio
NWQ Large Cap Portfolio
Social Awareness Stock Portfolio
Strategic Stock Portfolio
Travelers Quality Bond Portfolio
U.S. Government Securities Portfolio
Utilities Portfolio
KPMG LLP
New York, New York
April 26, 1999
<PAGE> 2
Independent Auditors' Consent
To the Shareholders and Board of Trustees of
The Travelers Series Trust
We consent to the use of our report dated February 8, 1999, with respect to the
Portfolios listed below of The Travelers Series Trust, incorporated herein by
reference and to the references to our Firm under the headings "Financial
Highlights" in the Prospectus and "Financial Statements" in the Statement of
Additional Information.
Portfolios
Zero Coupon Bond Fund Portfolio Series 2000
Zero Coupon Bond Fund Portfolio Series 2005
KPMG LLP
New York, New York
April 26, 1999
<PAGE> 1
Exhibits(j)(2)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 26 to the Registration Statement on Form N-1A (the "Registration
Statement") of our report dated February 11, 1999, relating to the financial
statements and financial highlights appearing in the December 31, 1998 Annual
Report to Shareholders of Equity Income Portfolio and Large Cap Portfolio, two
of the funds comprising The Travelers Series Trust. We also consent to the
references to our firm under the heading "Financial Highlights" in the
Prospectus and under the heading "Financial Statements" in the Statement of
Additional Information related to Equity Income Portfolio and Large Cap
Portfolio.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 26, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000880583
<NAME> THE TRAVELERS SERIES TRUST
<SERIES>
<NUMBER> 1
<NAME> U.S. GOVERNMENT SECURITIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 65,860,938
<INVESTMENTS-AT-VALUE> 66,332,640
<RECEIVABLES> 491,811
<ASSETS-OTHER> 616
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 66,825,067
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 371,057
<TOTAL-LIABILITIES> 371,057
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 66,321,107
<SHARES-COMMON-STOCK> 5,632,090
<SHARES-COMMON-PRIOR> 3,027,108
<ACCUMULATED-NII-CURRENT> 5,474
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (344,273)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 471,702
<NET-ASSETS> 66,454,010
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,768,644
<OTHER-INCOME> 0
<EXPENSES-NET> 215,557
<NET-INVESTMENT-INCOME> 2,553,087
<REALIZED-GAINS-CURRENT> 3,015,324
<APPREC-INCREASE-CURRENT> (1,235,350)
<NET-CHANGE-FROM-OPS> 4,333,061
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,585,952
<DISTRIBUTIONS-OF-GAINS> 2,807,849
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,036,112
<NUMBER-OF-SHARES-REDEEMED> 888,165
<SHARES-REINVESTED> 457,035
<NET-CHANGE-IN-ASSETS> 31,174,567
<ACCUMULATED-NII-PRIOR> 23,858
<ACCUMULATED-GAINS-PRIOR> (537,267)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 156,432
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 215,557
<AVERAGE-NET-ASSETS> 48,114,661
<PER-SHARE-NAV-BEGIN> 11.65
<PER-SHARE-NII> 00.49
<PER-SHARE-GAIN-APPREC> 00.70
<PER-SHARE-DIVIDEND> (00.50)
<PER-SHARE-DISTRIBUTIONS> (00.54)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.8
<EXPENSE-RATIO> 00.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000880583
<NAME> THE TRAVELERS SERIES TRUST
<SERIES>
<NUMBER> 2
<NAME> SOCIAL AWARENESS PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 27,121,693
<INVESTMENTS-AT-VALUE> 39,594,889
<RECEIVABLES> 122,202
<ASSETS-OTHER> 961
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 39,718,052
<PAYABLE-FOR-SECURITIES> 172,500
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 63,299
<TOTAL-LIABILITIES> 235,799
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,882,363
<SHARES-COMMON-STOCK> 1,523,475
<SHARES-COMMON-PRIOR> 1,047,410
<ACCUMULATED-NII-CURRENT> 185,554
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 941,117
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,473,196
<NET-ASSETS> 39,482,253
<DIVIDEND-INCOME> 281,589
<INTEREST-INCOME> 148,059
<OTHER-INCOME> 0
<EXPENSES-NET> 244,138
<NET-INVESTMENT-INCOME> 185,510
<REALIZED-GAINS-CURRENT> 952,131
<APPREC-INCREASE-CURRENT> 7,147,456
<NET-CHANGE-FROM-OPS> 8,285,097
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 156,005
<DISTRIBUTIONS-OF-GAINS> 535,723
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 542,975
<NUMBER-OF-SHARES-REDEEMED> 96,777
<SHARES-REINVESTED> 29,867
<NET-CHANGE-IN-ASSETS> 18,469,041
<ACCUMULATED-NII-PRIOR> 156,049
<ACCUMULATED-GAINS-PRIOR> 524,732
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 189,593
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 244,138
<AVERAGE-NET-ASSETS> 29,218,612
<PER-SHARE-NAV-BEGIN> 20.06
<PER-SHARE-NII> 00.10
<PER-SHARE-GAIN-APPREC> 06.30
<PER-SHARE-DIVIDEND> 00.12
<PER-SHARE-DISTRIBUTIONS> 00.42
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 25.92
<EXPENSE-RATIO> 00.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000880583
<NAME> THE TRAVELERS SERIES TRUST
<SERIES>
<NUMBER> 3
<NAME> UTILITIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 25,842,930
<INVESTMENTS-AT-VALUE> 32,540,238
<RECEIVABLES> 696,502
<ASSETS-OTHER> 957
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33,237,697
<PAYABLE-FOR-SECURITIES> 280,665
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 47,982
<TOTAL-LIABILITIES> 328,647
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,621,357
<SHARES-COMMON-STOCK> 1,915,301
<SHARES-COMMON-PRIOR> 1,400,349
<ACCUMULATED-NII-CURRENT> 791,288
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,799,097
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,697,308
<NET-ASSETS> 32,909,050
<DIVIDEND-INCOME> 160,794
<INTEREST-INCOME> 841,414
<OTHER-INCOME> 0
<EXPENSES-NET> 208,740
<NET-INVESTMENT-INCOME> 793,468
<REALIZED-GAINS-CURRENT> 1,796,917
<APPREC-INCREASE-CURRENT> 1,908,703
<NET-CHANGE-FROM-OPS> 4,499,088
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 643,885
<DISTRIBUTIONS-OF-GAINS> 609,017
<DISTRIBUTIONS-OTHER> 0
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<NAME> TRAVELERS QUALITY BOND PORTFOLIO
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<NAME> THE TRAVELERS SERIES TRUST
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<NAME> EQUITY INCOME PORTFOLIO
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<NAME> THE TRAVELERS SERIES TRUST
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<NAME> LARGE CAP PORTFOLIO
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<NAME> THE TRAVELERS SERIES TRUST
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<NAME> THE TRAVELERS SERIES TRUST
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<NAME> THE TRAVELERS SERIES TRUST
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<NAME> STRATEGIC STOCK PORTFOLIO
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<CIK> 0000880583
<NAME> THE TRAVELERS SERIES TRUST
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<NAME> DISCIPLINED SMALL CAP STOCK PORTFOLIO
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<CIK> 0000880583
<NAME> THE TRAVELERS SERIES TRUST
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<NAME> MFS MID CAP GROWTH PORTFOLIO
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<NAME> THE TRAVELERS SERIES TRUST
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<CIK> 0000880583
<NAME> THE TRAVELERS SERIES TRUST
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<NAME> NWQ LARGE CAP PORTFOLIO
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<CIK> 0000880583
<NAME> THE TRAVELERS SERIES TRUST
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<NAME> JURIKA & VOYLES CORE EQUITY PORTFOLIO
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<PER-SHARE-DISTRIBUTIONS> 00.00
<RETURNS-OF-CAPITAL> 00.00
<PER-SHARE-NAV-END> 10.27
<EXPENSE-RATIO> 00.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
