<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. 24
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 24
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).
/ / on May 1, 1999 pursuant to paragraph (b).
/ / 60 days after filing pursuant to paragraph (a)(1).
/X/ on April 14, 1999 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
Disciplined Mid Cap Stock Portfolio
Disciplined Small Cap Stock Portfolio
Jurika & Voyles Core Equity Portfolio
Large Cap Portfolio
Lazard International Stock Portfolio
MFS Research Portfolio
NWQ Large Cap Portfolio
Strategic Stock Portfolio
U.S. Government Securities Portfolio
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- -
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 3
Disciplined Mid Cap Stock Portfolio 3
Disciplined Small Cap Stock Portfolio 4
Jurika & Voyles Core Equity Portfolio 5
Large Cap Portfolio 6
Lazard International Stock Portfolio 7
MFS Research Portfolio 8
NWQ Large Cap Portfolio 9
Strategic Stock Portfolio 10
U.S. Government Securities Portfolio 11
INVESTMENTS AND PRACTICES 12
MANAGEMENT 15
Public Fund Performance 17
LEGAL PROCEEDINGS 18
YEAR 2000 COMPLIANCE 18
EURO CONVERSION 18
SHARE TRANSACTIONS AND PRICING 18
TAX CONSEQUENCES OF DIVIDENDS AND DISTRIBUTIONS 20
FINANCIAL HIGHLIGHTS 21
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") serves as
investment adviser for each of the Funds. TAMIC is an indirect wholly owed
subsidiary of Citigroup, Inc. TAMIC has each engaged subadvisers to provide an
investment program for certain Funds.
2
<PAGE> 5
DISCIPLINED MID CAP STOCK PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
FUND'S OBJECTIVE: Growth of capital
SUBADVISER: Travelers
Investment
Management Company
KEY INVESTMENTS: Common stock of U.S.
companies
("TIMCO")
PORTFOLIO MANAGER: Sandip
Bhagat
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
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.
PRINCIPAL RISK FACTORS: The Fund is most subject to equities risk, including
small company risk. For a full description of this type of risk, please refer to
the "Investments and Practices" section of this prospectus. Please see the SAI
for a detailed description of all investments, and their associated risks,
available to the Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
(The Fund commenced operations on April 1, 1997)
<TABLE>
<CAPTION>
1 year Life of Fund
------ ------------
<S> <C> <C>
Disc. Mid Cap Stock
S&P 400
</TABLE>
Best Quarter: Q# [2 digit year] %
Worst Quarter: Q# [2 digit year] %
3
<PAGE> 6
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 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 S&P 400 Index
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.
PRINCIPAL RISK FACTORS: The Fund is most subject to equities risk, including
small companies risk. For a full description of these types of risk, please
refer to the "Investments and Practices" section of this prospectus. Please see
the SAI for a detailed description of all investments, and their associated
risks, available to the Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 information 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>
Disciplined Small Cap
Russell 2000
</TABLE>
Best Quarter: Q# [2 digit year] %
Worst Quarter: Q# [2 digit year] %
4
<PAGE> 7
JURIKA & VOYLES CORE EQUITY PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: Jurika & Voyles,
LLP
PORTFOLIO MANAGER: Peter Goetz
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
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.
PRINCIPAL RISK FACTORS: The Fund is most subject to equities risk, including
smaller companies risk, and foreign securities risk. For a full description of
these types of risk, please refer to the "Investments and Practices" section of
this prospectus. Please see the SAI for a detailed description of all
investments, and their associated risks, available to the Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 500 Mid Cap Stock 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 May 1, 1998)
<TABLE>
<CAPTION>
Life of Fund
------------
<S> <C>
Jurika & Voyles Core Equity
Russell 500 Mid Cap
Russell 3000
</TABLE>
Best Quarter: Q# [2 digit year] %
Worst Quarter: Q# [2 digit year] %
5
<PAGE> 8
LARGE CAP PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: Fidelity Management
& Research Company ("FMR")
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.
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.
PRINCIPAL RISK FACTORS: The Fund is most subject to equities risk, and is also
subject to foreign and emerging market securities risk. For a full description
of these types of risk, please refer to the "Investments and Practices" section
of this prospectus. Please see the SAI for a detailed description of all
investments and their associated risks, available to the Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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: Q# [2 digit year] %
Worst Quarter: Q# [2 digit year] %
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
<TABLE>
<CAPTION>
1 year Life of Fund
------ ------------
<S> <C> <C>
Large Cap
S&P 500
</TABLE>
6
<PAGE> 9
LAZARD INTERNATIONAL STOCK PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: Lazard Asset
Management
PORTFOLIO MANAGER: Herbert
Gullquist
FUND'S OBJECTIVE: Capital appreciation
KEY INVESTMENTS: Equity securities of non-U.S. companies
SELECTION PROCESS: The Fund's subadviser invests primarily in companies based
in Continental Europe, the United Kingdom, and the Pacific Basin, 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 market 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
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.
PRINCIPAL RISK FACTORS: The Fund is most subject to foreign and emerging
markets securities risk. For a full description of these types of risk, please
refer to the "Investments and Practices" section of this prospectus. Please see
the SAI for a detailed description of all investments, and their associated
risks, available to the Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 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>
'97' '98'
---- ----
<S> <C> <C>
8.5
</TABLE>
The Fund commenced operations on August 1, 1996.
Best Quarter: Q# [2 digit year] %
Worst Quarter: Q# [2 digit year] %
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
<TABLE>
<CAPTION>
1 year Life of Fund
------ ------------
<S> <C> <C>
Lazard Int. Stock
MSCI EAFE Index
</TABLE>
7
<PAGE> 10
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
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may also
invest in foreign securities, as well as securities traded on securities
exchanges or in over-the-counter markets. For a complete list of all investments
available to the Fund, please refer to Appendix A of this Prospectus.
PRINCIPAL RISK FACTORS: The Fund is most subject to equities risk, including
smaller company risk, and may also be subject to foreign and emerging markets
risk, and over-the-counter risk. For a full description of these types of risk,
please refer to the "Investments and Practices" section of this prospectus.
Please see the SAI for a detailed description of all investments, and their
associated risks, available to the Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
S & P 500
</TABLE>
Best Quarter: Q# [2 digit year] %
Worst Quarter: Q# [2 digit year] %
8
<PAGE> 11
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
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.
PRINCIPAL RISK FACTORS: The Fund is most subject to equity risk. For a full
description of this type of risk, please refer to the "Investments and
Practices" section of this prospectus. Please see the SAI for a detailed
description of all investments, and their associated risks, available to the
Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 May 1, 1998)
<TABLE>
<CAPTION>
Life of Fund
------------
<S> <C>
NWQ Large Cap
S & P 500
S & P/Barra Value
</TABLE>
Best Quarter: Q# [2 digit year] %
Worst Quarter: Q# [2 digit year] %
9
<PAGE> 12
STRATEGIC STOCK PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: TIMCO
PORTFOLIO MANAGER: John Lau
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.
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 enhance
gains. A complete list of all investment techniques available to this Fund is
contained in Appendix A of this prospectus.
PRINCIPAL RISK FACTORS: The Fund is most subject to equity risk, including the
risk that a company may not pay dividends to shareholders. For a full
description of this type of risk, please refer to the "Investments and
Practices" section of this prospectus. Please see the SAI for a detailed
description of all investments and their associated risks, available to the
Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
DJIA
S&P Industrial
S&P 500
</TABLE>
Best Quarter: Q# [2 digit year] %
Worst Quarter: Q# [2 digit year] %
10
<PAGE> 13
U.S. GOVERNMENT SECURITIES PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
PORTFOLIO MANAGER: Joseph
Mullally
FUND'S OBJECTIVE: Highest credit quality,
current income, and
total return.
KEY INVESTMENTS: U.S. Treasury notes and bonds and obligations 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
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.
PRINCIPAL RISK FACTORS: The Fund is most subject to fixed-income security risk.
For a full description of this type of risk, please refer to the "Investments
and Practices" section of this prospectus. Please see the SAI for a detailed
description of all investments, and their associated risks, available to the
Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
</TABLE>
This Fund commenced operations on 1/24/1992.
Best Quarter: Q# [2 digit year] %
Worst Quarter: Q# [2 digit year] %
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. Sec.
LGBI
</TABLE>
11
<PAGE> 14
INVESTMENTS AND PRACTICES
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
and in the Statement of Additional Information. For a free copy of the Statement
of Additional Information, see the front cover of this prospectus.
EQUITIES
(Disciplined Mid Cap Stock,
Disciplined Small Cap Stock,
Jurika & Voyles Core Equity,
Large Cap Portfolio, Lazard
International Stock, MFS
Research, NWQ Large Cap,
Strategic Stock) Equity securities include common and preferred
stock, 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. 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.
When you sell your shares, they may be worth more
or less than what you paid for them.
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.
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 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).
12
<PAGE> 15
FOREIGN SECURITIES
(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.
EMERGING MARKET INVESTMENTS
(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
(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, 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 Statement of Additional
Information.
13
<PAGE> 16
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
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 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.
14
<PAGE> 17
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. 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>
Disciplined Mid Cap Stock Portfolio....................... 0.70%
Disciplined Small Cap Stock Portfolio..................... 0.80%*
Jurika & Voyles Core Equity Portfolio..................... 0.75%*
Large Cap Portfolio....................................... 0.75%
Lazard International Stock Portfolio...................... 0.825%
MFS Research Portfolio.................................... 0.80%*
NWQ Large Cap Portfolio................................... 0.75%*
Strategic Stock Portfolio................................. 0.60%*
U.S. Government Securities Portfolio...................... 0.3233%
</TABLE>
* These funds were not operational for a full year in 1998. Accordingly, the fee
indicated is the contract rate.
15
<PAGE> 18
THE SUBADVISERS AND PORTFOLIO MANAGERS
TAMIC is the sole manager of 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>
DISCIPLINED MID CAP STOCK Sandip Bhagat President and Chief
PORTFOLIO (since 4/97) Executive Officer, TIMCO
Travelers Investment
Management
Company ("TIMCO")
One Tower Square
Hartford, CT
- --------------------------------------------------------------------------------------------
DISCIPLINED SMALL CAP Sandip Bhagat President and Chief
STOCK PORTFOLIO (since 5/98) Executive Officer, TIMCO
One Tower Square
Hartford, CT
- --------------------------------------------------------------------------------------------
JURIKA & VOYLES CORE Peter Goetz, CFA Vice President, Jurika &
EQUITY PORTFOLIO (since 5/98) Voyles
Jurika & Voyles
1999 Harrison Street, Suite Senior Portfolio Manager,
700 Bank of America
Oakland, CA 94612
- --------------------------------------------------------------------------------------------
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 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
- --------------------------------------------------------------------------------------------
MFS RESEARCH PORTFOLIO Investment Committee N/A
(since 5/98)
Massachusetts Financial
Services Co. ("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
- --------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------
FUND PORTFOLIO MANAGER BUSINESS EXPERIENCE
AND SUBADVISER (1994 TO PRESENT)
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C> <C>
STRATEGIC STOCK PORTFOLIO John Lau Vice President, Portfolio
(since 1/99) Management, TIMCO
TIMCO
One Tower Square Lead Engineer, United
Hartford, CT 06183 Technologies
- --------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES Joseph M. Mullally Senior Vice President, TAMIC
PORTFOLIO (since 1995)
No subadviser
- --------------------------------------------------------------------------------------------
</TABLE>
PUBLIC FUND PERFORMANCE
The Funds described in this prospectus ("insurance funds") commenced public sale
of their shares on various dates, as is indicated in each Fund Performance
section of this prospectus. However, each of these Funds has the same investment
objective and follows substantially the same investment strategies as a mutual
fund ("public fund") whose shares are sold to the public and managed by the same
portfolio managers as a corresponding insurance fund.
Set forth below is the historical performance of the public funds. Investors
should not consider the performance data of the public funds as an indication of
the future performance of the insurance funds. The performance figures shown
below reflect the deduction of the historical fees and expenses paid by the
public funds, and not those to be paid by the insurance funds. The figures also
do not reflect the deduction of any insurance fees or charges which are imposed
in connection with the sale of variable contracts. Investors should refer to the
separate account prospectus describing the variable contracts for information
pertaining to these insurance fees and charges. The insurance separate account
fees will have a detrimental effect on the performance of the insurance funds.
Additionally, although it is anticipated that each insurance fund and its
corresponding public fund series will hold similar securities, their investment
results are expected to differ. In particular, differences in asset size and in
cash flow resulting from purchases and redemptions of insurance fund shares may
result in different security selections, differences in the relative weightings
of securities or differences in the price paid for particular portfolio
holdings. The results shown reflect the reinvestment of dividends and
distributions, and were calculated in the same manner that will be used by the
insurance funds to calculate their own performance.
The following tables show average annualized total returns for the time periods
show for the public funds:
<TABLE>
<CAPTION>
INSURANCE FUND NAME CORRESPONDING PUBLIC PUBLIC FUND AVERAGE ANNUAL
FUND NAME TOTAL RETURNS
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Disciplined Mid Cap Stock Portfolio
Disciplined Small Cap Stock Portfolio
Jurika & Voyles Core Equity Portfolio
Large Cap Portfolio
Lazard International Stock Portfolio
MFS Research Portfolio
NWQ Large Cap Portfolio
Strategic Stock Portfolio
U.S. Government Securities
</TABLE>
17
<PAGE> 20
LEGAL PROCEEDINGS
There are no material pending legal proceedings affecting the Trust, and it has
been advised by TAMIC, TIMCO, Jurika & Voyles, Fidelity Management & Research,
Lazard Freres & Co., Massachusetts Financial Services, NWQ Investment Management
Company, and the Trust's principal underwriter that none of them have any
material pending legal proceedings affecting them.
YEAR 2000 COMPLIANCE
Generally computer programs were designed without considering the impact of the
upcoming change in the century. As a result software and computer systems may
need to be upgraded or replaced in order to comply with "Year 2000"
requirements. If not corrected, these computer applications could fail or create
erroneous results by or at the Year 2000. The business financial condition and
results of operation of a company, investment adviser separate account and/or a
mutual fund could be materially and adversely affected by the failure of its
systems and applications (or those either provided or operated by third-parties)
to properly operate or manage dates beyond the year 1999.
The Travelers and its affiliates have investigated the nature and extent of the
work required for its computer system to process beyond the turn of the century,
and have made progress toward achieving this goal, including upgrading and/or
replacing existing systems. The Travelers is confirming with its service
providers that they are also in the process of replacing or modifying their
systems with the same goal. The Travelers expect that our principal systems will
be Year 2000 compliance by early 1999. While these efforts involve substantial
costs, The Travelers closely monitors associated costs and continues to evaluate
associated risks based on actual expenses. While it is likely that these efforts
will be successful, if necessary modifications and conversions are not completed
in a timely manner, the Year 2000 requirements could have a material adverse
effect on certain operations of the Trust or its Funds.
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 will
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 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
18
<PAGE> 21
"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.
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.
19
<PAGE> 22
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.
20
<PAGE> 23
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 3 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 was audited by KPMG Peat Marwick 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....................... $10.00
Income from Investment Operations:
Net Investment Income(2)................ 0.06
Net Gains or Losses on Securities
(both realized and unrealized).......... 3.37
------
Total from Investment
Operations.............................. 3.43
Less Distributions:
Dividends (from net investment
Income)................................. (0.06)
Distributions (from capital gains)...... (0.90)
Return of Capital....................... --
Total distributions....................... (0.96)
Net Asset Value, End of Period............ $12.47
TOTAL RETURN(3)........................... 34.38%
Net Assets, End of Period
(thousands)............................. $6,169
RATIOS/SUPPLEMENTAL DATA(4)
Ratio of Expenses to Average Net
Assets(2)...............................
Ratio of Net Income to Average
Net Assets.............................. 0.85%
Portfolio turnover rate................. 74%
</TABLE>
(1) Date operations commenced
(2)
(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
21
<PAGE> 24
FINANCIAL HIGHLIGHTS
DISCIPLINED SMALL CAP 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 Peat Marwick 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)................
Net Gains or Losses on Securities
(both realized and unrealized)..........
Total from Investment
Operations..............................
Less Distributions:
Dividends (from net investment
Income).................................
Distributions (from capital gains)......
Total distributions.......................
Net Asset Value, End of Period............
TOTAL RETURN(3)...........................
Net Assets, End of Period
(thousands).............................
RATIOS/SUPPLEMENTAL DATA(4)
Ratio of Expenses to Average Net
Assets(2)...............................
Ratio of Net Income to Average Net
Assets..................................
Portfolio turnover rate.................
</TABLE>
(1) Date operations commenced
(2)
(3)
(4)
22
<PAGE> 25
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 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 Peat Marwick 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)................
Net Gains or Losses on Securities
(both realized and unrealized)..........
Total from Investment
Operations..............................
Less Distributions:
Dividends (from net investment
Income).................................
Distributions (from capital gains)......
Total distributions.......................
Net Asset Value, End of Period............
TOTAL RETURN(3)...........................
Net Assets, End of Period
(thousands).............................
RATIOS/SUPPLEMENTAL DATA(4)
Ratio of Expenses to Average Net
Assets(2)...............................
Ratio of Net Income to Average Net
Assets..................................
Portfolio turnover rate.................
</TABLE>
(1) Date operations commenced
(2)
(3)
(4)
23
<PAGE> 26
FINANCIAL HIGHLIGHTS
LARGE CAP PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 3 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, 1997 and 1998
was audited by KPMG Peat Marwick 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....................... $ 11.29 $10.00
Income from Investment Operations:
Net Investment Income(2)................ 0.07 0.04
Net Gains or Losses on Securities
(both realized and unrealized).......... 2.54 1.29
------- ------- ------
Total from Investment
Operations.............................. 2.61 1.33
======
Less Distributions:
Dividends (from net investment
Income)................................. (0.04) (0.04)
Distributions (from capital gains)...... (0.36) --
------- ------
Total distributions....................... (0.40) (0.04)
Net Asset Value, End of Period............ $ 13.50 $11.29
TOTAL RETURN(3)........................... 23.41% 13.30%
Net Assets, End of Period
(thousands)............................. $12,070 $3,411
RATIOS/SUPPLEMENTAL DATA(4)
Ratio of Expenses to Average Net
Assets(2)...............................
Ratio of Net Income to Average Net
Assets.................................. 0.55% 0.98%
Portfolio turnover rate................. 60% 57%
</TABLE>
(1) Date operations commenced
(2)
(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
24
<PAGE> 27
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 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, 1997 and 1998
was audited by KPMG Peat Marwick 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 1, 1996(1)TO
1998 1997 DECEMBER 31, 1996
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period....................... $ 10.78 $10.00
Income from Investment Operations:
Net Investment Income(2)................ 0.05 0.02
Net Gains or Losses on Securities
(both realized and unrealized).......... 0.87 0.76
------- ------- ------
Total from Investment
Operations.............................. 0.92 0.78
======
Less Distributions:
Dividends (from net investment
Income)................................. (0.09) --
Distributions (from capital gains)...... (0.04) --
------- ------
Total distributions....................... (0.13) --
Net Asset Value, End of Period............ $ 11.57 $10.78
TOTAL RETURN(3)........................... 8.50% 7.80%
Net Assets, End of Period (thousands)... $14,229 $4,322
RATIOS/SUPPLEMENTAL DATA(4)
Ratio of Expenses to Average Net
Assets(2)...............................
Ratio of Net Income to Average
Net Assets.............................. 0.66% 0.42%
Portfolio turnover rate................. 22% 9%
</TABLE>
(1) Date operations commenced
(2)
(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.
25
<PAGE> 28
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 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 Peat Marwick 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)................
Net Gains or Losses on Securities
(both realized and unrealized)..........
Total from Investment
Operations..............................
Less Distributions:
Dividends (from net investment
Income).................................
Distributions (from capital gains)......
Total distributions.......................
Net Asset Value, End of Period............
TOTAL RETURN(3)...........................
Net Assets, End of Period
(thousands).............................
RATIOS/SUPPLEMENTAL DATA(4)
Ratio of Expenses to Average Net
Assets(2)...............................
Ratio of Net Income to Average Net
Assets..................................
Portfolio turnover rate.................
</TABLE>
(1) Date operations commenced
(2)
(3)
(4)
26
<PAGE> 29
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 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 Peat Marwick 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)................
Net Gains or Losses on Securities
(both realized and unrealized)..........
Total from Investment
Operations..............................
Less Distributions:
Dividends (from net investment
Income).................................
Distributions (from capital gains)......
Total distributions.......................
Net Asset Value, End of Period............
TOTAL RETURN(3)...........................
Net Assets, End of Period (thousands)...
RATIOS/SUPPLEMENTAL DATA(4)
Ratio of Expenses to Average Net
Assets(2)...............................
Ratio of Net Income to Average Net
Assets..................................
Portfolio turnover rate.................
</TABLE>
(1) Date operations commenced
(2)
(3)
(4)
27
<PAGE> 30
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 for the year ended December 31, 1998 was
audited by KPMG Peat Marwick 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)................
Net Gains or Losses on Securities
(both realized and unrealized)..........
Total from Investment
Operations..............................
Less Distributions:
Dividends (from net investment
Income).................................
Distributions (from capital gains)......
Total distributions.......................
Net Asset Value, End of Period............
TOTAL RETURN(3)...........................
Net Assets, End of Period (thousands)...
RATIOS/SUPPLEMENTAL DATA(4)
Ratio of Expenses to Average Net
Assets(2)...............................
Ratio of Net Income to Average Net
Assets..................................
Portfolio turnover rate.................
</TABLE>
(1) Date operations commenced
(2)
(3)
(4)
28
<PAGE> 31
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, 1997 and 1998
was audited by KPMG Peat Marwick 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,
-----------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period....................... $ 10.86 $ 12.43 $ 10.58 $ 11.63
Income from Investment Operations:
Net Investment Income................... 0.58 0.68 0.65 0.60
Net Gains or Losses on Securities (both
realized and unrealized)................ 0.79 (0.52) 1.80 (1.23)
-------
Total from Investment Operations........ 1.37 0.16 2.45 (0.63)
=======
Less Distributions(1):
Dividends (from net investment
Income)................................. (0.58) (1.55) (0.60) (0.39)
Distributions (from capital gains)...... -- (0.18) -- (0.03)
------- ------- ------- -------
Total distributions....................... (0.58) (1.73) (0.60) (0.42)
Net Asset Value, End of Period............ $ 11.65 $ 10.86 $ 12.43 $ 10.58
TOTAL RETURN(2)........................... 12.62% 1.46% 24.42% (5.64)%
Net Assets, End of Period
(thousands)............................. $35,279 $26,009 $28,192 $24,522
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net
Assets.................................. 0.49% 0.62% 0.56% 0.71%
Ratio of Net Income to Average Net
Assets.................................. 6.10% 5.68% 5.80% 5.56%
Portfolio turnover rate................. 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.
(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.
29
<PAGE> 32
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
- ---------------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------
<S> <C> <C>
Affiliated Bank Transactions
- -------------------------------------------------------------------------------
American Depositary Receipts X X
- ------------------------------------------------------------------------------------------
Asset-Backed Mortgage
Securities
- -----------------------------------------------------------------------------------------------------
Bankers Acceptances 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
- ---------------------------------------------------------------------------------------------------------------------
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> 33
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 -- 1-860-277-0111
- --------------------------------------------------------------------------------
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> 34
THE TRAVELERS SERIES TRUST
Convertible Bond Portfolio
Disciplined Mid Cap Stock Portfolio
Disciplined Small Cap Stock Portfolio
Equity Income Portfolio
Federated High Yield Stock Portfolio
Federated Stock Portfolio
Large Cap Portfolio
Lazard International Stock Portfolio
MFS Emerging Growth Portfolio
MFS Mid Cap Stock Portfolio
Travelers Quality Bond Portfolio
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- -
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> 35
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
3
GOALS AND INVESTMENTS
3
Convertible Bond Portfolio
4
Disciplined Mid Cap Stock Portfolio
5
Disciplined Small Cap Stock Portfolio
6
Equity Income Portfolio
7
Federated High Yield Portfolio
8
Federated Stock Portfolio
9
Large Cap Portfolio
10
Lazard International Stock Portfolio
11
MFS Emerging Growth Portfolio
12
MFS Mid Cap Growth Portfolio
13
Travelers Quality Bond Portfolio
14
INVESTMENTS AND PRACTICES
16
MANAGEMENT
16
Public Fund Performance
20
SHARE TRANSACTIONS AND PRICING
22
TAX CONSEQUENCES OF DIVIDENDS AND DISTRIBUTIONS
23
FINANCIAL HIGHLIGHTS
</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") serves as
investment adviser for each Fund. TAMIC is an indirect wholly owned subsidiary
of Citigroup, Inc. TAMIC has each engaged subadvisers to provide an investment
program for certain Funds.
2
<PAGE> 36
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
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.
PRINCIPAL RISK FACTORS: The Fund is most subject to equities risk, fixed-income
securities risk, and lower-quality fixed-income securities risk. For a full
description of these types of risk, please refer to the "Investments and
Practices" section of this prospectus. A detailed description of the risks
associated with all investments available to the Fund, please refer to the SAI.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 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
[ Index]
</TABLE>
Best Quarter: Q# [2 digit year] %
Worst Quarter: Q# [2 digit year] %
3
<PAGE> 37
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
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.
PRINCIPAL RISK FACTORS: The Fund is most subject to equities risk, including
small company risk. For a full description of this type of risk, please refer to
the "Investments and Practices" section of this prospectus. Please see the SAI
for a detailed description of all investments, and their associated risks,
available to the Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
(The Fund commenced operations on April 1, 1997)
<TABLE>
<CAPTION>
1 year Life of Fund
------ ------------
<S> <C> <C>
Disc. Mid Cap
S&P 400
</TABLE>
Best Quarter: Q# [2 digit year] %
Worst Quarter: Q# [2 digit year] %
4
<PAGE> 38
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 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
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.
PRINCIPAL RISK FACTORS: The Fund is most subject to equities risk, including
small companies risk. For a full description of this type of risk, please refer
to the "Investments and Practices" section of this prospectus. Please see the
SAI for a detailed description of all investments, and their associated risks,
available to the Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 information 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
Russell 2000
</TABLE>
Best Quarter: Q# [2 digit year] %
Worst Quarter: Q# [2 digit year] %
5
<PAGE> 39
EQUITY INCOME PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: Fidelity Management
& Research Company
PORTFOLIO MANAGER: Stephen
Petersen
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'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.
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.
PRINCIPAL RISK FACTORS: The Fund is most subject to equities risk, and is also
subject to foreign securities and emerging markets risk, and lower-quality
fixed-income securities ("junk bonds") risk. For a complete description of these
types of risk, please refer to the "Investments and Practices" section of this
prospectus. Please see the SAI for a detailed description of all investments,
and their associated risks, available to the Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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]
<TABLE>
<CAPTION>
EQUITY INCOME
PORTFOLIO
<S> <C>
'97 32.05
'98
</TABLE>
The Fund commenced operations on August 30, 1996.
Best Quarter: Q# [2 digit year] %
Worst Quarter: Q# [2 digit year] %
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
<TABLE>
<CAPTION>
1 year Life of Fund
------ ------------
<S> <C> <C>
Equity Income
S&P 500
</TABLE>
6
<PAGE> 40
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 Investor 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
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.
PRINCIPAL RISK FACTORS: The Fund is most subject to lower-quality fixed-income
securities ("junk bonds"), risk and may also be subject to foreign and emerging
markets securities risk. For a full description of these types of risk, please
refer to the "Investments and Practices" section of this prospectus. Please see
the SAI for a detailed description of all investments, and associated risks,
available to the Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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]
<TABLE>
<CAPTION>
FEDERATED
HIGH YIELD
PORTFOLIO
<S> <C>
'97 15.45
'98
</TABLE>
The Fund commenced operations on August 30, 1996.
Best Quarter: Q# [2 digit year] %
Worst Quarter: Q# [2 digit year] %
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
<TABLE>
<CAPTION>
1 year Life of Fund
------ ------------
<S> <C> <C>
Federated High Yield
Lehman Agg. Bond
</TABLE>
7
<PAGE> 41
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
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.
PRINCIPAL RISK FACTORS: The Fund is most subject to equities risk, foreign and
emerging market securities risk, and sector risk. For a full description of
these risks, please refer to the "Investments and Practices" section of this
prospectus. Please see the SAI for a detailed description of all investments,
and their associated risks, available to the Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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]
<TABLE>
<CAPTION>
FEDERATED
STOCK PORTFOLIO
<S> <C>
'97 33.41
'98
</TABLE>
The Fund commenced operations on August 30, 1996.
Best Quarter: Q# [2 digit year] %
Worst Quarter: Q# [2 digit year] %
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
<TABLE>
<CAPTION>
1 year Life of Fund
------ ------------
<S> <C> <C>
Federated Stock
S&P 500
</TABLE>
8
<PAGE> 42
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.
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.
PRINCIPAL RISK FACTORS: The Fund is most subject to equities risk, and is also
subject to foreign and emerging market securities risk. For a full description
of these types of risk, please refer to the "Investments and Practices" section
of this prospectus. Please see the SAI for a detailed description of all
investments and their associated risks, available to the Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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]
<TABLE>
<CAPTION>
LARGE CAP
PORTFOLIO
<S> <C>
'97 23.41
'98
</TABLE>
The Fund commenced operations on August 30, 1996.
Best Quarter: Q# [2 digit year] %
Worst Quarter: Q# [2 digit year] %
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
<TABLE>
<CAPTION>
1 year Life of Fund
------ ------------
<S> <C> <C>
Large Cap
S&P 500
</TABLE>
9
<PAGE> 43
LAZARD INTERNATIONAL STOCK PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: Lazard Asset
Management
PORTFOLIO MANAGER: Herbert
Gullquist
FUND'S OBJECTIVE: Capital Appreciation
KEY INVESTMENTS: Equity Securities of
non-U.S. companies
SELECTION PROCESS: The Fund's subadviser
invests primarily in companies based in
Continental Europe, the United Kingdom, and the Pacific Basin, 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 market 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
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund also
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.
PRINCIPAL RISK FACTORS: The Fund is most subject to foreign and emerging
markets securities risk. For a full description of these types of risk, please
refer to the "Investments and Practices" section of this prospectus. Please see
the SAI for a detailed description of all investments, and their associated
risks, available to the Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 Index EAFE 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]
<TABLE>
<CAPTION>
LAZARD
INTERNATIONAL
STOCK PORTFOLIO
<S> <C>
'97 8.50
'98
</TABLE>
The Fund commenced operations on August 1, 1996.
Best Quarter: Q# [2 digit year] %
Worst Quarter: Q# [2 digit year] %
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
<TABLE>
<CAPTION>
1 year Life of Fund
------ ------------
<S> <C> <C>
Lazard Int. Stock
MSCI EAFE Index
</TABLE>
10
<PAGE> 44
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 invest 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.
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% 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.
PRINCIPAL RISK FACTORS: The Fund is most subject to equities risk, including
emerging growth, over-the-counter, and small companies risk, and may also be
subject to foreign and emerging market securities risk. For a full description
of these types of risk, please refer to the "Investments and Practices" section
of this prospectus. Please see the SAI for a detailed description of all
investments, and their associated risks, available to the Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 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]
<TABLE>
<CAPTION>
MFS EMERGING
GROWTH
PORTFOLIO
<S> <C>
'97 21.15
'98
</TABLE>
The Fund commenced operations on August 30, 1996.
Best Quarter: Q# [2 digit year] %
Worst Quarter: Q# [2 digit year] %
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
<TABLE>
<CAPTION>
1 year Life of Fund
------ ------------
<S> <C> <C>
MFS Emerg. Growth
Russell 2000
</TABLE>
11
<PAGE> 45
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 $250 million but not exceeding the top range of
the Russell Midcap(TM) Growth Index ($ as of the date of this
prospectus) 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 $ 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.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund's
investments may include securities traded in the over-the-counter markets. It
generally invests up to 20%, but may invest up to 35% of its total assets in
foreign securities. The Fund may also invest in fixed-income securities,
including up to 20% 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.
PRINCIPAL RISK FACTORS: The Fund is most subject to equities risk, including
mid-cap growth company and over-the-counter risks, and may also be subject to
foreign and emerging market securities risk, and fixed-income securities risk,
including junk bond risk. For a full description of these types of risk, please
refer to the "Investments and Practices" section of this prospectus. Please see
the SAI for a detailed description of all investments and their associated
risks, available to the Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 Total Return and the
Lipper Mid Cap Stock 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 May 1, 1998)
<TABLE>
<CAPTION>
Life of Fund
------------
<S> <C>
MFS Mid Cap Growth
Russell 2000 TR
Lipper Mid Cap
</TABLE>
Best Quarter: Q# [2 digit year] %
Worst Quarter: Q# [2 digit year] %
12
<PAGE> 46
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 generally will maintain an
average duration of 5 years or less.
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.
PRINCIPAL RISK FACTORS: The Fund is most subject to fixed-income securities
risk. For a full description of this type of risk, please refer to the
"Investments and Practices" section of this prospectus. Please see the SAI for a
detailed description of all investments, and their associated risks, available
to the Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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/Corporate 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]
<TABLE>
<CAPTION>
TRAVELERS
QUALITY BOND
PORTFOLIO
<S> <C>
'97 7.14
'98
</TABLE>
The Fund commenced operations on August 30, 1996.
Best Quarter: Q# [2 digit year] %
Worst Quarter: Q# [2 digit year] %
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
<TABLE>
<CAPTION>
1 year Life of Fund
------ ------------
<S> <C> <C>
Quality Bond Port.
LG/CBI
</TABLE>
13
<PAGE> 47
INVESTMENTS AND PRACTICES
Each Fund invests in various instruments subject to its particular investment
policy. The Funds may invest in some or all of the following, as described in
the overview for each Fund, and in the Statement of Additional Information. For
a free copy of the Statement of Additional Information, see the front cover of
this prospectus.
EQUITIES
(All Funds) Each Fund may invest in equity securities. Equity
securities include common and preferred stock,
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. 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, mid-size 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.
When you sell your shares, they may be worth more
or less than what you paid for them.
SECTORS
(Federated Stock 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.
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.
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.
14
<PAGE> 48
LOWER-RATED FIXED-INCOME SECURITIES (MFS Mid Cap
Growth, MFS Emerging Growth, Federated High
Yield, Equity Income, Large Cap)
High-yield securities, commonly referred to as
"junk bonds," 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,
Lazard International Stock,
MFS Emerging Growth,
MFS Mid Cap Growth,
Federated High Yield,
Federated Stock, Large
Cap, Equity Income
Travelers Quality Bond) 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 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.
EMERGING MARKETS
(Convertible Bond,
Lazard International Stock,
MFS Emerging Growth,
MFS Mid Cap Growth,
Federated High Yield,
Federated Stock, Large
Cap, Equity Income) Emerging markets investments 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,
Quality Bond, Lazard
International Stock,
MFS Emerging Growth,
MFS Mid Cap Growth,
Federated Stock, Large
Cap, Equity Income) A Fund may use 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.
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
15
<PAGE> 49
used to hedge against a possible risk or loss may
fail to protect against the particular risk or
loss.
TEMPORARY DEFENSIVE POSITIONS The Funds may depart from their principal
investment strategies in response to adverse
market, economic or political conditions by
taking temporary defensive positions. If a Fund
takes a temporary defensive position, it is not
pursuing its investment goal.
PORTFOLIO TURNOVER
(Disciplined Mid Cap,
Disciplined Small Cap,
Federated High Yield,
Federated Stock) Each of these Funds may actively trade its
portfolio securities in an attempt to achieve its
investment objective. Active trading will cause
the Fund 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 Fund's trading costs and may have
an adverse impact on the Fund's 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.
16
<PAGE> 50
MANAGEMENT
INVESTMENT ADVISER
TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION ("TAMIC") provides
investment advice for two Travelers Series Trust portfolios, and, in general,
supervises the management and investment program for all 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 Funds paid advisory fees to TAMIC as
indicated:
<TABLE>
<CAPTION>
PORTFOLIO ANNUAL MANAGEMENT FEE
(AS A PERCENTAGE OF THE PORTFOLIO'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 Stock Portfolio............................. 0.625%
Federated High Yield Portfolio........................ 0.65%
Large Cap Portfolio................................... 0.75%
Lazard International Stock Portfolio.................. 0.825%
MFS Emerging Growth Portfolio......................... 0.75%
MFS Mid Cap Growth Portfolio.......................... 0.80%*
Travelers Quality Bond Portfolio...................... 0.3233%
</TABLE>
* These Funds were not operational for a full year in 1998. Accordingly, the fee
indicated is the contract rate.
THE SUBADVISERS AND PORTFOLIO MANAGERS
The Travelers Quality Bond Portfolio and Convertible Bond Portfolio are managed
solely by TAMIC. The other portfolios' investments are selected by subadvisers
which are supervised by TAMIC. The table below sets forth the name of each
subadviser and portfolio manager, including the business experience of each
portfolio manager.
17
<PAGE> 51
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------
FUND PORTFOLIO MANAGER BUSINESS EXPERIENCE
AND SUBADVISER (1994-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 Petersen Portfolio Manager
(since 8/96) 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. Dubiano 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
- --------------------------------------------------------------------------------------------
LARGE CAP PORTFOLIO Karen Firestone Portfolio Manager or
(since 5/98) Portfolio
Fidelity Management & Assistant for mutual funds
Research Co. and other trust accounts
82 Devonshire Street for FMR and Fidelity
Boston, MA 02109-3614 Management Trust Company
- --------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 52
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------
FUND PORTFOLIO MANAGER BUSINESS EXPERIENCE
AND SUBADVISER (1994-PRESENT)
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C> <C>
LAZARD INTERNATIONAL STOCK Herbert Gullquist Managing Director and
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
- --------------------------------------------------------------------------------------------
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 Baylston Street Investments
Boston, Ma.
- --------------------------------------------------------------------------------------------
MFS MID CAP GROWTH Mark Regan Vice President, MFS
PORTFOLIO (since 5/98)
MFS
500 Boylston Street
Boston, MA
- --------------------------------------------------------------------------------------------
TRAVELERS QUALITY BOND F. Denney Voss Executive Vice President,
PORTFOLIO (since 3/95) Travelers Insurance Co.
TAMIC
(No subadviser) Senior Vice President,
TAMIC
- --------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 53
PUBLIC FUND PERFORMANCE
The funds described in this prospectus ("insurance funds") commenced public sale
of their shares as indicated below. However, each of these insurance funds has
the same investment objective and follows substantially the same investment
strategies as a mutual fund ("public fund") whose shares are sold to the public
and managed by the same portfolio managers as a corresponding public fund.
Set forth below is the historical performance of the public funds. Investors
should not consider the performance data of the public funds as an indication of
the future performance of the insurance funds. The performance figures shown
below reflect the deduction of the historical fees and expenses paid by the
public funds, and not those to be paid by the insurance funds. The figures also
do not reflect the deduction of any insurance fees or charges which are imposed
in connection with the sale of variable contracts. Investors should refer to the
separate account prospectus describing the variable contracts for information
pertaining to these insurance fees and charges. The insurance separate account
fees will have a detrimental effect on the performance of the insurance funds.
Additionally, although it is anticipated that each insurance fund and its
corresponding public fund series will hold similar securities, their investment
results are expected to differ. In particular, differences in asset size and in
cash flow resulting from purchases and redemptions of insurance fund shares may
result in different security selections, differences in the relative weightings
of securities or differences in the price paid for particular portfolio
holdings. The results shown reflect the reinvestment of dividends and
distributions, and were calculated in the same manner that will be used by the
insurance funds to calculate their own performance.
The following tables show average annualized total returns for the time periods
shown for the public funds.
<TABLE>
<CAPTION>
CORRESPONDING
INSURANCE FUND NAME PUBLIC FUND NAME 1 YEAR 5 YEARS 10 YEARS
------------------- ---------------- ------ ------- --------
<S> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------------
Convertible Bond Portfolio....
Disciplined Mid Cap Stock
Portfolio...................
Disciplined Small Cap Stock
Portfolio...................
Equity Income Portfolio.......
Federated High Yield Bond
Portfolio...................
Federated Stock Portfolio.....
Large Cap Portfolio...........
Lazard International Stock
Portfolio...................
MFS Emerging Growth
Portfolio...................
MFS Mid Cap Stock Portfolio...
Travelers Quality Bond
Portfolio...................
</TABLE>
20
<PAGE> 54
LEGAL PROCEEDINGS
There are no material pending legal proceedings affecting the Trust, and it has
been advised by TAMIC, TIMCO, Federated Investors, Fidelity Management &
Research, Lazard Freres & Co., Massachusetts Financial Services, and the Trust's
principal underwriter that none of them have any material pending legal
proceedings affecting them.
YEAR 2000 COMPLIANCE
Generally computer programs were designed without considering the impact of the
upcoming change in the century. As a result software and computer systems may
need to be upgraded or replaced in order to comply with "Year 2000"
requirements. If not corrected, these computer applications could fail or create
erroneous results by or at the Year 2000. The business financial condition and
results of operation of a company, investment adviser separate account and/or a
mutual fund could be materially and adversely affected by the failure of its
systems and applications (or those either provided or operated by third-parties)
to properly operate or manage dates beyond the year 1999.
The Travelers and its affiliates have investigated the nature and extent of the
work required for its computer system to process beyond the turn of the century,
and have made progress toward achieving this goal, including upgrading and/or
replacing existing systems. The Travelers is confirming with its service
providers that they are also in the process of replacing or modifying their
systems with the same goal. The Travelers expect that our principal systems will
be Year 2000 compliance by early 1999. While these efforts involve substantial
costs, The Travelers closely monitors associated costs and continues to evaluate
associated risks based on actual expenses. While it is likely that these efforts
will be successful, if necessary modifications and conversions are not completed
in a timely manner, the Year 2000 requirements could have a material adverse
effect on certain operations of the Trust or its Funds.
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 will
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 will be converted into Euros, which is 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.
21
<PAGE> 55
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.
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.
22
<PAGE> 56
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.
23
<PAGE> 57
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 Peat Marwick 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.......................
Income from Investment Operations:
Net Investment Income(2)................
Net Gains or Losses on Securities
(both realized and unrealized)..........
Total from Investment
Operations..............................
Less Distributions:
Dividends (from net investment
Income).................................
Distributions (from capital gains)......
Total distributions.......................
Net Asset Value, End of
Period....................................
TOTAL RETURN(3)...........................
Net Assets, End of Period
(thousands).............................
RATIOS/SUPPLEMENTAL DATA(4)
Ratio of Expenses to Average Net
Assets(2)...............................
Ratio of Net Income to Average Net
Assets..................................
Portfolio turnover rate.................
</TABLE>
(1) Date operations commenced
(2)
(3)
(4)
24
<PAGE> 58
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 3 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 was audited by KPMG Peat Marwick 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....................... $10.00
Income from Investment Operations:
Net Investment Income(2)................ 0.06
Net Gains or Losses on Securities
(both realized and unrealized).......... 3.37
------
Total from Investment
Operations.............................. 3.43
Less Distributions:
Dividends (from net investment
Income)................................. (0.06)
Distributions (from capital gains)...... (0.90)
Return of Capital....................... --
Total distributions....................... (0.96)
Net Asset Value, End of
Period.................................... $12.47
TOTAL RETURN(3)........................... 34.38%
Net Assets, End of Period
(thousands)............................. $6,169
RATIOS/SUPPLEMENTAL DATA(4)
Ratio of Expenses to Average Net
Assets(2)...............................
Ratio of Net Income to Average
Net Assets.............................. 0.85%
Portfolio turnover rate................. 74%
</TABLE>
(1) Date operations commenced
(2)
(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.
25
<PAGE> 59
FINANCIAL HIGHLIGHTS
DISCIPLINED SMALL CAP 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 Peat Marwick 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)................
Net Gains or Losses on Securities
(both realized and unrealized)..........
Total from Investment
Operations..............................
Less Distributions:
Dividends (from net investment
Income).................................
Distributions (from capital gains)......
Total distributions
Net Asset Value, End of
Period....................................
TOTAL RETURN(3)...........................
Net Assets, End of Period
(thousands).............................
RATIOS/SUPPLEMENTAL DATA(4)
Ratio of Expenses to Average Net
Assets(2)...............................
Ratio of Net Income to Average Net
Assets..................................
Portfolio turnover rate.................
</TABLE>
(1) Date operations commenced
(2)
(3)
(4)
26
<PAGE> 60
FINANCIAL HIGHLIGHTS
EQUITY INCOME PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 3 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, 1997 and 1998
was audited by KPMG Peat Marwick 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 1, 1996(1) TO
1998 1997 DECEMBER 31, 1996
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period....................... $ 11.09 $10.00
Income from Investment Operations:
Net Investment Income(2)................ 0.21 0.08
Net Gains or Losses on Securities
(both realized and unrealized).......... 3.32 1.09
------- ------- ------
Total from Investment
Operations.............................. 3.53 1.17
======
Less Distributions:
Dividends (from net investment
Income)................................. (0.12) (0.08)
Distributions (from capital gains)...... (0.59) --
------- ------
Total distributions....................... (0.71) (0.08)
Net Asset Value, End of Period............ $ 13.91 $11.09
TOTAL RETURN(3)........................... 32.05% 11.69%
Net Assets, End of Period
(thousands)............................. $22,139 $3,600
RATIOS/SUPPLEMENTAL DATA(4)
Ratio of Expenses to Average Net
Assets(2)...............................
Ratio of Net Income to Average Net
Assets.................................. 1.60% 2.34%
Portfolio turnover rate................. 52% 14%
</TABLE>
(1) Date operations commenced
(2)
(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.
27
<PAGE> 61
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 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, 1997 and 1998
was audited by KPMG Peat Marwick 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....................... $ 10.42 $10.00
Income from Investment Operations:
Net Investment Income(2)................ 0.60 0.31
Net Gains or Losses on Securities (both
realized and unrealized)................ 1.01 0.46
------- ------- ------
Total from Investment Operations........ 1.61 0.77
======
Less Distributions:
Dividends (from net investment
Income)................................. (0.60) (0.31)
Distributions (from capital gains)...... (0.09) (0.04)
------- ------
Total distributions....................... (0.69) (0.35)
Net Asset Value, End of Period............ $ 11.34 $10.42
TOTAL RETURN(3)........................... 15.45% 7.61%
Net Assets, End of Period (thousands)... $14,049 $5.381
RATIOS/SUPPLEMENTAL DATA(4)
Ratio of Expenses to Average Net
Assets(2)...............................
Ratio of Net Income to Average Net
Assets.................................. 8.82% 8.78%
Portfolio turnover rate................. 43% 23%
</TABLE>
(1) Date operations commenced
(2)
(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.
28
<PAGE> 62
FINANCIAL HIGHLIGHTS
FEDERATED STOCK PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 3 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, 1997 and 1998
was audited by KPMG Peat Marwick 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....................... $ 11.10 $10.00
Income from Investment Operations:
Net Investment Income(2)................ 0.10 0.06
Net Gains or Losses on Securities (both
realized and unrealized)................ 3.60 1.20
------- ------- ------
Total from Investment Operations........ 3.70 1.26
======
Less Distributions:
Dividends (from net investment
Income)................................. (0.10) (0.06)
Distributions (from capital gains)...... (0.87) (0.09)
------- ------
Capital................................. -- (0.01)
Total distributions....................... (0.97) (0.16)
Net Asset Value, End of Period............ $ 13.83 $11.10
TOTAL RETURN(3)........................... 33.41% 12.61%
Net Assets, End of Period (thousands)... $12,100 $3,380
RATIOS/SUPPLEMENTAL DATA(4)
Ratio of Expenses to Average Net
Assets(2)...............................
Ratio of Net Income to Average Net
Assets.................................. 1.11% 1.55%
Portfolio turnover rate................. 74% 11%
</TABLE>
(1) Date operations commenced
(2)
(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.
29
<PAGE> 63
FINANCIAL HIGHLIGHTS
LARGE CAP PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 3 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, 1997 and 1998
was audited by KPMG Peat Marwick 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....................... $ 11.29 $10.00
Income from Investment Operations:
Net Investment Income(2)................ 0.07 0.04
Net Gains or Losses on Securities
(both realized and unrealized).......... 2.54 1.29
------- ------- ------
Total from Investment
Operations.............................. 2.61 1.33
======
Less Distributions:
Dividends (from net investment
Income)................................. (0.04) (0.04)
Distributions (from capital gains)...... (0.36) --
------- ------
Total distributions....................... (0.40) (0.04)
Net Asset Value, End of Period............ $ 13.50 $11.29
TOTAL RETURN(3)........................... 23.41% 13.30%
Net Assets, End of Period
(thousands)............................. $12,070 $3,411
RATIOS/SUPPLEMENTAL DATA(4)
Ratio of Expenses to Average Net
Assets(2)...............................
Ratio of Net Income to Average Net
Assets.................................. 0.55% 0.98%
Portfolio turnover rate................. 60% 57%
</TABLE>
(1) Date operations commenced
(2)
(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.
30
<PAGE> 64
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 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, 1997 and 1998
was audited by KPMG Peat Marwick 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 1, 1996(1) TO
1998 1997 DECEMBER 31, 1996
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period....................... $ 10.78 $10.00
Income from Investment Operations:
Net Investment Income(2)................ 0.05 0.02
Net Gains or Losses on Securities
(both realized and unrealized).......... 0.87 0.76
------- ------- ------
Total from Investment
Operations.............................. 0.92 0.78
======
Less Distributions:
Dividends (from net investment
Income)................................. (0.09) --
Distributions (from capital gains)...... (0.04) --
------- ------
Total distributions....................... (0.13) --
Net Asset Value, End of Period............ $ 11.57 $10.78
TOTAL RETURN(3)........................... 8.50% 7.80%
Net Assets, End of Period
(thousands)............................. $14,229 $4,322
RATIOS/SUPPLEMENTAL DATA(4)
Ratio of Expenses to Average Net
Assets(2)...............................
Ratio of Net Income to Average Net
Assets.................................. 0.66% 0.42%
Portfolio turnover rate................. 22% 9%
</TABLE>
(1) Date operations commenced
(2)
(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.
31
<PAGE> 65
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 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, 1997 and 1998
was audited by KPMG Peat Marwick 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....................... $ 10.55 $ 10.00
Income from Investment Operations:
Net Investment Income(2)................ (0.03) 0.03
Net Gains or Losses on Securities (both
realized and unrealized)................ 2.26 0.57
------- ------- -------
Total from Investment Operations........ 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............ $ 12.56 $ 10.55
TOTAL RETURN(3)........................... 21.15% 6.00%
Net Assets, End of Period (thousands)... $70,347 $12,924
RATIOS/SUPPLEMENTAL DATA(4)
Ratio of Expenses to Average Net
Assets(2)...............................
Ratio of Net Income to Average Net
Assets.................................. (0.40)% 0.55%
Portfolio turnover rate................. 94% 49%
</TABLE>
(1) Date operations commenced
(2)
(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.
32
<PAGE> 66
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 Peat Marwick 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)................
Net Gains or Losses on Securities (both
realized and unrealized)................
Total from Investment Operations........
Less Distributions:
Dividends (from net investment
Income).................................
Distributions (from capital gains)......
--------
Total distributions.......................
Net Asset Value, End of Period............
TOTAL RETURN..............................
Net Assets, End of Period (thousands).....
RATIOS/SUPPLEMENTAL DATA(3)
Ratio of Expenses to Average Net
Assets(2)...............................
Ratio of Net Income to Average Net
Assets..................................
Portfolio turnover rate.................
</TABLE>
(1) Date operations commenced
(2)
(3) Annualized
33
<PAGE> 67
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 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, 1997 and 1998
was audited by KPMG Peat Marwick 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....................... $10.10 $10.00
Income from Investment Operations:
Net Investment Income(2)................ 0.43 0.19
Net Gains or Losses on Securities
(both realized and unrealized).......... 0.29 0.16
------- ------ ------
Total from Investment Operations........ 0.72 0.35
======
Less Distributions:
Dividends (from net investment
Income)................................. (0.43) (0.19)
Distributions (from capital gains)...... (0.03) (0.06)
------ ------
Total distributions....................... (0.46) (0.25)
Net Asset Value, End of Period............ $10.36 $10.10
TOTAL RETURN(3)........................... 7.14% 3.56%
Net Assets, End of Period
(thousands)............................. $9,468 $5,273
RATIOS/SUPPLEMENTAL DATA(4)
Ratio of Expenses to Average Net
Assets(2)...............................
Ratio of Net Income to Average Net
Assets.................................. 5.80% 5.62%
Portfolio turnover rate................. 295% 35%
</TABLE>
(1) Date operations commenced
(2)
(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.
34
<PAGE> 68
APPENDIX A
Each Fund may invest in various instruments subject to its particular investment
policies. These techniques and practices are described, together with their
risks, in the SAI.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTMENT TECHNIQUES LARGE DISCI. DISCI. CONV. EQUITY FED. FED. LAZARD MFS MFS TRAV.
CAP MID SMALL BOND INCOME HIGH STOCK INT.'L EMERG. MID CAP QUAL.
CAP CAP YIELD GROWTH GROWTH BOND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Affiliated Bank
Transactions X X
- ---------------------------------------------------------------------------------------------------------------------------------
American Depositary
Receipts X 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 X X
- ---------------------------------------------------------------------------------------------------------------------------------
Buying Put and Call
Options X X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Certificates of Deposit X X X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Commercial Paper X X 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 X
- ---------------------------------------------------------------------------------------------------------------------------------
Debt Securities X X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Emerging Market
Securities X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Equity Securities X X X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Floating & Variable Rate
Instruments X X X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Foreign Securities X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Forward Contracts on
Foreign Currency X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Futures Contracts X X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
High-Yield, High Risk
Bonds X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Illiquid Securities X X X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Indexed Securities X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Index Futures Contracts X X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Company
Securities X X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Investment in Unseasoned
Companies X X X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Lending Portfolio
Securities X X X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Letters of Credit X X X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Loan Participations X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Options on Foreign
Currencies X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Options on Index Futures
Contracts X X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Options on Stock Indices X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Other Direct Indebtedness X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Real Estate-Related
Instruments X X X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements X X X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Reverse Repurchase
Agreements X X X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Short Sales "Against the
Box" X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Short-Term Money Market
Instruments X X X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Swap Agreements X X
- ---------------------------------------------------------------------------------------------------------------------------------
Temporary Bank Borrowing X X X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Government
Securities X X X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Variable Amount Master
Demand Notes X X X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
When-Issued & Delayed
Delivery Securities X X X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Writing Covered Call
Options X X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-1
<PAGE> 69
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 -- 1-860-277-0111
- --------------------------------------------------------------------------------
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> 70
THE TRAVELERS SERIES TRUST
Social Awareness Stock Portfolio
U.S. Government Securities Portfolio
Utilities Portfolio
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 "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- -
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> 71
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
GOALS AND INVESTMENTS
Social Awareness Stock Portfolio 3
U.S. Government Securities Portfolio 4
Utilities Portfolio 5
INVESTMENTS AND PRACTICES 6
MANAGEMENT 8
LEGAL PROCEEDINGS 9
YEAR 2000 COMPLIANCE 9
EURO CONVERSION 9
SHARE TRANSACTIONS AND PRICING 10
TAX CONSEQUENCES OF DIVIDENDS AND DISTRIBUTIONS 11
FINANCIAL HIGHLIGHTS 12
</TABLE>
The Trust consists of 20
separate Funds, each with its
own investment objective,
strategies, return potential
and risks. Only those funds
listed to the right are
described in this prospectus.
INVESTMENT ADVISERS
Travelers Asset Management International Corporation ("TAMIC") and Mutual
Management Corporation ("MMC") each serve as investment adviser for certain of
the Funds. Both TAMIC and MMC are indirect wholly owned subsidiaries of
Citigroup, Inc.
2
<PAGE> 72
SOCIAL AWARENESS STOCK PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: MMC
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
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.
PRINCIPAL RISK FACTORS: This Fund is most subject to equities risk. For a full
description of this type of risk, please refer to the "Investments and
Practices" section of this prospectus. Please see the SAI for a detailed
description of all investments, and their associated risks, available to the
Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 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
<TABLE>
<CAPTION>
SOCIAL
AWARENESS
STOCK PORTFOLIO
<S> <C>
'93 7.55
'94 -2.69
'95 33.37
'96 19.98
'97 27.28
'98 0.00
</TABLE>
The Fund commenced operations on May 1, 1992.
Best Quarter: Q# [2 digit year] %
Worst Quarter: Q# [2 digit year] %
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
<TABLE>
<CAPTION>
1 year 5 year Life of Fund
------ ------ ------------
<S> <C> <C> <C>
Social Awareness
S&P 500
</TABLE>
3
<PAGE> 73
U.S. GOVERNMENT SECURITIES PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
PORTFOLIO MANAGER: Joseph
Mullally
FUND'S OBJECTIVE: Highest credit quality,
current income, and
total return.
KEY INVESTMENTS: U.S. Treasury notes and
bonds and obligations 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
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.
PRINCIPAL RISK FACTORS: The Fund is most subject to fixed-income security risk.
For a full description of this type of risk, please refer to the "Investments
and Practices" section of this prospectus. Please see the SAI for a detailed
description of all investments, and their associated risks, available to the
Fund.
PORTFOLIO TURNOVER: The Fund may actively trade its portfolio securities in an
attempt to achieve its investment objective. Active trading will cause the Fund
to have an increased portfolio turnover rate which is likely to generate
shorter-term gains (losses) for its hareholders, which are taxed at a higher
rate than longer-term gains (losses). Actively trading portfolio securities
increases the Fund's trading costs and may have an adverse impact on the Fund's
performance.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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]
This Fund commenced operations on 1/24/1992.
Best Quarter: Q# [2 digit year] %
Worst Quarter: Q# [2 digit year] %
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.
Sec.
LGBI
</TABLE>
4
<PAGE> 74
UTILITIES PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: MMC
PORTFOLIO MANAGERS: 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
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.
PRINCIPAL RISK FACTORS: The Fund is most subject to equities risk,
lower-quality fixed-income securities risk, and foreign securities risk. For a
full description of these types of risk, please refer to the "Investments and
Practices" section of this prospectus. Please see the SAI for a detailed
description of all investments, and their associated risks, available to the
Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 Standard & Poor's 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 0.00
</TABLE>
The Fund commenced operations on February 4, 1994.
Best Quarter: Q# [2 digit year] %
Worst Quarter: Q# [2 digit year] %
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
<TABLE>
<CAPTION>
1 year 5 year Life of Fund
------ ------- ------------
<S> <C> <C> <C>
Utilities Portfolio
S&P 500
</TABLE>
5
<PAGE> 75
INVESTMENTS AND PRACTICES
Each Fund invests in various instruments subject to its particular investment
policy. The Funds invest in some or all of the following, as described in the
overview for each Fund, and in the Statement of Additional Information. For a
free copy of the Statement of Additional Information, see the front cover of
this prospectus.
EQUITIES
(Social Awareness, Utilities) Each 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. Each company
determines whether or not to pay dividends on
common stock. Equity securities are subject to
financial risks relating to the issuers earnings
stability and overall financial soundness.
Smaller companies are particularly sensitive to
these factors.
SECTORS: 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
FIXED INCOME INVESTMENTS
(All Funds)
Each 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.
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.
LOWER-QUALITY FIXED-INCOME SECURITIES (Utilities
Portfolio)
High-yield, high-risk securities, commonly
referred to as "junk bonds," are considered
speculative. While generally providing greater
income than investments in higher-quality
securities, these securities will involve greater
risk of principal and
6
<PAGE> 76
income (including the possibility of default or
bankruptcy of the issuers of the security) Junk
bonds also are subject to liquidity risks.
FOREIGN SECURITIES
INVESTMENTS
(Social Awareness Stock
Portfolio, Utilities
Portfolio) An investment in foreign securities involves risk
in addition to those of U.S. securities,
including possible political and economic
instability. The Funds may also bears an
"information" risk associated with the different
accounting, auditing, and financial reporting
standards in many foreign countries.
The only types of foreign securities in which the
Funds intend to invest are American Depository
Receipts ("ADRs"). ADRs are certificates issued
by a U.S. depository (usually a bank) and
represent a specified quantity of shares of an
underlying non-U.S. stock or deposit with a
custodian bank as collateral. Because ADRs trade
on U.S. securities exchanges, the Funds do not
treat them as foreign securities. However, they
are subject to many of the risks of foreign
securities described above.
EMERGING MARKETS
(Utilities Portfolio) Emerging markets may 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 than established foreign markets.
DERIVATIVES AND HEDGING
TECHNIQUES
(All Funds) 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
TEMPORARY DEFENSIVE POSITION
(All Funds) Each Fund may depart from its principal
investment strategies in response to adverse
market, economic or political conditions by
taking temporary defensive positions in various
types of money market and short-term debt
securities. If a Fund takes a temporary defensive
position, it is not pursuing its investment goal.
SELECTION RISKS
(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
7
<PAGE> 77
MANAGEMENT
INVESTMENT ADVISERS
TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION ("TAMIC") provides
investment advice and, in general, supervises and manages the investment program
for the U.S. Government Securities Portfolio. 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 U.S. Government Securities Portfolio
paid TAMIC advisory fees at an annual rate of 0.3233% of the Fund's average
daily net assets.
MUTUAL MANAGEMENT CORPORATION ("MMC") provides investment advice and, in
general, supervises and manages the investment program for the Social Awareness
Stock Portfolio and the Utilities Portfolio. TAMIC 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. MMC 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
MMC 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 MMC an amount
equivalent on an annual basis to 0.65% of its average daily net assets.
THE PORTFOLIO MANAGERS
The table below sets forth each portfolio manager's name and business experience
for the past 5 years.
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------
FUND PORTFOLIO MANAGER BUSINESS EXPERIENCE
(1994 TO PRESENT)
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C> <C>
SOCIAL AWARENESS STOCK Robert J. Brady (since 1994) Managing Director and
PORTFOLIO Portfolio Manager, MMC
Vice President and Portfolio
Manager, MMC
- --------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES Joseph M. Mullally (since Senior Vice President, TAMIC
PORTFOLIO 1995)
- --------------------------------------------------------------------------------------------
UTILITIES PORTFOLIO Robert J. Brady (since Managing Director and
11/98) Portfolio Manager, MMC
- --------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 78
LEGAL PROCEEDINGS
There are no material pending legal proceedings affecting the Trust, and it has
been advised by TAMIC, MMC and the Trust's principal underwriter that none of
them have any material pending legal proceedings affecting them.
YEAR 2000 COMPLIANCE
Generally computer programs were designed without considering the impact of the
upcoming change in the century. As a result software and computer systems may
need to be upgraded or replaced in order to comply with "Year 2000"
requirements. If not corrected, these computer applications could fail or create
erroneous results by or at the Year 2000. The business and financial condition
and results of operation of a company, investment adviser separate account
and/or a mutual fund could be materially and adversely affected by the failure
of its systems and applications (or those either provided or operated by
third-parties) to properly operate or manage dates beyond the year 1999.
The Travelers and its affiliates have investigated the nature and extent of the
work required for its computer system to process beyond the turn of the century,
and have made progress toward achieving this goal, including upgrading and/or
replacing existing systems. The Travelers is confirming with its service
providers that they are also in the process of replacing or modifying their
systems with the same goal. The Travelers expect that our principal systems will
be Year 2000 compliant by early 1999. While these efforts involve substantial
costs, The Travelers closely monitors associated costs and continues to evaluate
associated risks based on actual expenses. While it is likely that these efforts
will be successful, if necessary modifications and conversions are not completed
in a timely manner, the Year 2000 requirements could have a material adverse
effect on certain operations of the Trust or its Funds.
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 will
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 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.
9
<PAGE> 79
SHARE 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.
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.
10
<PAGE> 80
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.
11
<PAGE> 81
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, 1997 and 1998
was audited by KPMG Peat Marwick 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,
-----------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period....................... $ 15.76 $ 14.32 $11.05 $11.64
Income from Investment Operations:
Net Investment Income(1)................ 0.15 0.31 0.12 0.16
Net Gains or Losses on Securities (both
realized and unrealized)................ 4.15 2.42 3.47 (0.45)
-------
Total from Investment Operations........ 4.30 2.73 3.59 (0.29)
=======
Less Distributions(2):
Dividends (from net investment
Income)................................. -- (0.43) (0.14) (0.24)
Distributions (from capital gains)...... -- (0.86) (0.18) (0.06)
------- ------- ------ ------
Total distributions....................... -- (1.29) (0.32) (0.30)
Net Asset Value, End of Period............ $ 20.06 $ 15.76 $14.32 $11.05
TOTAL RETURN(3)........................... 27.28% 19.98% 33.37% (2.69)%
Net Assets, End of Period (thousands)... $21,013 $11,040 $7,055 $3,879
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net
Assets(1)(4)............................ % % % %
Ratio of Net Income to Average Net
Assets.................................. 0.97% 0.43% 0.99% 1.43%
Portfolio turnover rate................. 19% 26% 73% 137%
</TABLE>
(1)
(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) 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.
(4)
12
<PAGE> 82
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, 1997 and 1998
was audited by KPMG Peat Marwick 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,
-----------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period....................... $ 10.86 $ 12.43 $ 10.58 $ 11.63
Income from Investment Operations:
Net Investment Income................... 0.58 0.68 0.65 0.60
Net Gains or Losses on Securities (both
realized and unrealized)................ 0.79 (0.52) 1.80 (1.23)
-------
Total from Investment Operations........ 1.37 0.16 2.45 (0.63)
=======
Less Distributions(1):
Dividends (from net investment
Income)................................. (0.58) (1.55) (0.60) (0.39)
Distributions (from capital gains)...... -- (0.18) -- (0.03)
------- ------- ------- -------
Total distributions....................... (0.58) (1.73) (0.60) (0.42)
Net Asset Value, End of Period............ $ 11.65 $ 10.86 $ 12.43 $ 10.58
TOTAL RETURN(2)........................... 12.62% 1.46% 24.42% (5.64)%
Net Assets, End of Period (thousands)... $35,279 $26,009 $28,192 $24,522
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net
Assets.................................. 0.49% 0.62% 0.56% 0.71%
Ratio of Net Income to Average Net
Assets.................................. 6.10% 5.68% 5.80% 5.56%
Portfolio turnover rate................. 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.
(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.
13
<PAGE> 83
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, 1997 and 1998
was audited by KPMG Peat Marwick 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............................. $ 12.22 $ 12.85 $ 10.17 $10.00
Income from Investment Operations:
Net Investment Income(4)......... 0.46 0.47 0.48 0.35
Net Gains or Losses on Securities
(both realized and unrealized)... 2.63 0.47 2.44 (0.18)
Total from Investment
Operations....................... 3.09 0.94 2.92 0.17
Less Distributions(2):
Dividends (from net investment
Income).......................... (0.01) (0.84) (0.24) --
Distributions (from capital
gains)........................... (0.01) (0.73) -- --
------- ------- ------- ------
Total distributions................ (0.02) (1.57) (0.24) --
Net Asset Value, End of Period..... $ 15.29 $ 12.22 $ 12.85 $10.17
TOTAL RETURN(3).................... 25.29% 7.47% 29.29% 1.70%
Net Assets, End of Period
(thousands)...................... $21,413 $18,214 $15,340 $5,757
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net
Assets(4)........................ % % % %(5)
Ratio of Net Income to Average
Net Assets....................... 3.58% 3.88% 4.29% 3.86%(5)
Portfolio turnover rate.......... 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) 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.
(4)
14
<PAGE> 84
APPENDIX A
The Funds may invest in various instruments subject to their particular
investment policies. The Funds may engage in the following techniques and
practices which, together with their risks, are described in the SAI.
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
U.S. GOV'T SOCIAL
INVESTMENT TECHNIQUE SECURITIES AWARENESS UTILITIES
- ------------------------------------------------------------------------------------------------------------
Affiliated Bank Transactions
- ------------------------------------------------------------------------------------------------------------
American Depository Receipts X X
- ------------------------------------------------------------------------------------------------------------
Asset-Backed Mortgage Securities X
- ------------------------------------------------------------------------------------------------------------
Bankers Acceptances X X X
- ------------------------------------------------------------------------------------------------------------
Buying Put and Call Options X
- ------------------------------------------------------------------------------------------------------------
Certificates of Deposit X X X
- ------------------------------------------------------------------------------------------------------------
Commercial Paper X X X
- ------------------------------------------------------------------------------------------------------------
Convertible Securities X X
- ------------------------------------------------------------------------------------------------------------
Corporate Asset-Backed Securities
- ------------------------------------------------------------------------------------------------------------
Debt Securities X X X
- ------------------------------------------------------------------------------------------------------------
Emerging Market Securities
- ------------------------------------------------------------------------------------------------------------
Equity Securities X X
- ------------------------------------------------------------------------------------------------------------
Floating & Variable Rate Instruments X
- ------------------------------------------------------------------------------------------------------------
Foreign Securities X
- ------------------------------------------------------------------------------------------------------------
Forward Contracts on Foreign Currency
- ------------------------------------------------------------------------------------------------------------
Futures Contracts X X X
- ------------------------------------------------------------------------------------------------------------
High Yield, High-Risk Bonds X
- ------------------------------------------------------------------------------------------------------------
Illiquid Securities X X
- ------------------------------------------------------------------------------------------------------------
Indexed Securities
- ------------------------------------------------------------------------------------------------------------
Index Futures Contracts X X X
- ------------------------------------------------------------------------------------------------------------
Investment Company Securities X
- ------------------------------------------------------------------------------------------------------------
Investment in Unseasoned Companies
- ------------------------------------------------------------------------------------------------------------
Letters of Credit X
- ------------------------------------------------------------------------------------------------------------
Lending Portfolio Securities X X
- ------------------------------------------------------------------------------------------------------------
Loan Participation
- ------------------------------------------------------------------------------------------------------------
Options on Foreign Currencies
- ------------------------------------------------------------------------------------------------------------
Options on Index Futures Contracts X
- ------------------------------------------------------------------------------------------------------------
Options on Stock Indices X
- ------------------------------------------------------------------------------------------------------------
Other Direct Indebtedness
- ------------------------------------------------------------------------------------------------------------
Real Estate-Related Instruments X X
- ------------------------------------------------------------------------------------------------------------
Repurchase Agreements X X X
- ------------------------------------------------------------------------------------------------------------
Reverse Repurchase Agreements X
- ------------------------------------------------------------------------------------------------------------
Short Sales "Against the Box" X
- ------------------------------------------------------------------------------------------------------------
Short-Term Money Market Instruments X X X
- ------------------------------------------------------------------------------------------------------------
Swap Agreements
- ------------------------------------------------------------------------------------------------------------
Temporary Bank Borrowing X
- ------------------------------------------------------------------------------------------------------------
U.S Government Securities X X X
- ------------------------------------------------------------------------------------------------------------
Variable Amount Master Demand Notes X X X
- ------------------------------------------------------------------------------------------------------------
When-Issued and Delayed Delivery Securities X
- ------------------------------------------------------------------------------------------------------------
Writing Covered Call Options X X X
- ------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 85
THE TRAVELERS SERIES TRUST
SOCIAL AWARENESS STOCK PORTFOLIO
U.S. GOVERNMENT SECURITIES PORTFOLIO
UTILITIES PORTFOLIO
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 -- 1-860-277-0111
- --------------------------------------------------------------------------------
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> 86
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- -
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
Share Transactions and 6
Pricing......................
Tax Consequences............... 7
Financial Highlights........... 8
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> 87
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.
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.
PRINCIPAL RISK FACTORS: Each Fund is most subject to fixed-income securities
risk and foreign securities risk. For a full description of these types of risk,
please refer to the "Investments and Practices" section of this prospectus.
Please see the SAI for a detailed description of all investment techniques, and
their associated risks, available to the Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 0.00
</TABLE>
Fund commenced operations on October 11, 1995.
Best Quarter: Q# [2 digit year] %
Worst Quarter: Q# [2 digit year] %
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
<TABLE>
<CAPTION>
1 year Life of Fund
------ -------------
<S> <C> <C>
Zero Coupon
(Series 2000)
Merrill Lynch Zero (5 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 0.00
</TABLE>
Fund commenced operations on October 11, 1995.
Best Quarter: Q# [2 digit year] %
Worst Quarter: Q# [2 digit year] %
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1998
<TABLE>
<CAPTION>
1 year Life of Fund
------ -------------
<S> <C> <C>
Zero Coupon
(Series 2005)
Merrill Lynch Zero (10
yr.)
</TABLE>
2
<PAGE> 88
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 front cover of this prospectus.
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> 89
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.
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.
4
<PAGE> 90
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 .10% of the average daily net
assets of each Portfolio.
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
Generally computer programs were designed without considering the impact of the
upcoming change in the century. As a result software and computer systems may
need to be upgraded or replaced in order to comply with "Year 2000"
requirements. If not corrected, these computer applications could fail or create
erroneous results by or at the Year 2000. The business, financial condition and
results of operation of a company, investment adviser separate account and/or a
mutual fund could be materially and adversely affected by the failure of its
systems and applications (or those either provided or operated by third-parties)
to properly operate or manage dates beyond the year 1999.
The Travelers and its affiliates have investigated the nature and extent of the
work required for its computer system to process beyond the turn of the century,
and have made progress toward achieving this goal, including upgrading and/or
replacing existing systems. The Travelers is confirming with its service
providers that they are also in the process of replacing or modifying their
systems with the same goal. The Travelers expects that our principal systems
will be Year 2000 compliant by early 1999. While these efforts involve
substantial costs, The Travelers closely
5
<PAGE> 91
monitors associated costs and continues to evaluate associated risks based on
actual expenses. While it is likely that these efforts will be successful, if
necessary modifications and conversions are not completed in a timely manner,
the Year 2000 requirements could have a material adverse effect on certain
operations of the Trust or its Funds.
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 will
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.
SHARE 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.
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
6
<PAGE> 92
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.
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.
7
<PAGE> 93
FINANCIAL HIGHLIGHTS
ZERO COUPON BOND FUND PORTFOLIOS
The financial highlights table provides information to help you understand the
Funds' 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, 1997 and 1998
was audited by KPMG Peat Marwick 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.................. $ 9.96 $10.31 $10.00 $ 9.97 $10.48 $10.00
Income from Investment Operations:
Net Investment Income(1)........... 0.59 0.50 0.13 0.60 0.48 0.13
Net Gains or Losses on Securities
(both realized and unrealized)..... 0.13 (0.22) 0.18 0.56 (0.38) 0.35
Total from Investment Operations... 0.72 (0.28) 0.31 1.16 0.10 0.48
====== ======
Less Distributions(1):
Dividends (from net investment
income)............................ (0.59) (0.63) -- (0.60) (0.61) --
Net realized gains................... -- -- -- -- -- --
Total Distributions.................. (0.59) (0.63) -- (0.60) (0.61) --
Net Asset Value, End of Period....... $10.09 $ 9.96 $10.31 $10.53 $ 9.97 $10.48
TOTAL RETURN(2)...................... 7.20% 2.76% 3.10% 11.63% 0.90% 4.80%
Net Assets, End of Period
(thousands)........................ $1,757 $1,565 $1,029 $2,357 $2,054 $1,050
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net
Assets(3)(5)....................... 0.15% 0.15% 0.15%(4) 0.15% 0.15% 0.15%(4)
Ratio of Net Income to Average Net
Assets............................. 5.88% 5.74% 5.61%(4) 6.11% 6.14% 5.89%(4)
Portfolio turnover rate............ 29% 33% 34% 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)
(4) Annualized
(5) The expense ratios for the years ended December 31, 1998, 1997 and 1996 and
for the period ended December 31, 1995 reflect expense reimbursements by The
Travelers in connection with voluntary expense limitations.
8
<PAGE> 94
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> 95
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 -- 1-860-277-0111
- --------------------------------------------------------------------------------
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> 96
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 97
STATEMENT OF ADDITIONAL INFORMATION
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 Travelers Series Trust's prospectus
dated May 1, 1999 and 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 860-277-011 (collect); or
800-___-___ (toll free)
or by accessing the Securities and Exchange Commission's website at
http://www.sec.gov.
<PAGE> 98
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investment Objectives, Policies, Risks and Certain Restrictions.......... 1
Investment Restrictions.................................................. 56
Valuation................................................................ 58
Distributions............................................................ 59
Trustees and Officers.................................................... 59
Declaration of Trust..................................................... 63
Investment Advisory Services............................................. 64
Redemptions in Kind...................................................... 75
Brokerage................................................................ 75
Portfolio Turnover Rate.................................................. 76
Fund Administration...................................................... 79
Shareholder Rights....................................................... 80
Tax Status............................................................... 81
Performance Quotations................................................... 83
Financial Statements..................................................... 85
Additional Information................................................... 85
Appendix................................................................. 87
</TABLE>
i
<PAGE> 99
INVESTMENT OBJECTIVES, POLICIES AND RISKS
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>
Money Market Instruments X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Bankers' Acceptances X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Certificates of Deposit X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Equity Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Debt Securities X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
High-Yield, High-Risk Bonds X
- ---------------------------------------------------------------------------------------------------------------------------------
Floating & Variable Rate Instruments X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Variable Amount Master Demand Notes X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Reverse Repurchase Agreements X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
When-Issued & Delayed Delivery Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Futures Contracts X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Commercial Paper X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Writing Covered Call Options X X X X X X
=================================================================================================================================
</TABLE>
1
<PAGE> 100
<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>
Buying Put and Call Options X X X X X [X]
- ---------------------------------------------------------------------------------------------------------------------------------
Options on Stock Indices X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Index Futures Contracts X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Options on Index Futures Contracts X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Forward Contracts on Foreign Currency X
- ---------------------------------------------------------------------------------------------------------------------------------
Options on Foreign Currencies X
- ---------------------------------------------------------------------------------------------------------------------------------
Foreign Securities X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
American Depositary Receipts X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Emerging Market Securities X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Lending Portfolio Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Temporary Bank Borrowing X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Letters of Credit X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Investment in Unseasoned Companies X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Real Estate-Related Instruments X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Corporate Asset-Backed Securities X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Asset-Backed Mortgage Securities X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Loan Participations X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Other Direct Indebtedness X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Company Securities X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Affiliated Bank Transactions X
- ---------------------------------------------------------------------------------------------------------------------------------
Indexed Securities X X
- ---------------------------------------------------------------------------------------------------------------------------------
Short Sales "Against the Box" X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Swap Agreements X
- ---------------------------------------------------------------------------------------------------------------------------------
Convertible Securities X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Illiquid Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
JURIKA & LARGE CAP LAZARD MFS MFS MFS
INVESTMENT TECHNIQUE VOYLES INTERNATIONAL EMERGING MID CAP RESEARCH
STOCK GROWTH GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Short-Term Money Market Instruments X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Bankers' Acceptances X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Certificates of Deposit X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Equity Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Debt Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
High-Yield, High-Risk Bonds X X
- ---------------------------------------------------------------------------------------------------------------------------------
Floating & Variable Rate Instruments X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Variable Amount Master Demand Notes X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Reverse Repurchase Agreements X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
When-Issued & Delayed Delivery Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Futures Contracts X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Commercial Paper X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Writing Covered Call Options X X X X X
=================================================================================================================================
</TABLE>
2
<PAGE> 101
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
JURIKA & LARGE CAP LAZARD MFS MFS MFS
INVESTMENT TECHNIQUE VOYLES INTERNATIONAL EMERGING MID CAP RESEARCH
STOCK GROWTH GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Buying Put and Call Options X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Options on Stock Indices X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Index Futures Contracts X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Options on Index Futures Contracts X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Forward Contracts on Foreign Currency X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Options on Foreign Currencies X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Foreign Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
American Depositary Receipts X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Emerging Market Securities X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Lending Portfolio Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Temporary Bank Borrowing X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Letters of Credit X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Investment in Unseasoned Companies X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Real Estate-Related Instruments X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Corporate Asset-Backed Securities X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Asset-Backed Mortgage Securities X
- ---------------------------------------------------------------------------------------------------------------------------------
Loan Participations X X
- ---------------------------------------------------------------------------------------------------------------------------------
Other Direct Indebtedness X
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Company Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Affiliated Bank Transactions X
- ---------------------------------------------------------------------------------------------------------------------------------
Indexed Securities X X
- ---------------------------------------------------------------------------------------------------------------------------------
Short Sales "Against the Box" X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Swap Agreements X
- ---------------------------------------------------------------------------------------------------------------------------------
Convertible Securities X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Illiquid Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NWG SOCIAL STRATEGIC TRAVELERS U.S. ZERO COUPON
LARGE AWARENESS STOCK QUALITY GOV'T UTILITIES BOND FUND
INVESTMENT TECHNIQUE CAP STOCK BOND SECURITIES (SERIES 2000
& 2005)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Short-Term Money Market Instruments X X X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Bankers' Acceptances X X X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Certificates of Deposit X X X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities X X X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Securities X X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities X X X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
High-Yield, High-Risk Bonds X X
- ------------------------------------------------------------------------------------------------------------------------------------
Floating & Variable Rate Instruments X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Variable Amount Master Demand Notes X X X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements X X X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Reverse Repurchase Agreements X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
When-Issued & Delayed Delivery Securities X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Futures Contracts X X X X X X X
====================================================================================================================================
</TABLE>
3
<PAGE> 102
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NWG SOCIAL STRATEGIC TRAVELERS U.S. ZERO COUPON
LARGE AWARENESS STOCK QUALITY GOV'T UTILITIES BOND FUND
INVESTMENT TECHNIQUE CAP STOCK BOND SECURITIES (SERIES 2000
& 2005)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial Paper X X X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Writing Covered Call Options X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Buying Put and Call Options X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Options on Stock Indices X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Index Futures Contracts X X X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Options on Index Futures Contracts X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Forward Contracts on Foreign Currency X
- ------------------------------------------------------------------------------------------------------------------------------------
Options on Foreign Currencies X
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign Securities X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
American Depositary Receipts X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Market Securities X X
- ------------------------------------------------------------------------------------------------------------------------------------
Lending Portfolio Securities X X [X] X X
- ------------------------------------------------------------------------------------------------------------------------------------
Temporary Bank Borrowing X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Letters of Credit X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Investment in Unseasoned Companies X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate-Related Instruments X X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Corporate Asset-Backed Securities X X
- ------------------------------------------------------------------------------------------------------------------------------------
Asset-Backed Mortgage Securities X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Loan Participations
- ------------------------------------------------------------------------------------------------------------------------------------
Other Direct Indebtedness
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Company Securities X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Affiliated Bank Transactions
- ------------------------------------------------------------------------------------------------------------------------------------
Indexed Securities X
- ------------------------------------------------------------------------------------------------------------------------------------
Short Sales "Against the Box" X
- ------------------------------------------------------------------------------------------------------------------------------------
Swap Agreements
- ------------------------------------------------------------------------------------------------------------------------------------
Convertible Securities X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid Securities 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.
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.
4
<PAGE> 103
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).
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.
5
<PAGE> 104
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 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
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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.
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.]
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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 very 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
not 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.
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.
STOCKS. Certain Funds expected 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 intent 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.
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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 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.
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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 than
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
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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 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. Adversely 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 of 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 rates,
thus reducing income to the Fund.
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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's 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
product against 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 future 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 transaction 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).
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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 term. 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
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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.
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.
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
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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.
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"), 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
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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.
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
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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 either 10% or 15% (depending on the Fund) of the Fund's
total asset value. Illiquid securities are those that are not readily marketable
within seven days in the ordinary course 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.
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.
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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.
RESTRICTIONS
In pursuing its objective, Convertible Bond Portfolio currently is subject to
the following fundamental investment policies. The Fund will not:
(1) with respect to 75% of its assets, invest more than 5% of its
total assets, computed at market value, in the securities of any
one issuer (excluding U.S. government securities);
(2) invest more than 25% of its assets in companies within a single
industry, except securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities;
(3) borrow amounts in excess of 33-1/3% of its gross assets (taken at
the lower cost or market value), and then only as a temporary
measure for extraordinary or emergency purposes. The Fund may not
purchase additional securities when borrowings exceed 5% of total
assets;
(4) issue senior securities;
(5) make loans of more than one-third of the Fund's net assets,
including loans of securities;
(6) purchase or sell commodities or commodity contracts, or interests
in oil, gas or other mineral leases, or other mineral exploration
or development programs;
(7) purchase or sell real estate or interests in real estate, except
through the purchase of securities of a type commonly purchased by
financial institutions which do not include direct interest in
real
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estate or mortgages, or commodities or commodity contracts; and
underwrite securities of any other company, except that the Fund
may invest in companies that engage in such businesses, and except
to the extent that the Fund may technically be deemed to be an
underwriter, as defined in the 1933 Act in selling a portfolio
security.
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, 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.
RESTRICTIONS
In pursuing its objective, Disciplined Mid Cap Stock Portfolio currently is
subject to the following fundamental investment policies. The Fund will not:
(1) invest more than 5% of its total assets, computed at market value,
in the securities of any one issuer;
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(2) invest in more than 10% of any class of securities of any one
issuer:
(3) invest more than 5% of the value of its total assets in companies
that have been in operation for less than three years;
(4) borrow money, except to facilitate redemptions or for emergency or
extraordinary purposes and then only from banks and in amounts of
up to 33-1/3% of its gross assets computed at cost; while
outstanding, a borrowing may not exceed one-third of the value of
its net assets, including the amount borrowed; the Fund has no
intention of attempting to increase its net income by means of
borrowing and all borrowings will be repaid before additional
investments are made; assets pledged to secure borrowings shall be
no more than the lesser of the amount borrowed or 10% of the
Fund's gross assets computed at cost;
(5) underwrite securities, except that the Fund may purchase
securities from issuers thereof or others and dispose of such
securities in a manner consistent with its other investment
policies; in the disposition of restricted securities it may be
deemed to be an underwriter, as defined in the 1933 Act;
(6) purchase real estate or interests in real estate, except through
the purchase of securities of a type commonly purchased by
financial institutions which do not include direct interest in
real estate or mortgages, or commodities or commodity contracts,
except transactions involving financial futures in order to limit
transaction costs and for hedging purposes as described above;
(7) invest for the primary purpose of control or management;
(8) make margin purchases or short sales of securities, except for
short-term credits which are necessary for the clearance of
transactions, and to place not more than 5% of its net asset value
in total margin deposits for positions in futures contracts;
(9) make loans, except that the Fund may purchase money market
securities, enter into repurchase agreements, buy publicly and
privately distributed debt securities and lend limited amounts of
its portfolio securities to broker-dealers; all such investments
must be consistent with the Account's investment objective and
policies;
(10) invest more than 25% of its total assets in the securities of
issuers in any single industry;
(11) purchase the securities of any other investment company, except in
the open market and at customary brokerage rates and in no event
more than 3% of the voting securities of any investment company;
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(12) invest in interests in oil, gas or other mineral exploration or
development programs; or
(13) invest more than 5% of its net assets in warrants, valued at the
lower of cost or market; warrants acquired by the Fund in units or
attached to securities will be deemed to be without value with
regard to this restriction.
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 a 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.
RESTRICTIONS
In pursuing its objective, Disciplined Small Cap Stock Portfolio currently is
subject to the following fundamental investment policies. The Fund will not:
(1) invest 25 % or more of its total assets in any one industry;
(2) borrow amounts in excess of 33-1/3% of its gross assets (taken at
the lower of cost or market value), except that as a temporary
measure for extraordinary or emergency purposes, the Fund may
borrow up to 5% more;
(3) issue senior securities;
(4) make loans, except that the Fund may purchase debt securities, may
enter into repurchase agreements, and may lend its securities;
(5) underwrite the securities of other issuers, except insofar as the
Fund may technically be deemed to be an underwriter, as defined in
the 1933 Act in the disposition of a portfolio security;
(6) invest for the primary purpose of control or management;
(7) purchase real estate or interests in real estate, other than
securities secured by real estate, participation therein or real
estate investment trusts and similar instruments;
(8) purchase or sell commodities or commodities contracts except for
hedging purposes;
(9) make any short sales of securities, except in conformity with
applicable laws, rules and regulations and unless, giving effect
to such sale, the market value of all securities sold short does
not exceed 25% of the value of the Fund's total assets and the
Fund's aggregate short sales of a particular class of an issuer's
securities to not exceed 25% of the then outstanding securities of
that class of the issuer's securities; or
(10) purchase any security (other than U.S. government securities) such
that: (a) more than 25% of the Fund's total assets would be
invested in securities of a single issuer, or (b) as to 75% of the
Fund's total assets; more than 5% of the Fund's
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total assets would be then invested in securities of a single
issuer, or the Fund would own more than 10% of the voting
securities of a single issuer.
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 S&P 500. 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 subadviser may use various investment techniques to hedge the Fund's
risks, but there is no guarantee that these strategies will work as the
subadviser intends. 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 may assume a temporary defensive position in response to
market or other conditions and invest without limitations in preferred stock and
investment-grade debt instruments.
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 but is not required to use various
techniques to increase or decrease its exposure to changing security prices,
interest rates, currency exchange rates, commodity prices, or other factors that
affect security values.
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.) For example, the Portfolio may make purchases of lower-rated debt
securities if such securities are rates at or above the stated level by Moody's
or rated in the equivalent categories by 5&P, or is unrated but judged to be of
equivalent quality by the subadviser.
The Fund also complies with the following nonfundamental investment policies.
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- - 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 transaction, 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 25% 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 extend
necessary to comply with the 25% limitation. The Fund will not purchase any
security while borrowings representing more than 5% of its total assets are
outstanding. 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.)
- - The Fund does not currently intend to purchase the securities of any issuer
(other than securities issues or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than 5%
of its total assets would be invested in the securities of business
enterprises that, including predecessors, have a record of less than three
years of continuous operation. For the purposes of this limitation pass
through entities and other special purpose vehicles or pools of financial
assets such as issuers of asset backed securities or investment companies
are not considered "business enterprises."
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- - The Fund does not currently intend to purchase the securities of any issuer
if those officers and trustees of the trust and those officers and directors
of the subadviser who individually own more than 1/2 of 1% of the securities
of such issuer together own more than 5% of such issuer's securities.
- - 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.
RESTRICTIONS
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.
(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;
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(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.
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 above and the following:
X 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;
X preferred stocks;
X equipment trust and lease certificates;
X zero coupon bonds;
X pay-in-kind securities;
X general obligations of any state, territory, or possession of the United
States, or their political subdivisions; and
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X 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.
RESTRICTIONS
In pursuing its objective, Federated High Yield Portfolio currently is subject
to the following fundamental investment policies. The Fund will not:
(1) borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a
set date) except, under certain circumstances, the Fund may borrow
up to one-third of the value of its net assets;
(2) 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; or
(3) pledge assets except to secure permitted borrowing.
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,
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which the subadviser may consider, may outweigh revenues. Other permitted
investments include. but are not limited to:
X preferred stocks, corporate bonds, notes, and warrants of these
companies; and ADRs (in an amount of not more than 10% of its assets).
RESTRICTIONS
In pursuing its objective, Federated Stock Portfolio currently is subject to the
following fundamental investment policies. The Fund will not:
(1) borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of
its total assets and pledge up to 10% of the value of those assets
to secure such borrowings;
(2) invest more than 5% of its total assets in the securities of one
issuer (except cash and cash items and U.S. government
securities);
(3) acquire more than 10% of the voting securities of any one issuer;
(4) invest in real estate;
(5) issue senior securities;
(6) trade in puts and calls; or
(7) underwrite securities.
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
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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.
In unusual circumstances, economic, monetary and other factors may cause the
subadviser to 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.
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.
RESTRICTIONS
In pursuing its objective, Jurika & Voyles Core Equity Portfolio complies with
the following fundamental investment policies. The Fund will not:
(1) with respect to 75% of its assets, invest more than 5% of its
total assets, computed at market value, in the securities of any
one issuer (excluding U.S. government securities);
(2) invest more than 25% of its assets in companies within a single
industry; except securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities;
(3) borrow amounts in excess of 33 1/3% of its gross assets (taken at
the lower of cost or market value), and then only as a temporary
measure for extraordinary or emergency purposes. The Fund may not
purchase additional securities when borrowings exceed 5% of total
assets;
(4) issue senior securities;
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(5) make loans of more than one-third of the Fund's net assets,
including loans of securities;
(6) purchase or sell commodities or commodity contracts, or interests
in oil, gas or other mineral leases, or other mineral exploration
or development programs;
(7) purchase or sell real estate or interests in real estate, except
through the purchase of securities of a type commonly purchased by
financial institutions which do not include direct interest in
real estate or mortgages, or commodities or commodity contracts;
and
(8) underwrite securities of any other company, except that the Fund
may invest in companies that engage in such businesses, and except
to the extent that the Fund may technically be deemed to be an
underwriter, as defined in the 1933 Act in selling a portfolio
security;
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.
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. 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 comparable
unrated securities. 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 but is not required to use various
techniques to increase or decrease its exposure to changing security prices,
interest rates, currency exchange rates, commodity prices or other factors that
affect security prices.
The Fund also complies with the following non fundamental investment policies:
X 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.
X 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.
X 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 25% 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 with seven days (not including Sundays and
holidays) to the extent necessary to comply with 25% limitation.
The Fund will not purchase any security while borrowings
representing more than 5% of its total assets are outstanding. 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.
X 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
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because they cannot be sole or disposed of in the ordinary course
of business at approximately the prices at which they are valued.
X 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.)
X The Fund does not currently intend to purchase the securities of
any issuer (other than securities issued or guaranteed by domestic
or foreign governments or political subdivisions thereof) if, as a
result, more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors,
have a record of less than three years of continuous operation.
For the purposes of this limitation pass through entities and
other special purpose vehicles or pools of financial assets such
as issuers of asset backed securities or investment companies are
not considered "business enterprises."
X The Fund does not currently intend to purchase the securities of
any issuer if those officers and trustees of the trust and those
officers and directors of the subadviser who individually own more
than 1/2 of 1% of the securities of such issuer together own more
than 5% of such issuer's securities.
X 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.
RESTRICTIONS
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;
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(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 or any affiliate or successor with substantially the
same investment objective, policies, and limitations as the Fund.
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LAZARD INTERNATIONAL STOCK PORTFOLIO
Lazard International Stock Portfolio's investment objective is to seek capital
appreciation through investing primarily in the equity securities of non-U.S.
companies (i.e., incorporated or organized outside the U.S.). 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 Continental Europe, the United Kingdom, the Pacific Basin and in such other
areas and countries as the subadviser may determine from time to time. 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.
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 Paris, 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
and short-term money market instruments. In addition, the Fund may invest in
letters of credit and in emerging or unseasoned companies.
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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.
RESTRICTIONS
In pursuing its objective, Lazard International Stock Portfolio currently is
subject to the following fundamental investment policies. The Fund will not:
(1) issue senior securities, borrow money or pledge or mortgage its
assets, except that the Fund may borrow from banks for temporary
purposes, including the meeting of redemption requests that might
require the untimely disposition of securities. For purposes of
this investment restriction, the Fund's entry into options,
forward contracts, futures contracts, including those related to
indexes shall not constitute borrowing;
(2) make loans, except loans of portfolio securities not having a
value in excess of 10% of the Fund's total assets and except that
the Fund may purchase debt obligations in accordance with its
investment objectives and policies and may engage in securities
lending;
(3) invest in illiquid securities if immediately after such investment
more than 10% of the value of the Fund's net assets, taken at
market value, would be invested in such securities;
(4) purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or
reorganization; provided, however, the Fund may purchase
securities in an amount up to 5% of the value of its total assets
in any one closed-end fund and may purchase in the aggregate
securities of closed-end funds in an amount of up to 10% of the
value of the Fund's total assets;
(5) purchase the securities of issuers conducting their principal
business in the same industry, if the value of the value of the
Fund's investment exceeds 25% of the Fund's then current net asset
value;
(6) purchase or sell real estate except in a manner consistent with
specific rules described in greater detail in the prospectus;
(7) purchase securities on margin;
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(8) underwrite securities; or
(9) make investments for the purpose of exercising control or
management.
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:
X 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;
X 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.);
X 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;
X 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;
X stock index futures contracts and options on these instruments for
hedging and non-hedging purposes, subject to applicable law; and
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X 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.
RESTRICTIONS
In pursuing its objective, MFS Emerging Growth Portfolio currently is subject to
the following fundamental investment policies. The Fund will not:
(1) borrow money in an amount in excess of 33-1/3% of its net assets;
(2) underwrite securities;
(3) concentrate its investments in any particular industry in excess
of 25% of its total net assets;
(4) purchase or sell real estate in the ordinary course of its
business.
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 appears
in the prospectus. Subject to its
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investment objective and the investment restrictions set forth below, the Fund
may invest in or engage in the following:
X Brady Bonds
X 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.
RESTRICTIONS
In pursuing its objective, MFS Mid Cap Growth Portfolio currently is subject to
the following fundamental investment policies. The Fund will not:
(1) borrow amounts in excess of 33-1/3% of its gross assets (taken at
the lower of cost or market value), and then only as a temporary
measure for extraordinary or emergency purposes;
(2) underwrite securities, issued by other persons except insofar as
the Fund may technically be deemed to be an underwriter, as
defined in the 1933 Act in selling a portfolio security;
(3) purchase or sell real estate or interests in real estate
(including limited partnership interests but excluding securities
secured by real estate or interests therein and securities of
companies, such as real estate investment trusts, which deal in
real estate or interests therein), interests in oil, gas or
mineral leases, commodities or commodity contracts (excluding
options on securities, stock indexes and foreign currency
("Options"), Options on futures contracts and any other type of
Option, futures contracts and any other type of futures contract
and forward contracts) in the ordinary course of its business. The
Fund reserves the right to hold and to sell real estate mineral
leases, commodities or commodity contracts acquired as a result of
the ownership of securities;
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(4) issue senior securities except as permitted by the 1940 Act. For
purposes of this restriction, collateral arrangements with respect
to any type of Option (including Options on futures contracts and
options), forward contracts and any type of futures contract
(including futures contracts) and collateral arrangements with
respect to initial and variation margin are not deemed to be the
issuance of a senior security;
(5) make loans to other persons. For these purposes, the purchase of
short term commercial paper, the purchase of a portion or all of
an issue of debt securities, the lending of portfolio securities,
or the investment of the Fund's assets in repurchase agreements,
shall not be considered the making of a loan;
(6) invest more than 25% of its total assets in the securities of
issuers in any single industry.
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:
X foreign and emerging market securities (not more than 20% of the Fund's
net assets)
X investment-grade securities (as rated by Moody's, S&P or Fitch)
X 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)
X warrants (not more than 5% of the Fund's net assets)
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RESTRICTIONS
In pursuing its objective, MFS Research Portfolio currently is subject to the
following fundamental investment policies. The Fund will not:
(1) invest more than 5% of its total assets, computed at market value,
in the securities of any one issuer (excluding U.S. government
securities);
(2) invest in more than 10% of any class of securities of any one
issuer;
(3) invest more than 5% of the value of its total assets in companies
which, including predecessors, have been in operation for less
than three years;
(4) borrow amounts in excess of 5% of its gross assets (taken at the
lower of cost or market value), and then only as a temporary
measure for extraordinary or emergency purposes;
(5) pledge, mortgage or hypothecate an amount of assets which (taken
at market value) exceeds 15% of its gross assets (taken at the
lower of cost or market value);
(6) underwrite securities, issued by other persons except insofar as
the Fund may technically be deemed to be an underwriter, as
defined in the 1933 Act in selling a portfolio security;
(7) purchase real estate or interests in real estate, except through
the purchase of securities of a type commonly purchased by
financial institutions which do not include direct interest in
real estate or mortgages, or commodities or commodity contracts,
except transactions involving financial futures in order to limit
transaction and borrowing costs and for hedging purposes as
described above;
(8) invest for the primary purpose of control or management;
(9) make margin purchases or short sales of securities, except for
short-term credits that are necessary for the clearance of
transactions;
(10) make loans, except that the Fund may purchase money market
securities, enter into repurchase agreements, buy publicly and
privately distributed debt securities and lend limited amounts of
its
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portfolio securities to broker-dealers; all such investments must
be consistent with the Fund's investment objective and policies;
(11) invest more than 25% of its total assets in the securities of
issuers in any single industry;
(12) purchase the securities of any other investment company, or
investment trust, except in the open market and at customary
brokerage rates; provided, however, that the Fund shall not
purchase such securities if the purchase would cause more than 10%
of the Fund's total assets (taken at market value) to be invested
in the securities of such issuer, and provided that the Fund shall
not purchase securities issued by any open-end investment company;
(13) sell any security which the Fund does not own unless, at the time
of sale, the Fund owns other securities which give it the right to
obtain securities without further payment and provided that, if
such right is conditional, the sale is made upon the same
conditions;
(14) purchase or sell any put or call options or any combination
thereof, provided that this shall not prevent the purchase,
ownership, holding or sale of warrants where the grantor of the
warrants is the issuer of the underlying securities; or
(15) invest in securities which are subject to legal or contractual
restrictions on resale, or for which there is no readily available
market (e.g., trading in the security is suspended, or, in the
case of unlisted securities, market makers do not exist or will
not entertain bids or offers), unless the Board has determined
that such securities are liquid based upon trading markets for the
specific security if more than 10% of the Fund's assets (taken at
market value) would be invested in such illiquid securities.
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.
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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 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.
RESTRICTIONS
In pursuing its investment objective, NWQ Large Cap Portfolio currently is
subject to the following fundamental investment policies. The Fund may not:
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(1) with respect to 75% of its assets, invest more than 5% of its
total assets, computed at market value, in the securities of any
one issuer (excluding U.S. government securities);
(2) with respect to 75% of its assets, invest in more than 10% of any
class of securities of any one issuer;
(3) invest more than 25% of its total assets in companies within a
single industry; however, there are no limitations on investment
made in instruments issued or guaranteed by the U.S. Government
when the Fund adopts a temporary defensive position;
(4) make loans, except by purchasing debt securities as allowed by the
investment policies, or entering into repurchase agreements, or by
lending its portfolio securities to banks, brokers dealers and
other financial institution
(5) (a) borrow amounts in excess of 10% of its gross assets (taken at
the lower of cost or market value), and then only as a temporary
measure for extraordinary or emergency purposes, and (b) the Fund
may not purchase additional securities when borrowings exceed 5%
of total assets;
(6) pledge, mortgage or hypothecate an amount of assets which (taken
at market value) exceeds 10% of its gross assets (taken at the
lower of cost or market value).
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 Mutual
Management Corp. ("MMC") (formerly Smith Barney Mutual Funds Management, Inc.
("SBMFM")) determines meet its investment screen, based on analysis of data,
and, to the extent possible, certain social criteria. MMC 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. MMC 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 MMC, is derived from: (1) producing tobacco,
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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, MMC 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 means that no more than twenty-five percent (25%) 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 (10%) 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.
RESTRICTIONS
In pursuing its objective, Social Awareness Stock Portfolio currently is subject
to the following fundamental investment policies. The Fund will not:
(1) invest more than 5% of its total assets in securities of any one
issuer, except obligations of the U.S. Government and its instrumentalities:
(2) borrow money, except that the right is reserved to borrow from banks
for emergency purposes, provided that such borrowings will not exceed 5% of the
value of the assets of the Fund and that immediately after the borrowing, and at
all times thereafter, and while any such
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borrowing is unrepaid, there will be asset coverage of at least 300% for all
borrowings of the Fund;
(3) underwrite securities of other issuers, except that the Fund could be
deemed an underwriter when engaged in the sale of restricted securities (see
item 4, under non-fundamental restrictions);
(4) purchase interests in real estate, except as may be represented by
securities for which there is an established market;
(5) purchase commodities or commodity contracts, except transactions
involving financial futures in order to limit transaction and borrowing costs
and for hedging purposes;
(6) make loans, except through the acquisition of a portion of privately
placed issue of bonds, debentures or other evidences of indebtedness of a type
customarily purchased by institutional investors (see item 4, under
non-fundamental restrictions);
(7) invest in the securities of a company for the purpose of exercising
management or control;
(8) acquire more than 10% of the voting securities of any one issuer (it
is the present practice of the Fund not to exceed 5% of the voting securities of
any one issuer);
(9) issue senior securities.
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 comprises25 stocks: 10 selected
from the DJIA and 15 from the S&P Industrial Index.
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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 be sold
for the purpose of taking advantage of market fluctuations or changes in
anticipated rate of appreciation.
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:
X 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
X 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.
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RESTRICTIONS
In pursuing its objective, Strategic Stock Portfolio currently is subject to the
following fundamental investment policies. The Fund will not:
(1) invest 25% or more of its total assets in any one industry;
(2) borrow amounts in excess of 33 1/3% of its gross assets (taken at
the lower of cost or market value), except that as a temporary
measure for extraordinary or emergency purposes, the portfolio may
borrow up to 5% more;
(3) issue senior securities;
(4) make loans, except that the Fund may purchase debt securities, may
enter into repurchase agreements, and may lend its securities;
(5) underwrite the securities of other issuers, except insofar as the
Fund may technically be deemed to be an underwriter, as defined in
the 1933 Act in the disposition of a portfolio security;
(6) invest for the primary purpose of control or management;
(7) purchase real estate or interests in real estate, other than
securities secured by real estate, participation therein or real
estate investment trusts and similar instruments;
(8) purchase or sell commodities or commodities contracts except for
hedging purposes;
(9) make any short sales of securities, except in conformity with
applicable laws, rules and regulations and unless, giving effect
to such sale, the market value of all securities sold short does
not exceed 25% of the value of the Fund's total assets and the
Fund's aggregate short sales of a particular class of an issuer's
securities to not exceed 25% of the then outstanding securities of
that class of the issuer's securities; or
(10) purchase any security (other than U.S. obligations) such that: (a)
more than 25% of the Fund's total assets would be invested in
securities of a single issuer, or (b) as to 75% of the Fund's
total assets, more than 5% of the Fund's total assets would be
then invested in securities of a single issuer, or the Fund would
own more than 10% of the voting securities of a single issuer.
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
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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:
X treasury bills;
X repurchase agreements;
X commercial paper and other short term instruments;
X bank certificates of deposit and bankers' acceptances; and
X publicly traded debt securities, including bonds, notes, and
debentures; and
X 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 anticipated 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.
RESTRICTIONS
In pursuing its objective, Travelers Quality Bond Portfolio currently is subject
to the following investment policies. The Fund may:
(1) invest up to 15% of the value of its assets in the securities of
any one issuer (exclusive of obligations of the United States
government and its instrumentalities, for which there is no
limit);
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(2) borrow from banks in amounts of up to 5% of its assets, but only
for emergency purposes;
(3) purchase interests in real estate represented by securities for
which there is an established market;
(4) make loans through the acquisition of a portion of a privately
placed issue of bonds, debentures or other evidences of
indebtedness of a type customarily purchased by institutional
investors;
(5) acquire up to 10% of the voting securities of any one issuer (it
is the present practice of the Fund not to exceed 5% of the voting
securities of any one issuer);
(6) make purchases on margin in the form of short-term credits which
are necessary for the clearance of transactions; and place up to
5% of its net asset value in total margin deposits for positions
in futures contracts; and
(7) invest up to 15% of its assets in restricted securities
(securities which may not be publicly offered without registration
under the 1933 Act.
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.
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RESTRICTIONS
In pursuing its objective, U.S. Government Securities currently is subject to
the following fundamental investment policies. The Fund will not:
(1) invest more than 5% of its total assets, computed at market value,
in the securities of any one issuer (exclusive of securities
issued by the U.S. Government, its agencies or instrumentalities,
for which there is no limit);
(2) invest in more than 10% of any class of securities of any one
issuer;
(3) borrow money, except to facilitate redemptions or for emergency or
extraordinary purposes and then only from banks and in amounts of
up to 10% of its gross assets computed at cost; while outstanding
according to the 1940 Act, a borrowing may not exceed one-third of
the value of the net assets, including the amount borrowed; the
Fund has no intention of attempting to increase its net income by
borrowing, and all borrowings will be repaid before additional
investments are made; assets pledged to secure borrowings shall be
no more than the lesser of the amount borrowed or 10% of the gross
assets computed at cost;
(4) underwrite securities, except that the Fund may purchase
securities from issuers thereof or others and dispose of such
securities in a manner consistent with its other investment
policies; in the disposition of restricted securities, the Fund
may be deemed to be an underwriter, as defined in the 1933 Act;
(5) purchase real estate or interests in real estate, except through
the purchase of securities of a type commonly purchased by
financial institutions which do not include direct interest in
real estate or mortgages, or commodities or commodity contracts,
except transactions involving financial futures in order to limit
transactions and borrowing costs and for hedging purposes;
(6) invest for the primary purpose of control or management;
(7) make margin purchases or short sales of securities, except for
short-term credits which are necessary for the clearance of
transactions, and to place not more than 5% of its net asset value
in total margin deposits for positions in futures contracts;
(8) make loans, except that the Fund may purchase money market
securities, enter into repurchase agreements, buy publicly and
privately distributed debt securities and lend limited amounts of
its portfolio securities to broker/dealers; all such investments
must be consistent with the investment objective and policies;
(9) invest more than 25% of its total assets in the securities of
issuers in any single industry (other than securities issued by
the U.S. Government, its agencies or instrumentalities); or
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(10) purchase securities of other investment companies, except in the
open market and at customary brokerage rates and in no event more
than 3% of the voting securities of any investment company; when
consistent with its investment objectives, the Fund may purchase
securities of brokers, dealers, underwriters or investment
advisers.
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.
RESTRICTIONS
In pursuing its objective, Utilities Portfolio currently is subject to the
following fundamental investment policies. The Fund will not:
(1) purchase the securities of any issuer (other than U.S. government
securities) if as a result more than 5% of the value of the Fund's
total assets would be invested in
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the securities of the issuer, except that up to 25% of the value
of the Fund's total assets may be invested without regard to this
5% limitation;
(2) purchase more than 10% of the voting securities of any one issuer,
provided that this limitation shall not apply to investments in
U.S. government securities;
(3) purchase securities on margin, except that the Fund may obtain any
short-term credits necessary for the clearance of purchases and
sales of securities (for purposes of this restriction, the deposit
or payment of initial or variation margin in connection with
futures contracts or related options will not be deemed to be a
purchase of securities on margin by the Fund);
(4) make short sales of securities or maintaining a short position,
except to the extent of 5% of the Fund's net assets and except
that the Fund may engage in such activities without limit if, at
all times when a short position is open, the Fund owns an equal
amount of the securities or securities convertible into or
exchangeable, without payment of any further consideration, for
securities of the same issuer as, and at least equal in amount to,
the securities sold short;
(5) borrow money, including reverse repurchase agreements, except that
the Fund may borrow from banks for temporary or emergency (not
leveraging) purposes including the meeting of redemption requests
that might otherwise require the untimely disposition of
securities, in an amount not exceeding 20% of the value of the
Fund's total assets (including the amount borrowed) valued at
market less liabilities (not including the amount borrowed) at the
time the borrowing is made. Whenever borrowings exceed 5% of the
value of the Fund's total assets, the Fund will not make any
additional investments;
(6) pledge, hypothecate, mortgage or otherwise encumber more than 10%
of the value of the Fund's total assets as security for any
indebtedness (for purposes of this restriction (a) the deposit of
assets in escrow in connection with the writing of covered put or
call options and the purchase of securities on a when-issued or
delayed-delivery basis and (b) collateral arrangements with
respect to (i) the purchase and sale of stock options, options on
foreign currencies and options on stock indexes and (ii) initial
or variation margin for futures contracts will not be deemed to be
pledges of the Fund's assets);
(7) invest in commodities, except that the Fund may purchase or write
futures contracts and options on futures contracts;
(8) make loans to others, except through the purchase of qualified
debt obligations, loans of portfolio securities and the entry into
repurchase agreements; and
(9) concentrate in any industry, except that the Fund will concentrate
in excess of 25% of its assets in the securities of companies
within the utility industries.
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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").
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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 ties in excess of
seven days) if more than 15% of the Fund's total assets would be invested in
such securities.
RESTRICTIONS
In pursuing its objective, each Zero Coupon Bond Fund Portfolio follows the
following fundamental investment policies. The Fund will not:
(1) purchase the securities of any issuer (other than U.S. government
securities) if as a result more than 5% of the value of the Fund's
total assets would be invested in the securities of the issuer,
except that up to 25% of the value of the Fund's total assets may
be invested without regard to this 5% limitation;
(2) purchase more than 10% of the voting securities of any one issuer,
provided that this limitation shall not apply to investments in
U.S. government securities;
(3) purchase securities on margin, except that each Fund may obtain
any short-term credits necessary for the clearance of purchases
and sales of securities. For purposes of this restriction, the
deposit or payment of initial or variation margin in connection
with futures contracts or related options will not be deemed to be
a purchase of securities on margin by a Fund;
(4) make short sales of securities or maintain a short position,
except to the extent of 5 % of each Fund's net assets and except
that a Fund may engage in such activities without limit if, at all
times when a short position is open, the Fund owns an equal amount
of the securities or securities convertible into or exchangeable,
without payment of any further consideration, for securities of
the same issuer as, and at least equal in amount to, the
securities sold short;
(5) borrow money, including reverse repurchase agreements, except that
each Fund may borrow from banks for temporary or emergency (not
leveraging) purposes including the meeting of redemption requests
that might otherwise require the untimely disposition of
securities, in an amount not exceeding 20% of the value of the
Fund's total assets (including the amount borrowed) valued at
market less liabilities (not including the amount borrowed) at the
time the borrowing is made. Whenever borrowings exceed 5% of the
value of a Fund's total assets, the Fund will not make any
additional investments;
(6) pledge, hypothecate, mortgage or otherwise encumber more than 10%
of the value of a Fund's total assets as security for any
indebtedness. For purposes of this restriction: (a) the deposit of
assets in escrow in connection with the writing of covered put or
call options and the purchase of securities on a when-issued or
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delayed-delivery basis; and (b) collateral arrangements with
respect to: (i) the purchase and sale of stock options, options on
foreign currencies and options on stock indexes; and (ii) initial
or variation margin for futures contracts will not be deemed to be
pledges of a Fund's assets;
(7) invest in commodities, except that each Fund may purchase or write
futures contracts and options on futures contracts;
(8) make loans to others, except through the purchase of qualified
debt obligations, loans of portfolio securities and the entry into
repurchase agreements; and
(9) concentrate in any industry.
INVESTMENT RESTRICTIONS
[Subject to shareholder approval at a meeting held April __, 1999, the Funds
(except as indicated below) adopted the following investment policies as
fundamental (those that may not be changed without shareholder approval). Each
Fund may not:
FUNDAMENTAL POLICIES
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 or instrumentalities or a
security of an investment company if, as a result, more than 5% of the Fund's
total assets would be invested in the securities of a single issuer or 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 limitation, 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
securities of companies engaged in the real estate
56
<PAGE> 155
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
limitation, 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 or
from investing in securities or other instruments backed by physical
commodities).
7. UNDERWRITING: underwrite (as that term is defined in the 1933 Act)
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
(except as noted) 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 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 (5) the lending of securities ("leverage transactions"). (See Fundamental
Limitation No. 2 "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.
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<PAGE> 156
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.
6. SHORT SALES: 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 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 shall not
constitute purchasing securities on margin.
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.]
VALUATION
Current value for the Funds' portfolio securities is determined 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
reputable brokers or other recognized sources; securities maturing within 60
days are valued at cost plus accredit discount and, or minus amortized premium,
which approximates market value; and securities that have a maturity of 60 days
or more are valued at prices based on market quotations for securities of
similar type, yield and maturity.
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 taxation basis.
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<PAGE> 157
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.
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<PAGE> 158
<TABLE>
<CAPTION>
Name and Position
With the Fund Principle Occupation During Last Five Years
- ----------------- -------------------------------------------
<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
Age 65 and 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+;
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) Ravenwood Winery;
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 of Buffalo;
Trustee Dean, College of Business Administration (1995-1998), Marquette
292 Rivermist University; Professor of Finance (1980-1995) and Associate Dean
Buffalo, NY (1993-1995), School of Business Administration, and Director, Center for
Age 56 Research and Development 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 St. Pensions and Benefits. Management (1989-1992), United Technologies
Sherborn, 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.++
</TABLE>
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<PAGE> 159
<TABLE>
<S> <C>
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
Hartford, Connecticut Travelers Insurance Company.++ Prior to January 1995, Counsel, ITT
Age 48 Hartford Life Insurance Company.
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 SBMFM and TIA; Treasurer, Board of Trustees, five
New York, New York Mutual 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
David A. Golino (to be provided)
Principal Accounting Officer
</TABLE>
David A. Golino
Principal Accounting Officer
+ 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 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.
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<PAGE> 160
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.
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<PAGE> 161
COMPENSATION TABLE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Total
Pension or Compensation
Aggregate Retirement From Fund and
Name of Person, Compensation Benefits Accrued Fund Complex
Position From Fund(1) As Part of Fund Paid to Directors
Expenses(2)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Heath B. McLendon N/A N/A N/A
Chairman and Trustee
- --------------------------------------------------------------------------------------
Knight Edwards 31,500 N/A $31,500
Trustee
- --------------------------------------------------------------------------------------
Robert E. McGill, III 34,000 N/A $34,000
Trustee
- --------------------------------------------------------------------------------------
Lewis Mandell 34,100 N/A $34,000
Trustee
- --------------------------------------------------------------------------------------
Frances M. Hawk, CFA, CFP 34,000 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.
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<PAGE> 162
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
MMC, 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.
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):
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<PAGE> 163
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
FUND ADVISORY FEE SUBADVISORY FEE EXPENSE CAP
PAID TO TAMIC PAID BY TAMIC
% OF AVERAGE DAILY TO SUBADVISERS
NET ASSETS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Convertible Bond 0.60% N/A 0.80%
- ---------------------------------------------------------------------------------------------------------------
Disciplined Mid Cap 0.70% 0.35% 0.95%
- ---------------------------------------------------------------------------------------------------------------
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%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
65
<PAGE> 164
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
FUND ADVISORY FEE SUBADVISORY FEE EXPENSE CAP
PAID TO TAMIC PAID BY TAMIC
% OF AVERAGE DAILY TO SUBADVISERS
NET ASSETS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Zero Coupon Bond Fund (Series 2005) 0.10% N/A 0.15%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The 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 $ $ 20,799 $ 5,626
- ---------------------------------------------------------------------------------------------------------
Disciplines Mid Cap Stock $ $ 22,265 $ *
- ---------------------------------------------------------------------------------------------------------
Disciplines Small Cap Stock $ $ * $ *
- ---------------------------------------------------------------------------------------------------------
Equity Income $ $ 80,431 $ 8,203
- ---------------------------------------------------------------------------------------------------------
Federated Stock $ $ 50,231 $ 11,448
- ---------------------------------------------------------------------------------------------------------
Jurika & Voyles Core Equity $ $ 46,078 $ 6,901
- ---------------------------------------------------------------------------------------------------------
Large Cap $ $ * $ 8,211
- ---------------------------------------------------------------------------------------------------------
Lazard International Stock $ $ 44,240 $ *
- ---------------------------------------------------------------------------------------------------------
MFS Emerging Growth $ $ 65,044 $ 13,997
- ---------------------------------------------------------------------------------------------------------
MRS Mid Cap Growth $ $ 287,384 $ 15,666
- ---------------------------------------------------------------------------------------------------------
MFS Research $ $ * $ *
- ---------------------------------------------------------------------------------------------------------
NWQ Large Cap $ $ * $ *
- ---------------------------------------------------------------------------------------------------------
Strategic Stock $ $ * $ *
- ---------------------------------------------------------------------------------------------------------
Travelers Quality Bond $ $ * $ *
- ---------------------------------------------------------------------------------------------------------
U.S. Government Securities $ $ * $ *
- ---------------------------------------------------------------------------------------------------------
Zero Coupon Bond Fund (Series 2000)
- ---------------------------------------------------------------------------------------------------------
Zero Coupon Bond Fund (Series 2005) $ $ * $ *
- ---------------------------------------------------------------------------------------------------------
</TABLE>
*The Funds were not available in those years.
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<PAGE> 165
MMC
MMC, 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, MMC is
paid an annual fee at the rate set forth in the advisory fee schedule below. The
fee is computed daily and paid weekly.
<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 MMC by Social Awareness Stock Portfolio for the
years ended December 31, 1996, 1997, and 1998 were $58,250, $104,002 and
$_______, respectively.
MMC also manages the day-to-day investment operations of Utilities Portfolio
under an investment advisory agreement approved by the Board. Under the
agreement, MMC 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 MMC 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 MMC by Utilities Portfolio for the years ended
December 31, 1996, 1997 and 1998 were $113,601, $116,989, and $________,
respectively.
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 MMC. 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.
67
<PAGE> 166
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. All of the voting shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated and other subsidiaries of Federated Investors 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 $___ billion as of December 31, 1998 invested across more
than ___ funds under management and/or administration by its subsidiaries, as of
December 31, 1998, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than [2,200] employees,
Federated continues to be led by the management who founded the company in 1955.
Federated funds are presently at work in and through [4,700] 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 $________, 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
68
<PAGE> 167
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 $_______, 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
Federated Vice 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 $______, respectively.
MANAGEMENT OF EQUITY INCOME PORTFOLIO. Stephen Petersen is portfolio manager of
Equity Income Portfolio. He has managed mutual funds and other investment
accounts since 1983. Mr. Petersen also is Senior Vice President of Fidelity
Management Trust Co. Previously, he was Vice President and manager of several
trust accounts. Mr. Petersen joined Fidelity in October 1980.
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 $_______, 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.
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<PAGE> 168
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% and 106%,
respectively, 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 60% of its management fee rate
with respect to a Fund's investments that the sub subadviser 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 nonaffiliated, 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, be 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 managed, 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 $_ 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
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<PAGE> 169
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.
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 $_______.
MANAGEMENT OF JURIKA & VOYLES CORE EQUITY PORTFOLIO. Peter Goetz, CFA is the
portfolio manager for the Jurika & Voyles Core Equity Portfolio. Mr. Goetz is a
Vice President and portfolio manager working primarily with institutional
clients. He was previously a senior portfolio manager at Bank of America in
Newport Beach, CA, managing equity and balanced portfolios for non-profit
organizations, charitable foundations, and high net worth individuals. Mr. Goetz
is also a Chartered Financial Analyst.
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 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 $________, respectively.
MANAGEMENT OF LAZARD INTERNATIONAL STOCK PORTFOLIO. Herbert Gullquist is
primarily responsible for the day-to-day management of the Fund's assets. Mr.
Gullquist, a Managing
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<PAGE> 170
Director and Vice-Chairman of Lazard Freres, is Lazard's Chief Investment
Officer and has been with Lazard since 1982.
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.),
which in turn is a wholly owned subsidiary of Sun Life Assurance Company of
Canada ("Sun Life"). Net assets under the MFS's management were approximately
$__2 billion on behalf of approximately __ million investor accounts as of
January 31, 1999. As of such date, the MFS organization managed approximately
$___ billion of assets invested in equity securities and approximately $___
billion of assets invested in fixed-income securities. Approximately $__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
$________, respectively.
MANAGEMENT OF MFS EMERGING GROWTH PORTFOLIO. John W. Ballen, an MFS Executive
Vice President, 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, a retail mutual
fund, since November of 1995.
MFS MID CAP GROWTH PORTFOLIO. MFS also serves as subadviser to MFS Mid Cap
Growth Portfolio since [date]. 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 $________.
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 Vice President and has been employed by MFS as a
portfolio manager since 1989.
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<PAGE> 171
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 $________.
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
and high net worth individuals. As of the December 31, 1998, NWQ had over $8.13
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 $_______.
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, C.F.A., and Jeffrey M. Cohen are primarily responsible for the Fund's
day-to-day management, with the assistance of the investment committee. The
committee comprises Mr. Friedel, Mr. Cohen, Jon D. Bosse, CFA; Thomas J. Laird,
CFA; David A. Polak, CFA; Phyllis G. Thomas, CFA; Justin Clifford; Martin
Pollack, and James Galbreath. 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.
SUBADVISER: THE TRAVELERS INVESTMENT MANAGEMENT CORPORATION
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 $_ 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
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<PAGE> 172
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 0.375% 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 $_______, 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 $_______.
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
$_______.
MANAGEMENT OF DISCIPLINED MID CAP STOCK, DISCIPLINED SMALL CAP STOCK, AND
STRATEGIC 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. [Need investment background for past
5 years. Mr. Bhagat has provided various investment advisory and management
services since joining TIMCO in [date].]
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;
(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;
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<PAGE> 173
(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 MMC (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:
X the overall direct net economic result to the Funds, involving both price
paid or received and any commissions and other cost paid;
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<PAGE> 174
X the efficiency with which the transaction is effected;
X the ability to effect the transaction at all where a large block is
involved;
X the availability of the broker to stand ready to execute potentially
difficult transactions in the future; and
X 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 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 MMC). 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.
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
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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 and/or between the calendar year 1998 and
the rate anticipated for the calendar year 1999:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Turnover
Fund 1997 1998 1999
(Anticipated)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Convertible Bond N/A*
- -----------------------------------------------------------------------------------------------------------
Disciplined Mid Cap Stock 74%
- -----------------------------------------------------------------------------------------------------------
Disciplined Small Cap Stock N/A*
- -----------------------------------------------------------------------------------------------------------
Equity Income 52%
- -----------------------------------------------------------------------------------------------------------
Federated High Yield 43%
- -----------------------------------------------------------------------------------------------------------
Federated Stock 74%
- -----------------------------------------------------------------------------------------------------------
Jurika & Voyles Core Equity N/A*
- -----------------------------------------------------------------------------------------------------------
Large Cap 60%
- -----------------------------------------------------------------------------------------------------------
MFS Emerging Growth 94%
- -----------------------------------------------------------------------------------------------------------
MFS Mid Cap Growth N/A*
- -----------------------------------------------------------------------------------------------------------
MFS Research N/A*
- -----------------------------------------------------------------------------------------------------------
NWQ Large Cap N/A*
- -----------------------------------------------------------------------------------------------------------
Social Awareness Stock 19%
- -----------------------------------------------------------------------------------------------------------
Strategic Stock N/A*
- -----------------------------------------------------------------------------------------------------------
Travelers Quality Bond 295%
- -----------------------------------------------------------------------------------------------------------
U.S. Government Securities 208%
- -----------------------------------------------------------------------------------------------------------
Utilities 68%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 176
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Turnover
Fund 1997 1998 1999
(Anticipated)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Zero Coupon Bond Fund, 2000 29%
- -----------------------------------------------------------------------------------------------------------
Zero Coupon Bond Fund, 2005 9%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Fund had not commenced operations in 1997.
** No significant variation is expected for 1999.
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:
<TABLE>
<CAPTION>
FUNDS
- ----- Total Portfolio
Transactions
Associated with Commission
Brokers Providing Paid to Such
Research Brokers for
1998 1997 1996 Services in 1997 Research in 1997
---- ---- ---- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Convertible Bond $ $ * $ *
Disciplined Mid Cap $ $ 12,415 $ * $ $
Disciplined Small Cap $ $ * $ * $ $
Equity Income $ $ 10,045 $ 1,653 $ $
Federated High Yield $ $ 0 $ * $ $
Federated Stock $ $ 19,307 $ 3,416 $ $
Jurika & Voyles Core Equity $ $ * $ * $ $
Large Cap $ $ 4,263 $ 2,260 $ $
Lazard International Stock $ $ 34,727 $ 3,680 $ $
MFS Emerging Growth $ $ 97,918 $ 10,326 $ $
MFS Mid Cap Growth $ $ * $ * $ $
MFS Research $ $ * $ * $ $
NWQ Large Cap $ $ * $ * $ $
Social Awareness Stock $ $ 12,571 $ 5,203 $ $
Strategic Stock $ $ * $ * $ $
Travelers Quality Bond $ $ 0 $ 8,148 $ $
U.S. Government Securities $ $ 0 $ 0 $ $
Utilities $ $ 38,325 $ 26,559 $ $
Zero Coupon Bond Fund (Series 2000) $ $ 0 $ 0 $ $
Zero Coupon Bond Fund (Series 2005) $ $ 0 $ 0 $ $
</TABLE>
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<PAGE> 177
*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 Transaction
$ Amount of % of Total Involving Commission
Affiliated Broker Commission Paid Commission Paid Per Affiliated Broker
- ----------------- --------------- --------------- ----------------------------
<S> <C> <C> <C>
DISCIPLINED MID CAP STOCK
- -------------------------
Smith Barney $ 251.00 2.0% .16%
Robinson Humphrey $ 55.00 .4% .22%
EQUITY INCOME
- -------------
Fidelity Brokerage Services $ 1,133.00 11.29% 10.22%
Salomon Brothers Inc. $ 195.00 1.94% 0.76%
FEDERATED STOCK
- ---------------
Smith Barney Inc. $ 50.00 0.26% 0.18%
LARGE CAP
- ---------
Fidelity Brokerage Services $ 482.00 11.32% 8.00%
Salomon Brothers Inc. $ 30.00 0.70% 0.10%
MFS EMERGING GROWTH
- -------------------
Smith Barney Inc. $ 12.00 0.01% 0.01%
SOCIAL AWARENESS STOCK
- ----------------------
Smith Barney Inc. $ 60.00 0.5% 0.4%
UTILITIES
- ---------
Smith Barney Inc. $ 840.00 2.20% 3.37%
</TABLE>
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 .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
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<PAGE> 178
Travelers Insurance Company. MMC, an affiliate of Travelers Insurance, has been
appointed to serve in this capacity.
The administrative fees the Trust paid MMC for each Fund during the last three
calendar years were:
<TABLE>
<CAPTION>
FUNDS 1998 1997 1996
<S> <C> <C> <C>
$ $ * $ *
Convertible Bond $ $ 1,907 $ *
Disciplined Mid Cap Stock $ $ * $ *
Disciplined Small Cap Stock $ $ 999 $ 0
Equity Income $ $ $
Federated High Yield $ $ 4,637 $ 1,057
Federated Stock $ $ 4,424 $ 662
Jurika & Voyles Core Equity $ $ * $ *
Large Cap $ $ $
Lazard International Stock $ $ 4,730 $ 1,031
MFS Emerging Growth $ $ 22,991 $ 1,253
MFS Mid Cap Growth $ $ * $ *
MFS Research $ $ * $ *
NWQ Large Cap $ $ * $ *
Social Awareness Stock $ $ 9,600 $ 23,155
Strategic Stock $ $ * $ *
Travelers Quality Bond $ $ 3,860 $ 1,043
U.S. Government Securities $ $ 17,467 $ 24,429
Utilities $ $ 9,580 $ 23,970
Zero Coupon Bond Fund (Series 2000) $ $ 999 $ 0
Zero Coupon Bond Fund (Series 2005) $ $ 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 .06% of each Fund's
daily net assets under $500 million and .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 $_______, respectively and for
Equity Income Portfolio were $20,052, $60,008, and $_______, 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.
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<PAGE> 179
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.
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
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<PAGE> 180
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.
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.
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<PAGE> 181
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.
[subject to the review of SA&B tax counsel]
PERFORMANCE QUOTATIONS
ANY ADVERTISING OF THE FUND'S PERFORMANCE? IF SO, NEED PERFORMANCE DATA SECTION
SIMILAR TO THE ONE BELOW.
From time to time, we may disclose each Fund's yields, total returns, and other
performance data. We will compute these performance data in accordance with the
SEC standards.
YIELDS. We compute yield by: (1) dividing the Fund's net investment income less
expenses for the period, by (2) the maximum offering price per share on the last
day of the period times the daily average number of shares outstanding for the
period, then (3) compound that yield for a six-month period, and then (4)
multiplying that result by two (2). The Fund's expenses include such expenses as
the advisory expenses. The 30-day or one-month yield is calculated according to
the following formula:
<TABLE>
<S> <C> <C> <C>
6
Yield = 2 [((I - E)/(sp) + 1) -1]
Where:
I = net income of the Fund for the 30-day or one-month period;
E = expenses of the Fund for the 30-day or one-month period;
S = the average number of shares outstanding; and
P = maximum offer price per share at the close (highest) of the last day
in the 30-day or one-month period.
</TABLE>
The Funds' yields do not include any fees and charges associated with insurance
contracts that purchase Fund shares. Because of the charges and deductions
imposed under these contracts, the yield for the relevant sub-account under a
contract is lower than the yield for the corresponding Fund.
The yield on the amounts held in a Fund normally fluctuates over time.
Therefore, the disclosed yield for any given past period is not an indication or
representation of future yields or rates of return. A Fund's actual yield is
affected by the types and quality of portfolio securities held by the Fund and
that Fund's operating expenses.
AVERAGE ANNUAL TOTAL RETURNS. From time to time, sales literature or
advertisements may also quote average annual total returns for the Funds for
various periods of time.
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<PAGE> 182
We will provide a Fund's average annual return information for 1, 5, and 10
years, if available. Otherwise, we will show average annual total return from a
Fund's inception. From time to time, we also may disclose average annual total
returns for other periods of time.
Standard average annual total returns represent the average annual compounded
rates of return that would equate an initial investment of $1,000 to the
redemption value of that investment as of the last day of each of the periods.
The ending date for each period for which total return quotations are provided
will be for the most recent calendar quarter-end practicable, considering the
type of the communication and the media through which it is communicated.
Standard average annual total returns are calculated using Fund values that we
calculate each Business Day. The average total return figures assume
[reinvestment of all dividends and distributions at net asset value]. The total
return is calculated according to the following formula:
<TABLE>
<S> <C> <C> <C>
1/N
TR = ((ERV/P) )-1
Where:
TR = the average annual total return;
ERV = the ending redeemable value (net of any applicable surrender
charge) of the hypothetical account at the end of the period;
P = a hypothetical initial payment of [$1,000]; and
N = the number of years in the period.
</TABLE>
OTHER TOTAL RETURNS. From time to time, we also may quote in sales literature or
advertisements nonstandard average annual total returns (which means that the
returns will not reflect the standard elements described above). Other total
returns are calculated in exactly the same way as average annual total returns
described above, except that the periods involved may differ.
USE OF INDICES. From time to time, we may present the performance of certain
historical indexes in advertisements or sales literature. We also may compare
the performance of these indices to a Fund's performance.
OTHER INFORMATION. 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.
<TABLE>
<S> <C>
Across the Board Advertising Age
American Banker Barron's
Best's Review Broker World
Business Insurance Business Month
</TABLE>
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<PAGE> 183
<TABLE>
<S> <C>
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
</TABLE>
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.
KPMG Peat Marwick 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 Peat
Marwick LLP for the fiscal year ending December 31, 1998.
Price Waterhouse Coopers 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 Price Waterhouse
Coopers LLP, as indicated in their reports thereon, and are included in the
Trust's Annual Report, which is incorporated herein by reference, in reliance
upon the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
On [April 15, 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 financial services
holding company. The Company's Home Office is located at One Tower Square,
Hartford, Connecticut 06183, telephone number 860-277-0111.
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<PAGE> 184
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.
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<PAGE> 185
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
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<PAGE> 186
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
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.
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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 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.
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<PAGE> 188
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
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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.
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 "AAAA." Because bonds rated in the
"AAAA" and "AAA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated
"AF-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
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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. "ADDD"
represents the highest potential for recovery on these bonds, and "AD"
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 "AAAA," "ADDD,. "ADD," or "AD"
categories.
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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> 192
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> 193
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> 194
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> 195
(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) Consent of Coopers & Lybrand L.L.P., Independent Accountants. To be
filed by amendment Consent of KPMG Peat Marwick LLP, Independent
Certified Public Accountants. Consent of Price Waterhouse LLP,
Independent Accountants.
(j)(2) 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.)
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. To be filed by amendment
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> 196
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 Other Business
- ---- ------------------- --------------
<S> <C> <C>
Marc P. Weill Director and Chairman Senior Vice President **
Chief Investment Officer
David A. Tyson Director, President and Senior Vice President *
Chief Investment Officer
Joseph E. Rueli, Jr. Director, Senior Vice President Vice President*
and Chief Financial Officer
F. Denney Voss Director and Senior Vice Senior Vice President*
President
John R. Britt Director and Secretary Assistant Secretary *
Glenn N. Marchak Senior Vice President
Joseph M. Mullally Senior Vice President Vice President*
David Amaral Vice President Assistant Director*
John R. Calcagni Vice President Second Vice President*
Allen R. Cantrell Vice President
A. William Carnduff Vice President
Gene Collins Vice President Vice President*
Angela Pellegrini Degis Vice President
Craig Farnsworth Vice President
Bruce E. Fox Vice President
Carl Franzetti Vice President
Kothandaraman Ganesh Vice President
John F. Gilsenan Vice President
Kimerly M. Polak Guerrero Vice President
John F. Green Vice President Second Vice President*
Thomas Hajdukiewicz Vice President Vice President*
</TABLE>
<PAGE> 197
<TABLE>
<CAPTION>
<S> <C> <C>
Edward Hinchliffe III Vice President and Cashier Second Vice President
and Cashier*
Richard E. John Vice President Vice President*
Kathryn D. Karlic Vice President Vice President*
Kurt Lin Vice President
David R. Martin Vice President
Paul A. Mataras Vice Presidnet
David R. Miller Vice President Vice President*
Robert E. Mills Vice President
Emil J. Molinaro Vice President Vice President*
John W. Petchler Vice President
Steven A. Rosen Vice President
Andrew Sanford Vice President Investment Officer*
Eric L. Sappenfield Vice President
Charles H. Silverstein Vice President Second Vice President*
Robert Simmons Vice President Assistant Investment
Officer*
Jordan M. Stitzer Vice President Vice President*
Joel Strauch Vice President Vice President*
Teresa M. Torrey Vice President
Pamela D. Westmoreland Vice President
William M. Gardner Assistant Vice President
Jeremy C. Hughes Assistant Vice President
Matthew J. McInerny Assistant Vice President
Lisa A. Thomas 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 Secretary**
Andrew Feldman Assistant Secretary Senior Counsel*
Millie Kim Assistant Secretary Senior Counsel*
Patricia A. Uzzel Compliance Officer Assistant Director*
Frank J. Fazzina Controller Director *
</TABLE>
* Positions are held with The Travelers Insurance Company, One Tower Square,
Hartford, Connecticut
** Positions held with Travelers Investment Group Inc., 388 Greenwich Street,
New York, N.Y.
<PAGE> 198
SOCIAL AWARENESS STOCK PORTFOLIO
UTILITIES PORTFOLIO
Officers and Directors of Mutual Management Corp. (MMC), 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 MMC* Other Business
- ---- ------------------ --------------
<S> <C> <C>
Heath B. McLendon Director, President and Managing Director of Salomon
Chief Executive Officer Smith Barney; Director of
certain investment companies
sponsored by 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
sponsored by Salomon Smith
Barney; Director and Senior
Vice President of TIA.
A. George Saks Director Managing Director and Special
Counsel of Salomon Smith Barney.
Bruce D. Sargent Vice President Managing Director of Salomon
Smith Barney; Vice President
and Director of certain
investment companies sponsored
by 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
sponsored by 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 Vice President of Salomon Smith
Barney; Chief Compliance
Officer of TIA.
</TABLE>
* Address: 388 Greenwich Street, New York, N.Y. 10013
<PAGE> 199
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
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.*
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> 200
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 and President -
Arnold D. Scott Director, Senior Executive -
Vice President and Secretary
Donald A. Stewart Director President and Director
Sun Life Assurance Company
of Canada
John D. McNeil Director Chairman
Sun Life Assurance Company
of Canada
Bruce C. Avery Executive Vice President -
John W. Ballen Executive Vice President -
Thomas J. Cashman, Jr. Executive Vice President -
Joseph W. Dello Russo Executive Vice President, Chief Director of Mutual Fund
Financial Officer and Treasurer Operations, The Boston Company
William S. Harris Executive Vice President -
Kevin R. Parke Executive Vice President -
William W. Scott, Jr. Executive Vice President -
Patricia A. Zlotin Executive Vice President -
Stephen E. Cavan Senior Vice President, General -
Counsel and Assistant Secretary -
Robert T. Burns Vice President, Associate General -
Counsel and Assistant Secretary -
Thomas B. Hastings Vice President and Assistant Treasurer -
</TABLE>
<PAGE> 201
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 -
Frederick H. Batrus General Member -
Patrick J. Callahan, Jr. General Member -
Michel A. David-Weill General Member -
John V. Doyle General Member -
Thomas F. Dunn General Member -
Norman Eig General Member -
Richard P. Emerson General Member -
Peter R. Ezersky General Member -
Jonathan F. Foster General Member -
Robert P. Freeman General Member -
Albert H. Garner General Member -
James S. Gold General Member -
Jeffrey A. Golman General Member -
Steven J. Golub General Member -
Herbert W. Gullquist General Member -
Thomas R. Haack General Member -
Ira O. Handler General Member -
Melvin L. Heineman General Member -
Robert E. Hougie General Member -
Kenneth M. Jacobs General Member -
Jonathan H. Kagan General Member -
James L. Kempner General Member -
Larry A. Kohn General Member -
Sandra A. Lamb General Member -
Edgar D. Lagaspi General Member -
David C. Lee General Member -
Michael S. Liss General Member -
William R. Loomis, Jr. General Member -
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 -
Damon Mezzacappa General Member -
Robert P. Morgenthau General Member -
Steven J. Niemczyk General Member -
Hamish W. M. Norton General Member -
James A. Paduano General Member -
Adam P. Panten General Member -
Louis Perlmutter General Member -
Russell E. Planitzer General Member -
Lester Pollack General Member -
Michael J. Price General Member -
Steven L. Rattner General Member -
John R. Reinsberg General Member -
Louis G. Rice General Member -
Luis E. Rinaldini General Member -
</TABLE>
<PAGE> 202
<TABLE>
<CAPTION>
Position with Lazard
Name Freres & Co. LLC Other Business
- ---- ---------------- --------------
<S> <C> <C>
Bruno M. Roger General Member -
Michael S. Rome General Member -
Gerald Rosenfeld General Member -
Stephen H. Sands General Member -
Gary S. Shedlin General Member -
Arthur P. Soloman General Member -
Michael B. Solomon General Member -
David L. Tashjian General Member -
Joseph M. Thomas General Member -
Michael P. Trigubaff General Member -
Donald A. Wagner General Member -
John B. Ward General Member -
Ali E. Wambold General Member -
Michael A. Weinstock General Member -
Kendrick R. Wilson, III General Member -
Alexander E. Zagoreos General Member -
Lazard Groupement d'Interet Economique
Lazard Partners L.P.
</TABLE>
<PAGE> 203
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 -
Drew J. Collins Senior Vice President -
Jonathan C. Conley Senior Vice President -
Deborah A. Cuningham Senior Vice President -
Mark E. Durbiano Senior Vice President -
Sandra L. McInerney Senior Vice President -
J. Alan Minteer Senior Vice President -
Susan M. Nason Senior Vice President -
Mary Jo Ochson Senior Vice President -
Robert J. Ostrowski Senior Vice President -
Charles A. Ritter Senior Vice President -
J. Scott Albrecht Vice President -
Todd A. Abraham Vice President -
Randall S. Baurer Vice President -
David A. Briggs Vice President -
Michael W. Casey Vice President -
Kenneth J. Cody Vice President -
Alexandre de Bethmann 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 -
Susan R. Hill Vice President -
Stephen A. Keen Vice President and Secretary -
Robert K. Kinsey Vice President -
Robert M. Kowit Vice President -
Jeff A. Kozemchak Vice President -
Steven J. Lehman Vice President -
Marian R. Marinack Vice President -
Scott B. Schermerhorn Vice President -
Frank Semack Vice President -
</TABLE>
<PAGE> 204
<TABLE>
<CAPTION>
Position with Federated
Name Investment Counseling Other Business
- ---- --------------------- --------------
<S> <C> <C>
Aash M. Shah Vice President -
Christopher J. Smith Vice President -
William F. Stotz Vice President -
Tracy P. Stouffer Vice President -
Edward J. Tiedge Vice President -
Paige M. Wilhelm Vice President -
Jolanta M. Wysocka Vice President -
Stefanie L. Bachhuber Assistant Vice President -
Arthur J. Barry Assistant Vice President -
Robert E. Cauley Assistant Vice President -
Lee Cunningham Assistant Vice President -
Paul Drotch Assistant Vice President -
Salvatore A. Esposito Assistant Vice President -
Donna M. Fabiano Assistant Vice President -
John T. Gentry Assistant Vice President -
William R. Jamison Assistant Vice President -
Constantine Kartsonas Assistant Vice President -
Natalie Metz Assistant Vice President -
Joseph M. Natoli Assistant Vice President -
Keith J. Sabol Assistant Vice President -
John Sheehy Assistant Vice President -
Michael W. Sirianni Assistant Vice President -
Gregg S. Tenser Assistant Vice President -
Leo Vila Assistant Vice President -
Lori Wolff Assistant Vice President -
Thomas R. Donahue Treasurer and Assistant Secretary -
Richard B. Fisher Assistant Treasurer -
Christine I. McGonigle Assistant Secretary -
</TABLE>
<PAGE> 205
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 -
Fred Henning, Jr. Senior Vice President -
Dwight D. Churchill Senior Vice President -
William Danoff Senior Vice President -
Richard B. Fentin 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 -
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 -
Steven Kaye Vice President -
</TABLE>
<PAGE> 206
Officers and Directors of NWQ Investment Management Company, the Sub-Adviser to
the NQW 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 Bosse, CFA Managing Director
Phyliss G. Thomas, CFA Managing Director
Thomas J. Laird, CFA Managing Director
</TABLE>
<PAGE> 207
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 Other Business
Name Jurika & Voyles L.P. Jurika & Voyles, Inc.
- ---- -------------------- ---------------------
<S> <C> <C>
Bill Jurika President Director
Glenn Voyles Executive Vice President Chairman
Karl Mills Executive Vice President Director
Chris Bittman Senior Vice President Director
Jim Christensen Senior Vice President --
Candace Tom Senior Vice President --
Guy Elliffe Vice President --
Peter Goetz Vice President --
Peter Voss -- Director
Neal Ryland -- Director
</TABLE>
<PAGE> 208
Item 27. Principal Underwriter
Not Applicable.
Item 28. Location of Accounts and Records
(1) Mutual Management Corp.
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> 209
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant, The Travelers Series Trust, 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
25th day of January, 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 25th day of January, 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> 210
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
--- ----------- ----------------
<S> <C> <C>
</TABLE>
NOT APPLICABLE
