<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. 27
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 27
THE TRAVELERS SERIES TRUST
--------------------------
(Exact name of Registrant)
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
---------------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (860) 277-0111
--------------
ERNEST J. WRIGHT
Secretary to the Board of Trustees
The Travelers Series Trust
One Tower Square
Hartford, Connecticut 06183
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b).
-----
X on May 1, 2000 pursuant to paragraph (b).
-----
60 days after filing pursuant to paragraph (a)(1).
-----
----- on __________ pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2).
-----
on __________ pursuant to paragraph (a)(2) of Rule 485.
-----
on __________ pursuant to paragraph (a)(3) of Rule 485.
-----
If appropriate, check the following box:
----- this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE> 2
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE> 3
THE TRAVELERS SERIES TRUST
Convertible Bond Portfolio
Disciplined Mid Cap Stock Portfolio
Disciplined Small Cap Stock Portfolio
Equity Income Portfolio
Federated High Yield Portfolio
Federated Stock Portfolio
Jurika & Voyles Core Equity Portfolio
Large Cap Portfolio
Lazard International Stock Portfolio
MFS Emerging Growth Portfolio
MFS Mid Cap Growth Portfolio
MFS Research Portfolio
NWQ Large Cap Portfolio
Social Awareness Stock Portfolio
Strategic Stock Portfolio
Travelers Quality Bond Portfolio
U.S. Government Securities Portfolio
Utilities Portfolio
NOT ALL FUNDS CONTAINED IN THIS PROSPECTUS MAY BE AVAILABLE WITH YOUR CONTRACT.
PLEASE REFER TO YOUR CONTRACT PROSPECTUS FOR A LIST OF YOUR FUNDING OPTIONS.
The Travelers Series Trust (the "Trust") is an open-end management investment
company (mutual fund) consisting of multiple portfolios, each with its own
investment objectives and policies. Only the Portfolios (the "Fund(s)") listed
above are described in this prospectus.
Fund shares are offered only to separate accounts of The Travelers Insurance
Company, The Travelers Life and Annuity Company or to separate accounts of
affiliated companies (together, "The Travelers"). The Funds serve as funding
options for certain variable annuity and variable life insurance contracts
issued by The Travelers.
ONE TOWER SQUARE
HARTFORD, CONNECTICUT 06183
TELEPHONE 1-800-842-9368
PROSPECTUS
May 1, 2000
THE SECURITIES AND EXCHANGE COMMISSION ("SEC") 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
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
GOALS AND INVESTMENTS
Convertible Bond Portfolio 3
Disciplined Mid Cap Stock Portfolio 4
Disciplined Small Cap Stock Portfolio 5
Equity Income Portfolio 6
Federated High Yield Portfolio 7
Federated Stock Portfolio 8
Jurika & Voyles Core Equity Portfolio 9
Large Cap Portfolio 10
Lazard International Stock Portfolio 11
MFS Emerging Growth Portfolio 12
MFS Mid Cap Growth Portfolio 13
MFS Research Portfolio 15
NWQ Large Cap Portfolio 16
Social Awareness Stock Portfolio 17
Strategic Stock Portfolio 18
Travelers Quality Bond Portfolio 19
U.S. Government Securities Portfolio 20
Utilities Portfolio 21
INVESTMENTS AND PRACTICES 22
MANAGEMENT 24
LEGAL PROCEEDINGS 30
SHAREHOLDER TRANSACTIONS AND PRICING 30
TAX CONSEQUENCES OF DIVIDENDS AND DISTRIBUTIONS 31
FINANCIAL HIGHLIGHTS 32
APPENDIX 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 Company LLC ("TAMIC") and SSB Citi Fund
Management LLC ("SSB Citi") each serve as investment adviser for certain of the
Funds. Both TAMIC and SSB Citi are indirect wholly owned subsidiaries of
Citigroup Inc. TAMIC has engaged subadvisers to provide an investment program
for certain Funds.
2
<PAGE> 5
CONVERTIBLE BOND PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
PORTFOLIO MANAGER: David A.
Tyson
FUND'S OBJECTIVE: Current income and capital
appreciation
KEY INVESTMENTS: Fixed-income securities
that may be converted into
common stock ("convertible
securities").
SELECTION PROCESS: The Fund invests at least 65% of its total assets in
convertible securities of companies of any size or industry. Some of these
securities may have a lower rating (junk bonds) or may be unrated. In evaluating
an issuer's creditworthiness, the adviser considers various factors, including:
- the issuer's financial resources
- sensitivity to economic conditions and trends
- regulatory matters
- ability of the issuer's management
PRINCIPAL RISKS: The Fund is most subject to fixed-income securities risk,
where market values move in the opposite direction of interest rates, and
lower-quality fixed-income risks, where market values are subject to credit
risks of issuers who may default or otherwise fail to make timely debt payments.
Another principal risk is equities risk, where market values may change
abruptly, sometimes unpredictably. For more information on the Fund's
investments and related risks, please see "Investments and Practices," the
Appendix to this prospectus and the Statement of Additional Information ("SAI").
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may
invest up to 35% of its total assets in combinations of nonconvertible
fixed-income securities and warrants or call options that together resemble
convertible securities ("synthetic securities"). The Fund may also write covered
call options. For a complete list of all investments available to the Fund,
please refer to the Appendix of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with the Merrill Lynch Investment Grade
Convertible Bond Index ("ML Index"). Past performance can give some indication
of the Fund's risk, but does not guarantee future results.
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31
<TABLE>
<CAPTION>
CONVERTIBLE BOND PORTFOLIO
--------------------------
<S> <C>
99 18.70
</TABLE>
Best Quarter: 4th (99) 9.56%
Worst Quarter: 3rd (99) 0.47%
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1999
<TABLE>
<CAPTION>
1 year Life of Fund*
------ -------------
<S> <C> <C>
Convertible Bond 18.70% 11.47%
ML Index 35.99% 22.74%
* The fund commenced operations on May
1, 1998.
</TABLE>
3
<PAGE> 6
DISCIPLINED MID CAP STOCK PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: Travelers
Investment
Management Company
("TIMCO")
PORTFOLIO MANAGER: Sandip
Bhagat
FUND'S OBJECTIVE: Growth of capital
KEY INVESTMENTS: Common stock of U.S.
companies
SELECTION PROCESS: The Fund invests primarily
in the stock of mid-size and smaller
companies, representing various industries.
The Fund's subadviser selects stock with a
qualitative screening process that seeks attractive relative value and earnings
growth. The subadviser manages the Fund to mirror the Standard & Poor's 400
Stock Index, a value-weighted stock index consisting of 400 mid-size companies.
With this approach, stocks are evaluated based on the following characteristics:
- price/earnings ratios and expected long-
term growth
- trends and magnitudes of earnings
- earnings surprises
- changes in analysts' earnings estimates
- overall contribution to total portfolio risk
- analysis of short-term price changes
- underpricing on a risk-adjusted basis
relative to the S&P 400 Index
PRINCIPAL RISKS: The Fund is most subject to equities risk, where market values
may change abruptly, sometimes unpredictably, and mid-size to smaller companies
risk, where market values may be more erratic and thinly traded than the general
market. For more information on the Fund's investments and related risks, please
see "Investments and Practices," the Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may
invest in various other types of securities and engage in other investment
techniques and strategies which are not the principal focus of the Fund. For a
complete list of all investments available to the Fund, please refer to the
Appendix of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with the Standard & Poor's 400 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>
DISCIPLINED MID CAP STOCK PORTFOLIO
-----------------------------------
<S> <C>
98 16.91
99 13.47
</TABLE>
Best Quarter: 4th (98) 26.68 %
Worst Quarter: 3rd (98) (15.34)%
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1999
<TABLE>
<CAPTION>
1 year Life of Fund*
------ -------------
<S> <C> <C>
Disc. Mid Cap 13.47% 23.39%
S&P 400 14.72% 24.69%
* The fund commenced operations on April 1,
1997.
</TABLE>
4
<PAGE> 7
DISCIPLINED SMALL CAP STOCK PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: TIMCO
PORTFOLIO MANAGER: Sandip
Bhagat
FUND'S OBJECTIVE: Long-term capital
appreciation
KEY INVESTMENTS: Common stock of small U.S.
companies
SELECTION PROCESS: The Fund invests primarily
in the stock of mid-size and small companies, representing various industries.
The Fund's subadviser selects stock with a qualitative screening process to
identify stocks of attractive relative value and earning growth. The subadviser
manages the Fund to mirror the Russell 2000(R) Stock Index in terms of overall
risk, economic sector weightings, and market capitalizations, although the Fund
is not limited to stocks that comprise the Index. With this approach, stocks are
evaluated based on the following characteristics:
- price/earnings ratios and expected long-
term growth
- trends and magnitudes of earnings
- earnings surprises
- changes in analysts' earnings estimates
- overall contribution to total portfolio risk
- analysis of short-term price changes
- underpricing on a risk-adjusted basis relative to the Russell 2000 Index
PRINCIPAL RISKS: The Fund is most subject to equities risk, where market values
may change abruptly, sometimes unpredictably, and smaller companies risk, where
market values may be more erratic and stocks more thinly traded than the general
market. For more information on the Fund's investments and related risks, please
see "Investments and Practices," the Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may
invest in various other types of securities and engage in other investment
techniques and strategies which are not the principal focus of the Fund. For a
complete list of all investments available to the Fund, please refer to the
Appendix of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below shows how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with the Russell 2000 Index. Past
performance can give some indication of the Fund's risk, but does not guarantee
future results.
% TOTAL RETURNS AS OF 12/31
<TABLE>
<CAPTION>
DISCIPLINED SMALL CAP STOCK PORTFOLIO
-------------------------------------
<S> <C>
99 20.41
</TABLE>
Best Quarter: 4th (99) 15.71 %
Worst Quarter: 1st (99) (5.75)%
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1999
<TABLE>
<CAPTION>
1 year Life of Fund*
------ -------------
<S> <C> <C>
Disc. Small Cap 20.41% 4.20%
Russell 2000 21.26% 6.67%
* The fund commenced operations on May 1, 1998.
</TABLE>
5
<PAGE> 8
EQUITY INCOME PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: Fidelity Management
& Research Company
PORTFOLIO MANAGER: Stephen
DuFour
FUND'S OBJECTIVE: Reasonable income
KEY INVESTMENTS: Income-producing equity
securities
SELECTION PROCESS: The Fund normally invests
at least 65% of its total assets in income-producing equity securities, which
tends to lead to investments in large cap "value" stocks. The Fund may invest in
companies of any size or industry. The Fund seeks to achieve a yield greater
than the composite dividend yield on securities comprising the S&P 500 Index.
The Fund's subadviser uses a fundamental analysis of each issuer's financial
condition and industry position as well as market and economic conditions to
select investments. Factors for stock selection include, but are not limited to,
growth potential, earnings estimates and strength of management. When choosing
the Fund's investments, the subadviser also considers the potential for capital
appreciation.
PRINCIPAL RISKS: The Fund is most subject to equities risk, where market values
may change abruptly, sometimes unpredictably, dividend risk, where a company
might pay lower or no dividends, foreign and emerging markets securities risks,
where market values may be impacted by limited trading, currency exchange,
political or economic instability, or other factors. Other principal risks are
fixed-income securities risk, where market values move in the opposite direction
of interest rates, and lower-quality fixed-income risks, where market values are
subject to credit risks of issuers who may default or otherwise fail to make
timely debt payments. For more information on the Fund's investments and related
risks, please see "Investments and Practices," the Appendix to this prospectus
and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may also
invest in all types of domestic, foreign and emerging market securities (both
equity and bonds), including lower-rated fixed income securities. For a complete
list of all investments available to the Fund, please refer to the Appendix of
this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with the Russell 3000(R) Value and the
Russell 1000(R) Value Indices. Past performance can give some indication of the
Fund's risk, but does not guarantee future results.
YEAR-BY-YEAR % TOTAL RETURNS AS OF 12/31
[BAR GRAPH]
<TABLE>
<CAPTION>
EQUITY INCOME PORTFOLIO
-----------------------
<S> <C>
97 32.05
98 12.38
99 4.92
</TABLE>
Best Quarter: 2nd (97) 16.06 %
Worst Quarter: 3rd (98) (12.33)%
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1999
<TABLE>
<CAPTION>
Life of
1 year Fund*
------ -------
<S> <C> <C>
Equity Income 4.92% 18.05%
Russell 3000 Value Index 6.65% 20.54%
Russell 1000 Value Index 7.35% 21.59%
* The fund commenced operations on August 30,
1996.
</TABLE>
6
<PAGE> 9
FEDERATED HIGH YIELD PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: Federated Investment
Counseling
PORTFOLIO MANAGERS: Mark E.
Durbiano
FUND'S OBJECTIVE: High current income
KEY INVESTMENTS: Lower-quality fixed
income securities
SELECTION PROCESS: The Fund's subadviser
selects high-yield, high-risk corporate debt
obligations that are generally rated BBB or lower by Standard & Poor's Ratings
Group or Baa or lower by Moody's Investors Service, Inc., or, if unrated, are of
comparable quality. There is no minimum acceptable rating for the Fund's
investments, and the Fund may purchase or hold securities in the lowest rating
category, including securities in default. The Fund also may invest in debt
securities with equity features. The subadviser follows certain steps to
evaluate the risks associated with these lower-rated securities. These
techniques include:
- independent credit analysis
- judgment of other investment analysts
- analysis of issuer's financial soundness and anticipated cash flow
- markets issuers' current value of assets
- discussions with issuer's management
- analysis of current developments and trends in economy and financial
PRINCIPAL RISKS: The Fund is most subject to fixed-income securities risk,
where market values move in the opposite direction of interest rates, and
lower-quality fixed-income risks, where market values are subject to credit
risks of issuers who may default or otherwise fail to make timely debt payments.
Other principal risks may be foreign and emerging markets securities risks,
where market values may be impacted by limited trading, currency exchange,
political or economic instability, or other factors. For more information on the
Fund's investments and related risks, please see "Investment and Practices," the
Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may
invest in zero coupon and payment-in-kind bonds, foreign and emerging market
securities, and various asset-backed securities. For a complete list of all
investments available to the Fund, please refer to the Appendix of this
prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by the Travelers. The
table compares the Fund's performance with the Lehman Aggregate Bond Index. Past
performance can give some indication of the Fund's risk, but does not guarantee
future results.
YEAR-BY-YEAR % TOTAL RETURNS AS OF 12/31
[BAR GRAPH]
<TABLE>
<CAPTION>
FEDERATED HIGH YIELD PORTFOLIO
------------------------------
<S> <C>
97 15.45
98 4.71
99 3.10
</TABLE>
<TABLE>
<S> <C> <C> <C>
Best Quarter: 3rd (97) 5.41 %
Worst Quarter: 3rd (98) (3.21)%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1999
<TABLE>
<CAPTION>
1 year Life of Fund*
------ -------------
<S> <C> <C>
Federated High Yield 3.10 % 9.12%
Lehman Agg. Bond (0.82)% 6.63%
* The fund commenced operations on August
30, 1996.
</TABLE>
7
<PAGE> 10
FEDERATED STOCK PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: Federated Investment
Counseling
PORTFOLIO MANAGERS: Michael P.
Donnelly
Kevin McCloskey
FUND'S OBJECTIVE: Growth of income and
capital
KEY INVESTMENTS: Common stock of high
quality
companies
SELECTION PROCESS: The Fund invests primarily
in companies selected on the basis of
traditional research techniques, including an analysis of the company's position
in its industry, management qualities and characteristics, and resources to
finance growth. Companies with similar characteristics may be grouped together
in broad categories called sectors. In determining the amount to invest in a
security, the Adviser limits the Fund's exposure to each business sector that
comprises the S&P 500 Index. The Fund's allocation to a sector will not be less
than 50% or more than 200% of the Index's allocation to that sector. Specific
stocks are selected for the following qualities:
- assessment of earnings
- dividend growth prospects
- assessment of the risk and volatility of the company's industry
- companies in the top 25% of their
industries with regard to revenues
- superior product position
- strong market shares
PRINCIPAL RISKS: The Fund is most subject to equities risk, where market values
may change abruptly, sometimes unpredictably, and foreign and emerging markets
securities risks, where market values may be impacted by limited trading,
currency exchange, political or economic instability, or other factors. Another
principal risk may be sector risk, where clusters of stocks perform differently
from the general market. For more information on the Fund's investments and
related risks, please see "Investments and Practices," the Appendix to this
prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may also
invest in American Depositary Receipts (ADRs), which represent interests in
underlying securities issued by a foreign company. For a complete list of all
investments available to this Fund, please refer to the Appendix of this
prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with the Standard & Poor's 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 17.84
99 5.34
</TABLE>
<TABLE>
<S> <C> <C> <C>
Best Quarter: 4th (98) 16.48 %
Worst Quarter: 3rd (99) (10.95)%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1999
<TABLE>
<CAPTION>
1 year Life of Fund*
------ -------------
<S> <C> <C>
Federated Stock 5.34% 20.53%
Portfolio
S&P 500 21.04% 29.63%
* The fund commenced operations on August
30, 1996.
</TABLE>
8
<PAGE> 11
JURIKA & VOYLES CORE EQUITY PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: Jurika & Voyles, LLP
PORTFOLIO MANAGERS: Guy R.
Elliffe
Gregory A.
Welch
FUND'S OBJECTIVE: Long-term capital
appreciation
KEY INVESTMENTS: Common stock of mid-size
to large companies
SELECTION PROCESS: The Fund normally
invests at least 65%
of its assets in the common stock of companies with market capitalizations of
$500 million and over. The Fund seeks value in quality companies normally
offering relatively lower price-to-earnings ratios and higher earnings growth
rates. The subadviser emphasizes in-house research, which includes personal
contacts, site visits and meetings with company management. The Fund's
subadviser uses a growth and value approach to evaluate stocks demonstrating
potential capital growth based upon the following characteristics:
- earnings growth and predictability
- high return on equity
- leading/strong market positions
- experienced management team
- established record of profitability
- strong financial position
- strong cash flow
- established industry position
- management holds significant equity position
- healthy balance sheet with low corporate debt
PRINCIPAL RISKS: The Fund is most subject to equities risk, where market values
may change abruptly, sometimes unpredictably, mid-size companies risk, where
market values may be more erratic than the general market, and foreign
securities risk, where markets may be impacted by limited trading, political or
economic instability, or other factors. For more information on the Fund's
investments and related risks, please see "Investments and Practices," the
Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may also
invest up to 25% of its total assets in U.S. dollar-denominated foreign
securities. For a complete list of all investments available to the Fund, please
refer to the Appendix of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with the Russell Mid Cap(TM) and the
Russell 3000 Indices. Past performance can give some indication of the Fund's
risk, but does not guarantee future results.
YEAR-BY-YEAR % TOTAL RETURNS AS OF 12/31
[BAR GRAPH]
<TABLE>
<CAPTION>
JURIKA & VOYLES CORE EQUITY PORTFOLIO
-------------------------------------
<S> <C>
99 10.32
</TABLE>
<TABLE>
<S> <C> <C> <C>
Best Quarter: 4th (99) 15.38 %
Worst Quarter: 3rd (99) (10.65)%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1999
<TABLE>
<CAPTION>
1 year Life of Fund*
------ -------------
<S> <C> <C>
Jurika & Voyles Core Equity 10.32% 9.28%
Russell Mid Cap 18.23% 7.37%
Russell 3000 6.65 5.58%
* The fund commenced operations on July 20, 1998.
</TABLE>
9
<PAGE> 12
LARGE CAP PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: Fidelity Management
& Research Company
PORTFOLIO MANAGER: Karen
Firestone
FUND'S OBJECTIVE: Long-term growth of capital
KEY INVESTMENTS: Common stock of companies
with large capitalizations
SELECTION PROCESS: The Fund normally invests at least 65% of its total assets
in the equity securities of companies with market capitalizations of $1 billion
or more at the time of the Fund's investment. The Fund may invest in companies
of any industry and may invest in both foreign and domestic issuers. The Fund
may invest in either "growth" or "value" stocks. The subadviser uses a
fundamental analysis of each issuer's financial condition and industry position
as well as market and economic conditions to select investments. Factors for
stock selection include but are not limited to growth potential, earnings
estimates and strength of management.
PRINCIPAL RISKS: The Fund is most subject to equities risk, where market values
may change abruptly, sometimes unpredictably, and foreign and emerging markets
securities risks, where market values may be impacted by limited trading,
currency exchange, political or economic instability, or other factors. For more
information on the Fund's investments and related risks, please see "Investments
and Practices," the Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may also
invest in securities of companies with market capitalizations of less than $1
billion. For a complete list of all investments available to the Fund, please
refer to the Appendix of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with the 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
[BAR GRAPH]
<TABLE>
<CAPTION>
LARGE CAP PORTFOLIO
-------------------
<S> <C>
97 23.41
98 35.65
99 29.24
</TABLE>
Best Quarter: 4th (98) 23.56 %
Worst Quarter: 3rd (98) (7.32)%
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1999
<TABLE>
<CAPTION>
1 Year Life of Fund*
------ -------------
<S> <C> <C>
Large Cap 29.24% 30.86%
S&P 500 21.04% 29.63%
* The fund commenced operations on August
30, 1996.
</TABLE>
10
<PAGE> 13
LAZARD INTERNATIONAL STOCK PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: Lazard Asset
Management
PORTFOLIO MANAGERS: Herbert W.
Gullquist
John R.
Reinsberg
FUND'S OBJECTIVE: Capital appreciation
KEY INVESTMENTS: Equity securities of
relatively large
non-U.S. companies
SELECTION PROCESS: The Fund's subadviser
invests primarily in companies based in
developed markets that the subadviser believes are undervalued based on their
return on total capital or equity, with 80% or more of its total assets invested
within at least three foreign countries. The Fund may invest in companies of any
size or industry. The Fund's portfolio manager uses a traditional, bottom-up
value approach to evaluate stocks demonstrating potential capital growth based
upon the following characteristics:
- low price to earnings ratio
- high yield
- inexpensive markets worldwide
- potential for management change
- potential to improve profitability
- unrecognized assets
- - strong financial position
- - strong cash flow
- - established industry position
- - industry with positive growth outlook
- - healthy balance sheet with low corporate debt
PRINCIPAL RISKS: The Fund is most subject to equities risk, where market values
may change abruptly, sometimes unpredictably, and foreign and emerging markets
securities risks, where market values may be impacted by limited trading,
currency exchange, political or economic instability, or other factors. For more
information on the Fund's investments and related risks, please see "Investments
and Practices," the Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund expects
to invest in fixed-income securities which are investment grade at time of
purchase, short-term money market instruments and convertible bonds. For a
complete list of all investments available to the Fund, please refer to the
Appendix of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with the Morgan Stanley Capital
International Europe, Australia and Far East GDP. Past performance can give some
indication of the Fund's risk, but does not guarantee future results.
YEAR-BY-YEAR % TOTAL RETURNS AS OF 12/31
[BAR GRAPH]
<TABLE>
<CAPTION>
LAZARD INTERNATIONAL STOCK PORTFOLIO
------------------------------------
<S> <C>
97 8.5
98 12.59
99 21.78
</TABLE>
Best Quarter: 4th (98) 17.15 %
Worst Quarter: 3rd (98) (16.78)%
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1999
<TABLE>
<CAPTION>
1 Year Life of Fund*
------ -------------
<S> <C> <C>
Lazard Int'l Stock 21.78% 14.82%
MSCI EAFE GDP Index 29.49% 15.85%
* The fund commenced operations on August
1, 1996.
</TABLE>
11
<PAGE> 14
MFS EMERGING GROWTH PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: Massachusetts
Financial Services
PORTFOLIO MANAGERS: John W.
Ballen,
Toni Y. Shimura and Stephen
Pesek
FUND'S OBJECTIVE: Long-term growth of capital
KEY INVESTMENTS: Common stock of U.S.
companies
SELECTION PROCESS: The Fund's subadviser
normally invests at
least 65% of its total assets in common stock
and related
securities such as preferred stock,
convertible securities and depositary receipts of emerging growth companies.
Emerging growth companies are those that the subadviser believes either are
early in their life cycle but have the potential to become major enterprises, or
are major enterprises whose rates of earnings growth are expected to accelerate.
Emerging growth companies can be of any size and represent all industries. The
Fund's adviser uses a bottom-up, as opposed to top-down, investment style in
managing the fund. This means that securities are selected based on fundamental
analysis performed by the portfolio managers and the subadviser's group of
equity research analysts.
PRINCIPAL RISKS: The Fund is most subject to equities risk, where market values
may change abruptly, sometimes unpredictably, smaller companies risk, where
market values may be more erratic and stocks more thinly traded than the general
market, and emerging growth risk, where companies may have limited product
lines, history, or resources. Other principal risks are foreign and emerging
markets securities risks, where market values may be impacted by limited
trading, currency exchange, political or economic instability, or other factors.
For more information on the Fund's investments and related risks, please see
"Investments and Practices," the Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund's
investments include securities traded in the over-the-counter markets. The Fund
may also invest up to 25% of its total assets in foreign and emerging market
securities. For a complete list of all investments available to this Fund,
please refer to the Appendix of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with the Russell 2000 and the Russell 3000
Indices. Past performance can give some indication of the Fund's risk, but does
not guarantee future results.
YEAR-BY-YEAR % TOTAL RETURNS AS OF 12/31
<TABLE>
<CAPTION>
MFS EMERGING GROWTH PORTFOLIO
-----------------------------
<S> <C>
97 21.15
98 34.32
99 76.76
</TABLE>
Best Quarter: 4th (99) 54.67 %
Worst Quarter: 3rd (98) (13.30)%
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1999
<TABLE>
<CAPTION>
1 Year Life of Fund*
------ -------------
<S> <C> <C>
MFS Emerg. Growth 76.76% 39.67%
Russell 2000 21.26% 14.72%
Russell 3000 18.23% 20.57%
* The Fund commenced operations on August 30,
1996.
</TABLE>
12
<PAGE> 15
MFS MID CAP GROWTH PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: Massachusetts
Financial
Services
PORTFOLIO MANAGERS: Mark Regan
David
Sette-Ducati
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 of at least $250 million but not exceeding the top range
of the Russell Midcap(TM) Growth Index ($59.6 billion as of the most recent
reconstitution of the Index on February 29, 2000) at the time of investment. The
index is a widely recognized, unmanaged index of mid-cap common stock prices.
Companies whose capitalization falls below the minimum or exceeds the maximum
dollar value after purchase continue to be considered medium-capitalization
companies for purposes of the Fund's 65% investment policy. These companies
represent all industries. The Fund's subadviser views growth companies to be
those it considers well run and poised for growth. The subadviser looks
particularly for companies that demonstrate:
- A strong franchise, strong cash flows, and a recurring revenue stream
- A solid industry position, where there is
potential for high profit margins
- - a strong management team with a clearly defined strategy
- - a catalyst that may accelerate growth
- - substantial barriers to new entry in the industry
The Fund's subadviser uses a bottom-up, as opposed to a top-down, investment
style in managing the Fund. This means that securities are selected based on
fundamental analysis performed by the Fund's portfolio manager and the
subadviser's group of equity research analysts.
PRINCIPAL RISKS: The Fund is most subject to equities risk, where market values
may change abruptly, sometimes unpredictably, mid-cap companies risk, where
market values may be more erratic and stocks more thinly traded than the general
market, and emerging growth risk, where companies may have limited product
lines, history, or resources. The Fund is subject to foreign and emerging
markets securities risks, where market values may be impacted by limited
trading, currency exchange, political or economic instability, or other factors.
Other principal risks are fixed-income securities risk, where market values move
in the opposite direction of interest rates, and lower-quality fixed-income
risks, where market values are subject to credit risks of issuers who may
default or otherwise fail to make timely debt payments. For more information on
the Fund's investments and related risks, please see "Investments and
Practices," the Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund's
investments may include securities traded in the over-the-counter markets, and
it generally invests up to 20% of its total assets in foreign securities. The
Fund may also invest in fixed-income securities, including up to 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 the Appendix of this prospectus.
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are
FUND'S OBJECTIVE: Long-term growth of capital
KEY INVESTMENTS: Equity securities of
companies with medium
market capitalization
13
<PAGE> 16
not reduced to reflect any variable insurance contract charges or fees that may
be assessed by The Travelers. The table compares the Fund's performance with the
Russell 2000, the Lipper Mid Cap Stock and the Russell Mid Cap Growth Indices.
Past performance can give some indication of the Fund's risk, but does not
guarantee future results.
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31
<TABLE>
<CAPTION>
MFS MID CAP GROWTH PORTFOLIO
----------------------------
<S> <C>
99 64.17
</TABLE>
Best Quarter: 4th (99) 42.25 %
Worst Quarter: 1st (99) (1.49)%
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1999
<TABLE>
<CAPTION>
1 Year Life of Fund*
------ -------------
<S> <C> <C>
MFS Mid Cap Growth 64.17% 32.58%
Russell 2000 21.26% 6.45%
Lipper Mid Cap 47.99% 26.39%
Russell Mid Cap 51.29% 18.99%
Growth
* The Fund commenced operations on March 23,
1998.
</TABLE>
14
<PAGE> 17
MFS RESEARCH PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: Massachusetts
Financial Services
PORTFOLIO MANAGERS: Investment
Committee
SELECTION PROCESS: The Fund normally invests at least 80% of its total assets
in common stock and related securities of companies of any size. A committee of
investment research analysts allocates the Fund's assets among various
industries. Individual analysts then select what they view as the securities
best suited to achieve the Fund's investment objective within their assigned
industry responsibility. The Fund focuses on companies that the subadviser
believes have favorable prospects for:
- - long-term growth
- - superior management
- - dominant or growing market share
- - attractive valuations based on current and expected earnings or cash flow
PRINCIPAL RISKS: The Fund is most subject to equities risk, where market values
may change abruptly, sometimes unpredictably, including smaller companies risk,
where market values may be more erratic and stocks more thinly traded than the
general market. Other principal risks are foreign and emerging markets
securities risks, where market values may be impacted by limited trading,
currency exchange, political or economic instability, or other factors. For more
information on the Fund's investments and related risks, please see "Investments
and Practices," the Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund's
investments may include securities traded on securities exchanges or in
over-the-counter markets and up to 20% of its total assets may be invested in
foreign securities. The Fund may also invest in fixed-income securities,
including up to 10% in lower-quality fixed-income securities and comparable
unrated securities ("junk bonds"). For a complete list of all investments
available to the Fund, please refer to Appendix of this Prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with the 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>
MFS RESEARCH PORTFOLIO
----------------------
<S> <C>
99 23.67
</TABLE>
Best Quarter: 4th (99) 21.17 %
Worst Quarter: 3rd (99) (6.53)%
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1999
<TABLE>
<CAPTION>
1 Year Life of Fund*
------ -------------
<S> <C> <C>
MFS Research 23.67% 16.33%
S&P 500 21.04% 16.87%
* The Fund commenced operations on March 23,
1998.
</TABLE>
FUND'S OBJECTIVE: Long-term growth of capital
and future
income
KEY INVESTMENTS: Common stock and
convertible securities
15
<PAGE> 18
NWQ LARGE CAP PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: NWQ Investment
Management Co.
PORTFOLIO MANAGERS: Investment
Committee
FUND'S OBJECTIVE: Consistent, superior total
return with
minimum risk to principal
KEY INVESTMENTS: Common stock of large
companies
SELECTION PROCESS: The Fund normally
invests at least 65%
of its total assets in the common stock of companies with above-average
statistical value that are in fundamentally attractive industries. The Fund's
policy is to invest in a universe of 1100 mid-to large size companies, generally
based in the United States. The Fund's subadviser uses a value business-trend
analysis to research industry and company fundamentals and screen for value
characteristics. The subadviser selects stocks demonstrating potential capital
growth based upon the following characteristics:
- below-average price-to-earnings ratios
- ratios above-average dividend yield
- strong financial stability
- industries/sectors with strong long-term fundamentals
- below-average price-to-book
- leading/strong market positions
- normalized earnings to value cyclical companies
PRINCIPAL RISKS: The Fund is most subject to equities risk, where market values
may change abruptly, sometimes unpredictably. For more information on the Fund's
investments and related risks, please see "Investments and Practices," the
Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may
invest in various other types of securities and engage in other investment
techniques and strategies which are not the principal focus of the Fund. For a
complete list of all investments available to the Fund, please refer to the
Appendix of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with the 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.
YEAR-BY-YEAR % TOTAL RETURNS AS OF 12/31
[BAR GRAPH]
<TABLE>
<CAPTION>
NWQ LARGE CAP PORTFOLIO
-----------------------
<S> <C>
99 4.97
</TABLE>
<TABLE>
<S> <C> <C> <C>
Best Quarter: 2nd (99) 13.58 %
Worst Quarter: 3rd (99) (13.52)%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1999
<TABLE>
<CAPTION>
1 Year Life of Fund*
------ -------------
<S> <C> <C>
NWQ Large Cap 4.97% (0.15)%
S&P 500 21.04% 12.54 %
S&P/Barra Value 12.72% 8.07 %
* The fund commenced operations on July 20,
1998.
</TABLE>
16
<PAGE> 19
SOCIAL AWARENESS STOCK PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: SSB Citi
PORTFOLIO MANAGERS: 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 the manager is able to find them, the manager seeks to
invest in companies with a record of environmental awareness, fairness in the
workplace, and sensitivity to the community. The Fund's manager uses a "growth
at a reasonable price" approach to evaluate stocks demonstrating potential
capital growth based upon the following characteristics:
- earnings growth and predictability
- leading/strong market positions
- experienced management team
- established record of profitability
- strong financial position
- established industry position
- industry with positive growth outlook
PRINCIPAL RISKS: This Fund is most subject to equities risk, where market
values may change abruptly, sometimes unpredictably. For more information on the
Fund's investments and related risks, please see "Investments and Practices,"
the Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may also
invest in various other types of securities and engage in other investment
techniques and strategies which are not the principal focus of the Fund. For a
complete list of all investments available to the Fund, please refer to the
Appendix of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with the 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
[BAR GRAPH]
<TABLE>
<CAPTION>
SOCIAL AWARENESS STOCK PORTFOLIO
--------------------------------
<S> <C>
93 7.55
94 -2.69
95 33.37
96 19.98
97 27.28
98 32.27
99 15.84
</TABLE>
<TABLE>
<S> <C> <C> <C>
Best Quarter: 4th (98) 24.56 %
Worst Quarter: 3rd (98) (10.61)%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1999
<TABLE>
<CAPTION>
Life of
1 Year 5 Year Fund*
------ ------ -------
<S> <C> <C> <C>
Social Awareness 15.84% 25.56% 18.07%
S&P 500 21.04% 28.56% 20.59%
* The fund commenced operations on May 1,
1992.
</TABLE>
17
<PAGE> 20
STRATEGIC STOCK PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
SUBADVISER: TIMCO
PORTFOLIO MANAGER: Philip
Johanson
FUND'S OBJECTIVE: Above-average total
return through capital
appreciation and
dividend income
KEY INVESTMENTS: Highest
dividend-yielding stocks from the Dow Jones
Industrial Average ("DJIA") and a sub-set of
the S&P Industrial Index ("S&P Industrial").
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
that make up the portfolio are selected from the S&P Industrial as follows: Any
S&P Industrial 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 Industrial are combined to create the portfolio.
PRINCIPAL RISKS: The Fund is most subject to equities risk, where market values
may change abruptly, sometimes unpredictably, and dividend risk, where a company
might pay lower or no dividends. For more information on the Fund's investments
and related risks, please see "Investments and Practices," the Appendix to this
prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may also
engage in options on equity securities indices, futures contracts on these
indices, and options on futures, both for hedging purposes and to seek enhanced
gains. A complete list of all investment techniques available to this Fund is
contained in the Appendix of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with the 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.
YEAR-BY-YEAR % TOTAL RETURNS AS OF 12/31
<TABLE>
<CAPTION>
STRATEGIC STOCK PORTFOLIO
-------------------------
<S> <C>
99 4.97
</TABLE>
Best Quarter: 2nd (99) 15.29 %
Worst Quarter: 3rd (99) (6.02)%
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1999
<TABLE>
<CAPTION>
1 Year Life of Fund*
------ --------------
<S> <C> <C>
Strategic Stock 4.97% 0.31%
DIJA 27.18% 16.72%
S&P Industrial 25.88% 21.53%
S&P 500 21.04% 17.21%
</TABLE>
* The fund commenced operations on May 1, 1998.
18
<PAGE> 21
TRAVELERS QUALITY BOND PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
PORTFOLIO MANAGER: F. Denney
Voss
FUND'S OBJECTIVE: Current income, moderate
capital volatility and
total return.
KEY INVESTMENTS: Investment-grade debt
securities.
SELECTION PROCESS: No more than 25% of the Fund's assets will be invested in
any one industry. The adviser weighs yield, maturity and credit and other risk
information in selecting investments. In selecting individual securities, the
adviser looks for favorable yield, maturity, issue classification and quality
characteristics. The adviser expects that the Fund's investments generally will
maintain an average duration of 5 years or less.
PRINCIPAL RISKS: The Fund is most subject to fixed-income securities risk,
where market values move in the opposite direction of interest rates. For more
information on the Fund's investments and related risks, please see "Investments
and Practices," the Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: Investment in
longer term obligations may be made if the adviser concludes that the investment
yields justify a longer term commitment. From time to time, the Fund may also
purchase new government or agency securities on a "when-issued" basis. For a
complete list of all investments available to the Fund, please refer to the
Appendix of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with the Lehman Intermediate Government/
Corporate Bond Index (LIG/CBI). Past performance can give some indication of the
Fund's risk, but does not guarantee future results.
YEAR-BY-YEAR % TOTAL RETURNS AS OF 12/31
<TABLE>
<CAPTION>
TRAVELERS QUALITY BOND PORTFOLIO
--------------------------------
<S> <C>
97 7.14
98 8.49
99 1.09
</TABLE>
Best Quarter: 3rd (98) 4.23 %
Worst Quarter: 2nd (99) (0.40)%
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1999*
<TABLE>
<CAPTION>
1 Year Life of Fund*
------ --------------
<S> <C> <C>
Quality Bond 1.09% 6.06%
LIG/CBI 0.39% 6.15%
</TABLE>
* The fund commenced operations on August 30, 1996.
19
<PAGE> 22
U.S. GOVERNMENT SECURITIES PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: TAMIC
PORTFOLIO MANAGER: Richard John
FUND'S OBJECTIVE: Highest credit quality,
current income, and
total return.
KEY INVESTMENTS: U.S. Treasury notes and
bonds and 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
PRINCIPAL RISKS: The Fund is most subject to fixed-income securities risk,
where market values move in the opposite direction of interest rates. For more
information on the Fund's investments and related risks, please see "Investments
and Practices," the Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may
invest in various other types of securities and engage in other investment
techniques and strategies which are not the principal focus of the Fund. For a
complete list of all investments available to the Fund, please refer to the
Appendix of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with the Lehman Government Bond Index, the
Merrill Lynch U.S. Treasury/Agency Master Index and an equally weighted average
of the Merrill Lynch U.S. Treasuries 15+ Years Index and the Merrill Lynch
Mortgage Master Index ("Composite Index"). The Fund believes that the Merrill
Lynch U.S. Treasury/Agency Master Index is a more representative comparison for
the bonds included in the portfolio and has included, and will include in the
future, as appropriate, a comparison to the Merrill Lynch U.S. Treasury/Agency
Master Index. Accordingly, the Fund does not intend to include a comparison to
the Lehman Government Bond Index in the future. However, as the U.S.
Treasury/Agency Master Index includes U.S. Treasury Bonds with short and
long-term maturities, a comparison to the Composite Index, which more closely
approximates the duration of the Fund, is also presented. 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>
<S> <C>
93 7.90
94 -5.64
95 24.42
96 1.46
97 12.62
98 10.20
99 -4.23
</TABLE>
Best Quarter: 2nd (95) 9.10 %
Worst Quarter: 1st (96) (4.71)%
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1999
<TABLE>
<CAPTION>
Life of
1 year 5 years Fund*
------- ------- ------------
<S> <C> <C> <C>
U.S. Govt. (4.23)% 8.45% 6.69%
Sec.
LGBI (2.23)% 7.44% 6.67%
Merrill Lynch
U.S.
Treasury/Agency
Master (2.11)% 7.45% 6.66%
Index
Composite (3.94)% 8.60% 7.50%
Index
* This fund commenced operations on January 24,
1992.
</TABLE>
20
<PAGE> 23
UTILITIES PORTFOLIO
Goals and Investments
INVESTMENT ADVISER: SSB Citi
PORTFOLIO MANAGER: Robert J.
Brady
FUND'S OBJECTIVE: Current income.
Secondarily, long-term
capital appreciation.
KEY INVESTMENTS: Equity and fixed-income
securities of companies
in the Utilities
industry.
SELECTION PROCESS: The Fund normally invests at least 65% of its total assets
in income-producing equity and fixed-income securities of utilities which derive
at least 50% of their assets from utility operations. Utilities include those
companies which are engaged in the manufacture, production, generation,
transmission and sale of electric and gas energy, and those engaged in the
communications field, including entities such as telephone, telegraph,
satellite, and microwave, and government-regulated utilities (excluding public
broadcasting) that provide public communication facilities. The Fund may invest
in companies of any size. In selecting stocks demonstrating above-average
dividend yield, the manager uses a value approach based upon the following
characteristics:
- sustainable dividend growth
- leading/strong market positions
- experienced management team
- established record of profitability
- - strong financial position
- - strong cash flow
- - attractive restructuring potential
PRINCIPAL RISKS: The Fund is most subject to equities risk, where market values
may change abruptly, sometimes unpredictably, and sector risk, where market
values are impacted by a concentration in utility stocks that perform
differently from the general market. The Fund may be subject to foreign and
emerging markets securities risks, where market values may be impacted by
limited trading, currency exchange, political or economic instability, or other
factors. Other principal risks may be fixed-income securities risk, where market
values move in the opposite direction of interest rates, and lower-quality
fixed-income risks, where market values are subject to credit risks of issuers
who may default or otherwise fail to make timely debt payments. For more
information on the Fund's investments and related risks, please see "Investments
and Practices," the Appendix to this prospectus and the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may also
invest up to 35% of its assets in equity and fixed income securities of
non-utility companies, lower-quality fixed-income securities ("junk bonds") and
foreign (including emerging market) securities. For a complete list of all
investments available to the Fund, please refer to Appendix of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with the 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 18.21
99 -0.08
</TABLE>
<TABLE>
<S> <C> <C> <C>
Best Quarter: 4th (97) 12.07 %
Worst Quarter: 1st (99) (4.48)%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1999
<TABLE>
<CAPTION>
1 year 5 year Life of Fund*
------ ------ -------------
<S> <C> <C> <C>
Utilities Portfolio (0.08)% 16.33% 13.98%
S&P 500 21.04% 28.56% 23.67%
* The fund commenced operations on February 4, 1994.
</TABLE>
21
<PAGE> 24
INVESTMENTS AND PRACTICES
Each Fund invests in various instruments subject to its particular investment
policies. The Funds may invest in some or all of the following, as indicated
below and in the SAI. For a free copy of the SAI, see the back cover of this
prospectus. No Fund guarantees that it will reach its investment objective, and
an investment in any Fund may lose money.
EQUITIES
(All Funds except U.S.
Government Securities) Equity securities include common and preferred
stock, warrants, rights, depositary receipts and
shares, trust certificates, and real estate
instruments.
Equities are subject to market risk. Many factors
affect the stock market prices and dividend
payouts of equity investments. These factors
include general business conditions, investor
confidence in the economy, and current conditions
in a particular industry or company. Each company
determines whether or not to pay dividends on
common stock. Equity securities are subject to
financial risks relating to the issuer's earning
stability and overall financial soundness.
Smaller and emerging growth companies are
particularly sensitive to these factors.
Equity securities that are traded
over-the-counter may be more volatile than
exchange-listed stocks, and the Fund may
experience difficulty in purchasing or selling
these securities at a fair price.
SECTORS
(Federated Stock Portfolio,
MFS Emerging Growth,
Utilities Portfolio) Companies with similar characteristics may be
grouped together in broad categories called
sectors. Sector risk is the possibility that a
certain sector may perform differently from other
sectors or from the market as a whole. As the
adviser allocates more of the Fund's portfolio
holdings to a particular sector, the Fund's
performance will be more susceptible to any
economic business or other developments that
generally affect that sector.
Because the Utilities Fund concentrates its
investments in one industrial sector, its
investments may be subject to greater market risk
and market fluctuations than a fund investing in
a broader range of investment alternatives. The
Fund may be subject to risks that are inherent to
the utilities industry, such as:
- Difficulty in financing large construction
programs during an inflationary period
- Increased costs and reduced availability of
certain fuels
- Delays and increased costs associated with
nuclear power
An emerging growth fund may invest in fewer
sectors than other funds.
FIXED-INCOME INVESTMENTS
(All Funds) 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
22
<PAGE> 25
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 (Jurika &
Voyles Core Equity, Large Cap, MFS Mid Cap
Growth, MFS Emerging Growth, Federated High
Yield, Equity Income, MFS Research)
High-yield, high-risk securities, commonly called
"junk bonds," and are considered speculative.
While generally providing greater income than
investments in higher-quality securities, these
securities will involve greater risk of principal
and income (including the possibility of default
or bankruptcy of the issuers of the security).
FOREIGN SECURITIES
INVESTMENTS
(Convertible Bond, MFS
Emerging Growth, MFS
Mid Cap Growth, Federated
High Yield, Federated Stock,
Equity Income, Travelers
Quality Bond, Large Cap,
Lazard International,
MFS Research, Jurika & Voyles
Core Equity, NWQ Large Cap) An investment in foreign securities involves risk
in addition to those of U.S. securities,
including possible political and economic
instability and the possible imposition of
exchange controls or other restrictions on
investments. The Fund also bears "information"
risk associated with the different accounting,
auditing, and financial reporting standards in
many foreign countries. If a Fund invests in
securities denominated or quoted in currencies
other than the U.S. dollar, changes in foreign
currency rates relative to the U.S. dollar will
affect the U.S. dollar value of the Fund's
assets. Foreign securities may be less liquid
than U.S. securities.
EMERGING MARKET INVESTMENTS
(Convertible Bond, MFS
Emerging Growth, MFS Mid
Cap Growth, Federated High
Yield, Federated Stock,
Equity
Income, Large Cap, Lazard
International, MFS Research,
Jurika & Voyles Core Equity,
NWQ Large Cap) Emerging markets offer the potential of
significant gains but also involve greater risks
than investing in more developed countries.
Political or economic instability, lack of market
liquidity and government actions, such as
currency controls or seizure of private business
or property may be more likely in emerging
markets.
DERIVATIVES AND HEDGING
TECHNIQUES
(Convertible Bond, Travelers
Quality Bond, MFS Emerging
Growth, MFS Mid Cap Growth,
Federated Stock, Equity
Income,
Disciplined Mid Cap,
Disciplined
Small Cap, Large Cap, Lazard
International, MFS Research,
NWQ Large Cap, Strategic
Stock,
U.S. Government) 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
Forward foreign currency contracts may be used to
hedge against foreign currency exposure.
23
<PAGE> 26
Even a small investment in derivative contracts
can have a big impact on a Fund's stock market,
currency and interest rate exposure. Therefore,
using derivatives can disproportionately increase
losses and reduce opportunities for gain when
stock prices, currency rates or interest rates
are changing.
For a more complete description of derivative and
hedging techniques and their associated risks,
please refer to the 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 used to hedge against a possible risk
or loss may fail to protect against the
particular risk or loss.
TEMPORARY DEFENSIVE POSITIONS
(All Funds) The Funds may depart from principal investment
strategies in response to adverse market,
economic or political conditions by taking
temporary defensive positions in various types of
money market, preferred stock and short-term debt
securities. If a Fund takes a temporary defensive
position, it may be unable to achieve its
investment goal.
PORTFOLIO TURNOVER
(Disciplined Mid Cap
Stock, Disciplined
Small Cap Stock,
U.S. Government
Securities) The Funds may actively trade portfolio securities
in an attempt to achieve their investment
objective. Active trading will cause the Funds to
have an increased portfolio turnover rate, which
is likely to generate shorter-term gains (losses)
for its shareholders, which are taxed at a higher
rate than longer-term gains (losses). Actively
trading portfolio securities increases the Funds'
trading costs and may have an adverse impact on
the Funds' performance.
NON-DIVERSIFICATION
(MFS Mid Cap Growth) The MFS Mid Cap Growth Portfolio is not
diversified, which means that it can invest a
higher percentage of its assets in any one issuer
than a diversified fund. Being non-diversified
may magnify the Fund's losses from adverse events
affecting a particular issuer.
INVESTMENT OBJECTIVES
(All Funds) Each Fund's investment objective and, unless
noted as fundamental, its investment policies may
be changed by the Board without approval of
shareholders or holders of variable annuity and
variable life insurance contracts. A change in a
Fund's investment objective or policies may
result in the Fund having a different investment
objective or policies from those that a
policyowner selected as appropriate at the time
of investment.
MANAGEMENT
INVESTMENT ADVISER
TRAVELERS ASSET MANAGEMENT INTERNATIONAL COMPANY LLC ("TAMIC") provides
investment advice and, in general, supervises the management and investment
program for all the funds described in this prospectus except the Social
Awareness Stock Portfolio and the Utilities Portfolio. TAMIC is a registered
investment adviser that was incorporated in 1978. Its principal offices are
located at One
24
<PAGE> 27
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, 1999, the Funds paid advisory fees to TAMIC as
indicated:
<TABLE>
<CAPTION>
FUND ANNUAL MANAGEMENT FEE*
(AS A PERCENTAGE OF THE FUND'S
AVERAGE DAILY NET ASSETS)
<S> <C>
Convertible Bond Portfolio................................ 0.60%
Disciplined Mid Cap Stock Portfolio....................... 0.70%
Disciplined Small Cap Stock Portfolio..................... 0.80%
Equity Income Portfolio................................... 0.75%
Federated High Yield Portfolio............................ 0.65%
Federated Stock Portfolio................................. 0.62%
Jurika & Voyles Core Equity Portfolio..................... 0.75%
Large Cap Portfolio....................................... 0.75%
Lazard International Stock Portfolio...................... 0.82%
MFS Emerging Growth Portfolio............................. 0.75%
MFS Mid Cap Growth Portfolio.............................. 0.80%
MFS Research Portfolio.................................... 0.80%
NWQ Large Cap Portfolio................................... 0.75%
Strategic Stock Portfolio................................. 0.60%
Travelers Quality Bond Portfolio.......................... 0.32%
U.S. Government Securities Portfolio...................... 0.32%
</TABLE>
SSB CITI FUND MANAGEMENT LLC. ("SSB CITI") provides investment advice and, in
general, supervises and manages the investment program for the Social Awareness
Stock Portfolio and the Utilities Portfolio. SSB Citi 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. SSB Citi also renders investment advice to a wide variety of
individual, institutional, and investment company clients.
For the year ended December 31, 1999, the Social Awareness Stock Portfolio paid
SSB Citi an amount equivalent on an annual basis a fee computed as follows:
<TABLE>
<CAPTION>
ANNUAL AGGREGATE NET 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 the over $200,000,000
</TABLE>
For the year ended December 31, 1999, the Utilities Portfolio paid SSB Citi an
amount equivalent on an annual basis to 0.65%* of its average daily net assets.
* Fee shown also reflects maximum annual management fee payable to investment
adviser.
25
<PAGE> 28
THE SUBADVISERS AND PORTFOLIO MANAGERS
TAMIC is the sole manager of the Convertible Bond Portfolio, Travelers Quality
Bond Portfolio, and the U.S. Government Securities Portfolio. SSB Citi is the
sole manager of Social Awareness Stock Portfolio and Utilities 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, if any, 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 (1995 TO PRESENT)
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BOND PORTFOLIO David A. Tyson Chairman and Chief
(since 5/98) Investment Officer, TAMIC
TAMIC
(No subadviser)
- --------------------------------------------------------------------------------------------
DISCIPLINED MID CAP STOCK Sandip Bhagat President and Chief
PORTFOLIO (since 4/97) Executive Officer, TIMCO
TIMCO
One Tower Square
Hartford, CT
- --------------------------------------------------------------------------------------------
DISCIPLINED SMALL CAP Sandip Bhagat President and Chief
STOCK PORTFOLIO (since 5/98) Executive Officer, TIMCO
TIMCO
One Tower Square
Hartford, CT
- --------------------------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO Stephen DuFour Portfolio Manager
(since 3/99) for mutual funds and
Fidelity Management & other trust accounts
Research Co. ("FMR") for FMR and Fidelity
82 Devonshire Street Management Trust Company
Boston, MA 02109-3614
- --------------------------------------------------------------------------------------------
FEDERATED HIGH YIELD Mark E. Durbiano Senior Vice President,
PORTFOLIO (since 8/96) Federated Investors
Federated Investment
Counseling
Federated Investors Tower
Pittsburgh, PA 15222-3779
- --------------------------------------------------------------------------------------------
FEDERATED STOCK PORTFOLIO Michael P. Donnelly Vice President, Federated
(since 11/97) Investment Counseling
Federated Investment
Counseling
Federated Investors Tower
Pittsburgh, PA 15222-3779
Kevin R. McClosky Vice President, Federated
(since 8/99) Investment Counseling
Federated Investments
Counseling
Federated Investors Tower
Pittsburgh, PA 15222-3779
- --------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------
FUND PORTFOLIO MANAGER BUSINESS EXPERIENCE
AND SUBADVISER (1995 TO PRESENT)
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C> <C>
JURIKA & VOYLES CORE Gregory A. Welch Senior Vice President and
EQUITY PORTFOLIO (since 12/99) Principal, Jurika & Voyles
Jurika & Voyles
1999 Harrison Street,
Suite 700
Oakland, CA 94612
Guy Elliffe Vice President and
(since 4/99) Principal,
Jurika & Voyles Jurika & Voyles
1999 Harrison Street, Suite
700 Managing Director, National
Oakland, CA 94612 Mutual Funds Management
- --------------------------------------------------------------------------------------------
LARGE CAP PORTFOLIO Karen Firestone Portfolio Manager or
(since 4/98) Portfolio Analyst of mutual
FMR funds and other trust
82 Devonshire Street accounts for FMR and for
Boston, MA 02109-3614 Fidelity Management Trust
Company
- --------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL STOCK Herbert W. Gullquist Managing Director and Vice
PORTFOLIO (since 8/96) Chairman, Lazard Freres &
Lazard Asset Management Co. LLC
30 Rockefeller Plaza
New York, NY 10112 Chief Investment Officer,
Lazard Asset Management
John R. Reinsberg Managing Director, Lazard
(since 8/96) Freres & Co. LLC
Lazard Asset Management
30 Rockefeller Plaza
New York, NY 10112
- --------------------------------------------------------------------------------------------
MFS EMERGING GROWTH John W. Ballen President, MFS
PORTFOLIO (since 8/96)
Massachusetts Financial
Services Co. ("MFS")
500 Boylston Street
Boston, MA
Toni Y. Shimura Vice President, Investments
(since 8/96) MFS
MFS
500 Boylston Street
Boston, MA
Stephen Pesek Vice President, MFS
(since 1/99)
MFS Analyst, Fidelity
500 Boylston Street Investments
Boston, MA
- --------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 30
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------
FUND PORTFOLIO MANAGER BUSINESS EXPERIENCE
AND SUBADVISER (1995 TO PRESENT)
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C> <C>
MFS MID CAP GROWTH Mark Regan Vice President, MFS
PORTFOLIO (since 5/98)
MFS
500 Boylston Street
Boston, MA
David Sette-Ducati Investment Officer and
(since 5/00) Research Analyst, MFS
500 Boylston Street
Boston, MA
- --------------------------------------------------------------------------------------------
MFS RESEARCH PORTFOLIO Investment Committee N/A
(since 5/98)
MFS
500 Boylston Street
Boston, MA
- --------------------------------------------------------------------------------------------
NWQ LARGE CAP PORTFOLIO Investment Committee Ted Freidel: Managing
(since 5/98) Director and Portfolio
Primary Responsibility: Manager, NWQ since 1983
E.C. ("Ted") Friedel and
Jeffrey M. Cohen
NWQ Investment Management Jeffrey M. Cohen: Vice
Co. President and Portfolio
2049 Century Park East, Manager, NWQ, since 1988
4th Floor
Los Angeles, CA 90067
- --------------------------------------------------------------------------------------------
SOCIAL AWARENESS STOCK Robert J. Brady (since 1994) Managing Director and
PORTFOLIO SSB Portfolio Manager, SSBC
(No subadviser) Vice President and Portfolio
Manager, SSB Citi
- --------------------------------------------------------------------------------------------
STRATEGIC STOCK PORTFOLIO Philip Johanson Vice President, Portfolio
(since 5/99) Management, TIMCO
TIMCO
One Tower Square Senior Vice President,
Hartford, CT 06183 Portfolio Manager,
Smith Barney Asset
Management
Assistant Portfolio Manager
Smith Barney Asset
Management
- --------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------
FUND PORTFOLIO MANAGER BUSINESS EXPERIENCE
AND SUBADVISER (1995 TO PRESENT)
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C> <C>
TRAVELERS QUALITY BOND F. Denney Voss Executive Vice President,
PORTFOLIO (since 3/95) TAMIC
TAMIC
(No subadviser)
- --------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES Richard John Senior Vice President, TAMIC
PORTFOLIO (since 1/99)
TAMIC
One Tower Square
Hartford, CT 06183
(No subadviser)
- --------------------------------------------------------------------------------------------
UTILITIES PORTFOLIO Robert J. Brady Managing Director and
(since 11/98) Portfolio Manager, SSB Citi
SSBC Vice President and Portfolio
(No subadviser) Manager, SSBC
- --------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE> 32
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Trust, and it has been
advised by TAMIC, TIMCO, Jurika & Voyles, Federated Investors, Fidelity
Management & Research, Lazard Freres & Co., LLC, Massachusetts Financial
Services, SSB Citi and NWQ Investment Management Company that none of them have
any material pending legal proceedings affecting them.
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. 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 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 changes 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 4:00 p.m.
Eastern time on the day that the Trust has received all proper documentation
from the shareholder. Redemption
30
<PAGE> 33
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.
31
<PAGE> 34
FINANCIAL HIGHLIGHTS
CONVERTIBLE BOND PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 2 periods. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information was audited by KPMG LLP, independent auditors,
whose report and the Fund's financial statements are included in the annual
report to shareholders, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED MAY 1, 1998(1) TO
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- ------------------
<S> <C> <C>
NET ASSET VALUE, Beginning of Period.............. $ 9.86 $10.00
- ------------------------------------------------------------------------------------------
Income (loss) from Investment Operations:
Net Investment Income(2)........................ 0.46 0.22
Net Gains (Losses) on Securities (both realized
and unrealized)................................. 1.38 (0.12)
------- ------
Total Income from Investment Operations......... 1.84 0.10
- ------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment Income).......... -- (0.22)
Distributions (from capital gains).............. (0.01) (0.02)
------- ------
Total distributions............................... (0.01) (0.24)
NET ASSET VALUE, END OF PERIOD.................... $ 11.69 $ 9.86
------- ------
TOTAL RETURN...................................... 18.70% 0.98%(3)
Net Assets, End of Period (thousands)........... $11,238 $4,617
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net Assets (with
reimbursement)(2)(4)(5)......................... 0.80% 0.80%
Ratio of Expenses to Average Net Asset Value
(without reimbursement)(2)(4)(5)................ 1.23% 1.86%
Ratio of Net Investment Income to Average Net
Assets(5)....................................... 4.33% 4.31%
- ------------------------------------------------------------------------------------------
Portfolio turnover rate......................... 79% 7%
</TABLE>
(1) Date operations commenced.
(2) Travelers has agreed to reimburse the Portfolio for expenses in the amount
of $32,000 and $24,996 for the year ended December 31, 1999 and the period ended
December 31, 1998, respectively. If such expenses were not reimbursed, the per
share decrease in net investment income would have been $0.05 and $0.05,
respectively.
(3) Total return is not annualized as it may not be representative of the total
return for the year.
(4) As a result of a voluntary expense limitation, the ratio of expenses will
not exceed 0.80%.
(5) Annualized for periods less than one year.
32
<PAGE> 35
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 periods. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information was audited by KPMG LLP, independent auditors,
whose report and the Fund's financial statements are included in the annual
report to shareholders, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED APRIL 1, 1997(1) TO
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ----------------- -------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................ $ 14.34 $ 12.47 $10.00
- -------------------------------------------------------------------------------------------
Income from Investment
Operations:
Net Investment Income(2).... 0.02 0.04 0.06
Net Gains on Securities
(both realized and
unrealized)................. 1.84 2.05 3.37
------- ------- ------
Total Income from Investment
Operations.................. 1.86 2.09 3.43
- -------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net
investment Income).......... (0.02) -- (0.06)
Distributions (from capital
gains)...................... (0.57) (0.22) (0.90)
------- ------- ------
Total distributions........... (0.59) (0.22) (0.96)
------- ------- ------
NET ASSET VALUE, END OF
PERIOD........................ $ 15.61 $ 14.34 $12.47
------- ------- ------
TOTAL RETURN(3)............... 13.47% 16.91% 34.38%
Net Assets, End of Period
(thousands)................. $45,068 $19,460 $6,169
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average
Net Assets (with
reimbursement)(2)(4)(5)..... 0.95% 0.95% 0.95%
Ratio of Expenses to Net
Average Assets (without
reimbursement)(2)(4)(5)..... 0.99% 1.22% 1.82%
Ratio of Net Investment
Income to Average Net
Assets(4)................... 0.28% 0.48% 0.85%
- -------------------------------------------------------------------------------------------
Portfolio turnover rate..... 71% 109% 74%
</TABLE>
(1) Date operations commenced.
(2) Travelers has waived all or a portion of its fees for the years ended
December 31, 1999 and 1998, and the period ended December 31, 1997. In addition,
Travelers has reimbursed the Fund for $13,500, and $29,138 for the years ended
December 31, 1999 and 1998, and $3,564 of the Fund's expenses for the period
ended December 31, 1997. If such fees were not waived and expenses not
reimbursed, the per share decrease in net investment income would have been
$0.01 and $0.02 for the years ended December 31, 1999 and 1998, and $0.08 for
the period ended December 31, 1997.
(3) Total return is actual and has not been annualized for periods of less than
one year, as it may not be representative of the total return for the year. The
total return would have been lower had expenses not been reduced during the
period shown or if separate account charges had been reflected.
(4) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.95%.
(5) Annualized for periods less than one year.
33
<PAGE> 36
FINANCIAL HIGHLIGHTS
DISCIPLINED SMALL CAP STOCK PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 2 periods. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information was audited by KPMG LLP, independent auditors,
whose report and the Fund's financial statements are included in the annual
report to shareholders, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED MAY 1, 1998(1) TO
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD................................ $ 8.87 $ 10.00
- ------------------------------------------------------------------------------------------
Income (loss) from Investment Operations:
Net Investment Income(2)......................... 0.04 0.03
Net Gains (Losses) on Securities (both realized
and unrealized).................................. 1.77 (1.13)
-------
Total Income (loss) from Investment Operations... 1.81 (1.10)
- ------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment Income)........... -- (0.03)
Distributions (from capital gains)............... -- (0.00)*
-------
Total distributions................................ -- (0.03)
------- -------
Net Asset Value, End of Period..................... 10.68 $ 8.87
------- -------
TOTAL RETURN....................................... 20.41% (11.04)%(3)
NET ASSETS, END OF PERIOD (THOUSANDS)............ $14,910 $ 5,162
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net Assets (with
reimbursement)(2)(4)(5).......................... 1.00% 1.00%
Ratio of Expenses to Average Net Assets (without
reimbursement)(2)(5)............................. 1.49% 2.98%
Ratio of Net Investment Income to Average Net
Assets........................................... 0.46% 0.64%
- ------------------------------------------------------------------------------------------
Portfolio turnover rate.......................... 94% 89%
</TABLE>
(1) Date operations commenced.
(2) Travelers has agreed to reimburse the Fund for expenses in the amount of
$44,300 and $45,146 for the year ended December 31, 1999 and the period ended
December 31, 1998, respectively. If such expenses were not reimbursed, the per
share decrease in net investment income would have been $0.05 and $0.08,
respectively.
(3) Total return is not annualized, as it may not be representative of the total
return for the year.
(4) As a result of a voluntary expense limitation, the ratio of expenses will
not exceed 1.00%.
(5) Annualized for periods less than one year.
* Amount represents less than $0.01.
34
<PAGE> 37
FINANCIAL HIGHLIGHTS
EQUITY INCOME PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 4 periods. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information was audited by PricewaterhouseCoopers, LLP,
independent auditors, whose report and the Fund's financial statements are
included in the annual report to shareholders, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------ AUGUST 30, 1996(1) TO
1999 1998 1997 DECEMBER 31, 1996
-------- ------- ------- ---------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................. $ 15.41 $ 13.91 $ 11.09 $10.00
- -------------------------------------------------------------------------------------------
Income from Investment Operations:
Net Investment Income............ 0.13(5) 0.18(5) 0.21(5) 0.08
Net Gains or Losses on Securities
(both realized and unrealized)... 0.59.... 1.53 3.32 1.09
-------- ------- ------- ------
Total from Investment
Operations....................... 0.72 1.71 3.53 1.17
- -------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment
Income).......................... (0.12) (0.13) (0.12) (0.08)
Distributions (from capital
gains)........................... (0.63) (0.08) (0.59) --
-------- ------- ------- ------
Total distributions................ (0.33) (0.21) (0.71) (0.08)
-------- ------- ------- ------
Net Asset Value, End of Period..... $ 15.05 $ 15.41 $ 13.91 $11.09
-------- ------- ------- ------
TOTAL RETURN(3).................... 4.92% 12.38% 32.05% 11.69%
NET ASSETS, END OF PERIOD
(THOUSANDS)...................... $130,553 $79,198 $22,139 $3,600
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net
Assets (with reimbursement)(4)... 0.88% 0.95%(2) 0.95%(2) 0.95%(2)
Ratio of Expenses to Average Net
Assets (without
reimbursement)(4)................ 0.88% 1.09%(2) 1.90%(2) 4.56%(2)
Ratio of Net Income to Average
Net Assets(4).................... 0.85% 1.22% 1.60% 2.34%
- -------------------------------------------------------------------------------------------
Portfolio turnover rate.......... 201% 34% 52% 14%
</TABLE>
(1) Date operations commenced.
(2) Travelers has agreed to reimburse a portion of the Fund's expenses during
the period.
(3) Total return is actual and has not been annualized, as it may not be
representative of the total return for the year. The total return would have
been lower had expenses not been reduced during the period shown or if
separate account charges had been reflected.
(4) Annualized for periods of less than one year.
(5) Net investment income per share has been calculated based on average shares
outstanding during the period.
35
<PAGE> 38
FINANCIAL HIGHLIGHTS
FEDERATED HIGH YIELD PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 4 periods. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information for the years ended December 31, 1999, 1998 and
1997 was audited by KPMG LLP, independent auditors, whose report and the Fund's
financial statements are included in the annual report to shareholders, which is
available upon request. The other period presented was audited by other
independent auditors.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------- AUGUST 30, 1996(1) TO
1999 1998 1997 DECEMBER 31, 1996
------- ------- ------- ---------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD... $ 11.11 $ 11.34 $ 10.42 $10.00
- --------------------------------------------------------------------------------------------
Income (loss) from Investment
Operations:
Net Investment Income(2)............. 1.01 0.71 0.60 0.31
Net Gains (Losses) on Securities
(both realized and unrealized)....... (0.67) (0.18) 1.01 0.46
------- ------- ------- ------
Total Income from Investment
Operations........................... 0.34 0.53 1.61 0.77
- --------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment
Income).............................. (0.00)* (0.71) (0.60) (0.31)
Distributions (from capital gains)... (0.01) (0.05) (0.09) (0.04)
------- ------- ------- ------
Total distributions.................... (0.01) (0.76) (0.69) (0.35)
------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD......... $ 11.44 $ 11.11 $ 11.34 $10.42
------- ------- ------- ------
TOTAL RETURN(3)........................ 3.10% 4.71% 15.45% 7.61%
Net Assets, End of Period
(thousands).......................... $49,816 $40,989 $14,049 $5,381
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net
Assets (with reimbursement)(2)(4).... 0.84% 0.90% 0.95% 0.95%
Ratios of Expenses to Average Net
Assets (without
reimbursement)(2)(4)(5).............. 0.84% 0.90% 1.14% 2.19%
Ratio of Net Investment Income to
Average Net Assets(4)................ 9.15% 8.60% 8.82% 8.78%
- --------------------------------------------------------------------------------------------
Portfolio turnover rate.............. 23% 31% 43% 23%
</TABLE>
(1) Date operations commenced.
(2) Travelers has waived part or all of its fees for the year ended December 31,
1997 and the period ended December 31, 1996. In addition, Travelers has
reimbursed the Fund for $9,268 of the Fund's expenses for the period ended
December 31, 1996. If such fees were not waived and expenses not reimbursed,
the per share decrease in net investment income would have been $0.01 for
the year ended December 31, 1997 and $0.04 for the period ended December 31,
1996.
(3) Total return is actual and has not been annualized for periods of less than
one year, as it may not be representative of the total return for the year.
The total return would have been lower had expenses not been reduced during
the period shown or if separate account charges had been reflected.
(4) Annualized for periods of less than one year.
(5) As a result of a voluntary expense limitation the ratio of expenses to
average net assets will not exceed 0.95%.
* Amount represents less than $0.01 per share.
36
<PAGE> 39
FINANCIAL HIGHLIGHTS
FEDERATED STOCK PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 4 periods. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information for the years ended December 31, 1999, 1998 and
1997 was audited by KPMG LLP, independent auditors, whose report and the Fund's
financial statements are included in the annual report to shareholders, which is
available upon request. The other period presented was audited by other
independent auditors.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------ AUGUST 30, 1996(1) TO
1999 1998 1997 DECEMBER 31, 1996
------- ---------- ------- ---------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.............................. $ 15.66 $ 13.83 $ 11.10 $10.00
- --------------------------------------------------------------------------------------------
Income from Investment Operations:
Net Investment Income(2).......... 0.16 0.13 0.1 0.06
Net Gains on Securities (both
realized and unrealized).......... 0.68 2.33 3.6 1.2
------- ------- ------- ------
Total Income from Investment
Operations........................ 0.84 2.46 3.7 1.26
- --------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment
Income)........................... -- (0.13) (0.10) (0.06)
Distributions (from capital
gains)............................ (0.16) (0.50) (0.87) (0.09)
Capital........................... -- -- -- (0.01)
------- ------- ------- ------
Total distributions................. (0.16) (0.63) (0.97) (0.16)
------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD...... 16.34 $ 15.66 $ 13.83 $11.10
------- ------- ------- ------
TOTAL RETURN........................ 5.34% 17.84% 33.41% 12.61%
Net Assets, End of Period
(thousands)....................... $49,612 $35,420 $12,100 $3,380
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net
Assets (with
reimbursement)(2)(4)(5)........... 0.82% 0.91% 0.95% 0.95%
Ratio of Expenses to Average Net
Assets (without
reimbursement)(2)(4).............. 0.82% 0.91% 1.16% 3.03%
Ratio of Net Investment Income to
Average Net Assets(4)............. 1.14% 1.14% 1.11% 1.55%
- --------------------------------------------------------------------------------------------
Portfolio turnover rate........... 23% 31% 74% 11%
</TABLE>
(1) Date operations commenced.
(2) Travelers has waived part or all of its fees for the year ended December 31,
1997 and the period ended December 31, 1996. In addition, Travelers has
reimbursed the Fund for $15,460 of the Fund's expenses for the period ended
December 31, 1996. If such fees were not waived and expenses not reimbursed,
the per share decrease in net investment income would have been $0.02 for
the year ended December 31, 1997 and $0.08 for the period ended December 31,
1996.
(3) Total return is actual and has not been annualized for periods of less than
one year, as it may not be representative of the total return for the year.
The total return would have been lower had expenses not been reduced during
the period shown or if separate account charges had been reflected.
(4) Annualized for periods of less than one year.
(5) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.95%.
37
<PAGE> 40
FINANCIAL HIGHLIGHTS
JURIKA & VOYLES CORE EQUITY PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 2 periods. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information was audited by KPMG LLP, independent auditors,
whose report and the Fund's financial statements are included in the annual
report to shareholders, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED JULY 20, 1998(1) TO
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............. $10.27 $ 10.00
- -------------------------------------------------------------------------------------------
Income from Investment Operations:
Net Investment Income(2)........................ 0.06 0.04
Net Gains on Securities (both realized and
unrealized)..................................... 1.00 0.27
------ --------
Total Income from Investment Operations......... 1.06 0.31
- -------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment Income).......... -- (0.04)
Distributions (from capital gains).............. -- (0.00)*
------ --------
Total distributions............................... -- (0.04)
------ --------
Net Asset Value, End of Period.................... $11.33 $ 10.27
------ --------
TOTAL RETURN...................................... 10.32% 3.08%(3)
NET ASSETS, END OF PERIOD (THOUSANDS)........... $9,206 $ 6,169
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net Assets (with
reimbursement)(2)(4)(5)......................... 1.00% 0.99%
Ratio of Expenses to Average Net Assets (without
reimbursement)(2)(5)............................ 1.40% 1.89%
Ratio of Net Investment Income to Average Net
Assets.......................................... 0.62% 1.01
- -------------------------------------------------------------------------------------------
Portfolio turnover rate......................... 68% 26%
</TABLE>
(1) Date operations commenced.
(2) Travelers has agreed to reimburse the Portfolio for expenses in the amount
of $29,926 and $20,200 for the year ended December 31, 1999 and the period
ended December 31, 1998, respectively. If such expenses were not reimbursed,
the per share decrease in net investment income would have been $0.04 and
$0.03, respectively.
(3) Total return is not annualized, as it may not be representative of the total
return for the year.
(4) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 1.00%.
(5) Annualized for periods of less than one year.
* Amount represents less than $0.01 per share.
38
<PAGE> 41
FINANCIAL HIGHLIGHTS
LARGE CAP PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 4 periods. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information was audited by PricewaterhouseCoopers, LLP,
independent auditors, whose report and the Fund's financial statements are
included in the annual report to shareholders, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------- AUGUST 30, 1996(1) TO
1999 1998 1997 DECEMBER 31, 1996
-------- ------- ------- ---------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD................................ $ 17.44 $ 13.50 $ 11.29 $10.00
- --------------------------------------------------------------------------------------------
Income from Investment Operations:
Net Investment Income............... 0.05(5) .04(5) 0.07(5) 0.04
Net Gains on Securities (both
realized and unrealized)............ 4.94 4.73 2.54 1.29
-------- ------- ------- ------
Total Income from Investment
Operations.......................... 4.99 4.77 2.61 1.33
- --------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment
Income)............................. (0.03) (0.02) (0.04) (0.04)
Distributions (from capital
gains).............................. (1.29) (0.81) (0.36) --
-------- ------- ------- ------
Total distributions................... (1.32) (0.83) (0.40) (0.04)
-------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD...... $ 21.11 $ 17.44 $ 13.50 $11.29
-------- ------- ------- ------
TOTAL RETURN(3)....................... 29.24% 35.65% 23.41% 13.30%
Net Assets, End of Period
(thousands)......................... $202,128 $52,599 $12,070 $3,411
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net
Assets (with reimbursement)(4)...... 0.87% 0.95%(2) 0.95%(2) 0.95%(2)
Ratio of Expenses to Average Net
Assets (without reimbursement)(4)... 0.87% 1.23%(2) 2.65%(2) 4.57%(2)
Ratio of Net Investment Income to
Average Net Assets(4)............... 0.25% 0.23% 0.55% 0.98%
- --------------------------------------------------------------------------------------------
Portfolio turnover rate............. 0.90% 112% 60% 57%
</TABLE>
(1) Date operations commenced.
(2) Travelers has agreed to reimburse a portion of the Fund's expenses.
(3) Total return is actual and has not been annualized, as it may not be
representative of the total return for the year. The total return would have
been lower had expenses not been reduced during the period shown or if
separate account charges had been reflected.
(4) Annualized for periods of less than one year.
(5) Net investment income per share has been calculated based on average shares
outstanding during the period.
39
<PAGE> 42
FINANCIAL HIGHLIGHTS
LAZARD INTERNATIONAL STOCK PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 4 periods. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information for the years ended December 31, 1999, 1998 and
1997 was audited by KPMG LLP, independent auditors, whose report and the Fund's
financial statements are included in the annual report to shareholders, which is
available upon request. The other period presented was audited by other
independent auditors.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------- AUGUST 1, 1996(2) TO
1999(1) 1998(1) 1997 DECEMBER 31, 1996
-------- ------- ------- --------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD... $ 12.88 $11.57 $ 10.78 $10.00
- --------------------------------------------------------------------------------------------
Income from Investment Operations:
Net Investment Income(3)............. 0.17 0.1 0.05 0.02
Net Gains on Securities (both
realized and unrealized)............. 2.63 1.37 0.87 0.76
-------- ------- ------- ------
Total Income from Investment
Operations........................... 2.80 1.47 0.92 0.78
- --------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment
Income).............................. (0.03) (0.04) (0.09) --
Distributions (from capital gains)... (0.00)* (0.12) (0.04) --
-------- ------- ------- ------
Total distributions.................... (0.03) (0.16) (0.13) --
-------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD......... $ 15.65 $12.88 $ 11.57 $10.78
-------- ------- ------- ------
TOTAL RETURN(4)........................ 21.78% 12.59% 8.50% 7.80%
Net Assets, End of Period
(thousands).......................... $118,557 $53,008 $14,229 $4,322
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net
Assets (with
reimbursement)(3)(5)(6).............. 1.06% 1.25% 1.25% 1.25%
Ratio of Expenses to Average Net
Assets (without reimbursement)(6).... 1.06% 1.25% 1.76% 2.87%
Ratio of Net Investment Income to
Average Net Assets(6)................ 1.25% 0.78% 0.66% 0.42%
- --------------------------------------------------------------------------------------------
Portfolio turnover rate.............. 35% 44% 22% 9%
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Date operations commenced.
(3) Travelers has waived part or all of its fees for the periods ended December
31, 1997 and December 31, 1996. In addition, Travelers has reimbursed the
Fund for $12,454 of the Fund's expenses for the period ended December 31,
1996. If such fees were not waived or expenses not reimbursed, the per share
decrease in net investment income for the year ended December 31, 1997 and
the period ended December 31, 1996 would have been $0.03 and $0.07,
respectively.
(4) Total return is actual and has not been annualized for periods of less than
one year, as it may not be representative of the total return for the year.
The total return would have been lower had expenses not been reduced during
the period shown or if separate account charges had been reflected.
(5) As a result of voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 1.25%.
(6) Annualized for periods of less than one year.
* Amount represents less than $0.01 per share.
40
<PAGE> 43
FINANCIAL HIGHLIGHTS
MFS EMERGING GROWTH PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 4 periods. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information for the years ended December 31, 1999, 1998 and
1997 was audited by KPMG LLP, independent auditors, whose report and the Fund's
financial statements are included in the annual report to shareholders, which is
available upon request. The other period presented was audited by other
independent auditors.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------- AUGUST 30, 1996(2) TO
1999(1) 1998(1) 1997 DECEMBER 31, 1996
-------- ---------- ------- ---------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................. $ 16.87 $ 12.56 $ 10.55 $ 10.00
- --------------------------------------------------------------------------------------------
Income (loss) from Investment
Operations:
Net Investment Income
(loss)(3)........................ (0.06) (0.07) (0.03) 0.03
Net Gains (Losses) on Securities
(both realized and unrealized)... 13.01 4.38 2.26 0.57
-------- -------- ------- -------
Total Income from Investment
Operations......................... 12.95 4.31 2.23 0.6
- --------------------------------------------------------------------------------------------
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..... $ 29.82 $ 16.87 $ 12.56 $ 10.55
-------- -------- ------- -------
TOTAL RETURN(4).................... 76.76% 34.32% 21.15% 6.00%
Net Assets, End of Period
(thousands)...................... $412,954 $170,059 $70,347 $12,924
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net
Assets (with
reimbursement)(3)(5)............. 0.87% 0.89% 0.95% 0.95%
Ratio of Expenses to Average Net
Assets (without
reimbursement)(3)(5)............. 0.87% 0.89% 1.05% 2.09%
Ratio of Net Investment Income
(loss) to Average Net
Assets(3)........................ (0.29)% (0.47)% (0.40)% 0.55%
- --------------------------------------------------------------------------------------------
Portfolio turnover rate.......... 168% 77% 94% 49%
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Date operations commenced.
(3) Travelers has waived part or all of its fees for the year ended December 31,
1997 and the period ended December 31, 1996. In addition, Travelers has
reimbursed the Fund for $16,407 of the Fund's expenses for the period ended
December 31, 1996. If such fees were not waived and such expenses not
reimbursed, the per share decrease in net investment income would have been
$0.01 for the year ended December 31, 1997 and $0.06 for the period ended
December 31, 1996.
(4) Total return is actual and has not been annualized for periods of less than
one year, as it may not be representative of the total return for the year.
The total return would have been lower had expenses not been reduced during
the period shown or if separate account charges had been reflected.
(5) Annualized for periods of less than one year.
41
<PAGE> 44
FINANCIAL HIGHLIGHTS
MFS MID CAP GROWTH PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past two periods. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information was audited by KPMG LLP, independent auditors,
whose report and the Fund's financial statements are included in the annual
report to shareholders, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED(1) MARCH 23, 1998(2) TO
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............ $ 10.05 $ 10.00
- ------------------------------------------------------------------------------------------
Income (loss) from Investment Operations:
Net Investment loss(3)........................ (0.04) (0.02)
Net Gains (Losses) on Securities (both
realized and unrealized)...................... 6.46 0.07
------- -------
Total Income from Investment Operations......... 6.42 0.05
- ------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment Income)........ (0.04) --
------- -------
Total distributions............................. (0.04) --
------- -------
Net Asset Value, End of Period.................. $ 16.43 $ 10.05
------- -------
TOTAL RETURN(4)................................. 64.17% 0.50%
NET ASSETS, END OF PERIOD (THOUSANDS)........... $94,124 $13,234
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net Assets (with
reimbursement)(4)(5)(6)....................... 1.00% 1.00%
Ratio of Expenses to Average Net Assets
(without reimbursement)(4)(6)................. 1.07% 1.62%
Ratio of Net Investment Loss to Average Net
Assets(4)..................................... (0.33)% (0.25)%
- ------------------------------------------------------------------------------------------
Portfolio turnover rate....................... 162% 100%
</TABLE>
(1) Per share amounts have been calculated using the average shares method.
(2) Date operations commenced.
(3) Travelers has agreed to reimburse the Fund for expenses in the amount of
$27,304 and $32,634 for the year ended December 31, 1999 and the period
ended December 31, 1998, respectively. If such expenses were not reimbursed,
the per share decrease in net investment income would have been $0.01 and
$0.04, respectively.
(4) Total return is not annualized, as it may not be representative of the total
return for the year.
(5) As a result of a voluntary expense limitation, the ratio of expense to
average net assets will not exceed 1.00%.
(6) Annualized for periods of less than one year.
42
<PAGE> 45
FINANCIAL HIGHLIGHTS
MFS RESEARCH PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 2 periods. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information was audited by KPMG LLP, independent auditors,
whose report and the Fund's financial statements are included in the annual
report to shareholders, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 23, 1998(2)
DECEMBER 31, 1999(1) TO DECEMBER 31, 1998
-------------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $ 10.56 $ 10.00
- ------------------------------------------------------------------------------------------
Income from Investment Operations:
Net Investment Income(3)................... 0.00* 0.01
Net Gains on Securities (both realized and
unrealized)................................ 2.50 0.57
-------- -------
Total Income from Investment Operations.... 2.50 0.58
- ------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment Income)..... -- (0.02)
Distributions (from capital gains)......... -- (0.00)*
-------- -------
Total distributions.......................... -- (0.02)
Net Asset Value, End of Period............... 13.06 $ 10.56
-------- -------
TOTAL RETURN................................. 23.67% 5.77%(4)
NET ASSETS, END OF PERIOD (THOUSANDS)...... $152,073 $37,870
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net Assets
(with reimbursement)(3)(5)(6).............. 0.99% 1.00%
Ratio of Expenses to Average Net Assets
(without reimbursements)(3)(6)............. 0.99% 1.37%
Ratio of Net Investment Income to Average
Net Assets(6).............................. 0.02% 0.42%
- ------------------------------------------------------------------------------------------
Portfolio turnover rate.................... 85% 54%
</TABLE>
(1) Per share amounts have been calculated using the average shares method.
(2) Date operations commenced.
(3) Travelers has agreed to reimburse the Fund for expenses in the amount of
$41,049 for the period ended December 31, 1998. If such expenses were not
reimbursed, the per share decrease in net investment income would have been
$0.01.
(4) Total return is not annualized, as it may not be representative of the total
return for the year.
(5) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 1.00%.
(6) Annualized for periods of less than one year.
* Amount represents less than $0.01 per share.
43
<PAGE> 46
FINANCIAL HIGHLIGHTS
NWQ LARGE CAP PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 2 periods. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information was audited by KPMG LLP, independent auditors,
whose report and the Fund's financial statements are included in the annual
report to shareholders, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED JULY 20, 1998(2)
DECEMBER 31, 1999(1) TO DECEMBER 31, 1998
-------------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $ 9.46 $10.00
- ------------------------------------------------------------------------------------------
Income (loss) from Investment Operations:
Net Investment Income(3)................... 0.13 0.05
Net Gains (Losses) on Securities (both
realized and unrealized)................... 0.34 (0.54)
------- ------
Total Gain (loss) from Investment
Operations................................. 0.47 (0.49)
- ------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment Income)..... -- (0.05)
Distributions (from capital gains)......... -- (0.00)*
------- ------
Total distributions.......................... -- (0.05)
NET ASSET VALUE, END OF PERIOD............... $ 9.93 $ 9.46
------- ------
TOTAL RETURN................................. 4.97% (4.94)%(4)
Net Assets, End of Period (thousands)...... $19,908 $8,463
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net Assets
(with reimbursement)(3)(6)(5).............. 0.99% 0.99%
Ratio of Expenses to Average Net Assets
(without reimbursement)(3)(5).............. 1.15% 1.64%
Ratio of Net Investment Income to Average
Net Assets(5).............................. 1.26% 1.47%
- ------------------------------------------------------------------------------------------
Portfolio turnover rate.................... 41% 2%
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Date operations commenced.
(3) Travelers has agreed to reimburse the Portfolio for expenses in the amount
of $17,700 for the period ended December 31, 1998 and $24,087 for the year
ended December 31, 1999. If expenses were not reimbursed, the per share
decrease in net investment income would have been $0.02 and $0.02 for the
period ended December 31, 1998 and the year ended December 31, 1999.
(4) Total return is not annualized, as it may not be representative of the total
return for the year.
(5) Annualized for periods less than one year.
(6) As a result of a voluntary expense limitation, the ratio of expense to
average net assets will not exceed 1.00%.
* Amount represents less than $0.01.
44
<PAGE> 47
FINANCIAL HIGHLIGHTS
SOCIAL AWARENESS STOCK 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, 1999, 1998 and
1997 was audited by KPMG LLP, independent auditors, whose report and the Fund's
financial statements are included in the annual report to shareholders, which is
available upon request. The other two years presented were audited by other
independent auditors.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999(1) 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR....... $25.92 $ 20.06 $ 15.76 $ 14.32 $11.05
- -----------------------------------------------------------------------------------------
Income from Investment Operations:
Net Investment Income(2)............... 0.13 0.1 0.15 0.31 0.12
Net Gains on Securities (both realized
and unrealized)........................ 3.93 6.3 4.15 2.42 3.47
------- ------- ------- ------- ------
Total Income from Investment
Operations............................. 4.06 6.4 4.3 2.73 3.59
------- ------- ------- ------- ------
- -----------------------------------------------------------------------------------------
Less Distributions(3):
Dividends (from net investment
Income)................................ (0.09) (0.12) -- (0.43) (0.14)
Distributions (from capital gains)..... (0.47) (0.42) -- (0.86) (0.18)
------- ------- ------- ------- ------
Total distributions...................... (0.56) (0.54) -- (1.29) (0.32)
------- ------- ------- ------- ------
NET ASSET VALUE, END OF YEAR............. $29.42 $ 25.92 $ 20.06 $ 15.76 $14.32
------- ------- ------- ------- ------
TOTAL RETURN............................. 15.84% 32.27% 27.28% 19.98% 33.37%
Net Assets, End of Year (thousands).... $68,239 $39,482 $21,013 $11,040 $7,055
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net Assets
(with reimbursement)(2)(4)............. 0.80% 0.84% 0.98% 1.25% 1.25%
Ratio of Expenses to Average Net Assets
(without reimbursement)(2)(4).......... 0.80% 0.84% 0.98% 1.69% 1.75
Ratio of Net Investment Income to
Average Net Assets..................... 0.69% 0.63% 0.97% 0.43% 0.99%
- -----------------------------------------------------------------------------------------
Portfolio turnover rate................ 12% 14% 19% 26% 73%
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) For the year ended December 31, 1996, Travelers reimbursed the fund for
$25,093 in expenses. If expenses were not reimbursed, the per share decrease in
net investment income would have been $0.06.
(3) 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.
(4) The ratios of expenses to average net assets for the year ended December 31,
1995 reflect an expense reimbursement by Traveler's in connection with voluntary
expense limitations.
45
<PAGE> 48
FINANCIAL HIGHLIGHTS
STRATEGIC STOCK PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 2 periods. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information was audited by KPMG LLP, independent auditors,
whose report and the Fund's financial statements are included in the annual
report to shareholders, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED MAY 1, 1998(2) TO
DECEMBER 31, 1999(1) DECEMBER 31, 1998
-------------------- -----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........... $ 9.46 $10.00
- -----------------------------------------------------------------------------------------
Income (loss) from Investment Operations:
Net Investment Income(3)..................... 0.21 0.12
Net Gains (losses) on Securities (both
realized and unrealized)..................... 0.26 (0.54)
------- ------
Total Income (loss) from Investment
Operations................................... 0.47 (0.42)
Less Distributions:
Dividends (from net investment Income)....... (0.00)* (0.12)
------- ------
Total distributions............................ (0.00)* (0.12)
------- ------
NET ASSET VALUE, END OF PERIOD................. $ 9.93 $ 9.46
------- ------
TOTAL RETURN................................... 4.97% (4.24)%(4)
Net Assets, End of Period (thousands)........ $14,730 $6,887
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net Assets (with
reimbursement)(3)(5)(6)...................... 0.90% 0.90%
Ratio of Expenses to Average Net Assets
(without reimbursement)(3)(6)................ 0.99% 1.51%
Ratio of Net Investment Income to Average Net
Assets(6).................................... 2.09% 2.42%
- -----------------------------------------------------------------------------------------
Portfolio turnover rate...................... 80% 1%
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Date operations commenced.
(3) Travelers has agreed to reimburse the Fund for expenses in the amount of
$11,500 and $21,016 for the year ended December 31, 1999 and the period ended
December 31, 1998, respectively. If such expenses were not reimbursed, the per
share decrease in net investment income would have been $0.01 and $0.03,
respectively.
(4) Total return is not annualized, as it may not be representative of the total
return for the year.
(5) As a result of a voluntary expense limitation, the ratio of expenses will
not exceed 0.90%.
(6) Annualized for periods less than one year.
46
<PAGE> 49
FINANCIAL HIGHLIGHTS
TRAVELERS QUALITY BOND PORTFOLIO
The financial highlights table provides information to help you understand the
Fund's financial performance for the past 4 periods. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information for the years ended December 31, 1999, 1998 and
1997 was audited by KPMG LLP, independent auditors, whose report and the Fund's
financial statements are included in the annual report to shareholders, which is
available upon request. The other period presented were audited by other
independent auditors.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------ AUGUST 30, 1996(2) TO
1999(1) 1998 1997 DECEMBER 31, 1996
------- ------- ------ ----------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.............................. $10.76 $ 10.36 $10.10 $10.00
Income from Investment Operations:
Net Investment Income(3).......... 0.64 0.37 0.43 0.19
Net Gains (losses) on Securities
(both realized and unrealized).... (0.51) 0.51 0.29 0.16
------- ------- ------ ------
Total Income from Investment
Operations........................ 0.13 0.88 0.72 0.35
Less Distributions:
Dividends (from net investment
Income)........................... (0.00)* (0.37) (0.43) (0.19)
Distributions (from capital
gains)............................ (0.07) (0.11) (0.03) (0.06)
------- ------- ------ ------
Total distributions................. (0.07) (0.48) (0.46) (0.25)
------- ------- ------ ------
NET ASSET VALUE, END OF PERIOD...... $10.82 $ 10.76 $10.36 $10.10
------- ------- ------ ------
TOTAL RETURN(4)..................... 1.09% 8.49% 7.14% 3.56%
Net Assets, End of Period
(thousands)....................... $59,338 $35,507 $9,468 $5,273
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net
Assets (with
reimbursement)(3)(5)(6)........... 0.54% 0.63% 0.75% 0.75%
Ratio of Expenses to Average Net
Assets (without
reimbursement)(3)(6).............. 0.54% 0.63% 1.13% 1.76%
Ratio of Net Investment Income to
Average Net Assets(6)............. 5.86% 5.51% 5.80% 5.62%
Portfolio turnover rate........... 357% 364% 295% 35%
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Date operations commenced.
(3) Travelers has waived all or part of its fees for the year ended December 31,
1997 and the period ended December 31, 1996. In addition, Travelers has
reimbursed the Fund for $10,091 of the Fund's expenses for the period ended
December 31, 1996. If such expenses were not reimbursed, the per share decrease
in net investment income would have been $0.03 for the year ended December 31,
1997 and for the period ended December 31, 1996.
(4) Total return is actual and has not been annualized for periods of less than
one year, as it may not be representative of the total return for the year. The
total return would have been lower had expenses not been reduced during the
period shown or if separate account charges had been reflected.
(5) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.75%.
(6) Annualized for periods of less than one year.
* Amount represents less than $0.01 per share.
47
<PAGE> 50
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, 1999, 1998 and
1997 was audited by KPMG LLP, independent auditors, whose report and the Fund's
financial statements are included in the annual report to shareholders, which is
available upon request. The other two years presented were audited by other
independent auditors.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999(1) 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR...... $11.80 $ 11.65 $ 10.86 $ 12.43 $ 10.58
Income (loss) from Investment
Operations:
Net Investment Income................. 0.68 0.49 0.58 0.68 0.65
Net Gains (Losses) on Securities (both
realized and unrealized).............. (1.18) 0.70 0.79 (0.52) 1.80
------- ------- ------- ------- -------
Total Income (loss) from Investment
Operations............................ (0.50) 1.19 1.37 0.16 2.45
Less Distributions(2):
Dividends (from net investment
Income)............................... (0.00)* (0.50) (0.58) (1.55) (0.60)
Distributions (from capital gains).... -- (0.54) -- (0.18) --
------- ------- ------- ------- -------
Total distributions..................... (0.00)* (1.04) (0.58) (1.73) (0.60)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR............ $11.30 $ 11.80 $ 11.65 $ 10.86 $ 12.43
------- ------- ------- ------- -------
TOTAL RETURN............................ (4.23)% 10.20% 12.62% 1.46% 24.42%
Net Assets, End of Year (thousands)... $61,623 $66,454 $35,279 $26,009 $28,192
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net
Assets................................ 0.48% 0.45% 0.49% 0.62% 0.56%
Ratio of Net Investment Income to
Average Net Assets.................... 5.97% 5.31% 6.10% 5.68% 5.80%
Portfolio turnover rate............... 164% 349% 208% 501% 214%
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(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.
* Amount represents less than $0.01 per share.
48
<PAGE> 51
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, 1999, 1998 and
1997 was audited by KPMG LLP, independent auditors, whose report and the Fund's
financial statements are included in the annual report to shareholders, which is
available upon request. The other two years presented were audited by other
independent auditors.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999(1) 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $17.18 $ 15.29 $ 12.22 $ 12.85 $ 10.17
- -----------------------------------------------------------------------------------------
Income (loss) from Investment
Operations:
Net Investment Income................. 0.41 0.37 0.46 0.47 0.48
Net Gains (Losses) on Securities (both
realized and unrealized).............. (0.36) 2.33 2.63 0.47 2.44
------- ------- ------- ------- -------
Total Income from Investment
Operations............................ 0.05 2.70 3.09 0.94 2.92
- -----------------------------------------------------------------------------------------
Less Distributions(2):
Dividends (from net investment
Income)............................... (0.40) (0.42) (0.01) (0.84) (0.24)
Distributions (from capital gains).... (0.92) (0.39) (0.01) (0.73) --
------- ------- ------- ------- -------
Total distributions..................... (1.32) (0.81) (0.02) (1.57) (0.24)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.......... $15.91 $ 17.18 $ 15.29 $ 12.22 $ 12.85
------- ------- ------- ------- -------
TOTAL RETURN............................ (0.08)% 18.21% 25.29% 7.47% 29.29%
Net Assets, End of Period
(thousands)........................... $31,413 $32,909 $21,413 $18,214 $15,340
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net
Assets (with reimbursement)(3)........ 0.88% 0.80% 1.06% 1.07% 1.25%
Ratio of Expenses to Average Net
Assets (without reimbursement)(3)..... 0.88% 0.80% 1.06% 1.07% 1.27%
Ratio of Net Investment Income to
Average Net Assets.................... 2.41% 3.06% 3.58% 3.88% 4.29%
- -----------------------------------------------------------------------------------------
Portfolio turnover rate............... 10% 51% 68% 39% 25%
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Distributions from realized gains include both net realized short-term and
long-term capital gains. Prior to 1996, net realized short-term capital gains
were included in distributions from net investment income.
(3) The ratios of expenses to average net assets for the year ended December 31,
1995 reflect expense reimbursements by Travelers in connection with voluntary
expense limitations.
49
<PAGE> 52
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 53
APPENDIX A
Each Fund invests in various instruments subject to its particular investment
policies. The Funds invest in some or all of the following, as indicated below.
These techniques and practices are described together with their risks, in the
SAI.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENT TECHNIQUES LARGE DISCIPLINED DISCIPLINED STRATEGIC NWQ JURIKA & U.S. GOV'T
CAP MID CAP SMALL CAP STOCK LARGE CAP VOYLES SECURITIES
CORE EQUITY
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Affiliated Bank Transactions X
- ----------------------------------------------------------------------------------------------------------------------
American Depositary Receipts X X X
- ----------------------------------------------------------------------------------------------------------------------
Asset-Backed Mortgage
Securities X X 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 X
- ----------------------------------------------------------------------------------------------------------------------
Corporate Asset-Backed
Securities X X
- ----------------------------------------------------------------------------------------------------------------------
Debt Securities X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Emerging Market Securities X X
- ----------------------------------------------------------------------------------------------------------------------
Equity Securities X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Floating & Variable Rate
Instruments X X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Foreign Securities X X X
- ----------------------------------------------------------------------------------------------------------------------
Forward Contracts on Foreign
Currency X X
- ----------------------------------------------------------------------------------------------------------------------
Futures Contracts X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
High-Yield, High Risk Bonds X X
- ----------------------------------------------------------------------------------------------------------------------
Illiquid Securities X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Indexed Securities X
- ----------------------------------------------------------------------------------------------------------------------
Index Futures Contracts X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Investment Company Securities X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Investment in Unseasoned
Companies X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Lending Portfolio Securities X X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Letters of Credit X X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Loan Participations X
- ----------------------------------------------------------------------------------------------------------------------
Options on Foreign Currencies X X
- ----------------------------------------------------------------------------------------------------------------------
Options on Index Futures
Contracts X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Options on Stock Indices X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Other Direct Indebtedness X
- ----------------------------------------------------------------------------------------------------------------------
Real Estate-Related Instruments X X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Repurchase Agreements X X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Reverse Repurchase Agreements X X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Short Sales "Against the Box' X X
- ----------------------------------------------------------------------------------------------------------------------
Short-Term Money Market
Instruments X X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Swap Agreements X
- ----------------------------------------------------------------------------------------------------------------------
Temporary Bank Borrowing X X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
U.S. Government Securities X X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Variable Amount Master Demand
Notes X X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
When-Issued and Delayed
Delivery Securities X X X X X X
- ----------------------------------------------------------------------------------------------------------------------
Writing Covered Call Options X X X X X
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
INVESTMENT TECHNIQUES LAZARD MFS
INTERNATIONAL RESEARCH
STOCK
- ---------------------------------------------------------------------
<S> <C> <C>
Affiliated Bank Transactions
- --------------------------------------------------------------------------------
American Depositary Receipts X X
- -------------------------------------------------------------------------------------------
Asset-Backed Mortgage
Securities X
- ------------------------------------------------------------------------------------------------------
Bankers Acceptances X X
- -----------------------------------------------------------------------------------------------------------------
Buying Put and Call Options X X
- ----------------------------------------------------------------------------------------------------------------------
Certificates of Deposit X X
- ----------------------------------------------------------------------------------------------------------------------
Commercial Paper X X
- ----------------------------------------------------------------------------------------------------------------------
Convertible Securities X X
- ----------------------------------------------------------------------------------------------------------------------
Corporate Asset-Backed
Securities
- ----------------------------------------------------------------------------------------------------------------------
Debt Securities X X
- ----------------------------------------------------------------------------------------------------------------------
Emerging Market Securities X X
- ----------------------------------------------------------------------------------------------------------------------
Equity Securities X X
- ----------------------------------------------------------------------------------------------------------------------
Floating & Variable Rate
Instruments X X
- ----------------------------------------------------------------------------------------------------------------------
Foreign Securities X X
- ----------------------------------------------------------------------------------------------------------------------
Forward Contracts on Foreign
Currency X X
- ----------------------------------------------------------------------------------------------------------------------
Futures Contracts X X
- ----------------------------------------------------------------------------------------------------------------------
High-Yield, High Risk Bonds X
- ----------------------------------------------------------------------------------------------------------------------
Illiquid Securities X X
- ----------------------------------------------------------------------------------------------------------------------
Indexed Securities X
- ----------------------------------------------------------------------------------------------------------------------
Index Futures Contracts X X
- ----------------------------------------------------------------------------------------------------------------------
Investment Company Securities X X
- ----------------------------------------------------------------------------------------------------------------------
Investment in Unseasoned
Companies X X
- ----------------------------------------------------------------------------------------------------------------------
Lending Portfolio Securities X X
- ----------------------------------------------------------------------------------------------------------------------
Letters of Credit X X
- ----------------------------------------------------------------------------------------------------------------------
Loan Participations
- ----------------------------------------------------------------------------------------------------------------------
Options on Foreign Currencies X X
- ----------------------------------------------------------------------------------------------------------------------
Options on Index Futures
Contracts X X
- ----------------------------------------------------------------------------------------------------------------------
Options on Stock Indices X X
- ----------------------------------------------------------------------------------------------------------------------
Other Direct Indebtedness
- ----------------------------------------------------------------------------------------------------------------------
Real Estate-Related Instruments X X
- ----------------------------------------------------------------------------------------------------------------------
Repurchase Agreements X X
- ----------------------------------------------------------------------------------------------------------------------
Reverse Repurchase Agreements X X
- ----------------------------------------------------------------------------------------------------------------------
Short Sales "Against the Box' X
- ----------------------------------------------------------------------------------------------------------------------
Short-Term Money Market
Instruments X X
- ----------------------------------------------------------------------------------------------------------------------
Swap Agreements X
- ----------------------------------------------------------------------------------------------------------------------
Temporary Bank Borrowing X X
- ----------------------------------------------------------------------------------------------------------------------
U.S. Government Securities X X
- ----------------------------------------------------------------------------------------------------------------------
Variable Amount Master Demand
Notes X X
- ----------------------------------------------------------------------------------------------------------------------
When-Issued and Delayed
Delivery Securities X X
- ----------------------------------------------------------------------------------------------------------------------
Writing Covered Call Options X X
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
A-1
<PAGE> 54
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTMENT TECHNIQUES UTILITIES CONV. EQUITY FED. FED. SOCIAL MFS MFS TRAV.
BOND INCOME HIGH STOCK AWARE- EMERG. MID CAP QUAL.
YIELD NESS GROWTH GROWTH BOND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Affiliated Bank Transactions X
- ---------------------------------------------------------------------------------------------------------------------------------
American Depositary Receipts X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Asset-Backed Mortgage Securities X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Bankers Acceptances X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Buying Put and Call Options X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Certificates of Deposit X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Commercial Paper X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Convertible Securities X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Corporate Asset-Backed Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Debt Securities X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Emerging Market Securities X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Equity Securities X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Floating & Variable Rate Instruments X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Foreign Securities X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Forward Contracts on Foreign Currency X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Futures Contracts X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
High-Yield, High Risk Bonds X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Illiquid Securities X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Indexed Securities X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Index Futures Contracts X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Company Securities X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Investment in Unseasoned Companies X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Lending Portfolio Securities X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Letters of Credit X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Loan Participations X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Options on Foreign Currencies X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Options on Index Futures Contracts X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Options on Stock Indices X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Other Direct Indebtedness X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Real Estate-Related Instruments X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Reverse Repurchase Agreements X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Short Sales "Against the Box" X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Short-Term Money Market Instruments X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Swap Agreements X
- ---------------------------------------------------------------------------------------------------------------------------------
Temporary Bank Borrowing X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Variable Amount Master Demand Notes X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
When-Issued & Delayed Delivery Securities X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Writing Covered Call Options X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-2
<PAGE> 55
THE TRAVELERS SERIES TRUST
Investors who want more information about a Fund can obtain a SAI which provides
more detailed information on a number of topics and is made a part of this
prospectus. Additional information about a Fund's investments is available in
its annual and semi-annual reports to shareholders. A Fund's annual report
provides a discussion of the market conditions and investment strategies that
particularly impact the Fund's performance over the past fiscal year. These
documents are free of charge. To obtain a copy, or ask other questions about the
fund, do one of the following:
CALL -- 1-800-842-9368
- --------------------------------------------------------------------------------
WRITE -- ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
- --------------------------------------------------------------------------------
ACCESS THE SEC'S WEBSITE -- http://www.sec.gov
Investors may, for a fee, get text-only copies of the above documents from the
SEC Public Reference Room at 1-800-SEC-0330 or write to the SEC Public Reference
Room, Washington, DC 20549-6009.
(1940 Act# 811-6465)
L-21665
<PAGE> 56
THE TRAVELERS SERIES TRUST
ZERO COUPON BOND FUND PORTFOLIOS
(SERIES 2000 AND 2005)
GOAL -- HIGH CONSISTENT TOTAL RETURN
WITH PRESERVATION OF CAPITAL
The Travelers Series Trust (the "Trust") is an open-end management investment
company (mutual fund) consisting of multiple portfolios, each with its own
investment objective and policies. Only the portfolios (the "Funds") listed
above are described in this prospectus.
Fund shares are offered only to separate accounts of The Travelers Insurance
Company and The Travelers Life and Annuity Company (together, "The Travelers").
The Funds serve as funding options for certain variable annuity and variable
life insurance contracts issued by The Travelers.
ONE TOWER SQUARE
HARTFORD, CONNECTICUT 06183
TELEPHONE 1-800-842-9368
PROSPECTUS
May 1, 2000
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
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Legal Proceedings.............. 5
Shareholder Transactions and 5
Pricing......................
Tax Consequences of Dividends 7
and Distributions............
Financial Highlights........... 8
Appendix....................... 9
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION ("SEC") 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 A BANK AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
<PAGE> 57
ZERO COUPON BOND FUND PORTFOLIOS (SERIES 2000 AND 2005)
Goals and Investments
INVESTMENT ADVISER: TAMIC
PORTFOLIO MANAGER: David A. Tyson
FUNDS' OBJECTIVE: High consistent
total return with
preservation of
capital
KEY INVESTMENTS: Zero coupon
securities
SELECTION PROCESS: The Funds invest at least 65% of its assets in zero coupon
securities. A zero coupon security pays no cash income but is acquired at a
substantial discount from its value at maturity. These securities may be issued
by the U.S. Government, domestic corporations or foreign issuers. Each Fund also
may invest the remaining 35% of its assets in non-zero coupon securities, such
as common stock, bonds and money market instruments.
PRINCIPAL RISKS: Each Fund is most subject to fixed-income securities risk,
where market values move in the opposite direction of interest rates, and sector
risk, where market values are impacted by a concentration in zero coupon bonds
that tend to be more volatile than the general market. The Fund may be subject
to foreign markets securities risks, where market values may be impacted by
limited trading, currency exchange, political or economic instability, or other
factors. For more information on the Fund's investments and related risks,
please see "Investments and Practices," the Appendix to this prospectus and the
SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund's
investments include foreign securities. For a complete list of all investments
available to the Fund, please see Appendix A of this prospectus.
FUND PERFORMANCE
The charts and tables below show how an investment in each Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by Travelers. The tables
compare each Fund's performance with the Merrill Lynch Zero Coupon Index (5 year
and 10 year). Past performance can give some indication of each Fund's risk but
does not guarantee future results.
YEAR-BY-YEAR % TOTAL RETURNS AS OF 12/31
(SERIES 2000)
[SERIES 2000 PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
ZERO COUPON BOND FUND PORTFOLIOS (SERIES
2000)
----------------------------------------
<S> <C>
96 2.76
97 7.20
98 7.58
99 3.31
</TABLE>
Best Quarter: 3rd (98) 3.49%
Worst Quarter: 1st (99) (0.26)%
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1999
<TABLE>
<CAPTION>
1 year Life of Fund*
------- --------------
<S> <C> <C>
Zero Coupon 3.31% 5.67%
(Series 2000)
Merrill Lynch Zero (5 (3.01)% 7.08%
yr.)
</TABLE>
*Fund commenced operations on October 11, 1995.
YEAR-BY-YEAR % TOTAL RETURNS AS OF 12/31
(SERIES 2005)
[SERIES 2005 PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
ZERO COUPON BOND FUND PORTFOLIOS (SERIES
2005)
----------------------------------------
<S> <C>
96 0.90
97 11.63
98 12.26
99 -5.42
</TABLE>
Best Quarter: 3rd (98) 8.03%
Worst Quarter: 1st (99) (2.97)%
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1999
<TABLE>
<CAPTION>
1 year Life of Fund*
-------- --------------
<S> <C> <C>
Zero Coupon (5.42)% 5.50%
(Series 2005)
Merrill Lynch Zero (10.34)% 7.14%
(10 yr.)
</TABLE>
*Fund commenced operations on October 11, 1995.
2
<PAGE> 58
INVESTMENTS AND PRACTICES
The Funds invests in various instruments subject to their investment policy. The
Fund may invest in all of the following, as described in the overview for the
Funds, and in the Statement of Additional Information. For a free copy of the
Statement of Additional Information, see the back cover of this prospectus. No
Fund guarantees it will reach its investment objective, and you may lose money
by investing in any fund.
FIXED INCOME INVESTMENTS 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.
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 Equity securities include common and preferred
stock, warrants, rights, depositary receipts and
shares, trust certificates, and real estate
instruments.
Equities are subject to market risk. Many factors
affect the stock market prices and dividend
payouts of equity investments. These factors
include general business conditions, investor
confidence in the economy, and current conditions
in a particular industry or company.
FOREIGN SECURITIES
INVESTMENTS 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
3
<PAGE> 59
bears "information" risk associated with the
different accounting, auditing, and financial
reporting standards in many foreign countries. If
a Fund invests in securities denominated or
quoted in currencies other than the U.S. dollar,
changes in foreign currency rates relative to the
U.S. dollar will affect the U.S. dollar value of
the Fund's assets. Foreign securities may be less
liquid than U.S. securities.
DERIVATIVES AND HEDGING
TECHNIQUES Derivative contracts, such as futures and options
on securities, may be used for any of the
following purposes:
- To hedge against the economic impact of
adverse changes in the market value of its
securities, due to changes in stock market
prices, currency exchange rates or interest
rates
- As a substitute for buying or selling
securities
- To enhance return
Forward foreign currency contracts may be used to
hedge against foreign currency exposure
Even a small investment in derivative contracts
can have a big impact on a Fund's stock market,
currency and interest rate exposure. Therefore,
using derivatives can disproportionately increase
losses and reduce opportunities for gain when
stock prices, currency rates or interest rates
are changing.
For a more complete description of derivative and
hedging techniques and their associated risks,
please refer to the SAI.
SELECTION RISK Fund investors are subject to selection risk in
that a strategy used, or stock selected, may fail
to have the desired effect. Specifically, stocks
believed to show potential for capital growth may
not achieve that growth. Strategies or
instruments used to hedge against a possible risk
or loss may fail to protect against the
particular risk or loss.
INVESTMENT OBJECTIVES Each Fund's investment objective and, unless
noted as fundamental, its investment policies may
be changed by the Board without approval of
shareholders or holders of variable annuity and
variable life insurance contracts. A change in a
Fund's investment objective or policies may
result in the Fund having a different investment
objective or policies from those that a policy
owner selected as appropriate at the time of
investment.
4
<PAGE> 60
MANAGEMENT
INVESTMENT ADVISER
TRAVELERS ASSET MANAGEMENT INTERNATIONAL COMPANY LLC ("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, 1999, the Zero Coupon Bond Fund Portfolios each
paid TAMIC a fee equal on an annual basis to 0.10% of the average daily net
assets of each Portfolio. This percentage also reflects the maximum advisory fee
payable to TAMIC.
PORTFOLIO MANAGER
The Zero Coupon Bond Fund Portfolios are managed by David A. Tyson, Ph.D., CFA.
Mr. Tyson is currently Senior Vice President and the head of Traveler's
Portfolio Management Group. His previous responsibilities include managing The
Travelers Derivatives, Mortgage-Backed and Quantitative Investment Groups. Mr.
Tyson joined Travelers in 1985 and TAMIC in 1994.
LEGAL PROCEEDINGS
There are no material pending legal proceedings affecting the Trust, and it has
been advised by TAMIC and the Trust's principal underwriter that neither of them
have any material pending legal proceedings affecting them.
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
5
<PAGE> 61
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 changes 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 4:00 p.m.
Easter time 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.
Special Considerations Relating to Maturity: The Series Trust currently offers
two separate Zero Coupon Bond Portfolios, each maturing on the third Friday of
December of its specific maturity year (the "Target Date"): 2000 and 2005, as
applicable. On each Portfolio's Target Date, the Portfolio will be converted to
cash and an investor may invest in another of the Contract's Funds. If an
investor does not complete an instruction form directing what should be done
with liquidation proceeds, the proceeds will be automatically invested in the
Smith Barney Money
6
<PAGE> 62
Market Portfolio or Travelers Money Market Portfolio, as applicable. and the
Policyholder will be notified of such event.
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.
7
<PAGE> 63
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 periods. Certain information
presents financial results for a single Fund share. The total returns in the
table represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information for the years ended December 31, 1999, 1998 and
1997 was audited by KPMG LLP, independent auditors, whose report and the Fund's
financial statements are included in the annual report to shareholders, which is
available upon request. The other two periods presented were audited by other
independent auditors.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
(SERIES 2000)
OCTOBER 11,
1995(1) TO
DECEMBER 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
Beginning of Period.................. $10.26 $10.09 $ 9.96 $10.31 $10.00
- ---------------------------------------------------------------------------------------
Income (loss) from Investment
Operations:
Net Investment Income(3)(4)......... 0.57 0.59 0.59 0.50 0.13
Net Gains (Losses) on Securities
(both realized and unrealized)...... (0.23) 0.17 0.13 (0.22) 0.18
------ ------ ------ ------ ------
Total Income (loss) from Investment
Operations.......................... 0.34 0.76 0.72 0.28 0.31
Less Distributions:
Dividends (from net investment
income)............................. 0 (0.59) (0.59) (0.63) --
------ ------ ------ ------ ------
Total Distributions.................. 0 (0.59) (0.59) (0.63) --
------ ------ ------ ------ ------
Net Asset Value, End of Period....... $10.60 $10.26 $10.09 $ 9.96 $10.31
------ ------ ------ ------ ------
TOTAL RETURN(2)...................... 3.31% 7.58% 7.20% 2.76% 3.10%
Net Assets, End of Period
(thousands)......................... $2,059 $1,953 $1,757 $1,565 $1,029
Ratios/Supplemental Data
Ratio of Expenses to Average Net
Assets (with
reimbursement)(3)(4)(5)(6).......... 0.15% 0.15% 0.15% 0.15% 0.15%
Ratio of Expenses to Average Net
Assets (without
reimbursement)(3)(4)(5)(6).......... 2.79% 2.09% 1.80% 2.49% 6.51%
Ratio of Net Investment Income to
Average Net Assets(6)............... 5.61% 5.74% 5.88% 5.74% 5.61%
Portfolio Turnover Rate -- -- 29% 33% 34%
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
(SERIES 2005)
OCTOBER 11,
1995(1) TO
DECEMBER 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
Beginning of Period.................. $11.26 $10.53 $ 9.97 $10.48 $10.00
- ---------------------------------------------------------------------------------------
Income (loss) from Investment
Operations:
Net Investment Income(3)(4)......... 0.62 0.55 0.60 0.48 0.13
Net Gains (Losses) on Securities
(both realized and unrealized)...... (1.23) 0.74 0.56 (0.38) 0.35
------ ------ ------ ------ ------
Total Income (loss) from Investment
Operations.......................... (0.61) 1.29 1.16 0.1 0.48
Less Distributions:
Dividends (from net investment
income)............................. 0 (0.56) (0.60) (0.61) --
------ ------ ------ ------ ------
Total Distributions.................. 0 (0.56) (0.60) (0.61) --
------ ------ ------ ------ ------
Net Asset Value, End of Period....... $10.65 $11.26 $10.53 $ 9.97 $10.48
------ ------ ------ ------ ------
TOTAL RETURN(2)...................... (5.42)% 12.26% 11.63% 0.90% 4.80%
Net Assets, End of Period
(thousands)......................... $3,001 3,170 $2,357 $2,054 $1,050
Ratios/Supplemental Data
Ratio of Expenses to Average Net
Assets (with
reimbursement)(3)(4)(5)(6).......... 0.15% 0.15% 0.15% 0.15% 0.15%
Ratio of Expenses to Average Net
Assets (without
reimbursement)(3)(4)(5)(6).......... 1.95% 1.61% 1.52% 2.17% 6.48%
Ratio of Net Investment Income to
Average Net Assets(6)............... 5.68% 5.63% 6.11% 6.14% 5.89%
Portfolio Turnover Rate 18% 3% 9% 17% 23%
</TABLE>
(1) Date operations commenced.
(2) Total return is actual and has not been annualized for periods of less than
one year, as it may not be representative of the total return for the year. The
total return would have been lower if separate account charges had been
reflected.
(3) For the years ended December 31, 1999, 1998, 1997, and 1996, and the period
ended December 31, 1995, Travelers reimbursed the Series 2000 Fund for
$52,335,$35,705, $27,177, $31,032 and $14,257 in expenses, respectively. If such
expenses were not reimbursed, the per share decrease of net investment income
for the years ended December 31, 1999, 1998, 1997 and 1996, and the period ended
December 31, 1995 would have been $$0.27, $0.19, $0.16, $0.20 and $0.14,
respectively.
(4) For the years ended December 31, 1999, 1998, 1997 and 1996, and the period
ended December 31, 1995, Travelers reimbursed the Series 2005 Fund $55,152,
$38,063, $28,361, $30,922, and $14,256 in expenses, respectively. If such
expenses were not reimbursed the per share decrease of net investment income for
the years ended December 31, 1999, 1998, 1997 and 1996, and the period ended
December 31, 1995 would have been $0.20, $0.14, $0.13, $0.15 and $0.14,
respectively.
(5) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.15%.
(6) Annualized for periods of less than one year.
8
<PAGE> 64
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> 65
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 66
TRAVELERS SERIES TRUST
ZERO COUPON BOND FUND PORTFOLIOS
(Series 2000 and Series 2005)
Investors who want more information about the Fund can obtain a statement of
additional information ("SAI") which provides more detailed information on a
number of topics and is made a part of this prospectus. Additional information
about the Fund's investments is available in its annual and semi-annual reports
to shareholders. The Fund's annual report provides a discussion of the market
conditions and investment strategies that particularly impact the Fund's
performance over the past fiscal year. These documents are free of charge. To
obtain a copy, or ask other questions about the fund, do one of the following:
- --------------------------------------------------------------------------------
CALL -- 1-800-842-9368
- --------------------------------------------------------------------------------
WRITE -- ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
- --------------------------------------------------------------------------------
ACCESS THE SEC'S WEBSITE -- http://www.sec.gov
Investors may, for a fee, get text-only copies of the above documents from the
SEC Public Reference Room at 1-800-SEC-0330 or write to the SEC Public Reference
Room, Washington, DC, 20549-6009
<PAGE> 67
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 68
STATEMENT OF ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
THE TRAVELERS SERIES TRUST
CONVERTIBLE BOND PORTFOLIO
DISCIPLINED MID CAP STOCK PORTFOLIO
DISCIPLINED SMALL CAP STOCK PORTFOLIO
EQUITY INCOME PORTFOLIO
FEDERATED HIGH YIELD PORTFOLIO
FEDERATED STOCK PORTFOLIO
JURIKA & VOYLES CORE EQUITY PORTFOLIO
LARGE CAP PORTFOLIO
LAZARD INTERNATIONAL STOCK PORTFOLIO
MFS EMERGING GROWTH PORTFOLIO
MFS MID CAP GROWTH PORTFOLIO
MFS RESEARCH PORTFOLIO
NWQ LARGE CAP PORTFOLIO
SOCIAL AWARENESS STOCK PORTFOLIO
STRATEGIC STOCK PORTFOLIO
TRAVELERS QUALITY BOND PORTFOLIO
U.S. GOVERNMENT SECURITIES PORTFOLIO
UTILITIES PORTFOLIO
ZERO COUPON BOND FUND PORTFOLIOS (SERIES 2000 AND 2005)
- -------------------------------------------------------------------------------
May 1, 2000
This Statement of Additional Information ("SAI") is not a prospectus. Investors
should read this SAI with the applicable The Travelers Series Trust's
prospectus dated May 1, 2000 and the 1999 annual shareholder report. Investors
may obtain a free copy of the prospectus and annual shareholder report by
writing or calling us at:
The Travelers Insurance Company
Annuity Services
One Tower Square
Hartford, Connecticut 06183-5030
Phone number 860-277-0111 (collect); or
800-842-9368 (toll free)
or by accessing the Securities and Exchange Commission's website at
http://www.sec.gov.
<PAGE> 69
TABLE OF CONTENTS
PAGE
Investment Objectives, Policies, Risks and Certain Restrictions....... 1
Investment Restrictions............................................... 34
Valuation and Pricing................................................. 36
Distributions......................................................... 36
Trustees and Officers................................................. 36
Code of Ethics........................................................ 39
Declaration of Trust.................................................. 39
Investment Advisory Services.......................................... 40
Redemptions in Kind................................................... 48
Brokerage............................................................. 49
Portfolio Turnover Rate............................................... 51
Fund Administration................................................... 52
Shareholder Rights.................................................... 52
Tax Status............................................................ 53
Financial Statements.................................................. 55
Additional Information................................................ 55
Appendix.............................................................. 56
i
<PAGE> 70
INVESTMENT OBJECTIVES, POLICIES, RISKS AND CERTAIN RESTRICTIONS
The Travelers Series Trust is registered with the Securities and Exchange
Commission ("SEC"), as an open-end management investment company, and is
organized as a business trust under the laws of the Commonwealth of
Massachusetts. An Agreement and Declaration of Trust dated October 11, 1991
(the "Declaration of Trust") authorizes the Board of Trustees ("Board") to
divide the Trust's shares into two or more series related to separate
investment portfolios (Funds) and further allows the Board to establish
additional series at any time.
The Trust is currently divided into multiple Funds, each with its own
investment objective, policies and restrictions. Each Fund except MFS Mid Cap
Growth Portfolio is diversified under the Investment Company Act of 1940, as
amended (the "1940 Act"). There can be no assurance that a Fund will achieve
its investment objective.
Each Fund's investment objective and, unless noted as fundamental, its
investment policies may be changed by the Board without approval of
shareholders or holders of variable annuity and variable life insurance
contracts. A change in a Fund's investment objective or policies may result in
the Fund having a different investment objective or policies from those that a
policyowner selected as appropriate at the time of investment.
Listed below for quick reference are the other types of investments that each
Fund may make and its investment techniques. Any investments, policies and
restrictions generally are considered at the time of purchase; the sale of
instruments is not required in the event of a subsequent change in
circumstances. More detailed information about the Funds' investments and
investment techniques follows the chart.
1
<PAGE> 71
<TABLE>
<CAPTION>
CONVERTIBLE DISCIPLINED DISCIPLINED EQUITY FEDERATED FEDERATED
INVESTMENT TECHNIQUE BOND MID CAP SMALL CAP INCOME HIGH YIELD STOCK
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Affiliated Bank Transactions X
- ---------------------------------------------------------------------------------------------------------------------
American Depositary Receipts X X X X
- ---------------------------------------------------------------------------------------------------------------------
Asset-Backed Mortgage Securities X X X
- ---------------------------------------------------------------------------------------------------------------------
Bankers' Acceptances X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Buying Put and Call Options X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Certificates of Deposit X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Commercial Paper X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Convertible Securities X X X X
- ---------------------------------------------------------------------------------------------------------------------
Corporate Asset-Backed Securities X X X X
- ---------------------------------------------------------------------------------------------------------------------
Debt Securities X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Emerging Market Securities X X X X
- ---------------------------------------------------------------------------------------------------------------------
Equity Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Floating & Variable Rate Instruments X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Foreign Securities X X X X
- ---------------------------------------------------------------------------------------------------------------------
Forward Contracts on Foreign Currency X
- ---------------------------------------------------------------------------------------------------------------------
Futures Contracts X X X X X
- ---------------------------------------------------------------------------------------------------------------------
High-Yield, High-Risk Bonds X X X
- ---------------------------------------------------------------------------------------------------------------------
Illiquid Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Indexed Securities X X
- ---------------------------------------------------------------------------------------------------------------------
Index Futures Contracts X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Investment Company Securities X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Investment in Unseasoned Companies X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Lending Portfolio Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Letters of Credit X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Loan Participations X X X
- ---------------------------------------------------------------------------------------------------------------------
Options on Foreign Currencies X
- ---------------------------------------------------------------------------------------------------------------------
Options on Index Futures Contracts X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Options on Stock Indices X X X X
- ---------------------------------------------------------------------------------------------------------------------
Other Direct Indebtedness X X X
- ---------------------------------------------------------------------------------------------------------------------
Real Estate-Related Instruments X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Repurchase Agreements X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Reverse Repurchase Agreements X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Short Sales "Against the Box" X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Short-Term Money Market Instruments X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Swap Agreements X
- ---------------------------------------------------------------------------------------------------------------------
Temporary Bank Borrowing X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
U.S. Government Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Variable Amount Master Demand Notes X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
When-Issued & Delayed Delivery
Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Writing Covered Call Options X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 72
<TABLE>
<CAPTION>
LAZARD MFS MFS
JURIKA & INTERNATIONAL EMERGING MID CAP MFS
INVESTMENT TECHNIQUE VOYLES LARGE CAP STOCK GROWTH GROWTH RESEARCH
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Affiliated Bank Transactions X
- ---------------------------------------------------------------------------------------------------------------------
American Depositary Receipts X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Asset-Backed Mortgage Securities X X
- ---------------------------------------------------------------------------------------------------------------------
Bankers' Acceptances X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Buying Put and Call Options X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Certificates of Deposit X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Commercial Paper X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Convertible Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Corporate Asset-Backed Securities X X X
- ---------------------------------------------------------------------------------------------------------------------
Debt Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Emerging Market Securities X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Equity Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Floating & Variable Rate Instruments X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Foreign Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Forward Contracts on Foreign Currency X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Futures Contracts X X X X X
- ---------------------------------------------------------------------------------------------------------------------
High-Yield, High-Risk Bonds X X X
- ---------------------------------------------------------------------------------------------------------------------
Illiquid Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Indexed Securities X X
- ---------------------------------------------------------------------------------------------------------------------
Index Futures Contracts X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Investment Company Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Investment in Unseasoned Companies X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Lending Portfolio Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Letters of Credit X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Loan Participations X X
- ---------------------------------------------------------------------------------------------------------------------
Options on Foreign Currencies X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Options on Index Futures Contracts X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Options on Stock Indices X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Other Direct Indebtedness X
- ---------------------------------------------------------------------------------------------------------------------
Real Estate-Related Instruments X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Repurchase Agreements X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Reverse Repurchase Agreements X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Short Sales "Against the Box" X X X
- ---------------------------------------------------------------------------------------------------------------------
Short-Term Money Market Instruments X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Swap Agreements X X
- ---------------------------------------------------------------------------------------------------------------------
Temporary Bank Borrowing X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
U.S. Government Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Variable Amount Master Demand Notes X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
When-Issued & Delayed Delivery Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Writing Covered Call Options X X X X X
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 73
<TABLE>
<CAPTION>
ZERO COUPON
NWQ SOCIAL TRAVELERS U.S. BOND FUND
LARGE AWARENESS STRATEGIC QUALITY GOV'T (SERIES 2000
INVESTMENT TECHNIQUE CAP STOCK STOCK BOND SECURITIES UTILITIES & 2005)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Affiliated Bank Transactions
- ---------------------------------------------------------------------------------------------------------------------
American Depositary Receipts X X X X
- ---------------------------------------------------------------------------------------------------------------------
Asset-Backed Mortgage Securities X X X
- ---------------------------------------------------------------------------------------------------------------------
Bankers' Acceptances X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Buying Put and Call Options X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Certificates of Deposit X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Commercial Paper X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Convertible Securities X X X X
- ---------------------------------------------------------------------------------------------------------------------
Corporate Asset-Backed Securities X X
- ---------------------------------------------------------------------------------------------------------------------
Debt Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Emerging Market Securities X X X
- ---------------------------------------------------------------------------------------------------------------------
Equity Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Floating & Variable Rate Instruments X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Foreign Securities X X X X
- ---------------------------------------------------------------------------------------------------------------------
Forward Contracts on Foreign Currency X X
- ---------------------------------------------------------------------------------------------------------------------
Futures Contracts X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
High-Yield, High-Risk Bonds X
- ---------------------------------------------------------------------------------------------------------------------
Illiquid Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Indexed Securities X X
- ---------------------------------------------------------------------------------------------------------------------
Index Futures Contracts X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Investment Company Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Investment in Unseasoned Companies X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Lending Portfolio Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Letters of Credit X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Loan Participations
- ---------------------------------------------------------------------------------------------------------------------
Options on Foreign Currencies X X
- ---------------------------------------------------------------------------------------------------------------------
Options on Index Futures Contracts X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Options on Stock Indices X X X X
- ---------------------------------------------------------------------------------------------------------------------
Other Direct Indebtedness
- ---------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------
Short Sales "Against the Box" X X
- ---------------------------------------------------------------------------------------------------------------------
Short-Term Money Market Instruments X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Swap Agreements
- ---------------------------------------------------------------------------------------------------------------------
Temporary Bank Borrowing X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
U.S. Government Securities X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Variable Amount Master Demand Notes X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
When-Issued & Delayed Delivery
Securities X X X X X X
- ---------------------------------------------------------------------------------------------------------------------
Writing Covered Call Options X X X X X
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 74
The following section explains more about the investments and investment
techniques listed above. It also includes a brief discussion about the specific
risks associated with a particular investment or investment technique.
MONEY MARKET INSTRUMENTS. Money market instruments are those with remaining
maturities of 397 days or less, such as commercial paper (including master
demand notes), bank certificates of deposit, bankers' acceptances, and U.S.
government securities, some of which may be subject to repurchase agreements.
SHORT-TERM MONEY MARKET INSTRUMENTS. Certain Portfolios, may at any time invest
funds awaiting investment or held as reserves for the purposes of satisfying
redemption requests, payment of dividends or making other distributions to
shareholders, in cash and short-term money market instruments. Short-term money
market instruments may include (i) short-term U.S. Government Securities and,
short-term obligations of foreign sovereign governments and their agencies and
instrumentalities, (ii) interest bearing savings deposits on, and certificates
of deposit and bankers' acceptances of, United States and foreign banks, (iii)
commercial paper of U.S. or of foreign issuers rated A-1 or higher by S&P or
Prime-1 by Moody's, issued by companies which have an outstanding debt issue
rated AA or higher by S&P or Aa or higher by Moody's or, if not rated,
determined by the Investment Subadviser to be of comparable quality to those
rated obligations which may be purchased by the Portfolios.
CERTIFICATES OF DEPOSIT. Certificates of deposit are receipts issued by a bank
in exchange for the deposit of funds. The issuer agrees to pay the amount
deposited plus interest to the bearer of the receipt on the date specified on
the certificate. The certificate can usually be traded in the secondary market
prior to maturity.
Certificates of deposit are limited to U.S. dollar-denominated certificates of
U.S. banks that have at least $1 billion in deposits as of the date of their
most recently published financial statements (including foreign branches of
U.S. banks, U.S. branches of foreign banks that are members of the Federal
Reserve System or the Federal Deposit Insurance Corporation, and savings and
loan associations that are insured by the Federal Deposit Insurance
Corporation).
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
5
<PAGE> 75
as 270 days, most acceptances have maturities of six months or less. Bankers'
acceptances acquired by a Fund must have been accepted by U.S. commercial
banks, including foreign branches of U.S. commercial banks, having total
deposits at the time of purchase in excess of $1 billion and must be payable in
U.S. dollars.
COMMERCIAL PAPER RATINGS. The Funds' investments in commercial paper are
limited to those rated A-1 by S&P or PRIME-1 by Moody's. These and other
ratings of money market instruments are described as follows.
Commercial paper rated A-1 by S&P has the following characteristics. Liquidity
ratios are adequate to meet cash requirements. The issuer's long-term senior
debt is rated A or better, although in some cases BBB credits may be allowed.
The issuer has access to at least two additional channels of borrowing. Basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances. Typically, the issuer's industry is well established, and the
issuer has a strong position within the industry.
The rating PRIME-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
(1) evaluation of the management of the issuer; (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks
which may be inherent in certain areas; (3) evaluation of the issuer's products
in relation to competition and customer acceptance; (4) liquidity; (5) amount
and quality of long-term debt; (6) trend of earnings over a period of ten
years; (7) financial strength of a parent company and the relationships which
exist with the issuer; and (8) recognition by the management of obligations
which may be present or may arise as a result of public preparations to meet
such obligations. Relative strength or weakness of the above factors determines
how the issuer's commercial paper is rated within various categories.
See the Appendix for information with respect to ratings for other debt or
equity securities.
U.S. GOVERNMENT SECURITIES. As used in this SAI, "U.S. government securities"
include securities issued by the U.S. Government, its agencies,
instrumentalities and government-sponsored enterprises. U.S. government
securities include a variety of Treasury securities that differ only in their
interest rates, initial maturities and dates of issuance. Treasury bills have
initial maturities of one year or less; Treasury notes have initial maturities
of one to ten years; and Treasury bonds generally have initial maturities of
greater than ten years at the date of issuance.
U.S. government securities include direct obligations of the U.S. Treasury and
securities issued or guaranteed by the Federal Housing Administration,
Export-Import Bank of the U.S., Small Business Administration, Government
National Mortgage Association, Federal Home Loan Mortgage Corporation, The
Tennessee Valley Authority, Student Loan Marketing Association and Federal
National Mortgage Association.
Some U.S. government securities, such as Treasury bills and Government National
Mortgage Association pass-through certificates, are supported by the full faith
and credit of the U.S.; others, such as securities of Federal Home Loan Banks,
are supported by the right of the issuer to borrow from the Treasury; still
others, such as bonds issued by the Federal National Mortgage Association, a
private corporation, are supported only by the credit of the instrumentality.
Because the U.S. Government is not obligated by law to provide support to an
instrumentality or government-sponsored enterprise, a Fund will invest in those
U.S. government securities only when the Fund's investment adviser, Travelers
Asset Management International Company LLC ("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
6
<PAGE> 76
Fund to take physical delivery of these securities, offsetting transactions may
be made prior to settlement, if it is advantageous to do so. A Fund does not
make payment or begin to accrue interest on these securities until settlement
date. To invest its assets pending settlement, a Fund normally invests in
short-term money market instruments and other securities maturing no later than
the scheduled settlement date.
The Funds do not intend to purchase when-issued securities for speculative or
"leverage" purposes. Consistent with Section 18 of the 1940 Act and the
position of the SEC thereunder, when a Fund commits to purchase a security on a
when-issued basis, the adviser or subadviser identifies and places in a
segregated account high-grade money market instruments and other liquid
securities equal in value to the purchase cost of the when-issued securities.
The adviser and subadvisers believe that purchasing securities in this manner
will be advantageous to the Funds. However, this practice entails certain
additional risks, namely the default of the counterparty on its obligations to
deliver the security as scheduled. In this event, a Fund would experience a
gain or loss equal to the appreciation or depreciation in value from the
commitment date. The adviser and subadvisers employ a rigorous credit quality
procedure in determining the counterparties to deal with in purchasing
when-issued securities and, in some circumstances, require the counterparty to
post cash or some other form of security as margin to protect the value of the
delivery obligation pending settlement.
FLOATING AND VARIABLE RATE INSTRUMENTS: Obligations that have a floating or
variable rate of interest bear interest at rates that are not fixed, but vary
with changes in specified market rates or indices, such as the prime rate, and
at specified intervals. Certain of these obligations may carry a demand feature
that would permit the holder to tender them back to the issuer at par value
prior to maturity. Each Fund limits its purchases of floating and variable rate
obligations to those of the same quality as it otherwise is allowed to
purchase. The advisers or subadvisers monitor on an ongoing basis the ability
of an issuer of a demand instrument to pay principal and interest on demand.
Each Funds' right to obtain payment at par on a demand instrument can be
affected by events occurring between the date the Funds elect to demand payment
and the date payment is due. Those events may affect the ability of the issuer
of the instrument to make payment when due, except when such demand instruments
permit same-day settlement. To facilitate settlement, these same-day demand
instruments may be held in book entry form at a bank other than the Funds'
custodian, subject to a subcustodian agreement approved by the Portfolio
between that bank and the Funds' custodian.
The floating and variable rate obligations that the Funds may purchase include
certificates of participation in obligations purchased from banks. A
certificate of participation gives a Fund an undivided interest in the
underlying obligations in the proportion that the Fund's interest bears to the
total principal amount of such obligations. Certain of such certificates of
participation may carry a demand feature that would permit the holder to tender
them back to the issuer prior to maturity.
VARIABLE AMOUNT MASTER DEMAND NOTES: Variable amount master demand notes are
unsecured obligations that permit the investment of fluctuating amounts by a
Fund at varying rates of interest pursuant to direct arrangements between the
Fund as lender and the issuer as borrower. Master demand notes permit daily
fluctuations in the interest rate and daily changes in the amounts borrowed.
Each Fund has the right to increase the amount under the note at any time up to
the full amount provided by the note agreement, or to decrease the amount, and
the borrower may repay up to the full amount of the note without penalty.
Because these types of notes are direct lending arrangements between the lender
and the borrower, it is not generally contemplated that such instruments will
be traded. Also, there is no secondary market for these notes, although they
are redeemable and thus repayable by the borrower at face value plus accrued
interest at any time. Accordingly, a Fund's right to redeem is dependent on the
ability of the borrower to pay principal and interest on demand. In connection
with master demand note arrangements, the advisers or subadvisers will consider
the earning power, cash flow and other liquidity ratios of the issuer. These
notes, as such, are not typically rated by credit rating agencies. Unless they
are so rated, each Fund will invest in them only if, at the time of an
investment, the issuer meets the criteria set forth for all other commercial
paper. Pursuant to procedures established by the adviser or subadviser, such
notes are treated as instruments maturing in one day and valued at their par
value. The advisers and subadvisers intend to continuously monitor factors
related to the ability of the borrower to pay principal and interest on demand.
VARIABLE RATE MASTER DEMAND NOTES. Variable rate master demand notes are
unsecured obligations that permit a Fund to invest different amounts at varying
interest rates under arrangements between the Fund (as lender) and the issuer
of the note (as borrower). Under the note, a Fund has the right at any time to
increase the amount up to the full amount provided by the note agreement, or to
decrease the amount, and the borrower has the right to repay at any time up to
the full amount of the note without penalty. Notes purchased by a Fund permit
it to demand payment of principal and accrued interest at
7
<PAGE> 77
any time (on not more than seven days notice). Notes acquired by a Fund may
have maturities of more than one year, provided that: (1) the Fund is entitled
to payment of principal and accrued interest upon not more than seven days
notice, and (2) the interest rate on such notes is adjusted automatically at
periodic intervals, which normally do not exceed 31 days but may extend up to
one year. The notes are deemed to have a maturity equal to the longer of the
period remaining to the next interest-rate adjustment or the demand notice
period. Because these notes are direct lending arrangements between the lender
and the borrower, the notes normally are not traded and have no secondary
market, although the notes are redeemable and, thus, repayable at any time by
the borrower at face value plus accrued interest. Accordingly, a Fund's right
to redeem depends on the borrower's ability to pay interest on demand and repay
principal. In connection with variable rate master demand notes, an adviser or
subadviser considers, under standards established by the Board, earning power,
cash flow and other liquidity ratios of a borrower and monitors the ability of
a borrower to pay principal and interest on demand. These notes are not
typically rated by credit rating agencies. Unless rated, a Fund will invest in
them only if the investment adviser determines that the issuer meets the
criteria established for commercial paper.
ZERO COUPON BONDS AND STEP-UP BONDS. Zero coupon bonds do not pay interest.
They are sold at a substantial discount from face value. Additionally, zero
coupon bonds give the issuer the flexibility of reduced cash interest expense
for several years, and they give the purchaser the potential advantage of
compounding the coupons at a higher rate than might otherwise be available.
Zero coupon bonds are very risky, however, for the investor. Because the cash
flows from zero coupon bonds are deferred and because zero coupon bonds often
represent subordinated debt, their prices are more volatile than most other
bonds.
Step-up bonds are a variant of zero coupon bonds. Step-up bonds pay little or
no initial interest rate for several years and then a higher rate until
maturity. They are also issued at a discount from face value.
For tax purposes, a purchaser of zero coupon bonds owes income tax on the
interest that has accrued each year, even though the Fund has received no cash.
Certain federal tax law income and capital-gain distribution requirements may
have an adverse effect on a Fund to the extent it invests in zero coupon bonds.
PAY-IN-KIND BONDS. Pay-in-kind bonds pay interest either in cash or in
additional securities at the issuer's option for a specified period. Like zero
coupon bonds, PIK bonds are designed to give the issuer flexibility in managing
cash flow. Unlike zero coupon bonds, however, PIK bonds offer the investor the
opportunity to sell the additional securities issued in lieu of interest and
thus obtain current income on the original investment. Certain federal tax law
income and capital gain distribution requirements may have an adverse effect on
a Fund to the extent that it invests in PIK bonds.
RESET BONDS. The interest rate on reset bonds is adjusted periodically to a
level that should allow the bonds to trade at a specified dollar level,
generally par or $101. The rate can usually be raised, but the bonds have a low
call premium, limiting the opportunity for capital gain. Some reset bonds have
a maximum rate, generally 2.5% or 3% above the initial rate.
INCREASING RATE NOTES. Increasing rate notes ("IRNs") have interest rates that
increase periodically (by 1/4% per quarter, for example). IRNs are generally
used as a temporary financing instrument since the increasing rate is an
incentive for the issuer to refinance with longer term debt.
EQUITY SECURITIES. By definition, equity securities include common and
preferred stocks, convertible securities, and warrants. Common stocks, the most
familiar type, represent an equity (ownership) interest in a corporation.
Although equity securities have a history of long-term growth in value, their
prices fluctuate based on changes in a company's financial condition and on
overall market and economic conditions. Smaller companies are especially
sensitive to these factors.
STOCKS. Certain Funds expect to remain fully invested in common stocks to the
extent practicable, and are 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
8
<PAGE> 78
the case of smaller companies. Moreover, Funds may invest in stocks of
growth-oriented companies that intend to reinvest earnings rather than pay
dividends. A Fund may make investments in stocks that may at times have limited
market liquidity and whose purchase or sale would result in above average
transaction costs. Another factor that would increase the fundamental risk of
investing in smaller companies is the lack of publicly available information
due to their relatively short operating record as public companies.
Investing in medium capitalization stocks may involve greater risk than
investing in large capitalization stocks, since they can be subject to more
abrupt or erratic movements. However, they tend to involve less risk than
stocks of small capitalization companies.
The nature of investing in emerging growth companies involves greater risk than
is customarily associated with investments in more established companies.
Emerging growth companies often have limited product lines, markets or
financial resources, and they may be dependent on one-person management. In
addition, there may be less research available on many promising small and
medium sized emerging growth companies making it more difficult to find and
analyze these companies. The securities of emerging growth companies may have
limited marketability and may be subject to more abrupt or erratic market
movements than securities of larger, more established growth companies or the
market averages in general. Shares of a Fund, therefore, are subject to greater
fluctuation in value than shares of a conservative equity portfolio or of a
growth portfolio that invests entirely in proven growth stocks.
CONVERTIBLE SECURITIES. Convertible securities may include corporate notes or
preferred stock but ordinarily are long-term debt obligations of an issuer that
are convertible at a stated price or exchange rate into the issuer's common
stock. Convertible securities have characteristics similar to both common stock
and debt obligations. Although to a lesser degree than with debt securities,
the market value of convertible securities tends to decline as interest rates
increase and, conversely, to increase as interest rates decline. In addition,
because of the conversion feature, the market value of convertible securities
tends to vary with fluctuations in the market value of the underlying common
stock and, therefore, reacts to variations in the general stock market.
However, when the market price of the common stock underlying a convertible
security exceeds the conversion price, the price of the convertible security
tends to reflect the value of the underlying common stock. As the market price
of the underlying common stock declines, the convertible security tends to
trade increasingly on a yield basis, and thus may not depreciate to the same
extent as the underlying common stock.
As fixed-income securities, convertible securities are investments that provide
a stable stream of income with generally higher yields than common stocks. Like
all fixed-income securities, there can be no assurance of the current income
because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower interest or dividend
yields than non-convertible securities of similar quality because of the
potential through the conversion feature for capital appreciation. There can be
no assurance of capital appreciation because securities prices fluctuate.
Convertible securities generally are subordinated to other similar but
not-convertible debt of the same issuer, although convertible bonds enjoy
seniority payment rights over all equity securities. Convertible preferred
stock is senior to the issuer's common stock. Because of the conversion
feature, however, convertible securities typically have lower ratings than
similar non-convertible securities.
A synthetic convertible security is comprised of two distinct securities that
together resemble convertible securities. Synthetic convertible securities
combine non-convertible bonds or preferred stock with warrants or stock call
options. The options that form a portion of the convertible security are listed
on a securities exchange or on the National Association of Securities Dealers
Automated Quotations Systems. The two components of a synthetic convertible
security generally are not offered as a unit but may be purchased and sold by a
Fund at different times. Synthetic convertible securities differ from
convertible securities in that each component of a synthetic convertible
security has a separate market value and responds differently from the other to
market fluctuations. Investing in synthetic convertible securities involves the
risks normally involved in holding the securities comprising the synthetic
convertible security.
DEBT SECURITIES. Debt securities held by a Fund may be subject to several types
of investment risk, including market or interest rate risk, which relates to
the change in market value caused by fluctuations in prevailing interest rates
and credit risk, which relates to the ability of the issuer to make timely
interest payments and to repay the principal upon maturity. Call or income risk
relates to corporate bonds during periods of falling interest rates, and
involves the possibility that
9
<PAGE> 79
securities with high interest rates will be prepaid or "called" by the issuer
prior to maturity. Investment-grade debt securities are generally regarded as
having adequate capacity to pay interest and repay principal, but have
speculative characteristics. Below-investment-grade debt securities (sometimes
referred to as "high-yield/high-risk" or "junk" bonds) have greater speculative
characteristics. Adverse business, financial, or economic conditions will
likely impair capacity or willingness to pay interest and repay principal.
The yield on debt instruments over a period of time should reflect prevailing
interest rates, which depend on a number of factors, including government
action in the capital markets, government fiscal and monetary policy, needs of
businesses for capital goods for expansion, and investor expectations as to
future inflation. The yield on a particular debt instrument is also affected by
the risk that the issuer will be unable to pay principal and interest.
Certain Funds may invest in corporate debt obligations that may be rated below
the three highest rating categories of a nationally recognized statistical
rating organization (AAA, AA, or A for S&P and Aaa, Aa, or A for Moody's (see
the Appendix for more information) or, if unrated, of comparable quality and
may have speculative characteristics or be speculative. Lower-rated or
comparable unrated bonds are commonly referred to as "junk bonds". There is no
minimum acceptable rating for a security to be purchased or held by certain
Funds, and a Fund may, from time to time, purchase or hold securities rated in
the lowest rating category and may include bonds in default. Credit ratings
evaluate the safety of the principal and interest payments but not the market
value of high yield bonds. Further, the value of such bonds is likely to
fluctuate over time.
Lower-rated bonds usually offer higher yields with greater risks than
higher-rated bonds. Lower-rated bonds have more risk associated with them that
the issuer of such bonds will default on principal and interest payments. This
is because of reduced creditworthiness and increased risk of default.
Lower-rated securities generally tend to reflect short-term corporate and
market developments to a greater extent than higher-rated securities that react
primarily to fluctuations in the general level of interest rates. Short-term
corporate and market developments affecting the price or liquidity of
lower-rated securities could include adverse news affecting major issuers,
underwriters, or dealers of lower-rated corporate debt 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 expected at the time such bonds were
purchased. In the event of a restructuring, a Fund may bear additional legal or
administrative expenses in order to maximize recovery from an issuer.
Additionally, an increase in interest rates may also adversely impact the value
of high yield bonds.
The secondary trading market for lower rated bonds is generally less liquid
than the secondary trading market for higher-rated bonds. Adverse publicity and
the perception of investors relating to issuers, underwriters, dealers or
underlying business conditions, whether or not warranted by fundamental
analysis, may affect the price or liquidity of lower-rated bonds. On occasion,
therefore, it may become difficult to price or dispose of a particular security
in the portfolio.
A Fund may 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
10
<PAGE> 80
declining interest rates. In these cases, if a Fund owns a bond that is called,
the Fund will receive its return of principal earlier than expected and would
likely be required to reinvest the proceeds at a lower interest rate, thus
reducing income to the Fund.
EVALUATING THE RISKS OF LOWER-RATED SECURITIES. A Fund's adviser or subadviser
will follow certain steps to evaluate the risks associated with investing in
lower-rated securities. These techniques include:
CREDIT RESEARCH. The adviser or subadviser performs its own
credit analysis in addition to using nationally recognized statistical
rating organizations and other sources, including discussions with the
issuer's management, the judgment of other investment analysts, and
its own informed judgment. The credit analysis will consider the
issuer's financial soundness, its responsiveness to changes in
interest rates and business conditions, and its anticipated cash flow,
interest or dividend coverage and earnings. In evaluating an issuer,
the adviser or subadviser places special emphasis on the estimated
current value of the issuer's assets rather than historical costs.
DIVERSIFICATION. A Fund generally invests in securities of
many different issuers, industries, and economic sectors to reduce
portfolio risk.
ECONOMIC ANALYSIS. The adviser or subadviser will also
analyze current developments and trends in the economy and in the
financial markets. When investing in lower-rated securities, timing
and selection are critical and analysis of the business cycle can be
important.
Achievement by a Fund investing in these bonds of its investment objective may
be more dependent on the credit analysis of a lower-rated bond than would be
the case if the Fund invested exclusively in higher-rated bonds.
EXCHANGE-TRADED FINANCIAL FUTURES. Certain Funds may use exchange-traded
financial futures contracts consisting of stock index futures contracts and
futures contracts on debt securities ("interest rate futures") as a hedge to
protect against changes in stock prices or interest rates. A stock index
futures contract is a contractual obligation to buy or sell a specified index
of stock at a future date for a fixed price.
A Fund will not purchase or sell futures contracts for which the aggregate
initial margin exceeds 5% of the fair market value of its assets, after taking
into account unrealized profits and losses on any such contracts which it has
entered into. When a futures ontract is purchased, the Portfolio will set aside
an amount of cash and cash equivalents equal to the total market value of the
futures contract, less the amount of the initial margin. At no time will the
Portfolio's investments in such futures be used for speculative purposes.
All financial futures contracts will be traded on exchanges that are licensed
and regulated by the Commodity Futures Trading Commission ("CFTC"). To ensure
that its futures transactions meet CFTC standards, the Portfolio will enter
into futures contracts for hedging purposes only (i.e., for the purposes or
with the intent specified in CFTC regulations and interpretations, subject to
the requirements of the Securities and Exchange Commission).
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
11
<PAGE> 81
for closing out transactions and guarantees that, as between the clearing
members of the exchange, the sale and purchase obligations will be performed
with regard to all positions that remain open at the termination of the
contract.
When futures contracts are entered into by a Fund, either as the purchaser or
the seller of such contracts, the Fund is required to deposit with its
custodian in a segregated account in the name of the futures commission
merchant ("FCM") an initial margin of cash or U.S. Treasury bills equaling as
much as 5% to 10% or more of the contract settlement price. The nature of
initial margin requirements in futures transactions differs from traditional
margin payments made in securities transactions in that initial margins for
futures contracts do not involve the borrowing of funds by the customer to
finance the transaction. Instead, a customer's initial margin on a futures
contract represents a good faith deposit securing the customer's contractual
obligations under the futures contract. The initial margin deposit is returned,
assuming these obligations have been met, when the futures contract is
terminated. In addition, subsequent payments to and from the FCM, called
"variation margin," are made on a daily basis as the price of the underlying
security or stock index fluctuates reflecting the change in value in the long
(purchase) or short (sale) positions in the financial futures contract, a
process known as "marking to market."
Futures contracts generally are not entered into to acquire the underlying
asset and generally are not held to maturity. Prior to the contract settlement
date, a Fund will normally close all futures positions by entering into an
offsetting transaction which operates to cancel the position held, and which
usually results in a profit or loss.
OPTIONS ON STOCK INDEX FUTURES CONTRACTS. Certain Funds also may purchase call
and put options and write covered call and put options on stock index futures
contracts of the type into which the particular Fund is authorized to enter.
Covered put and call options on futures contracts will be covered in the same
manner as covered options on securities and securities indices. The Funds may
invest in such options for the purpose of closing out a futures position that
has become illiquid.
Options on futures contracts are traded on exchanges that are licensed and
regulated by the CFTC. A call option on a futures contract gives the purchaser
the right in return for the premium paid, to purchase a futures contract
(assume a "long" position) at a specified exercise price at any time before the
option expires. A put option gives the purchaser the right, in return for the
premium paid, to sell a futures contract (assume a "short" position), for a
specified exercise price, at any time before the option expires.
Unlike entering into a futures contract itself, purchasing options on futures
contracts allows a buyer to decline to exercise the option, thereby avoiding
any loss beyond forgoing the purchase price (or "premium") paid for the
options. Whether, in order to achieve a particular objective, the Fund enters
into a stock index futures contract, on the one hand, or an option contract on
a stock index futures contract, on the other, will depend on all the
circumstances, including the relative costs, liquidity, availability and
capital requirements of such futures and options contracts. Each Fund will
consider the relative risks involved, which may be quite different. These
factors, among others, will be considered in light of market conditions and the
particular objective to be achieved.
CERTAIN ADDITIONAL RISKS OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS.
In addition to the risks described in the Prospectus, the use of stock index
futures contracts and options on such futures contracts may entail the
following risks. First, although such instruments when used by a Fund are
intended to correlate with the Fund's portfolio securities, in many cases the
futures contracts or options on futures contracts used may be based on stock
indices the components of which are not identical to the portfolio securities
owned or intended to be acquired by the Fund. Second, due to supply and demand
imbalances and other market factors, the price movements of stock index futures
contracts and options thereon may not necessarily correspond exactly to the
price movements of the stock indices on which such instruments are based.
Accordingly, there is a risk that a Fund's transactions in those instruments
will not in fact offset the impact on the Fund of adverse market developments
in the manner or to the extent contemplated or that such transactions will
result in losses to the Fund which are not offset by gains with respect to
corresponding portfolio securities owned or to be purchased by that Fund.
To some extent, careful management of these strategies can minimize these
risks. For example, where price movements in a futures contract are expected to
be less volatile than price movements in the related portfolio securities owned
or intended to be acquired by a Fund, it may, in order to compensate for this
difference, use an amount of futures contracts which is greater than the amount
of such portfolio securities. Similarly, where the price movement of a futures
contract is
12
<PAGE> 82
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.
BUYING PUT AND CALL OPTIONS. Certain Funds may purchase put options on
securities held, or on futures contracts whose price volatility is expected to
closely match that of securities held, as a defensive measure to preserve
shareholders' capital when market conditions warrant. A Fund may purchase call
options on specific securities, or on futures contracts whose price volatility
is expected to closely match that of securities eligible for purchase by the
Fund, in anticipation of or as a substitute for the purchase of the securities
themselves. These options may be listed on a national exchange or executed in
the "over-the-counter" market with a broker-dealer as the counterparty. While
the investment adviser anticipates that the majority of option purchases and
sales will be executed on a national exchange, put or call options on specific
securities or for non-standard terms are likely to be executed directly with a
broker-dealer when it is advantageous to do so. Option contracts will be
short-term in nature, generally less than nine months in duration.
A Fund pays a premium in exchange for the right to purchase (call) or sell
(put) a specific number of shares of an equity security or futures contract at
a specified price (the strike price) on or before the expiration date of the
option contract. In either case, the Fund's risk is limited to the amount of
the option premium paid.
A Fund may sell put and call options prior to their expiration and, thereby,
realize a gain or loss. A call option expires worthless if the price of the
related security is below the contract strike price at the time of expiration;
a put option expires worthless if the price of the related security is above
the contract strike price at the time of expiration.
A Fund uses put and call options for hedging purposes only. The adviser or
subadviser identifies liquid securities sufficient to fulfill the call option
delivery obligation, and these securities are segregated in an account.
Similarly, the adviser or subadviser identifies deliverable securities
sufficient to fulfill the put option obligation, which also are segregated. In
the
13
<PAGE> 83
case of put options on futures contracts, the adviser or subadviser identifies
portfolio securities whose price volatility is expected to match that of the
underlying futures contract, and these securities are segregated.
WRITING COVERED CALL OPTIONS. Certain Funds may write or sell covered call
options. Certain Funds may also purchase index or individual equity call
options as an alternative to holding stocks or stock index futures or as a
defensive measure. By writing a call option, a Fund becomes obligated during
the term of the option to deliver the securities underlying the option upon
payment of the exercise price.
The Funds may only write "covered" options. This means that as long as a Fund
is obligated as the writer of a call option, it will own the underlying
securities subject to the option, or, in the case of call options on U.S.
Treasury bills, the Fund might own substantially similar U.S. Treasury bills.
Writing call options permits a Fund to obtain, through a receipt of premiums, a
greater current return than would be realized on the underlying securities
alone. The Fund receives a premium from writing a call option that it retains
whether or not the option is exercised. By writing a call option, a Fund might
lose the potential for gain on the underlying security while the option is
open.
Options on some securities are relatively new, and it is impossible to predict
the amount of trading interest that will exist in such options. There can be no
assurance that viable markets will develop or continue. The failure of such
markets to develop or continue could impair a Fund's ability to use such
options to achieve its investment objectives.
SWAPS. Swaps are over-the-counter (OTC) agreements that typically require
counterparties to make periodic payments to each other for a specified period.
The calculation of these payments is based on an agreed-upon amount, called the
notional amount, that generally is exchanged only in currency swaps. The
periodic payments may be a fixed or floating (variable) amount. Floating
payments may change with fluctuations in interest or currency rates or equity
or commodity prices, depending on the contract terms. Swaps are used to hedge a
risk or obtain more desirable financing terms, and they can be used to profit
from correctly anticipating rate and price movements.
FOREIGN AND EMERGING MARKETS SECURITIES. Certain Funds may invest in foreign
and/or emerging markets securities. These securities may include U.S.
dollar-denominated securities and debt securities of foreign governments
(including provinces and municipalities) or their agencies or
instrumentalities, securities issued or guaranteed by international
organizations designated or supported by multiple governments or entities to
promote economic reconstruction or development, and securities of foreign
corporations and financial institutions.
Certain Funds may invest in American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs") and European Depositary Receipts ("EDRs"), and
similar instruments providing for indirect investment in securities of foreign
issuers. Due to the absence of established securities markets in certain
foreign countries and restrictions in certain countries on direct investment by
foreign countries and restrictions in certain countries on direct investment by
foreign entities, a Fund may invest in certain issuers through the purchase of
sponsored and unsponsored ADRs or other similar securities, such as American
Depositary Shares, Global Depositary Shares of International Depositary
Receipts. ADRs are receipts typically issued by U.S. banks evidencing ownership
of the underlying securities into which they are convertible. These securities
may or may not be denominated in the same currency as the underlying
securities. Unsponsored ADRs may be created without the participation of the
foreign issuer. Holders of unsponsored ADRs generally bear all the costs of the
ADR facility, whereas foreign issuers typically bear certain costs in a
sponsored ADR. The bank or trust company depository of an unsponsored ADR may
be under no obligation to distribute shareholder communications received from
the foreign issuer or to pass through voting rights.
Subject to any limit on a Fund's investments in foreign securities, there may
be no limit on the amount of assets that may be invested in securities of
issuers domiciled in a single country or market. To the extent that a Fund's
assets are invested substantially in a single country or market, the Fund is
more susceptible to the risks of investing in that country or market than it
would be if its assets were geographically more diversified.
Investments in foreign securities may offer a Fund an opportunity to pursue the
performance potential of an overseas market. Such securities, however, also
entail risks in addition to the risks of U.S. securities. Foreign governments
may nationalize or expropriate assets or impose confiscatory taxes on an
investment. Civil wars or other political or financial
14
<PAGE> 84
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 encountered difficulties in
servicing their external debt obligations, which led to defaults on certain
obligations and the restructuring of certain indebtedness.
Foreign securities transactions also include generally higher commission rates
and the risks of adverse changes in investment or exchange control regulations,
political instability that could affect U.S. investments in foreign countries,
and potential restrictions on the flow of international capital.
Additionally, dividends payable on foreign securities may be subject to foreign
taxes withheld prior to distribution. Moreover, individual foreign economies
may differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payment positions.
ILLIQUID SECURITIES. Each Fund may make investments in illiquid securities in
an amount not exceeding 15% of the Fund's total assets. Illiquid securities are
those that are not readily marketable within seven days in the ordinary course
of business and include restricted securities that may not be publicly sold
without registration under the Securities Act of 1933 (the "1933 Act") and Rule
144A securities. In most instances such securities are traded at a discount
from the market value of unrestricted securities of the same issuer until the
restriction is eliminated. If a Fund sells such portfolio securities, it may be
deemed an underwriter, as such term is defined in the 1933 Act, with respect to
those sales, and registration of such securities under the 1933 Act may be
required. The Funds will not bear the expense of such registration. In
determining securities subject to the percentage limitation, a Fund will
include, in addition to restricted securities, repurchase agreements maturing
in more than seven days and other securities not having readily available
market quotations, including options traded over-the-counter, certain mortgage
related securities and other securities subject to restrictions on resale.
RULE 144A SECURITIES. Certain Rule 144A securities may be considered illiquid
and, therefore, their purchase is subject to a Fund's limitation on the
purchase of illiquid securities, unless the adviser under guidelines approved
by the Board determines on an ongoing basis that an adequate trading market
exists for the securities. If qualified institutional buyers become
uninterested for a time in purchasing Rule 144A securities held by a Fund, the
Fund's level of illiquidity could increase. The Board has established standards
and procedures for determining the liquidity of Rule 144A securities and
periodically monitors the adviser's implementation of the standards and
procedures. The ability to sell to qualified institutional buyers under Rule
144A has developed in recent years, and the adviser cannot predict how this
market will develop.
15
<PAGE> 85
LOANS OF SECURITIES TO BROKER DEALERS. The Fund may lend securities to brokers
and dealers pursuant to agreements requiring that the loans be continuously
secured by cash, liquid securities, or any combination of cash and liquid
securities, as collateral equal at all times in value to at least 102% of the
market value of the securities loaned. The Fund will not loan securities if,
after a loan, the aggregate of all outstanding securities loans exceeds one
third of the value of the Fund's total assets taken at their current market
value. The Fund continues to receive interest or dividends on the securities
loaned and simultaneously earns interest on the investment of any cash loan
collateral in U.S. Treasury notes, certificates of deposit, other high grade,
short-term obligations or interest-bearing cash equivalents. Although voting
rights attendant to securities loaned pass to the borrower, such loans may be
called at any time and will be called so that the Fund may vote the securities
if, in the opinion of the investment adviser, a material event affecting the
investment would occur. There may be risks of delay in receiving additional
collateral, in recovering the securities loaned, or even loss of rights in the
collateral should the borrower of the securities fail financially. However,
loans may be made only to borrowers deemed to be of good standing, under
standards approved by the Board of Trustees ("Board"), when the income to be
earned from the loan justifies the risks.
REPURCHASE AGREEMENTS. Each Fund may invest from time to time in repurchase
agreements with approved counterparties. Approved counterparties are limited to
national banks or broker-dealers on the Federal Reserve Bank of New York's list
of primary reporting dealers, in each case meeting the investment adviser's
credit quality standards as presenting minimal risk of default. All repurchase
transactions must be collateralized by U.S. government securities with market
value no less than 102% of the amount of the transaction, including accrued
interest. Repurchase transactions generally mature the next business day but,
in the event of a transaction of longer maturity, collateral will be
marked-to-market daily and, when required, the counterparty will provide
additional cash or qualifying collateral.
In executing a repurchase agreement, the Fund purchases eligible securities
subject to the counterparty's agreement to repurchase them on a mutually agreed
upon date and at a mutually agreed upon price. The purchase and resale prices
are negotiated with the counterparty on the basis of current short-term
interest rates, which may be more or less than the rate on the securities
collateralizing the transaction. The Fund will engage in repurchase agreements
only where it takes physical delivery or, in the case of "book-entry"
securities, the security is segregated in the counterparty's account at the
Federal Reserve for the benefit of the Fund, to perfect the Fund's claim to the
collateral for the term of the repurchase agreement in the event the
counterparty fails to fulfill its obligation.
As the securities collateralizing a repurchase transaction are generally of
longer maturity than the term of the transaction, in the event of default by
the counterparty on its obligation, the Fund would bear the risks of delay,
adverse market fluctuation and any transaction costs in disposing of the
collateral.
REVERSE REPURCHASE AGREEMENTS: A reverse repurchase agreement transaction is
similar to borrowing cash. In a reverse repurchase agreement, a Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash and agrees on a stipulated date in the future to
repurchase the portfolio instrument by remitting the original consideration
plus interest at an agreed upon rate. The use of reverse repurchase agreements
may enable a Fund to avoid selling portfolio instruments at a time when a sale
may be deemed to be disadvantageous, but the ability to enter into reverse
repurchase agreements does not ensure that the Fund will be able to avoid
selling portfolio instruments at a disadvantageous time.
The Funds will enter into reverse repurchase agreements only with parties whose
creditworthiness has been found satisfactory to the adviser or subadviser. Such
transactions may increase fluctuations in a Fund's yield or in the market value
of its assets.
When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled. During the period any
reverse repurchase agreements are outstanding, but only to the extent necessary
to assure completion of the reverse repurchase agreements, a Fund may restrict
the purchase of portfolio instruments to money market instruments maturing on
or before the expiration date of the reverse repurchase agreements.
TEMPORARY INVESTMENTS. Permissible temporary investments for defensive or cash
management purposes may include U.S. government securities and money market
instruments, including instruments of banks that are members of the Federal
16
<PAGE> 86
Deposit Insurance Corporation with assets of at least $1 billion, such as
certificates of deposit, demand and time deposits, and bankers' acceptances;
prime commercial paper, including master demand notes; and repurchase
agreements secured by U.S. government securities.
Certain Funds may invest in debt obligations which involve equity features such
as conversion or exchange rights, warrants for the acquisition of common stock
of the same or a different issuer, participations based on revenues, sales or
profits, or the purchase of common stock in a unit transaction (where corporate
debt securities and common stock are offered as a unit).
TEMPORARY BANK BORROWING: Certain Funds may borrow from banks for temporary
purposes, including the meeting of redemption requests which might require the
untimely disposition of securities.
LETTERS OF CREDIT: Certain Funds may also engage in trades of municipal
obligations, certificates of participation therein, commercial paper and other
short-term obligations that are backed by irrevocable letters of credit issued
by banks which assume the obligation for payment of principal and interest in
the event of default by an issuer. Only banks the securities of which, in the
opinion of the Investment Subasviser, are of investment quality comparable to
other permitted investments of the Funds may be used for letter of
credit-backed investment.
INVESTMENT IN UNSEASONED COMPANIES: Certain Funds may also invest Fund assets
in securities of companies that have operated for less than three years,
including the operations of predecessors. The Funds have undertaken that they
will not make investments that will result in more than 5% of total assets
being invested in the securities of newly formed companies and equity
securities that are not readily marketable. Investing in securities of
unseasoned companies may, under certain circumstances, involve greater risk
than is customarily associated with investment in more established companies.
REAL ESTATE-RELATED INSTRUMENTS: Some Funds may engage in the purchase and sale
of real estate related instruments including real estate investment trusts,
commercial and residential mortgage-backed securities, and real estate
financings. Real estate-related instruments are sensitive to factors such as
real estate values and property taxes, interest rates, cash flow of underlying
real estate assets, over building and the management skill and creditworthiness
of the issuer. Real estate-related instruments may also be affected by tax and
regulatory requirements, such as those relating to the environment.
CORPORATE ASSET-BACKED SECURITIES: Corporate asset-backed securities, issued by
trusts and special purpose corporations, are backed by a pool of assets, such
as credit card or automobile loan receivables, representing the obligations of
a number of different parties. Corporate asset-backed securities present
certain risks. For instance, in the case of credit care receivables, these
securities may not have the benefit of any security interest in the related
collateral.
ASSET-BACKED MORTGAGE SECURITIES: Securities of this type include interests in
pools of lower-rated debt securities, or consumer loans or mortgages, or
complex instruments such as collateralized mortgage obligations and stripped
mortgage-backed securities. The value of these securities may be significantly
affected by changes in interest rates, the market's perception of the issuers,
and the creditworthiness of the parties involved. Some securities may have a
structure that makes their reaction to interest rates and other factors
difficult to predict, making their value highly volatile. These securities may
also be subject to prepayment risk.
LOAN PARTICIPATIONS AND OTHER DIRECT INDEBTEDNESS: By purchasing a loan
participation, a Fund acquires some or all of the interest of a bank or other
lending institution in a loan to a corporate borrower. Many such loans are
secured, and most impose restrictive covenants which must be met by the
borrower. These loans are made generally to finance internal growth, mergers,
acquisitions, stock repurchases, leveraged buy-outs and other corporate
activities. Such loans may be in default at the time of purchase.
Some Funds may also purchase other direct indebtedness such as trade or other
claims against companies, which generally represent money owed by the company
to a supplier of goods and services. These claims may also be purchased at a
time when the company is in default. Certain of the loan participations and
other direct indebtedness acquired by these Funds may involve revolving credit
facilities or other standby financing commitments which obligate the Funds to
pay additional cash on a certain date or on demand.
17
<PAGE> 87
The highly leveraged nature of many such loans and other direct indebtedness
may make such loans especially vulnerable to adverse changes in economic or
market conditions. Loan participations and other direct indebtedness may not be
in the form of securities or may be subject to restrictions on transfer, and
only limited opportunities may exist to resell such instruments. As a result,
the Funds may be unable to sell such investments at an opportune time or may
have to resell them at less than fair market value.
INVESTMENT COMPANY SECURITIES: Generally, the Funds may purchase and sell
securities of open and closed-end investment companies subject to the limits
prescribed under the 1940 Act.
AFFILIATED BANK TRANSACTIONS: Certain Funds may engage in transactions with
financial institutions that are, or may be considered to be "affiliated
persons" of the Fund under the Investment Company Act of 1940. These
transactions may include repurchase agreements with custodian banks; short-term
obligations of, and repurchase agreements with, the 50 largest U.S. banks
(measured by deposits); municipal securities, U.S. government securities with
affiliated financial institutions that are primary dealers in these securities;
short-term currency transactions; and short-term borrowings. The Board of
Trustees and the subadvisers of Funds engaged in affiliated bank transactions
have established and will periodically review procedures applicable to
transactions involving affiliated financial institutions.
INDEXED SECURITIES: Certain Funds may purchase securities whose prices are
indexed to the prices of other securities, securities indices, currencies,
precious metals or other commodities, or other financial indicators. Indexed
securities typically, but not always, are debt securities or deposits whose
value at maturity or coupon rate is determined by reference to a specific
instrument or statistic. Gold-indexed securities, for example, typically
provide for a maturity value that depends on the price of gold, resulting, in a
security whose price tends to rise and fall together with gold prices.
Currency-indexed securities typically are short-term to intermediate-term debt
securities whose maturity values or interest rates are determined by reference
to the values of one or more specified foreign currencies, and may offer higher
yields than U.S. dollar-denominated securities of equivalent issuers.
Currency-indexed securities may be positively or negatively indexed; that is,
their maturity value may increase when the specified currency value increases,
resulting in a security that performs similarly to a foreign-denominated
instrument, or their maturity value may decline when foreign currencies
increase, resulting in a security whose price characteristics are similar to a
put on the underlying currency. Currency-indexed securities may also have
prices that depend on the values of a number of different foreign currencies
relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the Unites
States and abroad. At the same time, indexed securities are subject to the
credit risks associated with the issuer of the security, and their values may
decline substantially if the issuer's creditworthiness deteriorates. Recent
issuers of indexed securities have included banks, corporations, and certain
U.S. government agencies. Indexed securities may be more volatile than the
underlying instruments.
SHORT SALES "AGAINST THE BOX": Some Funds may enter into a short sale against
the box. If a Fund decides to enter into such transitions, it will be required
to set aside securities equivalent in kind and amount to the securities sold
short (or securities convertible or exchangeable into such securities) and will
be required to hold such securities while the short sale is outstanding.
CONVERTIBLE BOND PORTFOLIO
Convertible Bond Portfolio's investment objective is to seek current income and
capital appreciation by investing in convertible securities and in combinations
of nonconvertible fixed-income securities and warrants or call options that
together resemble convertible securities ("synthetic convertible securities").
Under normal circumstances, the Fund invests at least 65% of its assets in
convertible securities. It may invest up to 35% of its assets in synthetic
convertible securities and in equity and debt securities that are not
convertible into common stock.
The Fund is not required to sell securities to conform to this 65% limitation
and may retain, on a temporary basis, securities received upon conversion of
convertible securities or upon exercise of warrants or call options that are
components of
18
<PAGE> 88
synthetic convertible securities pending an orderly disposition, to establish
long-term holding periods for tax purposes, or for other reasons.
Other investments are allowed, including, but not limited to, unlimited
investments in synthetic convertible securities and in equity and debt
securities that are not convertible into common stock, when deemed appropriate
by the adviser for temporary defensive purposes and up to 10% of its assets to
purchase put options on securities for hedging purposes.
The Fund will not invest in fixed-income securities that are rated lower than B
by Moody's or S&P or comparable unrated securities.
In pursuing its objective, Convertible Bond Portfolio currently is subject to
fundamental investment policies and operating (non-fundamental) investment
policies described below under "Investment Restrictions".
DISCIPLINED MID CAP STOCK PORTFOLIO
Disciplined Mid Cap Stock Portfolio's investment objective is to seek growth of
capital by investing primarily in a broadly diversified portfolio of U.S.
common stocks. 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.
In pursuing its objective, Disciplined Mid Cap Portfolio currently is subject
to fundamental investment policies and operating (non-fundamental) investment
policies described below under "Investment Restrictions".
DISCIPLINED SMALL CAP STOCK PORTFOLIO
Disciplined Small Cap Stock Portfolio's investment objective is to seek
long-term capital appreciation by investing primarily (at least 65% of its
total assets) in the common stocks of U.S. companies with relatively small
market capitalizations at the time of investment. 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
19
<PAGE> 89
capitalization of publicly traded companies in the U.S. with capitalizations of
less than $1.5 billion. However, the Fund is not an index fund and is not
limited to investing in the stocks that comprise the Russell 2000 Stock Index.
Over time, the Fund is expected to exhibit performance volatility that is
similar to that of the Russell 2000 Stock Index. Of course, there can be no
assurance the Fund's total return, before or after expenses, will match or
exceed that of the Russell 2000 Stock Index.
The Fund's active investment strategy focuses primarily on individual stock
selection. In selecting the Fund's holdings, the subadviser applies a number of
computerized investment models to identify stocks that have a high probability
of outperforming their respective industry/sector peer groups within the
Russell 2000. These investment models incorporate a diverse set of valuation,
earnings and relative price variables to produce a comprehensive appraisal
profile on every stock in the universe of securities described above. Stocks
that are determined to be attractive based on a combination of quantitative and
fundamental criteria overweighted relative to the benchmark index. In general,
the discipline favors stocks that demonstrate an improving trend of earnings
and also appear attractive based on measures of fundamental value. While these
securities have the potential to outperform the securities represented in the
Russell 2000, they may in fact be more volatile or have a lower return than the
benchmark index. Equity securities have historically demonstrated long-term
growth in value, but their prices fluctuate based on changes in a company's
financial condition and general economic conditions. This is especially true in
the case of smaller companies.
Under normal circumstances, the Fund seeks to maintain full exposure to its
stock universe. The Fund's investments in exchange-traded stock index futures
contracts, to provide equity exposure to the Fund's cash position, are not
generally expected to impact more than 20% of the Fund's assets any one time.
In pursuing its objective, Disciplined Small Cap Portfolio currently is subject
to fundamental investment policies and operating (non-fundamental) investment
policies described below under "Investment Restrictions".
EQUITY INCOME PORTFOLIO
Equity Income Portfolio's investment objective is to seek reasonable income by
investing primarily in income-producing equity securities. Normally, at least
65% of the Fund's total assets are invested in these securities. The Fund has
the flexibility, however, to invest 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 Index. When choosing the Fund's investments, the
subadviser also considers the potential for capital appreciation.
The value of the Fund's domestic and foreign investments varies in response to
many factors. Stock values fluctuate in response to the activities of
individual companies and general market and economic conditions. The value of
bonds fluctuates based on changes in interest rates and in the credit quality
of the issuer. The Fund seeks to spread investment risk by diversifying its
holdings among many companies and industries.
The subadviser normally invests the Fund's assets according to its investment
strategy. The Fund also reserves the right to invest without limitation in
preferred stocks and investment-grade debt instruments for temporary, defensive
purposes.
The Fund may invest in money market securities, in a pooled account of
repurchase agreements, and in a money market fund available only to funds and
accounts managed by the subadviser or its affiliates, whose goal is to seek a
high level of current income while maintaining a stable $1.00 share price. A
major change in interest rates or a default in the money market fund's
investments could cause its share price to change.
ADJUSTING INVESTMENT EXPOSURE. The subadviser may use various investment
techniques to hedge the Fund's risks or to increase or decrease its exposure to
changing security prices, interest rates, currency exchange rates, commodity
prices, or other factors that affect security values, but there is no guarantee
that these strategies will work as intended.
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
20
<PAGE> 90
agencies or instrumentalities) if, as a result; more than 5%
of the Fund's total assets would be invested in the
securities of that issuer or the Fund would hold more than
10% of the outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the 1940
Act;
(3) borrow money, except that the Fund may borrow money for
temporary or emergency purposes (not for leveraging or
investment) in an amount not exceeding 33-1/3% of its total
assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including
Sundays and holidays) to the extent necessary to comply with
the 33 1/3% limitation.
(4) underwrite securities issued by others, except to the extent
that the Fund may be considered to be an underwriter within
the meaning of the 1933 Act in the disposition of restricted
securities;
(5) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its
agencies or instrumentalities) if, as a result, more than 25%
of the Fund's total assets would be invested in the
securities of companies whose principal business activities
are in the same industry;
(6) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall
not prevent the Fund from investing in securities or other
instruments backed by real estate or securities or companies
engaged in the real estate business);
(7) purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but
this shall not prevent the Fund from purchasing or selling
options and futures contracts or from investing in securities
or other instruments backed by physical commodities);
(8) lend any security or make any other loan if, as a result,
more than 33-1/3% of its total assets would be lent to other
parties, but this limitation does not apply to purchases of
debt securities or to repurchase agreements;
(9) the Fund may, notwithstanding any other fundamental
investment policy or limitation, invest all the assets in the
securities of a single open-end management investment company
managed by the subadviser or any affiliate or successor with
substantially the same investment objective, policies, and
limitations as the Fund.
The Fund also complies with the following non-fundamental investment policies.
- - The Fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount
to the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
- - The Fund does not currently intend to purchase securities on margin,
except that it may obtain such short-term credits as are necessary for the
clearance of transactions, and provided that margin payments in connection
with futures contracts and options on futures shall not constitute
purchasing securities on margin.
- - The Fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which the Subadviser or an affiliate
serves as investment adviser or (b) by engaging in reverse repurchase
agreements with any party (reverse repurchase agreements are treated as
borrowings for purposes of fundamental investment limitation definitions).
- - The Fund 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.
21
<PAGE> 91
- - The Fund does not currently intend to lend assets other than securities to
other parties, except by: (a) lending money (up to 15% of the Fund's net
assets) to a registered investment company or portfolio for which the
subadviser or an affiliate serves as investment adviser, or (b) acquiring
loans, loan participations (where such participations have not been
securitized), or other forms of direct debt instruments and, in connection
therewith, assuming any associated unfunded commitments of the sellers.
(This limitation does not apply to purchases of debt securities or to
repurchase agreements.)
- - The Fund does not currently intend to invest all of its assets in the
securities of a single open-end management investment company sub-advised
by the subadviser or an affiliate or successor with substantially the same
fundamental investment objective, policies, and limitations as the Fund.
FEDERATED HIGH YIELD PORTFOLIO
Federated High Yield Portfolio's investment objective is to seek high current
income by investing primarily in a professionally managed, diversified
portfolio of fixed income securities. The Fund generally invests in lower-rated
corporate debt obligations. The Fund's investment objective is fundamental.
The Fund invests primarily in fixed-rate corporate debt obligations. The
fixed-rate corporate debt obligations in which the Fund may invest are expected
to be lower-rated. Permitted investments currently include, but are not limited
to, those listed on the chart on Investment Techniques above and the following:
- corporate debt obligations having fixed or floating rates of
interest and that are rated BBB or lower by nationally recognized
statistical rating organizations or comparable unrated securities;
- preferred stocks;
- equipment trust and lease certificates;
- zero coupon bonds;
- pay-in-kind securities;
- general obligations of any state, territory, or possession of the
United States, or their political subdivisions; and
- equity securities, including synthetic convertible securities and
warrants, rights and options.
Under adverse market conditions or to minimize potential losses, the subadviser
may assume a temporary defensive position and invest the Fund's assets in cash,
cash items, and shorter-term, higher-quality debt securities.
The Fund is aggressively managed, and, therefore, the value of its shares is
subject to greater fluctuation and investments in its shares involve the
assumption of a higher degree of risk than would be the case with an investment
in a conservative equity fund or a growth fund investing entirely in proven
growth equities.
In pursuing its objective, Federated High Yield Portfolio currently is subject
to fundamental investment policies and operating (non-fundamental) investment
policies described below under "Investment Restrictions".
FEDERATED STOCK PORTFOLIO
Federated Stock Portfolio's investment objective is to provide growth of income
and capital by investing principally in a professionally managed and
diversified portfolio of common stock of high-quality companies. These
companies generally are leaders in their industries and are characterized by
sound management and the ability to finance expected growth. This investment
objective cannot be changed without the approval of shareholders.
The Fund's investment approach is based on the conviction that, over the long
term, the economy will continue to expand and develop and that this economic
growth will be reflected in the growth of the revenues and earnings of major
corporations. The Fund invests primarily in common stocks of companies selected
by the subadviser on the basis of traditional research techniques, including
assessment of earnings and dividend growth prospects and of the risk and
volatility of the company's industry. Ordinarily, these companies are in the
top 25% of their industries with regard to revenues. Other factors, such as
product position or market share, which the subadviser may consider, may
outweigh
22
<PAGE> 92
revenues. Other permitted investments include,but are not limited to: preferred
stocks, corporate bonds, notes, and warrants of these companies; and ADRs (in
an amount of not more than 10% of its assets).
In pursuing its objective, Federated Stock Portfolio currently is subject to
fundamental investment policies and operating (non-fundamental) investment
policies described below under "Investment Restrictions".
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 with market capitalizations of $500 million and over that
offer current value and significant future growth potential.
The Fund invests at least 65% of its total assets in the common stock of
companies having market capitalizations at the time of purchase of $500 million
and over. The subadviser expects generally that at least 80% of the Fund's
equity holdings will fall within this capitalization range. The average and
median market capitalizations of securities held by the Fund will fluctuate
over time as a result of market valuation levels and the availability of
specific investment opportunities.
The Fund seeks value in quality companies normally offering lower
price-to-earnings multiples and higher earnings growth rates than the S&P 500
or other relevant benchmark. Quality companies generally show significant
potential for future growth in earnings, a strong competitive advantage, a
clearly defined business focus, strong financial health, and/or management
ownership.
The subadviser emphasizes in-house research, which includes personal contacts,
site visits and meetings with company management. In unusual circumstances,
economic, monetary and other factors, the Fund may assume a temporary,
defensive position during which all or a substantial portion of the Fund's
assets may be invested in cash and short-term instruments.
Although the Fund may not participate with other Funds on a joint basis in any
trading account in securities, the subadviser may aggregate orders and average
prices for the sale or purchase of securities with other accounts it manages to
reduce brokerage costs.
The Fund may invest up to 35% of its total assets in investment-grade debt
securities. The Fund may invest up to 5% net assets in securities denominated
in foreign currencies and up to 25% of its total assets in ADRs, but it will
limit its investments in any one foreign country to 5% of its total assets.
Other investments are allowed, including those described in the prospectus and
this SAI. Subject to the investment restrictions set forth below, the Fund may
invest in indexed securities (up to 5% of its total assets) and warrants.
Mortgage-backed and asset-backed securities in which the Fund may invest may
include CMOs and REMICs.
In pursuing its objective, Jurika & Voyles Core Equity Portfolio currently is
subject to fundamental investment policies and operating (non-fundamental)
investment policies described below under "Investment Restrictions".
LARGE CAP PORTFOLIO
Large Cap Portfolio's investment objective is to seek long-term growth of
capital by investing primarily in equity securities of companies with large
market capitalizations. The subadviser normally invests at least 65% of the
Fund's total assets in equity securities of companies with large market
capitalizations. For purposes of the Fund's investment policies, large market
capitalization companies are defined as those companies with market
capitalizations of $1 billion or more at the time of the Fund's investment.
Companies whose market capitalization falls below this level after purchase
continue to be considered large-capitalized for purposes of the 65% policy. The
Fund invests primarily in common stocks. Other investments are allowed,
including those described in the prospectus and this SAI. The subadviser, on
behalf of the Fund, may invest in, or write (as applicable), various futures
and option-related techniques and instruments and swap agreements.
23
<PAGE> 93
The Fund also reserves the right to invest without limitation in preferred
stocks and investment-grade debt instruments for temporary, defensive purposes.
Current holdings and recent investment strategies are described in the Fund's
financial reports, which are sent to shareholders twice a year.
The Fund may invest in money market securities, in a pooled account of
repurchase agreements, and in a money market fund available only to funds and
accounts managed by the subadviser or its affiliates, whose goal is to seek a
high level of current income while maintaining a stable $1.00 share price. A
major change in interest rates or a default on the money market fund's
investments could cause its share price to change.
ADJUSTING INVESTMENT EXPOSURE. The Fund may use various investment techniques
to hedge a portion of its risks, but there can be no guarantee that these
strategies will work as intended. These techniques include transactions in
options (listed on a national exchange) and futures and forward contracts on a
variety of instruments and indices. The Fund seeks to spread investment risk by
diversifying its holdings among companies and industries. The Fund may not buy
all of these instruments or use all of these techniques, and those described in
the prospectus, to the full extent permitted unless the subadviser believes
that doing so will help achieve the Fund's goals.
In pursuing its objective, Large Cap Portfolio currently is subject to the
following fundamental investment policies. The Fund will not:
(1) with respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities of other
investment companies or securities issued or guaranteed by
the U.S. Government or any of its agencies or
instrumentalities) if, as a result, more than 5% of the
Fund's total assets would be invested in the securities of
that issuer, or the Fund would hold more than 10% of the
outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the 1940
Act;
(3) borrow money, except that the Fund may borrow money for
temporary or emergency purposes (not for leveraging or
investment) in an amount not exceeding 33-1/3% of its total
assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including
Sundays and holidays) to the extent necessary to comply with
the 33 1/3% limitation;
(4) underwrite securities issued by others, except to the extent
that the Fund may be considered to be an underwriter within
the meaning of the 1933 Act in the disposition of restricted
securities;
(5) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its
agencies or instrumentalities) if, as a result, more than 25%
of the Fund's total assets would be invested in the
securities of companies whose principal business activities
are in the same industry;
(6) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall
not prevent the Fund from investing in securities or other
instruments backed by real estate or securities or companies
engaged in the real estate business);
(7) purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but
this shall not prevent the Fund from purchasing or selling
options and futures contracts or from investing in securities
or other instruments backed by physical commodities);
(8) lend any security or make any other loan if, as a result,
more than 33-1/3% of its total assets would be lent to other
parties, but this limitation does not apply to purchases of
debt securities or to repurchase agreements;
24
<PAGE> 94
(9) the Fund may, notwithstanding any other fundamental
investment policy or limitation, invest all the assets in the
securities of a single open-end management investment company
managed by the subadviser or any affiliate or successor with
substantially the same investment objective, policies, and
limitations as the Fund.
The Fund also complies with the following non-fundamental investment policies:
- The Fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short, and provided that
transactions in future contracts and options are not deemed to
constitute selling securities short.
- The Fund does not currently intend to purchase securities on
margin, except that it may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that
margin payments in connection with futures contracts and options
on futures shall not constitute purchasing securities on margin.
- The Fund may borrow money only (a) from a bank or from a
registered investment company or portfolio for which the
Subadviser or an affiliate serves as investment adviser
or (b) by engaging in reverse repurchase agreements with any party
(reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation definitions).
- The Fund does not currently intend to purchase any security if, as
a result, more than 15% of its net assets would be invested in
securities that are deemed to be illiquid because they are subject
to legal or contractual restrictions on resale or because they
cannot be sold or disposed of in the ordinary course of business
at approximately the prices at which they are valued.
- The Fund does not currently intend to lend assets other than
securities to other parties, except by: (a) lending money (up to
15% 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 r epurchase agreements.)
- The Fund does not currently intend to invest all of its assets in
the securities of a single open-end management investment company
sub-advised by Fidelity Management & Research Company or an
affiliate or successor with substantially the same fundamental
investment objective, policies, and limitations as the Portfolio.
LAZARD INTERNATIONAL STOCK PORTFOLIO
Lazard International Stock Portfolio's investment objective is to seek
long-term capital appreciation through investing primarily in the equity
securities of relatively large non-U.S. companies. The Fund invests principally
in the common stocks of non-U.S. companies (although the Fund may have
substantial investments in American Depositary Receipts ("ADRs") and Global
Depositary Receipts ("GDRs"), convertible bonds, and other convertible
securities.
There is no requirement, however, that the Fund invest exclusively in equity
securities, and, if the subadviser deems it to be advisable, the Fund may
invest up to 20% of its total asset value in fixed-income securities and
short-term money market instruments. The Fund will not invest in fixed-income
securities rated lower than investment grade at time of purchase.
Currently the subadviser intends to invest the Fund's assets in companies based
in developed markets that the subadviser believes are undervalued based on
their return on total capital or equity. Under normal market conditions, the
Fund invests at least 80% of the value of its total assets in the equity
securities of companies within at least three different countries (not
including the United States). The percentage of the Fund's assets invested in
particular geographic sectors may shift from time to time in accordance with
the subadviser's judgment.
25
<PAGE> 95
In selecting the Fund's investments, the subadviser seeks to identify
inexpensive securities in markets world-wide through traditional measures of
value, including low price to earnings ratio, high yield, unrecognized assets,
potential for management change and/or the potential to improve profitability.
In addition, the subadviser seeks to identify financially productive and
undervalued companies in those markets. The subadviser focuses on individual
stock selection (a "bottom-up" approach) rather than on forecasting stock
market trends (a "top-down" approach).
The subadviser recognizes that some of the best opportunities are in securities
not generally followed by investment professionals. Thus, the subadviser relies
on its research capability and also maintains a dialogue with foreign brokers
and with the management of foreign companies in an effort to gather the type of
"local knowledge" that it believes is critical to successful investment abroad.
To this end, the subadviser communicates with its affiliates in London and
Tokyo for information concerning current business trends, as well as for a
better understanding of the management of local businesses. The information
supplied by these affiliates is limited to statistical and factual information,
advice regarding economic factors and trends or advice as to occasional
transactions in specific securities.
The Fund may enter into foreign currency exchange forward contracts to hedge
against anticipated changes in foreign currency exchange rates. The Fund may
invest up to 20% of its total assets in investment-grade fixed-income
securities at the time of purchase and short-term money market instruments. In
addition, the Fund may invest in letters of credit and in emerging or
unseasoned companies.
When the subadviser believes that business or financial conditions warrant, the
Fund may assume a temporary defensive position and invest without limit in the
equity securities of U.S. companies, U.S. government securities, or short-term
money market instruments or cash.
In pursuing its objective, Lazard International Stock Portfolio currently is
subject to fundamental investment policies and operating (non-fundamental)
investment policies described below under "Investment Restrictions".
MFS EMERGING GROWTH PORTFOLIO
MFS Emerging Growth Portfolio's investment objective is to seek to provide
long-term growth of capital. Dividend and interest income from portfolio
securities, if any, are incidental to the Fund's investment objective. The
Fund's policy is to invest primarily (i.e., at least 65% of its assets under
normal circumstances) in common stocks of companies that are early in their
life cycle but appear to have the potential to become major enterprises
(emerging growth companies). Such companies generally are expected to show
earnings growth over time that is well above the growth rate of the overall
economy and the rate of inflation and have the products, management and market
opportunities that are usually necessary to become more widely recognized as
growth companies. However, the Fund may also invest in more established
companies whose rates of earnings growth are expected to accelerate because of
special factors, such as rejuvenated management, new products, changes in
consumer demand, or basic changes in the economic environment.
The Fund is aggressively managed, and, therefore, the value of its shares is
subject to greater fluctuation and investments in its shares involve the
assumption of a higher degree of risk than would be the case with an investment
in a conservative equity fund or a growth fund investing entirely in proven
growth equities.
The Fund invests primarily in common stocks. The Fund may invest or engage in
the following:
- convertible securities and warrants when relative values make such
purchases appear attractive either as individual issues or as types of
securities in certain economic environments;
- ADRs and foreign, including emerging markets, securities (up to 15% of
its total assets) that may be traded on foreign exchanges (currently
the subadviser expects generally to invest between 0% to 10% in such
securities.);
- foreign currency and forward foreign currency exchange contracts for
the purchase or sale of foreign currency for hedging purposes and
non-hedging purposes, including transactions entered into for the
purpose of profiting from anticipated changes in foreign currency
exchange rates, as well as options on foreign currencies;
26
<PAGE> 96
- covered call and put options and may purchase call and put options on
securities and stock indices in an effort to increase current income
and for hedging purposes;
- stock index futures contracts and options on these instruments for
hedging and non-hedging purposes, subject to applicable law; and
- up to 5% of the Fund's total assets in lower-quality fixed-income
securities ('junk bonds").
For defensive purposes under unusual market conditions, as a reserve for future
investments, or to meet liquidity needs, the subadviser may temporarily invest
some or all of the Fund's assets. Temporary investments may include but are not
limited to cash or cash equivalents, such as short-term money market
instruments, commercial paper, bank obligations, short-term notes, U.S.
government securities, certificates of participation and trust certificates
representing interests in U.S. government securities, and related repurchase
agreements.
In pursuing its objective, MFS Emerging Growth Portfolio currently is subject
to fundamental investment policies and operating (non-fundamental) investment
policies described below under "Investment Restrictions".
MFS MID CAP GROWTH PORTFOLIO
MFS Mid Cap Growth Portfolio's investment objective is to seek to obtain long
term growth of capital. It seeks to achieve its objective by investing, under
normal market conditions, at least 65% of its total assets in equity securities
of companies with medium-market capitalization that the subadviser believes
have above-average growth potential. Medium-market capitalization companies
have a market capitalization equal to or exceeding $250 million but not
exceeding the top range of the Russell Midcap(TM) Growth Index at the time of
the Fund's investment.
The Russell Midcap(TM) Growth Index is a widely recognized, unmanaged index of
mid-cap common stock prices. Companies whose capitalization falls outside this
range after purchase continue to be considered medium-capitalization companies
for the purposes of the Fund's 65% policy.
Consistent with its investment objective, the Fund may invest in up to 20% of
its net assets in nonconvertible high-risk, high-yield fixed-income securities
that are in the lower rating categories (rated Ba or lower by Moody's or BB or
lower by S&P or Fitch Investors Service, Inc. ("Fitch") and comparable unrated
securities (collectively, commonly known as "junk bonds"). Further, the Fund
also may invest up to 20% of its net assets in foreign and emerging markets
securities that are not traded on a U.S. exchange (not including ADRs).
Other investments are allowed, including those described in the Prospectus and
this SAI. The description of these techniques and the associated risks appear
in the prospectus. Subject to its investment objective and the investment
restrictions set forth below, the Fund may invest in or engage in the
following:
- Brady Bonds
- indexed securities
The Fund is non-diversified. As a result, the amount of the Fund's assets that
may be invested in the securities of any one issuer is limited only by the
Fund's investment restrictions and the diversification requirements imposed by
the Internal Revenue Code of 1986, as amended. Since the Fund may invest a
relatively high percentage of its assets in a limited number of issuers, it may
be more susceptible to any economic, political or regulatory occurrence and to
the financial conditions of the issuers in which it invests.
For defensive purposes under unusual market conditions, as a reserve for future
investments, or to meet liquidity needs, the subadviser may temporarily invest
some or all of the Fund's assets. Temporary investments may include but are not
limited to cash or cash equivalents, such as short-term money market
instruments, commercial paper, bank obligations, short-term notes, U.S.
government securities, certificates of participation and trust certificates
representing interests in U.S. government securities, and related repurchase
agreements.
27
<PAGE> 97
In pursuing its objective, MFS Mid Cap Growth Portfolio currently is subject to
fundamental investment policies. and operating (non-fundamental) investment
policies described below under "Investment Restrictions".
MFS RESEARCH PORTFOLIO
MFS Research Portfolio's investment objective is to provide long-term growth of
capital and future income. The Fund's securities are selected by a committee of
investment research analysts from the subadviser and from MFS International
(U.K.) Limited. The committee allocates the Fund's assets among industries.
Individual analysts are then responsible for selecting from within their
assigned industry responsibility the securities they view as best suited to
meet the Fund's investment objective .
The Fund's policy is to invest a substantial proportion of its assets in the
common stocks or securities convertible into common stocks of companies
believed to possess better than average prospects for long-term growth. A
smaller proportion of the assets may be invested in bonds, short-term
obligations, preferred stocks or common stocks whose principal characteristic
is income production rather than growth. Such securities may also offer
opportunities for growth of capital as well as income. In the case of both
growth stocks and income issues, emphasis is placed on the selection of
progressive, well-managed companies.
Other investments are allowed, including, but not limited to, those described
below. Subject to its investment objective and the fundamental restrictions set
forth below, the Fund may invest in or engage in the following:
- foreign and emerging market securities (not more than 20% of the
Fund's net assets)
- investment-grade securities (as rated by Moody's, S&P or Fitch)
- high-yield, high-risk securities, commonly known as junk bonds (rated
Ba or lower by Moody's or BB or lower by S&P or Fitch) and comparable
unrated securities (not more than 10% of the Fund's net assets)
- warrants (not more than 5% of the Fund's net assets)
In pursuing its objective, MFS Research Portfolio currently is subject to
fundamental investment policies and operating (non-fundamental) investment
policies described below under "Investment Restrictions".
NWQ LARGE CAP PORTFOLIO
NWQ Large Cap Portfolio's investment objective is to achieve consistent,
superior total return with minimum risk to principal. The Fund invests, under
normal circumstances, at least 65% of its total assets in the common stocks of
companies with above-average statistical value that are in fundamentally
attractive industries and that, in the subadviser's opinion, are undervalued at
the time of purchase. The Fund may also invest in other equity-related
securities consisting of convertible bonds, convertible preferred stocks,
rights and warrants. The Fund's policy is to invest in a universe of 1100
companies of medium to large capitalization. Companies with market
capitalization under $1 billion are limited to 10% of the Fund's total assets.
The subadviser uses statistical measures to screen for the companies with the
best value characteristics such as below-average price-to-earnings and
price-to-book ratios, above-average dividend yield and strong financial
stability. Further, the subadviser uses normalized earnings to value cyclical
companies, focuses on quality of earnings, looks for investment in relative
value, and concentrates in industries/sectors with strong long-term
fundamentals. As used in this discussion, "fundamentals" vary by industry and
relate to factors such as supply and demand, market share, economics,
distribution channels, barriers to entry, and organizational factors. An
economic "sector" consists of a variety of industries having some similar
business characteristics; for example, the producer durables sector includes
industries such as aerospace, heavy machinery, and electrical equipment.
In order to capture value, the subadviser uses a multi-disciplined approach to
identify market sectors that are early in their cycle of fundamental
improvement, investor recognition and market exploitation. In its
decision-making process, the subadviser uses business-trend analyses to
research industry and company fundamentals. The results are analyzed for the
impact of changing worldwide product demand/supply, direction of inflation and
interest rates, and expansion/contraction
28
<PAGE> 98
of business cycles. Once the investment team identifies those
industries/sectors with positive fundamentals, companies are screened for value
characteristics such as below-average price-to-earnings and price-to-book
ratios and above-average dividend yield.
Company visits and interviews with management help to verify the value in these
potential investments. The subadviser also uses numerous independent firms, as
well as in-house resources, for economic, industry and securities research. The
Fund will be concentrated in those industries with positive fundamentals and
seeks to minimize risk by avoiding industries with deteriorating long-term
fundamentals.
The Fund expects the majority of its investments to be companies based in the
United States. However, from time to time, shares of foreign-based companies
may be purchased if they pass the selection process outlined above.
Other investments are allowed, including, but not limited to, those described
below. Subject to its investment objective and the restrictions set forth
below, the Fund may invest up to 20% of its total assets in foreign securities
such as U.S. dollar-denominated securities of foreign issuers and ADRs.
The Fund will not invest in any security issued by a commercial bank unless:
(1) the bank has total assets of at least $1 billion, or the equivalent in
other currencies; (2) for U.S. banks, it is a member of the Federal Deposit
Insurance Corporation; and, (3) for foreign branches of U.S. banks, the
security is comparable in quality to other debt securities the Fund may
purchase.
In pursuing its investment objective, NWQ Large Cap Portfolio currently is
subject to fundamental investment policies and operating (non-fundamental)
investment policies described below under "Investment Restrictions".
SOCIAL AWARENESS STOCK PORTFOLIO
Social Awareness Stock Portfolio's investment objective is long-term capital
appreciation and retention of net investment income. The Fund seeks to fulfill
this objective by selecting investments, primarily common stocks, that SSB Citi
Fund Management LLC. ("SSB Citi") (formerly SSBC Fund Management Inc. ("SSBC")
determines meet its investment screen, based on analysis of data, and, to the
extent possible, certain social criteria. SSB Citi 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. SSB Citi 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 SSB Citi, is derived from: (1)
producing tobacco, tobacco products, alcohol, or military defense systems; or
(2) providing military defense related services or gambling services. These
investment restrictions are not fundamental and may be changed without
shareholder approval.
The Fund's principal objective does not preclude it from realizing short-term
gains when the subadviser believes that conditions suggest the Fund's long-term
goal is best accomplished by such short-term transactions. Further, if a
company fails to meet the Fund's social criteria after it has purchased the
company's common stock or if the Fund inadvertently acquires a security that is
not an acceptable investment, SSB Citi 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 of the value of its assets
will be invested in any one industry. While the Fund
29
<PAGE> 99
may occasionally invest in foreign securities through ADRs, it is not
anticipated that such investments will, at any time, account for more than ten
percent of its investment portfolio.
The Fund's assets generally are kept fully invested except that: (1) sufficient
cash may be kept on hand reasonably to provide for variable annuity contract
obligations, and (2) reasonable amounts of cash, U.S. government or other
liquid securities, such as short-term bills and notes, may be held for limited
periods, pending investments in accordance with its investment policies. When
the subadviser determines that investments of other types may be advantageous
for defensive purposes or for temporary investment of cash flows, however,
investments may be made in cash and cash investments, bonds, notes, or other
evidence of indebtedness, issues publicly or placed privately, deemed to be of
suitable credit quality, including U.S. government securities.
The Fund does not intend to make short sales of securities or make purchases on
margins, except for short-term credits that are necessary for the clearance of
transactions, except as permitted under the 1940 Act.
In pursuing its objective, Social Awareness Stock Portfolio currently is
subject to fundamental investment policies and operating (non-fundamental)
investment policies described below under "Investment Restrictions".
STRATEGIC STOCK PORTFOLIO
Strategic Stock Portfolio's investment objective is to provide investors with
an above average total return through a combination of potential capital
appreciation and dividend income. As summarized in the prospectus, the Fund
invests primarily in a portfolio of actively traded, dividend paying equity
securities comprised of high dividend yield stocks periodically selected from:
(1) the companies included in the Dow Jones Industrial Average (the "DJIA"),
and (2) the companies included in a selected subset of the S&P Industrial
Index(TM).
The Fund is not designed to parallel or correlate with, nor is the share price
expected to parallel or correlate with any movements in, the DJIA or the S&P
Industrial Index. The Fund invests according to the following selection
process. First, the subadviser begins with the Dow Jones Industrial Average
(Universe #1). The 30 DJIA stocks are ranked according to their dividend yield,
and the subadviser selects the 10 highest dividend-yielding stocks. Next, the
subadviser examines the S&P Industrial Index (Universe #2) to: (1) remove any
stocks that are in the DJIA, and (2) eliminate all stocks that are not rated A
or A+ by S&P. Then the subadviser ranks the remaining stocks by market
capitalization from highest to lowest, eliminating the lowest 25%. The
subadviser then ranks the remaining stocks according to their dividend yield
and selects the 15 highest yielding stocks. The Fund's investment portfolio
comprises 25 stocks: 10 selected from the DJIA and 15 from the S&P Industrial
Index.
HOW THE FUND WORKS
The Fund consists of approximately equal values of 25 stocks (as described
above) and remains relatively fixed for about a year, at which time the Fund is
adjusted to reflect the new 25 stocks and their weightings. Although the Fund
adjusts annually, it is designed for the long-term. The subadviser recommends a
holding period for at least three to five years.
Application of the strategic selection process is subject to and limited by the
Fund's other investment policies and restrictions. This includes restrictions
and limitations required for the Fund to maintain its status as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended, and those required by the 1940 Act (such as issuer diversification
requirements and industry concentration limitations).
The Fund generally follows a "buy and hold" strategy. Except to raise cash for
operational purposes, the Fund ordinarily does not sell securities or
reevaluate its portfolio investments except as periodically determined by the
subadviser. Only a portion of the Fund's assets may be reviewed and adjusted
for any given period. As a result, although the Fund may dispose of a security
in certain events (e.g., defaulting on payments; a decline in the security's
price), the company's adverse financial condition does not necessarily result
in its elimination from the Fund prior to scheduled review except under
extraordinary circumstances. Similarly, securities held by the Fund ordinarily
are not to be sold for the purpose of taking advantage of market fluctuations
or changes in anticipated rate of appreciation.
30
<PAGE> 100
The subadviser intends to maintain the ratio of shares of the strategic
securities by purchasing and/or selling approximately proportionate amounts of
securities from the Fund in response to purchases made or redemptions
requested.
Subject to its investment objective and the restrictions set forth below, the
Fund may invest in or engage in the following:
- up to 5% of its total assets in options on equity securities indices,
futures contracts on such indices, and options on such futures
contracts both for hedging purposes and seeking to enhance gain; and
- up to 5% of its total assets in securities of other registered
investment companies that seek to provide investment results that
generally correspond to the performance of securities included in one
or more broad market indices.
Pending investment and for temporary defensive purposes the Fund may invest
without limit in short-term, high quality fixed income securities and in
money-market instruments.
In pursuing its objective, Strategic Stock Portfolio currently is subject to
fundamental investment policies and operating (non-fundamental) investment
policies described below under "Investment Restrictions".
Note: The DJIA is the property of Dow Jones & Company, Inc. Dow Jones &
Company, Inc. has not granted a license for use by Strategic Stock Portfolio.
Dow Jones & Company, Inc. has not participated in any way in the creation of
the Strategic Stock Portfolio or in the selection of the stocks included in its
investment portfolio and has not approved any information herein relating
thereto. "Standard & Poor's", "S&P", and "S&P Industrial Index are trademarks
of The McGraw-Hill Companies, Inc., which have not been licensed for use by
Strategic Stock Portfolio. It is not sponsored, managed, sold or promoted by
Standard & Poor's.
TRAVELERS QUALITY BOND PORTFOLIO
Travelers Quality Bond Portfolio's investment objective is to seek current
income, moderate capital volatility and total return. The Fund's assets are
primarily invested in debt obligations, including, but not limited to:
- treasury bills;
- repurchase agreements;
- commercial paper and other short term instruments;
- bank certificates of deposit and bankers' acceptances; and
- publicly traded debt securities, including bonds, notes, and
debentures; and
- equipment trust certificates.
Permissible securities may carry certain equity features such as conversion or
exchange rights or warrants for the acquisition of stocks of the same or a
different issuer, or participation based on revenues, sales or profits. The
adviser anticipates that the Fund will maintain an average portfolio duration
not exceeding five years. In the case of mortgage-backed securities, the
estimated average life of cash flows will be used instead of average duration.
Investment in longer-term obligations may be made if the investment adviser
concludes that the investment yields justify a longer-term commitment. No more
than 25% of the value of the Fund's assets will be invested in any one
industry.
The Fund is actively managed, and investments may be sold prior to maturity if
the adviser deems it to be advantageous in light of factors such as market
conditions or brokerage costs. While the Fund's investments are generally not
listed securities, there are firms that make markets in the type of debt
instruments that the Fund holds. The adviser anticipates no problems of
liquidity with the Fund's investments.
From time to time, the Fund may commit to purchase when-issued securities. The
Fund also may purchase and sell interest-rate futures contracts to hedge
against changes in interest rates that might otherwise have an adverse effect
upon the value of the portfolio securities.
In pursuing its objective, Travelers Quality Bond Portfolio currently is
subject to investment policies and operating (non-fundamental) investment
policies described below under "Investment Restrictions".
31
<PAGE> 101
U.S. GOVERNMENT SECURITIES PORTFOLIO
U.S. Government Securities Portfolio's investment objective is the selection of
investments from the point of view of an investor concerned primarily with
highest credit quality, current income and total return. To achieve this
objective, the Fund invests primarily in U.S. government securities, which
includes obligations of the U.S. Government and of its agencies,
instrumentalities, and government-sponsored enterprises as defined above.
Not all U.S. government securities are backed by the full faith and credit of
the United States. For example, obligations issued by Fannie Mae are supported
by its right to borrow from the U.S. Treasury. Other U.S. government
securities, such as those issued by the Federal Farm Credit Banks Funding
Agency, are backed only by the credit of the issuing entity. Although U.S.
government securities generally are considered to be high quality, there is no
assurance that the U.S. Government would provide financial assistance to an
agency, instrumentality or government-sponsored enterprise if it were not
obligated by law to do so.
The Fund may purchase put and call options and other instruments and strategies
described above, including futures contracts as a hedge against changes in
interest rates.
In pursuing its objective, U.S. Government Securities currently is subject to
fundamental investment policies and operating (non-fundamental) investment
policies described below under "Investment Restrictions".
UTILITIES PORTFOLIO
Utilities Portfolio's primary investment objective is to provide current
income. Long-term capital appreciation is a secondary objective. The Fund seeks
to achieve its objectives by investing in equity and debt securities of
companies in the utility industries. For these purposes "utility industries"
are comprised of companies that are principally engaged (derive at least 50% of
their assets, gross income or net profits from utility operations or that are
regulated as a utility by a government agency or authority) in the manufacture,
production, generation, transmission and sale of electric and gas energy.
Utility industries also include companies principally engaged in the
communications field, including entities such as telephone, telegraph,
satellite, microwave and other companies regulated by governmental agencies as
utilities that provide communication facilities for the public benefit but not
those in public broadcasting. The Fund invests primarily in utility equity and
debt securities that are expected to have a sustainable rate of dividend growth
and a high rate of return, as determined by the adviser.
Under normal market conditions, the Fund invests at least 65% of its assets in
such securities. The Fund may invest up to 35% of its assets in equity and debt
securities of non-utility companies believed to afford a reasonable opportunity
for achieving the Fund's investment objective. When the adviser believes that
market conditions warrant, the Fund may adopt a temporary defensive posture and
may invest, without limit, in debt securities (whether or not they are utility
securities) such as rated or unrated bonds, debentures and commercial paper,
U.S. government securities, and money market instruments.
The Fund may invest up to 10% of its assets in securities rated BB or B by S&P
or Ba or B by Moody's whenever the adviser believes that the incremental yield
on such securities is advantageous to the Fund in comparison to the additional
risk involved. Yields on lower-rated fixed-income securities generally are
higher than the yields available on higher-rated securities. Investments in
lower-rated securities may be subject to greater market fluctuations, however,
and greater risks of loss of income or principal (including the possibility of
default by, or bankruptcy of, the issuers of such securities) than higher-rated
securities. Lower-rated securities also may have speculative characteristics.
In addition, the Fund may enter into repurchase agreements.
In pursuing its objective, Utilities Portfolio currently is subject to
fundamental investment policies and operating (non-fundamental) investment
policies described below under "Investment Restrictions".
32
<PAGE> 102
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:
(1) debt obligations issued by the U.S. Treasury that have been
stripped of their unmatured interest coupons, interest
coupons that have been stripped from debt obligations issued
by the U.S. Treasury, and receipts and certificates for
stripped debt obligations and stripped coupons, including
U.S. government trust certificates (collectively, "Stripped
Treasury Securities") (but currently not anticipated to be in
excess of 55% of a Fund's assets);
(2) other zero coupon securities issued by the U.S. government
and its agencies and instrumentalities, by a variety of
tax-exempt issuers such as state and local governments and
their agencies and instrumentalities and by "mixed-ownership
government corporations" (collectively, "Stripped Government
Securities");
(3) zero coupon securities issued by domestic corporations which
consist of corporate debt obligations without interest
coupons, and, if available, interest coupons that have been
stripped from corporate debt obligations, and receipts and
certificates for such stripped debt obligations and stripped
coupons (collectively, "Stripped Corporate Securities");
(4) zero coupon securities issued by certain entities which
consist of stripped debt obligations and stripped coupons of
asset-backed securities, which zero coupon-type securities
may exist today or may be developed in the future. These
securities may be illiquid and are subject to the 15%
limitation for such securities.
(5) stripped Eurodollar obligations, which are debt securities
denominated in U.S. dollars that are issued by foreign
issuers, often subsidiaries of domestic corporations
("Stripped Eurodollar Obligations").
The remaining 35% of each Fund's assets may be invested in non-zero coupon
securities such as common stock and other equity securities, bonds and other
debt securities, and money market instruments. In addition, neither Fund will
purchase illiquid securities, including restricted or other securities that are
not readily marketable (such as repurchase agreements with maturities in excess
of seven days) if more than 15% of the Fund's total assets would be invested in
such securities.
In pursuing its objective, each Zero Coupon Bond Fund Portfolio follows
fundamental investment policies and operating (non-fundamental) investment
policies described below under "Investment Restrictions".
33
<PAGE> 103
INVESTMENT RESTRICTIONS
Subject to shareholder approval at a meeting held April 30, 1999, the Funds
(generally excluding Equity Income and Large Cap Portfolios and except as
indicated otherwise below) adopted the following investment policies as
fundamental (those that may not be changed without shareholder approval). Each
Fund may not:
FUNDAMENTAL POLICIES
Each of the Trust's Portfolios (including Equity Income and Large Cap
Portfolios), irrespective of any fundamental or non-fundamental, operating
investment policies, may invest all or a portion of its assets in one or more
investment companies without a shareholder vote.
1. DIVERSIFICATION: (except MFS Mid Cap Growth Portfolio) with respect to
75% of its assets, purchase a security other than a security issued or
guaranteed by the U.S. Government, its agencies, instrumentalities, or
government-sponsored enterprises or a security of an investment company if, as
a result: (1) more than 5% of the Fund's total assets would be invested in the
securities of a single issuer, or (2) the Fund would own more than 10% of the
outstanding voting securities of any single issuer.
2. INDUSTRY CONCENTRATION: (except Utilities Portfolio) purchase a
security if, as a result, more than 25% of the Fund's total assets would be
invested in securities of issuers conducting their principal business
activities in the same industry. For purposes of this policy, there is no limit
on: (1) investments in U. S. government securities, in repurchase agreements
covering U. S. government securities, in securities issued by the states,
territories or possessions of the United States ("municipal securities") or in
foreign government securities; or (2) investment in issuers domiciled in a
single jurisdiction. Notwithstanding anything to the contrary, to the extent
permitted by the 1940 Act, the Fund may invest in one or more investment
companies; provided that, except to the extent that it invests in other
investment companies pursuant to Section 12(d)(1)(A) of the 1940 Act, the Fund
treats the assets of the investment companies in which it invests as its own
for purposes of this policy.
3. BORROWING: borrow money if, as a result, outstanding borrowings would
exceed an amount equal to one-third of the Fund's total assets.
4. REAL ESTATE: purchase or sell real estate unless acquired as a result
of ownership of securities or other instruments (but this shall not prevent the
Fund from investing in securities or other instruments backed by real estate or
in securities of companies engaged in the real estate business).
5. LENDING: make loans to other parties if, as a result, more than one
third of its total assets would be loaned to other parties. For purposes of
this policy, entering into repurchase agreements, lending securities and
acquiring any debt security are not deemed to be the making of loans.
6. COMMODITIES: purchase or sell physical commodities unless acquired as
a result of ownership of securities or other instruments (but this shall not
prevent the Fund from purchasing or selling options and futures contracts and
options on futures or from investing in securities or other instruments backed
by physical commodities).
7. UNDERWRITING: be an underwriter (as that term is defined in the 1933
Act) of securities issued by other persons except, to the extent that in
connection with the disposition of its assets, the Fund may be deemed to be an
underwriter.
8. SENIOR SECURITIES: issue any class of senior securities except to the
extent consistent with the 1940 Act.
NON-FUNDAMENTAL POLICIES
The following investment policies are non-fundamental policies that each Fund
(generally excluding Equity Income and Large Cap Portfolios and except as
otherwise noted below) currently complies with:
1. MFS MID CAP GROWTH PORTFOLIO is "non-diversified" as that term is
defined in the 1940 Act. To the extent required to qualify as a regulated
investment company under the Code, the Fund may not purchase a security (other
than a
34
<PAGE> 104
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 (4) the lending of securities ("leverage transactions"). (See Fundamental
Policy No. 3 "Borrowing.")
3. LIQUIDITY: No Fund will invest more than 15% of its net assets in: (1)
securities that cannot be disposed of within seven days at their then-current
value; (2) repurchase agreements not entitling the holder to payment of
principal within seven days; and, (3) securities subject to restrictions on the
sale of the securities to the public without registration under the 1933 Act
("restricted securities") that are not readily marketable. Each Fund may treat
certain restricted securities as liquid pursuant to guidelines adopted by the
Trust's Board of Trustees.
4. EXERCISING CONTROL OF ISSUERS: No Fund will make investments for the
purpose of exercising control of an issuer. Investments by a Fund in entities
created under the laws of foreign countries solely to facilitate investment in
securities in that country will not be deemed the making of investments for the
purpose of exercising control.
5. OTHER INVESTMENT COMPANIES: No Fund will invest in securities of
another investment company, except to the extent permitted by the 1940 Act and
the rules, and regulations and exemptions thereunder.
6. SHORT SALES:
a. For Disciplined Mid Cap Stock, MFS Research, and U.S.
Government Securities Portfolios, no Fund will sell
securities short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities
sold short (short sales "against the box"), and provided that
transactions in futures contracts and options on futures are
not deemed to constitute selling securities short.
b. For Disciplined Small Cap and Strategic Stock Portfolios, no
Fund will make short sales of securities except in conformity
with applicable law and regulations, and unless after such
sale (excluding the value of any securities sold short
against-the-box), the market value of all securities sold
short does not exceed 25 % of the Fund's total asset value,
and the Fund's aggregate short sales of a particular class of
an issuer's securities do not exceed 25% of the then
outstanding securities of that class of the issuer's
securities, and provided that transactions in futures
contracts and options on futures are not deemed to constitute
selling securities short.
c. For Utility, Zero Coupon Bond Fund 2000, and Zero Coupon Bond
Fund 2005 Portfolios, no Fund will make short sales of
securities or maintain a short position, except to the extent
of 5% of the Fund's net assets (excluding the value of any
securities sold short against-the-box), and provided that
transactions in futures contracts and options on futures are
not deemed to constitute selling securities short.
d. For Federated High Yield Portfolio, the Fund will not sell
securities short except, under strict limitations, the Fund
may maintain open short positions so long as not more than
10% of the value of its net assets is held as collateral for
those positions, and provided that transactions in options,
and futures contracts and options on futures are not deemed
to constitute selling securities short.
7. PURCHASING ON MARGIN: No Fund will purchase securities on margin,
except that the Fund may use short-term credit for the clearance of its
portfolio transactions, and provided that initial and variation margin payments
in connection with futures contracts and options on futures contracts or other
permissible investments.
8. LENDING: No Fund will lend a security if, as a result, the amount of
loaned securities would exceed an amount equal to one-third of the Fund's total
assets.
35
<PAGE> 105
9. PLEDGING: No Fund will pledge its assets except as permitted by the 1940 Act.
VALUATION AND PRICING
VALUATION. We determine current value for the Fund's portfolio securities as
follows: securities traded on national securities markets are valued at the
closing prices on such markets; securities for which no sales prices were
reported and U.S. government and agency obligations are valued at the mean
between the last reported bid and ask prices or on the basis of quotations
received from unaffiliated reputable brokers or other recognized sources; and,
securities that have a remaining maturity of more than 60 days are valued at
prices based on market quotations for securities of similar type, yield and
maturity. The Fund values short-term money market instruments with maturities
of 60 days or less at amortized cost (original purchase cost as adjusted for
amortization of premium or accretion of discount) which, when combined with
accrued interest receivable, approximates market. All other investments are
valued at fair value as determined in good faith by the Board.
PRICING. We compute the Fund's net asset value per share as of 4:00 p.m.
Eastern time each day the New York Stock Exchange ("Exchange") is open. The net
asset value per share is arrived at by determining the value of the Fund's
assets, subtracting its liabilities, and dividing the result by the number of
shares outstanding. Fund shares are redeemed at the redemption value next
determined after the Fund receives a redemption request. The redemption value
is the net asset value adjusted for fractions of a cent and may be more or less
than the shareholder's cost depending upon changes in the value of the Fund's
portfolio between purchase and redemption.
We compute the Fund's redemption value as of the close of the Exchange at the
end of the day on which it has received all proper documentation from the
shareholder. Redemption proceeds are normally wired or mailed either the same
or the next business day, but in no event later than seven days thereafter.
The Fund may temporarily suspend the right to redeem its shares when: (1) the
Exchange is closed, other than customary weekend and holiday closings; (2)
trading on the Exchange is restricted; (3) an emergency exists as determined by
the SEC so that disposal of the Fund's investments or determination of its net
asset value is not reasonably practicable; or (4) the SEC, for the protection
of shareholders, so orders.
DISTRIBUTIONS
The Trust intends to distribute dividends from each Fund's net investment
income and all net realized capital gains annually in shares or, at the option
of the shareholder, in cash. When a Fund makes a distribution, it intends to
distribute only its net capital gains and such income as has been predetermined
to be taxable as ordinary income. Therefore, net investment income
distributions will not be made on the basis of distributable income as computed
on the Fund's books but will be made on a federal income tax basis.
TRUSTEES AND OFFICERS
Under Massachusetts law, the Trust's Board has absolute and exclusive control
over the management and disposition of all assets of the Funds. Subject to the
provisions of the Declaration of Trust, the business and affairs of the Funds
are managed by the trustees or other parties so designated by the trustees.
36
<PAGE> 106
The Fund's trustees and officers are listed below.
<TABLE>
<CAPTION>
Name and Position
With the Fund Principal Occupation During Last Five Years
- ----------------- -------------------------------------------
<S> <C>
*Heath B. McLendon Managing Director (1993-present), Salomon Smith Barney, Inc. ("Salomon Smith
Chairman and Trustee Barney"); President and Director (1994-present), SSB Citi Fund Management
7 World Trade Center LLC; (successor to SSBC Fund Management Inc.); Director and President
New York, NY (1996-present), Travelers Investment Adviser, Inc.; Chairman and Director of
Age 66 sixty investment companies associated with Salomon Smith Barney; Trustee
(1999) of 6 Trusts of Citifunds' family of Trusts; Trustee, Drew University;
Advisory Director, M&T Bank; 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, Attorneys;
Trustee Member, Advisory Board (1973-1994), thirty-one mutual funds sponsored by
154 Arlington Avenue Keystone Group, Inc.; Member, Board of Managers, seven Variable Annuity
Providence, RI Separate Accounts of The Travelers Insurance Company+; Trustee, five Mutual
Age 76 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 Administration
295 Hancock Street (1983-1989), The Dexter Corporation (manufacturer of specialty chemicals and
Williamstown, MA materials); Vice Chairman (1990-1992), Director (1983-1995), Life
Age 68 Technologies, Inc. (life science/biotechnology products); Director,
(1994-1999), The Connecticut Surety Corporation (insurance); Director
(1995-present), Chemfab Corporation (specialty materials manufacturer);
Director (1999-present), Ravenwood Winery, Inc.; Director (1999-present),
Lydall Inc. (manufacturer of fiber materials); Member, Board of Managers,
seven Variable Annuity Separate Accounts of The Travelers Insurance
Company+; Trustee, five Mutual Funds sponsored by The Travelers Insurance
Company.++
Lewis Mandell Dean, School of Management (1998-present), University at Buffalo; Dean,
Trustee College of Business Administration (1995-1998), Marquette University;
160 Jacobs Hall Professor of Finance (1980-1995) and Associate Dean (1993-1995), School of
Buffalo, NY Business Administration, and Director, Center for Research and Development
Age 57 in Financial Services (1980-1995), University of Connecticut; Director
(2000-present), Delaware North Corp. (hospitality business); 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, Private Investor, (1997-present); Portfolio Manager (1992-1997, HLM
CFA, CFP Management Company, Inc. (investment management); Assistant Treasurer,
Trustee Pensions and Benefits. Management (1989-1992), United Technologies
28 Woodland Street Corporation (broad-based designer and manufacturer of high technology
Sherborn, MA products); Member, Board of Managers, seven Variable Annuity Separate
Age 52 Accounts of The Travelers Insurance Company+; Trustee, five Mutual Funds
sponsored by The Travelers Insurance Company.++
</TABLE>
37
<PAGE> 107
<TABLE>
<CAPTION>
Name and Position
With the Fund Principal Occupation During Last Five Years
- ----------------- -------------------------------------------
<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 Mutual
Age 59 Funds sponsored by The Travelers Insurance Company.++
Kathleen A. McGah Deputy General Counsel (1999 - present); Assistant Secretary (1995-present),
Assistant Secretary to The Travelers Insurance Company; Assistant Secretary, Board of Managers,
The Board seven Variable Annuity Separate Accounts of The Travelers Insurance
One Tower Square Company+; Assistant Secretary, Board of Trustees, five Mutual Funds
Hartford, Connecticut sponsored by The Travelers Insurance Company.++ Prior to January 1995,
Age 49 Counsel, ITT Hartford Life Insurance Company.
Lewis E. Daidone Managing Director of Salomon Smith Barney Inc. since 1990. Director and
Treasurer Senior Vice President of SSB Citi Fund Management Inc. and Travelers
388 Greenwich Street Investment Adviser Inc.; Senior Vice President and Treasurer of Salomon and
New York, New York Smith Barney sponsored funds and Chief Financial Officer of the mutual fund
Age 41 complex; Treasurer, Board of Trustees, five Mutual Funds sponsored by The
Travelers Insurance Company.++ Prior to 1990, he was Senior Vice President
and CFO of Cortland Financial Group, Inc. (1984-1990), Assistant Controller,
Reserve Group (1982-1984); Ernst & Young (1980-1982).
Irving David Controller and Director of Salomon Smith Barney Inc. since 1994. Controller
Controller of several investment companies associated with Salomon Smith Barney Inc.;
388 Greenwich Street Controller, Board of Trustees, five Mutual Funds sponsored by The Travelers
New York, New York Insurance Company.++ Prior to 1994 , Assistant Treasurer at First
Age 38 Investment Management Company (1988-1994).
</TABLE>
+ These seven Variable Annuity Separate Accounts are: The Travelers
Growth and Income Stock Account for Variable Annuities, The Travelers
Quality Bond Account for Variable Annuities, The Travelers Money
Market Account for Variable Annuities, The Travelers Timed Growth and
Income Stock Account for Variable Annuities, The Travelers Timed
Short-Term Bond Account for Variable Annuities, The Travelers Timed
Aggressive Stock Account for Variable Annuities and The Travelers
Timed Bond Account for Variable Annuities.
++ These five Mutual Funds are: Capital Appreciation Fund, Money Market
Portfolio, High Yield Bond Trust, Managed Assets Trust and The
Travelers Series Trust.
* Mr. McLendon is an "interested person" within the meaning of the 1940
Act by virtue of his position as Managing Director of Salomon Smith
Barney, Inc., an indirect wholly owned subsidiary of Citigroup Inc.
and also owns shares and options to purchase shares of Citigroup Inc.,
the indirect parent of The Travelers Insurance Company.
COMMITTEES. To operate more efficiently, the Board established two operating
committees. The Nominating Committee recommends candidates for the nomination
as members of the Board. The Audit Committee reviews the scope and results of
the Fund's annual audits with the Fund's independent accountants and recommends
the engagement of the accountants. For the year ended December 31, 1999, 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.
38
<PAGE> 108
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, 1999.
COMPENSATION TABLE.
<TABLE>
<CAPTION>
Aggregate Pension or Retirement Total Compensation From
Compensation From Benefits Accrued As Fund and Fund Complex
Name of Person, Position Fund(1) Part of Fund Expenses Paid to Directors
- ------------------------------------ ----------------------- ------------------------ -------------------------
<S> <C> <C> <C>
Heath B. McLendon
Chairman and Trustee N/A N/A N/A
- ------------------------------------ ----------------------- ------------------------ -------------------------
Knight Edwards
Trustee $2,625 N/A $31,500
- ------------------------------------ ----------------------- ------------------------ -------------------------
Robert E. McGill, III
Trustee $2,417 N/A $29,000
- ------------------------------------ ----------------------- ------------------------ -------------------------
Lewis Mandell
Trustee $2,625 N/A $31,500
- ------------------------------------ ----------------------- ------------------------ -------------------------
Frances M. Hawk, CFA, CFP
Trustee $2,625 N/A $31,500
- ------------------------------------ ----------------------- ------------------------ -------------------------
</TABLE>
- -----------------
(1) No compensation was deferred for any Trustee or Officer under a deferred
compensation plan.
CODE OF ETHICS
Pursuant to Rule 17j-1 of the 1940 Act, the Funds and their investment advisers
and subadvisers have adopted codes of ethics that permit personnel to invest in
securities for their own accounts, including securities that may be purchased
or held by the funds. All personnel must place the interest of clients first
and avoid activities, interests and relationships that might interfere with the
duty to make decisions in the best interests of the clients. All personnel
securities transactions by employees must adhere to the requirements of the
codes and must be conducted in such a manner as to avoid any actual or
potential conflict of interest, the appearance of such a conflict, or the abuse
of an employee's position of trust and responsibility.
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.
39
<PAGE> 109
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
SSB Citi, 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.
TRAVELERS ASSET MANAGEMENT INTERNATIONAL COMPANY LLC ("TAMIC")
TAMIC was incorporated in 1978 under the laws of the State of New York. On
February 15, 2000 TAMIC was converted into a Delaware Limited Liability
Company. TAMIC is a registered investment adviser which has provided investment
advisory services since its incorporation in 1978. TAMIC is an indirect wholly
owned subsidiary of Citigroup Inc., and its principal offices are located at
One Tower Square, Hartford, Connecticut, 06183. TAMIC also provides investment
advice to individual and pooled pension and profit-sharing accounts and
non-affiliated insurance companies.
For serving as investment adviser to the Trust, TAMIC receives a fee, equal to
the average daily net asset of each of the following Funds. Investment advisory
fees are computed daily and are paid monthly, (except for the Zero Coupon Bond
Fund Portfolios, which are paid weekly):
<TABLE>
<CAPTION>
ADVISORY FEEPAID
TO TAMIC SUBADVISORY FEE
% OF AVERAGE DAILY PAID BY TAMIC
FUND NET ASSETS TO SUBADVISERS EXPENSE CAP
- ------------------------------------------------ ------------------------ ------------------------ ---------------------
<S> <C> <C> <C>
Convertible Bond 0.60% N/A 0.80%
- ------------------------------------------------ ------------------------ ------------------------ ---------------------
Disciplined Mid Cap Stock 0.70% 0.35% 0.95%
- ------------------------------------------------ ------------------------ ------------------------ ---------------------
Disciplined Small Cap Stock 0.80% 0.40% 1.00%
- ------------------------------------------------ ------------------------ ------------------------ ---------------------
Equity Income 0.75% 0.45% 0.95%
- ------------------------------------------------ ------------------------ ------------------------ ---------------------
Federated High Yield 0.65% 0.40% 0.95%
- ------------------------------------------------ ------------------------ ------------------------ ---------------------
Federated Stock 0.625% 0.375% 0.95%
- ------------------------------------------------ ------------------------ ------------------------ ---------------------
Jurika & Voyles Core Equity 0.75% 0.375% 1.00%
- ------------------------------------------------ ------------------------ ------------------------ ---------------------
Large Cap 0.75% 0.45% 0.95%
- ------------------------------------------------ ------------------------ ------------------------ ---------------------
Lazard International Stock 0.825% 0.475% 1.25%
- ------------------------------------------------ ------------------------ ------------------------ ---------------------
MFS Emerging Growth 0.75% 0.375% 0.95%
- ------------------------------------------------ ------------------------ ------------------------ ---------------------
MFS Mid Cap Growth 0.80% 0.375% 1.00%
- ------------------------------------------------ ------------------------ ------------------------ ---------------------
MFS Research 0.80% 0.375% 1.00%
- ------------------------------------------------ ------------------------ ------------------------ ---------------------
NWQ Large Cap 0.75% 0.375% 1.00%
- ------------------------------------------------ ------------------------ ------------------------ ---------------------
Strategic Stock 0.60% 0.20% 0.90%
- ------------------------------------------------ ------------------------ ------------------------ ---------------------
Travelers Quality Bond 0.3233% N/A 0.75%
- ------------------------------------------------ ------------------------ ------------------------ ---------------------
U. S. Government Securities 0.3233% N/A 1.25%
- ------------------------------------------------ ------------------------ ------------------------ ---------------------
Zero Coupon Bond Fund (Series 2000) 0.10% N/A 0.15%
- ------------------------------------------------ ------------------------ ------------------------ ---------------------
Zero Coupon Bond Fund (Series 2005) 0.10% N/A 0.15%
- ------------------------------------------------ ------------------------ ------------------------ ---------------------
</TABLE>
40
<PAGE> 110
The investment advisory fees paid to TAMIC by each Fund during the last three
fiscal years were:
<TABLE>
<CAPTION>
- ------------------------------------------------ ------------------------ ------------------------ ------------------------
FUNDS 1999 1998 1997
----- ---- ---- ----
- ------------------------------------------------ ------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Convertible Bond $ 44,297 $ 14,036 $ *
- ------------------------------------------------ ------------------------ ------------------------ ------------------------
Disciplined Mid Cap Stock $ 212,394 $ 75,088 $ 22,265
- ------------------------------------------------ ------------------------ ------------------------ ------------------------
Disciplined Small Cap Stock $ 71,941 $ 18,102 $ *
- ------------------------------------------------ ------------------------ ------------------------ ------------------------
Equity Income $ 802,193 $385,866 $ 80,431
- ------------------------------------------------ ------------------------ ------------------------ ------------------------
Federated High Yield $ 308,514 $185,665 $ 50,231
- ------------------------------------------------ ------------------------ ------------------------ ------------------------
Federated Stock $ 272,014 $155,197 $ 46,078
- ------------------------------------------------ ------------------------ ------------------------ ------------------------
Jurika & Voyles Core Equity $ 56,038 $ 16,506 $ *
- ------------------------------------------------ ------------------------ ------------------------ ------------------------
Large Cap $ 842,331 $210,887 $ 44,240
- ------------------------------------------------ ------------------------ ------------------------ ------------------------
Lazard International Stock $ 668,699 $246,573 $ 65,044
- ------------------------------------------------ ------------------------ ------------------------ ------------------------
MFS Emerging Growth $1,737,243 $837,712 $287,384
- ------------------------------------------------ ------------------------ ------------------------ ------------------------
MFS Mid Cap Growth $ 295,208 $ 41,903 $ *
- ------------------------------------------------ ------------------------ ------------------------ ------------------------
MFS Research $ 684,162 $ 88,733 $ *
- ------------------------------------------------ ------------------------ ------------------------ ------------------------
NWQ Large Cap $ 106,505 $ 20,050 $ *
- ------------------------------------------------ ------------------------ ------------------------ ------------------------
Strategic Stock $ 74,188 $ 20,263 $ *
- ------------------------------------------------ ------------------------ ------------------------ ------------------------
Travelers Quality Bond $ 163,879 $ 68,452 $ 20,799
- ------------------------------------------------ ------------------------ ------------------------ ------------------------
U.S. Government Securities $ 205,660 $156,432 $ 86,779
- ------------------------------------------------ ------------------------ ------------------------ ------------------------
Zero Coupon Bond Fund (Series 2000) $ 1,979 $ 1,833 $ 1,645
- ------------------------------------------------ ------------------------ ------------------------ ------------------------
Zero Coupon Bond Fund (Series 2005) $ 3,062 $ 2,601 $ 2,066
- ------------------------------------------------ ------------------------ ------------------------ ------------------------
</TABLE>
*The Funds were not operational in those years.
SSB CITI FUND MANAGEMENT LLC. (SUCCESSOR TO SSBC FUND MANAGEMENT INC.)("SSB
CITI")
SSB Citi was incorporated in December 1968 under the laws of the State
of Delaware. On September 21, 1999 SSB Citi was converted into a Delaware
Limited Liability Company. SSB Citi is a registered investment adviser and is a
wholly owned subsidiary of Salomon Smith Barney Holdings, Inc., which in turn
is a wholly owned subsidiary of Citigroup Inc. SSB City is primarily engaged in
the investment advisory business. SSB Citi 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, SSB Citi is paid an annual fee at
the rate set forth in
41
<PAGE> 111
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 SSB Citi by Social Awareness Stock Portfolio
for the years ended December 31, 1997, 1998, and 1999 were $104,002, $189,593
and $348,890, respectively.
Under a management agreement with the Fund, The Travelers has agreed to
reimburse the Fund for the amount by which its aggregate annual expenses,
including investment advisory fees but excluding brokerage commissions,
interest charges and taxes, exceed 1.25% of the Fund's average net assets for
any year. For the years ended December 31, 1999, 1998 and 1997, the Fund
received no reimbursement from The Travelers.
SSB Citi also manages the day-to-day investment operations of Utilities
Portfolio under an investment advisory agreement approved by the Board. Under
the agreement, SSB Citi 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
SSB Citi 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 SSB Citi by Utilities Portfolio for the years
ended December 31, 1997, 1998 and 1999 were $116,989, $168,378 and $222,001,
respectively.
Under a management agreement with the Fund, The Travelers has agreed to
reimburse the Fund for the amount by which its aggregate annual expenses,
including investment advisory fees but excluding brokerage commissions,
interest charges and taxes, exceed 1.25% of the Fund's average net assets for
any year. For the years ended December 31, 1999, 1998 and 1997, the Fund
received no reimbursement from The Travelers.
MANAGEMENT OF SOCIAL AWARENESS STOCK AND UTILITIES PORTFOLIOS. Robert J. Brady
has serves as the portfolio manager to Social Awareness Stock Portfolio since
1994 and Utilities Portfolio since November of 1998. Mr. Brady is a Managing
Director and Portfolio Manager of SSB Citi. Mr. Brady is a Chartered
Financial Analyst.
INVESTMENT SUBADVISERS
Under the terms of investment subadvisory agreements, each subadviser provides
an investment program for the Funds. The subadvisers make all determinations
with respect to the purchase and sale of the portfolio securities (subject to
the terms and conditions of the particular Fund's investment objective,
policies, and restrictions and to the supervision of the Board and TAMIC) and
places, in the Fund's name, call orders for execution of the portfolio
transactions. In addition, Fidelity Management & Research Company ("FMR") and
Lazard Asset Management also are authorized to execute the orders. In the case
of the other subadvisers, TAMIC is responsible for executing the orders.
For services rendered to the Portfolios, each subadviser charges a fee to
TAMIC. No Fund pays any portion of a subadviser's fee, nor does a Fund have any
obligation or responsibility to do so.
42
<PAGE> 112
SUBADVISER: FEDERATED INVESTMENT COUNSELING
FEDERATED HIGH YIELD PORTFOLIO, FEDERATED STOCK PORTFOLIO
Federated Investment Counseling ("Federated") a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the 1940
Act. It is a subsidiary of Federated Investors, Inc. All of the Class A
(voting) shares of Federated Investors, Inc. are owned by a trust, the trustees
of which are John F. Donahue, Chairman and Trustee of Federated Investors,
Inc., Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is
President and Trustee of Federated Investors, Inc.
Federated and other subsidiaries of Federated Investors, Inc. serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $166 billion as of December 31, 1999 invested
across more than 176 funds under management and/or administration by its
subsidiaries, as of December 31, 1999, Federated Investors, Inc. is one of the
largest mutual fund investment managers in the United States. With more than
1,900 employees, Federated continues to be led by the management who founded
the company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide.
FEDERATED HIGH YIELD PORTFOLIO. Federated acts as subadviser for Federated High
Yield Portfolio under an investment subadvisory agreement between TAMIC and
Federated. In its capacity as subadviser, Federated continually conducts
investment research and supervision for the Fund and is responsible for the
purchase or sale of portfolio instruments, for which Federated receives an
annual fee from TAMIC.
Under the subadvisory agreement with TAMIC, Federated is paid an advisory fee
at the annual rate of 0.40% of the Fund's average daily net assets. The fee is
accrued daily and paid monthly. For the years ended December 31, 1997, 1998,
and 1999, the subadvisory fees TAMIC paid Federated for the Federated High
Yield Portfolio were $30,911, $114,255 and $189,855, respectively.
MANAGEMENT OF THE FEDERATED HIGH YIELD PORTFOLIO. Mark E. Durbiano serves as
the portfolio manager to Federated High Yield Portfolio. 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.
FEDERATED STOCK PORTFOLIO. Federated also serves as subadviser to Federated
Stock Portfolio. Under a subadvisory agreement with TAMIC, Federated
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments. Under the
agreement, TAMIC pays Federated a subadvisory fee at the annual rate of 0.375%
of the Fund's average daily net assets. The fee is accrued daily and paid
monthly. For the years ended December 31, 1997, 1998, and 1998, the subadvisory
fees TAMIC paid Federated for the Federated Stock Portfolio were $27,647,
$93,118 and $163,208, respectively.
MANAGEMENT OF FEDERATED STOCK PORTFOLIO. Michael P. Donnelly serves as manager
to Federated Stock Portfolio along with Kevin R. McCloskey. He joined
Federated Investors in 1989 as an investment analyst and has been a Vice
President since 1994. Mr. Donnelly is a Chartered Financial Analyst.
Kevin R. McCloskey, who also serves as portfolio manager, joined Federated in
1999 as a portfolio manager and a Vice President of the Fund's subadvisers.
Previously, Mr. McCloskey served as a portfolio manager and
investmemt/quanitative analyst at Killian Asset Management Corporation. Mr.
McCloseky 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.
43
<PAGE> 113
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, 1997, 1998, and 1999, the subadvisory fees TAMIC paid FMR were $48,431,
$231,520 and $481,316, respectively.
MANAGEMENT OF EQUITY INCOME PORTFOLIO. Steve DuFour is portfolio manager of
the Equity Income Portfolio. He also manages the equity portion of Fidelity
Balanced Fund and serves a sector leader for the natural resources equity
research group. Mr. Dufour joined Fidelity in 1992.
LARGE CAP PORTFOLIO. FMR also serves as subadviser to the Large Cap Portfolio
under a subadvisory agreement with TAMIC. Under the agreement, FMR is paid a
subadvisory fee at the annual rate of 0.45% of the Fund's average daily net
assets. The fee is accrued daily and paid monthly. For the years ended December
31, 1997, 1998, and 1999, the subadvisory fees TAMIC paid FMR for Equity Income
Portfolio were $26,651, $126,532 and $505,398, respectively.
MANAGEMENT OF LARGE CAP PORTFOLIO. Karen Firestone is the manager of Large Cap
Portfolio. Ms. Firestone also manages mutual funds and other investment
accounts for Fidelity Management Trust Company. She joined Fidelity in 1983.
FMR SUBSUBADVISORY ARRANGEMENTS. FMR has subsubadvisory agreements with FMR
U.K. and FMR Far East. TAMIC is also a party to these agreements in its
capacity as investment adviser. These subsubadvisers provide FMR with
investment research and advice on issuers based outside the United States.
Under the subsubadvisory agreements, FMR pays FMR U.K. and FMR Far East fees
equal to 110% of the costs of providing these services.
The subsubadvisers may also provide investment management services. In return,
FMR pays FMR U.K. and FMR Far East a fee equal to 50% of its management fee
rate with respect to a Fund's investments that the subsubadviser manages on a
discretionary basis.
SECURITIES TRANSACTIONS. Equity Income and Large Cap Portfolios' subadviser is
authorized to use research services provided by and to place portfolio
transactions with brokerage firms that have provided assistance in the
distribution of Fund shares or shares of other funds advised by the subadviser
to the extent permitted by law. The subadviser may use research services
provided by and place transactions through its affiliates, Fidelity Brokerage
Services, Inc. (FBSI) and Fidelity Brokerage Services (FBS), subsidiaries of
FMR Corp., if the commissions are fair and reasonable and comparable to
commissions charged by non-affiliated, qualified brokerage firms for similar
services.
Equity Income and Large Cap Portfolios' subadviser may allocate brokerage
transactions to broker-dealers who have entered into arrangements with the
subadviser under which the broker-dealer allocates a portion of the commissions
paid by either Fund toward payment of its expenses, such as transfer agent fees
or custodian fees. The transaction quality must, however, comply with the
requirements of Section 1l(a) of the Securities Act of 1934, as amended, which
prohibit members of national securities exchanges from executing exchange
transactions for accounts which they or their affiliates manage, unless certain
requirements are satisfied. Under the Section 11(a) requirements, the Board has
authorized FBSI to execute portfolio transactions on national securities
exchanges in accordance with approved procedures and applicable SEC rules.
SUBADVISER: JURIKA & VOYLES L.P.
JURIKA & VOYLES CORE EQUITY PORTFOLIO
Jurika & Voyles serves as investment subadviser to Jurika & Voyles Core Equity
Portfolio under a subadvisory agreement with TAMIC. Jurika & Voyles is a
professional investment management firm founded in 1983 by William K. Jurika
and Glenn C. Voyles. As of December 31, 1999, Jurika & Voyles had discretionary
management authority with respect to approximately $3 billion of assets for
various clients including corporations, pension plans, 401(k) plans, profit
sharing
44
<PAGE> 114
plans, trusts and estates, foundations and charitable endowments, and high net
worth individuals. The principal business address of the subadviser is 1999
Harrison Street, Suite 700, Oakland California 94612.
Jurika & Voyles is affiliated with Nvest L.P. ("Nvest"), a publicly traded
limited partnership affiliated with Metropolitan Life Insurance Company. Nvest
is a holding company for several investment management firms including Loomis,
Sayles & Company, L.P.; Reich & Tang Asset Management, L.P.; Copley Real Estate
Advisors, Inc.; Back Bay Advisors, L.P.; Harris Associates, L.P.; Vaughan,
Nelson, Scarborough & McConnell, L.P.; and Westpeak Investment Advisors, L.P.
(Nvest's subsidiaries) and an affiliated firm, Capital Growth Management
Limited Partnership.
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 years ended December 31, 1998 and 1999, the subadvisory fees
TAMIC paid Jurika & Voyles for Jurika & Voyles Core Equity Portfolio were
$8,253 and $28,019, respectively/
MANAGEMENT OF JURIKA & VOYLES CORE EQUITY PORTFOLIO. Guy Elliffe and Gregory
A. Welch are the portfolio managers for the Jurika & Voyles Core Equity
Portfolio. Mr. Elliffe, CFA is the Senior Investment Officer for Jurika &
Voyles and directs the research department and has primary research
responsibilities for financial stocks. He joined Jurika & Voyles in November
of 1995. Before joining Jurika & Voyles, he worked at National Mutual Funds
Management as Managing Director of Equities. He is a Chartered Financial
Analyst.
Mr. Welch, who is a Senior Vice President and Principal and became the
Co-Portfolio Manager of the Core Equity Portfolio in December 1999. In
addition, he manages Taft-Hartley portfolios, corporate and foundation accounts
for the firm. Before joining Jurika & Voyles in 1993, he served as Vice
President at Prudential Securities and was responsible for portfolio management
of individual accounts and corporate retirement plans.
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 Chicago Stock Exchanges.
Lazard Freres provides its clients with a wide variety of investment banking,
brokerage and related services.
Lazard Freres performs such brokerage services in conformity with Rule 10f-3,
17a-7 and 17e-1 under the 1940 Act and procedures adopted by the Board.
TAMIC pays Lazard a subadvisory fee at the annual rate of 0.475% of the Fund's
average daily net asset value. The fee is accrued daily and paid monthly. For
the years ended December 31, 1997, 1998, and 1999, the subadvisory fees TAMIC
paid Lazard were $37,450, $141,966 and $385,008, respectively.
MANAGEMENT OF LAZARD INTERNATIONAL STOCK PORTFOLIO. Herbert W. Gullquist and
John R. Reinsberg are primarily responsible for the day-to-day management of
the Fund's assets. Mr. Gullquist, a Managing Director and Vice-Chairman of
Lazard Freres, is Lazard's Chief Investment Officer and has been with Lazard
since 1982. He is responsible for monitoring all investment activity to ensure
adherence to Lazard's investment philosophy and guidelines. Mr. Reinsberg is a
Managing Director of Lazard Freres and has been with Lazard since 1992. He is
responsible for international/global equity management and overseeing the
day-to-day operations of Lazard's international equity investment team.
45
<PAGE> 115
SUBADVISER: MASSACHUSETTS FINANCIAL SERVICES COMPANY ("MFS")
MFS EMERGING GROWTH PORTFOLIO
MFS MID CAP GROWTH PORTFOLIO
MFS RESEARCH PORTFOLIO
MFS, a registered investment adviser, along with its predecessor organizations
has provided investment advisory services since 1924. Its principal offices are
located at 500 Boylston Street, Boston, Massachusetts. MFS is America's oldest
mutual fund organization. MFS is a subsidiary of Sun Life of Canada (U.S.)
Financial Services Holding, Inc., which in turn is an indirect wholly owned
subsidiary of Sun Life Assurance Company of Canada ("Sun Life"). Net assets
under the MFS's management were approximately $131.97 billion on behalf of
approximately 4.6 million investor accounts as of January 31, 2000. As of such
date, the MFS organization managed approximately $104.8 billion of assets
invested in equity securities and approximately $20.3 billion of assets
invested in fixed-income securities. Approximately $9.7 billion of the assets
managed by MFS are invested in securities of foreign issuers and non-U.S.
dollar denominated securities of U.S. issuers.
MFS EMERGING GROWTH PORTFOLIO. For services as subadviser to MFS Emerging
Growth Portfolio, TAMIC pays MFS a subadvisory fee at an annual rate of 0.375%
of the Fund's average daily net asset value. The fee is accrued daily and paid
monthly. For the years ended December 31, 1997, 1998, and 1999, the subadvisory
fees TAMIC paid MFS for the MFS Emerging Growth Portfolio were $143,692,
$418,856 and $868,621, respectively.
MANAGEMENT OF MFS EMERGING GROWTH PORTFOLIO. John W. Ballen, President of MFS
and Chief Investment Officer, serves as the portfolio manager for MFS Emerging
Growth Portfolio. Mr. Ballen also serves as a portfolio manager to certain
retail mutual funds offered by MFS. He has acted in that capacity for MFS
since l986.
Toni Y. Shimura also is charged with portfolio management of the Fund. Ms.
Shimura, who joined MFS in 1987, has been an MFS Vice President - Investments
since 1992. She also has managed MFS Emerging Growth Series, part of MFS
Variable Insurance Trustsm, since November of 1995.
MFS MID CAP GROWTH PORTFOLIO. MFS also serves as subadviser to MFS Mid Cap
Growth Portfolio since March 1998. TAMIC pays MFS a subadvisory fee at an
annual rate of 0.375% of the Fund's average daily net asset value. The fee is
accrued daily and paid monthly. MFS Mid Cap Portfolio paid no subadvisory fees
in 1997. For the years ended December 31, 1998 and 1999, the subadvisory fees
TAMIC paid MFS for MFS Mid Cap Growth Portfolio were $19,642 and $138,379,
respectively.
MANAGEMENT OF MFS MID CAP GROWTH PORTFOLIO. Mark Regan is the investment
professional responsible for the daily operations of MFS Mid Cap Growth
Portfolio. Mr. Regan is an MFS Senior Vice President and has been employed by
MFS as a portfolio manager since 1989.
David Sette-Ducati is an investment officer and research analyst at MFS and is
also the portfolio manager for the MFS Mid Cap Growth Portfolio effective May
1, 2000. He joined MFS in 1995. Prior to joining MFS his working experience
included Corporate Finance Analyst and Associates with Lehman Brothers and an
Associate with Nicolette & Company, specializing in corporate finance and
mergers and acquisitions strategy.
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 years
ended December 31, 1998 and 1999, the subadvisory fees TAMIC paid MFS for the
MFS Research Portfolio were $41,593 and $320,701, respectively.
MANAGEMENT OF MFS RESEARCH PORTFOLIO. MFS Research Portfolio is managed by a
committee of various equity research analysts employed by MFS.
46
<PAGE> 116
SUBADVISER: NWQ INVESTMENT MANAGEMENT COMPANY
NWQ LARGE CAP PORTFOLIO
NWQ Investment Management Company ("NWQ") serves as subadviser for NWQ Large
Cap Portfolio. NWQ was founded in 1982 and is located at 2049 Century Park
East, 4th Floor, Los Angeles, California 90067. It is a wholly owned subsidiary
of United Asset Management and provides investment management services to
institutional clients and high net worth individuals. As of the December 31,
1999, NWQ had over $8.1 billion in assets under management.
Under the agreement, TAMIC pays NWQ a subadvisory fee at the annual rate of
0.375% of the Fund's average daily net assets. The fee is accrued daily and
paid monthly. Since the Fund was new, no subadvisory fees were paid in 1997.
For the years ended December 31, 1998 and 1999, the subadvisory fees TAMIC paid
NWQ for NWQ Large Cap Portfolio were $10,025 and $53,252, respectively.
MANAGEMENT OF NWQ LARGE CAP PORTFOLIO. An investment committee is responsible
for the investment process and decisions of NWQ Large Cap Portfolio. E.C.
(Ted) Friedel, CFA, is primarily responsible for the Fund's day-to-day
management, with the assistance of the investment committee. The committee
comprises Mr. Friedel, Jon D. Bosse, CFA; Justin T. Clifford, David A. Polak,
CFA; Phyllis G. Thomas, CFA. Mr. Friedel is a managing director of NWQ and
portfolio manager with twenty-seven years of investment experience. He is a
member of the Association for Investment Management and Research.
SUBADVISER: THE TRAVELERS INVESTMENT MANAGEMENT COMPANY ("TIMCO")
DISCIPLINED MID CAP STOCK PORTFOLIO
DISCIPLINED SMALL CAP STOCK PORTFOLIO
STRATEGIC STOCK PORTFOLIO
TIMCO, located at One Tower Square, Hartford, CT 06183-2030, serves as the
investment subadviser to Disciplined Mid Cap Stock, Disciplined Small Cap Stock
and Strategic Stock Portfolios. A registered investment adviser since 1971,
TIMCO has been in the investment counseling business since 1967 and renders
investment advice to a number of institutional accounts as well as various
registered investment companies and insurance company separate accounts that
had total assets under management as of December 31, 1999 in excess of $4.4
billion. Subject to the supervision and direction of the Board, TIMCO manages
each Fund in accordance with its stated investment objective, policies, and
restrictions, makes investment decisions for the Funds, places orders to
purchase and sell securities, and employs professional portfolio managers and
securities analysts who provide the Funds with research services.
DISCIPLINED MID CAP STOCK PORTFOLIO. Under the agreement for Disciplined Mid
Cap Stock Portfolio, TIMCO is paid a subadvisory fee, accrued daily and payable
monthly, at the annual rate of 0.35% of the Fund's average daily net assets.
For the period ended December 31, 1997 and the years ended December 31, 1998
and 1999, the subadvisory fees TAMIC paid TIMCO for Disciplined Mid Cap Stock
Portfolio were $11,132, $37,544 and $106,197, 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 years ended December 31, 1998 and 1999, the subadvisory fees TAMIC paid
TIMCO for Disciplined Small Cap Stock Portfolio were $9,051 and $35,970,
respectively.
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 ended December 31, 1998
and for the year ended December 31, 1999, the subadvisory fees TAMIC paid TIMCO
for Strategic Stock Portfolio were $6,754 and $24,729, respectively.
MANAGEMENT OF DISCIPLINED MID CAP STOCK AND DISCIPLINED SMALL CAP STOCK
PORTFOLIOS. Sandip Bhagat, President and Chief Executive Officer of TIMCO, is
primarily responsible for the Funds' day-to-day operations, including making
all investment decisions. Mr. Bhagat has provided various investment advisory
and management services, research
47
<PAGE> 117
and trading since joining TIMCO in 1987. He is also Managing Director and Head
of Quantitative Equity Strategies at Smith Barney Asset Management. Mr. Bhagat
is also a member of the Research Committee of the Institute for Quantitative
Research in Finance, the Board of Directors of Chicago Quantitative Alliance,
the Association of Investment Management and Research, the New York Society of
Quantitative Analysts and the Hartford Society of Financial Analysts. He is a
Chartered Financial Analyst since 1991.
MANAGEMENT OF STRATEGIC STOCK PORTFOLIO. Philip Johanson is responsible for the
Fund's day-to-day operations, including making all investment decisions. . He
was appointed a Vice President of TIMCO in April of 1999. He currently is a
Senior Vice President and Portfolio Manager of the Structured Portfolios Group
of Smith Barney Asset Management. From 1987 to 1996, he was Assistant Portfolio
Manager with Smith Barney Equity Management, during which time he performed
both fundamental and technical research primarily on large-cap growth stocks
and acquired an advanced knowledge of portfolio management applications.
THE ADVISORY AGREEMENTS
Under the terms of their respective advisory and subadvisory agreements, the
parties to such agreements shall:
(1) obtain and evaluate pertinent economic, statistical and
financial data and other information relevant to the Funds'
investment policies, affecting the economy generally and
individual companies or industries, the securities of which
are included in the investment portfolios or are under
consideration for inclusion therein;
(2) be authorized to purchase supplemental research and other
services from brokers at an additional cost to the Funds;
(3) regularly furnish recommendations to the Board with respect
to an investment program for approval, modification or
rejection by the Board;
(4) take such steps as are necessary to implement the investment
programs approved by the Board; and
(5) regularly report to the Board with respect to implementation
of the approved investment programs and any other activities
in connection with the administration of the Funds' assets.
As required by the 1940 Act, each advisory and subadvisory agreement will
continue in effect for a period more than two years from the date of its
execution only so long as its continuance is specifically approved at least
annually: (1) by a vote of a majority of the Board, or (2) by a vote of a
majority of the particular Fund's outstanding voting securities. In addition,
and in either event, the terms of the advisory and subadvisory agreements must
be approved annually by a vote of a majority of the trustees who are not
parties to, or interested persons of any party to, an advisory or subadvisory
agreement, cast in person at a meeting called for the purpose of voting on such
approval and at which the Board is furnished such information as may be
reasonably necessary to evaluate the terms of the agreements. The advisory and
subadvisory agreements further provide that they will terminate automatically
upon assignment; may be amended only with prior approval of a majority of the
particular Fund's outstanding voting securities; may be terminated without the
payment of any penalty at any time upon sixty days' notice by the Board or by a
vote of a majority of the particular Fund's outstanding voting securities; and
may not be terminated by TAMIC without prior approval of a new investment
advisory agreement by a vote of a majority of the particular Fund's outstanding
voting securities.
REDEMPTIONS IN KIND
If conditions arise that would make it undesirable for a Fund to pay for all
redemptions in cash, the Fund may authorize payment to be made in portfolio
securities or other property.
The Trust, however, has obligated the Funds under the 1940 Act to redeem for
cash all shares presented to a Fund for redemption by any one shareholder in a
90-day period up to $250,000, or 1% of the Fund's net assets if that is less,
valued for this purpose as the securities are valued in computing the Fund's
net asset value per share. Shareholders receiving
48
<PAGE> 118
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 SSB Citi (collectively, the
"advisers"), in executing transactions in the Funds' portfolio securities, is
to seek best execution of orders at the most favorable prices. The
determination of what may constitute best execution and price in the execution
of a securities transaction by a broker involves a number of considerations,
including, without limitation:
- the overall direct net economic result to the Funds, involving both
price paid or received and any commissions and other cost paid;
- the efficiency with which the transaction is effected;
- the ability to effect the transaction at all where a large block is
involved;
- the availability of the broker to stand ready to execute potentially
difficult transactions in the future; and
- the financial strength and stability of the broker. Such
considerations are judgmental and are weighed by management in
determining the overall reasonableness of brokerage commissions paid.
Subject to the foregoing, one factor in the selection of brokers is
the receipt of research services, analyses and reports concerning
issuers, industries, securities, economic factors and trends, and
other statistical and factual information. Any such research and other
statistical and factual information provided by brokers to the Funds
and the advisers is considered to be in addition to and not in lieu of
services required to be performed by the advisers under their
respective advisory 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 SSSB Citi).
Accordingly, the advisers or their other clients may indirectly
benefit from the availability of such information. This situation may
create a conflict of interest for an adviser. Similarly, the Funds may
indirectly benefit from information made available as a result of
transactions for other clients of an adviser.
Purchases and sales of bonds and money market instruments usually are principal
transactions and normally are purchased directly from the issuer or from the
underwriter or market maker for the securities. There usually are no brokerage
commissions paid for such purchases. Purchases from the underwriters include
the underwriting commission or concession, and purchases from dealers serving
as market makers include the spread between the bid and asked prices. Where
transactions are made in the over-the-counter market, the advisers generally
deal with primary market makers unless more favorable prices are otherwise
obtainable. Brokerage fees are incurred in connection with futures
transactions, and the Funds are required to deposit and maintain funds with
brokers as margin to guarantee performance of future obligations.
Each adviser or subadviser may follow a policy of considering the sale of Fund
shares of the Trust a factor in the selection of broker-dealers to execute
portfolio transactions, subject to the requirements of best execution described
above.
The advisers' policies with respect to brokerage are and will be reviewed by
the Board periodically. Because of the possibility of further regulatory
developments affecting the securities exchanges and brokerage practices
generally, the foregoing practices may be changed, modified or eliminated.
Because the purchase and sale of bonds is a principal transaction there are no
brokerage commissions to report for Funds that buy bonds.
BROKERAGE COMMISSIONS
The following chart lists the total brokerage commissions paid by each Fund
during the last three years, and the total amount paid to brokers providing
research services and the total commission amount paid to such brokers for the
year
49
<PAGE> 119
ended December 31, 1999. Also provided is the dollar amount and percentage of
brokerage commissions paid to affiliated brokerage firms that provided research
services:
<TABLE>
<CAPTION>
Total Portfolio
Transactions Associated Commission paid
with Brokers to Such Brokers
Providing Research for Research
FUNDS 1999 1998 1997 Services in 1999 in 1999
- ----- ---- ---- ---- ----------------------- ----------------
<S> <C> <C> <C> <C> <C>
Convertible Bond Portfolio $ 0 $ 687 $ * $ 0 $ 0
Disciplined Mid Cap Stock Portfolio $ 74,104 $ 36,366 $ 12,415 $ 0 $ 0
Disciplined Small Cap Stock Portfolio $ 20,098 $ 15,275 $ * $ 0 $ 0
Equity Income Portfolio $ 368,290 $ 45,474 $ 10,045 $ 312,559,958 $ 326,694
Federated High Yield Portfolio $ 0 $ 162 $ * $ 0 $ 0
Federated Stock Portfolio $ 33,535 $ 39,535 $ 19,307 $ 0 $ 0
Jurika & Voyles Core Equity Portfolio $ $ 6,837 $ * $ $
Large Cap Portfolio $ 150,931 $ 43,861 $ 4,263 $ 147,862,317 $ 131,172
Lazard International Stock Portfolio $ 154,190 $ 110,258 $ 34,726 $ 0 $ 0
MFS Emerging Growth Portfolio $ 62,340 $ 209,288 $ 97,918 $ 0 $ 0
MFS Mid Cap Growth Portfolio $ 163,434 $ 18,640 $ * $ 0 $ 0
MFS Research Portfolio $ 23,030 $ 37,238 $ * $ 0 $ 0
NWQ Large Cap Portfolio $ 29,467 $ 9,593 $ * $ 0 $ 0
Strategic Stock Portfolio $ $ 5,354 $ * $ $
Social Awareness Stock Portfolio $ 39,427 $ 19,166 $ 12,571 $ 0 $ 0
Travelers Quality Bond Portfolio $ 0 $ 0 $ 0 $ $
U.S. Government Securities Portfolio $ 0 $ 0 $ 0 $ 0 $ 0
Utilities Portfolio $ 11,970 $ 0 $ 38,325 $ 0 $ 0
Zero Coupon Bond Fund Portfolio (Series 2000) $ 0 $ 0 $ 0 $ $
Zero Coupon Bond Fund Portfolio (Series 2005) $ 0 $ 0 $ 0 $ $
</TABLE>
*The Funds were not operational in those years.
No formula was used in placing such transactions, and no specific amount of
transactions was allocated for research services. Brokerage business placed with
brokers affiliated with any of the advisers or subadvisers during 1999 follows.
BROKERAGE BUSINESS PLACED WITH AFFILIATED BROKERS
<TABLE>
<CAPTION>
% of Fund's Aggregate
Dollar Amount of Transactions
Involving Commissions Per
$ Amount of % of Total Affiliated
Affiliated Broker Commissions Paid Commissions Paid Broker
- -------------------------------------- ------------------------ ---------------------- ------------------------------------
<S> <C> <C> <C>
DISCIPLINED MID CAP STOCK
Salomon Smith Barney $ 2,692.00 3.63% 3.46%
DISCIPLINED SMALL CAP STOCK
Smith Barney $ 1,162.00 5.78% 10.86%
MFS RESEARCH
Salomon Smith Barney $ 447.00 1.94% Less than 1%
NWQ LARGE CAP
Salomon Smith Barney Inc. $ 318.00 1.07% .82%
EQUITY INCOME
NFSC $ 21,690.00 5.89% 11.16%
LARGE CAP
NFSC $ 13,172.00 8.73% 16.95%
</TABLE>
50
<PAGE> 120
PORTFOLIO TURNOVER RATE
Although certain Funds do not intend to invest for the purpose of seeking
short-term profits, a Fund's investment adviser or subadviser may sell its
securities whenever the adviser or subadviser believes it is appropriate to do
so in light of the Fund's investment objective, without regard to the length of
time a particular security may have been held.
The following table shows significant variations in the portfolio turnover
rates for the Funds for the past two years. Variations in turnover rates may be
due to a fluctuating volume of purchase and redemption orders, market
conditions or changes in the Investment Advisers investment outlook.
<TABLE>
<CAPTION>
------------------------------------------- ------------------- -------------------
FUND 1998 1999
------------------------------------------- ------------------- -------------------
<S> <C> <C>
Convertible Bond 7% 79%
------------------------------------------- ------------------- -------------------
Disciplined Mid Cap Stock 109% 71%
------------------------------------------- ------------------- -------------------
Disciplined Small Cap Stock 89% 94%
------------------------------------------- ------------------- -------------------
Equity Income 34% 201%
------------------------------------------- ------------------- -------------------
Federated High Yield 31% 23%
------------------------------------------- ------------------- -------------------
Federated Stock 31% 23%
------------------------------------------- ------------------- -------------------
Jurika & Voyles Core Equity 26% 68%
------------------------------------------- ------------------- -------------------
Large Cap 112% 90%
------------------------------------------- ------------------- -------------------
Lazard International Stock 44% 35%
------------------------------------------- ------------------- -------------------
MFS Emerging Growth 77% 168%
------------------------------------------- ------------------- -------------------
MFS Mid Cap Growth 100% 162%
------------------------------------------- ------------------- -------------------
MFS Research 54% 85%
------------------------------------------- ------------------- -------------------
NWQ Large Cap 2% 41%
------------------------------------------- ------------------- -------------------
Social Awareness Stock 14% 12%
------------------------------------------- ------------------- -------------------
Strategic Stock 1% 80%
------------------------------------------- ------------------- -------------------
Travelers Quality Bond 364% 357%
------------------------------------------- ------------------- -------------------
U.S. Government Securities 349% 164%
------------------------------------------- ------------------- -------------------
Utilities 51% 10%
------------------------------------------- ------------------- -------------------
Zero Coupon Bond Fund, 2000 0% 0%
------------------------------------------- ------------------- -------------------
Zero Coupon Bond Fund, 2005 3% 18%
------------------------------------------- ------------------- -------------------
</TABLE>
51
<PAGE> 121
FUND ADMINISTRATION
The Trust, on behalf of all of the Funds, (except Equity Income and Large Cap
Portfolios) entered into an administrative services agreement during 1996,
whereby Travelers Insurance is responsible for each Fund's pricing and
bookkeeping services at an annualized rate of 0.06% of the Fund's daily net
assets. The Travelers Insurance Company at its expense may appoint a
subadministrator to perform these services. The subadministrator may be
affiliated with The Travelers Insurance Company. SSB Citi Fund Management LLC,
an affiliate of Travelers Insurance, has been appointed to serve in this
capacity.
The administrative fees the Trust paid SSB Citi for each Fund during the last
three calendar years were:
<TABLE>
<CAPTION>
FUNDS 1999 1998 1997
- ----- ----------- ----------- -----------
<S> <C> <C> <C>
Convertible Bond $ 4,430 $ 1,403 $ *
Disciplined Mid Cap Stock $ 18,204 $ 6,436 $ 1,907
Disciplined Small Cap Stock $ 5,396 $ 1,358 $ *
Federated High Yield $ 28,478 $ 17,138 $ 4,637
Federated Stock $ 26,113 $ 14,899 $ 4,424
Jurika & Voyles Core Equity $ 4,482 $ 1,320 $ *
Lazard International Stock $ 48,683 $ 17,955 $ 4,730
MFS Emerging Growth $ 138,979 $ 67,017 $ 22,991
MFS Mid Cap Growth $ 22,140 $ 3,145 $ *
MFS Research $ 51,312 $ 6,655 $ *
NWQ Large Cap $ 8,520 $ 1,604 $ *
Social Awareness Stock $ 32,806 $ 17,501 $ 9,600
Strategic Stock $ 7,418 $ 2,026 $ *
Travelers Quality Bond $ 30,414 $ 12,704 $ 3,860
U.S. Government Securities $ 37,886 $ 28,818 $ 17,467
Utilities $ 20,492 $ 15,543 $ 9,580
Zero Coupon Bond Fund (Series 2000) $ 1,190 $ 1,103 $ 999
Zero Coupon Bond Fund (Series 2005) $ 1,842 $ 1,566 $ 1,243
</TABLE>
* The Funds were not operational in those years.
The Trust, on behalf of Equity Income and Large Cap Portfolios entered into a
service agent agreement with Fidelity Service Company to provide pricing and
bookkeeping services to the two Funds at the annual rate of 0.06% of each
Fund's daily net assets under $500 million and 0.03% over $500 million. Each
Fund pays a minimum total annual fee of $60,000. For the years ended December
31, 1997, 1998 and 1999, the fund administration fees for Large Cap Portfolio
were $60,002, $60,099 and $64,778, respectively and for Equity Income Portfolio
were $60,008, $60,174 and $61,931, respectively.
SHAREHOLDER RIGHTS
Fund shares are currently sold only to insurance company separate accounts in
connection with variable annuity and variable life insurance contracts issued
by the Travelers Insurance Company and its affiliates. Shares are not sold to
the general public. Fund shares are sold on a continuing basis, without a sales
charge, at the net asset value next computed after payment is made by the
insurance company to the Fund's custodian. However, separate accounts to which
shares are sold may impose sales and other charges, as described in the
appropriate contract prospectus.
The Trust currently issues 20 series of shares, each representing interests in
a Fund. Shareholders of each series participate equally in dividends and
distributions and have equal voting, liquidation and other rights. When issued
for the consideration described in the prospectus, shares are fully paid and
nonassessable by the Trust and have no preference,
52
<PAGE> 122
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 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
53
<PAGE> 123
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.
It is not feasible to comment on all of the federal tax consequences concerning
the Funds. No further discussion of those consequences is included herein. For
information concerning the federal income tax consequences to the owners of
variable life insurance and annuity contracts, see the prospectuses for the
contracts.
The following is a partial list of publications that may be noted in the Funds'
sales literature or shareholder materials that contain articles describing
investment results or other data relative to one or more of the insurance
products that purchase Fund shares. Other publications may also be cited.
Across the Board Advertising Age
American Banker Barron's
Best's Review Broker World
Business Insurance Business Month
Business Week Changing Times
Consumer Reports The Economist
Financial Planning Financial World
Forbes Fortune
Inc. Institutional Investor
Insurance Forum Insurance Sales
Insurance Week Journal of Accountancy
Journal of the American Society of CLU & ChFC Journal of Commerce
Life Insurance Selling Life Association News
Manager's Magazine MarketFacts
Money Morningstar, Inc.
National Underwriter Nation's Business
New Choices (formerly 50 Plus) The New York Times
Pensions & Investments Pension World
Rough Notes Round the Table
U.S. Banker VARDs
The Wall Street Journal Working Woman
54
<PAGE> 124
FINANCIAL STATEMENTS
Each Fund's fiscal year end is December 31st. Financial statements for the
Funds' annual and semi-annual periods will be distributed to shareholders of
record. The financial statements of the Registrant and the Report of
Independent Accountants are contained in the Fund's Annual Report, which is
incorporated in the Statement of Additional Information by reference.
KPMG LLP, 757 Third Avenue, New York, NY 10017, has been selected as
independent auditors to examine and report on the Fund's financial statements,
except the Large Cap and Equity Income Portfolios for the year ending December
31, 2000. The financial statements for the Trust have been audited by KPMG LLP
for the fiscal year ended December 31, 1999.
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110, is
the independent auditors for Large Cap and Equity Income Portfolios. The
financial statements for these two Portfolios have been audited by
PricewaterhouseCoopers LLP, for the fiscal year ending December 31, 1999.
The financial statements of the Registrant and the Report of Independent
Accountants are contained in the Trust's Annual Report, which is incorporated
in the Statement of Additional Information by reference.
ADDITIONAL INFORMATION
On April 1, 2000, the Travelers Insurance Company and its affiliates owned 100%
of the Trust's outstanding shares. The Travelers Insurance Company is a stock
insurance company chartered in 1864 in Connecticut and continuously engaged in
the insurance business since that time. It is a wholly owned subsidiary of The
Travelers Insurance Group Inc., which is indirectly owned, through a wholly
owned subsidiary, by Citigroup Inc., a bank holding company. The Company's Home
Office is located at One Tower Square, Hartford, Connecticut 06183, telephone
number 860-277-0111.
Smith Barney Private Trust Company, 388 Greenwich Street, New York, NY 10013,
will maintain the records relating to its function as transfer agent for the
Trust, except the 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.
PFPC Global Fund Services (formerly First Data Investor Services Group, Inc.),
101 Federal Street, Boston, MA, 02110, will maintain records relating to its
function as the sub-transfer agent for the Trust.
PNC Bank NA, 17th and Chestnut Streets, Philadelphia, PA 19103 and The Chase
Manhattan Bank, 4 Chase MetroTech Center, Brooklyn, NY, 11245 are the Trust's
custodians. For Large Cap and Equity Income Portfolios, Brown Brothers Harriman
and Co. serves as the custodian.
Except as otherwise stated in its prospectus or as required by law, the Series
Trust reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or
change fees for services provided.
No dealer, salesman or other person is authorized to give any information or to
make any representation not contained in the Series Trust's prospectus, this
SAI or any supplemental sales literature issued by the Series Trust, and no
person is entitled to rely on any information or representation not contained
therein.
The Trust's prospectuses and this SAI omit certain information contained in the
Trust's registration statement filed with the Securities and Exchange
Commission that may be obtained from the Commission's principal office in
Washington, D.C. upon payment of the fee prescribed by the Rules and
Regulations promulgated by the Commission. Otherwise, investors may obtain the
Trust's registration statement for free by accessing the SEC's website at
http://www.sec.gov.
55
<PAGE> 125
APPENDIX
COMMERCIAL PAPER RATINGS
The Fund's investments in commercial paper are limited to those rated A-1 or
A-2 by S&P or PRIME-1 or PRIME-2 by MOODY'S. These ratings and other money
market instruments are described as follows.
Commercial paper rated A-1 by S&P has the following characteristics: liquidity
ratios are adequate to meet cash requirements. The issuer's long-term senior
debt is rated A or better, although in some cases BBB credits may be allowed.
The issuer has access to at least two additional channels of borrowing. Basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances. Typically, the issuer's industry is well established and the
issuer has a strong position within the industry.
Commercial paper rated A-2 by S&P indicates that capacity for timely payment is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated A-1.
Commercial paper rated PRIME-1 is the highest commercial paper rating assigned
by Moody's. Among the factors considered by Moody's in assigning ratings are
the following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation
of the issuer's products in relation to competition and customer acceptance;
(4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings
over a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the
management of obligations which may be present or may arise as a result of
public preparations to meet such obligations. Relative strength or weakness of
the above factors determines how the issuer's commercial paper is rated within
various categories.
Commercial paper rated PRIME-2 has a strong capacity for repayment of
short-term promissory obligations.
COMMON AND PREFERRED STOCK RATINGS
MOODY'S COMMON STOCK RATINGS
Moody's presents a concise statement of the important characteristics of a
company and an evaluation of the grade (quality) of its common stock. Data
presented include: (a) capsule stock information which reveals short and long
term growth and yield afforded by the indicated dividend, based on a recent
price; (b) a long term price chart which shows patterns of monthly stock price
movements and monthly trading volumes; (c) a breakdown of a company's capital
account which aids in determining the degree of conservatism or financial
leverage in a company's balance sheet; (d) interim earnings for the current
year to date, plus three previous years; (e) dividend information; (f) company
background; (g) recent corporate developments; (h) prospects for a company in
the immediate future and the next few years; and (i) a ten year comparative
statistical analysis.
This information provides investors with information on what a company does,
how it has performed in the past, how it is performing currently and what its
future performance prospects appear to be.
These characteristics are then evaluated and result in a grading, or indication
of quality. The grade is based on an analysis of each company's financial
strength, stability of earnings and record of dividend payments. Other
considerations include conservativeness of capitalization, depth and caliber of
management, accounting practices, technological capabilities and industry
position. Evaluation is represented by the following grades:
(1) High Grade
(2) Investment Grade
(3) Medium Grade
(4) Speculative Grade
56
<PAGE> 126
MOODY'S PREFERRED STOCK RATINGS
Preferred stock ratings and their definitions are as follows:
1. aaa: An issue that is rated aaa is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
2. aa: An issue that is rated aa is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance that earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
3. a: An issue that is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the aaa
and aa classification, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
4. baa: An issue that is rated baa is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
5. ba: An issue that is rated ba is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
6. b: An issue that is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
7. caa: An issue that is rated caa is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
8. ca: An issue that is rated ca is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payments.
9. c: This is the lowest rated class of preferred or preference stock. Issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating classification:
the modifier 1 indicates that the security ranks in the higher end of its
generic rating category, the modifier 2 indicates a midrange ranking, and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
CORPORATE BOND RATINGS
S&P CORPORATE BOND RATINGS
An S&P corporate bond rating is a current assessment of the creditworthiness of
an obligor, including obligors outside the United States, with respect to a
specific obligation. This assessment may take into consideration obligors such
as guarantors, insurers, or lessees. Ratings of foreign obligors do not take
into account currency exchange and related uncertainties. The ratings are based
on current information furnished by the issuer or obtained by S&P from other
sources it considers reliable.
The ratings are based, in varying degrees, on the following considerations:
a. Likelihood of default capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
b. Nature of and provisions of the obligation; and
c. Protection afforded by and relative position of the obligation in the event
of bankruptcy, reorganization or other
57
<PAGE> 127
arrangement under the laws of bankruptcy and other laws affecting creditors'
rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of credit quality,
ratings from AA to A may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories.
Bond ratings are as follows:
1. AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
2. AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
3. A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
4. BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Although it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
5. BB, B, CCC, CC and C - Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation, and C the highest degree of
speculation. While such debt likely will have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
MOODY'S CORPORATE BOND RATINGS
Moody's ratings are as follows:
1. Aaa - Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are not likely to
impair the fundamentally strong position of such issues.
2. Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. Aa bonds are rated lower than Aaa bonds because margins of
protection may not be as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude, or there may be other elements present
that make the long term risks appear somewhat larger than in Aaa securities.
3. A - Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
4. Baa - Bonds that are rated Baa are considered as medium grade obligations,
that is, they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
5. Ba - Bonds that are rated Ba are judged to have speculative elements. Their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
6. B - Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
58
<PAGE> 128
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 F-l+=.
3. A - Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
4. BBB - Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
5. BB - Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
6. B - Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflect the obligor's limited margin
of safety and the need for reasonable business and economic activity through
out the life of the issue.
7. CCC - Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
8. CC - Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
9. C - Bonds are in imminent default in payment of interest or principal.
10. DDD, DD and D - Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. ADDD=
represents the highest potential for recovery on these bonds, and D
represents the lowest potential for recovery.
PLUS (+) MINUS (-) - Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAAA=, ADDD,. ADD,= or AD=
categories.
59
<PAGE> 129
STATEMENT OF ADDITIONAL INFORMATION
THE TRAVELERS SERIES TRUST
CONVERTIBLE BOND PORTFOLIO
DISCIPLINED MID CAP STOCK PORTFOLIO
DISCIPLINED SMALL CAP STOCK PORTFOLIO
EQUITY INCOME PORTFOLIO
FEDERATED HIGH YIELD PORTFOLIO
FEDERATED STOCK PORTFOLIO
JURIKA & VOYLES CORE EQUITY PORTFOLIO
LARGE CAP PORTFOLIO
LAZARD INTERNATIONAL STOCK PORTFOLIO
MFS EMERGING GROWTH PORTFOLIO
MFS MID CAP GROWTH PORTFOLIO
MFS RESEARCH PORTFOLIO
NWQ LARGE CAP PORTFOLIO
SOCIAL AWARENESS STOCK PORTFOLIO
STRATEGIC STOCK PORTFOLIO
TRAVELERS QUALITY BOND PORTFOLIO
U.S. GOVERNMENT SECURITIES PORTFOLIO
UTILITIES PORTFOLIO
ZERO COUPON BOND FUND PORTFOLIOS (SERIES 2000 AND 2005)
L-11788S TIC Ed 5-2000
60
<PAGE> 130
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.)
<PAGE> 131
(d)(9) Investment Advisory Agreement between Large Cap Portfolio of the
Registrant and Travelers Asset Management International Corporation.
(Incorporated herein by reference to Exhibit 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.)
<PAGE> 132
(d)(20) Sub-Advisory Agreement between Travelers Asset Management
International Corporation and The Travelers Investment Management
Company, as Subadviser to the Mid-Cap 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.)
<PAGE> 133
(d)(31) Form of Investment Advisory Agreement between Travelers Asset
Management International Corporation and the Strategic Stock
Portfolio of the Registrant. (Incorporated herein by 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.)
(g)(6) Custody Agreement between The Chase Manhattan Bank as Subcustodian
and the PNC Bank. To be provided in a subsequent amendment.
(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.)
<PAGE> 134
(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.)
(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.)
(h)(8) Agency Agreement between Smith Barney Private Trust Company and the
Registrant. To be provided in a subsequent amendment.
(h)(9) Sub-Transfer Agency and Services Agreement between Smith Barney
Private Trust Company First Data Investor Services Group. To be
provided in a subsequent amendment.
(i) Opinion and Consent of Counsel. (Incorporated herein by reference to
the Registrant's most recent Rule 24f-2 Notice filing on March 25,
1998.)
(j)(1) Consent of KPMG LLP, Independent Certified Public Accountants.
(j)(2) Consent of PricewaterhouseCoopers LLP, Independent Accountants.
(j)(3) Powers of Attorney authorizing Ernest J. Wright, Secretary or
Kathleen A. McGah, Assistant Secretary as signatory for Heath B.
McLendon, Knight Edwards, Robert E. McGill III, Lewis Mandell,
Frances M. Hawk and Ian R. Stuart. (Incorporated herein by reference
to Exhibit 11(b) to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A, filed April 3, 1996.)
(j)(4) Power of Attorney authorizing Ernest J. Wright or Kathleen A. McGah
as signatory for Lewis E. Daidone. (incorporated herein by reference
to Exhibit 11 to Post-Effective Amendment No. 18 to the Registration
Statement on Form N-1A filed on February 24, 1997.)
(p) Code of Ethics. To be filed in a subsequent 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.
<PAGE> 135
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.
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 Core Equity Portfolio
Strategic Stock Portfolio
Convertible Bond Portfolio
Information as to the Officers and Directors of Travelers Asset Management
International Company LLC (TAMIC), the Investment Adviser for the above
Portfolios of The Travelers Series Trust, is included in its Form ADV filed
with the SEC (Registration Number 801-17003) and is incorporated herein by
reference thereto.
Information as to the Directors and Officers of SSB Citi Fund Management LLC.
("SSB Citi) the Investment Adviser for the Social Awareness Stock Portfolio and
Utilities Portfolio of The Travelers Series Trust, is included in its Form ADV
filed with the SEC (Registration Number 801-8314) and is incorporated herein by
reference thereto.
Information as to the Officers and Directors of The Travelers Investment
Management Company (TIMCO), the Sub-Adviser for the Disciplined Mid Cap Stock,
Disciplined Small Cap and Strategic Stock Portfolios of The Travelers Series
Trust, is included in its Form ADV filed with the SEC (Registration Number
801-07212) and is incorporated herein by reference thereto.
Information as to the Directors and Officers of Massachusetts Financial
Services Company, the Sub-Adviser to MFS Emerging Growth Portfolio, MFS Mid Cap
Growth Portfolio, MFS Research Portfolio of the Registrant, is in included in
its Form ADV (File No. 801-17352) filed with the Commission, which is
incorporated herein by reference thereto.
<PAGE> 136
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, serves as the investment subadviser to the
Lazard International Stock Portfolio. Information as to the General Members in
included in its Form ADV (File No. 801-6568) filed with the Commission, which
is incorporated herein by reference thereto.
Information as to the Directors and Officers of Federated Investment
Counseling, the Sub-Adviser to Federated Stock Portfolio and Federated High
Yield Portfolio of the Registrant, is in included in its Form ADV (File No.
801-134611) filed with the Commission, which is incorporated herein by
reference thereto.
Information as to the Executive Officers and Directors of Fidelity Management &
Research Company, the Sub-Adviser to Equity Income Portfolio and Large Cap
Portfolio of the Registrant, is in included in its Form ADV (File No. 801-7884)
filed with the Commission, which is incorporated herein by reference thereto.
Information as to the Directors and Officers of NWQ Investment Management
Company, the Subadviser to the NWQ Large Cap Portfolio of the Registrant, is in
included in its Form ADV (File No. 801-42159) filed with the Commission, which
is incorporated herein by reference thereto.
Information as to the Directors and Officers of Jurika & Voyles L.P., the
Subadviser to the Jurika & Voyles Core Equity Portfolio of the Registrant, is
in included in its Form ADV (File No. 801-53366) filed with the Commission,
which is incorporated herein by reference thereto.
Item 27. Principal Underwriter
Not Applicable.
Item 28. Location of Accounts and Records
(1) SSB Citi Fund Management LLC
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.
4 Chase MetroTech Center
Brooklyn, NY 11245
(5) PNC Bank, N.A.
200 Stevens Drive
Lester, PA 19113
(6) Brown Brothers Harriman & Company
40 Water Street
Boston, MA 02109
<PAGE> 137
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> 138
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, The Travelers Series Trust, certifies that
it meets all the requirements for effectiveness of this post-effective
amendment to this Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this amendment to this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Hartford and state of Connecticut, on the 20th day
of April, 2000.
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 20th day of April, 2000.
*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> 139
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ---- ------------ ----------------
<S> <C> <C>
(j)(1) Consent of KPMG LLP, Independent Certified Public Electronically
Accountants.
(j)(2) Consent of PricewaterhouseCoopers LLP, Electronically
Independent Accountants
</TABLE>
<PAGE> 1
Exhibit (j)(1)
INDEPENDENT AUDITORS' CONSENT
To the Shareholders and Board of Trustees of
The Travelers Series Trust:
We consent to the incorporation by reference, with respect to the portfolios
listed below for the Travelers Series Trust in this Prospectus and Statement of
Additional Information, of our report dated February 11, 2000, on the statement
of assets and liabilities, and the related statement of operations, the
statements of changes in net assets, and the financial highlights for each of
the periods described below. These financial statements and financial
highlights and our report thereon are included in the Annual Report of the Fund
as filed on Form N-30D.
We also consent to the references to our firm under the headings "Financial
Highlights" in the Prospectus and "Financial Statements" in the Statement of
Additional Information.
PORTFOLIO
<TABLE>
<S> <C> <C>
Zero Coupon Bond Fund Portfolio Series 2000 Statement of Assets and Liabilities Year ended December 31, 1999
Zero Coupon Bond Fund Portfolio Series 2005 Statement of Operations Year ended December 31, 1999
U.S. Government Securities Portfolio Statements of Changes in Net Assets Two years ended December 31, 1999
Social Awareness Stock Portfolio Financial Highlights Three years ended December 31, 1999
Utilities Portfolio
NWQ Large Cap Portfolio Statement of Assets and Liabilities Year ended December 31, 1999
Jurika & Voyles Core Equity Portfolio Statement of Operations Year ended December 31, 1999
Statements of Changes in Net Assets Year ended December 31, 1999 and for
the period from July 20, 1998 to
December 31, 1998
Financial Highlights Year ended December 31, 1999 and for
the period from July 20, 1998 to
December 31, 1998
MFS Mid Cap Growth Portfolio Statement of Assets and Liabilities Year ended December 31, 1999
MFS Research Portfolio Statement of Operations Year ended December 31, 1999
Statements of Changes in Net Assets Year ended December 31, 1999 and for
the period from March 23, 1998 to
December 31, 1998
Financial Highlights Year ended December 31, 1999 and for
the period from March 23, 1998 to
December 31, 1998
Convertible Bond Portfolio Statement of Assets and Liabilities Year ended December 31, 1999
Strategic Stock Portfolio Statement of Operations Year ended December 31, 1999
Disciplined Small Cap Stock Portfolio Statements of Changes in Net Assets Year ended December 31, 1999 and for
the period from May 1, 1998 to
December 31, 1998
Financial Highlights Year ended December 31, 1999 and for
The period from May 1, 1998 to
December 31, 1998
Disciplined Mid Cap Stock Portfolio Statement of Assets and Liabilities Year ended December 31, 1999
Statement of Operations Year ended December 31, 1999
Statements of Changes in Net Assets Two years ended December 31, 1999
Financial Highlights Two years ended December 31, 1999
and for the period from April 1, 1997
to December 31, 1997
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
Travelers Quality Bond Portfolio Statement of Assets and Liabilities Year ended December 31, 1999
MFS Emerging Growth Portfolio Statement of Operations Year ended December 31, 1999
Federated High Yield Portfolio Statements of Changes in Net Assets Two years ended December 31, 1999
Federated Stock Portfolio Financial Highlights Three years ended December 31, 1999
and for the period from August 30,
1996 to December 31, 1996
Lazard International Stock Portfolio Statement of Assets and Liabilites Year ended December 31, 1999
Statement of Operations Year ended December 31, 1999
Statements of Changes in Net Assets Two years ended December 31, 1999
Financial Highlights Three years ended December 31, 1999
and for the period from August 1, 1996 to
December 31, 1996
</TABLE>
KPMG LLP
New York, New York
April 19, 2000
<PAGE> 1
Exhibit (j)(2)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 27 to the Registration Statement on Form N-1A (the "Registration
Statement") of our report dated February 9, 2000, relating to the financial
statements and financial highlights appearing in the December 31, 1999 Annual
Report to Shareholders of Equity Income Portfolio and Large Cap Portfolio, two
of the funds comprising The Travelers Series Trust.
We also consent to the references to our firm under the heading "Financial
Highlights" in the Prospectus and under the heading "Financial Statements" in
the Statement of Additional Information related to Equity Income Portfolio and
Large Cap Portfolio.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 17, 2000
