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[GRAPHIC APPEARS HERE]
PROSPECTUS
---------------------------
Vintage
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SMITH BARNEY/TRAVELERS SERIES FUND INC.
SMITH BARNEY INCOME AND GROWTH PORTFOLIO
July Seventeenth
1996
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SMITH BARNEY/TRAVELERS SERIES FUND INC.
388 Greenwich Street
New York, New York 10013
1-800-842-8573
The Smith Barney Income and Growth Portfolio is one of twelve portfolios
that currently comprise Smith Barney/Travelers Series Fund Inc. (the "Fund"),
the investment underlying certain variable annuity and variable life insurance
contracts.
The Investment objectives of the Smith Barney Income and Growth Portfolio
are current income and long-term growth of income and capital. The Portfolio
attempts to achieve its objectives by investing primarily, but not exclusively,
in common stocks.
Shares of the Fund are offered only to insurance company separate accounts
(the "Separate Accounts"), which fund certain variable annuity and variable life
insurance contracts (the "Contracts"). The Separate Accounts invest in shares of
one or more of the Portfolios in accordance with allocation instructions
received from Contract owners. Such allocation rights are further described in
the accompanying Contract prospectus.
Shares of each Portfolio are offered to Separate Accounts at their net
asset value, without a sales charge, next determined after receipt of an order
by an insurance company. The offering of shares of a Portfolio may be suspended
from time to time and the Fund reserves the right to reject any specific
purchase order.
THIS PROSPECTUS, WHICH SETS FORTH CONCISE INFORMATION ABOUT THE FUND THAT
PROSPECTIVE INVESTORS SHOULD KNOW BEFORE INVESTING, SHOULD BE READ AND RETAINED
FOR FUTURE REFERENCE. A STATEMENT OF ADDITIONAL INFORMATION, ALSO REFERRED TO AS
"PART B", DATED FEBRUARY 28, 1996 AS AMENDED FROM TIME TO TIME IS HEREBY
INCORPORATED BY REFERENCE INTO THIS PROSPECTUS AND IS AVAILABLE FROM THE FUND,
WITHOUT CHARGE, BY WRITING TO THE FUND AT THE ABOVE ADDRESS OR CALLING THE
TELEPHONE NUMBER LISTED ABOVE.
This Prospectus should be read in conjunction with the prospectus for the
Contracts.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JULY 17, 1996.
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TABLE OF CONTENTS
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FINANCIAL HIGHLIGHTS ...................................................... 1
THE FUND'S INVESTMENT PROGRAM ............................................. 2
Smith Barney Income and Growth Portfolio ............................... 2
SPECIAL INVESTMENT TECHNIQUES AND RISK CONSIDERATIONS ..................... 3
DIVIDENDS, DISTRIBUTIONS AND TAXES ........................................ 5
REDEMPTION OF SHARES ...................................................... 5
PERFORMANCE ............................................................... 6
MANAGEMENT ................................................................ 6
SHARES OF THE FUND ........................................................ 8
DETERMINATION OF NET ASSET VALUE .......................................... 9
APPENDIX A ................................................................. 11
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FINANCIAL HIGHLIGHTS
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The following information for the year ended October 31, 1995 and the
period ended October 31, 1994 has been audited in conjunction with the annual
audits of the financial statements of the Fund by KPMG Peat Marwick LLP,
independent auditors. The 1995 financial statements and the independent
auditors' report thereon appear in the October 31, 1995 Annual Report to
Shareholders.
For a share of each capital stock outstanding throughout the period:
<TABLE>
<CAPTION>
Smith Barney Income and Growth
------------------------------
1995 1994(1)
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<S> <C> <C>
Net Asset Value, Beginning of Period $10.14 $10.00
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Income From Operations:
Net investment income (2) 0.28 0.11
Net realized and unrealized gain 1.76 0.03
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Total Income from Operations 2.04 0.14
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Less Distributions From:
Net investment income (0.06) --
Net realized gains -- --
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Total Distributions (0.06) --
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Net Asset Value, End of Period $12.12 $10.14
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Total Return 20.21% 1.40%++
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Net Assets, End of Period (000's) $39,364 $6,377
Ratios to Average Net Assets:
Expenses (2) 0.73% 0.73%+
Net investment income 2.70 2.82 +
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Portfolio Turnover Rate 38.39% 2.17%
================================================================================
Average commissions paid
on equity security transactions(3) $0.07 --
================================================================================
</TABLE>
(1) For the period from June 16, 1994 (commencement of operations) to October
31, 1994.
(2) Smith Barney Mutual Funds Management Inc. (the "Manager") has waived all or
part of its fees for the year ended October 31, 1995 and the period ended
October 31, 1994. In addition, the Manager has reimbursed the Smith Barney
Income and Growth Portfolio for $13,120 in expenses for the period ended
October 31, 1994. If such fees were not waived and expenses not reimbursed,
the per share decreases in net investment income and the ratios of expenses
to average net assets for the Smith Barney Income and Growth Portfolio
would have been as follows:
<TABLE>
<CAPTION>
Expense Ratios
Per Share Decreases Without Fee Waivers
in Net Investment Income and Reimbursement
------------------------ -------------------
<S> <C> <C>
1995 $0.02 0.94%
1994 0.05 2.08+
</TABLE>
(3) Due to new SEC disclosure guidelines, average commissions per share are
calculated for the current year and not for the prior period.
(+) Annualized.
(++) Total return is not annualized, as it may not be representative of the
total return for the year.
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1
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THE FUND'S INVESTMENT PROGRAM
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The Fund consists of twelve investment portfolios, one of which is offered
herein. Each Portfolio has its own investment objective and policies as
described in more detail below. Of course, no assurance can be given that a
Portfolio's objective will be achieved. Investors should realize that risk of
loss is inherent in the ownership of any securities and that shares of each
Portfolio will fluctuate with the market value of its securities. Additional
information about each Portfolio's investment policies and investment risks can
be found herein under "Special Investment Techniques and Risk Considerations"
and in the Statement of Additional Information.
The investment objectives and certain investment restrictions designated as
such in the Statement of Additional Information are fundamental and may not be
changed by the Directors without shareholder approval. Each Portfolio's
investment policies, however, are not fundamental and may be changed by the
Directors without shareholder approval.
Smith Barney Income and Growth Portfolio
Investment Objectives
The investment objectives of the Smith Barney Income and Growth Portfolio
are current income and long-term growth of income and capital. The Portfolio
attempts to achieve its objectives by investing primarily, but not exclusively,
in common stocks. The Portfolio is managed by Smith Barney Mutual Funds
Management Inc. ("SBMFM" or the "Manager")(See "Management--Smith Barney Mutual
Funds Management Inc.").
Investment Policies
The Smith Barney Income and Growth Portfolio invests primarily in common
stocks offering a current return from dividends and in interest-paying debt
obligations (such as U.S. Government securities, investment grade bonds and
debentures) and high quality short-term debt obligations (such as commercial
paper and repurchase agreements collateralized by U.S. Government securities
with broker/dealers or other financial institutions). At least 65% of the
Portfolio's assets will at all times be invested in equity securities. The
Portfolio may also purchase preferred stocks and convertible securities. In the
selection of common stock investments, emphasis is generally placed on issues
with established dividend records as well as potential for price appreciation.
From time to time, however, a portion of the assets may be invested in
non-dividend paying stocks. Under unusual economic or market conditions as
determined by the Manager, for defensive purposes the Portfolio may temporarily
invest all or a major portion of its assets in short-term U.S. Government
securities. A higher percentage of debt securities may also be held when deemed
advisable by the Manager. To the extent the Portfolio's assets are invested for
temporary defensive purposes, such assets will not be invested in a manner
designed to achieve the Portfolio's investment objectives.
The Portfolio may make investments in foreign securities, though management
currently intends to limit such investments to 5% of the Portfolio's assets, and
an additional 10% of its assets may be invested in sponsored American Depositary
Receipts, which are certificates issued by U.S. banks representing the right to
receive securities of a foreign issuer deposited with that bank or a
correspondent bank. The Portfolio will ordinarily purchase foreign securities
that are traded in the U.S. It may, however, also purchase the securities of
foreign issuers directly in foreign markets. The Portfolio may also lend up to
20% of the value of its total assets and may purchase or sell securities on a
when-issued or delayed delivery basis.
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SPECIAL INVESTMENT TECHNIQUES AND RISK CONSIDERATIONS
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Foreign Securities. The Smith Barney Income and Growth Portfolio may
purchase securities issued by foreign governments, corporations or banks.
Investments in foreign securities involve risks that are different in some
respects from investments in securities of U.S. issuers, such as the risk of
fluctuations in the value of the currencies in which they are denominated, the
risk of adverse political, social, economic and diplomatic developments, the
possible imposition of exchange controls or other foreign governmental laws or
restrictions and, with respect to certain countries, the possibility of
expropriation of assets, nationalization or confiscatory taxation or limitations
on the removal of funds or other assets of the Portfolio. Securities of some
foreign companies and banks are less liquid and more volatile than securities of
comparable domestic companies and banks. Non-U.S. securities markets, while
growing in volume have, for the most part, substantially less volume than U.S.
markets, and there is generally less government supervision and regulation of
exchanges, brokers and issuers than there is in the U.S. Dividend and interest
income from non-U.S. securities will generally be subject to withholding taxes
by the country in which the issuer is located and may not be recoverable by the
Portfolio or the investors. There also may be less publicly available
information about foreign issuers than domestic issuers, and foreign issuers
generally are not subject to the uniform accounting, auditing and financial
reporting standards, practices and requirements applicable to domestic issuers.
Delays may be encountered in settling securities transactions in certain foreign
markets, and the Portfolio will incur costs in converting foreign currencies
into U.S. dollars. Custody and transaction charges are generally higher for
foreign securities. There is also a risk of the adoption of government
regulations that might adversely affect the payment of principal and interest on
securities held by the Portfolio. In addition, the Portfolio may encounter
greater difficulties in invoking legal processes abroad than would be the case
in the U.S. Finally, changes in foreign currency exchange rates will, to the
extent the Portfolio does not adequately hedge against such fluctuations, affect
the value of securities in its portfolio and the unrealized appreciation or
depreciation of investments so far as U.S. investors are concerned.
Securities Lending. The Portfolio may seek to increase its net investment
income by lending portfolio securities to unaffiliated brokers, dealers and
other financial institutions, provided such loans are callable at any time and
are continuously secured by cash or U.S. Government securities or other high
grade liquid debt securities equal to no less than the market value, determined
daily, of the securities loaned. The risks in lending portfolio securities
consist of possible delay in receiving additional collateral or in the recovery
of the securities or possible loss of rights in the collateral should the
borrower fail financially.
Repurchase Agreements. The Portfolio may on occasion enter into repurchase
agreements, wherein the seller agrees to repurchase a security from the
Portfolio at an agreed-upon future date, normally the next business day. The
resale price is greater than the purchase price, which reflects the agreed-upon
rate of return for the period the Portfolio holds the security and which is not
related to the coupon rate on the purchased security. The Portfolio requires
continual maintenance of the market value of the collateral in amounts at least
equal to the resale price, thus risk is limited to the ability of the seller to
pay the agreed-upon amount on the delivery date; however, if the seller
defaults, realization upon the collateral by the Portfolio may be delayed or
limited or the Portfolio might incur a loss if the value of the collateral
securing the repurchase agreement declines and might incur disposition costs in
connection with liquidating the collateral. Repurchase agreements are considered
loans by the Portfolio. The Portfolio will only enter into repurchase agreements
with broker/dealers or other financial institutions that are deemed creditworthy
by management, under guidelines approved by the Board of Directors.
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3
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When-Issued, Delayed Delivery and Forward Commitment Securities. The
Portfolio may purchase or sell securities on a when-issued, delayed delivery or
forward commitment basis. Such transactions arise when securities are purchased
or sold by the Portfolio with payment and delivery taking place in the future in
order to secure what is considered to be an advantageous price and yield to the
Portfolio at the time of entering into the transaction. Purchasing such
securities involves the risk of loss if the value of the securities declines
prior to settlement date. The sale of securities for delayed delivery involves
the risk that the prices available in the market on the delivery date may be
greater than those obtained in the sale transaction. The Portfolio's custodian
will maintain, in a segregated account on behalf of the Portfolio, cash, U.S.
Government securities or other liquid high-grade debt obligations having a value
equal to or greater than the Portfolio's purchase commitments; the custodian
will likewise segregate securities sold on a delayed basis.
Convertible Securities. The Portfolio can invest in convertible securities.
Convertible securities are fixed-income securities that may be converted at
either a stated price or stated rate into underlying shares of common stock.
Convertible securities have general characteristics similar to both fixed-income
and equity securities. Although to a lesser extent than with fixed-income
securities, the market value of convertible securities tends to decline as
interest rates increase and, conversely, tends to increase as interest rates
decline. In addition, because of the conversion feature, the market value of
convertible securities tends to vary with fluctuations in the market value of
the underlying common stocks and, therefore, also will react to variations in
the general market for equity securities.
Convertible securities are investments which provide for a stable stream of
income with generally higher yields than common stocks. There can be no
assurance of current income because the issuers of the convertible securities
may default on their obligations. Synthetic convertible securities differ from
convertible securities in certain respects, including that each component of a
synthetic convertible security has a separate market value and responds
differently to market fluctuations. Investing in synthetic convertible
securities involves the risk normally involved in holding the securities
comprising the synthetic convertible security.
Borrowing. The Portfolio may borrow from banks, on a secured or unsecured
basis.
Illiquid and Restricted Securities. The Portfolio may purchase securities
that are not registered ("restricted securities") under the Securities Act of
1933, as amended (the "1933 Act"), but can be offered and sold to "qualified
institutional buyers" under Rule 144A under the 1933 Act ("Rule 144A"). The
Portfolio may also invest a portion of its assets in illiquid investments, which
include repurchase agreements maturing in more than seven days and restricted
securities. The Board of Directors may determine, based upon a continuing review
of the trading markets for the specific restricted security, that such
restricted securities are liquid. The Board of Directors has adopted guidelines
and delegated to management the daily function of determining and monitoring
liquidity of restricted securities available pursuant to Rule 144A. The Board,
however, retains sufficient oversight and is ultimately responsible for the
determinations. Since it is not possible to predict with assurance exactly how
the market for Rule 144A restricted securities will develop, the Board will
carefully monitor the Portfolio's investments in these securities, focusing on
such important factors, among others, as valuation, liquidity and availability
of information. Investments in restricted securities could have the effect of
increasing the level of illiquidity in the Portfolio to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these restricted securities. The Portfolio may also purchase restricted
securities that are not registered under Rule 144A.
U.S. Government Securities. The Portfolio may invest in U.S. Government
securities, which are debt obligations issued or guaranteed as to payment of
principal and interest by the U.S. Government (including Treasury bills, notes
and bonds, certain mortgage participation certificates and collateralized
mortgage
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4
<PAGE>
obligations) or by its agencies and instrumentalities (such as GNMA,
the Student Loan Marketing Association, the Tennessee Valley Authority, the Bank
for Cooperatives, the Farmers Home Administration, Federal Farm Credit Banks,
Federal Home Loan Banks, Federal Intermediate Credit Banks, Federal Land Banks,
the Export-Import Bank of the U.S., the Federal Housing Administration, FHLMC,
the U.S. Postal Service, the Federal Financing Bank and FNMA). Some of these
securities (such as Treasury bills) are supported by the full faith and credit
of the U.S. Treasury; others (such as obligations of the Federal Home Loan Bank)
are supported by the right of the issuer to borrow from the Treasury; while
still others (such as obligations of FNMA and the Student Loan Marketing
Association) are supported only by the credit of the instrumentality.
Portfolio Turnover. Although it is anticipated that most investments of the
Portfolio will be long-term in nature, the rate of portfolio turnover will
depend upon market and other conditions, and it will not be a limiting factor
when management believes that portfolio changes are appropriate. The Portfolio's
historical portfolio turnover rates are included in the Financial Highlights
tables above. A higher rate of portfolio turnover may result in higher
transaction costs, including brokerage commissions.
DIVIDENDS, DISTRIBUTIONS AND TAXES
================================================================================
The Smith Barney Income and Growth Portfolio intends to qualify as a
"regulated investment company" under Subchapter M of the Code. To qualify, the
Portfolio must meet certain tests, including distributing at least 90% of its
investment company taxable income, and deriving less than 30% of its gross
income from the sale or other disposition of certain investments held for less
than three months. The Portfolio intends at least annually to declare and make
distributions of substantially all of its taxable income and net taxable capital
gains to its shareowners (i.e. the Separate Accounts). Such distributions are
automatically reinvested in additional shares of the Portfolio at net asset
value and are includable in gross income of the Separate Accounts holding such
shares. See the accompanying Contract prospectus for information regarding the
federal income tax treatment of distributions to the Separate Accounts and to
holders of the Contracts.
The Portfolio is also subject to asset diversification regulations
promulgated by the U.S. Treasury Department under the Code. The regulations
generally provide that, as of the end of each calendar quarter or within 30 days
thereafter, no more than 55% of the total assets of the Portfolio may be
represented by any one investment, no more than 70% by any two investments, no
more than 80% by any three investments, and no more than 90% by any four
investments. For this purpose all securities of the same issuer are considered a
single investment. If the Portfolio should fail to comply with these
regulations, Contracts invested in the Portfolio would not be treated as
annuity, endowment or life insurance contracts under the Code.
REDEMPTION OF SHARES
================================================================================
The redemption price of the shares of the Portfolio will be the net asset
value next determined after receipt by the Fund of a redemption order from a
Separate Account, which may be more or less than the price paid for the shares.
The Fund will ordinarily make payment within one business day, though redemption
proceeds must be remitted to a Separate Account on or before the third day
following receipt of proper tender, except on a day on which the New York Stock
Exchange is closed or as permitted by the SEC in extraordinary circumstances.
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PERFORMANCE
================================================================================
From time to time the Fund may include the Portfolio's total return,
average annual total return, yield and current distribution return in
advertisements and/or other types of sales literature. These figures are based
on historical earnings and are not intended to indicate future performance. In
addition, these figures will not reflect the deduction of the charges that are
imposed on the Contracts by the Separate Account (see Contract prospectus)
which, if reflected, would reduce the performance quoted. Total return is
computed for a specified period of time assuming reinvestment of all income
dividends and capital gains distributions at net asset value on the ex-dividend
dates at prices calculated as stated in this Prospectus, then dividing the value
of the investment at the end of the period so calculated by the initial amount
invested and subtracting 100%. The standard average annual total return, as
prescribed by the SEC, is derived from this total return, which provides the
ending redeemable value. Such standard total return information may also be
accompanied with nonstandard total return information over different periods of
time by means of aggregate, average, year-by-year, or other types of total
return figures. The yield of the Portfolio refers to the net investment income
earned by investments in the Portfolio over a thirty-day period. This net
investment income is then annualized, i.e., the amount of income earned by the
investments during that thirty-day period is assumed to be earned each 30-day
period for twelve periods and is expressed as a percentage of the investments.
The yield quotation is calculated according to a formula prescribed by the SEC
to facilitate comparison with yields quoted by other investment companies. The
Fund calculates current distribution return for the Portfolio by dividing the
distributions from investment income declared during the most recent period by
the net asset value on the last day of the period for which current distribution
return is presented. The Portfolio's current distribution return may vary from
time to time depending on market conditions, the composition of its investment
portfolio and operating expenses. These factors and possible differences in the
methods used in calculating current distribution return, and the charges that
are imposed on the Contracts by the Separate Account, should be considered when
comparing the Portfolio's current distribution return to yields published for
other investment companies and other investment vehicles.
MANAGEMENT
================================================================================
Smith Barney Mutual Funds Management Inc.
Smith Barney Mutual Funds Management Inc. ("SBMFM") manages the investment
operations of the Portfolio pursuant to management agreements entered into by
the Fund on behalf of the Portfolio. Under the management agreement SBMFM is
responsible for furnishing or causing to be furnished to the Portfolio advice
and assistance with respect to the acquisition, holding or disposal of
investments and recommendations with respect to other aspects and affairs of the
Portfolio, bookkeeping, accounting and administrative services, office space and
equipment, and the services of the officers and employees of the Fund.
By written agreement the research and other departments and staff of Smith
Barney Inc. ("Smith Barney") furnish SBMFM with information, advice and
assistance and are available for consultation on the Fund's Portfolios, thus
Smith Barney may also be considered an investment adviser to the Fund. Smith
Barney's services are paid for by SBMFM on the basis of direct and indirect
costs to Smith Barney of performing such services; there is no charge to the
Fund for such services.
For the services provided by SBMFM, the Portfolio pays SBMFM an annual
management fee calculated at a rate equal to 0.65% of its average daily net
assets, paid monthly.
The management agreement further provides that all other expenses not
specifically assumed by SBMFM under the management agreement on behalf of the
Portfolio are borne by the Fund. Expenses payable by the
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6
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Fund include, but are not limited to, all charges of custodians and shareholder
servicing agents, expenses of preparing, printing and distributing all
prospectuses, proxy material, reports and notices to shareholders, all expenses
of shareholders' and directors' meetings, filing fees and expenses relating to
the registration and qualification of the Fund's shares and the Fund under
federal and state securities laws and maintaining such registrations and
qualifications (including the printing of the Fund's registration statements),
fees of auditors and legal counsel, costs of performing portfolio valuations,
out-of-pocket expenses of directors and fees of directors who are not
"interested persons" as defined in the 1940 Act, interest, taxes and
governmental fees, fees and commissions of every kind, expenses of issue,
repurchase or redemption of shares, insurance expense, association membership
dues, all other costs incident to the Fund's existence and extraordinary
expenses such as litigation and indemnification expenses. Direct expenses are
charged to the Portfolio; general corporate expenses are allocated on the basis
of relative net assets.
SBMFM was incorporated in 1968 under the laws of Delaware. It is a
wholly-owned subsidiary of Smith Barney Holdings Inc., the parent company of
Smith Barney. Smith Barney Holdings Inc. is a wholly-owned subsidiary of
Travelers Group Inc. ("Travelers"), which is a financial services holding
company engaged, through its subsidiaries, principally in four business
segments: investment services, consumer finance services, life insurance
services and property & casualty insurance services. SBMFM, Smith Barney and
Smith Barney Holdings Inc. are each located at 388 Greenwich Street, New York,
New York 10013. SBMFM also acts as investment manager to numerous other
investment companies having aggregate assets as of the date of this Prospectus
in excess of $60 billion. Smith Barney also advises profit-sharing and pension
accounts. Smith Barney and its affiliates may in the future act as investment
advisers for other accounts.
Portfolio Management by SBMFM. SBMFM serves as the investment adviser to
the Portfolio. SBMFM will manage the day to day operations of the Portfolio
pursuant to a management agreement entered into by the Fund on behalf of the
Portfolio. Under the management agreement, SBMFM will (a) manage the Portfolio's
assets in accordance with the Portfolio's investment objective(s) and policies
as stated in the Prospectus and the Statement of Additional Information; (b)
make investment decisions for the Portfolio; (c) place purchase and sale orders
for portfolio transactions on behalf of the Portfolio; (d) employ professional
portfolio managers and securities analysts who provide research services to the
Portfolio; and (e) administer the Portfolio's corporate affairs and, in
connection therewith, furnish the Portfolio with office facilities and with
clerical, bookkeeping and recordkeeping services at such office facilities. In
providing those services, SBMFM will conduct a continual program of investment,
evaluation and, if appropriate, sale and reinvestment of the Portfolio's assets.
Bruce D. Sargent, a Vice President of the Fund, is the portfolio manager of
the Smith Barney Income and Growth Portfolio. Mr. Sargent co-manages the day to
day operations of the Portfolio and has been involved in equity investing for
over 25 years. He currently manages over $1 billion of assets.
Ayako Weissman, Managing Director of Smith Barney, serves as co-manager of
the Portfolio. Ms. Weissman has been involved in equity investing for Smith
Barney for over 8 years and currently manages over $250 million of assets.
Portfolio Transactions and Distribution
SBMFM is subject to the supervision and direction of the Fund's Board of
Directors and manages the Portfolio in accordance with its investment objective
and policies, makes investment decisions for the Portfolio, places orders to
purchase and sell securities and employ professionals who provide research
services. All orders for transactions in securities on behalf of the Portfolio
are made by management, with
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7
<PAGE>
broker-dealers selected by management, including affiliated brokers. In placing
orders management will seek to obtain the most favorable price and execution
available. In selecting broker-dealers, management may consider research and
brokerage services furnished to it and its affiliates.
The Fund's Board of Directors has determined that transactions for the Fund
may be executed through any broker-dealer affiliate of the Fund, including Smith
Barney Inc. (each, an "Affiliated Broker") if, in the judgement of management,
the use of an Affiliated Broker is likely to result in price and execution at
least as favorable to the Fund as those obtainable through other qualified
broker-dealers, and if, in the transaction, the Affiliated Broker charges the
Fund a fair and reasonable rate consistent with that charged to comparable
unaffiliated customers in similar transactions. The Fund will not deal with an
Affiliated Broker in any transaction in which such Affiliated Broker acts as
principal.
SHARES OF THE FUND
================================================================================
General
The Fund, an open-end managed investment company, was incorporated in
Maryland on February 22, 1994. The Fund has an authorized capital of
6,000,000,000 shares with a par value of $.00001 per share. The Board of
Directors has authorized the issuance of twelve series of shares, each
representing shares in one of twelve separate Portfolios - the Smith Barney
Income and Growth Portfolio, the Alliance Growth Portfolio, the AIM Capital
Appreciation Portfolio, the Van Kampen American Capital Enterprise Portfolio,
the Smith Barney International Equity Portfolio, the Smith Barney Pacific Basin
Portfolio, the TBC Managed Income Portfolio, the Putnam Diversified Income
Portfolio, the GT Global Strategic Income Portfolio, the Smith Barney High
Income Portfolio, the MFS Total Return Portfolio and the Smith Barney Money
Market Portfolio. The Directors also have the power to create additional series
of shares. The assets of each Portfolio will be segregated and separately
managed and a shareowner's interest is in the assets of the Portfolio in which
he or she holds shares.
Voting Rights
The Fund offers its shares only for purchase by insurance company separate
accounts. Thus, the insurance company is technically the shareholder of the Fund
and, under the 1940 Act, is deemed to be in control of the Fund. Nevertheless,
with respect to any Fund shareholder meeting, an insurance company will solicit
and accept timely voting instructions from its contractowners who own units in a
separate account investment division which corresponds to shares in the Fund in
accordance with the procedures set forth in the accompanying prospectus for the
applicable contract issued by the insurance company and to the extent required
by law. Shares of the Fund attributable to contractowner interests for which no
voting instructions are received will be voted by an insurance company in
proportion to the shares for which voting instructions are received.
Each share of the Portfolio represents an equal proportionate interest in
the Portfolio with each other share of the Portfolio and is entitled to such
dividends and distributions out of the net income of the Portfolio as are
declared in the discretion of the Directors. Shareowners are entitled to one
vote for each share held and will vote by individual Portfolio except to the
extent required by the 1940 Act. The Fund is not required to hold annual
shareowner meetings, although special meetings may be called for the Fund as a
whole, or a specific Portfolio, for purposes such as electing or removing
Directors, changing fundamental policies or approving a management contract.
Shareowners may cause a meeting of shareowners to be held upon a vote of 10% of
the Fund's outstanding shares for the purpose of voting on the removal of
Directors.
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Availability of the Fund
Investment in the Fund is only available to owners of either variable
annuity or variable life insurance contracts issued by insurance companies
through their separate accounts. It is possible that in the future it may become
disadvantageous for both variable annuity and variable life insurance separate
accounts to be invested simultaneously in the Fund. However, the Fund does not
currently foresee any disadvantages to the contractowners of the different
contracts which are funded by such separate accounts. The Board monitors events
for the existence of any material irreconcilable conflict between or among such
owners, and each insurance company will take whatever remedial action may be
necessary to resolve any such conflict. Such action could include the sale of
Fund shares by one or more of the insurance company separate accounts which fund
these contracts, which could have adverse consequences to the Fund. Material
irreconcilable conflicts could result from, for example: (a) changes in state
insurance laws; (b) changes in U.S. federal income tax laws; or (c) differences
in voting instructions between those given by variable annuity contractowners
and those given by variable life insurance contractowners. If the Board were to
conclude that separate series of the Fund should be established for variable
annuity and variable life separate accounts, each insurance company would bear
the attendant expenses. Should this become necessary, contractowners would
presumably no longer have the economies of scale resulting from a larger
combined mutual fund.
DETERMINATION OF NET ASSET VALUE
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The net asset value of the Portfolio's shares is determined as of the close
of regular trading on the New York Stock Exchange ("NYSE"), which is currently
4:00 P.M. New York City time on each day that the NYSE is open, by dividing the
Portfolio's net assets by the number of its shares outstanding. Securities owned
by the Portfolio for which market quotations are readily available are valued at
current market value or, in their absence, at fair value. Securities traded on
an exchange are valued at last sales price on the principal exchange on which
each such security is traded, or if there were no sales on that exchange on the
valuation date, the last quoted sale, up to the time of valuation, on the other
exchanges. If instead there were no sales on the valuation date with respect to
these securities, such securities are valued at the mean of the latest published
closing bid and asked prices. Over-the-counter securities are valued at last
sales price or, if there were no sales that day, at the mean between the bid and
asked prices. Options, futures contracts and options thereon that are traded on
exchanges are also valued at last sales prices as of the close of the principal
exchange on which each is listed or if there were no such sales on the valuation
date, the last quoted sale, up to the time of valuation, on other exchanges. In
the absence of any sales on the valuation date, valuation shall be the mean of
the latest closing bid and asked prices. Fixed income obligations are valued at
the mean of bid and asked prices based on market quotations for those securities
or if no quotations are available, then for securities of similar type, yield
and maturity. Securities with a remaining maturity of 60 days or less are valued
at amortized cost where the Board of Directors has determined that amortized
cost is fair value. Premiums received on the sale of call options will be
included in the Portfolio's net assets, and current market value of such options
sold by the Portfolio will be subtracted from the Portfolio's net assets. Any
other investments of the Portfolio, including restricted securities and listed
securities for which there is a thin market or that trade infrequently (i.e.,
securities for which prices are not readily available), are valued at a fair
value determined by the Board of Directors in good faith. This value generally
is determined as the amount that the Portfolio could reasonably expect to
receive from an orderly disposition of these assets over a reasonable period of
time but in no event more than seven days. The value of any security or
commodity denominated in a currency other than U.S. dollars will be converted
into U.S. dollars at the prevailing market rate as determined by management.
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Foreign securities trading may not take place on all days on which the NYSE
is open. Further, trading takes place in various foreign markets on days on
which the NYSE is not open. Accordingly, the determination of the net asset
value of the Portfolio may not take place contemporaneously with the
determination of the prices of investments held by the Portfolio. Events
affecting the values of investments that occur between the time their prices are
determined and 4:00 P.M. on each day that the NYSE is open will not be reflected
in the Portfolio's net asset value unless management under the supervision of
the Fund's Board of Directors, determines that the particular event would
materially affect the net asset value. As a result, the Portfolio's net asset
value may be significantly affected by such trading on days when a shareholder
has no access to the Portfolio.
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APPENDIX A
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RATINGS ON DEBT OBLIGATIONS
BOND (AND NOTES) RATINGS
Moody's Investors Service, Inc.
Aaa - Bonds that are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds that are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present that make the long term risks appear somewhat larger than in "Aaa"
securities.
A - Bonds that are rated "A" possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present that suggest a susceptibility to impairment sometime in the future.
Baa - Bonds that are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
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Note: The modifier 1 indicates that the security ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
Standard & Poor's
AAA - Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A - Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated `BB', `B', `CCC', `CC' or `C' is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation.
`BB' indicates the lowest degree of speculation and `C' the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
Plus (+) or Minus (-): The ratings from `AA' to `B' may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise judgment with respect to such likelihood and risk.
L - The letter "L" indicates that the rating pertains to the principal
amount of those bonds where the underlying deposit collateral is fully insured
by the Federal Savings & Loan Insurance Corp. or the Federal Deposit Insurance
Corp.
+ - Continuance of the rating is contingent upon S&P's receipt of closing
documentation confirming investments and cash flow.
* - Continuance of the rating is contingent upon S&P's receipt of an
executed copy of the escrow agreement.
NR - Indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
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Fitch Investors Service, Inc.
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.
AA - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA". Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1+".
A - Bonds considered to be investment grade and of very 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.
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.
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.
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 reflects the obligor's limited margin safety
and the need for reasonable business and economic activity throughout the life
of the issue.
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.
CC - Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C - Bonds are in imminent default in payment of interest or principal.
Plus (+) Minus (-) - Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
NR - Indicates that Fitch does not rate the specific issue.
Conditional - A conditional rating is premised on the successful completion
of a project or the occurrence of a specific event.
Suspended - A rating is suspended when Fitch deems the amount of
information available from the issuer to be inadequate for rating purposes.
Withdrawn - A rating will be withdrawn when an issue matures or is called
or refinanced and at Fitch's discretion when an issuer fails to furnish proper
and timely information.
FitchAlert - Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the likely direction
of such change. These are designated as "Positive", indicating a potential
upgrade, "Negative", for potential downgrade, or "Evolving", where ratings may
be lowered. FitchAlert is relatively short-term, and should be resolved within
12 months.
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COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.
Issuers rated "Prime-1" (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment will normally be evidenced by the following characteristics: leading
market positions in well-established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial changes and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.
Issuers rated "Prime-2" (or related supporting institutions) have strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Standard & Poor's
A-1 - This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issuers determined to
possess overwhelming safety characteristics will be denoted with a plus (+) sign
designation.
A-2 - Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
IBCA Limited or its affiliate, IBCA Inc.
A-1+ - This designation indicates the highest capacity for timely
repayment.
A-1 - Capacity for timely repayment on issues with this designation is very
strong.
A-2 - This designation indicates a strong capacity for timely repayment,
although such capacity may be susceptible to adverse changes in business,
economic or financial conditions.
Fitch Investors Service, Inc.
F-1+ - Indicates the strongest degree of assurance for timely payment.
F-1 - This designation reflects an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2 - This indicates a satisfactory degree of assurance for timely payment,
although the margin of safety is not as great as indicated by the F-1+ and F-1
categories.
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Duff & Phelps Inc.
Duff 1+ - Indicates the highest certainty of timely payment: short-term
liquidity is clearly outstanding, and safety is just below risk-free United
States Treasury short-term obligations.
Duff 1 - Indicates a high certainty of timely payment.
Duff 2 - Indicates a good certainty of timely payment: liquidity factors
and company fundamentals are sound.
The Thomson BankWatch ("TBW")
TBW-1 - Indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.
TBW-2 - While the degree of safety regarding timely repayment of principal
and interest is strong, the relative degree of safety is not as high as for
issues rated TBW-1.
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VINTAGE TIFFANY LAMP
[GRAPHIC APPEARS HERE]
PROSPECTUS
L 12410 Smith Barney/Travelers Series Fund Inc. SB Ed. 7-96
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