As filed with the Securities and Exchange Commission on May 20, 2005
Registration No. 333-124261/811-06465
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U.S. Securities and Exchange Commission
Washington, DC 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1 Post-Effective Amendment No___
(Check appropriate box or boxes)
Exact Name of Registrant as Specified in Charter:
THE TRAVELERS SERIES TRUST
Area Code and Telephone Number:
(860) 308-1000
Address of Principal Executive Offices:
One Cityplace, Hartford, Connecticut 06103-3415
Name and Address of Agent for Service:
Ernest J. Wright
Assistant Secretary to the Board of Trustees
The Travelers Series Trust
One Cityplace
Hartford, CT 06103-3415
Copies to:
Stephen E. Roth, Esq. Dianne E. O'Donnell, Esq.
Sutherland Asbill & Brennan LLP Willkie Farr & Gallagher LLP
1275 Pennsylvania Ave., NW 787 Seventh Avenue
Washington, DC 20004 New York, NY 10019
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Approximate Date of Proposed Public Offering: As soon as practicable after
the Registration Statement becomes effective under the Securities Act of 1933.
It is proposed that this filing will become effective on May 23, 2005 pursuant
to Rule 488 under the Securities Act of 1933.
Title of securities being registered: Shares of beneficial interest in the
Registrant's Strategic Equity Portfolio, AIM Capital Appreciation Portfolio, Van
Kampen Enterprise Portfolio, MFS Total Return Portfolio, Salomon Brothers
Strategic Total Return Bond Portfolio, Travelers Managed Income Portfolio and
Pioneer Strategic Income Portfolio
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933: NO FILING FEE
IS REQUIRED IN RELIANCE ON SECTION 24(F) UNDER THE INVESTMENT COMPANY ACT OF
1940, AS AMENDED.
[FORM OF SUPPLEMENTAL SOLICITATION LETTER]
THE TRAVELERS LIFE AND ANNUITY COMPANY
THE TRAVELERS INSURANCE COMPANY
CITICORP LIFE INSURANCE COMPANY
FIRST CITICORP LIFE INSURANCE COMPANY
Travelers Series Fund Inc.
125 Broad Street, New York, New York 10004
May __, 2005
Dear Variable Annuity Contract or
Variable Life Insurance Policy Owner:
Shares of Strategic Equity Portfolio, AIM Capital Appreciation Portfolio,
Van Kampen Enterprise Portfolio, MFS Total Return Portfolio, Salomon Brothers
Strategic Total Return Bond Portfolio, Travelers Managed Income Portfolio,
and/or Pioneer Strategic Income Portfolio (each, a "Portfolio" and collectively,
the "Portfolios") of Travelers Series Fund Inc. (the "Fund") have been purchased
at your direction by The Travelers Life and Annuity Company, The Travelers
Insurance Company, Citicorp Life Insurance Company or First Citicorp Life
Insurance Company (collectively, "TL&A") through one or more of its separate
accounts to fund benefits payable under your variable annuity contract or
variable life insurance policy (collectively, the "variable contracts"). TL&A,
as the stockholder of record and legal owner of those separate accounts, has
been asked to approve an Agreement and Plan of Reorganization (the "Agreement")
whereby each Portfolio will be merged with and into a corresponding portfolio of
The Travelers Series Trust (the "Trust") in a tax-free reorganization (the
"Reorganizations"). As an owner of a variable contract with an interest in one
or more of those separate accounts, TL&A is asking you for instructions as to
how to vote the shares of the Portfolios that are attributable to your variable
contract. Stockholders of each Portfolio will vote separately as to the
Reorganization of their Portfolio.
If the Agreement is approved and consummated for a Portfolio, the separate
account(s) in which you have an interest will own shares of a corresponding
portfolio of the Trust (a "Trust Portfolio") instead of shares of the Portfolio.
Each separate account will receive shares of a Trust Portfolio with an aggregate
net asset value equal to the aggregate net asset value of the shares of the
corresponding Portfolio owned by the separate account before the Reorganization.
The name of each Trust Portfolio is identical to the name of the corresponding
Portfolio that it will acquire.
Citigroup Inc. ("Citigroup") has reached an agreement with MetLife, Inc.
("MetLife") to sell TL&A to MetLife. As part of this transaction, Travelers
Investment Adviser Inc. ("TIA"), the investment adviser to all but one of the
Portfolios, and Travelers Asset Management International Company LLC ("TAMIC"),
the investment adviser to the
YOUR VOTE IS IMPORTANT!
Travelers Managed Income Portfolio, which are both currently indirect wholly
owned subsidiaries of Citigroup, would become indirect wholly owned subsidiaries
of MetLife. Other investment portfolios of the Fund are advised by entities that
are and will continue to be affiliates of Citigroup.
Consequently, without the Reorganizations, the Fund would include
portfolios that are managed by Citigroup affiliates and portfolios that are
advised by MetLife affiliates, which would give rise to ongoing management,
operational and administrative complexities. The Reorganizations would attempt
to address these issues by merging the Portfolios into newly-created portfolios
of the Trust that will be substantially identical to the Portfolios in terms of
their investment objectives, policies and restrictions, their fees and expenses,
and the personnel responsible for their management. The Trust Portfolios would,
however, differ from their corresponding Portfolios in certain ways, including
that: (1) the Trust is subject to the oversight of a Board of Trustees which is
composed of different persons than the Board of Directors of the Fund; (2) the
investment advisers of the Trust Portfolios will have authority, subject to
approval by the Board of Trustees, to hire subadvisers and materially amend
subadvisory agreements without shareholder approval, authority that such
investment advisers currently do not have with respect to the Portfolios; and
(3) with respect to the Travelers Managed Income Portfolio, such Portfolio has
been managed directly by TAMIC as its investment adviser, and the corresponding
Trust Portfolio will be managed by a subadviser subject to the oversight of
TAMIC. Certain other differences between the Portfolios and the Trust Portfolios
as discussed in more detail in the attached Combined Prospectus/Proxy Statement.
The Reorganizations will not occur if the sale of TL&A to MetLife does not
occur.
You will be able to transfer all or a part of your interest in a Trust
Portfolio as provided in your contract to another available investment option on
each day the Trust Portfolio is open for business at the then current net asset
value per share.
After carefully considering the merits of the proposal, the Fund's Board
of Directors (the "Board") has determined that the Reorganization of each
Portfolio is in the best interests of that Portfolio's stockholders, and
indirectly the underlying contract owners of the Portfolio, and that the
stockholders' interests will not be diluted as a result of the Reorganizations.
The Board recommends that you read the enclosed materials carefully and
then instruct TL&A to vote FOR the proposal. PLEASE TAKE A MOMENT NOW TO SIGN
AND RETURN THE VOTING INSTRUCTION FORM(S) IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
For more information, please call TL&A at 1-800-842-8573.
Respectfully,
The Travelers Life and Annuity Company The Travelers Insurance Company
Citicorp Life Insurance Company First Citicorp Life Insurance Company
WE URGE YOU TO SIGN AND RETURN THE VOTING INSTRUCTION FORM(S) IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
TRAVELERS SERIES FUND INC.
STRATEGIC EQUITY PORTFOLIO
AIM CAPITAL APPRECIATION PORTFOLIO
VAN KAMPEN ENTERPRISE PORTFOLIO
MFS TOTAL RETURN PORTFOLIO
SALOMON BROTHERS STRATEGIC TOTAL RETURN BOND PORTFOLIO
TRAVELERS MANAGED INCOME PORTFOLIO
PIONEER STRATEGIC INCOME PORTFOLIO
125 BROAD STREET
NEW YORK, NEW YORK 10004
MAY __, 2005
NOTICE OF SPECIAL MEETINGS OF STOCKHOLDERS
To the Stockholders of:
Strategic Equity Portfolio, AIM Capital Appreciation Portfolio, Van Kampen
Enterprise Portfolio, MFS Total Return Portfolio, Salomon Brothers Strategic
Total Return Bond Portfolio, Travelers Managed Income Portfolio, and Pioneer
Strategic Income Portfolio:
NOTICE IS HEREBY GIVEN THAT Special Meetings of the stockholders of
Strategic Equity Portfolio, AIM Capital Appreciation Portfolio, Van Kampen
Enterprise Portfolio, MFS Total Return Portfolio, Salomon Brothers Strategic
Total Return Bond Portfolio, Travelers Managed Income Portfolio, and Pioneer
Strategic Income Portfolio (each a "Portfolio" and, collectively, the
"Portfolios"), each a series of Travelers Series Fund Inc. (the "Fund"), will be
held at Citigroup Center, 153 East 53rd Street, 14th Floor Conference Center,
New York, New York 10022, on June 29, 2005 at 9:00 a.m. (Eastern time) for the
following purposes:
ITEM 1. To approve or disapprove an Agreement and Plan of
Reorganization (the "Reorganization Agreement") whereby each
Portfolio will be reorganized with and into a corresponding
investment portfolio of The Travelers Series Trust (the
"Trust"). The Plan contemplates (a) the transfer of
substantially all of the assets and all of the liabilities of
each Portfolio to the corresponding portfolio of the Trust
(each a "Trust Portfolio" and, collectively, the "Trust
Portfolios") in exchange for shares of the corresponding
Trust Portfolio, and (b) the distribution of such shares of
each Trust Portfolio to the stockholders of the corresponding
Portfolio in connection with the liquidation of such
Portfolio.
Under the terms of the Reorganization Agreement, each of the
following Portfolios would be acquired by the corresponding
Trust Portfolio listed opposite its name:
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PORTFOLIOS TRUST PORTFOLIOS
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Strategic Equity Portfolio Strategic Equity Portfolio
AIM Capital Appreciation Portfolio AIM Capital Appreciation Portfolio
Van Kampen Enterprise Portfolio Van Kampen Enterprise Portfolio
MFS Total Return Portfolio MFS Total Return Portfolio
Salomon Brothers Strategic Total Return Bond Salomon Brothers Strategic Total Return
Portfolio Bond Portfolio
Travelers Managed Income Portfolio Travelers Managed Income Portfolio
Pioneer Strategic Income Portfolio Pioneer Strategic Income Portfolio
ITEM 2. To transact such other business as may properly come before
the Special Meeting or any adjournment(s) thereof.
THE BOARD OF DIRECTORS OF TRAVELERS SERIES FUND INC. UNANIMOUSLY
RECOMMENDS THAT YOU VOTE IN FAVOR OF ITEM 1.
The attached Combined Prospectus/Proxy Statement describes the proposal. A
copy of the Reorganization Agreement is attached as Appendix A to the Combined
Prospectus/Proxy Statement.
Stockholders of record as of the close of business on April 15, 2005 are
entitled to notice of, and to vote at, the Special Meetings or any
adjournment(s) thereof.
STOCKHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE THE ACCOMPANYING PROXY, WHICH IS BEING SOLICITED BY THE BOARD OF
DIRECTORS OF TRAVELERS SERIES FUND INC. PROXIES MAY BE REVOKED AT ANY TIME
BEFORE THEY ARE EXERCISED BY SUBMITTING A WRITTEN NOTICE OF REVOCATION OR
SUBSEQUENTLY EXECUTED VOTING INSTRUCTIONS OR BY ATTENDING THE SPECIAL MEETINGS
AND VOTING IN PERSON.
By Order of the Board of Directors
____________________________________
Robert I. Frenkel, Secretary
May __, 2005
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PART A
COMBINED PROSPECTUS/PROXY STATEMENT
DATED MAY __, 2005
THE TRAVELERS SERIES TRUST
STRATEGIC EQUITY PORTFOLIO
AIM CAPITAL APPRECIATION PORTFOLIO
VAN KAMPEN ENTERPRISE PORTFOLIO
MFS TOTAL RETURN PORTFOLIO
SALOMON BROTHERS STRATEGIC TOTAL RETURN BOND PORTFOLIO
TRAVELERS MANAGED INCOME PORTFOLIO
PIONEER STRATEGIC INCOME PORTFOLIO
ONE CITYPLACE
HARTFORD, CONNECTICUT 06103
(800) 842-9368
TRAVELERS SERIES FUND INC.
STRATEGIC EQUITY PORTFOLIO
AIM CAPITAL APPRECIATION PORTFOLIO
VAN KAMPEN ENTERPRISE PORTFOLIO
MFS TOTAL RETURN PORTFOLIO
SALOMON BROTHERS STRATEGIC TOTAL RETURN BOND PORTFOLIO
TRAVELERS MANAGED INCOME PORTFOLIO
PIONEER STRATEGIC INCOME PORTFOLIO
125 BROAD STREET
NEW YORK, NEW YORK 10004
(800) 842-8573
This Combined Prospectus/Proxy Statement relates to special meetings of
stockholders of Strategic Equity Portfolio, AIM Capital Appreciation Portfolio,
Van Kampen Enterprise Portfolio, MFS Total Return Portfolio, Salomon Brothers
Strategic Total Return Bond Portfolio, Travelers Managed Income Portfolio, and
Pioneer Strategic Income Portfolio (each a "Portfolio" and, collectively, the
"Portfolios"), each a series of Travelers Series Fund Inc. (the "Fund"),
scheduled for June 29, 2005 at 9:00 a.m. (Eastern time), and any adjournments
thereof, at the offices of the Fund at Citigroup Center, 153 East 53rd Street,
14th Floor Conference Room, New York, New York 10022 (the "Meetings"). At the
Meetings, stockholders of each Portfolio will be asked to consider and approve
the proposed transfer of substantially all of the assets and all of the
liabilities of each Portfolio to an identically named series (each a "Trust
Portfolio" and, collectively, the "Trust Portfolios") of The Travelers Series
Trust (the "Trust"), in exchange for shares of the corresponding Trust Portfolio
(each, a "Reorganization" and collectively, the "Reorganizations"). Stockholders
of each Portfolio will vote separately as to the Reorganization of their
Portfolio. The failure of stockholders of one or more Portfolio(s) to approve
the Reorganization with respect to such Portfolio(s) will not prevent the
Reorganization from going forward with respect to the other Portfolios.
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If the Reorganization is approved for a Portfolio, each stockholder of
that Portfolio will receive the number of shares of the corresponding Trust
Portfolio that is equal in value on the closing date of the Reorganization to
the value of such stockholder's shares of the Portfolio.
This Combined Prospectus/Proxy Statement and the Agreement and Plan of
Reorganization (the "Reorganization Agreement") by and between the Fund, on
behalf of each Portfolio, and the Trust, on behalf of each Trust Portfolio,
describes more fully the terms and conditions of the Reorganizations. A copy of
the Reorganization Agreement is included as Appendix A of this Combined
Prospectus/Proxy Statement.
Shares of the Portfolios are not offered directly to the public but are
sold only to insurance companies and their separate accounts as the underlying
investment medium for owners of variable annuity contracts and variable life
insurance policies (collectively, the "variable contracts"). As of the record
date for the Meetings, The Travelers Insurance Company, The Travelers Life and
Annuity Company, and their affiliates (collectively, "TL&A"), on behalf of
separate accounts registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), unregistered separate accounts, and related
subaccounts (collectively, the "separate accounts"), are the legal owners of
100% of the shares of each Portfolio.
TL&A shall vote all shares of a Portfolio with respect to the
Reorganization Agreement as it applies to that Portfolio in the same proportion
(for, against or abstain from voting) as the timely instructions received from
owners of variable contracts that had contract values allocated on the record
date to separate accounts investing in shares of such Portfolio (collectively,
the "contract owners"). Accordingly, TL&A is furnishing this Combined
Prospectus/Proxy Statement to contract owners in connection with the
solicitation of voting instructions from contract owners regarding the proposal
to approve the Reorganization Agreement as to each Portfolio.
This Combined Prospectus/Proxy Statement, which you should retain for
future reference, sets forth concisely the information about the Trust and the
Trust Portfolios that a stockholder or contract owner should know in considering
the Reorganizations. The current prospectuses of the Portfolios and the Trust
Portfolios and the statements of additional information for the Fund and Trust
are incorporated herein by reference, and the prospectuses for the Trust
Portfolios are included as Appendices B-1 through B-7 of this Combined
Prospectus/Proxy Statement. The prospectuses of the Portfolios and the
statements of additional information of the Fund and Trust are available without
charge by writing to the Fund or Trust at the appropriate address noted above or
by calling (800) 842-8573 (for the Fund) or (800) 842-9368 (for the Trust). In
addition, a statement of additional information relating to and dated the same
date as this Combined Prospectus/Proxy Statement (the "Statement of Additional
Information") and containing additional information about the Trust, the Trust
Portfolios and the Reorganizations has been filed with the Commission and is
incorporated by reference into this Combined Prospectus/Proxy Statement. You may
obtain a copy of such Statement of Additional Information without charge by
writing to the Trust at its address noted above or by calling (800) 842-9368.
The SEC maintains a website (http://www.sec.gov) that contains the material
incorporated by reference, together with other information regarding the Trust.
Copies of such material may also be obtained for a fee from the Public Reference
Section, Securities and Exchange Commission, Washington, D.C. 20549-0102, or by
electronic request at the following email address: publicinfo@sec.gov.
- 2 -
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
INVESTMENTS IN THE TRUST PORTFOLIOS, AS WITH ANY MUTUAL FUNDS, ARE SUBJECT TO
RISK--INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. SHARES IN THE TRUST PORTFOLIOS
ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK
AND ARE NOT FEDERALLY INSURED BY, OBLIGATIONS OF, OR OTHERWISE SUPPORTED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER AGENCY.
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TABLE OF CONTENTS
PAGE
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Introduction ............................................................................................
Summary .................................................................................................
Risk Factors ............................................................................................
Comparative Fee and Expense Tables ......................................................................
Information Relating to the Proposed Reorganizations ....................................................
Federal Income Tax Consequences .........................................................................
Capitalization ..........................................................................................
Comparison of Organizational Structure of Fund and Trust ................................................
Additional Information About the MetLife Transaction ....................................................
Summary of Information about the Trust Generally ........................................................
Voting Information ......................................................................................
Additional Information about the Trust ..................................................................
Other Business ..........................................................................................
Litigation ..............................................................................................
Stockholder Inquiries ...................................................................................
Appendix A - Agreement and Plan of Reorganization ....................................................... A-1
Appendix B-1 - Prospectus for Strategic Equity Portfolio of the Trust dated May 21, 2005 ................ B-1
Appendix B-2 - Prospectus for AIM Capital Appreciation Portfolio of the Trust dated May 21, 2005 ........ B-2
Appendix B-3 - Prospectus for Van Kampen Enterprise Portfolio of the Trust dated May 21, 2005 ........... B-3
Appendix B-4 - Prospectus for MFS Total Return Portfolio of the Trust dated May 21, 2005 ................ B-4
Appendix B-5 - Prospectus for Salomon Brothers Strategic Total Return Bond Portfolio of the Trust
dated May 21, 2005 ..................................................................................... B-5
Appendix B-6 - Prospectus for Travelers Managed Income Portfolio of the Trust dated May 21, 2005 ........ B-6
Appendix B-7 - Prospectus for Pioneer Strategic Income Portfolio of the Trust dated May 21, 2005 ........ B-7
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INTRODUCTION
This Combined Prospectus/Proxy Statement is being furnished to solicit the
voting instructions of contract owners whose variable contracts are funded by
TL&A's separate accounts that invest in the Portfolios, which are series of the
Fund. Such voting instructions will be followed by TL&A, as the record owner of
all of each Portfolio's shares, at the Meetings, to be held on June 29, 2005 at
9:00 a.m. (Eastern time) at the Fund's offices at Citigroup Center, 153 East
53rd Street, 14th Floor Conference Room, New York, New York 10022. It is
expected that this Combined Prospectus/Proxy Statement will be mailed on or
about May __, 2005.
At the Meetings, stockholders of each Portfolio will consider and approve
or disapprove the Reorganization Agreement as to such Portfolio. If the
Reorganization Agreement is approved as to a Portfolio, the Portfolio's
stockholders will become shareholders of the corresponding Trust Portfolio and
will receive shares of the Trust Portfolio equal in value to their holdings in
the Portfolio on the date of the Reorganization.
THE BOARD OF DIRECTORS OF THE FUND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THE REORGANIZATION AGREEMENT.
SUMMARY
The following is a summary of certain information relating to the proposed
Reorganizations, the parties thereto, and the transactions contemplated thereby.
This disclosure is qualified by reference to the more complete information
contained elsewhere in this Combined Prospectus/Proxy Statement, the
Reorganization Agreement attached to this Combined Prospectus/Proxy Statement as
Appendix A, the Trust Portfolio Prospectuses attached as Appendices B-1 through
B-7, and the Prospectuses for the Portfolios and Statements of Additional
Information for the Fund and Trust. The management fees paid by each Trust
Portfolio will be the same as those paid by the corresponding Portfolio, and the
other expenses that will be incurred by the Trust Portfolios are not expected to
increase materially as a result of the Reorganizations as compared to the
expenses of the Portfolios. For further information on fees and expenses, see
the Comparative Fee and Expense Tables beginning on page 17.
Pursuant to the proposed Reorganization Agreement, each Portfolio will
transfer substantially all of its assets and all of its liabilities to the
corresponding Trust Portfolio (a series of the Trust) in exchange for shares of
the Trust Portfolio. Each of the Portfolios would be acquired by the
corresponding Trust Portfolio listed opposite its name in the table below:
PORTFOLIOS TRUST PORTFOLIOS
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Strategic Equity Portfolio Strategic Equity Portfolio
AIM Capital Appreciation Portfolio AIM Capital Appreciation Portfolio
Van Kampen Enterprise Portfolio Van Kampen Enterprise Portfolio
MFS Total Return Portfolio MFS Total Return Portfolio
Salomon Brothers Strategic Total Return Bond Salomon Brothers Strategic Total Return
Portfolio Bond Portfolio
Travelers Managed Income Portfolio Travelers Managed Income Portfolio
Pioneer Strategic Income Portfolio Pioneer Strategic Income Portfolio
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The proposed Reorganizations are expected to be effective upon the close
of business on June 30, 2005 or such earlier or later date as the parties may
agree in writing (the "effective date"). Such effective date is expected to be
coincident with the closing of the sale of TL&A to MetLife, Inc. described in
more detail below. Under the proposed Reorganizations, each stockholder of a
Portfolio will receive the number of the corresponding Trust Portfolio's shares
with an aggregate net asset value equal on the effective date to the aggregate
net asset value of the stockholder's shares in the Portfolio. Thereafter,
following the proposed Reorganizations, stockholders of a Portfolio will be
shareholders of a Trust Portfolio. No stockholder of a Portfolio will pay a
sales charge or other charge or expense in connection with the Reorganizations.
See "Information Relating to the Proposed Reorganization."
REASONS FOR THE REORGANIZATION
The Board of Directors of the Fund (the "Board"), including a majority of
the Board's members who are not "interested persons" within the meaning of the
1940 Act (the "disinterested Board members"), has determined that the proposed
Reorganizations are in the best interests of each Portfolio's respective
stockholders and the underlying contract owners and that the interests of the
stockholders and contract owners will not be diluted as a result of the
Reorganizations. In connection with making these determinations, the Board was
provided with information about the reasons for the proposed Reorganizations,
and about MetLife, Inc. ("MetLife") and its purchase of TL&A from Citigroup Inc.
("Citigroup"), which is discussed in more detail below. The Board was informed
that, without the Reorganizations, the Fund would include both portfolios that
are managed by Citigroup affiliates and portfolios that are managed by MetLife
affiliates, and the management, operational and administrative complexities that
this would raise were discussed by the Board. The Board was further advised that
both Citigroup and MetLife considered the management of the Portfolios to be
integral to the offering and operation of variable annuity and variable life
insurance contracts, the issuers of which are the subject to the sale from
Citigroup to MetLife.
The Board considered that the Trust Portfolios will be substantially
identical to their corresponding Portfolios in terms of their investment
objectives, policies and restrictions, their fees and expenses, their investment
advisers and, with the exception of the Travelers Managed Income Portfolio,
their subadvisers. The Board considered that the individuals who will provide
the day-to-day portfolio management for each Trust Portfolio are expected to be
the same as the individuals providing portfolio management for the corresponding
Portfolio. The Board also considered the differences between the Portfolios and
the Trust Portfolios. Such differences are discussed in more detail below, and
include:
- the identity of the members of the Board and the Board of Trustees
of the Trust (the "Trust Board");
- differences resulting from the Portfolios and the Trust Portfolios
being series of different legal entities organized under the laws of
different jurisdictions;.
- that the investment advisers of the Trust Portfolios will have
authority, subject to Trust Board approval, to hire subadvisers and
materially amend subadvisory
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agreements without shareholder approval, authority that such
investment advisers currently do not have with respect to the
Portfolios;
- that the investment objective of each Trust Portfolio may be changed
by the Trust Board without shareholder approval, while stockholder
approval is required to change the objective of a Portfolio;
- the identity of the independent registered public accounting firm
and certain other service providers for the Fund and the Trust; and
- with respect to the Travelers Managed Income Portfolio, that such
Portfolio has been managed directly by its investment adviser, and
that the corresponding Trust Portfolio will be managed by a
subadviser subject to the oversight of the investment adviser.
The Board concluded that these differences would not have a material adverse
effect on stockholders of the Portfolios or on contract owners.
The Board also considered the agreements to be entered into between
MetLife and Citigroup and certain of their affiliates in connection with the
closing of the MetLife Transaction under which Citigroup-affiliated
broker-dealers will continue to offer certain MetLife/TL&A insurance contracts
and TL&A insurance products will continue to include certain Citigroup-sponsored
funds as investment options, as discussed in more detail under "MetLife's
Acquisition of TL&A" below.
FEDERAL INCOME TAX CONSEQUENCES
Sutherland Asbill & Brennan LLP, counsel to the Trust, will issue an
opinion (based on certain assumptions) as of the effective date of the
Reorganizations to the effect that the transactions will not give rise to the
recognition of income, gain or loss for federal income tax purposes to any
Portfolio, Trust Portfolio, their respective stockholders or shareholders, or
contract owners. See "Federal Income Tax Consequences" below.
INVESTMENT ADVISERS AND SUBADVISERS
The investment adviser for each Portfolio except the Travelers Managed
Income Portfolio is Travelers Investment Adviser Inc. ("TIA"). The investment
adviser for the Travelers Managed Income Portfolio is Travelers Asset Management
International Company LLC ("TAMIC"). Both TIA and TAMIC are currently indirect
wholly-owned subsidiaries of Citigroup. The subadviser for each Portfolio is as
follows:
PORTFOLIO SUBADVISER
- --------- ----------
Strategic Equity Portfolio Fidelity Management & Research Company
AIM Capital Appreciation Portfolio AIM Capital Management, Inc.
Van Kampen Enterprise Portfolio Van Kampen Asset Management Inc.
MFS Total Return Portfolio Massachusetts Financial Services Company
Salomon Brothers Strategic Total Return Bond Salomon Brothers Asset Management Inc
Portfolio
Travelers Managed Income Portfolio N/A
Pioneer Strategic Income Portfolio Pioneer Investment Management, Inc.
- 7 -
Aside from TAMIC and TIA becoming indirect subsidiaries of MetLife and the
addition of a subadviser for the Travelers Managed Income Portfolio, the
investment advisers and subadvisers of the Trust Portfolios will be the same as
those of the corresponding Portfolios. TAMIC will serve as investment adviser of
the Travelers Managed Income Portfolio of the Trust, but day-to-day management
of such Trust Portfolio will be provided by Salomon Brothers Asset Management
Inc as subadviser.
METLIFE'S ACQUISITION OF TL&A
As noted above, MetLife and Citigroup have announced an agreement for the
sale of TL&A by Citigroup to MetLife (the "MetLife Transaction") for $11.5
billion, subject to closing adjustments. The MetLife Transaction includes the
acquisition of TL&A subsidiaries TIA and TAMIC, the investment advisers to the
Portfolios, by MetLife. The stockholders of the Portfolios are not being asked
to approve the MetLife Transaction. However, given that the Portfolios'
investment advisers will have a new ultimate parent company (MetLife) after the
Reorganizations, certain information about MetLife, the MetLife Transaction, and
the management of the Trust Portfolios by TIA and TAMIC after the closing of the
MetLife Transaction is relevant in this Combined Prospectus/Proxy Statement.
Under the terms of the MetLife Transaction, Citigroup will receive $1.0 to
$3.0 billion in MetLife equity securities and the balance in cash. The MetLife
Transaction is subject to certain domestic and international regulatory
approvals, as well as other customary conditions to closing. It is planned that
the closing of the MetLife Transaction will take place on June 30, 2005, or soon
thereafter.
MetLife, through its subsidiaries and affiliates, is a leading provider of
insurance and other financial services to individual and institutional
customers. In the United States, the MetLife companies serve individuals in
approximately 13 million households and provide benefits to 37 million customers
and their family members through their employee benefit plan sponsors.
MetLife has indicated to the Board and the Trust Board that its intention
is to integrate TL&A, including TIA and TAMIC, into MetLife's current operations
to create a single business operation, and has provided the Trust Board with
information on how this intention might affect the Trust Portfolios, including
certain anticipated changes in TAMIC and TIA personnel (other than portfolio
managers) who will provide services to the Trust Portfolios. See "Information
Relating to the Proposed Reorganizations - Certain Arrangements with Service
Providers" below.
In connection with the closing of the MetLife Transaction, MetLife,
Citigroup and certain of their affiliates will enter into a Distribution
Agreement under which Citigroup-affiliated broker-dealers will, subject to the
terms and conditions of such Distribution Agreement, continue to offer certain
TL&A and MetLife insurance contracts for a period of ten years from the MetLife
Closing Date. In addition, MetLife, Citigroup and certain of their affiliates
will enter into an Investment Products Agreement under which, for
- 8 -
a period of five years after the MetLife Closing Date and subject to the other
terms and conditions of the Investment Products Agreement, certain TL&A and
MetLife insurance products will include certain Citigroup-sponsored funds that
are currently included as investment options.
PURCHASES AND REDEMPTIONS
Following the Reorganizations, the Trust Portfolios will have
substantially similar purchase, redemption and dividend policies as the
Portfolios. Shares of the Trust Portfolios will not be sold directly to the
public, but only through variable contracts. Both the Fund and the Trust have
put in place policies and procedures that are intended to discourage and prevent
excessive trading and market timing abuses, although such policies and
procedures operate in different manners. In light of the fact that the Trust
generally will have little or no access to the transaction records of individual
contract owners, the Trust's policies and procedures primarily call for
obtaining written certifications from the TL&A insurance companies that they
have put in place effective policies and procedures to deter excessive trading.
In contrast, even in the absence of such contract owner information, the Fund's
policies and procedures call for the use of direct surveillance techniques to
identify abusive trading, and the limiting of additional purchases or exchanges
by contract owners believed to be engaged in abusive trading, although the
Fund's ability to monitor trading in these accounts may be severely limited due
to the lack of access to a contract owner's trading activity when orders are
placed through insurance company separate accounts. There may also be
operational and technological limitations on the ability of the Fund's service
providers to identify or terminate frequent trading activity within insurance
company separate accounts. However, the Fund's policies and procedures do not
include specific limits on the number of purchases or exchanges permitted in a
given time period.
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
This section briefly sets forth the investment objectives and principal
strategies of each Portfolio and its corresponding Trust Portfolio. The
objective and strategies for each Portfolio are identical to those of its
corresponding Trust Portfolio, except that the investment objective for each
Portfolio is "fundamental" and therefore may be changed only by the "vote of a
majority of the outstanding voting securities" of the Portfolio as defined in
the 1940 Act, while the objective for each Trust Portfolio may be changed by the
Trust Board without shareholder approval. More complete information may be found
in the prospectuses for the Trust Portfolios attached hereto as Appendices B-1
through B-7.
STRATEGIC EQUITY PORTFOLIO AND CORRESPONDING TRUST PORTFOLIO
The Portfolio's objective is to seek capital appreciation. Fidelity
Management & Research Company (FMR), the Portfolio's subadviser, normally
invests at least 80% of the fund's assets in equity securities. FMR normally
invests the Portfolio's assets primarily in common stocks. FMR may invest the
Portfolio's assets in securities of foreign issuers in addition to securities of
domestic issuers.
FMR is not constrained to any particular investment style. At any given
time, FMR may tend to buy "growth" stocks or "value" stocks, or a combination of
both types. In buying and selling securities for the Portfolio, FMR relies on
fundamental analysis of each issuer and its potential for success in light of
its current financial condition, its industry position, and
- 9 -
economic and market conditions. Factors considered include growth potential,
earnings estimates, and management.
FMR may use various techniques, such as buying and selling futures
contracts and exchange traded funds, to increase or decrease the Portfolio's
exposure to changing security prices or other factors that affect security
values. If FMR's strategies do not work as intended, the Portfolio may not
achieve its objective.
AIM CAPITAL APPRECIATION PORTFOLIO AND CORRESPONDING TRUST PORTFOLIO
The Portfolio's objective is to seek capital appreciation. The Portfolio
invests principally in common stocks of companies the subadviser believes are
likely to benefit from new or innovative products, services or processes, as
well as those that have experienced above-average, long-term growth in earnings
and have excellent prospects for future growth.
The subadviser emphasizes individual security selection while diversifying
the Portfolio's investments across industries, which may help to reduce risk.
The subadviser seeks to identify companies having a consistent record of
long-term, above-average growth in earnings, as well as companies that are only
beginning to experience significant and sustainable earnings growth. The
subadviser will invest without regard to a company's size.
In selecting individual companies for investment, the subadviser looks for the
following:
- new or innovative products, services or processes that should
enhance future earnings
- increasing market share
- experienced and effective management
- competitive advantages
The subadviser then considers whether to sell a particular security when it no
longer meets these criteria.
VAN KAMPEN ENTERPRISE PORTFOLIO AND CORRESPONDING TRUST PORTFOLIO
The Portfolio's objective is to seek capital appreciation by investing in
a portfolio of securities consisting principally of common stocks. The Portfolio
invests primarily in common stocks of growth companies.
The subadviser seeks growth opportunities by investing in any market
capitalization range. The subadviser emphasizes growth companies but may also
invest in companies in cyclical industries during periods when their securities
appear attractive to the subadviser for capital appreciation. The subadviser
looks for companies with a combination of strong business fundamentals at an
attractive valuation. These characteristics include: established records of
growth in sales; established records of growth in earnings; and entering a
growth cycle with the expectation that the stock of the company will increase in
value.
The subadviser may sell a security when it is advisable based on the
following factors:
- change in economic or market factors in general or within a particular
industry
- change in market trends or other factors affecting an individual security
- 10 -
- changes in the relative market performance or appreciation possibilities
of an individual security
- other circumstances relating to the desirability of a given investment
MFS TOTAL RETURN PORTFOLIO AND CORRESPONDING TRUST PORTFOLIO
The Portfolio's primary objective is to seek above average income
(compared to a portfolio invested entirely in equity securities) consistent with
the prudent employment of capital, and its secondary objective is to seek growth
of capital and growth of income. The Portfolio invests in a broad range of
equity and fixed income securities of both U.S. and foreign issuers.
Under normal market conditions and depending on the subadviser's view of
economic and money market conditions, fiscal and monetary policy and security
values, the Portfolio's assets will be allocated among fixed income and equity
investments within the following ranges:
- between 40% and 75% in equity securities
- at least 25% in non-convertible fixed income securities
EQUITY INVESTMENTS. The subadviser uses a "bottom up" investment approach
in selecting securities based on its fundamental analysis (such as an analysis
of earnings, cash flows, dividends, competitive position and management's
abilities) of an individual security's value. In selecting individual equity
securities for investment, the subadviser seeks companies:
- that are undervalued in the market relative to their long-term potential
because the market has overlooked them or because they are temporarily out
of favor in the market due to market declines, poor economic conditions or
adverse regulatory or other changes
- that generally have low price-to-book, price-to-sales and/or
price-to-earnings ratios
FIXED INCOME SECURITIES. The Portfolio's fixed income securities include
corporate debt obligations of any maturity, Brady bonds, U.S. Government
securities, mortgage-backed securities, zero-coupon bonds, deferred interest
bonds and payment in kind bonds. The Portfolio's assets may consist of both
investment grade and lower quality fixed income securities. The Portfolio may
invest up to 20% of its assets in non-convertible fixed income securities rated
below investment grade or unrated securities of equivalent quality. Below
investment grade securities are commonly referred to as "junk bonds."
SALOMON BROTHERS STRATEGIC TOTAL RETURN BOND PORTFOLIO AND CORRESPONDING
TRUST PORTFOLIO
The Portfolio's objective is to seek total return. The Portfolio invests,
under normal market conditions, at least 80% of the value of its net assets,
plus any borrowings for investment purposes, in fixed income securities of U.S.
and foreign companies, banks and governments, including those in emerging
markets, or other investments with similar economic characteristics.
- 11 -
CREDIT QUALITY: The Portfolio invests in a globally diverse portfolio of
fixed income securities across a range of credit qualities and may invest a
substantial portion of its assets in obligations rated below investment grade by
a recognized rating agency, or, if unrated, of equivalent quality as determined
by the manager. Below investment grade securities are commonly referred to as
"junk bonds."
DURATION: The Portfolio's average duration will generally vary from 3 to 7
years depending on the subadviser's outlook for interest rates. Individual
securities may be of any maturity.
The subadviser uses a combination of a "top-down" approach and
quantitative models to create an optimal risk/return allocation of the
Portfolio's assets among debt securities of issuers in three separate investment
areas: (1) the United States, (2) developed foreign countries, and (3) emerging
markets. The subadviser then selects individual debt securities within each area
on the basis of its views as to the values available in the marketplace.
In allocating investments among countries and asset classes, the
subadviser evaluates currency, inflation and interest rate trends, proprietary
risk measures, and the balance of payments status, growth rate forecasts, fiscal
policies, and political outlook of particular countries. In selecting individual
debt securities, the subadviser evaluates the security's yield, maturity, call
or prepayment risk, issue classification, and credit quality.
TRAVELERS MANAGED INCOME PORTFOLIO AND CORRESPONDING TRUST PORTFOLIO
The Portfolio's objective is to seek high current income consistent with
prudent risk of capital. The Portfolio invests primarily in U.S. corporate debt
obligations and U.S. government securities, including mortgage- and asset backed
securities, but may also invest to a limited extent in foreign issuers.
CREDIT QUALITY: The Portfolio invests primarily in investment grade
obligations. Up to 35% of the Portfolio's assets may be invested in below
investment grade obligations with no minimum rating. Below investment grade
securities are commonly referred to as "junk bonds".
DURATION: At least 65% of the Portfolio's assets are invested in
securities having durations of 10 years or less. The Portfolio's average
portfolio duration will vary between 2 to 5 years depending on the manager's
outlook for interest rates.
The manager uses a three step "top down" investment approach to selecting
investments for the Portfolio by identifying undervalued sectors and individual
securities. Specifically, the manager:
- Determines appropriate sector and maturity weightings based on the
manager's intermediate and long-term assessments of broad economic
and interest rate trends
- Uses fundamental research methods to identify undervalued sectors of
the government and corporate debt markets and adjusts portfolio
positions to take advantage of new information
- 12 -
- Analyzes yield maturity, issue classification and quality
characteristics to identify individual securities that present what
the manager considers the optimal balance of potential return and
manageable risk
PIONEER STRATEGIC INCOME PORTFOLIO AND CORRESPONDING TRUST PORTFOLIO
The Portfolio's objective is to seek a high level of current income. The
Portfolio invests, under normal market conditions, at least 80% of its total
assets in debt securities. The Portfolio has the flexibility to invest in a
broad range of issuers and segments of the debt securities market.
The subadviser allocates the fund's investments among the following three
segments of the debt markets:
- Below investment grade (high yield) securities of U.S. and non-U.S.
issuers
- Investment grade securities of U.S. issuers, and
- Investment grade securities of non-U.S. issuers
The subadviser's allocations among these segments of the debt markets depend
upon its outlook for economic, interest rate and political trends.
The fund invests primarily in: debt securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities or non-U.S. governmental
entities; debt securities of U.S. and non-U.S. corporate issuers, including
convertible debt; and mortgage-backed and asset-backed securities. The Portfolio
invests in securities with a broad range of maturities.
Depending upon the subadviser's allocation among market segments, up to
70% of the Portfolio's total assets may be in debt securities rated below
investment grade at the time of purchase or determined to be of equivalent
quality by the sub-adviser. Up to 20% of the Portfolio's total assets may be
invested in debt securities rated below CCC by Standard & Poor's or the
equivalent by another nationally recognized statistical rating organization or
determined to be of equivalent credit quality by the subadviser. Debt securities
rated below investment grade are commonly referred to as "junk bonds" and are
considered speculative.
RISK FACTORS
The following discussion highlights the principal risk factors associated
with an investment in the Portfolios. Given that each Portfolio and its
corresponding Trust Portfolio have identical investment objectives, policies and
restrictions, the risk factors relevant to a Portfolio are also relevant to its
corresponding Trust Portfolio.
EQUITY SECURITIES
Van Kampen Enterprise Portfolio, AIM Capital Appreciation Portfolio and
Strategic Equity Portfolio each invests primarily in equity securities, and MFS
Total Return Portfolio invests a substantial portion of its assets in equity
securities. (These four Portfolios are referred to herein as the "Equity
Portfolios.") While investing in equity securities can bring added benefits, it
also involves risks. Investors could lose money in the Equity Portfolios, or a
Portfolio may not perform as well as other investments, if any of the following
occurs:
- 13 -
- The U.S. stock market declines or other stock markets decline.
- Large, small or medium capitalization companies fall out of favor with
investors.
- Value and/or growth stocks are temporarily out of favor.
- An adverse event, such as negative press reports about a company in the
fund's portfolio, depresses the value of the company's stock or industry.
- The subadviser's judgment about the attractiveness, value or potential
appreciation of a particular stock or industry proves to be incorrect.
- Key economic trends become materially unfavorable.
SMALL CAPITALIZATION, MEDIUM CAPITALIZATION, AND NEW OR UNSEASONED
COMPANIES
AIM Capital Appreciation Portfolio and Van Kampen Enterprise Portfolio may
invest significant portions of their portfolios in small or medium
capitalization companies, or new or unseasoned issuers. Smaller, unseasoned
companies present greater risks than securities of larger, more established
companies because:
- They may be dependent on a small number of products or services for their
revenues
- They may lack substantial capital reserves to make needed capital
investments or absorb losses
- They may have less experienced management
- Their securities may be less widely traded, less liquid and more volatile
- Recession or adverse economic trends are more likely to sharply and
negatively affect their earnings and financial condition
DEBT OR FIXED INCOME SECURITIES
Salomon Brothers Strategic Total Return Bond Portfolio, Travelers Managed
Income Portfolio, and Pioneer Strategic Income Portfolio each invests
principally in debt or fixed income securities, and MFS Total Return Portfolio
invests in such securities to a significant degree. (These four Portfolios are
referred to herein as the "Debt Portfolios.") While investing in these
securities can bring added benefits, it also involves risks. Investors could
lose money in the Debt Portfolios, or a Portfolio may not perform as well as
other investments, if any of the following occurs:
- The issuer of a debt security in the Portfolio defaults on its obligation
to pay principal or interest, has its credit rating downgraded by a rating
organization, or is perceived by the market to be less creditworthy.
- Fixed income securities lose their value due to an increase in market
interest rates in one or more regions.
- As a result of declining interest rates, the issuer of a security
exercises its right to prepay principal earlier than scheduled, forcing
the Portfolio to reinvest in lower yielding securities. This is known as
call or prepayment risk.
- As a result of rising interest rates, the issuer of a security exercises
its right to pay principal later than scheduled, which will lock in a
below-market interest rate and reduce the value of the security. This is
known as extension risk.
- The portfolio manager's judgment about the attractiveness, value or
potential appreciation of a particular security or the stability of a
particular government proves to be incorrect.
- 14 -
LOWER QUALITY DEBT SECURITIES
The Debt Portfolios may invest in lower quality securities, commonly known
as "junk bonds," that are speculative and have only an adequate capacity to pay
principal and interest. These securities have a higher risk of default, tend to
be less liquid, and may be more difficult to value. Changes in economic
conditions or other circumstances are more likely to lead issuers of these
securities to have a weakened capacity to make principal and interest payments.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
Each of the Debt Portfolios may make significant investments in mortgage-
and asset-backed securities. These securities are particularly subject to
prepayment risk and extension risk, and therefore their values may fluctuate
more due to changes in market interest rates than other fixed income securities.
Furthermore, it may become necessary to enforce rights against the assets
underlying mortgage- and asset-backed securities.
FOREIGN SECURITIES
Many foreign countries in which the Portfolios invest have markets that
are less liquid and more volatile than markets in the United States. In some of
the foreign countries in which the Portfolios invest, there is also less
information available about foreign issuers and markets because of less rigorous
accounting and regulatory standards than in the United States. Currency
fluctuations could erase investment gains or add to investment losses. Foreign
countries may be unstable politically or economically. The risk of investing in
foreign securities is greater in the case of less developed countries.
NON-DIVERSIFIED PORTFOLIO
The Salomon Brothers Strategic Total Return Bond 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
Portfolio's losses from adverse events affecting a particular issuer.
ASSET ALLOCATION RISK
Because the MFS Total Return Portfolio invests in both equity and debt
securities, investors could lose money in the Portfolio, or the Portfolio may
not perform as well as other investments, if the subadviser's allocation of
investments between equity and fixed income securities results in underweighting
types of securities that generate significant returns or overweighting types of
securities that experience significant declines.
PORTFOLIO TURNOVER
Certain Portfolios may engage in active and frequent trading to achieve
its principal investment strategies. Frequent trading increases transaction
costs, which could detract from the Portfolios' performance.
- 15 -
- 16 -
COMPARATIVE FEE AND EXPENSE TABLES
SALES CHARGES AND SHAREHOLDER TRANSACTION FEES
As shown in the table below, shares of the Portfolios and the Trust
Portfolios are not subject to sales charges or shareholder transaction fees. The
table below does not reflect surrender charges and other charges assessed by
TL&A under the variable contracts.
SHAREHOLDER FEES (fees paid directly from your investment)
PRO-FORMA TRUST
PORTFOLIOS TRUST PORTFOLIOS PORTFOLIOS
---------- ---------------- ---------------
Maximum Sales Charge (Load) Imposed on Purchases N/A N/A N/A
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends N/A N/A N/A
Redemption Fees N/A N/A N/A
Exchange Fees N/A N/A N/A
PORTFOLIO AND TRUST PORTFOLIO EXPENSES
The tables below show (1) information regarding the fees and expenses paid
by each Portfolio for its fiscal year ended October 31, 2004, and (2) estimated
fees and expenses on a pro forma basis for each corresponding Trust Portfolio
after giving effect to the proposed Reorganization as to that Trust Portfolio.
Because the Trust Portfolios have not commenced operations and will not do so
unless and until the Reorganization with respect to that Trust Portfolio is
consummated, no information on Trust Portfolio fees without giving effect to the
Reorganizations is included. The fees and charges reflected in the tables below
and in the examples do not include fees and charges imposed by the variable
contracts issued by TL&A and their separate accounts with interests in the
Portfolios.
STRATEGIC EQUITY PORTFOLIO AND CORRESPONDING TRUST PORTFOLIO
TRUST PORTFOLIO
(PRO FORMA WITH
STRATEGIC EQUITY STRATEGIC EQUITY
PORTFOLIO PORTFOLIO)
---------------- ----------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees 0.80% 0.80%
Distribution (12b-1) Fees NONE NONE
Other Expenses 0.05% 0.05%
Total Annual Fund Operating Expenses 0.85% 0.85%
- 17 -
AIM CAPITAL APPRECIATION PORTFOLIO AND CORRESPONDING TRUST PORTFOLIO
TRUST PORTFOLIO
(PRO FORMA WITH AIM
CAPITAL
AIM CAPITAL APPRECIATION
APPRECIATION PORTFOLIO PORTFOLIO)
---------------------- -------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees 0.80% 0.80%
Distribution (12b-1) Fees NONE NONE
Other Expenses 0.05% 0.05%
Total Annual Fund Operating Expenses 0.85% 0.85%
VAN KAMPEN ENTERPRISE PORTFOLIO AND CORRESPONDING TRUST PORTFOLIO
TRUST PORTFOLIO
(PRO FORMA WITH VAN
VAN KAMPEN ENTERPRISE KAMPEN ENTERPRISE
PORTFOLIO PORTFOLIO)
--------------------- -------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees 0.70% 0.70%
Distribution (12b-1) Fees NONE NONE
Other Expenses 0.10% 0.10%
Total Annual Fund Operating Expenses 0.80% 0.80%
MFS TOTAL RETURN PORTFOLIO AND CORRESPONDING TRUST PORTFOLIO
TRUST PORTFOLIO
(PRO FORMA WITH MFS
MFS TOTAL RETURN TOTAL RETURN
PORTFOLIO PORTFOLIO)
---------------- -------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees* 0.79% 0.79%
Distribution (12b-1) Fees NONE NONE
Other Expenses 0.02% 0.02%
Total Annual Fund Operating Expenses 0.81% 0.81%
- 18 -
* Effective November 1, 2004, the MFS Total Return Portfolio has paid an
investment management fee of 0.80% of the Portfolio's average daily net assets
up to $600 million, 0.775% of net assets between $600 million and $900 million,
0.75% of net assets between $900 million and $1.5 billion, 0.725% of net assets
between $1.5 billion and 2.5 billion, and 0.675% of net assets over $2.5
billion. Effective February 26, 2005, the effective fee rate based on this fee
schedule has been determined based on the aggregate average daily net assets of
the Portfolio and certain portfolios of the Trust for which MFS serves as
subadviser. This fee schedule and method of calculation will apply to the MFS
Total Return Portfolio of the Trust.
SALOMON BROTHERS STRATEGIC TOTAL RETURN BOND PORTFOLIO AND CORRESPONDING
TRUST PORTFOLIO
TRUST PORTFOLIO
(PRO FORMA WITH
SALOMON BROTHERS SALOMON BROTHERS
STRATEGIC TOTAL STRATEGIC TOTAL
RETURN BOND RETURN BOND
PORTFOLIO PORTFOLIO)
---------------- ---------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees 0.80% 0.80%
Distribution (12b-1) Fees NONE NONE
Other Expenses 0.45% 0.45%
Total Annual Fund Operating Expenses 1.25% 1.25%
TRAVELERS MANAGED INCOME PORTFOLIO AND CORRESPONDING TRUST PORTFOLIO
TRUST PORTFOLIO
TRAVELERS (PRO FORMA WITH
MANAGED INCOME TRAVELERS MANAGED
PORTFOLIO INCOME PORTFOLIO)
-------------- ------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees 0.65% 0.65%
Distribution (12b-1) Fees NONE NONE
Other Expenses 0.04% 0.04%
Total Annual Fund Operating Expenses 0.69% 0.69%
- 19 -
PIONEER STRATEGIC INCOME PORTFOLIO AND CORRESPONDING TRUST PORTFOLIO
TRUST PORTFOLIO
(PRO FORMA WITH
PIONEER STRATEGIC PIONEER STRATEGIC
INCOME PORTFOLIO INCOME PORTFOLIO)
----------------- -----------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees 0.75% 0.75%
Distribution (12b-1) Fees NONE NONE
Other Expenses 0.15% 0.15%
Total Annual Fund Operating Expenses 0.90% 0.90%
EXAMPLES: These examples help investors compare the cost of investing in
the Portfolios and Trust Portfolios with the cost of investing in other mutual
funds. The examples assume:
- - you invest $10,000;
- - you sell all of your shares at the end of the period;
- - your investment has a 5% return each year; and
- - each Portfolio's and Trust Portfolio's operating expenses remain the same as
shown above.
Although actual costs may be higher or lower, based upon these assumptions your
costs would be:
STRATEGIC EQUITY PORTFOLIO AND CORRESPONDING TRUST PORTFOLIO
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
STRATEGIC EQUITY PORTFOLIO.......................................... $87 $271 $471 $1,049
TRUST PORTFOLIO (PRO FORMA WITH STRATEGIC EQUITY PORTFOLIO)......... $87 $271 $471 $1,049
AIM CAPITAL APPRECIATION PORTFOLIO AND CORRESPONDING TRUST PORTFOLIO
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
AIM CAPITAL APPRECIATION PORTFOLIO.................................. $87 $271 $471 $1,049
TRUST PORTFOLIO (PRO FORMA WITH AIM CAPITAL APPRECIATION
PORTFOLIO)......................................................... $87 $271 $471 $1,049
- 20 -
VAN KAMPEN ENTERPRISE PORTFOLIO AND CORRESPONDING TRUST PORTFOLIO
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
VAN KAMPEN ENTERPRISE PORTFOLIO..................................... $82 $255 $444 $990
TRUST PORTFOLIO (PRO FORMA WITH VAN KAMPEN ENTERPRISE
PORTFOLIO)......................................................... $82 $255 $444 $990
MFS TOTAL RETURN PORTFOLIO AND CORRESPONDING TRUST PORTFOLIO
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
MFS TOTAL RETURN PORTFOLIO.......................................... $83 $259 $450 $1,002
TRUST PORTFOLIO (PRO FORMA WITH MFS TOTAL RETURN PORTFOLIO) ........ $83 $259 $450 $1,002
SALOMON BROTHERS STRATEGIC TOTAL RETURN BOND PORTFOLIO AND CORRESPONDING
TRUST PORTFOLIO
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
SALOMON BROTHERS STRATEGIC TOTAL RETURN BOND PORTFOLIO.............. $127 $397 $686 $1,511
TRUST PORTFOLIO (PRO FORMA WITH SALOMON BROTHERS STRATEGIC
TOTAL RETURN BOND PORTFOLIO)........................................ $127 $397 $686 $1,511
TRAVELERS MANAGED INCOME PORTFOLIO AND CORRESPONDING TRUST PORTFOLIO
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
TRAVELERS MANAGED INCOME PORTFOLIO.................................. $70 $221 $384 $859
TRUST PORTFOLIO (PRO FORMA WITH TRAVELERS MANAGED INCOME
PORTFOLIO)......................................................... $70 $221 $384 $859
PIONEER STRATEGIC INCOME PORTFOLIO AND CORRESPONDING TRUST PORTFOLIO
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
PIONEER STRATEGIC INCOME PORTFOLIO.................................. $92 $287 $498 $1,108
TRUST PORTFOLIO (PRO FORMA WITH PIONEER STRATEGIC INCOME
PORTFOLIO)......................................................... $92 $287 $498 $1,108
INFORMATION RELATING TO THE PROPOSED REORGANIZATIONS
GENERAL
The Reorganization Agreement sets forth the terms and conditions under
which the Reorganizations would be consummated. Significant provisions of the
Reorganization Agreement are summarized below; however, this summary is
qualified in its entirety by reference to the copy of the
- 21 -
Reorganization Agreement attached as Appendix A to this Combined
Prospectus/Proxy Statement and is incorporated herein by reference.
DESCRIPTION OF THE REORGANIZATION AGREEMENT
The Reorganization Agreement provides that at the closing substantially
all (other than cash in an amount necessary to pay dividends and distributions
as provided in the Reorganization Agreement) of the assets and all of the
liabilities of each Portfolio will be transferred to and assumed by the
corresponding Trust Portfolio. In exchange for the transfer of the assets and
the assumption of the liabilities, the Trust will issue at the closing full and
fractional shares of each Trust Portfolio equal in aggregate dollar value to the
aggregate net asset value of full and fractional outstanding shares of the
corresponding Portfolio as determined at the valuation time specified in the
Reorganization Agreement. The Reorganization Agreement provides that each
Portfolio will declare a dividend or dividends and/or other distributions on or
as soon as practicable prior to the Closing Date (as defined in the
Reorganization Agreement) which will have the effect of distributing to
stockholders all of its investment company taxable income (computed without
regard to any deduction for dividends paid) and realized net capital gain, if
any, for the current taxable year through the Closing Date.
Following the transfer of assets to, and the assumption of liabilities of
a Portfolio by, a Trust Portfolio, the Portfolio will distribute Trust Portfolio
shares in liquidation of the Portfolio. Each Portfolio stockholder at the
Closing Date will receive an amount of shares with a total net asset value equal
to the net asset value of their Portfolio shares plus the right to receive any
dividends or distributions that were declared before the Closing Date but that
remained unpaid at that time with respect to Portfolio shares.
After a Reorganization, all of the issued and outstanding shares of a
Portfolio shall be canceled on the books of the Fund and the transfer books of
the Portfolio will be permanently closed.
The Reorganization of a Portfolio is subject to a number of conditions,
including, without limitation: approval of the Reorganization Plan and the
transactions contemplated thereby described in this Combined Prospectus/Proxy
Statement by the Portfolio's stockholders; the consummation of the MetLife
Transaction, the receipt of a legal opinion from counsel to the Trust with
respect to certain tax issues, as more fully described in "Federal Income Tax
Consequences" below; and, the parties' performance of their respective
agreements and undertakings in the Reorganization Agreement. Assuming
satisfaction of the conditions in the Reorganization Agreement, the Closing Date
of each Reorganization will be June 30, 2005 or such other date as is agreed to
by the parties. Such effective date is expected to be coincident with the
closing of the sale of TL&A to MetLife.
The costs and expenses associated with the Reorganizations, including
costs of soliciting proxies, will be borne equally by MetLife, Inc. and Smith
Barney Fund Management LLC (a Citigroup affiliate), with no cost to the
Portfolios, the Fund, the Trust, the Trust Portfolios or contract owners.
BOARD CONSIDERATIONS
In approving the Reorganization with respect to each Portfolio at meetings
held on March 24, 2005 and April 20, 2005, the Board considered the proposed
Reorganizations from the perspective of the Portfolios. In light of discussions
of the Board at the meetings, and the written materials provided to the Board in
advance of the meetings, the Board, including a majority of the disinterested
Directors, unanimously decided to approve the Reorganizations and to recommend
their approval to stockholders.
- 22 -
In connection with making these determinations, the Board was provided
with information about the reasons for the proposed Reorganizations, and about
MetLife and its purchase of TL&A from Citigroup. The Board was informed that,
without the Reorganizations, the Fund would include portfolios that are advised
by Citigroup affiliates and portfolios that are advised by MetLife affiliates,
and was informed of the management, operational and administrative complexities
that this structure would raise. For example, having some portfolios managed by
MetLife affiliates and others managed by Citigroup affiliates likely would
create inefficiencies and possible inconsistencies in fund administrative and
compliance procedures, which in turn could lead to increased overall costs that
eventually might be passed on to stockholders. In addition, the Board, the
members of which also serve as directors for other investment companies advised
or sponsored by Citigroup and its affiliates, would likely need on an ongoing
basis to be provided with written information from, and hear oral presentations
by, MetLife representatives as well as representatives of Citigroup, potentially
causing a substantial increase in the Board's workload and the length and/or
number of Board meetings.
The Board was advised that both Citigroup and MetLife considered the
continuity of management of the Portfolios to be important for the offering and
operation of the variable annuity and variable life insurance contracts, the
issuers of which are the subject of the MetLife Transaction. The Board
considered that the Portfolios, which are the portfolios of the Fund that are
currently advised by TIA or TAMIC, should continue to be served by those
advisers after their acquisition by MetLife.
The Board considered that the Trust Portfolios will be substantially
identical to their corresponding Portfolios in terms of their investment
objectives, policies and restrictions, their fees and expenses, their investment
advisers, and, except in the case of the Travelers Managed Income Portfolio,
their subadvisers. The Board considered that the portfolio managers of each
Trust Portfolio are expected to be the same as the portfolio managers of each
corresponding Portfolio.
The Board also considered the differences between the Portfolios and the
Trust Portfolios, including those resulting from the fact that they are series
of different legal entities organized under the laws of different jurisdictions.
The Board considered its familiarity with the members of the Trust Board, and
that it believed the Trust Board to be able and inclined to protect the
interests of Trust Portfolio stockholders and contract owners. The Board
concluded that any differences between the Portfolios and the Trust Portfolios
were unlikely to have a material adverse effect on stockholders or on contract
owners.
The Board also considered the terms of the Reorganization Agreement, and
the fact that the Reorganizations would constitute tax-free reorganizations. The
Board also considered the agreements to be entered into between MetLife,
Citigroup and certain of their affiliates in connection with the closing of the
MetLife Transaction under which Citigroup-affiliated broker-dealers will
continue to offer certain TL&A and MetLife insurance contracts and certain TL&A
and MetLife insurance products will continue to include certain
Citigroup-sponsored funds as investment options.
After considering the foregoing factors, together with such information as
they believed to be relevant, the Board determined that the proposed
Reorganization is in the best interests of each Portfolio, and that the
interests of each Portfolio's stockholders and, indirectly, the contract owners,
would not be diluted as a result of the Reorganization. The Board then approved
the Reorganization Agreement and directed that the Reorganization Agreement be
submitted to stockholders of each Portfolio for approval as to that Portfolio.
- 23 -
Therefore, the Fund's Board of Directors unanimously recommends that
stockholders vote "For" Proposal 1.
In the event the MetLife Transaction is consummated, but stockholders of a
Portfolio fail to approve the Reorganization Agreement or for any reason the
Reorganization is not consummated as to a Portfolio, it will likely be necessary
for the Fund to enter into a temporary investment advisory agreement with TIA or
TAMIC, as the case may be, with respect to that Portfolio that will take effect
as of the closing of the MetLife Transaction. The Board has not determined what
further action the Fund would take in that event, although such action might
include soliciting stockholder approval to continue the temporary agreement with
TIA or TAMIC, or approving and soliciting stockholder approval of an agreement
with another investment adviser.
From the perspective of Trust and the Trust Portfolios, the Trust Board
considered, among other things: the terms of the Reorganization Agreement; the
possibility that the Reorganizations could give rise to operational and
administrative efficiencies resulting from the increased size of the Trust; the
fact that the Reorganizations would constitute tax-free reorganizations; and
insurance coverage obtained by a Citigroup affiliate that would cover certain
potential liabilities to which the Trust Portfolios could become subject as the
successors to the Portfolios.
CERTAIN ARRANGEMENTS WITH SERVICE PROVIDERS
ADVISORY SERVICES
TIA is the investment adviser for all of the Portfolios except the
Travelers Managed Income Portfolio, and would serve as investment adviser for
all of the corresponding Trust Portfolios. TAMIC is the investment adviser for
the Travelers Managed Income Portfolio of the Fund and would serve as investment
adviser for the corresponding Trust Portfolio. TIA and TAMIC provide investment
advice and, in general, supervise the management and investment program for each
of the Portfolios, and would do so for the Trust Portfolios. As compensation for
their services, TIA or TAMIC receives a management fee from each Portfolio, and
would receive a fee from the corresponding Trust Portfolio, at the annual rates
set forth below based on the average daily net assets of each Portfolio (except
for the MFS Total Return Portfolio, as discussed below):
PORTFOLIO AND TRUST PORTFOLIO INVESTMENT ADVISER FEE
- ----------------------------- ----------------------
Strategic Equity Portfolio 0.80%
AIM Capital Appreciation Portfolio 0.80%
Van Kampen Enterprise Portfolio 0.70%
Salomon Brothers Strategic Total Return Bond Portfolio 0.80%
Travelers Managed Income Portfolio 0.65%
Pioneer Strategic Income Portfolio 0.75%
The MFS Total Return Portfolio pays, and its corresponding Trust Portfolio
would pay, an investment management fee in which an effective fee rate is
determined based on the aggregate average daily net assets of such Portfolio and
the MFS Mid Cap Growth Portfolio and MFS Value Portfolio of the Trust. The fee
schedule used to determine the effective fee rate for the Portfolio is as
follows: 0.80% of the Portfolios' average daily net assets up to $600 million,
0.775% of net assets between $600 million and $900 million, 0.75% of net assets
between $900 million and $1.5 billion, 0.725% of net assets between $1.5 billion
and 2.5 billion, and 0.675% of net assets over $2.5 billion.
- 24 -
TIA and TAMIC, as the case may be, have agreed to waive its fee to the
extent that the aggregate expenses of each Portfolio, exclusive of taxes,
brokerage, interest and extraordinary expenses (such as litigation and
indemnification expenses), exceed a specified percentage of the Portfolio's
average daily net assets for a fiscal year. TIA and TAMIC will continue the same
expense limitations, which may be terminated by TIA or TAMIC upon notice to
shareholders provided by supplement to the then-current Prospectus or Statement
of Additional Information, as to the Trust Portfolios.
Manager of Managers Structure. Upon the closing of the MetLife
Transaction, TAMIC or TIA, as the investment adviser for each Trust Portfolio,
would, subject to approval by the Trust Board, be able to enter into new or
amended agreements with subadvisers with respect to the Trust Portfolio without
obtaining shareholder approval of such agreements, and to permit such
subadvisers to manage the assets of the Trust Portfolio pursuant to such
subadvisory agreements. TAMIC and TIA do not have such authority with
respect to the Portfolios.
The 1940 Act generally provides that an investment adviser or subadviser
to a mutual fund may act as such only pursuant to a written agreement that has
been approved by a vote of the fund's shareholders, as well as by a vote of a
majority of the trustees of the fund who are not parties to such agreement or
interested persons of any party to such agreement. Certain MetLife subsidiaries,
however, have received from the SEC an exemption from the shareholder approval
voting requirement in certain circumstances (the "SEC Exemption"). Upon becoming
indirect subsidiaries of MetLife, the SEC Exemption would also apply to TAMIC
and TIA and, subject to certain conditions, any fund advised by TAMIC and TIA.
Under the SEC Exemption, TAMIC and TIA would be permitted, under specified
conditions, to enter into new and amended subadvisory agreements for the
management of a Trust Portfolio, including agreements with new subadvisers and
agreements with existing subadvisers if there is a material change in the terms
of the subadvisory agreement, if there is a change of control of the subadviser,
or if another event causing termination of the existing subadvisory agreement
occurs, without obtaining the approval of the Trust Portfolio's shareholders of
such new or amended sub-advisory agreement. Such agreements must nevertheless be
approved by the Trust Board, in accordance with the requirements of the 1940
Act. One of the conditions of the SEC Exemption is that within 90 days after
entering into an agreement with a new subadviser without shareholder approval,
the Trust Portfolio must provide to shareholders an information statement
setting forth substantially the information that would be required to be
contained in a proxy statement for a meeting of shareholders to vote on the
approval of the agreement. Furthermore, each Trust Portfolio would still require
shareholder approval to materially amend its investment advisory agreement with
TAMIC or TIA (including any amendment to raise the management fee rate payable
under such agreement) or to enter into a new investment advisory agreement with
TAMIC, TIA or any other adviser.
The SEC Exemption will avoid the need for a Trust Portfolio to incur the
delay and expense of a shareholder meeting to approve new subadvisory
agreements. In the view of TAMIC, TIA and the Trust Board, the SEC Exemption
will benefit the Trust Portfolios and their shareholders by permitting the
prompt replacement of a subadviser that, for example, has performed poorly or
has resigned, and the prompt approval of a new subadvisory agreement with an
existing subadviser where, for example, the agreement has been terminated as a
result of a change in the actual control or management of the subadviser.
Travelers Managed Income Portfolio. The Travelers Managed Income Portfolio
is managed directly by TAMIC without a subadviser. After the Reorganization,
TAMIC will be the investment adviser to the corresponding Trust Portfolio, but
day-to-day investment management will be provided by
- 25 -
Salomon Brothers Asset Management Inc ("SBAM") as subadviser. SBAM, located at
388 Greenwich Street, New York, New York 10013, is, as TAMIC is currently, a
wholly owned subsidiary of Citigroup. Notwithstanding this nominal addition of a
subadviser, Mr. Gene Collins and Mr. Kurt Lin, the portfolio managers of the
Portfolio who are currently dual employees of TAMIC and SBAM, will manage the
Trust Portfolio as employees of SBAM. Furthermore, this change will not result
in any change in the fees paid by shareholders, as TAMIC will be entitled to the
same management fee from the Trust Portfolio as it is entitled to receive from
the Portfolio, and will pay a portion of its fee from the Trust Portfolio to
SBAM for its service as subadviser. After the Reorganization and the MetLife
Transaction, MetLife's plan is for TAMIC to conduct a formal search for other
candidates to act as subadviser to this Portfolio, and to make a recommendation
to the Trust Board, probably in the Fall of 2005. If the Trust Board approves a
subadviser other than SBAM, TAMIC intends to rely on the SEC Exemption to
replace SBAM without stockholder approval.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP ("KPMG") currently serves as the independent registered public
accounting firm for the Portfolios. As a result of insurance services provided
to KPMG by MetLife, KPMG is not considered independent of MetLife and will not
be permitted to serve as the independent registered public accounting firm for
the Trust Portfolios after the MetLife Transaction. The Trust Board intends to
select a successor accounting firm in the near future.
OTHER SERVICES
After the Reorganizations, shares of the Trust Portfolios will continue to
be offered to the separate accounts of TL&A that originally held shares in the
Portfolios.
Subject to review by the Trust Board, the Trust Portfolios are expected,
at the time of or shortly after the Reorganizations, to retain certain other
service providers that would involve changes from those currently providing
similar services to the Portfolios. Citicorp Trust Bank, fsb ("CTB"), a
subsidiary of Citigroup, serves as the transfer agent and PFPC Inc. serves as
sub-transfer agent for the Fund and Trust. With respect to the Portfolios that
they manage, TAMIC and TIA have entered into sub-administration agreements with
Smith Barney Fund Management LLC ("SBFM"), an indirect wholly-owned subsidiary
of Citigroup, under which SBFM performs pricing, bookkeeping, and other
administrative services for the Portfolios, and similar sub-administration
agreements will be entered into between TAMIC and TIA, as appropriate, and SBFM
with respect to the Trust Portfolios. State Street Bank and Trust Company
("State Street"), 225 Franklin Street, Boston, MA 02110 serves as the custodian
for the Portfolios.
The arrangements with the Citigroup affiliates CTB and SBFM are expected
to be terminated at the time of or shortly after the Reorganizations and the
MetLife Transaction, subject to review by MetLife and the Trust Board. In this
regard, MetLife intends to propose to the Trust Board for its approval the
replacement of such service providers with the service providers generally used
by other MetLife investment companies. State Street serves as administrative
agent for one such investment company, while MetLife serves as transfer agent to
such companies. State Street serves as custodian for such companies, as it does
for the Portfolios.
FEDERAL INCOME TAX CONSEQUENCES
- 26 -
Consummation of the Reorganizations is subject to the condition that the
Trust and the Fund receive an opinion of Sutherland Asbill & Brennan LLP,
counsel to the Trust, to the effect that for federal income tax purposes:
1. the transfer to each Trust Portfolio of all or substantially
all of the assets of the corresponding Portfolio in exchange
solely for shares of the Trust Portfolio and the assumption by
the Trust Portfolio of all of the liabilities of the
Portfolio, followed by the distribution of Trust Portfolio
Shares to the holders of shares of the Portfolio in exchange
for their shares of the Portfolio in complete liquidation of
the Portfolio, will constitute a "reorganization" within the
meaning of Section 368(a)(1)(F) of the Internal Revenue Code
(the "Code"), and each Trust Portfolio and Portfolio will be
"a party to a reorganization" within the meaning of Section
368(b) of the Code;
2. no gain or loss will be recognized by a Portfolio upon the
transfer of the Portfolio's assets to the corresponding Trust
Portfolio solely in exchange for Trust Portfolio Shares and
the assumption by the Trust Portfolio of liabilities of the
corresponding Portfolio or upon the distribution of Trust
Portfolio Shares to the stockholders of a Portfolio;
3. a Trust Portfolio's basis in the assets received from a
Portfolio will be the same as the Portfolio's basis in such
assets immediately prior to the transfer;
4. a Trust Portfolio's holding period for the transferred assets
will include the period during which such assets were held by
the corresponding Portfolio;
5. no gain or loss will be recognized by a Trust Portfolio upon
the receipt of the assets of a Portfolio in exchange for
shares of the Trust Portfolio and the assumption by the Trust
Portfolio of liabilities of a Portfolio;
6. no gain or loss will be recognized by the stockholders of a
Portfolio on the exchange of their shares of the Portfolio
solely for shares of the corresponding Trust Portfolio;
7. a Portfolio stockholder's basis in the Trust Portfolio shares
received in a Reorganization will be the same as the adjusted
basis of the shares of the Portfolio exchanged therefor;
8. a Portfolio stockholder's holding period in the shares of a
Trust Portfolio received in a Reorganization will include the
stockholder's holding period for the shares of the Portfolio
exchanged therefor, provided that such Portfolio shares were
held as capital assets on the Closing Date;
9. no gain or loss will be recognized by contract owners as a
result of the Reorganizations; and
10. for purposes of Section 381 of the Code, the Trust Portfolios
will be treated as if there had been no Reorganization.
Accordingly, the taxable years of the Portfolios will not end
on the effective date of the Reorganization and the tax
attributes of each Portfolio enumerated in Section 381(c) will
be taken into account as if there had been no Reorganization.
The part of the taxable year of a Portfolio before the
Reorganization and the part of the taxable year of the
corresponding Trust Portfolio after the Reorganization will
constitute a single taxable year of such Trust Portfolio.
Therefore, the Portfolios will not be required to file a
federal income tax return or distribute information returns to
their
- 27 -
respective stockholders for any portion of such taxable year.
Each Trust Portfolio will assume the corresponding Portfolio's
taxpayer identification number and will not be required to
file for a new identification number.
Neither the Fund nor the Trust has sought a tax ruling from the Internal
Revenue Service (the "IRS"), but is acting in reliance upon the opinion of
counsel discussed in the previous paragraph. That opinion is not binding on the
IRS and does not preclude the IRS from adopting a contrary position.
Stockholders should consult their own tax advisors concerning their potential
tax consequences, including state and local income taxes.
CAPITALIZATION
No capitalization information is provided because the Trust Portfolios
have not commenced operations, and will not do so unless and until the
Reorganization with respect to that Trust Portfolio is consummated.
COMPARISON OF ORGANIZATIONAL STRUCTURE OF FUND AND TRUST
As noted above, some of the differences between the Portfolios and their
corresponding Trust Portfolios relate to the different forms of organization of
the Fund and the Trust. This section provides more detail on such differences.
Each Portfolio is a separate investment portfolio of the Fund, which is an
open-end management investment company incorporated in the State of Maryland on
February 22, 1994. Each Trust Portfolio is a separate investment portfolio of
the Trust, which is an open-end management investment company organized as a
voluntary association commonly known as a Massachusetts business trust on
October 11, 1991.
CHARTERS AND BY-LAWS
The operations of the Trust Portfolios are governed by the Trust's
Agreement and Declaration of Trust (the "Trust Instrument") and By-Laws (the
"Trust By-Laws"), and applicable Massachusetts law. The operations of the
Portfolios are governed by the Fund's Articles of Incorporation (the "Fund
Charter"), the Fund's By-Laws (the "Fund By-Laws") and Maryland law. The
operations of both the Trust and the Fund are subject to the provisions of the
1940 Act, the rules and regulations of the SEC thereunder and applicable state
securities laws.
TRUSTEES OF THE TRUST AND DIRECTORS OF THE FUND
Subject to the provisions of the Trust Instrument, the operations of the
Trust Portfolios are supervised by the Trust Board. The responsibilities, powers
and fiduciary duties of the Trust Board will be substantially the same as those
of the directors of the Fund. Under Maryland law and the Fund By-Laws, a
director of the Fund may be removed with or without cause only by the
affirmative vote of a majority of shares entitled to vote for the election of
directors. The provisions of the Trust Instrument permit the Trust Board to
remove a trustee at any time by a written instrument signed by at least
two-thirds of the trustees prior to such removal, specifying the effective date
of removal. After the closing of the Reorganizations, no trustee of the Trust
will also be a director of the Fund. R. Jay Gerken, a current trustee of the
Trust who is also a director of the Fund, is expected to resign from the Trust
Board as of such closing.
- 28 -
SERIES OF MASSACHUSETTS BUSINESS TRUSTS AND MARYLAND CORPORATIONS
The Trust Instrument permits the Trust's Trustees to create one or more
series of the Trust and, with respect to each series, to issue an unlimited
number of full or fractional shares of that series or of one or more classes of
shares of that series. Each share of a series of a Massachusetts business trust,
like each share of a series of a Maryland corporation, represents an equal
proportionate interest with each other share in that series, none having
priority or preference over another. The directors of the Fund have
substantially similar rights under the Fund Charter, the Company By-Laws and
Maryland law, except that they are required to specify a fixed number of shares
authorized for issuance.
The Trust has an unlimited number of authorized shares of beneficial
interest, all without par value. The Fund has an authorized capital of
6,000,000,000 shares with a par value of $.00001 per share. Each series of the
Fund and Trust currently has only one class of shares, but may in the future
issue multiple classes.
MASSACHUSETTS BUSINESS TRUST SHAREHOLDER LIABILITY AND MARYLAND CORPORATION
STOCKHOLDER LIABILITY
One area of difference between the two forms of organizations is the
potential liability of holders of beneficial interests in a Massachusetts
business trust (i.e., shareholders) and stockholders of a Maryland corporation.
Stockholders of a corporation generally may not be held to be personally liable
for the obligations of a corporation such as the Fund. In contrast, under
Massachusetts law, shareholders of the Trust could, under certain circumstances,
be held personally liable for the Trust's obligations. However, the Trust
Instrument disclaims shareholder liability for acts or obligations of the Trust,
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or its trustees.
Moreover, the Trust Instrument provides for indemnification out of the Trust's
property for all losses and expenses of any shareholder held personally liable
for the Trust's obligations. Thus, and in light of the nature of the Trust's
business, the Trust considers the risk of a shareholder's incurring financial
loss on account of personal liability (i.e., loss in addition to the
shareholder's investment in the Trust) to be remote, since it is limited to
circumstances in which the disclaimer is inoperative, inadequate insurance
existed (e.g., fidelity bonding and errors and omissions insurance), and the
Trust itself is unable to meet its obligations.
LIABILITY OF DIRECTORS IN MARYLAND AND TRUSTEES IN MASSACHUSETTS
In the event of any litigation against the directors of the Fund, Maryland law
permits the Fund to indemnify a director or advance expenses unless it is
established that the act or omission of the director giving rise to the
litigation was committed in bad faith, was the result of active and deliberate
dishonesty or the director actually received an improper personal benefit. In
addition, the Fund Charter provides that the Fund shall indemnify its officers
and directors to the maximum extent permitted by law , except as such liability
may arise from his own bad faith, willful misfeasance, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
The Fund Charter also provides that no director or officer shall be personally
liable to the Fund or its stockholders for money damages, except as such
liability may arise from his own bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties.
Similarly, to protect the trustees of the Trust against liability, the
Trust Instrument provides that: (1) the trustees shall not be responsible or
liable for any neglect or wrongdoing of any officer, agent, employee, investment
adviser or principal underwriter of the Trust, or any act or omission of any
other trustee; and (2) the Trust shall indemnify each trustee against all
liabilities and expenses incurred by reason of being or having been a trustee
except with respect to any matter as to which such Trustee shall have been
finally adjudicated not to have acted in good faith in the reasonable belief
that such trustee's
- 29 -
action was in the best interests of the Trust. Furthermore, the Trust Instrument
provides that nothing in it protects a Trustee against any liability to the
Trust or its shareholders to which he or she would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
VOTING RIGHTS OF MARYLAND CORPORATION STOCKHOLDERS AND MASSACHUSETTS TRUST
SHAREHOLDERS
Neither Maryland corporations that are registered investment companies nor
Massachusetts business trusts are required to hold stockholder or shareholder
meetings annually. The Fund By-Laws, in a manner consistent with Maryland law,
provide that a meeting of stockholders may be called by the Board or by the
President, and shall be called by the Secretary at the request in writing of a
majority of the Board or at the request in writing of stockholders entitled to
cast a majority of the votes entitled to be cast at the meeting upon payment by
such stockholders to the Fund of the reasonably estimated cost of preparing and
mailing a notice of the meeting. A written request by stockholders shall state
the purpose or purposes of the proposed meeting.
The Trust Instrument and the Trust By-Laws provide that the Trust Board
may call meetings of shareholders from time to time for such purposes as may be
prescribed by law, by the Trust Instrument, by the Trust By-Laws, or by the
Trustees. The Trust Instrument also provides that special meetings of
shareholders shall be called by the Trust Board upon the written request of
shareholders owning at least 25% of the outstanding shares entitled to vote. The
Trust Instrument provides that the shareholders have the power to vote only with
respect to: (1) the election or removal of trustees; (2) any investment adviser
or subadviser, (3) certain amendments to the Trust Instrument, (4) the
termination of the Trust to the extent and as provided therein, and (5) with
respect to such additional matters relating to the Trust as may be required by
law, the Trust Instrument or the Trust By-Laws or any registration of the Trust
with the SEC or any state, or as the Trustees may consider desirable. The Fund
Articles and Maryland law generally give stockholders substantially similar
voting rights. Except when a larger vote is required by law, the Trust
Instrument requires that holders of at least one-fourth of the total number of
shares entitled to vote be present at a meeting of shareholders in person or by
proxy to establish a quorum for the transaction of business at such meeting. The
Fund Charter requires one-third of the holders of shares present, in person or
by proxy, at the meeting to constitute a quorum.
RIGHT OF INSPECTION
Maryland law provides that persons who have been stockholders of record
for six months or more and who own at least 5% of the shares of the Fund may
inspect the books of account and stock ledger of the Fund. There is no similar
provision under Massachusetts law, the Trust Instrument of the Trust By-Laws.
The foregoing is only a summary of certain of the differences between the
Fund, the Fund Charter, the Fund By-Laws and Maryland law on the one hand, and
the Trust, the Trust Instrument, the Trust By-Laws and Massachusetts law on the
other. It is not a complete list of differences. Stockholders of the Fund and
owners should refer to the provisions of the Fund Charter, the Fund By-laws,
Maryland law, the Trust Instrument, the Fund By-Laws and Massachusetts law
directly for a more thorough comparison.
ADDITIONAL INFORMATION ABOUT THE METLIFE TRANSACTION
In connection with the MetLife Transaction, MetLife has agreed that it
will satisfy certain conditions set forth in Section 15(f) of the 1940 Act.
Section 15(f) provides a non-exclusive safe harbor, which allows an investment
adviser to an investment company or any of its affiliated persons to receive
- 30 -
any amount or benefit in connection with a change in control of the investment
adviser so long as certain conditions are met. One such provision provides that
no "unfair burden" may be imposed upon the investment company as a result of
such a change-in-control transaction or any express or implied terms, conditions
or understandings applicable thereto. The term "unfair burden" is defined in
Section 15(f) to include any arrangement, during the two-year period after the
change in control, whereby the investment adviser, or any interested person of
such adviser, receives or is entitled to receive any compensation, directly or
indirectly, from the investment company or its shareholders (other than fees for
bona fide investment advisory or other services) or from any person in
connection with the purchase or sale of securities or other property to, from or
on behalf of the investment company (other than bona fide ordinary compensation
as principal underwriter for such investment company).
None of MetLife, TIA or TAMIC have advised the Portfolios or the Board of
any circumstance arising from the MetLife Transaction that might result in the
imposition of an "unfair burden" on the Trust or the Trust Portfolios as a
result of the MetLife Transaction. Moreover, MetLife has agreed that for a
period of not less than two years after the consummation of the MetLife
Transaction, it will refrain from imposing an "unfair burden" on the Trust or
the Trust Portfolios in connection with the MetLife Transaction.
SUMMARY OF INFORMATION ABOUT THE TRUST GENERALLY
PURCHASES AND REDEMPTIONS
Shares in the Trust Portfolios are offered continuously, without any sales
charge, at prices equal to the applicable Trust Portfolio's net asset value next
determined after the Trust Portfolio's custodian receives payment. Depending
upon the net asset value at that time, the amount paid upon redemption may be
more or less than the amount paid at the time of purchase. Payment for shares
redeemed is normally wired or mailed either the same day as a redemption request
in proper form is received, or on the next business day, but in any event within
seven days after receipt of the request.
The net asset value of a Trust Portfolio's shares is the value of its
assets minus its liabilities, divided by the number of shares outstanding. Each
Trust Portfolio calculates its net asset value every day the New York Stock
Exchange ("NYSE") is open, as of the close of regular trading on the NYSE
(normally 4:00 p.m., Eastern time).
A Trust Portfolio's assets are valued primarily based on market value. 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 in accordance with procedures adopted by the Trust
Board.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Trust Portfolio intends to make distributions of income and capital
gains in order to qualify each year as a regulated investment company under
Subchapter M of the Internal Revenue Code. As a result of qualifying as a
regulated investment company, a Trust Portfolio will not be subject to federal
income tax to the extent that the Trust Portfolio distributes its net investment
income and net capital gains. All income and capital gain distributions are
automatically reinvested in additional shares of the Trust Portfolio at net
asset value without a sales charge.
- 31 -
ORGANIZATIONAL STRUCTURE
In addition to the Trust Portfolios, the Trust currently consists of 23
other portfolios: Convertible Securities, Disciplined Mid Cap Stock, Equity
Income, Federated High Yield, Federated Stock, Large Cap, Lazard International
Stock, MFS Value, Merrill Lynch Large Cap Core, Pioneer Fund, Social Awareness
Stock, Travelers Quality Bond, U.S. Government Securities, Zero Coupon Bond
(Series 2005), MFS Mid Cap Growth, Aggressive Strategy, Moderate-Aggressive
Strategy, Moderate Strategy, Moderate-Conservative Strategy, Conservative
Strategy, Pioneer Mid Cap Value, Small Cap Growth, and Small Cap Value
Portfolios. The Trust's prospectuses and statement of additional information
include detailed descriptions of each of these portfolios. The Trust may add or
subtract portfolios from time to time in the future.
VOTING INFORMATION
TL&A is the record owner of all of the shares of each Portfolio. TL&A will
vote each Portfolio's shares at the Meeting in accordance with the timely
instructions received from persons entitled to give voting instructions under
the variable contracts. Contract owners and certain annuitants and/or
beneficiaries have the right to instruct TL&A as to the number of shares (and
fractional shares) attributable to their variable contract's value on the record
date allocated to the separate account that holds shares of a Portfolio.
TL&A will vote shares attributable to variable contracts as to which no
voting instructions are received in the same proportion (for, against, or
abstain) to those for which timely instructions are received. In other words,
TL&A is entitled to vote shares for which no instructions are received, but will
do so in the same proportion as shares for which instructions have been received
from contract owners. TL&A will seek a sample of the units for which voting
instructions may be provided that it reasonably considers to provide a fair
representation of the views of contract owners on the proposals, although the
specific proportion of the outstanding units that will be required will vary
depending on the specific circumstances, and such proportion of contract owner
units may be less than the one-third proportion that constitutes a quorum of
Fund shareholders (as discussed below). If a Voting Instruction Form is received
that does not provide any instructions, TL&A will consider its timely receipt as
an instruction to vote in favor of the proposal.
Contract owners may vote simply by enclosing the executed proxy card in
the postage-paid envelope found within the proxy package.
In certain circumstances, TL&A has the right to disregard voting
instructions from certain owners. TL&A does not believe that these circumstances
exist with respect to matters currently before stockholders and contract owners.
Contract owners may revoke previously submitted voting instructions given to
TL&A by notifying TL&A in writing at any time before 5:00 p.m. (Eastern time) on
June 28, 2005 or by attending and voting in person at the Meetings. The expenses
of soliciting voting instructions will be borne equally by Smith Barney Fund
Management LLC and MetLife, and not by the Portfolios, the Fund, the Trust, the
Trust Portfolios or contract owners. The solicitation will be made primarily by
mail, but TL&A and its affiliates may make telephone, electronic, or oral
communications to contract owners.
The holders of one-third of the outstanding shares entitled to be cast of
a Portfolio present in person or by proxy shall constitute a quorum at any
Meeting. A stockholder vote may be taken with respect to a matter if a quorum is
present and sufficient votes have been received for approval. As the
- 32 -
record owner of all of the shares of each Portfolio, TL&A's presence at a
Meeting will be sufficient to constitute a quorum.
If a quorum is not present at a Meeting, or if a quorum is present but, at
the Meeting, sufficient votes to approve a Reorganization are not received, the
persons named as proxies may propose one or more adjournments of the Meeting to
permit further solicitation of proxies. Any adjournment will require the
affirmative vote of a majority of the shares represented at the Meeting in
person or by proxy. Based on voting instructions received, proxies will vote in
favor of such adjournment those instructions that are in favor of the
Reorganization, will vote against any adjournments those instructions that are
against the Reorganization, and will abstain from voting with respect to any
adjournment those instructions that are marked to abstain in connection with the
Reorganization.
Approval of the Reorganization Agreement as to a Portfolio requires the
affirmative vote of the holders of the lesser of (a) 67% or more of the voting
securities present at the Meeting or represented by proxy if the holders of more
than 50% of the outstanding voting securities are present or represented by
proxy, or (b) more than 50% of the outstanding voting securities of the
Portfolio. Stockholders of record are entitled to one vote for each full share
owned, with a fractional vote for each fractional share. The Reorganizations do
not require the approval of the stockholders of the Trust Portfolios.
The Board has fixed April 15, 2005 as the record date for determining
stockholders entitled to receive notice of and to vote at the Meeting. To be
counted, TL&A must receive an owner's properly executed Voting Instruction Form
at the Fund's office by 5:00 p.m. Eastern time on June 28, 2005.
The name and address of the persons who owned beneficially more than 5% of
a Portfolio through any separate accounts of TL&A, the percentage of such
ownership in the Portfolio, and the percentage of the corresponding Trust
Portfolio that would be owned by such persons upon consummation of the
Reorganizations based upon their holdings and the net asset values of the
Portfolios and Trust Portfolio as of the record date are as follows:
Percentage of Portfolio Percentage of Trust Portfolio
Name and Address Portfolio Owned on Record Date Ownership Upon Consummation
- ---------------- --------- ----------------------- -----------------------------
The Directors and officers of the Fund beneficially owned in the aggregate
less than 1% of each Portfolio. As of the record date, TL&A owned of record 100%
of the outstanding shares of each Portfolio.
ADDITIONAL INFORMATION ABOUT THE FUND AND TRUST
Information about the Trust Portfolios is included in the Prospectuses
dated _____, 2005, which are incorporated herein by reference and enclosed with
this Combined Proxy Statement/Prospectus as Appendices B-1 though B-7.
Additional information about the Trust Portfolios is included in the Trust's
Statement of Additional Information ("SAI") dated ______, 2005. Information
about the Portfolios is included in their Prospectuses dated February 28, 2005,
and additional information about the Portfolios is included in the Fund's SAI
dated February 28, 2005. The Trust's SAI, the Portfolios' prospectuses
- 33 -
and the Fund's SAI have been filed with the SEC and are incorporated herein by
reference. Copies of the Trust's SAI may be obtained without charge by calling
1-800-842-9368. Copies of the Portfolios' Prospectuses and the Fund's SAI may be
obtained without charge by calling 1-800-842-8573. The Fund and Trust are
subject to the requirements of the 1940 Act and, in accordance with such
requirements, file reports and other information with the SEC under the 1940 Act
and the Securities Exchange Act of 1934. These materials can be inspected and
copied at the Public Reference facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies of such material can also be
obtained for a fee by written request to the Public Reference Branch, Securities
and Exchange Commission, Washington, D.C. 20549-0102 or by electronic request to
publicinfo@sec.gov, and are also available on the SEC's web site at
http://www.sec.gov.
The financial statements of the Portfolios contained in the Portfolios'
annual report to stockholders for the fiscal year ended October 31, 2004 have
been audited by KPMG LLP, independent registered public accounting firm for the
Fund. These annual reports may be obtained without charge by calling
1-800-842-8573. Because the Trust Portfolios have not yet commenced operations,
no shareholder reports for the Trust Portfolios are available. The Trust expects
that annual reports to shareholders of the Trust Portfolios for the period
ending December 31, 2005 will be available in late February, 2006.
OTHER BUSINESS
The Board knows of no other business to be brought before the Meeting.
However, if any other matters come before the Meeting, it is the Board's
intention that, except where contract owners' Instruction Forms contain specific
restrictions to the contrary, proxies will vote on such matters in accordance
with the judgment of the proxy.
LITIGATION
Neither the Fund nor the Trust is involved in any litigation that is
expected have any material adverse effect upon any Portfolio or Trust Portfolio.
Beginning in June, 2004, certain class action lawsuits alleging violations of
the federal securities laws were filed against a number of Citigroup affiliates
and a most Citigroup-sponsored mutual funds (the "Defendant Funds"), including
the Fund but not the Trust. The complaints in such lawsuits, which have since
been consolidated into a single lawsuit, alleged, among other things, that the
Defendant Funds' distributor created various undisclosed incentives for its
brokers to sell the Defendant Funds, and that the Defendant Funds' advisers
caused the funds to pay excessive brokerage commissions to the distributor for
steering clients toward the Defendant Funds. While the lawsuit is in its early
stages, to the extent the complaint purports to state causes of action against
the Fund, Citigroup believes the Fund has significant defenses to such
allegations. Furthermore, a Citigroup affiliate has agreed to purchase, at its
own expense, insurance coverage that would cover, among other matters, any
liability in connection with this lawsuit and any costs of defending against
this lawsuit to which the Trust Portfolios could become subject as the
successors to the Portfolios. The purchase of this insurance coverage is a
condition to the closing of the Reorganizations.
STOCKHOLDER INQUIRIES
Stockholder inquiries may be addressed to the Fund in writing at the
address on the cover page of this Combined Prospectus/Proxy Statement or by
telephoning 1-800-842-8573.
* * *
- 34 -
Stockholders who do not expect to be present at the Meetings are requested
to date and sign the enclosed Voting Instructions Forms and return them in the
enclosed envelope. No postage is required if mailed in the United States.
- 35 -
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this ___ day of May 2005 between Travelers Series Fund, Inc., a Maryland
corporation with its principal place of business at 125 Broad Street, New York,
NY 10004 ("TSF"), on behalf of certain of its series listed on Exhibit A hereto
(the "Acquired Funds"), and The Travelers Series Trust, a Massachusetts business
trust with its principal place of business at One Cityplace, Hartford,
Connecticut 06103 ("TST"), on behalf of certain of its series listed on Exhibit
A hereto (the "Acquiring Funds," and together with the Acquired Funds, the
"Funds"), and, solely for purposes of Section 10.2 below, MetLife, Inc. and,
solely for purposes of Sections 8.6 and 10.2 below, Smith Barney Fund Management
LLC.
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), with respect to each of
the Acquired Funds and the Acquiring Funds, with which the Acquired Funds will
reorganize, as provided herein. The reorganization will consist of: (1) the
transfer of substantially all of an Acquired Fund's assets to TST, on behalf of
a corresponding Acquiring Fund, in exchange solely for shares of beneficial
interest (no par value) of the corresponding Acquiring Fund (the "Acquiring Fund
Shares"); (2) the assumption by TST, on behalf of the Acquiring Fund, of all of
the corresponding Acquired Fund's liabilities; and (3) the distribution of the
Acquiring Fund Shares to the shareholders of the corresponding Acquired Fund in
complete liquidation of such Acquired Fund as provided herein, all upon the
terms and conditions hereinafter set forth in this Agreement (the
"Reorganization").
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. THE REORGANIZATION
1.1. Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, TSF, on behalf of each
of the Acquired Funds, agrees to transfer to the Acquiring Fund set forth
opposite the Acquired Fund on Exhibit A hereto (each such pair of corresponding
Acquiring Fund and Acquired Fund, a "Transaction Party" to the other)
substantially all of an Acquired Fund's assets as set forth in Section 1.2, and
TST, on behalf of each Acquiring Fund, agrees in exchange therefor:
(i) to issue and deliver to each Acquired Fund the number of full
and fractional Acquiring Fund Shares of its Transaction Party determined
by dividing the net value of the assets of the Acquired Fund (such net
value computed as set forth in Section 2.1 hereof and referred to as the
"Acquired Fund Value") by the net asset value of one share ("NAV") of its
Transaction Party (computed as set forth in Section 2.2); and
(ii) to assume all of the liabilities of its Acquired Fund
Transaction Party, as set forth in Section 1.3.
Such transactions shall take place at the closing provided for in Section 3.1
(the "Closing").
1.2. The assets of an Acquired Fund to be acquired by its Transaction
Party (collectively, "Assets") shall consist of all property and assets of every
kind and nature of the Acquired Fund, including, without limitation, all cash,
cash equivalents, securities, commodities, futures, claims (whether
- 1 -
absolute or contingent, known or unknown), receivables (including dividend,
interest and other receivables), good will and other intangible property, any
deferred or prepaid expenses, and all interests, rights, privileges and powers,
other than cash in an amount necessary to pay dividends and distributions as
provided in Section 1.4 hereof and the Acquired Fund's rights under this
Agreement.
1.3. Each Acquiring Fund shall assume all liabilities of its Transaction
Party, whether accrued or contingent, existing at the Valuation Time as defined
in Section 2.1. Each Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date as defined in Section 3.1,
other than those liabilities and obligations which would otherwise be discharged
at a later date in the ordinary course of business.
1.4. On or as soon as practicable prior to the Closing Date, each Acquired
Fund will declare and pay to its shareholders of record one or more dividends
and/or other distributions so that it will have distributed substantially all of
its investment company taxable income (computed without regard to any deduction
for dividends paid) and realized net capital gain, if any, for the current
taxable year through the Closing Date.
1.5. Immediately after the transfer of its assets provided for in Section
1.1, each Acquired Fund will distribute to its shareholders of record (the
"Acquired Fund Shareholders"), determined as of the Valuation Time as defined in
Section 2.1, on a pro rata basis, the Acquiring Fund Shares of its Transaction
Party received by the Acquired Fund pursuant to Section 1.1 and will completely
liquidate. Such distribution and liquidation will be accomplished by the
transfer of the Acquiring Fund Shares then credited to the account of its
Transaction Party on the books of the Acquiring Fund to open accounts on the
share records of the Acquiring Fund in the names of the Acquired Fund
Shareholders. The aggregate net asset value of the Acquiring Fund Shares to be
so credited to Acquired Fund Shareholders shall be equal to the aggregate net
asset value of the shares of capital stock of the Acquired Fund ("Acquired Fund
Shares") owned by such shareholders as of the Valuation Time. All issued and
outstanding Acquired Fund Shares will simultaneously be cancelled on the books
of the Acquired Fund. The Acquiring Funds will not issue certificates
representing Acquiring Fund Shares in connection with such exchange. TSF's
charter will be amended to effectuate further the cancellation of the issued and
outstanding shares of each Acquired Fund.
1.6. Ownership of Acquiring Fund Shares will be shown on each Acquiring
Fund's books. Shares of each Acquiring Fund will be issued in the manner
described in the Acquiring Fund's then-current prospectus and statement of
additional information.
1.7. Any reporting responsibility of an Acquired Fund, including, without
limitation, the responsibility for filing of regulatory reports, tax returns or
other documents with the Securities and Exchange Commission (the "Commission"),
any state securities commission, and any federal, state or local tax authorities
or any other relevant regulatory authority, is and shall remain the
responsibility of such Acquired Fund, or TSF on behalf of such Acquired Fund.
1.8. All books and records of the Acquired Funds, including all books and
records required to be maintained under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the rules and regulations thereunder, shall be
available to TST from and after the Closing Date and shall be turned over to TST
as soon as practicable following the Closing Date.
2. VALUATION
2.1. The value of the Assets and liabilities of an Acquired Fund shall be
computed as of the close of regular trading on the New York Stock Exchange, Inc.
("NYSE") on the Closing Date (such time
- 2 -
and date also being hereinafter called the "Valuation Time"), after the
declaration and payment of any dividends and/or other distributions on that
date, using the valuation procedures described in the Acquiring Fund's
then-current prospectus and statement of additional information. An Acquired
Fund Value shall be determined by dividing the value of the Assets of the
Acquired Fund less the value of the liabilities of the Acquired Fund as
determined as provided herein.
2.2. The net asset value of Acquiring Fund Shares shall be computed as of
the Valuation Time using the valuation procedures set forth in the Acquiring
Fund's then-current prospectus and statement of additional information.
2.3. All computations of value hereunder shall be made by or under the
direction of each Fund's investment adviser in accordance with its regular
practice and the requirements of the 1940 Act, and shall be subject to
confirmation by each Fund's Board of Trustees or Directors, as the case may be.
3. CLOSING AND CLOSING DATE
3.1. The Reorganization Closing contemplated by this Agreement shall be
June 30, 2005, or such earlier or later date as the parties may agree in writing
(the "Closing Date"). All acts taking place at the Closing shall be deemed to
take place simultaneously as of 4:00 p.m., Eastern time, on the Closing Date,
unless otherwise agreed to by the parties. The Closing shall be held at the
offices of TST, One Cityplace, Hartford, Connecticut 06103, or at such other
place and time as the parties may agree.
3.2. TSF shall furnish to TST a statement of each Acquired Fund's net
assets, together with a list of portfolio holdings with values as determined in
Section 2.1, all as of the Valuation Time, certified by TSF's President (or any
Vice President) and Treasurer (or any Assistant Treasurer).
3.3. TSF shall deliver at the Closing a certificate of an authorized
officer of TSF certifying that TSF has instructed State Street Bank and Trust
Company ("State Street"), custodian for the Acquired Funds, to deliver the
Assets of each Acquired Fund to the account State Street maintains as custodian
for each Acquired Fund's Transaction Party, prior to or on the Closing Date. The
portfolio securities of the Acquired Funds represented by a certificate or other
written instrument shall be transferred and delivered by each Acquired Fund as
of the Closing Date for the account of its Transaction Party duly endorsed in
proper form for transfer in such condition as to constitute good delivery
thereof. The Acquired Funds' securities and instruments deposited with a
securities depository, as defined in Rules 17f-4, or a futures commission
merchant, as defined in Rule 17f-6, each under the 1940 Act, shall be delivered
as of the Closing Date by book entry in accordance with the customary practices
of such depositories and futures commission merchants and State Street. The cash
to be transferred by each Acquired Fund shall be transferred and delivered by
the Fund as of the Closing Date for the account of its Transaction Party.
3.4. TSF shall instruct Citicorp Trust Bank, fsb ("CTB"), the transfer
agent of the Acquired Funds to deliver at the Closing its records containing the
names and addresses of the Acquired Fund Shareholders and the number and
percentage ownership (to three decimal places) of outstanding Acquired Fund
Shares owned by each such shareholder immediately prior to the Closing. TST
shall issue and deliver a confirmation evidencing the Acquiring Fund Shares to
be credited on the Closing Date to each Acquired Fund or provide evidence
satisfactory to TSF that such Acquiring Fund Shares have been credited to the
accounts of the Acquiring Fund's Transaction Party on the books of the Acquiring
Fund.
3.5. In the event that immediately prior to the Valuation Time (a) the
NYSE or another primary trading market for portfolio securities of an Acquiring
Fund or an Acquired Fund shall be closed to trading or trading thereupon shall
be restricted, or (b) trading or the reporting of trading on the NYSE or
elsewhere shall be disrupted so that, in the judgment of an appropriate officer
of TST or TSF, accurate
- 3 -
appraisal of the value of the net assets of that Acquiring Fund or Acquired Fund
is impracticable, the Closing Date as to that Fund and its Transaction Party
shall be postponed until the first business day after the day when trading shall
have been fully resumed and reporting shall have been restored or such later
date as the parties mutually agree.
3.6. At the Closing, each party shall deliver to the other such bills of
sale, checks, assumption agreements, assignments, share certificates, if any,
receipts or other documents as such other party or its counsel may reasonably
request to effect the transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1. TSF, on behalf of itself and the Acquired Funds, represents and
warrants to TST and the Acquiring Funds as follows:
(a) TSF is a corporation duly organized and validly existing under
the laws of the State of Maryland with corporate power under its Charter
to own all of its properties and assets and to carry on its business as it
is now being conducted. Each Acquired Fund has been duly established as a
series of TSF.
(b) TSF is duly registered with the Commission as an open-end
management investment company under the 1940 Act, and such registration is
in full force and effect.
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by TSF, on behalf
of the Acquired Funds, of the transactions contemplated herein, except
such as may be required under the Securities Act of 1933, as amended (the
"1933 Act"), the Securities Exchange Act of 1934 (the "1934 Act"), the
1940 Act, and state securities laws.
(d) Each Acquired Fund is not, and the execution, delivery and
performance of this Agreement by TSF on behalf of the Acquired Funds will
not result, in violation of Maryland law or of TSF's Charter or By-Laws,
or of any agreement, indenture, instrument, contract, lease or other
undertaking to which TSF or any of the Acquired Funds is a party or by
which any of those entities is bound, nor will the execution, delivery and
performance of this Agreement by TSF on behalf of an Acquired Fund result
in the acceleration of any obligation, or the imposition of any penalty,
under any agreement, indenture, instrument, contract, lease, judgment or
decree to which an Acquired Fund is a party or by which it is bound.
(e) To TSF's knowledge, there is no material litigation or
administrative proceeding or investigation of or before any court or
governmental body presently pending or threatened against an Acquired Fund
or any properties or assets held by it. TSF knows of no facts that might
form the basis for the institution of such proceedings or that would
materially and adversely affect its business, or the business of an
Acquired Fund, and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which
materially and adversely affects its or an Acquired Fund's business or its
or an Acquired Fund's ability to consummate the transactions herein
contemplated.
(f) The financial statements of the Acquired Funds at and for the
fiscal year ended October 31, 2004 were audited by KPMG LLP, an
independent registered public accounting firm, and are in accordance with
generally accepted accounting principles ("GAAP") consistently applied.
All of such statements (copies of which have been furnished to TST)
present fairly, in all material respects, the financial position, results
of operations, changes in net assets and
- 4 -
financial highlights of the Acquired Funds as of the dates thereof in
accordance with GAAP, and there are no known actual or contingent
liabilities of the Acquired Funds required to be reflected on a statement
of assets and liabilities (including the notes thereto) in accordance with
GAAP as of such dates not disclosed therein.
(g) Since October 31, 2004, there has not been any material adverse
change in an Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business,
or any incurrence by an Acquired Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred except as otherwise
disclosed to and accepted in writing by TST on behalf of the Acquired
Fund's Transaction Party. For purposes of this subsection (g), a decline
in net asset value per share of an Acquired Fund due to declines in market
values of securities in the Acquired Fund's portfolio, the discharge of
Acquired Fund liabilities, or the redemption of Acquired Fund Shares by
Acquired Fund Shareholders shall not constitute a material adverse change.
(h) At the date hereof and at the Closing Date, all federal and
other tax returns and reports of an Acquired Fund required by law to have
been filed by such dates (including any extensions) have or shall have
been filed and are or will be correct in all material respects, and all
federal and other taxes shown as due or required to be shown as due on
said returns and reports shall have been paid or provision shall have been
made for the payment thereof, and, to the best of TSF's knowledge, no such
return is currently under audit and no assessment has been asserted with
respect to such returns or reports.
(i) For each taxable year of its operation (including the tax year
ending on the Closing Date), each Acquired Fund has met the requirements
of Subchapter M of the Code for qualification as a regulated investment
company and has elected to be treated as such, and has been eligible to
and has computed its federal income tax under Section 852 of the Code. At
Closing, each Acquired Fund will have distributed all of its investment
company taxable income and net capital gain (as defined in the Code) that
has accrued up to the Closing Date. The authorized capital of TSF consists
of 6,000,000,000 shares with a par value of $.00001 per share, all of
which is designated as common stock, and of one class, divided into 16
series.
(j) Each Acquired Fund has maintained its assets such that, at the
close of each calendar quarter (or within 30 days thereafter), each
Acquired Fund was "adequately diversified" within the meaning of Section
817(h) of the Code and Treasury Regulation 1.817-5.
(k) All issued and outstanding Acquired Fund Shares (1) have been
offered and sold in every state and the District of Columbia in compliance
in all material respects with applicable registration requirements of the
1933 Act and state securities laws, (2) are, and on the Closing Date will
be, duly and validly issued and outstanding, fully paid and
non-assessable, and (3) will be held at the time of the Closing by the
persons and in the amounts set forth in the records of the Acquired Fund's
transfer agent, as provided in Section 3.4. There are no outstanding
options, warrants or other rights to subscribe for or purchase any
Acquired Fund Shares, nor is there outstanding any security convertible
into any Acquired Fund Share.
(l) At the Closing Date, TSF, on behalf of the Acquired Funds, will
have good and marketable title to each Acquired Fund's Assets and full
right, power and authority to sell, assign, transfer and deliver such
Assets hereunder free of any liens or other encumbrances, except those
liens or encumbrances as to which TST, on behalf of the Acquired Fund's
Transaction Party, has received notice at or prior to the Closing, and
upon delivery and payment for such Assets, such Transaction Party will
acquire good and marketable title thereto, subject to no restrictions on
the
- 5 -
full transfer thereof, except those restrictions as to which the
Transaction Party has received notice and necessary documentation at or
prior to the Closing.
(m) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary action on the part of the Board of
Directors of the TSF, and, subject to the approval of the shareholders of
the respective Acquired Funds, this Agreement constitutes a valid and
binding obligation of TSF, enforceable in accordance with its terms,
subject, as to enforcement, to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and other laws relating to or
affecting creditors' rights and to general principles of equity.
(n) The information to be furnished by TSF for use in applications
for orders, registration statements or proxy materials or for use in any
other document filed or to be filed with any federal, state or local
regulatory authority (including the National Association of Securities
Dealers, Inc.), which may be necessary or appropriate in connection with
the transactions contemplated hereby, shall be accurate and complete and
shall comply with federal securities and other laws and regulations
applicable thereto.
(o) The current prospectuses and statement of additional information
of the Acquired Funds conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder, and do not include any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not materially
misleading.
(p) The combined proxy statement of the Acquired Funds to be
included in the Registration Statement referred to in Section 5.6 (the
"Proxy Statement"), insofar as it relates to the Acquired Funds, will, on
the effective date of the Registration Statement and on the Closing Date,
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such
statements are made, not materially misleading; provided, however, that
the representations and warranties in this Section shall not apply to
statements in or omissions from the Proxy Statement and the Registration
Statement made in reliance upon and in conformity with information that
was furnished or should have been furnished by TST for use therein.
4.2. TST, on behalf of itself and the Acquiring Funds, represents and
warrants to TSF and the Acquired Funds as follows:
(a) TST is a business trust duly established and validly existing
under the laws of the Commonwealth of Massachusetts with power under its
Agreement and Declaration of Trust to own all of its properties and assets
and to carry on its business as it is now being conducted. Each Acquiring
Fund has been duly established as a series of TST.
(b) TST is duly registered with the Commission as an open-end
management investment company under the 1940 Act, and such registration is
in full force and effect.
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by TST, on behalf
of the Acquiring Funds, of the transactions contemplated herein, except
such as may be required under the 1933 Act, the 1934 Act, the 1940 Act,
and state securities laws.
- 6 -
(d) Each Acquiring Fund is not, and the execution, delivery and
performance of this Agreement by the TST on behalf of the Acquiring Funds
will not result, in violation of Massachusetts law or of TST's Agreement
and Declaration of Trust or By-Laws, or of any agreement, indenture,
instrument, contract, lease or other undertaking to which TST or any of
the Acquiring Funds is a party or by which any of those entities is bound,
nor will the execution, delivery and performance of this Agreement by TST
on behalf of an Acquiring Fund result in the acceleration of any
obligation, or the imposition of any penalty, under any agreement,
indenture, instrument, contract, lease, judgment or decree to which an
Acquiring Fund is a party or by which it is bound.
(e) To TST's knowledge, there is no material litigation or
administrative proceeding or investigation of or before any court or
governmental body presently pending or threatened against an Acquiring
Fund or any properties or assets held by it. TST knows of no facts which
might form the basis for the institution of such proceedings or which
would materially and adversely affect its business or the business of an
Acquiring Fund, and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which
materially and adversely affects its or an Acquiring Fund's business or
its or an Acquiring Fund's ability to consummate the transactions herein
contemplated.
(f) At the date hereof and at the Closing Date, all federal and
other tax returns and reports of an Acquiring Fund required by law to have
been filed by such dates (including any extensions) have or shall have
been filed and are or will be correct in all material respects, and all
federal and other taxes shown as due or required to be shown as due on
said returns and reports shall have been paid or provision shall have been
made for the payment thereof, and, to the best of TST's knowledge, no such
return is currently under audit and no assessment has been asserted with
respect to such returns or reports.
(g) All issued and outstanding Acquiring Fund Shares (1) have been
offered and sold in every state and the District of Columbia in compliance
in all material respects with applicable registration requirements of the
1933 Act and state securities laws, and (2) are, and on the Closing Date
will be, duly and validly issued and outstanding, fully paid and
non-assessable. There are no outstanding options, warrants or other rights
to subscribe for or purchase any Acquiring Fund Shares, nor is there
outstanding any security convertible into any Acquiring Fund Share. The
Acquiring Fund Shares to be issued and delivered to the Acquired Funds for
the account of the Acquired Fund Shareholders pursuant to the terms of
this Agreement, at the Closing Date, will have been duly authorized and,
when so issued and delivered, will be duly and validly issued and
outstanding Acquiring Fund Shares, and will be fully paid and
non-assessable.
(h) At the Closing Date, TST, on behalf of the Acquiring Funds, will
have good and marketable title to each Acquiring Fund's Assets, free of
any liens or other encumbrances, except those liens or encumbrances as to
which TSF, on behalf of the Acquiring Fund's Transaction Party, has
received notice at or prior to the Closing.
(i) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary action on the part of the Board of
Trustees of TST, and this Agreement constitutes a valid and binding
obligation of TST, enforceable in accordance with its terms, subject, as
to enforcement, to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general principles of equity.
- 7 -
(j) The information to be furnished by TST for use in applications
for orders, registration statements or proxy materials or for use in any
other document filed or to be filed with any federal, state or local
regulatory authority (including the National Association of Securities
Dealers, Inc.), which may be necessary or appropriate in connection with
the transactions contemplated hereby, shall be accurate and complete and
shall comply with federal securities and other laws and regulations
applicable thereto.
(k) The current prospectuses and statement of additional information
of the Acquiring Funds conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder, and do not include any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not materially
misleading.
(l) The Proxy Statement, insofar as it relates to the Acquiring
Funds, and the Registration Statement will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not materially
misleading; provided, however, that the representations and warranties in
this Section shall not apply to statements in or omissions from the Proxy
Statement and the Registration Statement made in reliance upon and in
conformity with information that was furnished or should have been
furnished by TSF for use therein.
5. COVENANTS
5.1. Each Fund covenants to operate its business in the ordinary course
between the date hereof and the Closing Date, it being understood that (a) such
ordinary course of business will include (i) the declaration and payment of
customary dividends and other distributions and (ii) such changes as are
contemplated by the Fund's normal operations; and (b) each Fund shall retain
exclusive control of the composition of its portfolio until the Closing Date.
5.2. Upon reasonable notice, TST's officers and agents shall have
reasonable access to an Acquired Fund's books and records necessary to maintain
current knowledge of the Acquired Fund and to ensure that the representations
and warranties made by the Acquired Fund are accurate.
5.3. TSF and each of the Acquired Funds covenant to call a meeting of the
shareholders of the Acquired Funds to consider and act upon this Agreement and
to take all other reasonable action necessary to obtain approval of the
transactions contemplated herein. Such meeting shall be scheduled for no later
than June 30, 2005 (or such other date as the parties may agree to in writing).
5.4. TSF and each Acquired Fund covenant that the Acquiring Fund Shares to
be issued hereunder are not being acquired for the purpose of making any
distribution thereof other than in accordance with the terms of this Agreement.
5.5. Subject to the provisions of this Agreement, the parties hereto will
each take, or cause to be taken, all actions, and do or cause to be done, all
things reasonably necessary, proper, and/or advisable to consummate and make
effective the transactions contemplated by this Agreement.
5.6. TST will file a Registration Statement on Form N-14 (the
"Registration Statement") under the 1933 Act, and TSF will file the Proxy
Statement contained therein, in connection with the
- 8 -
meeting of shareholders of the Acquired Funds to consider approval of this
Agreement and the transactions contemplated herein, with the Commission as
promptly as practicable. TSF and the Acquired Funds will provide TST with
information relating to TSF and the Acquired Funds that is required by the 1933
Act, the 1934 Act and the 1940 Act to be included in the Registration Statement,
including the Proxy Statement.
5.7. Each of TSF and the Acquired Funds covenants that it will, from time
to time, as and when reasonably requested by TST, execute and deliver or cause
to be executed and delivered all such assignments and other instruments, and
will take or cause to be taken such further action, as TST may reasonably deem
necessary or desirable in order to vest in and confirm each Acquiring Fund's
title to and possession of the Assets and otherwise to carry out the intent and
purpose of this Agreement.
5.8. Each of TST and the Acquiring Funds covenants that it will, from time
to time, as and when reasonably requested by TSF, execute and deliver or cause
to be executed and delivered all such assignments, assumption agreements,
releases and other instruments, and will take or cause to be taken such further
action, as TSF may reasonably deem necessary or desirable in order to (i) vest
and confirm TSF's title to and possession of all Acquiring Fund Shares to be
transferred to the Acquired Funds pursuant to this Agreement and (ii) assume the
assumed liabilities of the Acquired Funds.
5.9. TSF, TST and each Fund covenant to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the 1940 Act
and such of the state securities laws as it deems appropriate in order to
consummate the transactions contemplated herein and, in the case of the
Acquiring Funds, to continue their operations after the Closing Date.
5.10. As soon as reasonably practicable after the Closing, each Acquired
Fund shall make a liquidating distribution to its shareholders consisting of the
Acquiring Fund Shares received at the Closing.
5.11. Each of the Acquiring Funds and the Acquired Funds shall use its
reasonable best efforts to fulfill or obtain the fulfillment of the conditions
precedent to effect the transactions contemplated by this Agreement as promptly
as practicable.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF TSF
The obligations of TSF and the Acquired Funds to consummate the
transactions provided for herein shall be subject, at TSF's election, to the
performance by TST and the Acquiring Funds of all the obligations to be
performed by them hereunder on or before the Closing Date, and, in addition
thereto, the following further conditions:
6.1. All representations and warranties of TST, on behalf of itself and
the Acquiring Funds, contained in this Agreement shall be true and correct in
all material respects as of the date hereof and as of the Closing Date, with the
same force and effect as if made on and as of the Closing Date; and there shall
be (i) no pending or threatened litigation brought by any person against TST or
an Acquiring Fund, TSF or an Acquired Fund, or the advisers, trustees, directors
or officers of any of the foregoing, arising out of this Agreement and (ii) no
facts known to TSF or an Acquired Fund, or TST or an Acquiring Fund, that any of
such persons reasonably believes might result in such litigation.
6.2. TST shall have delivered to TSF on the Closing Date a certificate
executed in its name by its President or a Vice President, in a form reasonably
satisfactory to TSF and dated as of the Closing Date, to the effect that the
representations and warranties of TST and the Acquiring Funds made in this
- 9 -
Agreement are true and correct on and as of the Closing Date and as to such
other matters as TSF shall reasonably request.
6.3. TSF shall have received on the Closing Date an opinion of Sutherland
Asbill & Brennan LLP in a form reasonably satisfactory to TSF, and dated as of
the Closing Date, to the effect that:
(a) TST is existing under the laws of the Commonwealth of
Massachusetts as a voluntary association with transferable shares of
beneficial interest commonly referred to as a Massachusetts business
trust, and each Acquiring Fund has been duly designated as a series of
TST;
(b) TST, with respect to the Acquiring Funds, has the power as a
Massachusetts business trust to carry on its business as presently
conducted in accordance with the description thereof in TST's registration
statement under the 1940 Act;
(c) the Agreement has been duly authorized, executed and delivered
by TST, and constitutes a valid and legally binding obligation of TST,
enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium, marshaling,
or other laws and rules of law affecting the enforcement generally of
creditors' rights and remedies (including such as may deny giving effect
to waivers of debtors' or guarantors' rights), and considerations of
public policy;
(d) the execution and delivery of the Agreement did not, and the
transfer of an Acquired Fund's assets for Acquiring Fund Shares pursuant
to the Agreement will not, violate TST's Agreement and Declaration of
Trust or By-laws; and
(e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by
TST under the Federal laws of the United States or the laws of the
Commonwealth of Massachusetts for the transfer of an Acquired Fund's
assets for Acquiring Fund Shares pursuant to the Agreement have been
obtained or made.
Such opinion may state that it is solely for the benefit of TSF, its Directors
and its officers, and counsel may rely as to matters governed by the laws of the
Commonwealth of Massachusetts on an opinion of Massachusetts counsel. Such
opinion also shall include such other matters incident to the transaction
contemplated hereby as TSF may reasonably request.
6.4. TST and the Acquiring Funds shall have performed all of the covenants
and complied with all of the provisions required by this Agreement to be
performed or complied with by them on or before the Closing Date.
6.5. TST, on behalf of the Acquiring Funds, shall have executed and
delivered an assumption agreement in form reasonably satisfactory to TSF
pursuant to which TST, on behalf of the Acquiring Funds, will assume all of the
liabilities of the Acquired Funds existing at the Valuation Time.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF TST
The obligations of TST and the Acquiring Funds to consummate the
transactions provided for herein shall be subject, at TST's election, to the
performance by TSF and the Acquired Funds of all of the obligations to be
performed by them hereunder on or before the Closing Date and, in addition
thereto, the following further conditions:
- 10 -
7.1. All representations and warranties of TSF, on behalf of itself and
the Acquired Funds, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and as of the Closing Date, with the
same force and effect as if made on and as of the Closing Date; and there shall
be (i) no pending or threatened litigation brought by any person against TSF or
the Acquired Funds, TST or the Acquiring Funds, or the advisers, trustees or
officers of any of the foregoing, arising out of this Agreement, and (ii) no
facts known to TST or the Acquiring Funds, or TSF or the Acquired Funds, which
any of such persons reasonably believes might result in such litigation.
7.2. TSF shall have delivered to TST the statements of net assets
described in Section 3.2.
7.3. TSF shall have delivered to TST on the Closing Date a certificate
executed in its name by its President or a Vice President, in a form reasonably
satisfactory to TST and dated as of the Closing Date, to the effect that the
representations and warranties of TSF and the Acquired Funds made in this
Agreement are true and correct on and as of the Closing Date and as to such
other matters as TST shall reasonably request.
7.4. TST shall have received on the Closing Date an opinion of Willkie
Farr & Gallagher LLP, in a form reasonably satisfactory to TST, and dated as of
the Closing Date, to the effect that:
(a) TSF is a corporation duly organized and validly existing under
the laws of the State of Maryland and each Acquired Fund is a duly
authorized series of Common Stock under TSF's Charter;
(b) TSF, with respect to the Acquired Funds, has the corporate power
to carry on its business as presently conducted in accordance with the
description thereof in TSF's registration statement under the 1940 Act;
(c) the Agreement has been duly authorized, executed and delivered
by TSF, and constitutes a valid and legally binding obligation of TSF,
enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium, marshaling,
or other laws and rules of law affecting the enforcement generally of
creditors' rights and remedies (including such as may deny giving effect
to waivers of debtors' or guarantors' rights), and considerations of
public policy;
(d) the execution and delivery of the Agreement did not, and the
transfer of the Acquired Fund's assets for Acquiring Fund Shares pursuant
to the Agreement will not, violate TSF's Charter or By-laws; and
(e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by
TSF under the Federal laws of the United States or the laws of the State
of Maryland for the transfer of an Acquired Fund's assets for Acquiring
Fund Shares pursuant to the Agreement have been obtained or made.
Such opinion may state that it is solely for the benefit of TST, its Trustees
and its officers. Such opinion may contain such assumptions and limitations as
shall be in the opinion of Willkie Farr & Gallagher appropriate to render the
opinions expressed therein. Such opinion also shall include such other matters
incident to the transaction contemplated hereby as TST may reasonably request.
With respect to all matters of Maryland law, such counsel shall be entitled to
state that, with the approval of TST, they have relied upon the opinion of
Venable LLP and that their opinion is subject to the same assumptions,
qualifications and limitations with respect to such matters as are contained in
the opinion of Venable LLP.
- 11 -
7.5. TSF and the Acquired Funds shall have performed all of the covenants
and complied with all of the provisions required by this Agreement to be
performed or complied with by them on or before the Closing Date.
8. FURTHER CONDITIONS PRECEDENT
If any of the conditions set forth below have not been met on or before
the Closing Date with respect to each Acquired Fund or each Acquiring Fund, such
Fund's Transaction Party shall, at its option, not be required to consummate the
Reorganization.
8.1. This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding Acquired
Fund Shares in accordance with the provisions of TSF's Charter and By-Laws,
applicable Maryland law and the 1940 Act, and certified copies of the
resolutions evidencing such approval shall have been delivered to the Acquiring
Fund. Notwithstanding anything herein to the contrary, neither party may waive
the condition set forth in this Section 8.1.
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending or to either party's knowledge threatened before any court or
governmental agency in which it is sought to restrain or prohibit, or obtain
material damages or other relief in connection with, this Agreement or the
transactions contemplated herein.
8.3. All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
TST and the Acquiring Funds or TSF and the Acquired Funds to permit
consummation, in all material respects, of the transactions contemplated hereby
shall have been obtained, except where failure to obtain any such consent, order
or permit would not involve a risk of a material adverse effect on the assets or
properties of an Acquiring Fund or an Acquired Fund.
8.4. The Registration Statement shall have become effective under the 1933
Act, and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5. The parties shall have received an opinion of Sutherland Asbill &
Brennan LLP addressed to TSF, the Acquired Funds, TST and the Acquiring Funds
substantially to the effect that, based upon certain facts, assumptions and
representations, for Federal income tax purposes: (i) the Acquiring Funds and
the Acquired Funds will each be "a party to a reorganization" within the meaning
of Section 368(b) of the Code; (ii) each Acquired Fund will not recognize any
gain or loss as a result of such transaction; (iii) each Acquiring Fund will not
recognize any gain or loss as a result of such transaction; (iv) each Acquired
Fund's shareholders will not recognize any gain or loss on the distribution of
Acquiring Fund Shares in exchange for their Acquired Fund Shares; (v) the
aggregate tax-basis of shares of each Acquiring Fund received by a shareholder
of the Acquired Funds will be the same as the aggregate tax-basis of such
shareholder's Acquired Fund shares immediately prior to the Reorganization; (vi)
the tax-basis of the Acquiring Funds in the assets of an Acquired Fund received
pursuant to such transaction will be the same as the tax-basis of such assets in
the hands of the Acquired Fund immediately before such transaction; (vii) an
Acquired Fund shareholder's holding period for Acquiring Fund shares will be
determined by including the period for which such Acquired Fund shareholder held
the Acquired Fund shares exchanged, provided that the shareholder held such
shares in the Acquired Fund as a capital asset; (viii) an Acquiring Fund's
holding period with respect to the assets received in the Reorganization will
include the period for which such assets were held by an Acquired Fund; (ix) no
gain or loss will be
- 12 -
recognized by contract owners as a result of the Reorganization; and (x) for
purposes of Section 381 of the Code, the Acquiring Funds will be treated as if
there had been no reorganization. Accordingly, the taxable years of the Acquired
Funds will not end on the effective date of the Reorganization and the tax
attributes of each Portfolio enumerated in Section 381(c) will be taken into
account as if there had been no reorganization. The part of the taxable year of
an Acquired Fund before the Reorganization and the part of the taxable year of
the corresponding Acquiring Fund after the Reorganization will constitute a
single taxable year of such Acquiring Fund. Therefore, the Acquired Funds will
not be required to file a federal income tax return or distribute information
returns to their respective shareholders for any portion of such taxable year.
Each Acquiring Fund will assume the corresponding Acquired Fund's taxpayer
identification number and will not be required to file for a new identification
number. The delivery of such opinion is conditioned upon receipt by Sutherland
Asbill & Brennan LLP of representations it shall request of each Fund.
Notwithstanding anything herein to the contrary, neither party may waive the
condition set forth in this Section 8.5.
8.6. Smith Barney Fund Management LLC shall have purchased, at its own
expense, on behalf of TSF, the Acquired Funds, TST, and the Acquiring Funds an
insurance policy that covers, among other matters, liabilities to which such
entities may be subject relating to a pending class action lawsuit in which TSF
has been named as a defendant alleging, among other matters, certain fraudulent
and/or undisclosed practices in connection with the compensation paid to persons
selling shares of the Acquired Funds.
8.7 The sale of Travelers Life & Annuity, including the sale of the
investment advisers for the Acquired Funds and the Acquiring Funds, by Citigroup
Inc. to MetLife, Inc. shall have been consummated, or shall be expected to be
consummated on the Closing Date.
9. INDEMNIFICATION
9.1. TST agrees to indemnify and hold harmless TSF, its Directors and its
officers from and against any and all losses, claims, damages, liabilities or
expenses (including, without limitation, the payment of reasonable legal fees
and reasonable costs of investigation) to which any such indemnified party may
become subject, insofar as any such loss, claim, damage, liability or expense
(or actions with respect thereto) arises out of or is based on any breach by TST
or an Acquiring Fund of any of its representations, warranties, covenants or
agreements set forth in this Agreement.
9.2. TSF agrees to indemnify and hold harmless TST, its Trustees and its
officers from and against any and all losses, claims, damages, liabilities or
expenses (including, without limitation, the payment of reasonable legal fees
and reasonable costs of investigation) to which any such indemnified party may
become subject, insofar as any such loss, claim, damage, liability or expense
(or actions with respect thereto) arises out of or is based on any breach by TSF
or an Acquired Fund of any of its representations, warranties, covenants or
agreements set forth in this Agreement.
10. FEES AND EXPENSES
10.1. TST and TSF each represents and warrants to the other that it has no
obligations to pay any brokers or finders fees in connection with the
transactions provided for herein.
10.2. Expenses of the Reorganization will be borne by MetLife, Inc. and
Smith Barney Fund Management LLC.
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1. The parties agree that neither party has made any representation,
warranty or covenant not set forth herein and that this Agreement constitutes
the entire agreement between the parties.
- 13 -
11.2 Except as specified in the next sentence set forth in this Section
11.2, the representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith shall not
survive the consummation of the transactions contemplated hereunder.
The covenants to be performed after the Closing and the obligations of
each of TSF, on behalf of each Acquired Fund, and TST, on behalf of each
Acquiring Fund, in Sections 9.1 and 9.2 shall survive the Closing.
12. TERMINATION
This Agreement may be terminated and the transactions contemplated hereby
may be abandoned at any time (whether before or after approval thereof by the
shareholders of the Acquired Funds) by (i) mutual agreement of the parties, (ii)
by either party if the Closing shall not have occurred on or before _________,
2005, unless such date is extended by mutual agreement of the parties, or (iii)
by either party if the other party shall have materially breached its
obligations under this Agreement or made a material and intentional
misrepresentation herein or in connection herewith. In the event of any such
termination, this Agreement shall become void and there shall be no liability
hereunder on the part of any party or their respective directors, trustees or
officers, except for any such material breach or intentional misrepresentation,
as to each of which all remedies at law or in equity of the party adversely
affected shall survive.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of TSF and
TST; provided, however, that following the meeting of shareholders of an
Acquired Fund called by TSF pursuant to Section 5.3 of this Agreement, no such
amendment may have the effect of reducing the number of the Acquiring Fund
Shares to be issued to the shareholders of the Acquired Fund under this
Agreement to the detriment of such shareholders without their further approval.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provision of this Agreement shall be in writing and shall be deemed duly given
if delivered by hand (including by Federal Express or similar express courier)
or transmitted by facsimile or three days after being mailed by prepaid
registered or certified mail, return receipt requested, addressed to TST, attn.
Kathleen A. McGah, Esq., Law Department, One Cityplace, Hartford, Connecticut
06103, with a copy to Stephen E. Roth, Esq., Sutherland Asbill & Brennan LLP,
1275 Pennsylvania Avenue N.W., Washington, DC 20004, or to TSF, attn. Robert I.
Frenkel, 300 First Stamford Place, 4th Floor, Stamford, Connecticut 06902, with
a copy to Burton M. Leibert, Esq. and Dianne E. O'Donnell, Esq., Willkie Farr &
Gallagher LLP, 787 Seventh Avenue, New York, New York 10019, or to any other
address that TST or TSF shall have last designated by notice to the other party.
15. HEADINGS; COUNTERPARTS; ASSIGNMENT; LIABILITY
15.1. The Article and Section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15.2. This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
- 14 -
15.3. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation (including the shareholders of any Fund) any rights or
remedies under or by reason of this Agreement, other than the parties hereto and
their successor and permitted assigns. Nothing in this Section is intended to
limit the rights of shareholders of TSF to maintain derivative actions with
respect to this Agreement, subject to and in accordance with applicable law.
15.4. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the Commonwealth of Massachusetts, without regard
to its principles of conflicts of laws.
15.5. TST is a business trust organized under Massachusetts law and under
an Agreement and Declaration of Trust, to which reference is hereby made and a
copy of which, with amendments, is on file with the Secretary of the
Commonwealth of Massachusetts and elsewhere as required by law. It is expressly
acknowledged and agreed that the obligations of TST entered into in the name or
on behalf of TST by any of its trustees, officers, employees or agents are not
made individually, but in such capacities, that TST's obligations under this
Agreement bind only that portion of the trust estate consisting of assets of the
Acquiring Funds and not any trustee, officer, employee, agent or shareholder
individually, and that any liability of TST under this Agreement or in
connection with the transactions contemplated herein shall be discharged only
out of the assets of the Acquiring Funds.
15.6 No Acquiring Fund shall be liable for claims against any other
Acquiring Fund, and no Acquired Fund shall be liable for claims against any
other Acquired Fund. The parties specifically acknowledge and agree that any
liability of TST or TSF under this Agreement with respect to a particular Fund,
or in connection with the transactions contemplated herein with respect to a
particular Fund, shall be discharged only out of the assets of the particular
Fund and that no other portfolio of the party of which the Fund is a portfolio
shall be liable with respect thereto.
[Signatures follow]
- 15 -
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by its President or Vice President and attested by its Secretary
or Assistant Secretary.
Attest: The Travelers Series Trust
/s/ Kathleen A. McGah By: /s/ R. Jay Gerken
- ----------------------------- ---------------------------
Secretary Name: R. Jay Gerken
Title: President
Attest: Travelers Series Fund Inc
/s/ Robert I. Frenkel By: /s/ R. Jay Gerken
- ----------------------------- ----------------------------
Secretary Name: R. Jay Gerken
Title: President
Solely for purposes of Section 10.2:
MetLife, Inc.
By: /s/
------------------------
Name:
Title:
Solely for purposes of Sections 8.6 and 10.2:
Smith Barney Fund Management LLC
By: /s/
------------------------
Name:
Title:
- 16 -
EXHIBIT B
Acquired Funds and Respective Transaction Parties
Acquired (TSF) Funds Acquiring (TST) Funds
Strategic Equity Portfolio Strategic Equity Portfolio
AIM Capital Appreciation Portfolio AIM Capital Appreciation Portfolio
Van Kampen Enterprise Portfolio Van Kampen Enterprise Portfolio
MFS Total Return Portfolio MFS Total Return Portfolio
Salomon Brothers Strategic Total Salomon Brothers Strategic Total
Return Bond Bond Portfolio Return Portfolio
Travelers Managed Income Portfolio Travelers Managed Income Portfolio
Pioneer Strategic Income Portfolio Pioneer Strategic Income Portfolio
- 17 -
Appendix B-1
The Travelers Series Trust
Prospectus
May 21, 2005
STRATEGIC EQUITY PORTFOLIO
INVESTMENT PRODUCTS: NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
Shares of the fund are offered only to insurance company Separate Accounts which
fund certain variable annuity and variable life insurance contracts. This
prospectus should be read together with the prospectus for those contracts.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
Contents
The Travelers Series Trust (the "Company") consists of 29 separate investment
funds, each with its own investment objective and policies. This Prospectus
relates to one of those funds. Each of the 29 funds offers different levels of
potential return and involves different levels of risk.
Page
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Investments, Risks and Performance 2
More on the Fund's Investments and Related Risks 5
Management 8
Share Transactions 9
Share Price 11
Dividends, Distributions and Taxes 12
Financial Highlights 13
Investments, Risks and Performance
Strategic Equity Portfolio
Investment objective
Capital appreciation
Principal investment strategies
Key investments Fidelity Management & Research Company (FMR), the fund's
subadviser, normally invests at least 80% of the fund's assets in equity
securities. FMR normally invests the fund's assets primarily in common stocks.
FMR may invest the fund's assets in securities of foreign issuers in addition to
securities of domestic issuers.
Additional investments For information on the fund's additional investments and
related risks, please read pages 5-7.
Selection process
FMR is not constrained to any particular investment style. At any given time,
FMR may tend to buy "growth" stocks or "value" stocks, or a combination of both
types. In buying and selling securities for the fund, FMR relies on fundamental
analysis of each issuer and its potential for success in light of its current
financial condition, its industry position, and economic and market conditions.
Factors considered include growth potential, earnings estimates, and management.
FMR may use various techniques, such as buying and selling futures contracts and
exchange traded funds, to increase or decrease the fund's exposure to changing
security prices or other factors that affect security values. If FMR's
strategies do not work as intended, the fund may not achieve its objective.
2
Principal risks of investing in the fund
While investing in growth and value securities can bring benefits, it may also
involve risks. Investors could lose money on their investment in the fund, or
the fund may not perform as well as other investments, if any of the following
occurs:
o Stock markets decline.
o Value and/or growth stocks are temporarily out of favor.
o An adverse event, such as negative press reports about a company in the
fund, depresses the value of the company's stock.
o The subadviser's judgment about the attractiveness, value or potential
appreciation of a particular stock proves to be incorrect.
o Key economic trends become materially unfavorable.
o Changes in economic conditions that lead to lower quality securities to
have a weakened capacity to make principal and interest payments.
The fund's investment objective is not fundamental, and its objective and
investment policies may be changed by the Trust's Board of Trustees without
approval of shareholders or holders of variable annuity and variable life
insurance contracts. A change in the 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.
Shareholder Notice:
The following policy is subject to change only upon 60 days' prior notice to
shareholders: the fund normally invests at least 80% of its assets in equity
securities.
3
Fund Performance
The performance shown in the bar chart, quarterly returns and risk return table
below is the fund's predecessor fund, Strategic Equity Portfolio, a series of
Travelers Series Fund ("Predecessor Fund"). The fund has entered into an
Agreement and Plan of Reorganization ("Reorganization"), which provides that the
fund will acquire all of the assets and assume all of the liabilities of the
Predecessor Fund. If the Reorganization is approved by Predecessor Fund
shareholders, the Predecessor Fund will be reorganized into the fund on or about
June 30, 2005. This bar chart indicates the risks of investing in the fund by
showing changes in the fund's performance from year to year. Past performance
does not necessarily indicate how the fund will perform in the future.
Performance figures do not reflect expenses incurred from investing through a
Separate Account. These expenses will reduce performance. Please refer to the
Separate Account prospectus for more information on expenses. On September 15,
2003, FMR succeeded Alliance Capital Management L.P. ("Alliance") as subadviser
to the fund.
Quarterly returns: Highest: 31.22% in 4th quarter 1998; Lowest: -21.34% in 3rd
quarter 2001
Risk return bar chart
[BAR CHART]
Total Return
The bar chart shows the performance of the fund's shares for each of the full
calendar years since its inception.
Risk Return Table
This table assumes redemption of shares at the end of the period and the
reinvestment of distributions and dividends.
Average annual total returns (for the periods ended December 31, 2004)
Inception Date 1 year Five years Ten years Since inception
Fund 6/16/94 10.23% (7.22)% 10.21% 10.08%
S&P 500 Index 10.87% (2.30)% 12.07% n/a
Comparative performance
This table indicates the risk of investing in the fund by comparing the average
annual total return for the periods shown to that of the S&P 500 Index. The S&P
500 Index is a market-value weighted index comprised of 500 widely held common
stocks. An investor cannot invest directly in an index.
Fee Table
Shareholder fees (paid directly from your investment)
Maximum sales charge on purchases N/A
Maximum deferred sales charge on redemptions N/A
Annual fund operating expenses (paid by the fund as a % of net assets)
Management fees 0.80%
Distribution and service (12b-1) fees None
Other expenses 0.05%
Total annual fund operating expenses 0.85%
Fees and Expenses
This table sets forth the fees and expenses you will pay if you invest in shares
of the fund. These fees and expenses do not reflect any of the fees and expenses
incurred from investing through a Separate Account. If such fees were included,
your costs would be higher.
Example
Number of years you owned your shares 1 year 3 years 5 years 10 years
Your costs would be $87 $271 $471 $1049
The example assumes:
o You invest $10,000 for the period shown
o You reinvest all distributions and dividends without a sales charge
o The fund's operating expenses (before fee waivers and/or expense
reimbursements, if any) remain the same
o Your investment has a 5% return each year--the assumption of a 5%
return is required by the Securities and
o Exchange Commission ("SEC") for purposes of this example and is not
a prediction of the fund's future performance
o Redemption of your shares at the end of the period
This example helps you compare the cost of investing in the fund with other
mutual funds. Your actual cost may be higher or lower. This example does not
include expenses incurred from investing through a Separate Account. If the
example included these expenses, the figures shown would be higher.
4
More on the Fund's Investments and Related Risks
Additional investments and investment techniques
The section entitled "Investments, Risks and Performance" describes the fund's
investment objective and its principal investment strategies and risks. This
section provides some additional information about the fund's investments and
certain investment management techniques the fund may use. More information
about the fund's investments and portfolio management techniques, some of which
entail risk, is included in the Statement of Additional Information (SAI). To
find out how to obtain an SAI, please turn to the back cover of this prospectus.
Although the fund invests primarily in U.S. equity securities, it may also
invest in foreign securities.
Equity investments
Subject to its particular investment policies, the fund may invest in all types
of equity securities. Equity securities include exchange-traded and
over-the-counter (OTC) common and preferred stocks, warrants, rights,
convertible securities, depositary receipts and shares, trust certificates,
limited partnership interests, shares of other investment companies, real estate
investment trusts and equity participations.
Fixed income investments
Subject to its particular investment policies, the fund may, to a limited
extent, invest in fixed income securities. Fixed income investments include
bonds, notes (including structured notes), mortgage-backed securities,
asset-backed securities, convertible securities, Eurodollar and Yankee dollar
instruments, preferred stocks and money market instruments. Fixed income
securities may be issued by U.S. and foreign corporations or entities; U.S. and
foreign banks; the U.S. government, its agencies, authorities, instrumentalities
or sponsored enterprises; state and municipal governments; supranational
organizations; and foreign governments and their political subdivisions.
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.
5
Credit quality
If a security receives different ratings, the fund will treat the securities as
being rated in the highest rating category. The fund may choose not to sell
securities that are downgraded after their purchase. The fund's credit standards
also apply to counterparties to OTC derivatives contracts.
Investment grade securities
Securities are investment grade if:
o They are rated in one of the top four long-term rating categories of a
nationally recognized statistical rating organization.
o They have received a comparable short-term or other rating.
o They are unrated securities that the subadviser believes are of comparable
quality to investment grade securities.
High yield, lower quality securities (junk bonds)
The fund may invest in fixed income securities that are high yield, lower
quality securities (junk bonds) rated by a rating organization below its top
four long term rating categories or unrated securities determined by the
subadviser to be of equivalent quality. The issuers of lower quality bonds may
be highly leveraged and have difficulty servicing their debt, especially during
prolonged economic recessions or periods of rising interest rates. The prices of
lower quality securities are volatile and may go down due to market perceptions
of deteriorating issuer credit-worthiness or economic conditions. Lower quality
securities may become illiquid and hard to value in declining markets.
The fund may invest in these securities primarily for their capital appreciation
potential.
Foreign investments
The fund may invest in foreign securities.
Investments in securities of foreign entities and securities quoted or
denominated in foreign currencies involve special risks. These include possible
political and economic instability, more limited availability of accurate
information about foreign issues, and the possible imposition of exchange
controls or other restrictions on investments. If the 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.
The Economic and Monetary Union (EMU) and the introduction of a single European
currency (the Euro), which began on January 1, 1999, may increase uncertainties
relating to investment in European markets. Among other things, EMU entails
sharing a single currency and official interest rate and adhering to limits on
government borrowing by participating countries. EMU is driven by the
expectation of economic benefits; however, there are significant risks
associated with EMU. Monetary and economic union on this scale has not been
attempted before, and there is uncertainty whether participating countries will
remain committed to EMU in the face of changing economic conditions.
6
Derivatives and hedging techniques
The fund may, but need not, use derivative contracts, such as futures and
options on securities, securities indices or currencies; options on these
futures; forward currency contracts; and interest rate or currency swaps for any
of the following purposes:
o To hedge against the economic impact of adverse changes in the market value
of its securities, because of changes in stock market prices, currency
exchange rates or interest rates
o As a substitute for buying or selling securities
o To enhance the fund's return
o As a cash flow management technique
A derivative contract will obligate or entitle the fund to deliver or receive an
asset or cash payment that is based on the change in value of one or more
securities, currencies or indices. Even a small investment in derivative
contracts can have a big impact on the fund's stock market, currency and
interest rate exposure. Therefore, using derivatives can disproportionately
increase losses and reduce opportunities for gains when stock prices, currency
rates or interest rates are changing. The fund may not fully benefit from or may
lose money on derivatives if changes in their value do not correspond accurately
to changes in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of credit risk as issuers of fixed
income securities. Derivatives can also make the fund less liquid and harder to
value, especially in declining markets.
Defensive investing
In response to market, economic, political, or other conditions, FMR may
temporarily use a different investment strategy for defensive purposes. If FMR
does so, different factors could affect the fund's performance and the fund may
not achieve its investment objective.
Portfolio turnover
The fund may engage in active and frequent trading to achieve its principal
investment strategies. Frequent trading also increases transaction costs, which
could detract from the fund's performance.
Portfolio holdings
The fund's policies and procedures with respect to the disclosure of the fund's
portfolio securities are described in the Statement of Additional Information
("SAI").
The fund may also use other strategies and invest in other securities that are
described, along with their risks, in the SAI. However, the fund might not use
all of the strategies and techniques or invest in all of the types of securities
described in this Prospectus or in the SAI. Also note that there are many other
factors, which are not described here, that could adversely affect your
investment and that could prevent the fund from achieving its goals.
7
Management
The manager
Travelers Investment Adviser Inc. ("TIA" or the "manager") is the fund's
manager. TIA has engaged a subadviser to select investments for the fund.
Travelers Investment Adviser Inc.
TIA is a wholly owned subsidiary of Plaza LLC ("Plaza"), which is an indirect
wholly owned subsidiary of Citigroup Inc. ("Citigroup"). TIA is located at 399
Park Avenue, New York, New York 10022. TIA acts as investment manager to
investment companies having aggregate assets of approximately $2.77 billion as
of December 31, 2004.
On January 31, 2005, Citigroup announced that it had reached an agreement with
MetLife, Inc. ("MetLife") to sell Citigroup's life insurance and annuity
businesses ("Travelers Life & Annuity") to MetLife. As part of this transaction,
TIA, the fund's investment adviser and currently an indirect wholly owned
subsidiary of Citigroup, would become an indirect wholly owned subsidiary of
MetLife. The transaction is subject to certain regulatory approvals and other
customary conditions to closing. The transaction is expected to close this
summer.
Citigroup affiliates, including their directors, officers or employees, may have
banking or investment banking relationships with the issuers of securities that
are held in the fund. They may also own the securities of these issuers.
However, in making investment decisions for the fund, TIA does not obtain or use
inside information acquired by any division, department or affiliate of
Citigroup in the course of those relationships. To the extent a fund acquires
securities from an issuer that has a borrowing or other relationship with
Citigroup or its affiliates, the proceeds of the purchase may be used to repay
such borrowing or otherwise benefit Citigroup and/or its affiliates.
The fees TIA receives from the fund for its services are as follows:
Actual management fee
paid for the fiscal year
ended October 31, 2004 Contractual management
(as a percentage of the fee paid (as a percentage
fund's average daily net of the fund's average
Fund assets) daily net assets)
- ------------------------------------------------------------------------------------------
Strategic Equity
Portfolio (formerly
Alliance Growth
Portfolio) 0.80% 0.80%
The Portfolio Manager
The fund's investments are selected by a subadviser which is supervised by TIA.
The table below sets forth the name and business experience of the fund's
portfolio manager.
Strategic Equity Portfolio Adam Hetnarski (since Vice President and Portfolio
September 15, 2003) Manager, Fidelity Management
Fidelity Management & Research Company. Mr.
& Research Company Hetnarski joined Fidelity
82 Devonshire Street Management & Research
Boston, MA 02109 Company in 1991. Since
joining Fidelity Management &
Research Company, he has
worked as a research analyst
and portfolio manager.
Under an exemptive order from the Securities and Exchange Commission, the
manager, subject to certain conditions, and without the approval of shareholders
may: (a) employ a new unaffiliated investment subadviser for the fund pursuant
to the terms of a new investment subadvisory agreement, in each case either as a
replacement for an existing subadviser; or as an additional subadviser; or as a
new subadviser where no subadviser had previously been retained; (b) change the
terms of any investment subadvisory agreement; and (c) continue the employment
of an existing subadvisor on the same subadvisory contract terms where a
contract has been assigned because of a change in control of the subadvisor.
When a new or replacement subadviser is retained, shareholders will receive
notice of such action, including the information concerning the new subadviser
that normally is provided in a proxy statement.
Transfer Agent and Shareholder Servicing Agent
Citicorp Trust Bank, fsb ("CTB") serves as the fund's transfer agent and
shareholder servicing agent (the "transfer agent"). The transfer agent has
entered into a sub-transfer agency and services agreement with PFPC Inc. to
serve as the fund's sub-transfer agent (the "sub-transfer agent"). The
sub-transfer agent will perform certain shareholder recordkeeping and accounting
services.
8
Additional information about the subadviser
Fidelity Management & Research Company ("FMR Co."), located at 82 Devonshire
Street, Boston, Massachusetts 02109, acts as the subadviser for the fund. As of
December 31, 2004, FMR Co. had approximately $932.8 billion in total assets
under management.
Recent Developments
In connection with an investigation previously disclosed by Citigroup, the Staff
of the Securities and Exchange Commission (SEC) has notified Citigroup Asset
Management (CAM), the Citigroup business unit that includes the funds'
investment manager and other investment advisory companies; Citicorp Trust Bank
(CTB), an affiliate of CAM; Thomas W. Jones, the former CEO of CAM; and three
other individuals, one of whom is an employee and two of whom are former
employees of CAM, that the SEC Staff is considering recommending a civil
injunctive action and/or an administrative proceeding against each of them
relating to the creation and operation of an internal transfer agent unit to
serve various CAM-managed funds.
In 1999, CTB entered the transfer agent business. CTB hired an unaffiliated
subcontractor to perform some of the transfer agent services. The subcontractor,
in exchange, had signed a separate agreement with CAM in 1998 that guaranteed
investment management revenue to CAM and investment banking revenue to a CAM
affiliate. The subcontractor's business was later taken over by PFPC Inc., and
at that time the revenue guarantee was eliminated and a one-time payment was
made by the subcontractor to a CAM affiliate.
CAM did not disclose the revenue guarantee when the boards of various
CAM-managed funds hired CTB as transfer agent. Nor did CAM disclose to the
boards of the various CAM-managed funds the one-time payment received by the CAM
affiliate when it was made. As previously disclosed, CAM has already paid the
applicable funds, primarily through fee waivers, a total of approximately $17
million (plus interest) that is the amount of the revenue received by Citigroup
relating to the revenue guarantee.
In addition, the SEC Staff has indicated that it is considering recommending
action based on the adequacy of the disclosures made to the fund boards that
approved the transfer agency arrangement, CAM's initiation and operation of, and
compensation for, the transfer agent business and CAM's retention of, and
agreements with, the subcontractor.
Citigroup is cooperating fully in the SEC's investigation and is seeking to
resolve the matter in discussions with the SEC staff. On January 20, 2005,
Citigroup stated that it had established an aggregate reserve of $196 million
($25 million in the third quarter of 2004 and $171 million in the fourth quarter
of 2004) related to its discussions with the SEC Staff. Settlement negotiations
are on going and any settlement of this matter with the SEC will require
approval by the Citigroup Board and acceptance by the Commission.
Unless and until any settlement is consummated, there can be no assurance that
any amount reserved by Citigroup will be distributed. Nor is there at this time
any certainty as to how the proceeds of any settlement would be distributed, to
whom any such distribution would be made, the methodology by which such
distribution would be allocated, and when such distribution would be made.
Although there can be no assurance, Citigroup does not believe that this matter
will have a material adverse effect on the funds.
9
Share Transactions
Availability of the fund
Shares of the fund are available only through the purchase of variable annuity
or variable life insurance contracts issued by insurance companies through their
separate accounts.
The interests of different variable insurance products investing in the fund
could conflict due to differences of tax treatment and other considerations. The
company currently does not foresee any disadvantages to investors arising from
the fact that the fund may offer its shares to different insurance company
separate accounts that serve as the investment medium for their variable annuity
and variable life products. Nevertheless, the Board of Trustees intends to
monitor events to identify any material irreconcilable conflicts which may
arise, and to determine what action, if any, should be taken in response to
these conflicts. If a conflict were to occur, one or more insurance companies'
separate accounts might be required to withdraw their investments in the fund
and shares of another fund may be substituted. In addition, the sale of shares
may be suspended or terminated if required by law or regulatory authority or it
is in the best interests of the fund's shareholders.
Redemption of shares
The redemption price of the shares of the fund 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 after receipt of a
redemption request in good order, though redemption proceeds must be remitted to
a separate account on or before the third day following receipt of the request
in good order, except on a day on which the New York Stock Exchange ("NYSE") is
closed or as permitted by the SEC in extraordinary circumstances.
Frequent purchases and sales of fund shares
Frequent purchases and sales of Fund shares resulting from purchase, exchange or
withdrawal transactions by certain owners of variable annuity and variable life
insurance contracts ("contract owners") may harm other contract owners in
various ways. These include: (1) dilution of the interests of long-term contract
owners where frequent traders attempt to take advantage of market fluctuations
that are not fully reflected in the Fund's NAV; (2) disruption of ordinary
portfolio management, such as by necessitating that the Fund maintain a cash
level higher than would otherwise be necessary or that the Fund sell securities
prematurely or at inopportune times in order to generate cash to meet redemption
requests; and (3) increased Fund costs, such as brokerage commissions. The Fund
does not knowingly accommodate such frequent purchases and sales of Fund shares,
and, to the Fund's knowledge there are no arrangements currently in place to
allow or permit any contract owner to engage in trading beyond what is allowed
under the applicable variable annuity or variable life insurance contract.
However, the Fund's shares are offered exclusively to separate accounts of
insurance companies ("Company"), and the Fund generally has little or no access
to the transaction records of individual contract owners whose assets are
invested in the separate accounts. Nonetheless, the Trust's Board of Trustees
has adopted policies and procedures to discourage market timing while taking
these circumstances into account. Specifically, the policies and procedures
require that the Fund request written certifications from each Company at least
annually specifying that: (1) the Company has instituted policies and procedures
reasonably designed to detect and deter the use of the separate accounts for
frequent trading; (2) the Company's policies and procedures address the level of
trading that will be considered excessive and the Company monitors contract
owner transactions to identify excessive trading; and (3) the Company applies
such procedures uniformly.
The applicable variable annuity or variable life insurance contract prospectus
contains a more detailed description of the Companies' policies and procedures
with respect to frequent trading. There is significant risk that the policies
and procedures of the Fund and the Companies will prove ineffective and that
excessive trading in Fund shares will occur, which may result in the adverse
consequences to contract owners described above. The Fund may alter its policies
and procedures at any time without prior notice to shareholders or contract
owners.
10
Share Price
The fund's net asset value is the value of its assets minus its liabilities
divided by the number of shares outstanding. The fund calculates its net asset
value every day the NYSE is open. This calculation is done when regular trading
closes on the NYSE (normally 4:00 p.m., Eastern time). If the NYSE closes early,
the fund accelerates the calculation of its net asset value to the actual
closing time. The NYSE is closed on certain holidays listed in the SAI.
The fund generally values its securities based on market prices determined at
the close of regular trading on the NYSE. The fund's currency valuations, if
any, are done as of when the London stock exchange closes, which is usually at
12 noon Eastern time. For equity securities that are traded on an exchange, the
market price is usually the closing sale or official closing price on that
exchange. In the case of securities not traded on an exchange, or if such
closing prices are not otherwise available, the market price is typically
determined by independent third party pricing vendors approved by the fund's
Board using a variety of pricing techniques and methodologies. The market price
for debt obligations is generally the price supplied by an independent third
party pricing service approved by the fund's board, which may use a matrix,
formula or other objective method that takes into consideration market indices,
yield curves and other specific adjustments. Short-term debt obligations that
will mature in 60 days or less are valued at amortized cost, unless it is
determined that using this method would not reflect an investment's fair value.
If vendors are unable to supply a price, or if the price supplied is deemed by
the manager to be unreliable, the market price may be determined using
quotations received from one or more brokers/dealers that make a market in the
security. When such prices or
11
quotations are not available, or when the manager believes that they are
unreliable, the manager may price securities using fair value procedures
approved by the Board. The fund may also use fair value procedures if the
manager determines that a significant event has occurred between the time at
which a market price is determined and the time at which the fund's net asset
value is calculated. In particular, the value of foreign securities may be
materially affected by events occurring after the close of the market on which
they are valued, but before the fund prices its shares. The fund uses a fair
value model developed by an independent third party pricing service to price
foreign equity securities on days when there is a certain percentage change in
the value of a domestic equity security index, as such percentage may be
determined by the manager from time to time.
Valuing securities at fair value involves greater reliance on judgment than
valuation of securities based on readily available market quotations. A fund
that uses fair value to price securities may value those securities higher or
lower than another fund using market quotations or its own fair value
methodologies to price the same securities. There can be no assurance that the
fund could obtain the fair value assigned to a security if it were to sell the
security at approximately the time at which the fund determines its net asset
value.
Dividends, Distributions and Taxes
The fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986 (the "Code"), as amended. In
order to qualify as a regulated investment company, the fund must meet certain
income and asset diversification tests and distribution requirements. As a
regulated investment company meeting these requirements, the fund will not be
subject to Federal income tax on its net investment income and net capital gains
that it distributes to its shareholders. All income and capital gain
distributions are automatically reinvested in additional shares of the fund at
net asset value and are includable in gross income of the separate accounts
holding 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.
Each separate account is also subject to asset diversification requirements for
the contracts under 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 separate account may be represented by any one investment, no more
than 70% by any two investments, no more than 80% by any three investments, and
no more than 90% by any four investments. For this purpose, all securities of
the same issuer are considered a single investment. An alternative asset
diversification test may be satisfied under certain circumstances. If the
separate account should fail to comply with these regulations or the fund fails
to qualify for the special tax treatment afforded regulated investment companies
under the Code, contracts invested in the fund would not be treated as annuity,
endowment or life insurance contracts under the Code.
12
Financial Highlights
Subject to the approval of the Predecessor Fund's shareholders, on or about June
30, 2005, the fund will acquire all the assets and assume all the liabilities of
the Predecessor Fund. Prior to the date of this prospectus, the fund had no
assets or investment operations.
The financial highlights table is intended to help you understand the
performance of the fund for the past five years. The information in the
following table has been derived from the Predecessor Fund's financial
statements and was audited by KPMG LLP, independent registered public accounting
firm, whose report, along with the Predecessor Fund's financial statements, is
included in the annual report (available upon request). Certain information
reflects financial results for a single share. Total returns represent the rate
that a shareholder would have earned (or lost) on a share of the fund assuming
reinvestment of all dividends and distributions. Total returns do not reflect
expenses associated with the separate account such as administrative fees,
account charges and surrender charges which, if reflected, would reduce the
total returns for all period shown.
For a share of capital stock outstanding throughout each year ended October 31.
2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 15.16 $ 12.59 $ 16.67 $ 28.63 $ 28.35
- ----------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss) 0.14 (0.03) 0.04 0.07 0.05
Net realized and unrealized gain
(loss) 1.14 2.62 (4.05) (8.60) 2.66
- ----------------------------------------------------------------------------------------------------
Total income (loss) from operations 1.28 2.59 (4.01) (8.53) 2.71
- ----------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income -- (0.02) (0.07) (0.05) (0.03)
Net realized gains -- -- -- (3.38) (2.40)
- ----------------------------------------------------------------------------------------------------
Total distributions -- (0.02) (0.07) (3.43) (2.43)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of year $ 16.44 $ 15.16 $ 12.59 $ 16.67 $ 28.63
- ----------------------------------------------------------------------------------------------------
Total return(1) 8.44% 20.57% (24.05)% (32.05)% 9.27%
- ----------------------------------------------------------------------------------------------------
Net assets, end of year (millions) $ 508 $ 550 $ 516 $ 845 $ 1,370
- ----------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.85%(2) 0.84% 0.83% 0.82% 0.81%
Net investment income (loss) 0.81 (0.20) 0.19 0.31 0.17
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate 213% 167% 100% 46% 47%
- ----------------------------------------------------------------------------------------------------
(1) Performance figures may reflect fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of fee
waivers and/or expense reimbursements, the total return would be lower.
(2) The investment manager waived a portion of its management fee for the year
ended October 31, 2004. The actual expense ratio did not change due to
these waivers.
13
The Travelers Series Trust
Additional Information
Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that significantly affected the
fund's performance.
Statement of additional information. The Statement of Additional Information
(SAI) provides more detailed information about the fund. It is incorporated by
reference into this Prospectus.
You can make inquiries about the fund or obtain shareholder reports or the SAI
(without charge) by calling 1-800-842-9368 or writing to The Travelers Series
Trust, One Cityplace, Hartford, CT 06103. As of the date of this Prospectus, the
Fund's SAI and shareholder reports are not available on the Fund's website,
because the Fund has not yet commenced operations. In the future, the Fund may
make its SAI and shareholder reports available on its website.
Information about the fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's (the "Commission") Public Reference Room in
Washington, D.C. In addition, information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Database
on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: publicinfo@sec.gov, or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is not in this Prospectus, you
should not rely upon that information. The fund is not offering to sell its
shares to any person to whom the fund may not lawfully sell its shares.
Strategic Equity Portfolio
(Investment Company Act file no. 811-6465)
Appendix B-2
The Travelers Series Trust
Prospectus
May 21, 2005
AIM CAPITAL APPRECIATION PORTFOLIO
INVESTMENT PRODUCTS: NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
Shares of the fund are offered only to insurance company Separate Accounts which
fund certain variable annuity and variable life insurance contracts. This
prospectus should be read together with the prospectus for those contracts.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
Contents
The Travelers Series Trust ("the Company") consists of 29 separate investment
funds, each with its own investment objective and policies. This Prospectus
relates to one of those Funds. Each of the 29 funds offers different levels of
potential return and involves different levels of risk.
Page
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Investments, Risks and Performance 2
More on the Fund's Investments and Related Risks 5
Management 8
Share Transactions 10
Share Price 11
Dividends, Distributions and Taxes 12
Financial Highlights 13
Investments, Risks and Performance
AIM Capital Appreciation Portfolio
Investment objective
Capital appreciation.
Principal investment strategies
Key investments The fund invests principally in common stocks of companies the
subadviser believes are likely to benefit from new or innovative products,
services or processes, as well as those that have experienced above-average,
long-term growth in earnings and have excellent prospects for future growth.
Additional investments For information on the fund's additional investments and
related risks, please read pages 5-7.
Selection process
The subadviser emphasizes individual security selection while diversifying
the fund's investments across industries, which may help to reduce risk.
The subadviser seeks to identify companies having a consistent record of
long-term, above-average growth in earnings, as well as companies that are
only beginning to experience significant and sustainable earnings growth.
The subadviser will invest without regard to market capitalization.
In selecting individual companies for investment, the subadviser looks for
the following:
o New or innovative products, services or processes that should enhance
future earnings
o Increasing market share
o Experienced and effective management
o Competitive advantages
The subadviser then considers whether to sell a particular security when it
no longer meets these criteria.
In anticipation of or in response to adverse market or other conditions, or
atypical circumstances such as unusually large cash inflows or redemptions,
the fund may temporarily hold all or a portion of its assets in cash, cash
equivalents or high-quality debt instruments. As a result, the fund may not
achieve its investment objective. For cash management purposes the fund may
also hold a portion of its assets in cash or cash equivalents, including
shares of money market funds.
2
Principal risks of investing in the fund
While investing in smaller growth securities can bring added benefits, it may
also involve risks. Investors could lose money on their investment in the fund,
or the fund may not perform as well as other investments, if any of the
following occurs:
o The U.S. stock market declines.
o An adverse event, such as negative press reports about a company in the
fund's portfolio, depresses the value of the company's stock.
o The subadviser's judgment about the attractiveness, value or potential
appreciation of a particular stock proves to be incorrect.
o Key economic trends become materially unfavorable.
The fund may invest in relatively new or unseasoned companies that are in their
early stages of development. Smaller, unseasoned companies present greater risks
than securities of larger, more established companies because:
o They may be dependent on a small number of products or services for their
revenues
o They may lack substantial capital reserves to make needed capital
investments or absorb losses
o They may have less experienced management
o Their securities may be less widely traded, less liquid and more volatile
o Recession or adverse economic trends are more likely to sharply and
negatively affect their earnings and financial condition
o Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about
these companies, relatively low market liquidity and potential lack of
strict financial and accounting controls and standards.
The fund's investment objective is not fundamental, and its objective and
investment policies may be changed by the Trust's Board of Trustees without
approval of shareholders or holders of variable annuity and variable life
insurance contracts. A change in the 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.
3
Fund Performance
The performance shown in the bar chart, quarterly returns, and risk return table
shown below is for the fund's predecessor fund, AIM Capital Appreciation
Portfolio, a series of Travelers Series Fund ("Predecessor Fund"). The fund has
entered into an Agreement and Plan of Reorganization ("Reorganization"), which
provides that the fund will acquire all of the assets and assume all of the
liabilities of the Predecessor Fund. If the Reorganization is approved by
Predecessor Fund shareholders, the Predecessor Fund will be reorganized into the
fund on or about June 30, 2005. This bar chart indicates the risks of investing
in the fund by showing changes in the fund's performance from year to year. Past
performance does not necessarily indicate how the fund will perform in the
future. Performance figures do not reflect expenses incurred from investing
through a Separate Account. These expenses will reduce performance. Please refer
to the Separate Account prospectus for more information on expenses.
Quarterly returns: Highest: 35.92% in 4th quarter 1999; Lowest: -23.04% in 3rd
quarter 2001 Risk return bar chart
[BAR CHART]
Total Return
The bar chart shows the performance of the fund's shares for each of the full
calendar years since its inception.
Risk Return Table
This table assumes redemption of shares at the end of the period and the
reinvestment of distributions and dividends.
Average annual total returns (for the periods ended December 31, 2004)
Inception Date 1 year Five years Since inception
Fund 10/10/95 6.50% (6.46)% 4.40%
S&P 500 Index 10.81% (2.30)% 17.01%*
Lipper Variable Multi-Cap
Growth Fund Average 10.40% (7.07)% 8.15%**
* Index comparison begins on 10/10/95.
** Index comparison begins on 10/31/95 since index comparison is not available
from the fund's inception date.
Comparative performance
This table indicates the risk of investing in the fund by comparing the average
annual total return for the periods shown to that of the Lipper Variable
Multi-Cap Growth Fund Average, an average of the performance of the 110 largest
multi-cap growth mutual funds tracked by Lipper Inc., an independent mutual-fund
performance monitor, and the S&P 500 Index, a market-value weighted index
comprised of 500 widely held common stocks. Figures for the Indices include
reinvestment of dividends. The Indices are unmanaged and are not subject to the
same management and trading expenses of a mutual fund. Please note that an
investor cannot invest directly in an index.
Fee Table
Shareholder fees (paid directly into your investment)
Maximum sales charge on purchases N/A
Maximum deferred sales charge on redemptions N/A
Annual fund operating expenses (paid by the Fund as a % of net assets)
Management fees 0.80%
Distribution and service (12b-1) fees None
Other expenses 0.05%
Total annual fund operating expenses 0.85%
Fees and Expenses
This table sets forth the fees and expenses you will pay if you invest in shares
of the fund. These fees and expenses do not reflect any of the fees and expenses
incurred from investing through a Separate Account. It such fees were included,
your costs would be higher.
Example
Number of years you owned your shares 1 year 3 years 5 years 10 years
Your costs would be $ 87 $ 271 $ 471 $ 1,049
The example assumes:
o You invest $10,000 for the period shown
o You reinvest all distributions and dividends without a
sales charge
o The fund's operating expenses (before fee waivers
and/or expense reimbursements, if any) remain the same
o Your investment has a 5% return each year--the
assumption of a 5% return is required by the Securities
and Exchange Commission ("SEC") for purposes of this
example and is not a prediction of the fund's future
performance
o Redemption of your shares at the end of the period
This example helps you compare the cost of investing in the fund with other
mutual funds. Your actual cost may be higher or lower. The example does not
include expenses incurred from investing through a separate account. If the
example included these expenses, the figures shown would be higher.
4
More on the Fund's Investments and Related Risks
Additional investments and investment techniques
The section entitled "Investments, Risks and Performance" describes the fund's
investment objective and its principal investment strategies and risks. This
section provides some additional information about the fund's investments and
certain investment management techniques the fund may use. More information
about the fund's investments and portfolio management techniques, some of which
entail risk, is included in the Statement of Additional Information (SAI). To
find out how to obtain an SAI, please turn to the back cover of this prospectus.
Equity investments
The fund may invest in all types of equity securities. Equity securities include
exchange-traded and over-the-counter (OTC) common and preferred stocks,
warrants, rights, investment grade convertible securities, depositary receipts
and shares, trust certificates, limited partnership interests, shares of other
investment companies, real estate investment trusts and equity participations.
Fixed income investments
The fund may, to a limited extent, invest in fixed income securities. Fixed
income investments include bonds, notes (including structured notes),
mortgage-related securities, asset-backed securities, convertible securities,
Eurodollar and Yankee dollar instruments, preferred stocks and money market
instruments. Fixed income securities may be issued by U.S. and foreign
corporations or entities; U.S. and foreign banks; the U.S. government, its
agencies, authorities, instrumentalities or sponsored enterprises; state and
municipal governments; supranational organizations; and foreign governments and
their political subdivisions.
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.
5
Credit quality
If a security receives different ratings, the fund will treat the securities as
being rated in the highest rating category. The fund may choose not to sell
securities that are downgraded after their purchase. The fund's credit standards
also apply to counterparties to OTC derivatives contracts.
Investment grade securities
Securities are investment grade if:
o They are rated in one of the top four long-term rating categories of a
nationally recognized statistical rating organization.
o They have received a comparable short-term or other rating.
o They are unrated securities that the manager believes are of comparable
quality to investment grade securities.
Foreign investments
The fund may invest up to 20% of its total assets in foreign securities.
Investments in securities of foreign entities and securities quoted or
denominated in foreign currencies involve special risks. These include possible
political and economic instability, more limited availability of accurate
information about foreign issuers and the possible imposition of exchange
controls or other restrictions on investments. If the 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.
The Economic and Monetary Union (EMU) and the introduction of a single European
currency (the Euro), which began on January 1, 1999, may increase uncertainties
relating to investment in European markets. Among other things, EMU entails
sharing a single currency and official interest rate and adhering to limits on
government borrowing by participating countries. EMU is driven by the
expectation of economic benefits, however, there are significant risks
associated with EMU. Monetary and economic union on this scale has not been
attempted before, and there is uncertainty whether participating countries will
remain committed to EMU in the face of changing economic conditions.
Special Situations
The fund may invest in "special situations." A special situation arises when, in
the opinion of management, the securities of a particular company will, within a
reasonably estimable period of time, be accorded market recognition at an
appreciated value solely by reason of a development applicable to that company,
and regardless of general business conditions or movements of the market as a
whole. Developments creating special situations might include, among others:
liquidations, reorganizations, recapitalizations, mergers, material litigation,
technical breakthroughs and new management or management policies. Although
large and well known companies may be involved, special situations more often
involve comparatively small or unseasoned companies. Investments in unseasoned
companies and special situations often involve much greater risk than is
inherent in ordinary investment securities.
6
Derivatives and hedging techniques
The fund may use derivative contracts, such as futures and options on
securities, securities indices or currencies; options on these futures; forward
currency contracts; and interest rate or currency swaps for any of the following
purposes:
o To hedge against the economic impact of adverse changes in the market value
of its securities, because of changes in stock market prices, currency
exchange rates or interest rates
o As a substitute for buying or selling securities
o To enhance the fund's return
o As a cash flow management technique
A derivative contract will obligate or entitle the fund to deliver or receive an
asset or cash payment that is based on the change in value of one or more
securities, currencies or indices. Even a small investment in derivative
contracts can have a big impact on the fund's stock market, currency and
interest rate exposure. Therefore, using derivatives can disproportionately
increase losses and reduce opportunities for gains when stock prices, currency
rates or interest rates are changing. The fund may not fully benefit from or may
lose money on derivatives if changes in their value do not correspond accurately
to changes in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of credit risk as issuers of fixed
income securities. Derivatives can also make the fund less liquid and harder to
value, especially in declining markets.
Securities lending
The fund may engage in securities lending to increase its net investment income.
The fund will only lend securities if the loans are callable by the fund at any
time and the loans are continuously secured by cash or liquid securities equal
to no less than the market value, determined daily, of the securities loaned.
The risks in lending securities consist of possible delay in receiving
additional collateral, delay in recovery of securities when the loan is called
or possible loss of collateral should the borrower fail financially.
Defensive investing
The fund may depart from its principal investment strategies in response to
adverse market, economic or political conditions by taking temporary defensive
positions in any type of money market instrument and short-term debt securities
or cash. If the fund takes a temporary defensive position, it may be unable to
achieve its investment goal.
Portfolio turnover
The fund may engage in active and frequent trading to achieve its principal
investment strategies. Frequent trading also increases transaction costs, which
could detract from the fund's performance.
Portfolio holdings
The fund's policies and procedures with respect to the disclosure of the fund's
portfolio securities are described in the Statement of Additional Information
("SAI").
The fund may also use other strategies and invest in other securities that are
described, along with their risks, in the SAI. However, the fund might not use
all of the strategies and techniques or invest in all of the types of securities
described in this Prospectus or in the SAI. Also note that there are many other
factors, which are not described here, that could adversely affect your
investment and that could prevent the fund from achieving its goals.
7
Management
The Manager
Travelers Investment Adviser Inc. ("TIA" or the "manager") is the fund's
manager. TIA has engaged a subadviser to select investments for the fund.
Travelers Investment Adviser Inc.
TIA is a wholly owned subsidiary of Plaza LLC ("Plaza"), which is an indirect
wholly owned subsidiary of Citigroup Inc. ("Citigroup") TIA is located at 399
Park Avenue, New York, New York 10022. TIA acts as investment manager to
investment companies having aggregate assets of approximately $2.77 billion as
of December 31, 2004.
On January 31, 2005, Citigroup announced that it had reached an agreement with
MetLife, Inc. ("MetLife") to sell Citigroup's life insurance and annuity
businesses ("Travelers Life & Annuity") to MetLife. As part of this transaction,
TIA, the fund's investment adviser and currently an indirect wholly owned
subsidiary of Citigroup, would become an indirect wholly owned subsidiary of
MetLife. The transaction is subject to certain regulatory approvals and other
customary conditions to closing. The transaction is expected to close this
summer.
Citigroup affiliates, including their directors, officers or employees, may have
banking or investment banking relationships with the issuers of securities that
are held in the fund. They may also own the securities of these issuers.
However, in making investment decisions for the fund, TIA does not obtain or use
inside information acquired by any division, department of affiliate or
Citigroup in the course of those relationships. To the extent a fund acquires
securities from an issuer that has a borrowing or other relationship with
Citigroup or its affiliates, the proceeds of the purchase may be used to repay
such borrowing or otherwise benefit Citigroup and/or its affiliates.
The fees TIA receives for its services are as follows:
Actual management fee
paid for the fiscal year Contractual management
ended October 31, 2004 fee paid
(as a percentage (as a percentage
of the fund's of the fund's
Fund average daily net assets) aoverage daily net assets)
- ---------------------------------------------------------------------------------------------------
AIM Capital Appreciation
Portfolio 0.80% 0.80%
- ---------------------------------------------------------------------------------------------------
The Portfolio Manager
The fund's investments are selected by a subadviser which is supervised by TIA.
The table below sets forth the names and business experience of the fund's
portfolio managers.
Fund Portfolio Manager Business Experience
AIM Capital Appreciation Kenneth A. Zschappel (since Senior Portfolio Manager (lead
Portfolio inception) manager), A I M Capital
A I M Capital Management, Inc. Management, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046
Robert J. Lloyd (since May 1, 2003) Portfolio Manager, A I M
A I M Capital Management, Inc. Capital; trader for American
Electric Power from 1995 to
2001.
Christian A. Costanzo Senior Portfolio Manager, A I M
(since May 1, 2003) Capital Management, Inc.
A I M Capital Management, Inc.
Bryan A. Unterhalter (since 2003) Senior Portfolio Manager, A I M
A I M Capital Management, Inc. Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------
8
As the lead manager, Mr. Zschappel generally has final authority over all
aspects of the Portfolio's investments, construction techniques, risk
assessment, and the degree to which Mr. Zschappel may perform these functions,
and the nature of these functions, may change from time to time.
They are assisted by AIM's Multi Cap Growth Team, which may be comprised of
portfolio managers, research analysts and other investment professionals of AIM.
Team members provide research support and make securities recommendations with
respect to the fund, but do no have day-to-day management responsibilities with
respect to the fund's portfolio. Members of the team may change from time to
time.
Under an exemptive order from the Securities and Exchange Commission, the
manager, subject to certain conditions, and without the approval of shareholders
may: (a) employ a new unaffiliated investment subadviser for the fund pursuant
to the terms of a new investment subadvisory agreement, in each case either as a
replacement for an existing subadviser; or as an additional subadviser; or as a
new subadviser where no subadviser had previously been retained; (b) change the
terms of any investment subadvisory agreement; and (c) continue the employment
of an existing subadvisor on the same subadvisory contract terms where a
contract has been assigned because of a change in control of the subadvisor.
When a new or replacement subadviser is retained, shareholders will receive
notice of such action, including the information concerning the new subadviser
that normally is provided in a proxy statement.
Transfer Agent and Shareholder Servicing Agent
Citicorp Trust Bank, fsb ("CTB") serves as the fund's transfer agent and
shareholder servicing agent (the "transfer agent"). The transfer agent has
entered into a sub-transfer agency and services agreement with PFPC Inc. to
serve as the fund's sub-transfer agent (the "sub-transfer agent"). The
sub-transfer agent will perform certain shareholder recordkeeping and accounting
services.
Additional information about the subadviser
A I M Capital Management, Inc. ("AIM Capital") is a wholly owned subsidiary of A
I M Advisors, Inc., a registered investment adviser. AIM Capital and A I M
Advisors, Inc. manage approximately $138 billion in assets as of December 31,
2004.
Recent Developments
In connection with an investigation previously disclosed by Citigroup, the Staff
of the Securities and Exchange Commission (SEC) has notified Citigroup Asset
Management (CAM), the Citigroup business unit that includes the funds'
investment manager and other investment advisory companies; Citicorp Trust Bank
(CTB), an affiliate of CAM; Thomas W. Jones, the former CEO of CAM; and three
other individuals, one of whom is an employee and two of whom are former
employees of CAM, that the SEC Staff is considering recommending a civil
injunctive action and/or an administrative proceeding against each of them
relating to the creation and operation of an internal transfer agent unit to
serve various CAM-managed funds.
In 1999, CTB entered the transfer agent business. CTB hired an unaffiliated
subcontractor to perform some of the transfer agent services. The subcontractor,
in exchange, had signed a separate agreement with CAM in 1998 that guaranteed
investment management revenue to CAM and investment banking revenue to a CAM
affiliate. The subcontractor's business was later taken over by PFPC Inc., and
at that time the revenue guarantee was eliminated and a one-time payment was
made by the subcontractor to a CAM affiliate.
CAM did not disclose the revenue guarantee when the boards of various
CAM-managed funds hired CTB as transfer agent. Nor did CAM disclose to the
boards of the various CAM-managed funds the one-time payment received by the CAM
affiliate when it was made. As previously disclosed, CAM has already paid the
applicable funds, primarily through fee waivers, a total of approximately $17
million (plus interest) that is the amount of the revenue received by Citigroup
relating to the revenue guarantee.
9
In addition, the SEC Staff has indicated that it is considering recommending
action based on the adequacy of the disclosures made to the fund boards that
approved the transfer agency arrangement, CAM's initiation and operation of, and
compensation for, the transfer agent business and CAM's retention of, and
agreements with, the subcontractor.
Citigroup is cooperating fully in the SEC's investigation and is seeking to
resolve the matter in discussions with the SEC staff. On January 20, 2005,
Citigroup stated that it had established an aggregate reserve of $196 million
($25 million in the third quarter of 2004 and $171 million in the fourth quarter
of 2004) related to its discussions with the SEC Staff. Settlement negotiations
are on going and any settlement of this matter with the SEC will require
approval by the Citigroup Board and acceptance by the Commission.
Unless and until any settlement is consummated, there can be no assurance that
any amount reserved by Citigroup will be distributed. Nor is there at this time
any certainty as to how the proceeds of any settlement would be distributed, to
whom any such distribution would be made, the methodology by which such
distribution would be allocated, and when such distribution would be made.
Although there can be no assurance, Citigroup does not believe that this matter
will have a material adverse effect on the funds.
Share Transactions
Availability of the fund
Shares of the fund are available only through the purchase of variable annuity
or variable life insurance contracts issued by insurance companies through their
separate accounts.
The interests of different variable insurance products investing in the fund
could conflict due to differences of tax treatment and other considerations. The
company currently does not foresee any disadvantages to investors arising from
the fact that the fund may offer its shares to different insurance company
separate accounts that serve as the investment medium for their variable annuity
and variable life products. Nevertheless, the Board of Trustees intends to
monitor events to identify any material irreconcilable conflicts which may
arise, and to determine what action, if any, should be taken in response to
these conflicts. If a conflict were to occur, one or more insurance companies'
separate accounts might be required to withdraw their investments in the fund
and shares of another fund may be substituted. In addition, the sale of shares
may be suspended or terminated if required by law or regulatory authority or it
is in the best interests of the fund's shareholders.
Redemption of shares
The redemption price of the shares of the fund 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 after receipt of a
redemption request in good order, though redemption proceeds must be remitted to
a separate account on or before the third day following receipt of the request
in good order, except on a day on which the New York Stock Exchange ("NYSE") is
closed or as permitted by the SEC in extraordinary circumstances.
Frequent purchases and sales of fund shares
Frequent purchases and sales of Fund shares resulting from purchase, exchange or
withdrawal transactions by certain owners of variable annuity and variable life
insurance contracts ("contract owners") may harm other contract owners in
various ways. These include: (1) dilution of the interests of long-term contract
owners where frequent traders attempt to take advantage of market fluctuations
that are not fully reflected in the Fund's NAV; (2) disruption of ordinary
portfolio management, such as by necessitating that the Fund maintain a cash
level higher than would otherwise be necessary or that the Fund sell securities
prematurely or at inopportune times in order to generate cash to meet redemption
requests; and (3) increased Fund costs, such as brokerage commissions. The Fund
does not knowingly accommodate such frequent purchases and sales, and, to the
Fund's knowledge there are no arrangements currently in place to allow or permit
any contract owner to engage in trading beyond what is allowed under the
applicable variable annuity or variable life insurance contract.
However, the Fund's shares are offered exclusively to separate accounts of
insurance companies ("Company"), and the Fund generally has little or no access
to the transaction records of individual contract owners whose assets are
invested in the separate accounts. Nonetheless, the Trust's Board of Trustees
has adopted policies and procedures to discourage market timing while taking
these circumstances into account. Specifically, the policies and procedures
require that the Fund request written certifications from each Company at least
annually specifying that: (1) the Company has instituted policies and procedures
reasonably designed to detect and deter the use of the separate accounts for
frequent trading; (2) the Company's policies and procedures address the level of
trading that will be considered excessive and the Company monitors contract
owner transactions to identify excessive trading; and (3) the Company applies
such procedures uniformly.
The applicable variable annuity or variable life insurance contract prospectus
contains a more detailed description of the Companies' policies and procedures
with respect to frequent trading. There is significant risk that the policies
and procedures of the Fund and the Companies will prove ineffective and that
excessive trading in Fund shares will occur which may result in the adverse
consequences to contract owners described above. The Fund may alter its policies
and procedures at any time without prior notice to shareholders or contract
owners.
10
Share Price
The fund's net asset value is the value of its assets minus its liabilities
divided by the number of shares outstanding. The fund calculates its net asset
value every day the NYSE is open. This calculation is done when regular trading
closes on the NYSE (normally 4:00 p.m., Eastern time). If the NYSE closes early,
the fund accelerates the calculation of its net asset value to the actual
closing time. The NYSE is closed on certain holidays listed in the SAI.
11
The Board of Directors has approved procedures to be used to value the fund's
securities for the purposes of determining the fund's net asset value. The
valuation of the securities of the fund is determined in good faith by or under
the direction of the Board of Directors. The Board of Directors has delegated
certain valuation functions for the fund to the manager.
The fund generally values its securities based on market prices determined at
the close of regular trading on the NYSE. The fund's currency valuations, if
any, are done as of when the London stock exchange closes, which is usually at
12 noon Eastern time. For equity securities that are traded on an exchange, the
market price is usually the closing sale or official closing price on that
exchange. In the case of securities not traded on an exchange, or if such
closing prices are not otherwise available, the market price is typically
determined by independent third party pricing vendors approved by the fund's
Board using a variety of pricing techniques and methodologies. The market price
for debt obligations is generally the price supplied by an independent third
party pricing service approved by the fund's board, which may use a matrix,
formula or other objective method that takes into consideration market indices,
yield curves and other specific adjustments. Short-term debt obligations that
will mature in 60 days or less are valued at amortized cost, unless it is
determined that using this method would not reflect an investment's fair value.
If vendors are unable to supply a price, or if the price supplied is deemed by
the manager to be unreliable, the market price may be determined using
quotations received from one or more brokers/dealers that make a market in the
security. When such prices or quotations are not available, or when the manager
believes that they are unreliable, the manager may price securities using fair
value procedures approved by the Board. The fund may also use fair value
procedures if the manager determines that a significant event has occurred
between the time at which a market price is determined and the time at which the
fund's net asset value is calculated. In particular, the value of foreign
securities may be materially affected by events occurring after the close of the
market on which they are valued, but before the fund prices its shares. The fund
uses a fair value model developed by an independent third party pricing service
to price foreign equity securities on days when there is a certain percentage
change in the value of a domestic equity security index, as such percentage may
be determined by the manager from time to time.
Valuing securities at fair value involves greater reliance on judgment than
valuation of securities based on readily available market quotations. A fund
that uses fair value to price securities may value those securities higher or
lower than another fund using market quotations or its own fair value
methodologies to price the same securities. There can be no assurance that the
fund could obtain the fair value assigned to a security if it were to sell the
security at approximately the time at which the fund determines its net asset
value.
Dividends, Distributions and Taxes
The fund intends to qualify each as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986 (the "Code"), as amended. In
order to qualify as a regulated investment company, the fund must meet certain
income and asset diversification tests and distribution requirements. As a
regulated investment company meeting these requirements, the fund will not be
subject to Federal income tax on its net investment income and net capital gains
that it distributes to its shareholders. All income and capital gain
distributions are automatically reinvested in additional shares of the fund at
net asset value and are includable in gross income of the separate accounts
holding 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.
Each separate account is also subject to asset diversification requirements for
the contracts under 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 separate account may be represented by any one investment, no more
than 70% by any two investments, no more than 80% by any three investments, and
no more than 90% by any four investments. For this purpose, all securities of
the same issuer are considered a single investment. An alternative asset
diversification test may be satisfied under certain circumstances. If the
separate account should fail to comply with these regulations or the fund fails
to qualify for the special tax treatment afforded regulated investment companies
under the Code, Contracts invested in the fund would not be treated as annuity,
endowment or life insurance contracts under the Code.
12
Financial Highlights
Subject to the approval of the Predecessor Fund's shareholders, on or about June
30, 2005, the fund will acquire all the assets and assume all the liabilities of
the Predecessor Fund. Prior to the date of this prospectus, the fund had no
assets or investment operations.
The financial highlights table is intended to help you understand the
performance of the fund for the past five years. The information in the
following table has been derived from the Predecessor Fund's financial
statements and was audited by KPMG LLP, independent registered public accounting
firm, whose report, along with the Predecessor Fund's financial statements, is
included in the annual report (available upon request). Certain information
reflects financial results for a single share. Total returns represent the rate
that a shareholder would have earned (or lost) on a share of a fund assuming
reinvestment of all dividends and distributions. Total returns do not reflect
expenses associated with the separate account such as administrative fees,
account charges and surrender charges which, if reflected, would reduce the
total returns for all periods shown.
For a share of capital stock outstanding throughout each year ended October 31.
AIM Capital Appreciation Portfolio
- -------------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 9.63 $ 8.04 $ 9.11 $ 21.73 $ 16.30
- -------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment loss (0.02) (0.02) (0.03) (0.02) (0.07)
Net realized and unrealized gain
(loss) 0.37 1.61 (1.04) (8.72) 6.03
- -------------------------------------------------------------------------------------------------------
Total income (loss) from operations 0.35 1.59 (1.07) (8.74) 5.96
- -------------------------------------------------------------------------------------------------------
Less distributions from:
Net realized gains -- -- -- (3.88) (0.53)
- -------------------------------------------------------------------------------------------------------
Total distributions -- -- -- (3.88) (0.53)
- -------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 9.98 $ 9.63 $ 8.04 $ 9.11 $ 21.73
- -------------------------------------------------------------------------------------------------------
Total return (1) 3.63% 19.78% (11.75)% (43.36)% 36.53%
- -------------------------------------------------------------------------------------------------------
Net assets, end of year (millions) $ 234 $ 178 $ 172 $ 224 $ 435
- -------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.85%(2) 0.85% 0.85% 0.83% 0.83%
Net investment loss (0.18) (0.25) (0.28) (0.20) (0.35)
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate 71% 49% 65% 77% 91%
- -------------------------------------------------------------------------------------------------------
(1) Performance figures may reflect fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of fee
waivers and/or expense reimbursements, the total return would have been
lower.
(2) The investment manager waived a portion of its management fee for the year
ended October 31, 2004. The actual expense ratios did not change due to
these waivers.
13
The Travelers Series Trust
Additional Information
Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that significantly affected the
fund's performance.
Statement of additional information. The Statement of Additional Information
(SAI) provides more detailed information about the fund. It is incorporated by
reference into this Prospectus.
You can make inquiries about the fund or obtain shareholder reports or the SAI
(without charge) by calling 1-800-842-9368 or writing to The Travelers Series
Trust, One Cityplace, Hartford, CT 06103. As of the date of this Prospectus, the
Fund's SAI and shareholder reports are not available on the Fund's website,
because the Fund has not yet commenced operations. In the future, the Fund may
make its SAI and shareholder reports available on its website.
Information about the fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's (the "Commission") Public Reference Room in
Washington, D.C. In addition, information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Database
on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: publicinfo@sec.gov, or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. The fund is not offering to sell its
shares to any person to whom the funds may not lawfully sell its shares.
AIM Capital Appreciation Portfolio
(Investment Company Act file no. 811-6465)
Appendix B-3
The Travelers Series Trust
Prospectus
May 21, 2005
VAN KAMPEN ENTERPRISE PORTFOLIO
INVESTMENT PRODUCTS: NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
Shares of the fund are offered only to insurance company Separate Accounts which
fund certain variable annuity and variable life insurance contracts. This
prospectus should be read together with the prospectus for those contracts.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
Contents
The Travelers Series Trust consists of 29 separate investment funds, each with
its own investment objective and policies. This Prospectus relates to one of
those funds. Each of the 29 funds offers different levels of potential return
and involves different levels of risk.
Page
----
Investments, Risks and Performance 2
More on the Fund's Investments and Related Risks 5
Management 8
Share Transactions 10
Share Price 11
Dividends, Distributions and Taxes 12
Financial Highlights 13
Investments, Risks and Performance
Van Kampen Enterprise Portfolio
Investment objective
Capital appreciation by investing in a portfolio of securities consisting
principally of common stocks.
Principal investment strategies
Key investments The fund invests primarily in common stocks of growth
companies.
Additional investments For information on the fund's additional investments
and related risks, please read pages 5-7.
Selection process
The subadviser seeks growth opportunities by investing in any
market capitalization range. The subadviser emphasizes growth
companies but may also invest in companies in cyclical industries
during periods when their securities appear attractive to the
subadviser for capital appreciation.
The subadviser looks for companies with a combination of strong
business fundamentals at an attractive valuation. These
characteristics include:
o Established records of growth in sales
o Established records of growth in earnings
o Entering a growth cycle with the expectation that the stock of the
company will increase in value
The subadviser may sell a security when it is advisable based on
the following factors:
o Change in economic or market factors in general or within a particular
industry
o Change in market trends or other factors affecting an individual
security
o Changes in the relative market performance or appreciation
possibilities of an individual security
o Other circumstances relating to the desirability of a given investment
2
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if any of the following occurs:
o The U.S. stock market declines.
o Large, small or medium capitalization companies fall out of favor with
investors.
o An adverse event, such as negative press reports about a company in the
fund's portfolio, depresses the value of the company's stock or industry.
o The subadviser's judgment about the attractiveness, value or potential
appreciation of a particular stock or industry proves to be incorrect.
o Key economic trends become materially unfavorable.
Compared to large capitalization companies, the securities of small and medium
capitalization companies are more likely to:
o Have more volatile share prices
o Have more limited product lines
o Have fewer capital resources
o Have more limited management depth
o Experience sharper swings in market prices
o Be harder to sell at times and prices the manager believes appropriate
o Offer greater potential for gains and losses
Many foreign countries in which the fund invests have markets that are less
liquid and more volatile than markets in the U.S. In some of the foreign
countries in which the fund invests, there is also less information available
about foreign issuers and markets because of less rigorous accounting and
regulatory standards than in the U.S. Currency fluctuations could erase
investment gains or add to investment losses. The risk of investing in foreign
securities is greater in the case of less developed countries.
The fund's investment objective is not fundamental, and its objective and
investment policies may be changed by the Trust's Board of Trustees without
approval of shareholders or holders of variable annuity and variable life
insurance contracts. A change in the 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.
3
Fund Performance
The performance shown in the bar chart, quarterly returns, and risk return table
shown below is for the fund's predecessor fund, Van Kampen Enterprise Portfolio,
a series of Travelers Series Fund ("Predecessor Fund"). The fund has entered
into an Agreement and Plan of Reorganization ("Reorganization"), which provides
that the fund will acquire all of the assets and assume all of the liabilities
of the Predecessor Fund. If the Reorganization is approved by Predecessor Fund
shareholders, the Predecessor Fund will be reorganized into the fund on or about
June 30, 2005. This bar chart indicates the risks of investing in the fund by
showing changes in the fund's performance from year to year. Past performance
does not necessarily indicate how the fund will perform in the future.
Performance figures do not reflect expenses incurred from investing through a
Separate Account. These expenses will reduce performance. Please refer to the
Separate Account prospectus for more information on expenses.
Quarterly returns: Highest: 25.03% in 4th quarter 1998; Lowest: -21.73% in 1st
quarter 2001
Risk return bar chart
[BAR CHART]
Total Return
The bar chart shows the performance of the fund's shares for each of the full
calendar years since its inception.
Risk Return Table
This table assumes redemption of shares at the end of the period and the
reinvestment of distributions and dividends.
Average annual total returns (for the periods ended December 31, 2004)
Inception Date 1 year Five years Ten years Since inception
Fund 6/16/94 3.88% (9.13)% 7.43% n/a
Russell Index 6.30% (9.29)% 9.59%
Comparative
performance
This table indicates the risk of investing in the fund by comparing the average
annual total return for the periods shown to that of the Russell 1000 Growth
Index ("Russell Index"). The Russell 1000 Growth Index measures the performance
of those Russell 1000 companies with higher price-to-book ratios and higher
forecasted growth values. An investor cannot invest directly in an index.
Fee Table
Shareholder fees (paid directly into your investment)
Maximum sales charge on purchases N/A
Maximum deferred sales charge on redemptions N/A
Annual fund operating expenses (paid by the Fund as a % of net assets)
Management fees 0.70%
Distribution and service (12b-1) fees None
Other expenses 0.10%
Total annual fund operating expenses 0.80%
Fees and Expenses
This table sets forth the fees and expenses you will pay if you invest in shares
of the fund. These fees and expenses do not reflect any of the fees and expenses
incurred from investing through a Separate Account. If such fees were included,
your costs would be higher.
Example
Number of years you owned your shares 1 year 3 years 5 years 10 years
Your costs would be $82 $255 $444 $990
The example assumes:
o You invest $10,000 for the period shown
o You reinvest all distributions and dividends without a sales
charge
o The fund's operating expenses (before fee waivers and/or expense
reimbursements, if any) remain the same
o Your investment has a 5% return each year--the assumption of a 5%
return is o required by the Securities and Exchange Commission
("SEC") for purposes of this example and is not a prediction of
the fund's future performance
o Redemption of your shares at the end of the period
This example helps you compare the cost of investing in the fund with other
mutual funds. Your actual cost may be higher or lower. The example does not
include expenses incurred from investing through a separate account. If the
example included these expenses, the figures shown would be higher.
4
More on the Fund's Investments and Related Risks
Additional investments and investment techniques
The section entitled "Investments, Risks and Performance" describes the fund's
investment objective and its principal investment strategies and risks. This
section provides some additional information about the fund's investments and
certain investment management techniques the fund may use. More information
about the fund's investments and portfolio management techniques, some of which
entail risk, is included in the Statement of Additional Information (SAI). To
find out how to obtain an SAI, please turn to the back cover of this prospectus.
Equity investments
The fund may invest in all types of equity securities. Equity securities include
exchange-traded and over-the-counter (OTC) common and preferred stocks,
warrants, rights, investment grade convertible securities, depositary receipts
and shares, trust certificates, limited partnership interests, shares of other
investment companies, real estate investment trusts and equity participations.
Fixed income investments
The fund may, to a limited extent, invest in fixed income securities. Fixed
income investments include bonds, notes (including structured notes),
mortgage-related securities, asset-backed securities, convertible securities,
Eurodollar and Yankee dollar instruments, preferred stocks and money market
instruments. Fixed income securities may be issued by U.S. and foreign
corporations or entities; U.S. and foreign banks; the U.S. government, its
agencies, authorities, instrumentalities or sponsored enterprises; state and
municipal governments; supranational organizations; and foreign governments and
their political subdivisions.
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.
5
Credit quality
If a security receives different ratings, the fund will treat the securities as
being rated in the highest rating category. The fund may choose not to sell
securities that are downgraded after their purchase below the fund's minimum
acceptable credit rating of investment grade. The fund's credit standards also
apply to counterparties to OTC derivatives contracts.
Investment grade securities
Securities are investment grade if:
o They are rated in one of the top four long-term rating categories of a
nationally recognized statistical rating organization.
o They have received a comparable short-term or other rating.
o They are unrated securities that the manager believes are of comparable
quality to investment grade securities.
Foreign and emerging market investments
The fund may invest up to 15% of its total assets in foreign securities.
Investments in securities of foreign entities and securities quoted or
denominated in foreign currencies involve special risks. These include possible
political and economic instability, and the possible imposition of exchange
controls or other restrictions on investments. If the fund invests in securities
denominated or quoted in currencies other than the U.S. dollar, changes in
foreign currency rates relative to the U.S. dollar will affect the U.S. dollar
value of the fund's assets.
Emerging market investments 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.
The Economic and Monetary Union (EMU) and the introduction of a single
European currency (the Euro), which began on January 1, 1999, may
increase uncertainties relating to investment in European markets.
Among other things, EMU entails sharing a single currency and official
interest rate and adhering to limits on government borrowing by
participating countries. EMU is driven by the expectation of economic
benefits however, there are significant risks associated with EMU.
Monetary and economic union on this scale has not been attempted
before, and there is uncertainty whether participating countries will
remain committed to EMU in the face of changing economic conditions.
6
Derivatives and hedging techniques
The fund may, but need not, use derivative contracts, such as futures and
options on securities, securities indices or currencies; options on these
futures; forward currency contracts; and interest rate or currency swaps for any
of the following purposes:
o To hedge against the economic impact of adverse changes in the market value
of its securities, because of changes in stock market prices, currency
exchange rates or interest rates
o As a substitute for buying or selling securities
o To enhance the fund's return
o As a cash flow management technique
A derivative contract will obligate or entitle the fund to deliver or receive an
asset or cash payment that is based on the change in value of one or more
securities, currencies or indices. Even a small investment in derivative
contracts can have a big impact on a fund's stock market, currency and interest
rate exposure. Therefore, using derivatives can disproportionately increase
losses and reduce opportunities for gains when stock prices, currency rates or
interest rates are changing. The fund may not fully benefit from or may lose
money on derivatives if changes in their value do not correspond accurately to
changes in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of credit risk as issuers of fixed
income securities. Derivatives can also make the fund less liquid and harder to
value, especially in declining markets.
Securities lending
The fund may engage in securities lending to increase its net investment income.
The fund will only lend securities if the loans are callable by the fund at any
time and the loans are continuously secured by cash or liquid securities equal
to no less than the market value, determined daily, of the securities loaned.
The risks in lending securities consist of possible delay in receiving
additional collateral, delay in recovery of securities when the loan is called
or possible loss of collateral should the borrower fail financially.
Defensive investing
The fund may depart from its principal investment strategies in response to
adverse market, economic or political conditions by taking temporary defensive
positions in any type of money market instrument and short-term debt securities
or cash. If the fund takes a temporary defensive position, it may be unable to
achieve its investment goal.
Portfolio turnover
The fund may engage in active and frequent trading to achieve its principal
investment strategies. Frequent trading also increases transaction costs, which
could detract from the fund's performance.
Portfolio holdings
The fund's policies and procedures with respect to the disclosure of the fund's
portfolio securities are described in the Statement of Additional Information
("SAI").
The fund may also use other strategies and invest in other securities that are
described, along with their risks, in the SAI. However, the fund might not use
all of the strategies and techniques or invest in all of the types of securities
described in this Prospectus or in the SAI. Also note that there are many other
factors, which are not described here, that could adversely affect your
investment and that could prevent the fund from achieving its goals.
7
Management
The manager
Travelers Investment Adviser Inc. ("TIA" or the "manager") is the fund's
manager. TIA has engaged a subadviser to select investments for the fund.
Travelers Investment Adviser Inc.
TIA is a wholly owned subsidiary of Plaza LLC ("Plaza"), which is an indirect
wholly owned subsidiary of Citigroup Inc. ("Citigroup") TIA is located at 399
Park Avenue, New York, New York 10022. TIA acts as investment manager to
investment companies having aggregate assets of approximately $2.77 billion as
of December 31, 2004.
On January 31, 2005, Citigroup announced that it had reached an agreement with
MetLife, Inc. ("MetLife") to sell Citigroup's life insurance and annuity
businesses ("Travelers Life & Annuity") to MetLife. As part of this transaction,
TIA, the fund's investment adviser and currently an indirect wholly owned
subsidiary of Citigroup, would become an indirect wholly owned subsidiary of
MetLife. The transaction is subject to certain regulatory approvals and other
customary conditions to closing. The transaction is expected to close this
summer.
Citigroup affiliates, including their directors, officers or employees, may have
banking or investment banking relationships with the issuers of securities that
are held in the fund. They may also own the securities of these issuers.
However, in making investment decisions for the fund, TIA does not obtain or use
inside information acquired by any division, department or affiliate of
Citigroup in the course of those relationships. To the extent a fund acquires
securities from an issuer that has a borrowing or other relationship with
Citigroup or its affiliates, the proceeds of the purchase may be used to repay
such borrowing or otherwise benefit Citigroup and/or its affiliates.
Fees TIA receives from the fund for its services are as follows:
Actual management fee
paid for the fiscal year Contractual management
ended October 31, 2004 fee paid
(as a percentage (as a percentage
of the fund's of the fund's
Fund average daily net assets) average daily net assets)
- --------------------------------------------------------------------------------
Van Kampen Enterprise
Portfolio 0.70% 0.70%
The Portfolio Manager
The fund's investments are selected by a subadviser which is supervised by TIA.
The table below sets forth the names and business experience of the fund's
portfolio managers.
Van Kampen Enterprise Portfolio Systematic Strategies Group of
Van Kampen Asset
Management
Van Kampen Asset Management Inc.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
Sandip Bhagat (team leader) Managing Director, Van
(since 2004) Kampen Asset Management.
Van Kampen Asset Management Executive Director, Van
Feng Chang (since 2004) Kampen Asset Management.
Van Kampen Asset Management Executive Director, Van
Kevin Jung (since 2004) Kampen Asset Management.
Van Kampen Asset Management Executive Director,
Leah Modigliani (since 2004) Van Kampen Asset Management
Van Kampen Asset Management Executive Director, Van
Hooman Yaghoobi (since 2004) Kampen Asset Management
Van Kampen Asset Management
Under an exemptive order from the Securities and Exchange Commission, the
manager, subject to certain conditions, and without the approval of shareholders
may: (a) employ a new unaffiliated investment subadviser for the fund pursuant
to the terms of a new investment subadvisory agreement, in each case either as a
replacement for an existing subadviser; or as an additional subadviser; or as a
new subadviser where no subadviser had previously been retained; (b) change the
terms of any investment subadvisory agreement; and (c) continue the employment
of an existing subadvisor on the same subadvisory contract terms where a
contract has been assigned because of a change in control of the subadvisor.
When a new or replacement subadviser is retained, shareholders will receive
notice of such action, including the information concerning the new subadviser
that normally is provided in a proxy statement.
8
Transfer Agent and Shareholder Servicing Agent
Citicorp Trust Bank, fsb ("CTB") serves as the fund's transfer agent and
shareholder servicing agent (the "transfer agent"). The transfer agent has
entered into a sub-transfer agency and services agreement with PFPC Inc. to
serve as the fund's sub-transfer agent (the "sub-transfer agent"). The
sub-transfer agent will perform certain shareholder recordkeeping and accounting
services.
Additional information about the subadviser
Van Kampen Asset Management is a wholly owned subsidiary of Van Kampen
Investments ("Van Kampen"). Van Kampen is a diversified asset management
company. Van Kampen has more than $431 billion under management or supervision
as of December 31, 2004.
Recent Developments
In connection with an investigation previously disclosed by Citigroup, the Staff
of the Securities and Exchange Commission (SEC) has notified Citigroup Asset
Management (CAM), the Citigroup business unit that includes the funds'
investment manager and other investment advisory companies; Citicorp Trust Bank
(CTB), an affiliate of CAM; Thomas W. Jones, the former CEO of CAM; and three
other individuals, one of whom is an employee and two of whom are former
employees of CAM, that the SEC Staff is considering recommending a civil
injunctive action and/or an administrative proceeding against each of them
relating to the creation and operation of an internal transfer agent unit to
serve various CAM-managed funds.
In 1999, CTB entered the transfer agent business. CTB hired an unaffiliated
subcontractor to perform some of the transfer agent services. The subcontractor,
in exchange, had signed a separate agreement with CAM in 1998 that guaranteed
investment management revenue to CAM and investment banking revenue to a CAM
affiliate. The subcontractor's business was later taken over by PFPC Inc., and
at that time the revenue guarantee was eliminated and a one-time payment was
made by the subcontractor to a CAM affiliate.
CAM did not disclose the revenue guarantee when the boards of various
CAM-managed funds hired CTB as transfer agent. Nor did CAM disclose to the
boards of the various CAM-managed funds the one-time payment received by the CAM
affiliate when it was made. As previously disclosed, CAM has already paid the
applicable funds, primarily through fee waivers, a total of approximately $17
million (plus interest) that is the amount of the revenue received by Citigroup
relating to the revenue guarantee.
In addition, the SEC Staff has indicated that it is considering recommending
action based on the adequacy of the disclosures made to the fund boards that
approved the transfer agency arrangement, CAM's initiation and operation of, and
compensation for, the transfer agent business and CAM's retention of, and
agreements with, the subcontractor.
Citigroup is cooperating fully in the SEC's investigation and is seeking to
resolve the matter in discussions with the SEC staff. On January 20, 2005,
Citigroup stated that it had established an aggregate reserve of $196 million
($25 million in the third quarter of 2004 and $171 million in the fourth quarter
of 2004) related to its discussions with the SEC Staff. Settlement negotiations
are on going and any settlement of this matter with the SEC will require
approval by the Citigroup Board and acceptance by the Commission.
9
Unless and until any settlement is consummated, there can be no assurance that
any amount reserved by Citigroup will be distributed. Nor is there at this time
any certainty as to how the proceeds of any settlement would be distributed, to
whom any such distribution would be made, the methodology by which such
distribution would be allocated, and when such distribution would be made.
Although there can be no assurance, Citigroup does not believe that this matter
will have a material adverse effect on the funds.
Share Transactions
Availability of the fund
Shares of the fund are available only through the purchase of variable annuity
or variable life insurance contracts issued by insurance companies through their
separate accounts.
The interests of different variable insurance products investing in the fund
could conflict due to differences of tax treatment and other considerations. The
company currently does not foresee any disadvantages to investors arising from
the fact that the fund may offer its shares to different insurance company
separate accounts that serve as the investment medium for their variable annuity
and variable life products. Nevertheless, the Board of Trustees intends to
monitor events to identify any material irreconcilable conflicts which may
arise, and to determine what action, if any, should be taken in response to
these conflicts. If a conflict were to occur, one or more insurance companies'
separate accounts might be required to withdraw their investments in the fund
and shares of another fund may be substituted. In addition, the sale of shares
may be suspended or terminated if required by law or regulatory authority or it
is in the best interests of the fund's shareholders.
Redemption of shares
The redemption price of the shares of the fund 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 after receipt of a
redemption request in good order, though redemption proceeds must be remitted to
a separate account on or before the third day following receipt of the request
in good order, except on a day on which the New York Stock Exchange ("NYSE") is
closed or as permitted by the SEC in extraordinary circumstances.
Frequent purchases and sales of fund shares
Frequent purchases and sales of Fund shares resulting from purchase, exchange or
withdrawal transactions by certain owners of variable annuity and variable life
insurance contracts ("contract owners") may harm other contract owners in
various ways. These include: (1) dilution of the interests of long-term contract
owners where frequent traders attempt to take advantage of market fluctuations
that are not fully reflected in the Fund's NAV; (2) disruption of ordinary
portfolio management, such as by necessitating that the Fund maintain a cash
level higher than would otherwise be necessary or that the Fund sell securities
prematurely or at inopportune times in order to generate cash to meet redemption
requests; and (3) increased Fund costs, such as brokerage commissions. The Fund
does not knowingly accommodate such frequent purchases and sales of Fund shares,
and, to the Fund's knowledge there are no arrangements currently in place to
allow or permit any contract owner to engage in trading beyond what is allowed
under the applicable variable annuity or variable life insurance contract.
However, the Fund's shares are offered exclusively to separate accounts of
insurance companies ("Company"), and the Fund generally has little or no access
to the transaction records of individual contract owners whose assets are
invested in the separate accounts. Nonetheless, the Trust's Board of Trustees
has adopted policies and procedures to discourage market timing while taking
these circumstances into account. Specifically, the policies and procedures
require that the Fund request written certifications from each Company at least
annually specifying that: (1) the Company has instituted policies and procedures
reasonably designed to detect and deter the use of the separate accounts for
frequent trading; (2) the Company's policies and procedures address the level of
trading that will be considered excessive and the Company monitors contract
owner transactions to identify excessive trading; and (3) the Company applies
such procedures uniformly.
The applicable variable annuity or variable life insurance contract prospectus
contains a more detailed description of the Companies' policies and procedures
with respect to frequent trading. There is significant risk that the policies
and procedures of the Fund and the Companies will prove ineffective and that
excessive trading in Fund shares will occur, which may result in the adverse
consequences to contract owners described above. The Fund may alter its policies
and procedures at any time without prior notice to shareholders or contract
owners.
10
Share Price
The fund's net asset value is the value of its assets minus its liabilities
divided by the number of shares outstanding. The fund calculates its net asset
value every day the NYSE is open. This calculation is done when regular trading
closes on the NYSE (normally 4:00 p.m., Eastern time). If the NYSE closes early,
the fund accelerates the calculation of its net asset value to the actual
closing time. The NYSE is closed on certain holidays listed in the SAI.
The fund generally values its securities based on market prices determined at
the close of regular trading on the NYSE. The fund's currency valuations, if
any, are done as of when the London stock exchange closes, which is usually at
12 noon Eastern time. For equity securities that are traded on an exchange, the
market price is usually the closing sale or
11
official closing price on that exchange. In the case of securities not traded on
an exchange, or if such closing prices are not otherwise available, the market
price is typically determined by independent third party pricing vendors
approved by the fund's Board using a variety of pricing techniques and
methodologies. The market price for debt obligations is generally the price
supplied by an independent third party pricing service approved by the fund's
board, which may use a matrix, formula or other objective method that takes into
consideration market indices, yield curves and other specific adjustments.
Short-term debt obligations that will mature in 60 days or less are valued at
amortized cost, unless it is determined that using this method would not reflect
an investment's fair value. If vendors are unable to supply a price, or if the
price supplied is deemed by the manager to be unreliable, the market price may
be determined using quotations received from one or more brokers/dealers that
make a market in the security.
When such prices or quotations are not available, or when the manager believes
that they are unreliable, the manager may price securities using fair value
procedures approved by the Board. The fund may also use fair value procedures if
the manager determines that a significant event has occurred between the time at
which a market price is determined and the time at which the fund's net asset
value is calculated. In particular, the value of foreign securities may be
materially affected by events occurring after the close of the market on which
they are valued, but before the fund prices its shares. The fund uses a fair
value model developed by an independent third party pricing service to price
foreign equity securities on days when there is a certain percentage change in
the value of a domestic equity security index, as such percentage may be
determined by the manager from time to time.
Valuing securities at fair value involves greater reliance on judgment than
valuation of securities based on readily available market quotations. A fund
that uses fair value to price securities may value those securities higher or
lower than another fund using market quotations or its own fair value
methodologies to price the same securities. There can be no assurance that the
fund could obtain the fair value assigned to a security if it were to sell the
security at approximately the time at which the fund determines its net asset
value.
Dividends, Distributions and Taxes
The fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986 (the "Code"), as amended. In
order to qualify as a regulated investment company, the fund must meet certain
income and asset diversification tests and distribution requirements. As a
regulated investment company meeting these requirements, the fund will not be
subject to Federal income tax on its net investment income and net capital gains
that it distributes to its shareholders. All income and capital gain
distributions are automatically reinvested in additional shares of the fund at
net asset value and are includable in gross income of the separate accounts
holding 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.
Each separate account is also subject to asset diversification requirements for
the contracts under 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 separate account may be represented by any one investment, no more
than 70% by any two investments, no more than 80% by any three investments, and
no more than 90% by any four investments. For this purpose, all securities of
the same issuer are considered a single investment. An alternative asset
diversification test may be satisfied under certain circumstances. If the
separate account should fail to comply with these regulations or the fund fails
to qualify for the special tax treatment afforded regulated investment companies
under the Code, contracts invested in the fund would not be treated as annuity,
endowment or life insurance contracts under the Code.
12
Financial Highlights
Subject to the approval of the Predecessor Fund's shareholders, on or about June
30, 2005, the fund will acquire all the assets and assume all the liabilities of
the Predecessor Fund. Prior to the date of this prospectus, the fund had no
assets or investment operations.
The financial highlights table is intended to help you understand the
performance of the fund for the past five years. The information in the
following table has been derived from the Predecessor Fund's financial
statements and was audited by KPMG LLP, independent registered public accounting
firm, whose report, along with the Predecessor Fund's financial statements, is
included in the annual report (available upon request). Certain information
reflects financial results for a single share. Total returns represent the rate
that a shareholder would have earned (or lost) on a share of the fund assuming
reinvestment of all dividends and distributions. Total returns do not reflect
expenses associated with the separate account such as administrative fees,
account charges and surrender charges which, if reflected, would reduce the
total returns for all period shown.
For a share of capital stock outstanding throughout each year ended October 31.
Van Kampen Enterprise Portfolio
- ---------------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 11.03 $ 9.40 $ 11.81 $ 25.60 $25.52
- --------------------------------------------------------------------------------------------------------
Income (loss) operations: 0.03 0.01 0.05 0.03 (0.06)
Net investment income (loss)
Net realized and unrealized gain
(loss) (0.02) 1.67 (2.42) (9.05) 3.87
- --------------------------------------------------------------------------------------------------------
Total income (loss) from operations 0.01 1.68 (2.37) (9.02) 3.81
- --------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.02) (0.05) (0.04) (0.00)* (0.00)*
Net realized gains -- -- -- (4.77) (3.73)
- --------------------------------------------------------------------------------------------------------
Total distributions (0.02) (0.05) (0.04) (4.77) (3.73)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 11.02 $11.03 $ 9.40 $ 11.81 $25.60
- --------------------------------------------------------------------------------------------------------
Total return(1) 0.05% 17.93% (20.07)% (37.52)% 13.92%
- --------------------------------------------------------------------------------------------------------
Net assets, end of year (millions) $ 79 $ 97 $ 100 $ 165 $ 331
- --------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.80%(2) 0.80% 0.76% 0.74% 0.72%
Net investment income (loss) 0.26 0.13 0.30 0.18 (0.22)
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate 157% 123% 87% 107% 117%
- --------------------------------------------------------------------------------------------------------
(1) Performance figures may reflect fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of fee
waivers and/or expense reimbursements, the total return would be lower.
(2) The investment adviser waived a portion of its management fee for the year
ended October 31, 2004.The actual expense ratio did not change due to these
waivers.
* Amount represents less than $0.01 per share.
13
The Travelers Series Trust
Additional Information
Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that significantly affected the
fund's performance.
Statement of additional information. The Statement of Additional Information
(SAI) provides more detailed information about the fund. It is incorporated by
reference into this Prospectus.
You can make inquiries about the fund or obtain shareholder reports or the SAI
(without charge) by calling 1-800-842-9368 or writing to The Travelers Series
Trust, One Cityplace, Hartford, CT 06103. As of the date of this Prospectus, the
Fund's SAI and shareholder reports are not available on the Fund's website,
because the Fund has not yet commenced operations. In the future, the Fund may
make its SAI and shareholder reports available on its website.
Information about the fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's (the "Commission") Public Reference Room in
Washington, D.C. In addition, information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Database
on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: publicinfo@sec.gov, or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. The fund is not offering to sell its
shares to any person to whom the fund may not lawfully sell its shares.
Van Kampen Enterprise Portfolio
(Investment Company Act file no. 811-6465)
Appendix B-4
The Travelers Series Trust
Prospectus
May 21, 2005
MFS TOTAL RETURN PORTFOLIO
INVESTMENT PRODUCTS: NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE
VALUE
Shares of the fund are offered only to insurance company Separate Accounts which
fund certain variable annuity and variable life insurance contracts. This
prospectus should be read together with the prospectus for those contracts.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
Contents
The Travelers Series Trust (the "Company") consists of 29 separate investment
funds, each with its own investment objective and policies. This Prospectus
relates to one of those funds. Each of the 29 funds offers different levels of
potential return and involves different levels of risk.
Page
----
Investments, Risks and Performance 2
More on the Fund's Investments and Related Risks 6
Management 10
Share Transactions 13
Share Price 14
Dividends, Distributions and Taxes 15
Financial Highlights 16
Investments, Risks and Performance
MFS Total Return Portfolio
Investment objectives
Primary: Above average income (compared to a portfolio invested entirely in
equity securities) consistent with the prudent employment of capital.
Secondary: Growth of capital and growth of income.
Principal investment strategies
Key investments The fund invests in a broad range of equity and fixed income
securities of both U.S. and foreign issuers.
The fund's fixed income securities include corporate debt obligations of any
maturity, Brady bonds, U.S. Government securities, mortgage-backed securities,
zero-coupon bonds, deferred interest bonds and payment in kind bonds.
Credit quality: The fund's assets may consist of both investment grade and lower
quality securities. The fund may invest up to 20% of the fund's assets in
nonconvertible fixed income securities rated below investment grade or unrated
securities of equivalent quality.
Additional investments For information on the fund's additional investments and
related risks, please read pages 6-9.
Selection process
Under normal market conditions and depending on the subadviser's view of
economic and money market conditions, fiscal and monetary policy and
security values, the fund's assets will be allocated among fixed income and
equity investments within the following ranges:
o between 40% and 75% in equity securities
o at least 25% in non-convertible fixed income securities
Equity investments
The subadviser uses a "bottom up" investment approach in selecting
securities based on its fundamental analysis (such as an analysis of
earnings, cash flows, dividends, competitive position and management's
abilities) of an individual security's value. In selecting individual
equity securities for investment, the subadviser seeks companies:
o that are undervalued in the market relative to their long-term potential
because the market has overlooked them or because they are temporarily out
of favor in the market due to market declines, poor economic conditions or
adverse regulatory or other changes
o that generally have low price-to-book, price-to-sales and/or
price-to-earnings ratios
2
o with relatively large market capitalizations (i.e., market capitalizations
of $5 billion or more).
The subadviser also invests in convertible securities that generally
provide a fixed income stream and an opportunity to participate in an
increase in the market price of the underlying common stock.
Fixed income investments
The subadviser periodically assesses the three month outlook for
inflation rate changes, economic growth and other fiscal measures and
their effect on U.S. Treasury interest rates. Using that assessment,
the subadviser determines a probable difference between total returns
on U.S. Treasury securities and on other types of fixed income
securities and selects those securities the subadviser believes will
deliver favorable returns.
3
Principal risks of investing in the fund
While investing in a mix of equity and debt securities can bring added benefits,
it may also involve risks. Investors could lose money in the fund, or the fund
may not perform as well as other investments, if any of the following occurs:
o The subadviser's allocation of investments between equity and fixed income
securities results in missed attractive investment opportunities by
underweighting markets that generate significant returns or losses incurred
by overweighting markets that experience significant declines.
o The subadviser's judgment about the attractiveness, value or potential
appreciation of a particular security proves to be incorrect.
o Equity investments lose their value due to a decline in the U.S. stock
market.
o Value or large capitalization stocks are temporarily out of favor.
o An adverse event, such as negative press reports about a company in the
fund's portfolio, depresses the value of the company's stock.
o Key economic trends become materially unfavorable.
o Fixed income investments lose their value due to an increase in interest
rates.
o The issuer of a debt security in the fund defaults on its obligation to pay
principal or interest, has its credit rating downgraded by a rating
organization or is perceived by the market to be less creditworthy.
o It becomes necessary to enforce rights against the assets underlying
mortgage- and asset-backed securities even though the securities themselves
are subject to the same default risks as other fixed income securities.
o As a result of declining interest rates, the issuer of a security exercises
its right to prepay principal earlier than scheduled, forcing the fund to
reinvest in lower yielding securities. This is known as call risk.
o As a result of rising interest rates, the issuer of a security exercises
its right to pay principal later than scheduled, which will lock in a
below-market interest rate and reduce the value of the security. This is
known as extension risk.
o Interest rates change, because securities with longer maturities are more
sensitive to interest rate changes and may be more volatile.
The fund may invest in lower quality securities that are speculative and have
only an adequate capacity to pay principal and interest. These securities have a
higher risk of default, tend to be less liquid, and may be more difficult to
value. Changes in economic conditions or other circumstances are more likely to
lead issuers of these securities to have a weakened capacity to make principal
and interest payments.
Many foreign countries in which the fund invests have less liquid and more
volatile markets than in the U.S. In some of the foreign countries in which the
fund invests, there is also less information available about foreign issuers and
markets because of less rigorous accounting and regulatory standards than in the
U.S. Currency fluctuations could erase investment gains or add to investment
losses. The risk of investing in foreign securities is greater in the case of
less developed countries.
Impact of high portfolio turnover The fund may engage in active and frequent
trading to achieve its principal investment strategies. This may lead to the
realization and distribution to shareholders of higher capital gains, which
would increase their tax liability. Frequent trading also increases transaction
costs, which could detract from the fund's performance.
The fund's investment objective is not fundamental, and its objective and
investment policies may be changed by the Trust's Board of Trustees without
approval of shareholders or holders of variable annuity and variable life
insurance contracts. A change in the 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
Fund Performance
The performance shown in the bar chart, quarterly returns, and risk return table
shown below is for the fund's predecessor, MFS Total Return Portfolio, a series
of Travelers Series Fund ("Predecessor Fund"). The fund has entered into an
Agreement and Plan of Reorganization ("Reorganization"), which provides that the
fund will acquire all of the assets and assume all of the liabilities of the
Predecessor Fund. If the Reorganization is approved by Predecessor Fund
shareholders, the Predecessor Fund will be reorganized into the fund on or about
June 30, 2005. This bar chart indicates the risks of investing in the fund by
showing changes in the fund's performance from year to year. Past performance
does not necessarily indicate how the fund will perform in the future.
Performance figures do not reflect expenses incurred from investing through a
Separate Account. These expenses will reduce performance. Please refer to the
Separate Account prospectus for more information on expenses.
Quarterly returns: Highest: 10.60% in 2nd quarter 2003; Lowest: -8.32% in 3rd
quarter 2002
Risk return bar chart
[BAR CHART]
Total Return
The bar chart shows the performance of the fund's shares for each of the full
calendar years since its inception.
Risk Return Table
This table assumes redemption of shares at the end of the period and the
reinvestment of distributions and dividends.
Average annual total returns (for the periods ended December 31, 2004)
Inception Date 1 year Five years Ten years Since inception
Fund 6/16/94 11.46% 7.50% 11.12% n/a
S&P 500 10.87% (2.30)% 12.07% n/a
Lehman Brothers
Aggregate
Index 4.34% 7.71% 7.72% n/a
Comparative performance
This table indicates the risk of investing in the fund by comparing the average
annual total return for the periods shown to that of the S&P 500 Index, a
market-value weighted index comprised of 500 widely held common stocks, the
Lehman Brothers Aggregate Bond Index ("Lehman Brothers Aggregate Index"), a
broad-based unmanaged index comprised of issues of U.S. Treasuries, Agencies,
Corporate Bonds and Mortgage-Backed Securities. Please note that an investor
cannot invest directly in an index.
Fee Table
Shareholder fees (paid directly into your investment)
Maximum sales charge on purchases None
Maximum deferred sales charge on redemptions None
Annual fund operating expenses (paid by the Fund as a % of net assets)
Management fees* 0.79%
Distribution and service (12b-1) fees None
Other expenses 0.02%
Total annual fund operating expenses 0.81%
* Effective November 1, 2004, the fund has a fee schedule that reduces the
management fee payable on assets in excess of $600 million as follows: 0.80% on
assets up to $600 million; 0.775% on assets in excess of $600 million and up to
and including $900 million; 0.75% on assets in excess of $900 million and up to
and including $1.5 billion; 0.725% on assets in excess of $1.5 billion and up to
and including $2.5 billion; and 0.675% on assets in excess of $2.5 billion.
Effective February 25, 2005, for purposes of meeting the various asset levels
and determining an effective fee rate, the combined average daily net assets of
the fund and two other portfolios of The Travelers Series Trust Subadvised by
MFS are used in performing the calculation.
Fees and Expenses
This table sets forth the fees and expenses you will pay if you invest in shares
of the fund. These fees and expenses do not reflect any of the fees and expenses
incurred from investing through a Separate Account. If such fees were included,
your costs would be higher.
Example
Number of years you owned your shares 1 year 3 years 5 years 10 years
Your costs would be $ 83 $ 259 $ 450 $ 1,002
The example assumes:
o You invest $10,000 for the period shown
o You reinvest all distributions and dividends without a sales charge
o The fund's operating expenses (before fee waivers and/or expense
reimbursements, if any) remain the same
o Your investment has a 5% return each year--the assumption of a 5% return is
required by the Securities and Exchange Commission ("SEC") for purposes of
this example and is not a prediction of the fund's future performance
o Redemption of your shares at the end of the period
This example helps you compare the cost of investing in the fund with other
mutual funds. Your actual cost may be higher or lower. The example does not
include expenses incurred from investing through a separate account. If the
example included these expenses, the figures shown would be higher.
5
More on the Fund's Investments and Related Risks
Additional investments and investment techniques
The section entitled "Investments, Risks and Performance" describes the fund's
investment objectives and its principal investment strategies and risks. This
section provides some additional information about the fund's investments and
certain investment management techniques the fund may use. More information
about the fund's investments and portfolio management techniques, some of which
entail risk, is included in the Statement of Additional Information (SAI). To
find out how to obtain an SAI, please turn to the back cover of this prospectus.
The fund may invest without limit in ADRs and up to 20% of its total assets in
foreign securities.
Equity investments
Subject to its particular investment policies, the fund may invest in all types
of equity securities. Equity securities include exchange-traded and
over-the-counter (OTC) common and preferred stocks, warrants, rights, investment
grade convertible securities, depositary receipts and shares, trust
certificates, limited partnership interests, shares of other investment
companies, real estate investment trusts and equity participations.
Fixed income investments
Subject to its particular investment policies, the fund may invest in fixed
income securities. Fixed income investments include bonds, notes (including
structured notes), mortgage-related securities, asset-backed securities,
convertible securities, Eurodollar and Yankee dollar instruments, preferred
stocks and money market instruments. Fixed income securities may be issued by
U.S. and foreign corporations or entities; U.S. and foreign banks; the U.S.
government, its agencies, authorities, instrumentalities or sponsored
enterprises; state and municipal governments; supranational organizations; and
foreign governments and their political subdivisions.
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 fund may invest in mortgage-backed and asset-backed securities.
Mortgage-related securities may be issued by private companies or by agencies of
the U.S. government and represent direct or indirect participations in, or are
collateralized by and payable from, mortgage loans secured by real property.
Asset-backed securities represent participations in, or are secured by and
payable from, assets such as installment sales or loan contracts, leases, credit
card receivables and other categories of receivables.
6
Credit quality
If a security receives different ratings, the fund will treat the securities as
being rated in the highest rating category. The fund may choose not to sell
securities that are downgraded after their purchase below the fund's minimum
acceptable credit rating. The fund's credit standards also apply to
counterparties to OTC derivatives contracts.
Investment grade securities
Securities are investment grade if:
o They are rated in one of the top four long-term rating categories of a
nationally recognized statistical rating organization.
o They have received a comparable short-term or other rating.
o They are unrated securities that the manager believes are of comparable
quality to investment grade securities.
High yield, lower quality securities
The fund may invest in fixed income securities that are high yield, lower
quality securities rated by a rating organization below its top four long-term
rating categories or unrated securities determined by the manager or subadviser
to be of equivalent quality. The issuers of lower quality bonds may be highly
leveraged and have difficulty servicing their debt, especially during prolonged
economic recessions or periods of rising interest rates. The prices of lower
quality securities are volatile and may go down due to market perceptions of
deteriorating issuer credit-worthiness or economic conditions. Lower quality
securities may become illiquid and hard to value in declining markets.
Foreign and emerging market investments
The fund may invest in foreign securities.
Investments in securities of foreign entities and securities quoted or
denominated in foreign currencies involve special risks. These include possible
political and economic instability and the possible imposition of exchange
controls or other restrictions on investments. If the fund invests in securities
denominated or quoted in currencies other than the U.S. dollar, changes in
foreign currency rates relative to the U.S. dollar will affect the U.S. dollar
value of the fund's assets.
Emerging market investments 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.
The Economic and Monetary Union (EMU) and the introduction of a single European
currency (the Euro), which began on January 1, 1999, may increase uncertainties
relating to investment in European markets. Among other things, EMU entails
sharing a single currency and official interest rate and adhering to limits on
government borrowing by participating countries. EMU is driven by the
expectation of economic benefits; however, there are significant risks
associated with EMU. Monetary and economic union on this scale has not been
attempted before, and there is uncertainty whether participating countries will
remain committed to EMU in the face of changing economic conditions.
7
Sovereign government and supranational debt
The fund may invest in all types of fixed income securities of governmental
issuers in all countries, including emerging markets. These sovereign debt
securities may include:
o Fixed income securities issued or guaranteed by governments, governmental
agencies or instrumentalities and political subdivisions located in
emerging market countries.
o Participations in loans between emerging market governments and financial
institutions.
o Fixed income securities issued by government owned, controlled or sponsored
entities located in emerging market countries.
o Interests in entities organized and operated for the purpose of
restructuring the investment characteristics of instruments issued by any
of the above issuers.
o Brady Bonds.
o Fixed income securities issued by corporate issuers, banks and finance
companies located in emerging market countries.
o Fixed income securities issued by supranational entities such as the World
Bank or the European Economic Union (a supranational entity is a bank,
commission or company established or financially supported by the national
governments of one or more countries to promote reconstruction or
development).
Derivatives and hedging techniques
The fund may, but need not, use derivative contracts, such as futures and
options on securities, securities indices or currencies; options on these
futures; forward currency contracts; and interest rate or currency swaps for any
of the following purposes:
o To hedge against the economic impact of adverse changes in the market value
of its securities, because of changes in stock market prices, currency
exchange rates or interest rates
o As a substitute for buying or selling securities
o To enhance the fund's return
o As a cash flow management technique
A derivative contract will obligate or entitle the fund to deliver or receive an
asset or cash payment that is based on the change in value of one or more
securities, currencies or indices. Even a small investment in derivative
contracts can have a big impact on the fund's stock market, currency and
interest rate exposure. Therefore, using derivatives can disproportionately
increase losses and reduce opportunities for gains when stock prices, currency
rates or interest rates are changing. The fund may not fully benefit from or may
lose money on derivatives if changes in their value do not correspond accurately
to changes in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of credit risk as issuers of fixed
income securities. Derivatives can also make the fund less liquid and harder to
value, especially in declining markets.
8
Securities lending
The fund may engage in securities lending to increase its net investment income.
The fund will only lend securities if the loans are callable by the fund at any
time and the loans are continuously secured by cash or liquid securities equal
to no less than the market value, determined daily, of the securities loaned.
The risks in lending securities consist of possible delay in receiving
additional collateral, delay in recovery of securities when the loan is called
or possible loss of collateral should the borrower fail financially.
Defensive investing
The fund may depart from its principal investment strategies in response to
adverse market, economic or political conditions by taking temporary defensive
positions in any type of money market instrument and short-term debt securities
or cash. If the fund takes a temporary defensive position, it may be unable to
achieve its investment goal.
Portfolio turnover
The fund may engage in active and frequent trading to achieve its principal
investment strategies. Frequent trading also increases transaction costs, which
could detract from the fund's performance.
Portfolio holdings
The fund's policies and procedures with respect to the disclosure of the fund's
portfolio securities are described in the SAI.
The fund may also use other strategies and invest in other securities that are
described, along with their risks, in the Statement of Additional Information
("SAI"). However, the fund might not use all of the strategies and techniques or
invest in all of the types of securities described in this Prospectus or in the
SAI. Also note that there are many other factors, which are not described here,
that could adversely affect your investment and that could prevent the fund from
achieving its goals.
9
Management
The Manager
Travelers Investment Adviser Inc. ("TIA" for the "Manager") is the fund's
manager. TIA has engaged a subadviser to select investments for the fund.
Travelers Investment Adviser Inc.
TIA is a wholly owned subsidiary of Plaza LLC ("Plaza"), which is an indirect
wholly owned subsidiary of Citigroup Inc. ("Citigroup"). TIA is located at 399
Park Avenue, New York, New York 10022. TIA acts as investment manager to
investment companies having aggregate assets of approximately $2.77 billion as
of December 31, 2004.
On January 31, 2005, Citigroup announced that it had reached an agreement with
MetLife, Inc. ("MetLife") to sell Citigroup's life insurance and annuity
businesses ("Travelers Life & Annuity") to MetLife. As part of this transaction,
TIA, the fund's investment adviser and currently an indirect wholly owned
subsidiary of Citigroup, would become an indirect wholly owned subsidiary of
MetLife. The transaction is subject to certain regulatory approvals and other
customary conditions to closing. The transaction is expected to close this
summer.
Citigroup affiliates, including their directors, officers or employees, may have
banking or investment banking relationships with the issuers of securities that
are held in the fund. They may also own the securities of these issuers.
However, in making investment decisions for the fund, TIA does not obtain or use
inside information acquired by any division, department or affiliate of
Citigroup in the course of those relationships. To the extent a fund acquires
securities from an issuer that has a borrowing or other relationship with
Citigroup or its affiliates, the proceeds of the purchase may be used to repay
such borrowing or otherwise benefit Citigroup and/or its affiliates.
Fees TIA receives from the fund for its services are as follows:
Actual management fee
paid for the fiscal year Contractual management
ended October 31, 2004 fee paid
(as a percentage (as a percentage
of the fund's of the fund's
Fund average daily net assets) average daily net assets*)
- -----------------------------------------------------------------------------------
MFS Total Return
Portfolio 0.80%
- -----------------------------------------------------------------------------------
Up to $600 million 0.800%
- -----------------------------------------------------------------------------------
In excess of $600 million
and up to and
including $900 million 0.775%
- -----------------------------------------------------------------------------------
In excess of $900 million
and up to and
including $1.5 billion 0.750%
- -----------------------------------------------------------------------------------
In excess of $1.5 billion
and up to and
including $2.5 billion 0.725%
- -----------------------------------------------------------------------------------
In excess of $2.5 billion 0.675%
- -----------------------------------------------------------------------------------
* For purposes of meeting the various asset levels and determining an effective
fee rate, the combined average daily net assets of the fund and two other
portfolios for which an affiliate of TIA is Manager and Massachusetts Financial
Services Company is Subadviser are used in performing the calculation.
10
The Portfolio Manager
The fund's investments are selected by a subadviser which is supervised by TIA.
The table below sets forth the names and business experience of the fund's
portfolio managers.
MFS Total Return Portfolio Brooks Taylor (since 2004) Vice President, head of the
Manager of investment team portfolio management team and
Massachusetts Financial manager of the fund's equity
Services Company ("MFS") portion of the portfolio;
500 Boylston Street Affiliated with MFS since 1996.
Boston, MA 02116
Kenneth J. Enright (since 1999) Senior Vice President and
portfolio manager of the series'
equity portion; Affiliated with
MFS since 1999.
Steven R. Gorham (since 2002) Senior Vice President and
portfolio manager of the fund's
equity portion of the portfolio;
Affiliated with MFS since 1992.
Constantinos G. Mokas Senior Vice President and
(since 1998) portfolio manager of the series'
equity portion; Affiliated with
MFS since 1990.
Michael W. Roberge (since 2002) Senior Vice President and
portfolio manager of the fund's
fixed income portion of the fund's
portfolio; Affiliated with MFS
since 1996.
William J. Adams (since 2004) Vice President and portfolio
manager of the fund's fixed income
portion of the fund's portfolio;
Affiliated with MFS since 1997.
William Douglas (since 2004) Vice President and portfolio
manager of the fund's fixed income
portion of the fund's portfolio;
Affiliated with MFS since 1996.
Edward B. Baldini (since 2004) Vice President and portfolio
manager; Affiliated with MFS since
2000.
Alan T. Langsner (since 2004) Vice President and portfolio
manager of the fund's equity
portion of the portfolio;
Affiliated with MFS since 1998.
Katrina Mead (since 2004) Vice President and portfolio
manager; Affiliated with MFS since
1997.
11
Under an exemptive order from the Securities and Exchange Commission, the
manager, subject to certain conditions, and without the approval of shareholders
may: (a) employ a new unaffiliated investment subadviser for the fund pursuant
to the terms of a new investment subadvisory agreement, in each case either as a
replacement for an existing subadviser; or as an additional subadviser; or as a
new subadviser where no subadviser had previously been retained; (b) change the
terms of any investment subadvisory agreement; and (c) continue the employment
of an existing subadvisor on the same subadvisory contract terms where a
contract has been assigned because of a change in control of the subadvisor.
When a new or replacement subadviser is retained, shareholders will receive
notice of such action, including the information concerning the new subadviser
that normally is provided in a proxy statement.
Transfer Agent and Shareholder Servicing Agent
Citicorp Trust Bank, fsb ("CTB") serves as the fund's transfer agent and
shareholder servicing agent (the "transfer agent"). The transfer agent has
entered into a sub-transfer agency and services agreement with PFPC Inc. to
serve as the fund's sub-transfer agent (the "sub-transfer agent"). The
sub-transfer agent will perform certain shareholder recordkeeping and accounting
services.
Additional information about the subadviser
Massachusetts Financial Services Company ("MFS") and its predecessor
organizations have a history of money management dating from 1924. The MFS
organization manages approximately $146.2 billion as of December 31, 2004.
Recent Developments
In connection with an investigation previously disclosed by Citigroup, the Staff
of the Securities and Exchange Commission (SEC) has notified Citigroup Asset
Management (CAM), the Citigroup business unit that includes the funds'
investment manager and other investment advisory companies; Citicorp Trust Bank
(CTB), an affiliate of CAM; Thomas W. Jones, the former CEO of CAM; and three
other individuals, one of whom is an employee and two of whom are former
employees of CAM, that the SEC Staff is considering recommending a civil
injunctive action and/or an administrative proceeding against each of them
relating to the creation and operation of an internal transfer agent unit to
serve various CAM-managed funds.
In 1999, CTB entered the transfer agent business. CTB hired an unaffiliated
subcontractor to perform some of the transfer agent services. The subcontractor,
in exchange, had signed a separate agreement with CAM in 1998 that guaranteed
investment management revenue to CAM and investment banking revenue to a CAM
affiliate. The subcontractor's business was later taken over by PFPC Inc., and
at that time the revenue guarantee was eliminated and a one-time payment was
made by the subcontractor to a CAM affiliate.
CAM did not disclose the revenue guarantee when the boards of various
CAM-managed funds hired CTB as transfer agent. Nor did CAM disclose to the
boards of the various CAM-managed funds the one-time payment received by the CAM
affiliate when it was made. As previously disclosed, CAM has already paid the
applicable funds, primarily through fee waivers, a total of approximately $17
million (plus interest) that is the amount of the revenue received by Citigroup
relating to the revenue guarantee.
In addition, the SEC Staff has indicated that it is considering recommending
action based on the adequacy of the disclosures made to the fund boards that
approved the transfer agency arrangement, CAM's initiation and operation of, and
compensation for, the transfer agent business and CAM's retention of, and
agreements with, the subcontractor.
Citigroup is cooperating fully in the SEC's investigation and is seeking to
resolve the matter in discussions with the SEC staff. On January 20, 2005,
Citigroup stated that it had established an aggregate reserve of $196 million
($25 million in the third quarter of 2004 and $171 million in the fourth quarter
of 2004) related to its discussions with the SEC Staff. Settlement negotiations
are on going and any settlement of this matter with the SEC will require
approval by the Citigroup Board and acceptance by the Commission.
12
Unless and until any settlement is consummated, there can be no assurance that
any amount reserved by Citigroup will be distributed. Nor is there at this time
any certainty as to how the proceeds of any settlement would be distributed, to
whom any such distribution would be made, the methodology by which such
distribution would be allocated, and when such distribution would be made.
Although there can be no assurance, Citigroup does not believe that this matter
will have a material adverse effect on the funds.
Share Transactions
Availability of the fund
Shares of the fund are available only through the purchase of variable annuity
or variable life insurance contracts issued by insurance companies through their
separate accounts.
The interests of different variable insurance products investing in the fund
could conflict due to differences of tax treatment and other considerations. The
company currently does not foresee any disadvantages to investors arising from
the fact that the fund may offer its shares to different insurance company
separate accounts that serve as the investment medium for their variable annuity
and variable life products. Nevertheless, the Board of Trustees intends to
monitor events to identify any material irreconcilable conflicts which may
arise, and to determine what action, if any, should be taken in response to
these conflicts. If a conflict were to occur, one or more insurance companies'
separate accounts might be required to withdraw their investments in the fund
and shares of another fund may be substituted. In addition, the sale of shares
may be suspended or terminated if required by law or regulatory authority or it
is in the best interests of the fund's shareholders.
Redemption of shares
The redemption price of the shares of the fund 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 after receipt of a
redemption request in good order, though redemption proceeds must be remitted to
a separate account on or before the third day following receipt of the request
in good order, except on a day on which the New York Stock Exchange ("NYSE") is
closed or as permitted by the SEC in extraordinary circumstances.
Frequent purchases and sales of fund shares
Frequent purchases and sales of Fund shares resulting from purchase, exchange or
withdrawal transactions by certain owners of variable annuity and variable life
insurance contracts ("contract owners") may harm other contract owners in
various ways. These include: (1) dilution of the interests of long-term contract
owners where frequent traders attempt to take advantage of market fluctuations
that are not fully reflected in the Fund's NAV; (2) disruption of ordinary
portfolio management, such as by necessitating that the Fund maintain a cash
level higher than would otherwise be necessary or that the Fund sell securities
prematurely or at inopportune times in order to generate cash to meet redemption
requests; and (3) increased Fund costs, such as brokerage commissions. The Fund
does not knowingly accommodate such frequent purchases and sales of Fund shares,
and, to the Fund's knowledge there are no arrangements currently in place to
allow or permit any contract owner to engage in trading beyond what is allowed
under the applicable variable annuity or variable life insurance contract.
However, the Fund's shares are offered exclusively to separate accounts of
insurance companies ("Company"), and the Fund generally has little or no access
to the transaction records of individual contract owners whose assets are
invested in the separate accounts. Nonetheless, the Trust's Board of Trustees
has adopted policies and procedures to discourage market timing while taking
these circumstances into account. Specifically, the policies and procedures
require that the Fund request written certifications from each Company at least
annually specifying that: (1) the Company has instituted policies and procedures
reasonably designed to detect and deter the use of the separate accounts for
frequent trading; (2) the Company's policies and procedures address the level of
trading that will be considered excessive and the Company monitors contract
owner transactions to identify excessive trading; and (3) the Company applies
such procedures uniformly.
The applicable variable annuity or variable life insurance contract prospectus
contains a more detailed description of the Companies' policies and procedures
with respect to frequent trading. There is significant risk that the policies
and procedures of the Fund and the Companies will prove ineffective and that
excessive trading in Fund shares will occur, which may result in the adverse
consequences to contract owners described above. The Fund may alter its policies
and procedures at any time without prior notice to shareholders or contract
owners.
13
Share Price
The fund's net asset value is the value of its assets minus its liabilities
divided by the number of shares outstanding. The fund calculates its net asset
value every day the NYSE is open. This calculation is done when regular trading
closes on the NYSE (normally 4:00 p.m., Eastern time). If the NYSE closes early,
the fund accelerates the calculation of its net asset value to the actual
closing time. The NYSE is closed on certain holidays listed in the SAI.
The Board of Directors has approved procedures to be used to value the fund's
securities for the purposes of determining the fund's net asset value. The
valuation of the securities of the fund is determined in good faith by or under
the direction of the Board of Directors. The Board of Directors has delegated
certain valuation functions for the fund to the manager.
The fund generally values its securities based on market prices determined at
the close of regular trading on the NYSE. The fund's currency valuations, if
any, are done as of when the London stock exchange closes, which is usually at
12 noon Eastern time. For equity securities that are traded on an exchange, the
market price is usually the closing sale or
14
official closing price on that exchange. In the case of securities not traded on
an exchange, or if such closing prices are not otherwise available, the market
price is typically determined by independent third party pricing vendors
approved by the fund's Board using a variety of pricing techniques and
methodologies. The market price for debt obligations is generally the price
supplied by an independent third party pricing service approved by the fund's
board, which may use a matrix, formula or other objective method that takes into
consideration market indices, yield curves and other specific adjustments.
Short-term debt obligations that will mature in 60 days or less are valued at
amortized cost, unless it is determined that using this method would not reflect
an investment's fair value. If vendors are unable to supply a price, or if the
price supplied is deemed by the manager to be unreliable, the market price may
be determined using quotations received from one or more brokers/dealers that
make a market in the security. When such prices or quotations are not available,
or when the manager believes that they are unreliable, the manager may price
securities using fair value procedures approved by the Board. The fund may also
use fair value procedures if the manager determines that a significant event has
occurred between the time at which a market price is determined and the time at
which the fund's net asset value is calculated. In particular, the value of
foreign securities may be materially affected by events occurring after the
close of the market on which they are valued, but before the fund prices its
shares. The fund uses a fair value model developed by an independent third party
pricing service to price foreign equity securities on days when there is a
certain percentage change in the value of a domestic equity security index, as
such percentage may be determined by the manager from time to time.
Valuing securities at fair value involves greater reliance on judgment than
valuation of securities based on readily available market quotations. A fund
that uses fair value to price securities may value those securities higher or
lower than another fund using market quotations or its own fair value
methodologies to price the same securities. There can be no assurance that the
fund could obtain the fair value assigned to a security if it were to sell the
security at approximately the time at which the fund determines its net asset
value.
Dividends, Distributions and Taxes
The fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986 (the "Code"), as amended. In
order to qualify as a regulated investment company, the fund must meet certain
income and asset diversification tests and distribution requirements.
As a regulated investment company meeting these requirements, the fund will not
be subject to Federal income tax on its net investment income and net capital
gains that it distributes to its shareholders. All income and capital gain
distributions are automatically reinvested in additional shares of the fund at
net asset value and are includable in gross income of the separate accounts
holding 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.
Each separate account is also subject to asset diversification requirements for
the contracts under 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 separate acount may be represented by any one investment, no more
than 70% by any two investments, no more than 80% by any three investments, and
no more than 90% by any four investments. For this purpose, all securities of
the same issuer are considered a single investment. An alternative asset
diversification test may be satisfied under certain circumstances. If the
separate account should fail to comply with these regulations or the fund fails
to qualify for the special tax treatment afforded regulated investment companies
under the Code, Contracts invested in the fund would not be treated as annuity,
endowment or life insurance contracts under the Code.
15
Financial Highlights
Subject to the approval of the Predecessor Fund's shareholders, on or about June
30, 2005, the fund will acquire all the assets and assume all the liabilities of
the Predecessor Fund. Prior to the date of this prospectus, the fund had no
assets or investment operations.
The financial highlights table is intended to help you understand the
performance of the fund for the past five years. The information in the
following table has been derived from the Predecessor Fund's financial
statements and was audited by KPMG LLP, independent registered public accounting
firm, whose report, along with the Predecessor Fund's financial statements, is
included in the annual report (available upon request). Certain information
reflects financial results for a single share. Total returns represent the rate
that a shareholder would have earned (or lost) on a share of the fund assuming
reinvestment of all dividends and distributions. Total returns do not reflect
expenses associated with the separate account such as administrative fees,
account charges and surrender charges, which, if reflected, would reduce the
total returns for all periods shown.
For a share of capital stock outstanding throughout each year ended October 31.
2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 15.77 $ 14.44 $ 16.08 $ 17.16 $ 16.22
- ----------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.36 0.34 0.39(1) 0.42 0.54
Net realized and unrealized gain
(loss) 1.41 1.49 (0.98)(1) (0.42) 1.43
- ----------------------------------------------------------------------------------------------
Total income (loss) from operations 1.77 1.83 (0.59) (0.00)* 1.97
- ----------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.35) (0.50) (0.44) (0.48) (0.46)
Net realized gains -- -- (0.61) (0.60) (0.57)
- ----------------------------------------------------------------------------------------------
Total dividends and distributions (0.35) (0.50) (1.05) (1.08) (1.03)
- ----------------------------------------------------------------------------------------------
Net asset value, end of year $ 17.19 $ 15.77 $ 14.44 $ 16.08 $ 17.16
- ----------------------------------------------------------------------------------------------
Total return(2) 11.36% 13.05% (3.59)% (0.22)% 12.77%
- ----------------------------------------------------------------------------------------------
Net assets, end of year (millions) $ 1,160 $ 997 $ 830 $ 804 $ 697
- ----------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.82%(3) 0.82% 0.83% 0.83% 0.83%
Net investment income 2.25 2.37 2.81(1) 3.08 3.42
- ----------------------------------------------------------------------------------------------
Portfolio turnover rate 66% 49% 81% 88% 108%
- ----------------------------------------------------------------------------------------------
(1) Effective November 1, 2001, the Fund adopted a change in the accounting
method that requires the Fund to amortize premiums and accrete all
discounts. Without the adoption of this change, for the year ended October
31, 2002, those amounts would have been $0.40, $0.99 and 2.91% for net
investment income, net realized and unrealized loss and the ratio of net
investment income to average net assets, respectively. Per share
information, ratios and supplemental data for the periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(2) Performance figures may reflect fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of fee
waivers and/or expense reimbursements, the total return would have been
lower.
(3) The investment manager waived a portion of its management fee for the year
ended October 31, 2004. The actual expense ratio did not change due to
these waivers.
* Amount represents less than $0.01 per share.
16
The Travelers Series Trust
Additional Information
Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that significantly affected the
fund's performance.
Statement of additional information. The Statement of Additional Information
(SAI) provides more detailed information about the fund. It is incorporated by
reference into this Prospectus.
You can make inquiries about the fund or obtain shareholder reports or the SAI
(without charge) by calling 1-800-842-9368 or writing to The Travelers Series
Trust, One Cityplace, Hartford, CT 06103. As of the date of this Prospectus, the
Fund's SAI and shareholder reports are not available on the Fund's website,
because the Fund has not yet commenced operations. In the future, the Fund may
make its SAI and shareholder reports available on its website.
Information about the fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's (the "Commission") Public Reference Room in
Washington, D.C. In addition, information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Database
on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: publicinfo@sec.gov, or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. The fund is not offering to sell its
shares to any person to whom the fund may not lawfully sell its shares.
MFS Total Return Portfolio
(Investment Company Act file no. 811-6465)
Appendix B-5
The Travelers Series Trust
Prospectus
May 21, 2005
SALOMON BROTHERS STRATEGIC TOTAL RETURN BOND PORTFOLIO
INVESTMENT PRODUCTS: NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
Shares of the fund are offered only to insurance company Separate Accounts which
fund certain variable annuity and variable life insurance contracts. This
prospectus should be read together with the prospectus for those contracts.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
Contents
The Travelers Series Trust (the "Company") consists of 29 separate investment
funds, each with its own investment objective and policies. This Prospectus
relates to one of those funds. Each of the 29 funds offers different levels of
potential return and involves different levels of risk.
Page
----
Investments, Risks and Performance 2
More on the Fund's Investments and Related Risks 5
Management 9
Share Transactions 10
Share Price 12
Dividends, Distributions and Taxes 13
Financial Highlights 14
Investments, Risks and Performance
Salomon Brothers Strategic Total Return Bond Portfolio
Investment objective
Total Return
Principal investment strategies
Key investments The fund invests, under normal market conditions, at least 80%
of the value of its net assets plus any borrowings for investment purposes, in
fixed income securities of U.S. and foreign companies, banks and governments,
including those in emerging markets, or other investments with similar economic
characteristics.
Credit Quality: The fund invests in a globally diverse portfolio of fixed income
securities across a range of credit qualities and may invest a substantial
portion of the fund's assets in obligations rated below investment grade by a
recognized rating agency, or, if unrated, of equivalent quality as determined by
the manager. Below investment grade securities are commonly referred to as "junk
bonds".
Duration: The fund's average duration will generally vary from 3 to 7 years
depending on the subadviser's outlook for interest rates. Individual securities
may be of any maturity.
Additional investments For information on the fund's additional investments and
related risks, please read pages 5-8.
Selection process
The subadviser uses a combination of a "top-down" approach and quantitative
models to create an optimal risk/return allocation of the fund's assets among
debt securities of issuers in three separate investment areas: (1) the United
States, (2) developed foreign countries, and (3) emerging markets. The
subadviser then selects individual debt securities within each area on the basis
of its views as to the values available in the marketplace.
In allocating investments among countries and asset classes, the subadviser
evaluates the following:
o Currency, inflation and interest rate trends
o Proprietary risk measures
o Balance of payments status
o Growth rate forecasts
o Fiscal policies
o Political outlook
In selecting individual debt securities, the subadviser evaluates the
following:
o Yield
o Maturity
o Call or prepayment risk
o Issue classification
o Credit quality
2
Principal risks of investing in the fund
While investing in global debt securities can bring added benefits, it may also
involve risks. Investors could lose money in the fund or the fund may not
perform as well as other investments, if any of the following occurs:
o Debt securities lose their value due to an increase in market interest
rates in one or more regions, a decline in an issuer's credit rating or
financial condition or a default by an issuer.
o As a result of declining interest rates, the issuer of a security exercises
its right to prepay principal earlier than scheduled, forcing the fund to
reinvest in lower yielding securities. This is known as call or prepayment
risk.
o As a result of rising interest rates, the issuer of a security exercises
its right to pay principal later than scheduled, which will lock in a
below-market interest rate and reduce the value of the security. This is
known as extension risk.
o An unhedged currency in which a security is priced declines in value
relative to the U.S. dollar.
o The subadviser's judgment about the attractiveness, relative yield, value
or potential appreciation of a particular security or the stability of a
particular government proves to be incorrect.
The fund may invest in lower quality securities that are speculative and have
only an adequate capacity to pay principal and interest. These securities have a
higher risk of default, tend to be less liquid, and may be more difficult to
value. Changes in economic conditions or other circumstances are more likely to
lead issuers of these securities to have a weakened capacity to make principal
and interest payments.
Many foreign countries in which the fund invests have markets that are less
liquid and more volatile than markets in the U.S. In some of the foreign
countries in which the fund invests, there is also less information available
about foreign issuers and markets because of less rigorous accounting and
regulatory standards than in the U.S. Currency fluctuations could erase
investment gains or add to investment losses. The risk of investing in foreign
securities is greater in the case of less developed countries.
The fund 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.
The fund's investment objective is not fundamental, and its objective and
investment policies may be changed by the Trust's Board of Trustees without
approval of shareholders or holders of variable annuity and variable life
insurance contracts. A change in the 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.
Shareholder Notice:
The following policy is subject to change only upon 60 days' prior notice to
shareholders: the fund normally invests at least 80% of the value of its net
assets plus any borrowings for investment purposes in fixed income securities of
U.S. and foreign companies, banks and governments, including those in emerging
markets, or other investments with similar economic characteristics.
3
Fund Performance
The performance shown in the bar chart, quarterly returns, and risk return table
shown below is for the fund's predecessor, Salomon Brothers Strategic Total
Return Bond Portfolio, a series of Travelers Series Fund ("Predecessor Fund").
The fund has entered into an Agreement and Plan of Reorganization
("Reorganization"), which provides that the fund will acquire all of the assets
and assume all of the liabilities of the Predecessor Fund. If the Reorganization
is approved by Predecessor Fund shareholders, the Predecessor Fund will be
reorganized into the fund on or about June 30, 2005. This bar chart indicates
the risks of investing in the fund by showing changes in the fund's performance
from year to year. Past p er formance does not necessarily indicate how the fund
will perform in the future. Performance figures do not reflect expenses incurred
from investing through a Separate Account. These expenses will reduce
performance. Please refer to the Separate Account prospectus for more
information on expenses.
Quarterly returns: Highest: 7.65% in 3rd quarter 1996; Lowest: -5.35% in 3rd
quarter 1998
Risk return bar chart
[BAR CHART]
Total Return
The bar chart shows the performance of the fund's shares for each of the full
calendar years since its inception.
Risk Return Table
This table assumes redemption of shares at the end of the period and the
reinvestment of distributions and dividends.
Average annual total returns (for the periods ended December 31, 2004)
Inception Date 1 year Five years Ten years Since inception
Fund 6/16/94 6.29% 7.98% 8.07% n/a
Morgan Index 10.10% 8.84% 7.76% n/a
Lehman Index* 4.34% 7.71% 7.72% n/a
* Effective December 31, 2004, the Lehman Brothers Aggregate Bond Index (the
"Lehman Index"), rather than the Morgan Index, will be the fund's benchmark.
Management has determined that the Lehman Index reflects more closely the
composition of the fund's portfolio.
Comparative performance
This table indicates the risk of investing in the fund by comparing the average
annual total return for the periods shown to that of the J.P. Morgan Government
Bond Index--Global Unhedged ("Morgan Index"), a daily, market capitalization
weighted international fixed-income index consisting of 13 countries, and the
Lehman Index. The indices are unmanaged and are not subject to the same
management and trading expenses of a mutual fund. Please note that an investor
cannot invest directly in an Index.
Fee Table
Shareholder fees (paid directly into your investment)
Maximum sales charge on purchases N/A
Maximum deferred sales charge on redemptions N/A
Annual fund operating expenses (paid by the Fund as a % of net assets)
Management fees 0.80%
Distribution and service (12b-1) fees None
Other expenses 0.45%
Total annual fund operating expenses 1.25%
Fees and Expenses
This table sets forth the fees and expenses you will pay if you invest in shares
of the fund. These fees and expenses do not reflect any of the fees and expenses
incurred from investing through a Separate Account. If such fees were included,
your costs would be higher.
Example
Number of years you owned your shares 1 year 3 years 5 years 10 years
Your costs would be $ 127 $ 397 $ 686 $ 1,511
The example assumes:
o You invest $10,000 for the period show
o You reinvest all distributions and dividends without a sales charge
o The fund's operating expenses (before fee waivers and/or expense
reimbursements, if any) remain the same
o Your investment has a 5% return each year--the assumption of a 5% return is
required by the Securities and Exchange Commission ("SEC") for purposes of
this example and is not a prediction of the fund's future performance
o Redemption of your shares at the end of the period
This example helps you compare the cost of investing in the fund with other
mutual funds. Your actual cost may be higher or lower. The example does not
include expenses incurred from investing through a separate account. If the
example included these expenses, the figures shown would be higher.
4
More on the Fund's Investments and Related Risks
Additional investments and investment techniques
The section entitled "Investments, Risks and Performance" describes the fund's
investment objective and its principal investment strategies and risks. This
section provides some additional information about the fund's investments and
certain investment management techniques the fund may use. More information
about the fund's investments and portfolio management techniques, some of which
entail risk, is included in the Statement of Additional Information (SAI). To
find out how to obtain an SAI, please turn to the back cover of this prospectus.
Fixed income investments
The fund invests in fixed income securities. Fixed income investments include
bonds, notes (including structured notes), mortgage-related securities,
asset-backed securities, convertible securities, Eurodollar and Yankee dollar
instruments, preferred stocks and money market instruments. Fixed income
securities may be issued by U.S. and foreign corporations or entities; U.S. and
foreign banks; the U.S. government, its agencies, authorities, instrumentalities
or sponsored enterprises; state and municipal governments; supranational
organizations; and foreign governments and their political subdivisions.
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.
Credit quality
If a security receives different ratings, the fund will treat the securities as
being rated in the highest rating category. The fund may choose not to sell
securities that are downgraded after their purchase. The fund's credit standards
also apply to counterparties to OTC derivatives contracts.
Investment grade securities
Securities are investment grade if:
o They are rated in one of the top four long-term rating categories of a
nationally recognized statistical rating organization.
o They have received a comparable short-term or other rating.
o They are unrated securities that the manager believes are of comparable
quality to investment grade securities.
5
High yield, lower quality securities
The fund may invest in fixed income securities that are high yield, lower
quality securities rated by a rating organization below its top four long-term
rating categories or unrated securities determined by the manager or subadviser
to be of equivalent quality. The issuers of lower quality bonds may be highly
leveraged and have difficulty servicing their debt, especially during prolonged
economic recessions or periods of rising interest rates. The prices of lower
quality securities are volatile and may go down due to market perceptions of
deteriorating issuer credit-worthiness or economic conditions. Lower quality
securities may become illiquid and hard to value in declining markets.
Foreign and emerging market investments
The fund may invest in foreign securities.
Investments in securities of foreign entities and securities quoted or
denominated in foreign currencies involve special risks. These include possible
political and economic instability and the possible imposition of exchange
controls or other restrictions on investments. Changes in foreign currency rates
relative to the U.S. dollar will affect the U.S. dollar value of the fund's
assets.
The emerging market investments offer the potential of significant gains but
also involve greater risks than investing in more developed countries. Political
or economic instability, lack of market liquidity and government actions such as
currency controls or seizure of private business or property may be more likely
in emerging markets.
Economic and Monetary Union (EMU) and the introduction of a single European
currency (the Euro), which began on January 1, 1999, may increase uncertainties
relating to investment in European markets. Among other things, EMU entails
sharing a single currency and official interest rate and adhering to limits on
government borrowing by participating countries. EMU is driven by the
expectation of economic benefits; however, there are significant risks
associated with EMU. Monetary and economic union on this scale has not been
attempted before, and there is uncertainty whether participating countries will
remain committed to EMU in the face of changing economic conditions.
Sovereign government and supranational debt
The fund may invest in all types of fixed income securities of governmental
issuers in all countries, including emerging markets. These sovereign debt
securities may include:
o Fixed income securities issued or guaranteed by governments, governmental
agencies or instrumentalities and political subdivisions located in
emerging market countries.
o Participations in loans between emerging market governments and financial
institutions.
o Fixed income securities issued by government owned, controlled or sponsored
entities located in emerging market countries.
o Interests in entities organized and operated for the purpose of
restructuring the investment characteristics of instruments issued by any
of the above issuers.
6
o Brady Bonds.
o Fixed income securities issued by corporate issuers, banks and finance
companies located in emerging market countries.
o Fixed income securities issued by supranational entities such as the World
Bank or the European Union (a supranational entity is a bank, commission or
company established or financially supported by the national governments of
one or more countries to promote reconstruction or development.)
Derivatives and hedging techniques
The fund may, but need not, use derivative contracts, such as futures and
options on securities, securities indices or currencies; options on these
futures; forward currency contracts; and interest rate or currency swaps for any
of the following purposes:
o To hedge against the economic impact of adverse changes in the market value
of its securities, because of changes in stock market prices, currency
exchange rates or interest rates
o As a substitute for buying or selling securities
o To enhance the fund's return
o As a cash flow management technique
A derivative contract will obligate or entitle the fund to deliver or receive an
asset or cash payment that is based on the change in value of one or more
securities, currencies or indices. Even a small investment in derivative
contracts can have a big impact on the fund's stock market, currency and
interest rate exposure. Therefore, using derivatives can disproportionately
increase losses and reduce opportunities for gains when stock prices, currency
rates or interest rates are changing. The fund may not fully benefit from or may
lose money on derivatives if changes in their value do not correspond accurately
to changes in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of credit risk as issuers of fixed
income securities. Derivatives can also make the fund less liquid and harder to
value, especially in declining markets.
Securities lending
The fund may engage in securities lending to increase its net investment income.
The fund will only lend securities if the loans are callable by the fund at any
time and the loans are continuously secured by cash or liquid securities equal
to no less than the market value, determined daily, of the securities loaned.
The risks in lending securities consist of possible delay in receiving
additional collateral, delay in recovery of securities when the loan is called
or possible loss of collateral should the borrower fail financially.
Defensive investing
The fund may depart from its principal investment strategies in response to
adverse market, economic or political conditions by taking temporary defensive
positions in any type of money market instrument and short-term debt securities
or cash. If the fund takes a temporary defensive position, it may be unable to
achieve its investment goal.
Portfolio turnover
The fund may engage in active and frequent trading to achieve its principal
investment strategies. Frequent trading also increases transaction costs, which
could detract from the fund's performance.
7
Portfolio holdings
The fund's policies and procedures with respect to the disclosure of the fund's
portfolio securities are described in the Statement of Additional Information
("SAI").
The fund may also use other strategies and invest in other securities that are
described, along with their risks, in the SAI. However, the fund might not use
all of the strategies and techniques or invest in all of the types of securities
described in this Prospectus or in the SAI. Also note that there are many other
factors, which are not described here, that could adversely affect your
investment and that could prevent the fund from achieving its goals.
8
Management
The Manager
Travelers Investment Adviser Inc. ("TIA" or the "manager") is the fund's
manager. TIA has engaged a subadviser to select investments for the fund.
Travelers Investment Adviser Inc.
TIA is a wholly owned subsidiary of Plaza LLC ("Plaza"), which is an indirect
wholly owned subsidiary of Citigroup Inc. ("Citigroup"). TIA is located at 399
Park Avenue, New York, New York 10022. TIA acts as investment manager to
investment companies having aggregate assets of approximately $2.77 billion as
of December 31, 2004.
On January 31, 2005, Citigroup announced that it had reached an agreement with
MetLife, Inc. ("MetLife") to sell Citigroup's life insurance and annuity
businesses ("Travelers Life & Annuity") to MetLife. As part of this transaction,
TIA, the fund's investment adviser and currently an indirect wholly owned
subsidiary of Citigroup, would become an indirect wholly owned subsidiary of
MetLife. The transaction is subject to certain regulatory approvals and other
customary conditions to closing. The transaction is expected to close this
summer.
Citigroup affiliates, including their directors, officers or employees, may have
banking or investment banking relationships with the issuers of securities that
are held in the fund. They may also own the securities of these issuers.
However, in making investment decisions for the fund, TIA does not obtain or use
inside information acquired by any division, department or affiliate of
Citigroup in the course of those relationships. To the extent a fund acquires
securities from an issuer that has a borrowing or other relationship with
Citigroup or its affiliates, the proceeds of the purchase may be used to repay
such borrowing or otherwise benefit Citigroup and/or its affiliates.
The fees TIA receives from the fund for its services are as follows:
Actual management fee
paid for the fiscal year Contractual management
ended October 31, 2004 fee paid
(as a percentage (as a percentage
of the fund's of the fund's
Fund average daily net assets) average daily net assets)
- --------------------------------------------------------------------------------------------------
Salomon Brothers
Strategic Total
Return Bond Portfolio 0.79% 0.80%
- --------------------------------------------------------------------------------------------------
The Portfolio Manager
The fund's investments are selected by a subadviser which is supervised by TIA.
The table below sets forth the names and business experience of the fund's
portfolio managers.
Fund Portfolio Manager Business Experience
Salomon Brothers Strategic Peter Wilby (since 2000) Managing Director of SBAM and
Total Return Bond Portfolio Salomon Brothers Asset Management, Senior Portfolio Manager for
Inc. (SBAM) and a team of Other SBAM fixed income
portfolio managers portfolios
399 Park Avenue
New York, NY 10022
Roger Lavan (since 2005) Managing Director of SBAM and
399 Park Avenue Portfolio Manager of other
New York, New York 10022 funds advised by SBAM
David Scott (since 2005) Managing Director of SBAM and
399 Park Avenue Portfolio Manager of other
New York, New York 10022 funds advised by SBAM
Under an exemptive order from the Securities and Exchange Commission, the
manager, subject to certain conditions, and without the approval of shareholders
may: (a) employ a new unaffiliated investment subadviser for the fund pursuant
to the terms of a new investment subadvisory agreement, in each case either as a
replacement for an existing subadviser; or as an additional subadviser; or as a
new subadviser where no subadviser had previously been retained; (b) change the
terms of any investment subadvisory agreement; and (c) continue the employment
of an existing subadvisor on the same subadvisory contract terms where a
contract has been assigned because of a change in control of the subadvisor.
When a new or replacement subadviser is retained, shareholders will receive
notice of such action, including the information concerning the new subadviser
that normally is provided in a proxy statement.
Transfer Agent and Shareholder Servicing Agent
Citicorp Trust Bank, fsb ("CTB") serves as the fund's transfer agent and
shareholder servicing agent (the "transfer agent"). The transfer agent has
entered into a sub-transfer agency and services agreement with PFPC Inc. to
serve as the fund's sub-transfer agent (the "sub-transfer agent"). The
sub-transfer agent will perform certain shareholder recordkeeping and accounting
services.
9
Additional information about the subadviser
SBAM. SBAM is an affiliate of SBFM. SBAM manages approximately $79.7 billion in
separate accounts, mutual funds, partnerships and variable annuities as of
December 31, 2004.
Recent Developments
In connection with an investigation previously disclosed by Citigroup, the Staff
of the Securities and Exchange Commission (SEC) has notified Citigroup Asset
Management (CAM), the Citigroup business unit that includes the funds'
investment manager and other investment advisory companies; Citicorp Trust Bank
(CTB), an affiliate of CAM; Thomas W. Jones, the former CEO of CAM; and three
other individuals, one of whom is an employee and two of whom are former
employees of CAM, that the SEC Staff is considering recommending a civil
injunctive action and/or an administrative proceeding against each of them
relating to the creation and operation of an internal transfer agent unit to
serve various CAM-managed funds.
In 1999, CTB entered the transfer agent business. CTB hired an unaffiliated
subcontractor to perform some of the transfer agent services. The subcontractor,
in exchange, had signed a separate agreement with CAM in 1998 that guaranteed
investment management revenue to CAM and investment banking revenue to a CAM
affiliate. The subcontractor's business was later taken over by PFPC Inc., and
at that time the revenue guarantee was eliminated and a one-time payment was
made by the subcontractor to a CAM affiliate.
CAM did not disclose the revenue guarantee when the boards of various
CAM-managed funds hired CTB as transfer agent. Nor did CAM disclose to the
boards of the various CAM-managed funds the one-time payment received by the CAM
affiliate when it was made. As previously disclosed, CAM has already paid the
applicable funds, primarily through fee waivers, a total of approximately $17
million (plus interest) that is the amount of the revenue received by Citigroup
relating to the revenue guarantee.
In addition, the SEC Staff has indicated that it is considering recommending
action based on the adequacy of the disclosures made to the fund boards that
approved the transfer agency arrangement, CAM's initiation and operation of, and
compensation for, the transfer agent business and CAM's retention of, and
agreements with, the subcontractor.
Citigroup is cooperating fully in the SEC's investigation and is seeking to
resolve the matter in discussions with the SEC staff. On January 20, 2005,
Citigroup stated that it had established an aggregate reserve of $196 million
($25 million in the third quarter of 2004 and $171 million in the fourth quarter
of 2004) related to its discussions with the SEC Staff. Settlement negotiations
are on going and any settlement of this matter with the SEC will require
approval by the Citigroup Board and acceptance by the Commission.
Unless and until any settlement is consummated, there can be no assurance that
any amount reserved by Citigroup will be distributed. Nor is there at this time
any certainty as to how the proceeds of any settlement would be distributed, to
whom any such distribution would be made, the methodology by which such
distribution would be allocated, and when such distribution would be made.
Although there can be no assurance, Citigroup does not believe that this matter
will have a material adverse effect on the funds.
10
Share Transactions
Availability of the fund
Shares of the fund are available only through the purchase of variable annuity
or variable life insurance contracts issued by insurance companies through their
separate accounts.
The interests of different variable insurance products investing in the fund
could conflict due to differences of tax treatment and other considerations. The
company currently does not foresee any disadvantages to investors arising from
the fact that the fund may offer its shares to different insurance company
separate accounts that serve as the investment medium for their variable annuity
and variable life products. Nevertheless, the Board of Trustees intends to
monitor events to identify any material irreconcilable conflicts which may
arise, and to determine what action, if any, should be taken in response to
these conflicts. If a conflict were to occur, one or more insurance companies'
separate accounts might be required to withdraw their investments in the fund
and shares of another fund may be substituted. In addition, the sale of shares
may be suspended or terminated if required by law or regulatory authority or it
is in the best interests of the fund's shareholders.
Redemption of shares
The redemption price of the shares of the fund 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 after receipt of a
redemption request in good order, though redemption proceeds must be remitted to
a separate account on or before the third day following receipt of the request
in good order, except on a day on which the New York Stock Exchange ("NYSE") is
closed or as permitted by the SEC in extraordinary circumstances.
Frequent purchases and sales of fund shares
Frequent purchases and sales of Fund shares resulting from purchase, exchange or
withdrawal transactions by certain owners of variable annuity and variable life
insurance contracts ("contract owners") may harm other contract owners in
various ways. These include: (1) dilution of the interests of long-term contract
owners where frequent traders attempt to take advantage of market fluctuations
that are not fully reflected in the Fund's NAV; (2) disruption of ordinary
portfolio management, such as by necessitating that the Fund maintain a cash
level higher than would otherwise be necessary or that the Fund sell securities
prematurely or at inopportune times in order to generate cash to meet redemption
requests; and (3) increased Fund costs, such as brokerage commissions. The Fund
does not knowingly accommodate such frequent purchases and sales of Fund shares,
and, to the Fund's knowledge there are no arrangements currently in place to
allow or permit any contract owner to engage in trading beyond what is allowed
under the applicable variable annuity or variable life insurance contract.
However, the Fund's shares are offered exclusively to separate accounts of
insurance companies ("Company"), and the Fund generally has little or no access
to the transaction records of individual contract owners whose assets are
invested in the separate accounts. Nonetheless, the Trust's Board of Trustees
has adopted policies and procedures to discourage market timing while taking
these circumstances into account. Specifically, the policies and procedures
require that the Fund request written certifications from each Company at least
annually specifying that: (1) the Company has instituted policies and procedures
reasonably designed to detect and deter the use of the separate accounts for
frequent trading; (2) the Company's policies and procedures address the level of
trading that will be considered excessive and the Company monitors contract
owner transactions to identify excessive trading; and (3) the Company applies
such procedures uniformly.
To the extent that the Fund invests significantly in high yield bonds, it may be
particularly susceptible to excessive trading by individuals attempting to take
advantage of market fluctuations that are not fully reflected in the Fund's NAV.
High yield bonds may be thinly or infrequently traded, or relatively less
liquid, so they carry the risk that the current market price may not accurately
reflect current market developments.
The applicable variable annuity or variable life insurance contract prospectus
contains a more detailed description of the Companies' policies and procedures
with respect to frequent trading. There is significant risk that the policies
and procedures of the Fund and the Companies will prove ineffective and that
excessive trading in Fund shares will occur, which may result in the adverse
consequences to contract owners described above. The Fund may alter its policies
and procedures at any time without prior notice to shareholders or contract
owners.
11
Share Price
The fund's net asset value is the value of its assets minus its liabilities
divided by the number of shares outstanding. The fund calculates its net asset
value every day the NYSE is open. This calculation is done when regular trading
closes on the NYSE (normally 4:00 p.m., Eastern time). If the NYSE closes early,
the fund accelerates the calculation of its net asset value to the actual
closing time. The NYSE is closed on certain holidays listed in the SAI.
The Board of Directors has approved procedures to be used to value the fund's
securities for the purposes of determining the fund's net asset value. The
valuation of the securities of the fund is determined in good faith by or under
the direction of the Board of Directors. The Board of Directors has delegated
certain valuation functions for the fund to the manager.
The fund generally values its securities based on market prices determined at
the close of regular trading on the NYSE. The fund's currency valuations, if
any, are done as of when the London stock exchange closes, which is usually at
12 noon Eastern time. For equity securities that are traded on an exchange, the
market price is usually the closing sale or official closing price on that
exchange. In the case of securities not traded on an exchange, or if such
closing prices are not otherwise available, the market price is typically
determined by independent third party pricing vendors approved by the fund's
Board using a variety of pricing techniques and methodologies. The market price
for debt obligations is generally the price supplied by an independent third
party pricing service approved by the fund's board, which may use a matrix,
formula or other objective method that takes into consideration market indices,
yield curves and other specific adjustments. Short-term debt obligations that
will mature in 60 days or less are valued at amortized cost, unless it is
determined that using this method would not reflect an investment's fair value.
If vendors are unable to supply a price, or if the price supplied is deemed by
the manager to be unreliable, the market price may be determined using
quotations received from one or more brokers/dealers that make a market in the
security. When such prices or quotations are not available, or when the manager
believes that they are unreliable, the manager may price securities
12
using fair value procedures approved by the Board. The fund may also use fair
value procedures if the manager determines that a significant event has occurred
between the time at which a market price is determined and the time at which the
fund's net asset value is calculated. In particular, the value of foreign
securities may be materially affected by events occurring after the close of the
market on which they are valued, but before the fund prices its shares. The fund
uses a fair value model developed by an independent third party pricing service
to price foreign equity securities on days when there is a certain percentage
change in the value of a domestic equity security index, as such percentage may
be determined by the manager from time to time.
Valuing securities at fair value involves greater reliance on judgment than
valuation of securities based on readily available market quotations. A fund
that uses fair value to price securities may value those securities higher or
lower than another fund using market quotations or its own fair value
methodologies to price the same securities. There can be no assurance that the
fund could obtain the fair value assigned to a security if it were to sell the
security at approximately the time at which the fund determines its net asset
value.
Dividends, Distributions and Taxes
The fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986 (the "Code"), as amended. In
order to qualify as a regulated investment company, the fund must meet certain
income and asset diversification tests and distribution requirements. As a
regulated investment company meeting these requirements, the fund will not be
subject to Federal income tax on its net investment income and net capital gains
that it distributes to its shareholders. All income and capital gain
distributions are automatically reinvested in additional shares of the fund at
net asset value and are includable in gross income of the separate accounts
holding 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.
Each separate account is also subject to asset diversification requirements for
the contracts under 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 separate account may be represented by any one investment, no more
than 70% by any two investments, no more than 80% by any three investments, and
no more than 90% by any four investments. For this purpose, all securities of
the same issuer are considered a single investment. An alternative
diversification test may be satisfied under certain circumstances. If the
separate account should fail to comply with these regulations or the fund fails
to qualify for the special tax treatment afforded regulated investment companies
under the Code, contracts invested in the fund would not be treated as annuity,
endowment or life insurance contracts under the Code.
13
Financial Highlights
Subject to the approval of the Predecessor Fund's shareholders, on or about June
30, 2005, the fund will acquire all the assets and assume all the liabilities of
the Predecessor Fund. Prior to the date of this prospectus, the fund had no
assets or investment operations.
The financial highlights table is intended to help you understand the
performance of the fund for the past five years. The information in the
following table has been derived from the Predecessor Fund's financial
statements and was audited by KPMG LLP, independent registered public accounting
firm, whose report, along with the Predecessor Fund's financial statements, is
included in the annual report (available upon request). Certain information
reflects financial results for a single share. Total returns represent the rate
that a shareholder would have earned (or lost) on a share of the fund assuming
reinvestment of all dividends and distributions. Total returns do not reflect
expenses associated with the separate account such as administrative fees,
account charges and surrender charges which, if reflected, would reduce the
total returns for all periods shown.
For a share of capital stock outstanding throughout each year ended October 31.
Salomon Brothers Strategic
Total Return Bond Portfolio
- --------------------------------------------------------------------------------------------------------
2004(1) 2003(1) 2002(1) 2001(1) 2000(1)
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of
year $ 11.10 $ 10.13 $ 10.27 $ 9.89 $ 10.22
- --------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.48 0.54 0.51(2) 0.58 0.81
Net realized and
unrealized gain (loss) 0.25 0.93 (0.17)(2) 0.48 (0.37)
- --------------------------------------------------------------------------------------------------------
Total income (loss) from
operations 0.73 1.47 0.34 1.06 0.44
- --------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.67) (0.50) (0.48) (0.68) (0.77)
- --------------------------------------------------------------------------------------------------------
Total distributions (0.67) (0.50) (0.48) (0.68) (0.77)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 11.16 $ 11.10 $ 10.13 $ 10.27 $ 9.89
- --------------------------------------------------------------------------------------------------------
Total return(3) 6.83% 15.10% 3.36% 10.99% 4.34%
- --------------------------------------------------------------------------------------------------------
Net assets, end of year
(millions) $17 $21 $21 $18 $20
- --------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.24%(4) 1.20% 1.24% 1.23% 0.98%
Net investment income 4.47 5.06 4.95(2) 5.69 7.93
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate 42%* 68%* 385% 448% 54%
- --------------------------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Effective November 1, 2001, the Fund adopted a change in the accounting
method that requires the Fund to amortize premiums and accrete all
discounts. Without the adoption of this change, for the year ended October
31, 2002, net investment income, net realized and unrealized loss and the
ratio of net investment income to average net assets would have been $0.52,
($0.18) and 5.04%, respectively. Per share information, ratios and
supplemental data for the periods prior to November 1, 2001 have not been
restated to reflect this change in presentation.
(3) Performance figures may reflect fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of fee
waivers and/or expense reimbursements, the total return would have been
lower.
(4) The investment manager waived a portion of its management fee for the year
ended October 31, 2004. If such fee were not waived, the actual expense
ratio would have been 1.25%
* Excluding mortgage dollar roll transactions. If mortgage dollar roll
transactions had been included, the portfolio turnover rate would have been
414% and 376% for the years ended October 31, 2004 and 2003, respectively.
14
The Travelers Series Trust
Additional Information
Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that significantly affected the
fund's performance.
Statement of additional information. The Statement of Additional Information
(SAI) provides more detailed information about the fund. It is incorporated by
reference into this Prospectus.
You can make inquiries about the fund or obtain shareholder reports or the SAI
(without charge) by calling 1-800-842-9368 or writing to The Travelers Series
Trust, One Cityplace, Hartford, CT 06103. As of the date of this Prospectus, the
Fund's SAI and shareholder reports are not available on the Fund's website,
because the Fund has not yet commenced operations. In the future, the Fund may
make its SAI and shareholder reports available on its website.
Information about the fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's (the "Commission") Public Reference Room in
Washington, D.C. In addition, information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Database
on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: publicinfo@sec.gov, or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. The fund is not offering to sell its
shares to any person to whom the fund may not lawfully sell its shares.
Salomon Brothers Strategic Total Return Bond Portfolio
(Investment Company Act file no. 811-6465)
Appendix B-6
The Travelers Series Trust
Prospectus
May 21, 2005
TRAVELERS MANAGED INCOME PORTFOLIO
INVESTMENT PRODUCTS: NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
Shares of the fund are offered only to insurance company Separate Accounts which
fund certain variable annuity and variable life insurance contracts. This
prospectus should be read together with the prospectus for those contracts.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
Contents
The Travelers Series Trust (the "Company") consists of 29 separate investment
funds, each with its own investment objective and policies. This Prospectus
relates to one of those funds. Each of the 29 funds offers different levels of
potential return and involves different levels of risk.
Page
----
Investments, Risks and Performance 2
More on the Fund's Investments and Related Risks 5
Management 9
Share Transactions 10
Share Price 12
Dividends, Distributions and Taxes 13
Financial Highlights 14
Investments, Risks and Performance
Travelers Managed Income Portfolio
Investment objective
High current income consistent with prudent risk of capital.
Principal investment strategies
Key investments The fund invests primarily in U.S. corporate debt obligations
and U.S. government securities, including mortgage-and asset backed securities,
but may also invest to a limited extent in foreign issuers.
Credit Quality: The fund invests primarily in investment grade obligations. Up
to 35% of the fund's assets may be invested in below investment grade
obligations with no minimum rating.
Duration: At least 65% of the fund's assets are invested in securities having
durations of 10 years or less. The fund's average portfolio duration will vary
between 2 to 5 years depending on the manager's outlook for interest rates.
Additional investments For information on the fund's additional investments
and related risks, please read pages 5-8.
Selection process
The manager uses a three step "top down" investment approach to selecting
investments for the fund by identifying undervalued sectors and individual
securities. Specifically, the manager:
o Determines appropriate sector and maturity weightings based on the
manager's intermediate and long-term assessments of broad economic and
interest rate trends
o Uses fundamental research methods to identify undervalued sectors of the
government and corporate debt markets and adjusts portfolio positions to
take advantage of new information
o Analyzes yield maturity, issue classification and quality characteristics
to identify individual securities that present what the manager considers
the optimal balance of potential return and manageable risk
2
Principal risks of investing in the fund
While investing in debt securities can bring added benefits, it may also involve
risks. Investors could lose money in the fund, or the fund may not perform as
well as other investments, if any of the following occurs:
o The issuer of a debt security in the fund defaults on its obligation to pay
principal or interest, has its credit rating downgraded by a rating
organization or is perceived by the market to be less creditworthy.
o Interest rates go up, causing the prices of debt securities in the fund to
fall.
o As a result of declining interest rates, the issuer of a security exercises
its right to prepay principal earlier than scheduled, forcing the fund to
reinvest in lower yielding securities. This is known as call or prepayment
risk.
o As a result of rising interest rates, the issuer of a security exercises
its right to pay principal later than scheduled, which will lock in a
below-market interest rate and reduce the value of the security. This is
known as extension risk.
o The manager's judgment about the attractiveness, value or potential
appreciation of a particular security proves to be incorrect.
The fund may invest in lower quality securities that are speculative and have
only an adequate capacity to pay principal and interest. These securities have a
higher risk of default, tend to be less liquid, and may be more difficult to
value. Changes in economic conditions or other circumstances are more likely to
lead issuers of these securities to have a weakened capacity to make principal
and interest payments.
Many foreign countries in which the fund invests have markets that are less
liquid and more volatile than markets in the U.S. In some of the foreign
countries in which the fund invests, there is also less information available
about foreign issuers and markets because of less rigorous accounting and
regulatory standards than in the U.S. Currency fluctuations could erase
investment gains or add to investment losses. The risk of investing in foreign
securities is greater in the case of less developed countries.
The fund's investment objective is not fundamental, and its objective and
investment policies may be changed by the Trust's Board of Trustees without
approval of shareholders or holders of variable annuity and variable life
insurance contracts. A change in the 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.
3
Fund Performance
The performance shown in the bar chart, quarterly returns, and risk return table
shown below is for the fund's predecessor, Travelers Managed Income Portfolio, a
series of Travelers Series Fund ("Predecessor Fund"). The fund has entered into
an Agreement and Plan of Reorganization ("Reorganization"), which provides that
the fund will acquire all of the assets and assume all of the liabilities of the
Predecessor Fund. If the Reorganization is approved by Predecessor Fund
shareholders, the Predecessor Fund will be reorganized into the fund on or about
June 30, 2005. This bar chart indicates the risks of investing in the fund by
showing changes in the fund's performance from year to year. Past performance
does not necessarily indicate how the fund will perform in the future.
Performance figures do not reflect expenses incurred from investing through a
Separate Account. These expenses will reduce performance. Please refer to the
Separate Account prospectus for more information on expenses.
Quarterly returns: Highest: 5.75% in 2nd quarter 1995; Lowest: -2.39% in 1st
quarter 1996 Risk return bar chart
(BAR CHART)
Total Return
The bar chart shows the performance of the fund's shares for each of the full
calendar years since its inception.
Risk Return Table
This table assumes redemption of shares at the end of the period and the
reinvestment of distributions and dividends.
Average annual total returns (for the periods ended December 31, 2004)
Inception Date 1 year Five years Ten years Since inception
Fund 6/16/94 2.85% 5.59% 6.19% n/a
Lehman 3.04% 7.21% 7.16% n/a
Brothers Index
Comparative performance
This table indicates the risk of investing in the fund by comparing the average
annual total return for the periods shown to that of the Lehman Brothers
Intermediate Government/Credit Bond Index ("Lehman Brothers Index"), formerly
known as the Lehman Brothers Intermediate Government/Corporate Bond Index, a
broad-based unmanaged index of bonds issued by the U.S. government and its
agencies as well as certain corporate issuers. The Lehman Brothers Index is
unmanaged and is not subject to the same management and trading expenses of a
mutual fund. Please note that an investor cannot invest directly in an index.
Fee Table
Shareholder fees (paid directly from your investment)
Maximum sales charge on purchases N/A
Maximum deferred sales charge on redemptions N/A
Annual fund operating expenses (paid by the fund as a % of net assets)
Management fees 0.65%
Distribution and service (12b-1) fees None
Other expenses 0.04%
Total annual fund operating expenses 0.69%
Fees and Expenses
This table sets forth the fees and expenses you will pay if you invest in shares
of the fund. These fees and expenses do not reflect any of the fees and expenses
incurred from investing through a Separate Account. If such fees were included,
your costs would be higher.
Example
Number of years you owned your shares 1 year 3 years 5 years 10 years
Your costs would be $ 70 $ 221 $ 384 $ 859
The example assumes:
o You invest $10,000 for the period shown
o You reinvest all distributions and dividends without a sales charge
o The fund's operating expenses (before fee waivers and/or expense
reimbursements, if any) remain the same
o Your investment has a 5% return each year--the assumption of a 5%
return is required by the Securities and Exchange Commission ("SEC")
for purposes of this example and is not a prediction of the fund's
future performance
o Redemption of your shares at the end of the period
This example helps you compare the cost of investing in the fund with other
mutual funds. Your actual cost may be higher or lower. The example does not
include expenses incurred from investing through a separate account. If the
example included these expenses, the figures shown would be higher.
4
More on the Fund's Investments and Related Risks
Additional investments and investment techniques
The section entitled "Investments, Risks and Performance" describes the fund's
investment objectives and its principal investment strategies and risks. This
section provides some additional information about the fund's investments and
certain investment management techniques the fund may use. More information
about the fund's investments and portfolio management techniques, some of which
entail risk, is included in the Statement of Additional Information (SAI). To
find out how to obtain an SAI, please turn to the back cover of this prospectus.
The fund may invest up to 35% of its total assets in non-investment grade debt
obligations, commonly known as "junk bonds." The fund may also invest up to 35%
of its total assets in fixed-income obligations having durations longer than 10
years and invest up to 25% of its assets in asset-backed and mortgage-backed
securities, including CMOs.
Fixed income investments
The fund invests in fixed income securities. Fixed income investments include
bonds, notes (including structured notes), mortgage-related securities,
asset-backed securities, convertible securities, Eurodollar and Yankee dollar
instruments, preferred stocks and money market instruments. Fixed income
securities may be issued by U.S. and foreign corporations or entities; U.S. and
foreign banks; the U.S. government, its agencies, authorities, instrumentalities
or sponsored enterprises; state and municipal governments; supranational
organizations; and foreign governments and their political subdivisions.
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 fund may invest in mortgage-backed and asset-backed securities.
Mortgage-related securities may be issued by private companies or by agencies of
the U.S. government and represent direct or indirect participations in, or are
collateralized by and payable from, mortgage loans secured by real property.
Asset-backed securities represent participations in, or are secured by and
payable from, assets such as installment sales or loan contracts, leases, credit
card receivables and other categories of receivables.
5
Credit quality
If a security receives different ratings, the fund will treat the securities as
being rated in the highest rating category. The fund may choose not to sell
securities that are downgraded after their purchase below the fund's minimum
acceptable credit rating. The fund's credit standards also apply to
counterparties to OTC derivatives contracts.
Investment grade securities
Securities are investment grade if:
o They are rated in one of the top four long-term rating categories of a
nationally recognized statistical rating organization.
o They have received a comparable short-term or other rating.
o They are unrated securities that the manager believes are of comparable
quality to investment grade securities.
High yield, lower quality securities
The fund may invest in fixed income securities that are high yield, lower
quality securities rated by a rating organization below its top four long-term
rating categories or unrated securities determined by the manager to be of
equivalent quality. The issuers of lower quality bonds may be highly leveraged
and have difficulty servicing their debt, especially during prolonged economic
recessions or periods of rising interest rates. The prices of lower quality
securities are volatile and may go down due to market perceptions of
deteriorating issuer credit-worthiness or economic conditions. Lower quality
securities may become illiquid and hard to value in declining markets.
Foreign investments
The fund may invest up to 20% of its assets in foreign securities.
Investments in securities of foreign entities and securities quoted or
denominated in foreign currencies involve special risks. These include possible
political and economic instability and the possible imposition of exchange
controls or other restrictions on investments. 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.
The Economic and Monetary Union (EMU) and the introduction of a single European
currency (the Euro), which began on January 1, 1999, may increase uncertainties
relating to investment in European markets. Among other things, EMU entails
sharing a single currency and official interest rate and adhering to limits on
government borrowing by participating countries. EMU is driven by the
expectation of economic benefits; however, there are significant risks
associated with EMU. Monetary and economic union on this scale has not been
attempted before, and there is uncertainty whether participating countries will
remain committed to EMU in the face of changing economic conditions.
6
Sovereign government and supranational debt
The fund may invest in all types of fixed income securities of governmental
issuers in all countries, including emerging markets. These sovereign debt
securities may include:
o Fixed income securities issued or guaranteed by governments, governmental
agencies or instrumentalities and political subdivisions located in
emerging market countries.
o Participations in loans between emerging market governments and financial
institutions.
o Fixed income securities issued by government owned, controlled or sponsored
entities located in emerging market countries.
o Interests in entities organized and operated for the purpose of
restructuring the investment characteristics of instruments issued by any
of the above issuers.
o Brady Bonds
o Fixed income securities issued by corporate issuers, banks and finance
companies located in emerging market countries.
o Fixed income securities issued by supranational entities such as the World
Bank or the European Union (a supranational entity is a bank, commission or
company established or financially supported by the national governments of
one or more countries to promote reconstruction or development.)
Derivatives and hedging techniques
The fund may, but need not, use derivative contracts, such as futures and
options on securities, securities indices or currencies; options on these
futures; forward currency contracts; and interest rate or currency swaps for any
of the following purposes:
o To hedge against the economic impact of adverse changes in the market value
of its securities, because of changes in stock market prices, currency
exchange rates or interest rates
o As a substitute for buying or selling securities
o To enhance the fund's return
o As a cash flow management technique
A derivative contract will obligate or entitle the fund to deliver or receive an
asset or cash payment that is based on the change in value of one or more
securities, currencies or indices. Even a small investment in derivative
contracts can have a big impact on the fund's stock market, currency and
interest rate exposure. Therefore, using derivatives can disproportionately
increase losses and reduce opportunities for gains when stock prices, currency
rates or interest rates are changing. The fund may not fully benefit from or may
lose money on derivatives if changes in their value do not correspond accurately
to changes in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of credit risk as issuers of fixed
income securities. Derivatives can also make the fund less liquid and harder to
value, especially in declining markets.
7
Securities lending
The fund may engage in securities lending to increase its net investment income.
The fund will only lend securities if the loans are callable by the fund at any
time and the loans are continuously secured by cash or liquid securities equal
to no less than the market value, determined daily, of the securities loaned.
The risks in lending securities consist of possible delay in receiving
additional collateral, delay in recovery of securities when the loan is called
or possible loss of collateral should the borrower fail financially.
Defensive investing
The fund may depart from its principal investment strategies in response to
adverse market, economic or political conditions by taking temporary defensive
positions in any type of money market instrument and short-term debt securities
or cash. If the fund takes a temporary defensive position, it may be unable to
achieve its investment goal.
Portfolio turnover
The fund may engage in active and frequent trading to achieve its principal
investment strategies. Frequent trading also increases transaction costs, which
could detract from the fund's performance.
Portfolio holdings
The fund's policies and procedures with respect to the disclosure of the fund's
portfolio securities are described in the Statement of Additional Information
("SAI").
The fund may also use other strategies and invest in other securities that are
described, along with their risks, in the SAI. However, the fund might not use
all of the strategies and techniques or invest in all of the types of securities
described in this Prospectus or in the SAI. Also note that there are many other
factors, which are not described here, that could adversely affect your
investment and that could prevent the fund from achieving its goals.
8
Management
The managers
Travelers Asset Management International Company LLC ("TAMIC" or the "manager")
is the fund's manager. TAMIC has engaged a subadviser to select investments for
the fund.
On January 31, 2005, Citigroup announced that it had reached an agreement with
MetLife, Inc. ("MetLife") to sell Citigroup's life insurance and annuity
businesses ("Travelers Life & Annuity") to MetLife. As part of this transaction,
TAMIC, the fund's investment adviser and currently an indirect wholly owned
subsidiary of Citigroup, would become an indirect wholly owned subsidiary of
MetLife. The transaction is subject to certain regulatory approvals and other
customary conditions to closing. The transaction is expected to close this
summer.
Travelers Asset Management International Company, LLC
TAMIC is a wholly owned subsidiary of Citigroup Inc. ("Citigroup"). TAMIC is the
outside investment arm of Citigroup's insurance companies. It managed $14.1
billion in assets as of December 31, 2004, including institutional, pension,
corporate and insurance company accounts. TAMIC is located at 242 Trumbull
Street, Hartford, Connecticut 06103. TAMIC also acts as investment adviser or
subadviser for other investment companies used to fund variable products, as
well as for individual and pooled pension and profit-sharing accounts, and for
affiliated domestic insurance companies.
Citigroup affiliates, including their directors, officers or employees, may have
banking or investment banking relationships with the issuers of securities that
are held in the fund. They may also own the securities of these issuers.
However, in making investment decisions for the fund, TIA does not obtain or use
inside information acquired by any division, department or affiliate of
Citigroup in the course of those relationships. To the extent a fund acquires
securities from an issuer that has a borrowing or other relationship with
Citigroup or its affiliates, the proceeds of the purchase may be used to repay
such borrowing or otherwise benefit Citigroup and/or its affiliates.
The fees TAMIC receives from the fund for its services are as follows:
Actual management fee
paid for the fiscal year Contractual management
ended October 31, 2004 fee paid
(as a percentage (as a percentage
of the fund's of the fund's
Fund average daily net assets) overage daily net assets)
- --------------------------------------------------------------------------------
Travelers Managed 0.65% 0.65%
Income Portfolio
- --------------------------------------------------------------------------------
The Portfolio Manager
The fund's investments are selected by a subadviser, which is supervised by
TAMIC. The table below sets forth the names and business experience of the
fund's portfolio managers.
Travelers Managed Income Gene Collins (since 2004) Senior Portfolio Manager
Portfolio SBAM and Managing Director
399 Park Avenue Salomon Brothers Asset
New York, New York 10043 Management Inc.
Kurt Lin (since 2004)
SBAM Portfolio Manager and
399 Park Avenue Director
New York, New York 10043 Salomon Brothers Asset
Management Inc.
- --------------------------------------------------------------------------------
Under an exemptive order from the Securities and Exchange Commission, the
manager, subject to certain conditions, and without the approval of shareholders
may: (a) employ a new unaffiliated investment subadviser for the fund pursuant
to the terms of a new investment subadvisory agreement, in each case either as a
replacement for an existing subadviser; or as an additional subadviser; or as a
new subadviser where no subadviser had previously been retained; (b) change the
terms of any investment subadvisory agreement; and (c) continue the employment
of an existing subadvisor on the same subadvisory contract terms where a
contract has been assigned because of a change in control of the subadvisor.
When a new or replacement subadviser is retained, shareholders will receive
notice of such action, including the information concerning the new subadviser
that normally is provided in a proxy statement.
Transfer Agent and Shareholder Servicing Agent
Citicorp Trust Bank, fsb ("CTB") serves as the fund's transfer agent and
shareholder servicing agent (the "transfer agent"). The transfer agent has
entered into a sub-transfer agency and services agreement with PFPC Inc. to
serve as the fund's sub-transfer agent (the "sub-transfer agent"). The
sub-transfer agent will perform certain shareholder recordkeeping and accounting
services.
9
Recent Developments
In connection with an investigation previously disclosed by Citigroup, the Staff
of the Securities and Exchange Commission (SEC) has notified Citigroup Asset
Management (CAM), the Citigroup business unit that includes the funds'
investment manager and other investment advisory companies; Citicorp Trust Bank
(CTB), an affiliate of CAM; Thomas W. Jones, the former CEO of CAM; and three
other individuals, one of whom is an employee and two of whom are former
employees of CAM, that the SEC Staff is considering recommending a civil
injunctive action and/or an administrative proceeding against each of them
relating to the creation and operation of an internal transfer agent unit to
serve various CAM-managed funds.
In 1999, CTB entered the transfer agent business. CTB hired an unaffiliated
subcontractor to perform some of the transfer agent services. The subcontractor,
in exchange, had signed a separate agreement with CAM in 1998 that guaranteed
investment management revenue to CAM and investment banking revenue to a CAM
affiliate. The subcontractor's business was later taken over by PFPC Inc., and
at that time the revenue guarantee was eliminated and a one-time payment was
made by the subcontractor to a CAM affiliate.
CAM did not disclose the revenue guarantee when the boards of various
CAM-managed funds hired CTB as transfer agent. Nor did CAM disclose to the
boards of the various CAM-managed funds the one-time payment received by the CAM
affiliate when it was made. As previously disclosed, CAM has already paid the
applicable funds, primarily through fee waivers, a total of approximately $17
million (plus interest) that is the amount of the revenue received by Citigroup
relating to the revenue guarantee.
In addition, the SEC Staff has indicated that it is considering recommending
action based on the adequacy of the disclosures made to the fund boards that
approved the transfer agency arrangement, CAM's initiation and operation of, and
compensation for, the transfer agent business and CAM's retention of, and
agreements with, the subcontractor.
Citigroup is cooperating fully in the SEC's investigation and is seeking to
resolve the matter in discussions with the SEC staff. On January 20, 2005,
Citigroup stated that it had established an aggregate reserve of $196 million
($25 million in the third quarter of 2004 and $171 million in the fourth quarter
of 2004) related to its discussions with the SEC Staff. Settlement negotiations
are on going and any settlement of this matter with the SEC will require
approval by the Citigroup Board and acceptance by the Commission.
Unless and until any settlement is consummated, there can be no assurance that
any amount reserved by Citigroup will be distributed. Nor is there at this time
any certainty as to how the proceeds of any settlement would be distributed, to
whom any such distribution would be made, the methodology by which such
distribution would be allocated, and when such distribution would be made.
Although there can be no assurance, Citigroup does not believe that this matter
will have a material adverse effect on the funds.
10
Share Transactions
Availability of the fund
Shares of the fund are available only through the purchase of variable annuity
or variable life insurance contracts issued by insurance companies through their
separate accounts.
The interests of different variable insurance products investing in the fund
could conflict due to differences of tax treatment and other considerations. The
company currently does not foresee any disadvantages to investors arising from
the fact that the fund may offer its shares to different insurance company
separate accounts that serve as the investment medium for their variable annuity
and variable life products. Nevertheless, the Board of Trustees intends to
monitor events to identify any material irreconcilable conflicts which may
arise, and to determine what action, if any, should be taken in response to
these conflicts. If a conflict were to occur, one or more insurance companies'
separate accounts might be required to withdraw their investments in the fund
and shares of another fund may be substituted. In addition, the sale of shares
may be suspended or terminated if required by law or regulatory authority or it
is in the best interests of the fund's shareholders.
Redemption of shares
The redemption price of the shares of the fund 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 after receipt of a
redemption request in good order, though redemption proceeds must be remitted to
a separate account on or before the third day following receipt of the request
in good order, except on a day on which the New York Stock Exchange ("NYSE") is
closed or as permitted by the SEC in extraordinary circumstances.
Frequent purchases and sales of fund shares
Frequent purchases and sales of Fund shares resulting from purchase, exchange or
withdrawal transactions by certain owners of variable annuity and variable life
insurance contracts ("contract owners") may harm other contract owners in
various ways. These include: (1) dilution of the interests of long-term contract
owners where frequent traders attempt to take advantage of market fluctuations
that are not fully reflected in the Fund's NAV; (2) disruption of ordinary
portfolio management, such as by necessitating that the Fund maintain a cash
level higher than would otherwise be necessary or that the Fund sell securities
prematurely or at inopportune times in order to generate cash to meet redemption
requests; and (3) increased Fund costs, such as brokerage commissions. The Fund
does not knowingly accommodate such frequent purchases and sales of Fund shares,
and, to the Fund's knowledge there are no arrangements currently in place to
allow or permit any contract owner to engage in trading beyond what is allowed
under the applicable variable annuity or variable life insurance contract.
However, the Fund's shares are offered exclusively to separate accounts of
insurance companies ("Company"), and the Fund generally has little or no access
to the transaction records of individual contract owners whose assets are
invested in the separate accounts. Nonetheless, the Trust's Board of Trustees
has adopted policies and procedures to discourage market timing while taking
these circumstances into account. Specifically, the policies and procedures
require that the Fund request written certifications from each Company at least
annually specifying that: (1) the Company has instituted policies and procedures
reasonably designed to detect and deter the use of the separate accounts for
frequent trading; (2) the Company's policies and procedures address the level of
trading that will be considered excessive and the Company monitors contract
owner transactions to identify excessive trading; and (3) the Company applies
such procedures uniformly.
To the extent that the Fund invests significantly in high yield bonds, it may be
particularly susceptible to excessive trading by individuals attempting to take
advantage of market fluctuations that are not fully reflected in the Fund's NAV.
High yield bonds may be thinly or infrequently traded, or relatively less
liquid, so they carry the risk that the current market price may not accurately
reflect current market developments.
The applicable variable annuity or variable life insurance contract prospectus
contains a more detailed description of the Companies' policies and procedures
with respect to frequent trading. There is significant risk that the policies
and procedures of the Fund and the Companies will prove ineffective and that
excessive trading in Fund shares will occur, which may result in the adverse
consequences to contract owners described above. The Fund may alter its policies
and procedures at any time without prior notice to shareholders or contract
owners.
11
Share Price
The fund's net asset value is the value of its assets minus its liabilities
divided by the number of shares outstanding. The fund calculates its net asset
value every day the NYSE is open. This calculation is done when regular trading
closes on the NYSE (normally 4:00 p.m., Eastern time). If the NYSE closes early,
the fund accelerates the calculation of its net asset value to the actual
closing time. The NYSE is closed on certain holidays listed on the SAI.
The Board of Directors has approved procedures to be used to value the fund's
securities for the purposes of determining the fund's net asset value. The
valuation of the securities of the fund is determined in good faith by or under
the direction of the Board of Directors. The Board of Directors has delegated
certain valuation functions for the fund to the manager.
The fund generally values its securities based on market prices determined at
the close of regular trading on the NYSE. The market price for debt obligations
is generally the price supplied by an independent third party pricing service
approved by the fund's board, which may use a matrix, formula or other objective
method that takes into consideration market indices, yield curves and other
specific adjustments. Short-term debt obligations that will mature in 60 days or
less are valued at amortized cost, unless it is determined that using this
method would not reflect an investment's fair value. If vendors are unable to
supply a price, or if the price supplied is deemed by the manager to be
unreliable, the market price may be determined using quotations received from
one or more brokers/dealers that make a market in the security. When such prices
or quotations are not available, or when the manager believes that they are
unreliable, the manager may price securities using fair value procedures
approved by the Board. The fund may also use fair value procedures if the
manager determines that a significant event has occurred between the time at
which a market price is determined and the time at which the fund's net asset
value is calculated.
12
Valuing securities at fair value involves greater reliance on judgment than
valuation of securities based on readily available market quotations. A fund
that uses fair value to price securities may value those securities higher or
lower than another fund using market quotations or its own fair value
methodologies to price the same securities. There can be no assurance that the
fund could obtain the fair value assigned to a security if it were to sell the
security at approximately the time at which the fund determines its net asset
value.
Dividends, Distributions and Taxes
The fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986 (the "Code"), as amended. In
order to qualify as a regulated investment company, the fund must meet certain
income and asset diversification tests and distribution requirements. As a
regulated investment company meeting these requirements, the fund will not be
subject to Federal income tax on its net investment income and net capital gains
that it distributes to its shareholders. All income and capital gain
distributions are automatically reinvested in additional shares of the fund at
net asset value and are includable in gross income of the separate accounts
holding 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.
Each separate account is also subject to asset diversification requirements for
the contracts under 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 separate account may be represented by any one investment, no more
than 70% by any two investments, no more than 80% by any three investments, and
no more than 90% by any four investments. For this purpose, all securities of
the same issuer are considered a single investment. An alternative asset
diversification test may be satisfied under certain circumstances. If the
separate account should fail to comply with these regulations or the fund fails
to qualify for the special tax treatment afforded regulated investment companies
under the Code, Contracts invested in that fund would not be treated as annuity,
endowment or life insurance contracts under the Code.
13
Financial Highlights
Subject to the approval of the Predecessor Fund's shareholders, on or about June
30, 2005, the fund will acquire all the assets and assume all the liabilities of
the Predecessor Fund. Prior to the date of this prospectus, the fund had no
assets or investment operations.
The financial highlights table is intended to help you understand the
performance of the fund for the past five years. The information in the
following table has been derived from the Predecessor Fund's financial
statements and was audited by KPMG LLP, independent registered public accounting
firm, whose report, along with the Predecessor Fund's financial statements, is
included in the annual report (available upon request). Certain information
reflects financial results for a single share. Total returns represent the rate
that a shareholder would have earned (or lost) on a share of the fund assuming
reinvestment of all dividends and distributions. Total returns do not reflect
expenses associated with the separate account such as administrative fees,
account charges and surrender charges, which, if reflected, would reduce the
total returns for all periods shown.
For a share of capital stock outstanding throughout each year ended October 31.
2004 2003(1) 2002(1) 2001(1) 2000(1)
- -------------------------------------------------------------------------------------
Net asset value, beginning of
year $ 11.84 $ 11.38 $ 12.57 $ 11.58 $ 11.49
- -------------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income 0.36 0.50 0.56(2) 0.71 0.76
Net realized and
unrealized gain (loss) 0.12 0.69 (1.07)(2) 0.83 (0.24)
- -------------------------------------------------------------------------------------
Total income (loss) from
operations 0.48 1.19 (0.51) 1.54 0.52
- -------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.48) (0.68) (0.63) (0.55) (0.43)
Net realized gains -- (0.05) (0.05) -- --
- -------------------------------------------------------------------------------------
Total distributions (0.48) (0.73) (0.68) (0.55) (0.43)
- -------------------------------------------------------------------------------------
Net asset value, end of year $ 11.84 $ 11.84 $ 11.38 $ 12.57 $ 11.58
- -------------------------------------------------------------------------------------
Total return(3) 4.19% 10.85% (4.06)% 13.50% 4.55%
- -------------------------------------------------------------------------------------
Net assets, end of year (000s) $ 278 $ 252 $ 208 $ 221 $ 151
- -------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.69%(4) 0.68% 0.69% 0.68% 0.69%
Net investment income 3.10 4.34 4.68(2) 5.76 6.56
- -------------------------------------------------------------------------------------
Portfolio turnover rate 123% 163% 177% 194% 181%
- -------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Effective November 1, 2001, the Fund adopted a change in the accounting
method that requires the Fund to amortize premiums and accrete all
discounts. Without the adoption of this change, for the year ended October
31, 2002, those amounts would have been $0.60, ($1.11) and 5.02% for net
investment income, net realized and unrealized loss and the ratio of net
investment income to average net assets, respectively. Per share
information, ratios and supplemental data for the periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(3) Performance figures may reflect fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of fee
waivers and/or expense reimbursements, the total return would have been
lower.
(4) The investment manager waived a portion of its management fee for the year
ended October 31, 2004. The actual expense ratio did not change due to
these waivers.
14
The Travelers Series Trust
Additional Information
Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that significantly affected the
fund's performance.
Statement of additional information. The Statement of Additional Information
(SAI) provides more detailed information about the funds. It is incorporated by
reference into this Prospectus.
You can make inquiries about the fund or obtain shareholder reports or the SAI
(without charge) by calling 1-800-842-9368 or writing to The Travelers Series
Trust, One Cityplace, Hartford, CT 06103. As of the date of this Prospectus, the
Fund's SAI and shareholder reports are not available on the Fund's website,
because the Fund has not yet commenced operations. In the future, the Fund may
make its SAI and shareholder reports available on its website.
Information about the fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's (the "Commission") Public Reference Room in
Washington, D.C. In addition, information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Database
on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: publicinfo@sec.gov, or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. The fund is not offering to sell its
shares to any person to whom the fund may not lawfully sell its shares.
Travelers Managed Income Portfolio
(Investment Company Act file no. 811-6465)
Appendix B-7
The Travelers Series Trust
Prospectus
May 21, 2005
PIONEER STRATEGIC INCOME PORTFOLIO
INVESTMENT PRODUCTS: NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
Shares of the fund are offered only to insurance company Separate Accounts which
fund certain variable annuity and variable life insurance contracts. This
prospectus should be read together with the prospectus for those contracts.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
Contents
The Travelers Series Trust (the "Company") consists of 29 separate investment
funds, each with its own investment objective and policies. This Prospectus
relates to one of those funds. Each of the 29 funds offers different levels of
potential return and involves different levels of risk.
Page
----
Investments, Risks and Performance 2
More on the Fund's Investments and Related Risks 5
Management 9
Share Transactions 11
Share Price 13
Dividends, Distributions and Taxes 13
Financial Highlights 14
Investments, Risks and Performance
Pioneer Strategic Income Portfolio
Investment objective
A high level of current income.
Principal investment strategies
Key investments The fund invests, under normal market conditions, at least 80%
of its total assets in debt securities. The fund has the flexibility to invest
in a broad range of issuers and segments of the debt securities market.
Additional investments For information on the fund's additional investments and
related risks, please read pages 5-8.
Selection process
The sub-adviser allocates the fund's investments among the following
three segments of the debt markets:
o Below investment grade (high yield) securities of U.S. and non-U.S.
issuers;
o Investment grade securities of U.S. issuers; and
o Investment grade securities of non-U.S. issuers.
The sub-adviser's allocations among these segments of the debt markets
depend upon its outlook for economic, interest rate and political
trends.
The fund invests primarily in:
o Debt securities issued or guaranteed by the U.S. government, its agencies
or instrumentalities or non-U.S. governmental entities;
o Debt securities of U.S. and non-U.S. corporate issuers, including
convertible debt; and
o Mortgage-backed and asset-backed securities.
The fund invests in securities with a broad range of maturities.
Depending upon the sub-adviser's allocation among market segments, up
to 70% of the fund's total assets may be in debt securities rated
below investment grade at the time of purchase or determined to be of
equivalent quality by the sub-adviser. Up to 20% of the fund's total
assets may be invested in debt securities rated below CCC by Standard
& Poor's or the equivalent by another nationally recognized
statistical rating organization or determined to be of equivalent
credit quality by the sub-adviser. Debt securities rated below
investment grade are commonly referred to as "junk bonds" and are
considered speculative.
2
Below investment grade debt securities involve greater risk of loss, are subject
to greater price volatility and are less liquid, especially during periods of
economic uncertainty or change, than higher rated debt securities.
Depending upon the sub-adviser's allocation among market segments, up to 85% of
the fund's total assets may be in debt securities of non-U.S. corporate and
governmental issuers, including debt securities of corporate and governmental
issuers in emerging markets. Non-U.S. investments include securities issued by
non-U.S. governments, banks or corporations and certain supranational
organizations, such as the World Bank and the European Union.
The sub-adviser considers both broad economic and issuer specific factors in
selecting a portfolio designed to achieve the fund's investment objective. In
assessing the appropriate maturity, rating, sector and country weightings of the
fund's portfolio, the sub-adviser considers a variety of factors that are
expected to influence economic activity and interest rates. These factors
include fundamental economic indicators, such as the rates of economic growth
and inflation, Federal Reserve monetary policy and the relative value of the
U.S. dollar compared to other currencies. Once the sub-adviser determines the
preferable portfolio characteristics, the sub-adviser selects individual
securities based upon the terms of the securities (such as yields compared to
U.S. Treasuries or comparable issues), liquidity and rating, sector and issuer
diversification. The sub-adviser also employs due diligence and fundamental
research to assess an issuer's credit quality, taking into account financial
condition and profitability, future capital needs, potential for change in
rating, industry outlook, the competitive environment and management ability. In
making these portfolio decisions, the sub-adviser relies on the knowledge,
experience and judgment of its staff who have access to a wide variety of
research.
Principal risks of investing in the fund
While investing in fixed income securities can bring added benefits, it may also
involve risks. Investors could lose money in the fund, or the fund may not
perform as well as other investments, if any of the following occurs:
o Fixed income securities lose their value due to an increase in market
interest rates in one or more regions, a decline in an issuer's credit
rating or financial condition or a default by an issuer.
o As a result of declining interest rates, the issuer of a security exercises
its right to prepay principal earlier than scheduled, forcing the fund to
reinvest in lower yielding securities. This is known as call or prepayment
risk.
o As a result of rising interest rates, the issuer of a security exercises
its right to pay principal later than scheduled, which will lock in a
below-market interest rate and reduce the value of the security. This is
known as extension risk.
o An unhedged currency in which a security is priced declines in value
relative to the U.S. dollar.
o The subadviser's judgment about the attractiveness, relative yield, value
or potential appreciation of a particular security or the stability of a
particular government proves to be incorrect.
The fund may invest in lower quality securities that are speculative and have
only an adequate capacity to pay principal and interest. These securities have a
higher risk of default, tend to be less liquid, and may be more difficult to
value. Changes in economic conditions or other circumstances are more likely to
lead issuers of these securities to have a weakened capacity to make principal
and interest payments.
Many foreign countries in which the fund invests have markets that are less
liquid and more volatile than markets in the U.S. In some of the foreign
countries in which the fund invests, there is also less information available
about foreign issuers and markets because of less rigorous accounting and
regulatory standards than in the U.S. Currency fluctuations could erase
investment gains or add to investment losses. The risk of investing in foreign
securities is greater in the case of less developed countries.
To the extent the fund invests significantly in asset-backed and
mortgage-related securities, its exposure to prepayment and extension risks may
be greater than if it invested in other types of fixed income securities.
The fund's investment objective is not fundamental, and its objective and
investment policies may be changed by the Trust's Board of Trustees without
approval of shareholders or holders of variable annuity and variable life
insurance contracts. A change in the 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.
3
Fund Performance
The performance shown in the bar chart, quarterly returns, and risk return table
shown below is for the fund's predecessor, Pioneer Strategic Income, a series of
Travelers Series Fund ("Predecessor Fund"). The fund has entered into an
Agreement and Plan of Reorganization ("Reorganization"), which provides that the
fund will acquire all of the assets and assume all of the liabilities of the
Predecessor Fund. If the Reorganization is approved by Predecessor Fund
shareholders, the Predecessor Fund will be reorganized into the fund on or about
June 30, 2005. This bar chart indicates the risks of investing in the fund by
showing changes in the fund's performance from year to year. Past performance
does not necessarily indicate how the fund will perform in the future.
Performance figures do not reflect expenses incurred from investing through a
Separate Account. These expenses will reduce performance. Please refer to the
Separate Account prospectus for more information on expenses. Prior to June 30,
2003, the fund had a different sub-adviser. On June 30, 2003, the fund's name
was changed from Putnam Diversified Income Portfolio to Pioneer Strategic Income
Portfolio.
Quarterly returns: Highest: 7.67% in 2nd quarter 2003; Lowest: -3.34% in 3rd
quarter 1998
Risk return bar chart
[BAR CHART]
Total Return
The bar chart shows the performance of the fund's shares for each of the full
calendar years since its inception.
Risk Return Table
This table assumes redemption of shares at the end of the period and the
reinvestment of distributions and dividends.
Average annual total returns (for the periods ended December 31, 2004)
Inception Date 1 year Five years Ten years Since inception
Fund 6/16/94 10.94% 7.83% 7.34% n/a
Lehman
Brothers Index 4.34% 7.71% 7.72% n/a
Citigroup Index 12.84% 8.77% 7.33% n/a
Comparative performance
This table indicates the risk of investing in the fund by comparing the average
annual total return for the periods shown to that of the Lehman Brothers
Aggregate Bond Index ("Lehman Brothers Index") and the Citigroup Non-U.S. World
Government Bond Index--Unhedged ("Citigroup Index"), both of which are
broad-based unmanaged indices. (The Lehman Brothers Index consists of a variety
of domestically issued bonds. The Citigroup Index consists of foreign government
bonds.) Please note that an investor cannot invest directly in an index.
Fee Table
Shareholder fees (paid directly into your investment)
Maximum sales charge on purchases None
Maximum deferred sales charge on redemptions None
Annual fund operating expenses (paid by the Fund as a % of net assets)
Management fees 0.75%
Distribution and service (12b-1) fees None
Other expenses 0.15%
Total annual fund operating expenses 0.90%
Fees and Expenses
This table sets forth the fees and expenses you will pay if you invest in shares
of the fund. These fees and expenses do not reflect any of the fees and expenses
incurred from investing through a Separate Account. If such fees were included,
your costs would be higher.
Example
Number of years you owned your shares 1 year 3 years 5 years 10 years
Your costs would be $92 $ 287 $ 498 $ 1,108
The example assumes:
o You invest $10,000 for the period shown
o You reinvest all distributions and dividends without a
sales charge
o The fund's operating expenses (before fee waivers
and/or expense reimbursements, if any) remain the same
o Your investment has a 5% return each year--the
assumption of a 5% return is required by the Securities
and Exchange Commission ("SEC") for purposes of this
example and is not a prediction of the fund's future
performance
o Redemption of your shares at the end of the period
This example helps you compare the cost of investing in the fund with other
mutual funds. Your actual cost may be higher or lower. The example does not
include expenses incurred from investing through a Separate Account. If the
example included these expenses, the figures shown would be higher.
4
More on the Fund's Investments and Related Risks
Additional investments and investment techniques
The section entitled "Investments, Risks and Performance" describes the fund's
investment objective and its principal investment strategies and risks. This
section provides some additional information about the fund's investments and
certain investment management techniques the fund may use. More information
about the fund's investments and portfolio management techniques, some of which
entail risk, is included in the Statement of Additional Information (SAI). To
find out how to obtain an SAI, please turn to the back cover of this prospectus.
Equity investments
Subject to its particular investment policies, the fund may invest up to 20% of
its assets in all types of equity securities. Equity securities include
exchange-traded and over-the-counter (OTC) common and preferred stocks,
warrants, rights, depository receipts and shares, trust certificates, limited
partnership interests, shares of other investment companies and equity
participations.
Fixed income investments
The fund invests at least 80% of its total assets in fixed income securities.
Fixed income investments include bonds, notes (including structured notes),
mortgage-related securities, asset-backed securities, convertible securities,
Eurodollar and Yankee dollar instruments, preferred stocks and money market
instruments. Fixed income securities may be issued by U.S. and foreign
corporations or entities; U.S. and foreign banks; the U.S. government, its
agencies, authorities, instrumentalities or sponsored enterprises; state and
municipal governments; supranational organizations; and foreign governments and
their political subdivisions.
The fund's investments may have fixed or variable principal payments and 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 fund may invest in mortgage-backed and asset-backed securities.
Mortgage-related securities may be issued by private companies or by agencies of
the U.S. or foreign governments and represent direct or indirect participations
in, or are collateralized by and payable from, mortgage loans secured by real
property. Asset-backed securities represent participations in, or are secured by
and payable from, assets such as installment sales or loan contracts, leases,
credit card receivables and other categories of receivables.
5
Credit quality
If a security receives different ratings, the fund will use the rating chosen by
the portfolio manager as most representative of the security's credit quality.
If a rating organization changes the rating quality assigned to one or more of
the fund's portfolio securities, the subadvisor will consider if any action is
appropriate in light of the fund's investment objective and policies.
Investment grade securities
Securities are investment grade if:
o They are rated, respectively, in one of the top four long-term rating
categories of a nationally recognized statistical rating organization.
o They have received a comparable short-term or other rating.
o They are unrated securities that the manager believes are of comparable
quality to investment grade securities.
High yield, lower quality securities
The fund may invest a substantial portion of its assets in fixed income
securities that are high yield, lower quality securities rated by a rating
organization below its top four long-term rating categories or unrated
securities determined by the manager or subadviser to be of equivalent quality.
The issuers of lower quality bonds may be highly leveraged and have difficulty
servicing their debt, especially during prolonged economic recessions or periods
of rising interest rates. The prices of lower quality securities are volatile
and may go down due to market perceptions of deteriorating issuer
creditworthiness or economic conditions. Lower quality securities may become
illiquid and hard to value in declining markets.
Convertible securities
As with all fixed income securities, the market values of convertible debt
securities tend to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the common
stock underlying a convertible security exceeds the conversion price, the
convertible security tends to reflect the market price of the underlying common
stock.
Foreign and emerging market investments
The fund may invest in foreign securities.
Investments in securities of foreign entities and securities quoted or
denominated in foreign currencies involve special risks. These include possible
political and economic instability and the possible imposition of exchange
controls or other restrictions on investments and, with respect to certain
countries, the possibility of expropriation of assets, nationalization,
confiscatory taxation or limitations on the removal of funds or other assets of
the fund or debt renunciation. Changes in foreign currency rates relative to the
U.S. dollar will affect the U.S. dollar value of the fund's assets.
Emerging market investments 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.
6
Sovereign government and supranational debt
The fund may invest in all types of fixed income securities of governmental
issuers in all countries, including emerging markets. These sovereign debt
securities may include:
o Fixed income securities issued or guaranteed by governments, governmental
agencies or instrumentalities and political subdivisions located in
emerging market countries.
o Participations in loans between emerging market governments and financial
institutions.
o Fixed income securities issued by government owned, controlled or sponsored
entities located in emerging market countries.
o Interests in entities organized and operated for the purpose of
restructuring the investment characteristics of instruments issued by any
of the above issuers.
o Brady Bonds.
o Fixed income securities issued by corporate issuers, banks and finance
companies located in emerging market countries.
o Fixed income securities issued by supranational entities such as the World
Bank or the European Union (a supranational entity is a bank, commission or
company established or financially supported by the national governments of
one or more countries to promote reconstruction or development).
Derivatives and hedging techniques
The fund may, but need not, use derivative contracts, such as futures and
options on securities, securities indices or currencies; options on these
futures; forward currency contracts; and interest rate or currency swaps for any
of the following purposes:
o To hedge against the economic impact of adverse changes in the market value
of its securities, because of changes in stock market prices, currency
exchange rates or interest rates
o As a substitute for buying or selling securities
o To enhance the fund's return
o As a cash flow management technique
A derivative contract will obligate or entitle the fund to deliver or receive an
asset or cash payment that is based on the change in value of one or more
securities, currencies or indices. Even a small investment in derivative
contracts can have a big impact on the fund's stock market, currency and
interest rate exposure. Therefore, using derivatives can disproportionately
increase losses and reduce opportunities for gains when stock prices, currency
rates or interest rates are changing. The fund may not fully benefit from or may
lose money on derivatives if changes in their value do not correspond accurately
to changes in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of credit risk as issuers of fixed
income securities. Derivatives can also make the fund less liquid and harder to
value, especially in declining markets.
7
Securities lending
The fund may engage in securities lending to increase its net investment income.
The fund will only lend securities if the loans are callable by the fund at any
time and the loans are continuously secured by cash or liquid securities equal
to no less than the market value, determined daily, of the securities loaned.
The risks in lending securities consist of possible delay in receiving
additional collateral, delay in recovery of securities when the loan is called
or possible loss of collateral should the borrower fail financially.
Defensive investing
The fund may depart from its principal investment strategies in response to
adverse market, economic or political conditions by taking temporary defensive
positions in any type of money market instrument and short-term debt securities
or cash. If the fund takes a temporary defensive position, it may be unable to
achieve its investment goal.
Portfolio turnover
The fund may engage in active and frequent trading to achieve its principal
investment strategies. Frequent trading also increases transaction costs, which
could detract from the fund's performance.
Portfolio holdings
The fund's policies and procedures with respect to the disclosure of the fund's
portfolio securities are described in the Statement of Additional Information
("SAI")
The fund may also use other strategies and invest in other securities that are
described, along with their risks, in the SAI. However, the fund might not use
all of the strategies and techniques or invest in all of the types of securities
described in this Prospectus or in the SAI. Also note that there are many other
factors, which are not described here, that could adversely affect your
investment and that could prevent the fund from achieving its goals.
8
Management
The Manager
Travelers Investment Adviser Inc. ("TIA" or the "manager") is the fund's
manager. TIA has engaged a subadviser to select investments for the fund.
Travelers Investment Adviser Inc.
TIA is a wholly owned subsidiary of Plaza LLC ("Plaza"), which is an indirect
wholly owned subsidiary of Citigroup Inc. ("Citigroup") TIA is located at 399
Park Avenue, New York, New York 10022. TIA, an affiliate of Smith Barney Fund
Management LLC, acts as investment manager to investment companies having
aggregate assets of approximately $2.77 billion as of December 31, 2004.
On January 31, 2005, Citigroup announced that it had reached an agreement with
MetLife, Inc. ("MetLife") to sell Citigroup's life insurance and annuity
businesses ("Travelers Life & Annuity") to MetLife. As part of this transaction,
TIA, the fund's investment adviser and currently an indirect wholly owned
subsidiary of Citigroup, would become an indirect wholly owned subsidiary of
MetLife. The transaction is subject to certain regulatory approvals and other
customary conditions to closing. The transaction is expected to close this
summer.
Citigroup affiliates, including their directors, officers or employees, may have
banking or investment banking relationships with the issuers of securities that
are held in the fund. They may also own the securities of these issuers.
However, in making investment decisions for the fund, TIA does not obtain or use
inside information acquired by any division, department of affiliate of
Citigroup in the course of those relationships. To the extent a fund acquires
securities from an issuer that has a borrowing or other relationship with
Citigroup or its affiliates, the proceeds of the purchase may be used to repay
such borrowing or otherwise benefit Citigroup and/or its affiliates.
The fees TIA receives from the fund for its services are as follows:
Actual management fee
paid for the fiscal year Contractual management
ended October 31, 2004 fee paid
(as a percentage (as a percentage
of the fund's of the fund's
Fund average daily net assets) average daily net assets)
- ---------------------------------------------------------------------------------------------
Pioneer Strategic Income
Portfolio 0.90% 0.90%
9
The Portfolio Manager
The fund's investments are selected by a subadviser which is supervised by TIA.
The table below sets forth the name and business experience of the fund's
portfolio manager.
Pioneer Strategic Income Fixed Income Team of Pioneer Senior Vice President and
Portfolio Investment Management, Inc. Director of Fixed Income
60 State Street Investments, Pioneer Investment
Boston, MA 02109 Management, Inc. Previously,
Kenneth J. Taubes (since 2003) Senior Vice President of
Pioneer Investment Management,
Inc.
Under an exemptive order from the Securities and Exchange Commission, the
manager, subject to certain conditions, and without the approval of shareholders
may: (a) employ a new unaffiliated investment subadviser for the fund pursuant
to the terms of a new investment subadvisory agreement, in each case either as a
replacement for an existing subadviser; or as an additional subadviser; or as a
new subadviser where no subadviser had previously been retained; (b) change the
terms of any investment subadvisory agreement; and (c) continue the employment
of an existing subadvisor on the same subadvisory contract terms where a
contract has been assigned because of a change in control of the subadvisor.
When a new or replacement subadviser is retained, shareholders will receive
notice of such action, including the information concerning the new subadviser
that normally is provided in a proxy statement.
Transfer Agent and Shareholder Servicing Agent
Citicorp Trust Bank, fsb ("CTB") serves as the fund's transfer agent and
shareholder servicing agent (the "transfer agent"). The transfer agent has
entered into a sub-transfer agency and services agreement with PFPC Inc. to
serve as the fund's sub-transfer agent (the "sub-transfer agent"). The
sub-transfer agent will perform certain shareholder recordkeeping and accounting
services.
Additional information about the subadviser
Pioneer Investment Management, Inc. ("Pioneer") is an indirect, wholly owned
subsidiary of UniCredito Italiano S.p.A., one of the largest banking groups in
Italy. Pioneer is part of the global asset management group, providing
investment management and financial services to mutual funds, institutional and
other clients. As of December 31, 2004, assets under management were
approximately $175 billion worldwide, including over $42 billion in assets under
management by Pioneer. The firm's U.S. mutual fund investment history includes
creating in 1928 one of the first mutual funds.
Recent Developments
In connection with an investigation previously disclosed by Citigroup, the Staff
of the Securities and Exchange Commission (SEC) has notified Citigroup Asset
Management (CAM), the Citigroup business unit that includes the funds'
investment manager and other investment advisory companies; Citicorp Trust Bank
(CTB), an affiliate of CAM; Thomas W. Jones, the former CEO of CAM; and three
other individuals, one of whom is an employee and two of whom are former
employees of CAM, that the SEC Staff is considering recommending a civil
injunctive action and/or an administrative proceeding against each of them
relating to the creation and operation of an internal transfer agent unit to
serve various CAM-managed funds.
In 1999, CTB entered the transfer agent business. CTB hired an unaffiliated
subcontractor to perform some of the transfer agent services. The subcontractor,
in exchange, had signed a separate agreement with CAM in 1998 that guaranteed
investment management revenue to CAM and investment banking revenue to a CAM
affiliate. The subcontractor's business was later taken over by PFPC Inc., and
at that time the revenue guarantee was eliminated and a one-time payment was
made by the subcontractor to a CAM affiliate.
10
CAM did not disclose the revenue guarantee when the boards of various
CAM-managed funds hired CTB as transfer agent. Nor did CAM disclose to the
boards of the various CAM-managed funds the one-time payment received by the CAM
affiliate when it was made. As previously disclosed, CAM has already paid the
applicable funds, primarily through fee waivers, a total of approximately $17
million (plus interest) that is the amount of the revenue received by Citigroup
relating to the revenue guarantee.
In addition, the SEC Staff has indicated that it is considering recommending
action based on the adequacy of the disclosures made to the fund boards that
approved the transfer agency arrangement, CAM's initiation and operation of, and
compensation for, the transfer agent business and CAM's retention of, and
agreements with, the subcontractor.
Citigroup is cooperating fully in the SEC's investigation and is seeking to
resolve the matter in discussions with the SEC staff. On January 20, 2005,
Citigroup stated that it had established an aggregate reserve of $196 million
($25 million in the third quarter of 2004 and $171 million in the fourth quarter
of 2004) related to its discussions with the SEC Staff. Settlement negotiations
are on going and any settlement of this matter with the SEC will require
approval by the Citigroup Board and acceptance by the Commission.
Unless and until any settlement is consummated, there can be no assurance that
any amount reserved by Citigroup will be distributed. Nor is there at this time
any certainty as to how the proceeds of any settlement would be distributed, to
whom any such distribution would be made, the methodology by which such
distribution would be allocated, and when such distribution would be made.
Although there can be no assurance, Citigroup does not believe that this matter
will have a material adverse effect on the funds.
Share Transactions
Availability of the fund
Shares of the fund are available only through the purchase of variable annuity
or variable life insurance contracts issued by insurance companies through their
separate accounts.
The interests of different variable insurance products investing in the fund
could conflict due to differences of tax treatment and other considerations. The
company currently does not foresee any disadvantages to investors arising from
the fact that the fund may offer its shares to different insurance company
separate accounts that serve as the investment medium for their variable annuity
and variable life products. Nevertheless, the Board of Trustees intends to
monitor events to identify any material irreconcilable conflicts which may
arise, and to determine what action, if any, should be taken in response to
these conflicts. If a conflict were to occur, one or more insurance companies'
separate accounts might be required to withdraw their investments in the fund
and shares of another fund may be substituted. In addition, the sale of shares
may be suspended or terminated if required by law or regulatory authority or it
is in the best interests of the fund's shareholders.
Redemption of shares
The redemption price of the shares of the fund 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 after receipt of a
redemption request in good order, though redemption proceeds must be remitted to
a separate account on or before the third day following receipt of the request
in good order, except on a day on which the New York Stock Exchange ("NYSE") is
closed or as permitted by the SEC in extraordinary circumstances.
11
Frequent purchases and sales of fund shares
Frequent purchases and sales of Fund shares resulting from purchase, exchange or
withdrawal transactions by certain owners of variable annuity and variable life
insurance contracts ("contract owners") may harm other contract owners in
various ways. These include: (1) dilution of the interests of long-term contract
owners where frequent traders attempt to take advantage of market fluctuations
that are not fully reflected in the Fund's NAV; (2) disruption of ordinary
portfolio management, such as by necessitating that the Fund maintain a cash
level higher than would otherwise be necessary or that the Fund sell securities
prematurely or at inopportune times in order to generate cash to meet redemption
requests; and (3) increased Fund costs, such as brokerage commissions. The Fund
does not knowingly accommodate such frequent purchases and sales of Fund shares,
and, to the Fund's knowledge there are no arrangements currently in place to
allow or permit any contract owner to engage in trading beyond what is allowed
under the applicable variable annuity or variable life insurance contract.
However, the Fund's shares are offered exclusively to separate accounts of
Insurance companies ("Company"), and the Fund generally has little or no access
to the transaction records of individual contract owners whose assets are
invested in the separate accounts. Nonetheless, the Trust's Board of Trustees
has adopted policies and procedures to discourage market timing while taking
these circumstances into account. Specifically, the policies and procedures
require that the Fund request written certifications from each Company at least
annually specifying that: (1) the Company has instituted policies and procedures
reasonably designed to detect and deter the use of the separate accounts for
frequent trading; (2) the Company's policies and procedures address the level of
trading that will be considered excessive and the Company monitors contract
owner transactions to identify excessive trading; and (3) the Company applies
such procedures uniformly.
To the extent that the Fund invests significantly in high yield bonds, it may be
particularly susceptible to excessive trading by individuals attempting to take
advantage of market fluctuations that are not fully reflected in the Fund's NAV.
High yield bonds may be thinly or infrequently traded, or relatively less
liquid, so they carry the risk that the current market price may not accurately
reflect current market developments.
The applicable variable annuity or variable life insurance contract prospectus
contains a more detailed description of the Companies' policies and procedures
with respect to frequent trading. There is significant risk that the policies
and procedures of the Fund and the Companies will prove ineffective and that
excessive trading in Fund shares will occur, which may result in the adverse
consequences to contract owners described above. The Fund may alter its policies
and procedures at any time without prior notice to shareholders or contract
owners.
12
Share Price
The fund's net asset value is the value of its assets minus its liabilities
divided by the number of shares outstanding. The fund calculates its net asset
value every day the NYSE is open. This calculation is done when regular trading
closes on the NYSE (normally 4:00 p.m., Eastern time). If the NYSE closes early,
the fund accelerates the calculation of its net asset value to the actual
closing time. The NYSE is closed on certain holidays listed in the SAI.
The Board of Directors has approved procedures to be used to value the fund's
securities for the purposes of determining the fund's net asset value. The
valuation of the securities of the fund is determined in good faith by or under
the direction of the Board of Directors. The Board of Directors has delegated
certain valuation functions for the fund to the manager.
The fund generally values its securities based on market prices determined at
the close of regular trading on the NYSE. The market price for debt obligations
is generally the price supplied by an independent third party pricing service
approved by the fund's board, which may use a matrix, formula or other objective
method that takes into consideration market indices, yield curves and other
specific adjustments. Short-term debt obligations that will mature in 60 days or
less are valued at amortized cost, unless it is determined that using this
method would not reflect an investment's fair value. If vendors are unable to
supply a price, or if the price supplied is deemed by the manager to be
unreliable, the market price may be determined using quotations received from
one or more brokers/dealers that make a market in the security. When such prices
or quotations are not available, or when the manager believes that they are
unreliable, the manager may price securities using fair value procedures
approved by the Board. The fund may also use fair value procedures if the
manager determines that a significant event has occurred between the time at
which a market price is determined and the time at which the fund's net asset
value is calculated.
Valuing securities at fair value involves greater reliance on judgment than
valuation of securities based on readily available market quotations. A fund
that uses fair value to price securities may value those securities higher or
lower than another fund using market quotations or its own fair value
methodologies to price the same securities. There can be no assurance that the
fund could obtain the fair value assigned to a security if it were to sell the
security at approximately the time at which the fund determines its net asset
value.
Dividends, Distributions and Taxes
The fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986 (the "Code"), as amended. In
order to qualify as a regulated investment company, the fund must meet certain
income and asset diversification tests and distribution requirements. As a
regulated investment company meeting these requirements, the fund will not be
subject to Federal income tax on its net investment income and net capital gains
that it distributes to its shareholders. All income and capital gain
distributions are automatically reinvested in additional shares of the fund at
net asset value and are includable in gross income of the separate accounts
holding 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.
Each separate account is also subject to asset diversification requirements for
the contracts under 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 separate account may be represented by any one investment, no more
than 70% by any two investments, no more than 80% by any three investments, and
no more than 90% by any four investments. For this purpose, all securities of
the same issuer are considered a single investment. An alternative asset
diversification test may be satisfied under certain circumstances. If the
separate account should fail to comply with these regulations or the fund fails
to qualify for the special tax treatment afforded regulated investment companies
under the Code, contracts invested in the fund would not be treated as annuity,
endowment or life insurance contracts under the Code.
13
Financial Highlights
Subject to the approval of the Predecessor Fund's shareholders, on or about June
30, 2005, the fund will acquire all the assets and assume all the liabilities of
the Predecessor Fund. Prior to the date of this prospectus, the fund had no
assets or investment operations.
The financial highlights table is intended to help you understand the
performance of the fund for the past five years. The information in the
following table has been derived from the Predecessor Fund's financial
statements and was audited by KPMG LLP, independent registered public accounting
firm, whose report, along with the Predecessor Fund's financial statements, is
included in the annual report (available upon request). Certain information
reflects financial results for a single share. Total returns represent the rate
that a shareholder would have earned (or lost) on a share of the fund assuming
reinvestment of all dividends and distributions. Total returns do not reflect
expenses associated with the separate account such as administrative fees,
account charges and surrender charges which, if reflected would reduce the total
returns for all periods shown.
For a share of capital stock outstanding throughout each year ended October 31.
2004(1) 2003(1) 2002 2001 2000
------- ------- ------ ------- -------
Net asset value, beginning of year $ 9.53 $ 8.94 $ 9.94 $ 10.31 $ 11.24
- -----------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.57 0.63 1.14(2) 0.93 0.93
Net realized and unrealized gain
(loss) 0.48 1.04 (0.94)(2) (0.47) (0.88)
- -----------------------------------------------------------------------------------------------
Total income from operations 1.05 1.67 0.20 0.46 0.05
- -----------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.85) (1.08) (1.20) (0.83) (0.98)
- -----------------------------------------------------------------------------------------------
Total distributions (0.85) (1.08) (1.20) (0.83) (0.98)
- -----------------------------------------------------------------------------------------------
Net asset value, end of year $ 9.73 $ 9.53 $ 8.94 $ 9.94 $ 10.31
- -----------------------------------------------------------------------------------------------
Total return (3) 11.66% 20.56% 2.00% 4.60% 0.21%
- -----------------------------------------------------------------------------------------------
Net assets, end of year (millions) $ 107 $ 100 $ 97 $ 128 $ 141
- -----------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.90%(4) 1.00% 0.93% 0.90% 0.87%
Net investment income 6.19 7.05 8.24(2) 8.83 7.78
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate 56% 141% 208% 150% 105%
- -----------------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Effective November 1, 2001, the Fund adopted a change in the accounting
method that requires the Fund to amortize premiums and accrete all
discounts. Without the adoption of this change, for the year ended October
31, 2002, net investment income, net realized and unrealized loss and the
ratio of net investment income to average net assets would have been $1.16,
$(0.96), and 8.42%, respectively. Per share information, ratios and
supplemental data for the periods prior to November 1, 2001 have not been
restated to reflect this change in presentation.
(3) Performance figures may reflect fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of fee
waivers and/or expense reimbursements, the total return would have been
lower.
(4) The investment manager waived a portion of its management fee for the year
ended October 31, 2004. The actual expense ratio did not change due to this
waiver.
14
The Travelers Series Trust
Additional Information
Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that significantly affected the
fund's performance.
Statement of additional information. The Statement of Additional Information
(SAI) provides more detailed information about the fund. It is incorporated by
reference into this Prospectus.
You can make inquiries about the fund or obtain shareholder reports or the SAI
(without charge) by calling 1-800-842-9368 or writing to The Travelers Series
Trust, One Cityplace, Hartford, CT 06103. As of the date of this Prospectus, the
Fund's SAI and shareholder reports are not available on the Fund's website,
because the Fund has not yet commenced operations. In the future, the Fund may
make its SAI and shareholder reports available on its website.
Information about the fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's (the "Commission") Public Reference Room in
Washington, D.C. In addition, information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Database
on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: publicinfo@sec.gov, or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. The fund is not offering to sell its
shares to any person to whom the fund may not lawfully sell its shares.
Pioneer Strategic Income Portfolio
(Investment Company Act file no. 811-6465)
PART B
Information Required in a Statement of Additional Information
STATEMENT OF ADDITIONAL INFORMATION
May __, 2005
The Travelers Series Trust
Strategic Equity Portfolio
AIM Capital Appreciation Portfolio
Van Kampen Enterprise Portfolio
MFS Total Return Portfolio
Salomon Brothers Strategic Total Return Bond Portfolio
Travelers Managed Income Portfolio
Pioneer Strategic Income Portfolio
- ---------------------------------------------------------------------------------------------------------------------------------
Acquisition of the Assets and Liabilities of: By and in Exchange for Shares of:
- ---------------------------------------------------------------------------------------------------------------------------------
Strategic Equity Portfolio Strategic Equity Portfolio
- ---------------------------------------------------------------------------------------------------------------------------------
AIM Capital Appreciation Portfolio AIM Capital Appreciation Portfolio
- ---------------------------------------------------------------------------------------------------------------------------------
Van Kampen Enterprise Portfolio Van Kampen Enterprise Portfolio
- ---------------------------------------------------------------------------------------------------------------------------------
MFS Total Return Portfolio MFS Total Return Portfolio
- ---------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Strategic Total Return Bond Portfolio Salomon Brothers Strategic Total Return Bond Portfolio
- ---------------------------------------------------------------------------------------------------------------------------------
Travelers Managed Income Portfolio Travelers Managed Income Portfolio
- ---------------------------------------------------------------------------------------------------------------------------------
Pioneer Strategic Income Portfolio Pioneer Strategic Income Portfolio
- ---------------------------------------------------------------------------------------------------------------------------------
(collectively, the "Portfolios") (collectively, the "Trust Portfolios")
- ---------------------------------------------------------------------------------------------------------------------------------
each a series of Travelers Series Fund Inc. (the "Fund") each a series of The Travelers Series Trust (the "Trust")
125 Broad Street One Cityplace
New York, New York 10004 Hartford, Connecticut 06103
- ---------------------------------------------------------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Combined Prospectus/Proxy Statement dated May __,
2005 for the Special Meetings of Stockholders of each Portfolio to be held on
June 29, 2005. Unless otherwise indicated, capitalized terms used herein and not
otherwise defined have the same meanings as are given to them in the Combined
Prospectus/Proxy Statement. Copies of the Combined Prospectus/Proxy Statement
may be obtained at no charge by calling 1-800-842-9368.
Further information about the Trust Portfolios is contained in the
Statement of Additional Information for the Trust Portfolios dated May __, 2005,
which is incorporated herein by reference to Post-Effective Amendment No. __ of
the Trust filed under rule 485(b) under the Securities Act of 1933 on May __,
2005, and will be provided to all shareholders or contract owners requesting
this SAI.
STATEMENT OF ADDITIONAL INFORMATION
Table of Contents
GENERAL INFORMATION............................................................2
FINANCIAL STATEMENTS...........................................................3
-1-
GENERAL INFORMATION
The Shareholders of each Portfolio are being asked to consider and vote on
a proposal with respect to an Agreement and Plan of Reorganization (the
"Reorganization Agreement") dated as of May __, 2005 by and between the Fund, on
behalf of each Portfolio, and the Trust, on behalf of each of Trust Portfolio,
and the transactions contemplated thereby. The Reorganization Agreement
contemplates the transfer of substantially all of the assets and all of the
liabilities of each Portfolio to the corresponding Trust Portfolio in exchange
for shares issued by the Trust in the Trust Portfolio with an aggregate net
asset value equal to the aggregate net asset value of the shares of the
Portfolio that are outstanding immediately before the Reorganization takes
effect.
Special Meetings of stockholders of each Portfolio to consider the proposal
and the related transaction will be held at Citigroup Center, 153 East 53rd
Street, 14th Floor Conference Center, New York, New York 10022 on June 29, 2005
at 9:00 a.m. (Eastern time). For further information about the transaction, see
the Combined Prospectus/Proxy Statement.
-2-
FINANCIAL STATEMENTS
The audited financial statements and notes thereto of the Portfolios
contained in their Annual Reports to Shareholders dated October 31, 2004 are
incorporated by reference into this Statement of Additional Information. The
financial statements and notes thereto have been audited by KPMG LLP, whose
report thereon also appears in such Annual Reports, and are incorporated herein
by reference to the Forms N-CSR for the Fund filed on January 7, 2005.
No financial information relating to the Trust Portfolios and no projected
(pro forma) financial information is being provided because the Trust Portfolios
into which the Portfolios will be reorganized are newly formed shell portfolios
of the Trust.
-3-
Part C - Other Information
- --------------------------
Item 15. Indemnification.
Provisions for the indemnification of the Trust's Trustees and officers are
contained in Article VIII of the Trust's Declaration of Trust.
Registrant's trustees and officers are insured against certain expenses in
connection with the defense of claims, demands, actions, suits, or proceedings,
and certain liabilities that might be imposed as a result of such actions, suits
or proceedings.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "1933 Act"), may be permitted to directors, trustees,
officers and controlling persons of the Registrant and the principal underwriter
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 1933 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, trustee, officer, or controlling person of the Registrant
and the principal underwriter in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such director,
trustee, officer or controlling person or principal underwriter in connection
with the shares 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 1933 Act and will be governed by
the final adjudication of such issue.
Item 16. Exhibits.
(1) 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 (File No. 033-43628).)
(2) Bylaws. (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 (File No. 033-43628).)
(3) Not applicable.
(4) Agreement and Plan of Reorganization (Filed as Appendix A to the
Combined Prospectus/Proxy Statement included in Part A to this Form N-14
Registration Statement.)
(5) Not applicable.
-4-
(6) (a) Investment Advisory Agreement between Travelers Investment
Adviser Inc. and the Registrant by itself and on behalf of Strategic Equity
Portfolio incorporated by reference to exhibit (d)( 57) to Post-Effective
Amendment no. 39 to the Registration Statement on Form N-1A, file Number
33-43628 filed on May 20, 2005.
(b) Sub-Advisory Agreement between Travelers Investment
Adviser Inc. and Fidelity Management & Research Company as to the Strategic
Equity Portfolio incorporated by reference to exhibit (d)(64) to Post-Effective
Amendment no. 39 to the Registration Statement on Form N-1A, file Number
33-43628 filed on May 20, 2005.
(c) Investment Advisory Agreement between Travelers Investment
Adviser Inc. and the Registrant by itself and on behalf of AIM Capital
Appreciation Portfolio incorporated by reference to exhibit (d)(53) to
Post-Effective Amendment no. 39 to the Registration Statement on Form N-1A, file
Number 33-43628 filed on May 20, 2005.
(d) Sub-Advisory Agreement between Travelers Investment
Adviser Inc. and AIM Capital Management as to the AIM Capital Appreciation
Portfolio incorporated by reference to exhibit (d)(61) to Post-Effective
Amendment no. 39 to the Registration Statement on Form N-1A, file Number
33-43628 filed on May 20, 2005.
(e) Investment Advisory Agreement between Travelers Investment
Adviser Inc. and the Registrant by itself and on behalf of Van Kampen Enterprise
Portfolio incorporated by reference to exhibit (d)(58) to Post-Effective
Amendment no. 39 to the Registration Statement on Form N-1A, file Number
33-43628 filed on May 20, 2005.
(f) Sub-Advisory Agreement between Travelers Investment
Adviser Inc. and Van Kampen Asset Management Inc. as to the Van Kampen
Enterprise Portfolio incorporated by reference to exhibit (d)(65) to
Post-Effective Amendment no. 39 to the Registration Statement on Form N-1A, file
Number 33-43628 filed on May 20, 2005.
(g) Investment Advisory Agreement between Travelers Investment
Adviser Inc. and the Registrant by itself and on behalf of MFS Total Return
Portfolio incorporated by reference to exhibit (d)(54) to Post-Effective
Amendment no. 39 to the Registration Statement on Form N-1A, file Number
33-43628 filed on May 20, 2005.
(h) Sub-Advisory Agreement between Travelers Investment
Adviser Inc. and Massachusetts Financial Services as to the MFS Total Return
Portfolio incorporated by reference to exhibit (d)(60) to Post-Effective
Amendment no. 39 to the Registration Statement on Form N-1A, file Number
33-43628 filed on May 20, 2005.
(i) Investment Advisory Agreement between Travelers Investment
Adviser Inc. and the Registrant by itself and on behalf of Salomon Brothers
Strategic Total Return Bond Portfolio incorporated by reference to exhibit
(d)(56) to Post-Effective Amendment no. 39 to the Registration Statement on Form
N-1A, file Number 33-43628 filed on May 20, 2005.
(j) Sub-Advisory Agreement between Travelers Investment
Adviser Inc. and Salomon Brothers Asset Management as to the Salomon Brothers
Strategic Total Return Bond Portfolio incorporated by reference to exhibit
(d)(63) to Post-Effective Amendment no. 39 to the Registration Statement on Form
N-1A, file Number 33-43628 filed on May 20, 2005.
(k) Investment Advisory Agreement between Travelers Asset
Management International Company LLC and the Registrant by itself and on behalf
of Travelers Managed Income Portfolio incorporated by reference to exhibit
(d)(59) to Post-Effective Amendment no. 39 to the Registration Statement on Form
N-1A, file Number 33-43628 filed on May 20, 2005.
(l) Sub-Advisory Agreement between Travelers Asset Management
International Company LLC and Salomon Brothers Asset Management as to the
Travelers Managed Income Portfolio incorporated by reference to exhibit (d)(81)
to Post-Effective Amendment no. 39 to the Registration Statement on Form N-1A,
file Number 33-43628 filed on May 20, 2005.
-5-
(m) Investment Advisory Agreement between Travelers Investment
Adviser Inc. and the Registrant by itself and on behalf of Pioneer Strategic
Income Portfolio incorporated by reference to exhibit (d)(55) to Post-Effective
Amendment no. 39 to the Registration Statement on Form N-1A, file Number
33-43628 filed on May 20, 2005.
(n) Sub-Advisory Agreement between Travelers Investment
Adviser Inc. and Pioneer Investment Management, Inc. as to the Pioneer Strategic
Income Portfolio incorporated by reference to exhibit (d)(62) to Post-Effective
Amendment no. 39 to the Registration Statement on Form N-1A, file Number
33-43628 filed on May 20, 2005.
(7) Not applicable.
(8) Not applicable.
(9) Master Custody Agreement with State Street Bank and Trust.
(Incorporated herein by reference to Exhibit g(5) to Post-Effective Amendment
No. 15 to the Registration Statement on Form N-1A filed February 27, 2002 (File
No. 033-75644).)
(10) Not applicable.
(11) Opinion and Consent of Counsel is filed herewith as Exhibit 11.
(12) Form of Tax Opinion of Counsel is incorporated by reference to
Exhibit 12 to Form N-14 filed on April 22, 2005 (File No. 333-124261).
(13) (a) Form of Amended and Restated Administrative Services
Agreement between the Registrant and The Travelers Insurance Company.
(Incorporated by reference to Exhibit (h)(2) to Post-Effective Amendment No. 35
to the Registration Statement on Form N-1A filed on April 30, 2004 (File No.
033-43628).)
(b) 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 (File No. 033-43628).)
(c) Transfer Agency and Services Agreement between Citi
Fiduciary Trust Company (formerly Smith Barney Private Trust Company) and the
Registrant. (Incorporated herein by reference to Exhibit (h)(2) to
Post-Effective Amendment No. 14 to the Registration Statement on Form N-1A filed
on February 28, 2001 (File No. 33-75644).)
(d) Sub-Transfer Agency and Services Agreement between
Registrant and PFPC Global Fund Services. (Incorporated herein by reference to
Exhibit (h)(3) to Post-Effective Amendment No. 14 to the Registration Statement
on Form N-1A filed on February 28, 2001 (File No. 33-75644).)
(14) Consent of independent registered public accounting firm is filed
herewith as Exhibit 14.
(15) Not applicable.
-6-
(16) (a) Power of Attorney authorizing Kathleen A. McGah or Ernest J.
Wright as signatory for R. Jay Gerken is filed herewith as Exhibit 16(a).
(b) Power of Attorney authorizing Kathleen A. McGah or Ernest
J. Wright as signatory for Frances M. Hawk is filed herewith as Exhibit 16(b).
(c) Power of Attorney authorizing Kathleen A. McGah or Ernest
J. Wright as signatory for Lewis Mandell is filed herewith as Exhibit 16(c).
(d) Power of Attorney authorizing Kathleen A. McGah or Ernest
J. Wright as signatory for Robert E. McGill III is filed herewith as Exhibit
16(d).
(17) (a) Form of Proxy for Strategic Equity Portfolio is filed
herewith as Exhibit 17(a).
(b) Form of Proxy for AIM Capital Appreciation Portfolio is
filed herewith as Exhibit 17(b).
(c) Form of Proxy for Van Kampen Enterprise Portfolio is filed
herewith as Exhibit 17(c).
(d) Form of Proxy for MFS Total Return Portfolio is filed
herewith as Exhibit 17(d).
(e) Form of Proxy for Salomon Brothers Strategic Total Return
Bond Portfolio is filed herewith as Exhibit 17(e).
(f) Form of Proxy for Travelers Managed Income Portfolio is
filed herewith as Exhibit 17(f).
(g) Form of Proxy for Pioneer Strategic Income Portfolio is
filed herewith as Exhibit 17(g).
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus that is part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, as
amended (the "1933 Act"), the reoffering prospectus will contain the information
called for by the applicable registration form for reofferings by persons who
may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the
-7-
1933 Act, each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial bona fide offering of them.
-8-
SIGNATURES
----------
As required by the Securities Act of 1933, this registration statement has
been signed on behalf of the registrant, in the City of Hartford and the State
of Connecticut, on the 20th day of May, 2005.
THE TRAVELERS SERIES TRUST
(Registrant)
By: /s/ R. Jay Gerken*
------------------------------
Name: R. Jay Gerken
Title: Chairman of the Board
Chief Executive Officer
As required by the Securities Act of 1933, this registration statement has
been signed below by the following persons in the capacities indicated on the
dates indicated.
Signature Title Date
/s/ R. Jay Gerken* Chairman of the Board May 20, 2005
Chief Executive Officer
/s/ Frances M. Hawk* Trustee May 20, 2005
/s/ Lewis Mandell* Trustee May 20, 2005
/s/ Robert E. McGill III* Trustee May 20, 2005
*By : /s/ Kathleen A. McGah, Attorney-in-fact