<PAGE>
THE TRUST FOR TRAK INVESTMENTS
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
--------------------------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 3, 1994
--------------------------------------------------------------
To the Shareholders:
Notice is hereby given that a Special Meeting of Shareholders of The Trust
for TRAK Investments (the "Trust") will be held at Two World Trade Center, 100th
Floor, New York, New York 10048 on March 3, 1994, commencing at 12:00 noon.
The Special Meeting is being held for the purposes of:
1. approving or disapproving a proposal to permit the Trust to replace or
add investment advisers and to enter into investment advisory contracts
with investment advisers for the Portfolios comprising the Trust without
shareholder approval -- ALL PORTFOLIOS OF THE TRUST;
2. approving or disapproving for Large Capitalization Value Equity
Investments a proposed investment advisory agreement with Parametric
Portfolio Associates, Inc. -- LARGE CAPITALIZATION VALUE EQUITY
INVESTMENTS ONLY;
3. approving or disapproving for Large Capitalization Value Equity
Investments an amended and restated investment advisory agreement with
Newbold's Asset Management, Inc. -- LARGE CAPITALIZATION VALUE EQUITY
INVESTMENTS ONLY;
4. approving or disapproving for Large Capitalization Growth Investments a
proposed investment advisory agreement with Boston Structured Advisors,
a division of PanAgora Asset Management, Inc. -- LARGE CAPITALIZATION
GROWTH INVESTMENTS ONLY;
5. approving or disapproving for Large Capitalization Growth Investments an
amended and restated investment advisory agreement with
Provident Investment Counsel -- LARGE CAPITALIZATION GROWTH INVESTMENTS
ONLY; and
6. considering and acting upon such other business as may properly come
before the Special Meeting and any adjournments thereof.
<PAGE>
The close of business on January 4, 1994, has been fixed as the record date
for the determination of shareholders of the Trust entitled to notice of and to
vote at the Special Meeting and any adjournments thereof.
By Order of the Trustees,
FRANCIS J. MCNAMARA, III
Secretary
January 18, 1994
New York, New York
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE SPECIAL MEETING ARE
REQUESTED TO
COMPLETE, SIGN, DATE AND RETURN THE PROXY CARDS IN THE ENCLOSED ENVELOPE,
WHICH
NEEDS NO POSTAGE IF MAILED IN THE CONTINENTAL UNITED STATES. INSTRUCTIONS
FOR
THE PROPER EXECUTION OF THE PROXY CARDS ARE SET FORTH ON THE FOLLOWING
PAGE. IT
IS IMPORTANT THAT THE PROXY CARDS BE RETURNED PROMPTLY.
<PAGE>
INSTRUCTIONS FOR SIGNING THE PROXY CARDS
The following general rules for signing the proxy card(s) may be of
assistance to you and avoid the time and expense to the Trust involved in
validating your vote if you fail to sign your proxy card(s) properly.
1. INDIVIDUAL ACCOUNTS: Sign your name exactly as it appears in the
registration on the proxy card.
2. JOINT ACCOUNTS: Either party may sign, but the name of the party signing
should conform exactly to the name shown in the registration on the proxy card.
<TABLE>
3. ALL OTHER ACCOUNTS: The capacity of the individual signing the proxy
card should be indicated unless it is reflected in the form of registration. For
example:
<CAPTION>
REGISTRATION VALID SIGNATURE
- -------------------------------- -----------------------
<S> <C>
CORPORATE ACCOUNTS
(1) ABC Corp................... ABC Corp.
(2) ABC Corp................... John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer... John Doe
(4) ABC Corp. Profit
Sharing Plan............... John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust.................. Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee
u/t/d 12/28/78............ Jane B. Doe
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust.
f/b/o John B. Smith, Jr.
UGMA...................... John B. Smith
(2) Estate of John B. Smith.... John B. Smith, Jr.,
Executor
</TABLE>
<PAGE>
SPECIAL MEETING OF SHAREHOLDERS
MARCH 3, 1994
------------------------------------------------------
THE TRUST FOR TRAK INVESTMENTS
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
------------------------------------------------------
PROXY STATEMENT
INTRODUCTION
This document is a proxy statement for The Trust for TRAK Investments (the
"Trust"). This proxy statement is being furnished to the shareholders of the
Trust in connection with the Trust's Board of Trustees' (the "Board")
solicitation of proxies to be used at the special meeting of shareholders of the
Trust, to be held on March 3, 1994, or any adjournment or adjournments thereof
(the "Meeting"). The Meeting will be held at Two World Trade Center, 100th
Floor, New York, New York at 12:00 noon. This proxy statement and accompanying
proxy card(s) are first being mailed on or about January 18, 1994. Proxy
solicitations will be made primarily by mail, but proxy solicitations also may
be made by telephone, telegraph or personal interviews conducted by officers and
employees of the Trust; Smith Barney Shearson Inc. ("Smith Barney Shearson");
Smith, Barney Advisers, Inc. ("Smith Barney Advisers"), of which the Consulting
Group (the "Consulting Group" or the "Manager"), the investment manager of the
Trust, is a part; The Boston Company Advisors, Inc., administrator for the Trust
("Boston Advisors"); and/or The Shareholder Services Group, Inc. ("TSSG"), a
subsidiary of First Data Corporation, the transfer agent for the Trust. The cost
of the proxy solicitation is anticipated to be $69,000.
The Trust has an unlimited number of shares of beneficial interest, par
value $0.001 per share, which are divided among twenty-three sub-trusts
("Portfolios") of the Trust. Shares of twelve of such Portfolios are currently
offered for sale to shareholders. Proposal 1 will be submitted to a vote of the
holders of each of the Portfolios of the Trust. Proposals 2 and 3 will be
submitted to a vote of the holders of Large Capitalization Value Equity
Investments ("Large Capitalization Value"). A vote of the shareholders of Large
Capitalization Growth Investments ("Large Capitalization Growth") will be
required for approval of Proposals 4 and 5. Holders of shares of each Portfolio
have equal voting rights of one vote per share and any fractional share is
entitled to a fractional vote.
If an enclosed proxy is properly executed and returned in time to be voted
at the Meeting, the shares represented thereby will be voted in accordance with
the instructions marked thereon. Unless instructions to the contrary are marked
thereon, a proxy will be voted FOR the matters listed in the accompanying Notice
of Special Meeting of Shareholders. For purposes of determining the presence of
1
<PAGE>
a quorum for transacting business at the Meeting, abstentions and broker "non-
votes" (that is, proxies from brokers or nominees indicating that such persons
have not received instructions from the beneficial owner or other persons
entitled to vote shares on a particular matter with respect to which the brokers
or nominees do not have discretionary power) will be treated as shares that are
present but which have not been voted. For this reason, abstentions and broker
non-votes will have the effect of a "no" vote for purposes of obtaining the
requisite approval of each Proposal. Any shareholder who has given a proxy has
the right to revoke it at any time prior to its exercise either by attending the
Meeting and voting his or her shares in person or by submitting a letter of
revocation or a later-dated proxy to the Trust at the above address prior to the
date of the Meeting.
In the event that a quorum is not present at the Meeting, or in the event
that a quorum is present but sufficient votes to approve any of the proposals
are not received, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies. In
determining whether to adjourn the Meeting, the following factors may be
considered: the nature of the proposals that are the subject of the Meeting, the
percentage of votes actually cast, the percentage of negative votes actually
cast, the nature of any further solicitation and the information to be provided
to shareholders with respect to the reasons for the solicitation. Any
adjournment will require the affirmative vote of a majority of those shares
represented at the Meeting in person or by proxy. A shareholder vote may be
taken on one of the proposals in this proxy statement prior to any adjournment
if sufficient votes have been received for approval. Under the Master Trust
Agreement of the Trust, dated April 12, 1991, as amended from time to time, a
quorum is constituted by the presence in person or by proxy of the holders of a
majority of the outstanding shares entitled to vote on the particular matter at
the Meeting.
2
<PAGE>
<TABLE>
The Board has fixed the close of business on January 4, 1994 as the record
date (the "Record Date") for the determination of shareholders of the Trust
entitled to notice of and to vote at the Meeting. At the close of business on
the Record Date, the following numbers of shares of each Portfolio currently
offered by the Trust were issued and outstanding:
<CAPTION>
SHARES
NAME OF PORTFOLIO OUTSTANDING
----------------------------------------- -----------
<S> <C>
Government Money Investments............. 126,654,014.990
Intermediate Fixed Income Investments.... 21,323,490.744
Total Return Fixed Income Investments.... 9,638,369.351
Municipal Bond Investments............... 6,854,989.423
Mortgage Backed Investments.............. 13,947,344.790
Large Capitalization Value Equity
Investments............................ 78,567,845.040
Small Capitalization Value Equity
Investments............................ 24,157,667.677
Large Capitalization Growth
Investments............................ 32,608,260.693
Small Capitalization Growth
Investments............................ 9,799,993.605
International Equity Investments......... 37,449,302.285
International Fixed Income Investments... 15,699,763.473
Balanced Investments..................... 1,422,071.174
</TABLE>
<TABLE>
As of the Record Date, to the knowledge of the Trust and its Board, no
single shareholder or "group" (as that term is used in Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), except as set
forth in the table below, beneficially owned more than 5% of the outstanding
shares of any Portfolio. As of the Record Date, the officers and Board members
of the Trust as a group beneficially owned less than 1% of the shares of the
Trust or of any Portfolio of the Trust.
<CAPTION>
AMOUNT (AND
PERCENTAGE) OF
SHARES
BENEFICIALLY
NAME AND ADDRESS PORTFOLIO OWNED
- ------------------------------------- --------- --------------
<S> <C> <C>
SBS Trust Company TTEE............... Balanced 223,311.430
Synthes (U.S.A.) Investments 15.74%
201 North Walnut Street -- 9th Fl.
Wilmington, DE 19801
SBS Trust Company TTEE............... Balanced 207,123.235
Odell Associates, Inc. Investments 14.60%
In Care of the Barclay Group
Springhouse Corporate Center I
323 Norristown Road
Ambler, PA 19002
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
AMOUNT (AND
PERCENTAGE) OF
SHARES
BENEFICIALLY
NAME AND ADDRESS PORTFOLIO OWNED
- ------------------------------------- --------- --------------
<S> <C> <C>
SBS Trust Company TTEE............... Balanced 136,776.158
Elhert Tool Company Inc. Investments 9.64%
201 North Walnut Street -- 9th Fl.
Wilmington, DE 19801
SBS Trust Company TTEE............... Balanced 134,680.228
The Rosewood Corp. (Thrift C) Investments 9.50%
201 North Walnut Street -- 9th Fl.
Wilmington, DE 19801
SBS Trust Company TTEE............... Balanced 87,695.413
Cap Rock Electric Cooperative Investments 6.18%
201 North Walnut Street -- 9th Fl.
Wilmington, DE 19801
</TABLE>
Proposal 1 requires for approval, with respect to each Portfolio, the
affirmative vote of a "majority of the outstanding voting securities" of the
Portfolio, which, as defined in the Investment Company Act of 1940, as amended
(the "1940 Act"), means the lesser of (a) 67% of the Portfolio's shares present
at a meeting of its shareholders if the owners of more than 50% of the shares of
the Portfolio then outstanding are present in person or by proxy or (b) more
than 50% of the Portfolio's outstanding shares ("Majority Vote"). Approval of
Proposals 2 and 3 requires the Majority Vote of the outstanding shares of Large
Capitalization Value Equity Investments. Approval of Proposals 4 and 5 requires
the Majority Vote of the outstanding shares of Large Capitalization Growth
Investments.
Separate proxy cards are enclosed for each Portfolio in which a shareholder
is a record owner of shares. It is therefore essential that shareholders
complete, date and sign each proxy card.
In order that a shareholder's shares may be represented at the Meeting,
shareholders are required to allow sufficient time for their proxies to be
received on or before 12:00 noon on March 3, 1994.
PROPOSAL 1: ALL PORTFOLIOS
TO APPROVE OR DISAPPROVE OF A PROPOSAL TO PERMIT THE TRUST TO
REPLACE OR ADD INVESTMENT ADVISERS AND TO ENTER INTO INVESTMENT
ADVISORY CONTRACTS WITH INVESTMENT ADVISERS FOR THE PORTFOLIOS
WITHOUT SHAREHOLDER APPROVAL.
The first proposal to be considered at the Meeting is the proposal to
permit the Trust to replace or add investment advisers for each Portfolio and to
enter into investment advisory contracts without obtaining the approval of the
relevant
4
<PAGE>
Portfolio's shareholders. This proposal is being submitted to the shareholders
of each Portfolio for approval as required by the terms of an exemptive
application (the "Exemptive Application") filed with the Securities and Exchange
Commission ("SEC") and will not become effective with respect to a particular
Portfolio unless and until (i) the SEC has granted the relief requested in the
Exemptive Application and (ii) Proposal 1 has been approved by a Majority Vote
of such Portfolio's shareholders. Proposals 2 through 5 have been included
herein in the event that Proposal 1 is not approved by a Majority Vote of such
Portfolio's shareholders or in the manner set forth below.
In the Exemptive Application, the Trust seeks an exemptive order (the
"Exemption") from the SEC from the provisions of Section 15(a) of the 1940 Act
that, if granted, would permit the Consulting Group to enter into investment
advisory contracts with the investment advisers ("Investment Advisers") for the
Portfolios upon approval of the Board but without the formal shareholder
approval currently required under such Section. The requested relief is based on
the conditions set forth in the Exemptive Application that, among other things:
(1) the Consulting Group will select, monitor, evaluate and allocate assets to,
the Investment Advisers and ensure that such Advisers comply with the relevant
Portfolio's investment objective, policies and restrictions; (2) before a
Portfolio may rely on the Exemption, the terms of the Exemption must be approved
by the Portfolio's shareholders; (3) shares of the Portfolios relying on the
Exemption will not be subject to any sales loads or redemption fees or other
charges for redeeming shares; (4) the Trust will provide to shareholders certain
information about a new Investment Adviser and its investment advisory contract
that would normally have been included in a proxy statement within 90 days of
the engagement of the new Investment Adviser; (5) the Trust will disclose in its
prospectus the terms of the Exemption; and (6) the Trustees, including a
majority of the "non-interested" Trustees, must approve each investment advisory
contract. Shareholder approval of any changes to the investment management
agreement between the Trust and Smith Barney Advisers would still require
shareholder approval. There can be no assurance that the Exemption will be
granted.
The Trustees believe that the authority to replace or add Investment
Advisers and enter into investment advisory contracts with the Investment
Advisers, subject to the conditions described above, will allow the Consulting
Group to perform to the fullest extent the principal functions the Portfolios
are paying it to perform -- that is, selecting Investment Advisers, monitoring
their performance and making whatever changes to the roster of Investment
Advisers as the Consulting Group deems appropriate, subject to Trustee approval.
The Trustees further believe that requiring shareholder approval of each new
Investment Adviser results in unnecessary administrative expense to the
Portfolios and may result in delays in executing changes in Investment Advisers
or their investment advisory contracts which may be detrimental to the
Portfolios.
5
<PAGE>
Moreover, the Trustees believe that only rarely have investment company
shareholders failed to approve an investment advisory contract with any
investment adviser recommended to them by management. Shareholders should bear
in mind that because the Portfolios assess no sales loads or redemption fees, a
shareholder who is dissatisfied with an Investment Adviser selected for a
Portfolio in which he or she owns shares may "vote with his or her feet" and
redeem his or her assets in such Portfolio without penalty.
Shareholders should recognize that in engaging new Investment
Advisers and entering into investment advisory contracts, the Consulting
Group will negotiate investment advisory fees with those Investment
Advisers and, because these fees are paid by the Consulting Group and
not by each Portfolio, any fee reduction negotiated by the Consulting
Group will inure to its benefit and any increase will inure to its
detriment. The fees paid to the Consulting Group by the Portfolios and
the fees paid to Investment Advisers by the Consulting Group are
considered by the Board in approving the Portfolios management and
advisory arrangements and any change in the fees paid by a Portfolio to
the Consulting Group would require shareholder approval.
REQUIRED VOTE
Approval of Proposal 1 with respect to each Portfolio requires a Majority
Vote of that Portfolio's outstanding shares.
THE TRUSTEES, INCLUDING ALL OF THE INDEPENDENT TRUSTEES, RECOMMEND THAT
THE
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE PROPOSAL TO PERMIT THE TRUST TO
REPLACE
OR ADD INVESTMENT ADVISERS AND TO ENTER INTO INVESTMENT ADVISORY
CONTRACTS WITH
INVESTMENT ADVISERS WITHOUT SHAREHOLDER APPROVAL.
PROPOSAL 2: LARGE CAPITALIZATION VALUE ONLY
TO APPROVE OR DISAPPROVE FOR LARGE CAPITALIZATION VALUE A PROPOSED
INVESTMENT ADVISORY AGREEMENT WITH PARAMETRIC PORTFOLIO
ASSOCIATES,
INC.
The second proposal to be considered at the Meeting is the approval of a
proposed investment advisory agreement (the "Parametric Advisory Agreement")
between Smith Barney Advisers and Parametric Portfolio Associates, Inc.
("Parametric"), pursuant to which Parametric will act as a co-adviser of Large
Capitalization Value. This proposal is only relevant to the shareholders of
Large Capitalization Value. The Parametric Advisory Agreement is being submitted
to shareholders of Large Capitalization Value as required by the 1940 Act, which
provides that shareholders must grant prior approval for any new investment
advisory agreement. This proposal is being presented in the event that either
the Exemptive Application referred to in Proposal 1 is not approved by the SEC
by the date of the Meeting or the shareholders of Large Capitalization Value
fail to approve Proposal 1.
Parametric's principal offices are located at 7310 Columbia Center, 701
Fifth Avenue, Seattle, Washington 98104-7090. Parametric is wholly owned by
Pacific Financial Asset Management Company, which is an indirect wholly-owned
subsidiary of Pacific Mutual Life Insurance Company. Parametric is registered
with the SEC as an investment adviser and, as of November 30, 1993, had assets
under management of approximately $1.3 billion. Attached to this proxy statement
as Exhibit A is a copy of Parametric's audited statement of financial position
for its fiscal year ended December 31, 1992 and attached hereto as Exhibit B is
a copy of Parametric's unaudited balance sheet as of October 31, 1993 (the
"Parametric Balance Sheet Date"). The management of Parametric has repre-
6
<PAGE>
sented to the Trust that, since the Parametric Balance Sheet Date, there has
been no material change in the financial condition of Parametric. Proxies
solicited for the Meeting will not be voted for Proposal 2 presented in this
Proxy Statement unless in the judgment of the Board there has been no material
adverse change in the financial condition of Parametric between the Parametric
Balance Sheet Date and December 31, 1993. The names of the investment companies
for which Parametric provides services, the amounts of their net assets and the
annual rate of Parametric's fees for its services to those companies are set
forth on Exhibit C attached hereto.
<TABLE>
The name, position with, principal occupation and address of directors and
principal executive officers of Parametric are set forth below:
<CAPTION>
POSITION WITH PRINCIPAL
NAME PARAMETRIC OCCUPATIONS
---- ------------- -----------
<S> <C> <C>
William David Cvengros...... Chairman and Director Same
Mark William
England-Markun............ CEO, Director and Managing
Managing Director Director
of
Investments
Glenn Stanley Schafer....... Chief Financial Same
Officer
Steven Thomas Bailey........ Director Same
William Eugene Cornelius,
Jr........................ Director and Managing Managing
Director Director
for
Marketing
and
Client
Service
Audrey Lee Milfs............ Director and Secretary Secretary
Khanh Thien Tran............ Treasurer Same
Kathleen Ann Clune.......... Assistant Secretary/ Same
Assistant Treasurer
</TABLE>
The Parametric Advisory Agreement was approved by the Trustees, including
the Trustees who are not "interested persons" to any party to the Agreement
("Independent Board Members"), on December 9, 1993, and such approval was made
expressly subject to subsequent shareholder approval of such agreement. A copy
of the form of the Parametric Advisory Agreement is set forth as Exhibit D to
this proxy statement. Under the terms of the Parametric Advisory Agreement,
Parametric will manage a portion of Large Capitalization Value's assets, subject
to the supervision of the Consulting Group and the Board, in accordance with the
investment objective and stated investment policies of Large Capitalization
Value. In addition, Parametric will make investment decisions for Large
Capitalization Value, place orders to purchase and sell investments for Large
Capitalization Value and employ professional portfolio managers and securities
and futures analysts who will provide research services to Parametric.
7
<PAGE>
Under the terms of the Parametric Advisory Agreement, the Consulting Group
will pay to Parametric a fee that is computed daily and paid monthly at the
annual rate of 0.20% of the value of Large Capitalization Value's average daily
net assets on the first $300 million of assets and 0.15% of the value of Large
Capitalization Value's average daily net assets thereafter, multiplied by a
fraction, the numerator of which is the average daily value of the net assets of
Large Capitalization Value allocated to Parametric for management and the
denominator of which is the average daily net asset value of Large
Capitalization Value.
REQUIRED VOTE
Approval of the Parametric Advisory Agreement requires a Majority Vote of
the outstanding shares of Large Capitalization Value. Failure to obtain the
requisite vote for approval of the Parametric Advisory Agreement, if the
Newbold's Amended and Restated Advisory Agreement (as that term is defined
below) is approved, will result in Newbold's Asset Management, Inc. continuing
as the sole Investment Adviser to Large Capitalization Value. Failure to obtain
the requisite vote for approval of both the Parametric Advisory Agreement and
the Newbold's Amended and Restated Advisory Agreement will result in Newbold's
continuing to act as the sole Investment Adviser to Large Capitalization Value
pursuant to the Newbold's current Advisory Agreement (as that term is defined
below).
THE BOARD OF THE TRUST, INCLUDING A MAJORITY OF THE INDEPENDENT BOARD
MEMBERS, RECOMMENDS THAT THE SHAREHOLDERS OF LARGE CAPITALIZATION VALUE
VOTE
"FOR" ADOPTION OF THE PARAMETRIC ADVISORY AGREEMENT.
PROPOSAL 3: LARGE CAPITALIZATION VALUE ONLY
TO APPROVE OR DISAPPROVE FOR LARGE CAPITALIZATION VALUE AN
AMENDED AND RESTATED INVESTMENT ADVISORY AGREEMENT WITH
NEWBOLD'S
ASSET MANAGEMENT, INC.
The third proposal to be considered at the Meeting is the approval of an
amended and restated investment advisory agreement ("Newbold's Amended and
Restated Advisory Agreement") with Newbold's Asset Management, Inc.
("Newbold's"). This proposal is only relevant to the shareholders of Large
Capitalization Value. The Newbold's Amended and Restated Advisory Agreement is
being submitted to shareholders of Large Capitalization Value, as required by
the 1940 Act, which provides that shareholders must grant prior approval for any
amended and restated investment advisory agreement. This proposal is being
presented in the event that either the Exemptive Application referred to in
Proposal 1 is not approved by the SEC by the date of the Meeting or the
shareholders of Large Capitalization Value fail to approve Proposal 1.
8
<PAGE>
Newbold's currently serves as investment adviser to Large Capitalization
Value pursuant to an Investment Advisory Agreement dated July 30, 1993 (the
"Newbold's Current Advisory Agreement"). The only material difference between
the Newbold's Current Advisory Agreement and the Newbold's Amended and Restated
Advisory Agreement is that the latter agreement provides for the management of
Large Capitalization Value by more than one investment adviser.
Newbold's has been registered as an investment adviser under the Investment
Advisers Act of 1940 (the "Advisers Act") since 1943 and is a wholly owned
subsidiary of United Asset Management Corporation ("United Asset Management"), a
professional services holding company listed on the New York Stock Exchange.
Newbold's provides investment advisory services to individual and institutional
clients. As of December 31, 1993, Newbold's had assets under management of
approximately $9.3 billion, and as of December 31, 1993, United Asset Management
had assets under management of approximately $103 billion. Newbold's principal
executive offices are located at, and the business address of its directors and
officers (other than Norton Reamer) is, 937 Haverford Road, Bryn Mawr,
Pennsylvania 19010. The principal executive offices of United Asset Management
are located at, and Mr. Reamer's business address is, One International Place,
Boston, Massachusetts 02110. Attached to this Proxy Statement as Exhibit E is a
copy of Newbold's audited statement of financial position for its fiscal year
ended December 31, 1992 and attached hereto as Exhibit F is a copy of Newbold's
unaudited balance sheet as of November 30, 1993 (the "Newbold's Balance Sheet
Date"). The management of Newbold's has represented to the Trust that, since the
Newbold's Balance Sheet Date, there has been no material change in the financial
condition of Newbold's. Proxies solicited for the Meeting will not be voted for
Proposal 3 presented in this Proxy Statement unless in the judgment of the Board
there has been no material adverse change in the financial condition of
Newbold's between the Newbold's Balance Sheet Date and December 31, 1993. The
names of the investment companies for which Newbold's provides services, the
amounts of their net assets and the annual rate of Newbold's fees for its
services to those companies are set forth on Exhibit G attached hereto.
<TABLE>
The names, positions and principal occupations of the officers and
directors of Newbold's are set forth below:
<CAPTION>
POSITION WITH PRINCIPAL
NAME NEWBOLD'S OCCUPATION
- ------------------------- --------------------- -------------------
<S> <C> <C>
Timothy M. Havens........ Chairman, Chief Portfolio Manager
Executive Officer
and Director
Otto Folin............... Senior Vice President Portfolio Manager
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL
NAME NEWBOLD'S OCCUPATION
- ------------------------- --------------------- -------------------
<S> <C> <C>
Harry K. Hiestand........ Senior Vice Portfolio Manager
President, Assistant
Secretary and
Director
Daniel J. Hopkins........ Executive Vice Portfolio Manager
President
John H. Marchesi, Jr. ... Executive Vice Same
President, Chief
Investment Officer
and Director
Stephen A. Mozur......... Senior Vice President Same
Samuel W. Parke, Jr. .... Senior Vice President Same
John W. Richards......... President, Chief Same
Operating Officer and
Director
Samuel R. Roberts........ Senior Vice President Same
and Treasurer
John K. Schneider........ Senior Vice President Same
Edward T. Shadek......... Senior Vice President Same
Denise B. Taylor......... Senior Vice President Same
Madelyn Y. Wharton....... Senior Vice President Same
Norton H. Reamer......... Director President and
Director of United
Asset Management
</TABLE>
The Newbold's Amended and Restated Advisory Agreement was approved by the
Trustees, including the Independent Board Members, on December 9, 1993, and such
approval was made expressly subject to subsequent shareholder approval of such
agreement. A copy of the form of the Newbold's Amended and Restated Advisory
Agreement is set forth as Exhibit D to this proxy statement. Under the terms of
the Newbold's Amended and Restated Advisory Agreement, Newbold's will manage a
portion of Large Capitalization Value's assets, subject to the supervision of
the Consulting Group and the Board, in accordance with the investment objective
and stated investment policies of Large Capitalization Value. In addition,
Newbold's will make investment decisions for Large Capitalization Value, place
orders to purchase and sell investments for Large Capitalization Value and
employ professional portfolio managers and securities and futures analysts who
will provide research services to Newbold's.
Under the terms of the Newbold's Amended and Restated Advisory Agreement,
the Consulting Group will pay to Newbold's a fee that is computed daily and paid
monthly at the annual rate of 0.30% of the value of Large Capitalization
10
<PAGE>
Value's average daily net assets multiplied by a fraction, the numerator of
which is the average daily value of the net assets of Large Capitalization Value
allocated to Newbold's for management and the denominator of which is the
average daily net asset value of Large Capitalization Value.
REQUIRED VOTE
Approval of the Newbold's Amended and Restated Advisory Agreement requires
a Majority Vote of the outstanding shares of Large Capitalization Value. Failure
to obtain the requisite vote for approval of the Newbold's Amended and Restated
Advisory Agreement, if the Parametric Advisory Agreement is approved, will
result in the appointment of Parametric as the sole Investment Adviser to Large
Capitalization Value. Failure to obtain the requisite vote for approval of both
the Newbold's Amended and Restated Advisory Agreement and the Parametric
Advisory Agreement will result in Newbold's continuing to act as the sole
Investment Adviser to Large Capitalization Value under the Newbold's
Current Advisory Agreement.
THE BOARD OF THE TRUST, INCLUDING A MAJORITY OF THE INDEPENDENT BOARD
MEMBERS, RECOMMEND THAT THE SHAREHOLDERS OF LARGE CAPITALIZATION VALUE
VOTE
"FOR" THE APPROVAL OF THE NEWBOLD'S AMENDED AND RESTATED ADVISORY
AGREEMENT.
PROPOSAL 4: LARGE CAPITALIZATION GROWTH ONLY
TO APPROVE OR DISAPPROVE FOR LARGE CAPITALIZATION GROWTH A
PROPOSED INVESTMENT ADVISORY AGREEMENT WITH BOSTON STRUCTURED
ADVISORS.
The fourth proposal to be considered at the Meeting is the approval of a
proposed investment advisory agreement (the "Boston Structured Advisory
Agreement") between Smith Barney Advisers and Boston Structured Advisors
("Boston Structured"), pursuant to which Boston Structured will act as a co-
adviser of Large Capitalization Growth. This proposal is only relevant to the
shareholders of Large Capitalization Growth. The Boston Structured Advisory
Agreement is being submitted to shareholders of Large Capitalization Growth, as
required by the 1940 Act, which provides that shareholders must grant prior
approval for any new investment advisory agreement. This proposal is being
presented in the event that either the Exemptive Application referred to in
Proposal 1 is not approved by the SEC by the date of the Meeting or the
shareholders of Large Capitalization Growth fail to approve Proposal 1.
Boston Structured's principal offices are located at 260 Franklin Street,
Boston, Massachusetts 02110. Boston Structured is a division of PanAgora Asset
Management, Inc. ("PanAgora Boston"), which is an investment adviser registered
under the Advisers Act, and is both a commodity trading adviser and a commodity
pool operator registered under the Commodity Exchange Act.
11
<PAGE>
PanAgora Boston was formed on September 22, 1989 as a wholly-owned subsidiary of
The Boston Company Inc. ("TBC") and was incorporated in Delaware. PanAgora
Boston is presently owned 50% by Nippon Life Insurance Company ("Nippon Life")
and 50% by Lehman Brothers Holdings, Inc.
As of December 31, 1993, PanAgora Boston had assets under management of
approximately $13 billion. Attached to this proxy statement as Exhibit H is a
copy of PanAgora Boston's audited statement of financial position for its fiscal
years ended December 31, 1992 and 1991 and attached hereto as Exhibit I is a
copy of PanAgora Boston's unaudited balance sheet as of September 30, 1993 (the
"PanAgora Boston Balance Sheet Date"). The management of PanAgora Boston has
represented to the Trust that, since the PanAgora Boston Balance Sheet Date,
there has been no material change in the financial condition of PanAgora Boston.
Proxies solicited for the Meeting will not be voted for Proposal 4 presented in
this Proxy Statement unless in the judgment of the Board there has been no
material adverse change in the financial condition of PanAgora Boston between
the PanAgora Boston Balance Sheet Date and December 31, 1993. The names of the
investment companies for which PanAgora Boston provides services, the amounts of
their net assets and the annual rate of PanAgora Boston's fees for its services
to those companies are set forth on Exhibit J attached hereto.
<TABLE>
The name, position with PanAgora Boston and principal occupation of each
director and principal executive officer of PanAgora Boston are set forth in the
following table:
<CAPTION>
POSITION WITH PRINCIPAL
NAME PANAGORA OCCUPATION
- ------------------ -------------------- -------------------------
<S> <C> <C>
Tamao Kobayashi... Director and Executive Vice President,
Chairman of the Nippon Life
Board
Richard A.
Crowell......... Managing Director Managing Director and
and President President, PanAgora
Boston
Alan Brown........ Managing Director Chief Investment Officer,
PanAgora Asset Management
Limited
Katsumi Funaki.... Director General Manager, Nippon
Life
Tomohiro Kawase... Director General Manager, Nippon
Life
Yutaka
Hashimoto....... Director Director and Deputy
Chief, International
Investment Headquarters,
Nippon Life
Fumio Masada...... Director Senior Managing Director,
Nippon Life
Kiyonobu
Shimazu......... Director Branch Manager, Lehman
Brothers, Inc., Asia
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL
NAME PANAGORA OCCUPATION
- ------------------ -------------------- -------------------------
<S> <C> <C>
John Snow......... Director, Chairman Chief Executive Officer,
of Managing PanAgora Asset Management
Directors Limited
Tsutou Furuta..... Director Managing Director,
PanAgora Asset Management
Limited
Takashi
Minagawa........ Director General Manager, NLI
International Inc.
Tadao Nishioka.... Director Director, Nippon Life
John R. Laird..... Director President and Chief
Executive Officer, Lehman
Brothers Inc.
Kathleen I.
DeVivo.......... Secretary Senior Manager and
Compliance Officer,
PanAgora Boston
Michael H.
Turpin.......... Treasurer Senior Manager and
Treasurer, PanAgora
Boston
</TABLE>
The principal business address of Mr. Laird is American Express Tower,
World Financial Center, New York, New York 10285; the principal business address
of Messrs. T. Kobayashi, F. Masada, T. Nishioka and Y. Hashimoto is 5-12
Imabashi 3-Chome, Chuo Ku, Osaka 541-01 Japan; the business address of Mr. K.
Funaki is 780 Third Street, New York, New York 10017; the business address of
Messrs. Crowell and Turpin and Ms. DeVivo is 260 Franklin Street, Boston,
Massachusetts 02110; the principal business address of Messrs. Brown, Snow, T.
Kawase, T. Furuta and T. Minagawa is 3 Finsbury Avenue, London, England EC2M
2PA; and the principal business address of Mr. Shimazu is Ark Mori Building,
12-32 Akasaka, 1-Chome, 35th Floor, Minato Ku, Tokyo, 107, Japan.
The Boston Structured Advisory Agreement was approved by the Trustees,
including Independent Board Members, on December 9, 1993, and such approval was
made expressly subject to subsequent shareholder approval of such agreement. A
copy of the form of the Boston Structured Advisory Agreement is set forth as
Exhibit D to this proxy statement. Under the terms of the PanAgora Advisory
Agreement, Boston Structured will manage a portion of Large Capitalization
Growth's assets, subject to the supervision of the Consulting Group and the
Board, in accordance with the investment objective and stated investment
policies of Large Capitalization Growth. In addition, Boston Structured will
make investment decisions for Large Capitalization Growth, place orders to
purchase and sell investments for Large Capitalization Growth and employ
professional portfolio managers and investment managers who will provide
services to Boston Structured.
13
<PAGE>
Under the terms of the Boston Structured Advisory Agreement, the Consulting
Group will pay to Boston Structured a fee that is computed daily and paid
monthly at the annual rate of 0.20% of the value of Large Capitalization
Growth's average daily net assets on the first $300 million of assets and 0.15%
of the value of Large Capitalization Growth's average daily net assets
thereafter, multiplied by a fraction, the numerator of which is the average
daily value of the net assets of Large Capitalization Growth allocated to Boston
Structured for management and the denominator of which is the average daily net
asset value of Large Capitalization Growth.
REQUIRED VOTE
Approval of the Boston Structured Advisory Agreement requires a Majority
Vote of the outstanding shares of Large Capitalization Growth. Failure to obtain
the requisite vote for approval of the Boston Structured Advisory Agreement, if
the Provident Amended and Restated Investment Advisory Agreement (as that term
is defined below) is approved, will result in the continuation of Provident
Investment Counsel as the sole Investment Adviser of Large Capitalization
Growth. Failure to obtain the requisite vote for approval of both the Boston
Structured Advisory Agreement and the Provident Amended and Restated Advisory
Agreement will result in Provident Investment Counsel continuing to act as the
sole Investment Adviser to Large Capitalization Growth under the Provident
Current Advisory Agreement (as that term is defined below).
THE BOARD OF THE TRUST, INCLUDING A MAJORITY OF THE INDEPENDENT BOARD
MEMBERS, RECOMMEND THAT THE SHAREHOLDERS OF LARGE CAPITALIZATION
GROWTH VOTE
"FOR" THE APPROVAL OF THE PANAGORA ADVISORY AGREEMENT.
PROPOSAL 5: LARGE CAPITALIZATION GROWTH ONLY
TO APPROVE OR DISAPPROVE FOR LARGE CAPITALIZATION GROWTH AN
AMENDED AND RESTATED INVESTMENT ADVISORY AGREEMENT WITH
PROVIDENT
INVESTMENT COUNSEL.
The fifth proposal to be considered at the Meeting is the approval of an
amended and restated investment advisory agreement (the "Provident Amended and
Restated Advisory Agreement") between Smith Barney Advisers and Provident
Investment Counsel ("Provident"). This proposal is only relevant to the
shareholders of Large Capitalization Growth. The Provident Amended and Restated
Advisory Agreement is being submitted to shareholders of Large Capitalization
Growth, as required by the 1940 Act, which provides that shareholders must grant
prior approval for any amended and restated investment advisory agreement. This
proposal is being presented in the event that either the Exemptive Application
referred to in Proposal 1 is not approved by the SEC by
14
<PAGE>
the date of the Meeting or the shareholders of Large Capitalization Growth fail
to approve Proposal 1.
Provident currently serves as investment adviser to Large Capitalization
Growth pursuant to an Investment Advisory Agreement dated July 30, 1993 (the
"Provident Current Advisory Agreement"). The only material difference between
the Provident Current Advisory Agreement and the Provident Amended and Restated
Advisory Agreement is that the latter agreement provides for the management of
Large Capitalization Value by more than one investment adviser.
Provident has been registered as an investment adviser under the Advisers
Act since 1951 and is controlled by Robert M. Kommerstad, the Chairman of its
Board of Directors. Provident provides investment advisory services to
individual and institutional clients. As of December 31, 1993, Provident had
assets under management of approximately $13.1 billion. Attached to this proxy
statement as Exhibit K is a copy of Provident's audited statement of financial
position for its fiscal years ended December 31, 1992 and 1991 and attached
hereto as Exhibit L is Provident's unaudited balance sheet as of November 30,
1993 (the "Provident Balance Sheet Date"). The management of Provident has
represented to the Trust that, since the Provident Balance Sheet Date, there has
been no material change in the financial condition of Provident. Proxies
solicited for the Meeting will not be voted for Proposal 5 presented in this
Proxy Statement unless in the judgment of the Board there has been no material
adverse change in the financial condition of Provident between the Provident
Balance Sheet Date and December 31, 1993. Provident's principal executive
offices are located at, and the business address of its officers and directors
is, 300 North Lake Avenue, Pasadena, California 91101. The names of the
investment companies for which Provident provides services, the amounts of their
net assets and the annual rate of Provident's fees for its services to those
companies are set forth on Exhibit M attached hereto.
<TABLE>
The names, positions and principal occupations of the officers and
directors of Provident are set forth below.
<CAPTION>
POSITION WITH PRINCIPAL
NAME PROVIDENT OCCUPATION
- ------------------------ ----------------------- -------------------------
<S> <C> <C>
Bernard J. Johnson...... Chairman Emeritus Portfolio Manager
Robert M. Kommerstad.... President and Chairman Portfolio Manager
Jeffrey J. Miller....... Managing Director Portfolio Manager
Thomas J. Condon........ Managing Director Portfolio Manager
Larry D. Tashjian....... Managing Director Portfolio Manager
George E. Handtmann,
III................... Managing Director Portfolio Manager
Thomas M. Mitchell...... Executive Vice Portfolio Manager
President
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL
NAME PROVIDENT OCCUPATION
- ------------------------ ----------------------- -------------------------
<S> <C> <C>
F. Brown Windle......... Executive Vice Marketing
President
G. Berkeley Andrews..... Senior Vice President Marketing
John M. Baray........... Vice President Trading
Thad M. Brown........... Senior Vice President Chief Financial Officer
John M. Corby........... Senior Vice President Portfolio Manager
Laura F. Guerra......... Executive Vice Portfolio Manager
President
</TABLE>
A copy of the form of the Provident Amended and Restated Advisory Agreement
is set forth as Exhibit D to this proxy statement. Under the terms of the
Provident Amended and Restated Advisory Agreement, Provident will manage a
portion of Large Capitalization Growth's assets, subject to the supervision of
the Consulting Group and the Board, in accordance with the investment objective
and stated investment policies of Large Capitalization Growth. In addition,
Provident will make investment decisions for Large Capitalization Growth, place
orders to purchase and sell investments for Large Capitalization Growth and
employ professional portfolio managers and securities and futures analysts who
will provide research services to Providents.
Under the terms of the Provident Amended and Restated Advisory Agreement,
the Consulting Group will pay to Provident a fee that is computed daily and paid
monthly at the annual rate of 0.30% of the value of Large Capitalization
Growth's average daily net assets multiplied by a fraction, the numerator of
which is the average daily value of net assets of Large Capitalization Growth
allocated to Provident for management and the denominator of which is the
average daily net asset value of Large Capitalization Growth.
The Provident Amended and Restated Advisory Agreement was approved by the
Trustees, including the Independent Board Members, on December 9, 1993, and such
approval was made expressly subject to subsequent shareholder approval of such
agreement.
REQUIRED VOTE
Approval of the Provident Amended and Restated Advisory Agreement requires
a Majority Vote of the outstanding shares of Large Capitalization Growth.
Failure to obtain the requisite vote for approval of the Provident Amended and
Restated Advisory Agreement, if the Boston Structured Advisory Agreement has
been approved, will result in the appointment of Boston Structured as the sole
Investment Adviser to Large Capitalization Growth. Failure to obtain the
requisite vote for approval of both the Provident Amended and Restated Advisory
Agreement and the Boston Structured Advisory Agreement will result in Provident
16
<PAGE>
Investment Counsel continuing to act as the sole Investment Adviser to Large
Capitalization Growth under the Provident Current Advisory Agreement.
THE BOARD OF THE TRUST, INCLUDING A MAJORITY OF THE INDEPENDENT BOARD
MEMBERS, RECOMMENDS THAT THE SHAREHOLDERS OF LARGE CAPITALIZATION
GROWTH VOTE
"FOR" ADOPTION OF THE AMENDED AND RESTATED PROVIDENT ADVISORY AGREEMENT.
DESCRIPTION OF THE ADVISERS AND PROPOSED ADVISORY AGREEMENTS
<TABLE>
Large Capitalization Value and Large Capitalization Growth each pay the
Manager a fee for its services that is computed daily and paid monthly at an
annual rate of 0.60% of the value of the average daily net assets of the
respective Portfolio. The fees of each Advisor are paid by the Manager. The fees
paid to Newbold's with respect to Large Capitalization Value and to Provident
with respect to Large Capitalization Growth for the fiscal year ended August 31,
1993 were $1,064,096 and $458,138, respectively. The Board, in the event that
Proposals 2 through 5 contained herein have been approved, has approved an
allocation of 80% of Large Capitalization Value's assets to Parametric for
management and 20% of such assets to Newbold's and an allocation of 80% of Large
Capitalization Growth's current and future assets to Boston Structured for
management and 20% of such assets to Provident. In the event that Proposals 2
through 5 contained herein are approved, the fees paid by the Manager to the
Advisors for services will be less. However, there will be no change in the fees
paid by the Fund to the Manager. The following table shows the advisory fees
actually paid for the fiscal year ended August 31, 1993 and the advisory fees
that would have been paid during such fiscal year to the appropriate investment
adviser if the Parametric Advisory Agreement, the Boston Structured Advisory
Agreement, the Newbold's Amended and Restated Advisory Agreement and the
Provident Amended and Restated Advisory Agreement (collectively, the "Advisory
Agreements") had been in effect (Hypothetical).
<CAPTION>
ADVISORY FEE PAID
FOR FISCAL YEAR ENDED 8/31/93
------------------------------------------
PORTFOLIO ACTUAL HYPOTHETICAL
--------- ------ ------------
<S> <C> <C>
Large
Capitalization $212,819 (Paid to Newbold's*)
Value Equity $567,518 (Paid to Parametric+)
Investments.... $1,064,096 (Paid to Newbold's*) $780,337 (Total)
Large
Capitalization $ 91,628 (Paid to Provident*)
$244,341 (Paid to Boston
Growth Structured+)
Investments $458,138 (Paid to Provident*) $335,969 (Total)
*The Manager will pay or has paid to the investment adviser a fee at the annual
rate of the value of 0.30% of the average daily net assets of the Portfolio
multiplied by a fraction, the numerator of which is the average daily value of
</TABLE>
17
<PAGE>
Allocated Assets and the denominator of which is the average daily net asset
value of the Portfolio.
+The Manager will pay or has paid to the investment adviser a fee at the annual
rate of the value of 0.20% of the first $300 million of the average daily net
assets of the Portfolio and 0.15% thereafter multiplied by a fraction, the
numerator of which is the average daily value of Allocated Assets and the
denominator of which is the average daily net asset value of the Portfolio.
Selection and retention criteria on which the Manager based its approval of
Parametric, Newbold's, Boston Structured and Provident (collectively, the
"Advisers") include: level of expertise, relative performance and consistency of
performance, personnel, facilities and financial strength and quality of service
and client communications.
Each Adviser has personnel who significantly contribute to the investment
advice relied on to manage the assets of Large Capitalization Value or Large
Capitalization Growth, as the case may be. The death, disability or departure of
such key personnel could adversely affect an Adviser's ability to manage the
assets of the relevant Portfolio and there can be no assurance that suitable
replacements may be retained. The Consulting Group will evaluate any such death,
disability or departure of key personnel in making retention and asset
allocation decisions.
Each of the Parametric Advisory Agreement, the Boston Structured Advisory
Agreement, the Newbold's Amended and Restated Advisory Agreement and the
Provident Amended and Restated Advisory Agreement provides that the Adviser
named therein will exercise its best judgment in rendering services under the
Agreement and that the relevant Adviser will not be liable for any error of
judgment or mistake of law or for any loss suffered by Smith Barney Shearson or
the Trust in connection with the matter to which the Agreement relates, provided
that nothing in any Advisory Agreement shall be deemed to protect or purport to
protect the Adviser named therein against any liability to the relevant
Portfolio or its shareholders to which that party would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or by reason of the party's reckless disregard of its
obligations and duties under the relevant Agreement.
Pursuant to the Advisory Agreements, the relevant Adviser agrees to keep
the Trust and the Consulting Group informed of material developments affecting
the relevant Portfolio, to comply with the provisions of the 1940 Act, and to
refrain during the one-year period following termination of the advisory
agreement, from acting as an investment adviser, manager or other similar
service provider to or for the benefit of any registered investment company that
seeks as its primary market for its shares programs similar to the TRAK
Personalized Investment Advisory Service. Each Advisory Agreement will become
effective on the date on which it is approved by the relevant Portfolio's
shareholders. Each
18
<PAGE>
Advisory Agreement shall continue for an initial two-year term and shall
continue automatically for successive annual periods, provided that such
continuance is approved at least annually by the Board or the vote of the
holders of a majority of the relevant Portfolio's outstanding voting securities
with the approval of the Independent Board Members. Each Advisory Agreement may
be terminated by (a) Smith Barney Advisers upon written notice; (b) vote of a
majority of the Trustees or the holders of a majority of the relevant
Portfolio's outstanding voting securities, as the case may be, upon written
notice; or (c) the Adviser named therein, upon 60 days' prior written notice.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the Portfolios are made by the
Investment Advisers, subject to the overall review of the Board and the
Consulting Group. Although investment decisions for each Portfolio are made
independently from those of the other accounts managed by the Investment
Advisers, investments of the type the Trust may make also may be made by those
other accounts. When a Portfolio and one or more other accounts managed by the
Investment Advisers are prepared to invest in, or desire to dispose of, the same
security, available investments or opportunities for sales will be allocated in
a manner believed by the advisers to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by a Portfolio or the
size of the position obtained or disposed of by a Portfolio.
Transactions on U.S. stock exchanges and many foreign stock exchanges,
involve the payment of negotiated brokerage commissions. On exchanges on which
commissions are negotiated, the cost of transactions may vary among different
brokers. No stated commission is generally applicable to securities traded in
U.S. over-the-counter markets, but the prices of those securities include
undisclosed commissions or mark-ups. The cost of securities purchased from
underwriters includes an underwriting commission or concession and the prices at
which securities are repurchased from and sold to dealers include a dealer's
mark-up or mark-down. U.S. government securities are generally purchased from
underwriters or dealers, although certain newly-issued U.S. government
securities may be purchased directly from the United States Treasury or from the
issuing agency or instrumentality.
In selecting brokers or dealers to execute portfolio transactions on behalf
of each of the Portfolios, the Investment Advisers seek the best overall terms
available. In assessing the best overall terms available for any transaction,
the Investment Advisers will consider the factors they deem relevant, including
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker or dealer and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis. In addition, the Investment Advisers are authorized, in
selecting brokers or dealers to execute a particular transaction and in
evaluating the best overall terms
19
<PAGE>
available, to consider the brokerage and research services (as those terms are
defined in Section 28(e) of the Exchange Act) provided to each of the
Portfolios, and/or other accounts over which the Investment Advisers, or their
affiliates, exercise investment discretion. The fees under the Trust's
investment management agreement are not reduced by reason of the Trust's, or the
Investment Advisers' receiving brokerage and research services. Research and
investment services are those which brokerage houses customarily provide to
institutional investors and include statistical and economic data and research
reports on particular issues and industries. These services are used by the
Investment Advisers in connection with all of their investment activities, and
some of the services obtained in connection with the execution of transactions
for a Portfolio may be used in managing other investment accounts. Conversely,
brokers furnishing these services may be selected for the execution of
transactions for these other accounts, whose aggregate assets may exceed those
of a Portfolio, and the services furnished by the brokers may be used by the
Consulting Group and/or the Investment Advisers in providing investment
management for the Portfolios. During the last fiscal year of the Trust, neither
the Trust nor the Investment Advisers, pursuant to any agreement or
understanding with a broker or otherwise through an internal allocation
procedure, directed any of the Portfolios' brokerage transactions to a broker or
brokers because of research services provided. Over-the-counter purchases and
sales by the Portfolios are transacted directly with principal market makers
except in those cases in which better prices and executions may be obtained
elsewhere.
To the extent consistent with applicable provisions of the 1940 Act and the
rules and exemptions adopted by the SEC under the 1940 Act, the Board has
determined that transactions for each of the Portfolios may be executed through
Smith Barney Shearson and other affiliated broker-dealers if, in the judgment of
the Investment Advisers, the use of an affiliated broker-dealer is likely to
result in price and execution at least as favorable as those of other qualified
broker-dealers.
None of the Portfolios will purchase any security, including U.S.
government securities, during the existence of any underwriting or selling group
relating to the security of which Smith Barney Shearson is a member, except to
the extent permitted by the SEC.
The Board periodically reviews the commissions paid by the Trust to
determine if the commissions paid over representative periods of time were
reasonable in relation to the benefits inuring to the Trust. During the fiscal
year ended August 31, 1993, the Trust incurred total brokerage commissions on
portfolio transactions of $2,530,473, of which $451,068, or 17.8% of the
aggregate, was paid to Smith Barney Shearson, including commissions paid to
Shearson Lehman Brothers, Inc. ("Shearson"), the distributor of the Trust's
shares until July 31, 1993, when Smith Barney Shearson acquired certain assets
20
<PAGE>
q
of Shearson, 33.6% of the Trust's aggregate dollar amount of transactions
involving the payment of commissions were effected through Smith Barney Shearson
and Shearson during the Trust's last fiscal year.
<TABLE>
Such brokerage commissions were incurred with respect to each of the equity
Portfolios as follows:
<CAPTION>
COMMISSIONS
PAID TO
SMITH % OF TOTAL % OF TOTAL
BARNEY COMMISSIONS TRANSACTIONS
SHEARSON PAID TO SMITH INVOLVING COMMISSIONS
TOTAL AND BARNEY SHEARSON PAID TO SMITH BARNEY
PORTFOLIO COMMISSIONS SHEARSON AND SHEARSON SHEARSON AND
SHEARSON
--------- ----------- ----------- --------------- ---------------------
<S> <C> <C> <C> <C>
Balanced
Investments... $ 6,568 $ 156 1.1% 0.1%
Large
Capitalization
Value Equity
Investments... 872,806 412,000 47.2 56.5
Large
Capitalization
Growth
Investments... 255,077 11,694 4.6 3.9
Small
Capitalization
Value Equity
Investments... 519,311 0 0 0
Small
Capitalization
Growth
Investments... 79,998 13,782 17.9 17.8
International
Equity
Investments... 799,713 13,436 1.7 1.8
</TABLE>
SUBMISSION OF SHAREHOLDER PROPOSALS
As a Massachusetts business trust, the Trust does not hold annual
shareholder's meetings. Shareholders wishing to submit proposals for inclusion
in a proxy statement for a subsequent meeting of shareholders must submit their
proposals for inclusion in the proxy materials in writing to the Secretary of
the Trust, c/o The Boston Company Advisors, Inc., Exchange Place, Mail Zone
025-004B, Boston, MA 02109.
SHAREHOLDERS' REQUEST FOR SPECIAL MEETING
Shareholders holding at least 10% of the Trust's outstanding voting
securities (as defined in the 1940 Act) may require the calling of a meeting of
shareholders for the purpose of voting on the removal of any Board member of the
Trust. Meetings of shareholders for any other purpose also shall be called by
the Board members when requested in writing by shareholders holding at least 10%
of the shares then outstanding or, if the Board members shall fail to call or
21
<PAGE>
give notice of any meeting of shareholders for a period of 30 days after such
application, shareholders holding at least 10% of the shares then outstanding
may call and give notice of such meeting.
OTHER MATTERS TO COME BEFORE THE MEETING
The Trustees do not intend to present any other business at the Meeting,
nor are they aware that any shareholder intends to do so. If, however, any other
matters are properly brought before the Meeting, the persons named in the
accompanying proxy card(s) will vote thereon in accordance with their judgment.
January 18, 1994
- -------------------------------------------------------------------------------
IT IS IMPORTANT THAT THE PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO
NOT
EXPECT TO ATTEND THE MEETING ARE THEREFORE URGED TO COMPLETE, SIGN, DATE
AND
RETURN THE PROXIES AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
- -------------------------------------------------------------------------------
22
<PAGE>
<TABLE>
EXHIBIT LIST
<S> <C>
EXHIBIT A Audited Statement of Financial Position of Parametric
for its Fiscal Year Ended December 31, 1992.
EXHIBIT B Unaudited Statement of Financial Position of
Parametric for October 31, 1993.
EXHIBIT C Investment Companies Serviced by Parametric.
EXHIBIT D Proposed Form of Investment Advisory Agreement.
EXHIBIT E Audited Statement of Financial Position of Newbold's
for its Fiscal Year Ended December 31, 1992.
EXHIBIT F Unaudited Statement of Financial Position of
Newbold's for November 30, 1993.
EXHIBIT G Investment Companies Serviced by Newbold's.
EXHIBIT H Audited Statement of Financial Position of PanAgora
Boston for its Fiscal Years Ended December 31, 1992
and 1991.
EXHIBIT I Unaudited Statement of Financial Position of PanAgora
Boston for September 30, 1993.
EXHIBIT J Investment Companies Serviced by PanAgora Boston.
EXHIBIT K Audited Statement of Financial Position of Provident
for its Fiscal Year Ended December 31, 1992.
EXHIBIT L Unaudited Statement of Financial Position of
Provident for November 30, 1993.
EXHIBIT M Investment Companies Serviced by Provident.
</TABLE>
<PAGE>
EXHIBIT A
[DELOITTE & TOUCHE LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Parametric Portfolio Associates, Inc.:
We have audited the accompanying statement of financial position of
Parametric Portfolio Associates, Inc. as of December 31, 1992. This financial
statement is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of financial position is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of financial position.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall statement of
financial position presentation. We believe that our audit of the statement of
financial position provides a reasonable basis for our opinion.
In our opinion, such statement of financial position presents fairly, in
all material respects, the financial position of Parametric Portfolio
Associates, Inc. as of December 31, 1992 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE
February 23, 1993
A-1
<PAGE>
<TABLE>
PARAMETRIC PORTFOLIO ASSOCIATES, INC.
STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 1992
<S> <C>
ASSETS
Current Assets:
Cash............................................... $ 362,678
Accounts receivable................................ 829,320
Prepaid expenses................................... 7,695
----------
Total Current Assets....................... 1,199,693
Property, net........................................ 128,148
Other assets......................................... 1,472,027
----------
TOTAL ASSETS............................... $2,799,868
==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accrued liabilities................................ $ 66,365
Payable to affiliates.............................. 238,419
----------
Total Current Liabilities.................. 304,784
Other liabilities.................................... 1,753,371
----------
Total Liabilities.......................... 2,058,155
----------
Stockholder's Equity:
Common stock -- $1 par value; 1,000,000 shares
authorized; 1,000 shares issued and
outstanding..................................... 1,000
Paid-in capital.................................... 1,199,000
Accumulated deficit................................ (458,287)
----------
Total Stockholder's Equity................. 741,713
----------
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY................................... $2,799,868
==========
</TABLE>
See Notes to Statement of Financial Position
A-2
<PAGE>
PARAMETRIC PORTFOLIO ASSOCIATES, INC.
NOTES TO STATEMENT OF FINANCIAL POSITION
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Parametric Portfolio Associates, Inc. ("Parametric") is a wholly-owned,
third-tier subsidiary of Pacific Mutual Life Insurance Company ("PM"). The
intermediate companies are Pacific Financial Holding Company and Pacific
Financial Asset Management Corporation. Parametric provides investment
management services to its clients using quantitative analysis techniques.
Property
Property is recorded at cost and is depreciated using the straight-line
method over the estimated useful lives of the individual items.
<TABLE>
2. PROPERTY
The components of property as of December 31, 1992 are as follows:
<S> <C>
Furniture and equipment....................... $ 206,253
Computer equipment............................ 108,120
---------
Total property.............................. 314,373
Less accumulated depreciation................. (186,225)
---------
Property, net............................... $ 128,148
=========
</TABLE>
3. INCOME TAXES
Parametric's operations are included in the consolidated Federal income tax
return of PM. Parametric files a separate Washington state excise tax return.
Parametric is allocated an expense based principally on the effect of including
its operations in the consolidated provision. Such expense, which is primarily
current taxes, includes an allocation for deferred taxes resulting principally
from differences between book and tax accounting for depreciation and state
excise tax. Included in payable to affiliates on the accompanying statement of
financial position are net tax receivables of $5,837 as of December 31, 1992.
A-3
<PAGE>
PARAMETRIC PORTFOLIO ASSOCIATES, INC.
NOTES TO STATEMENT OF FINANCIAL POSITION -- (CONTINUED)
4. LEASES
<TABLE>
Parametric leases office space and certain office equipment under operating
lease agreements expiring at various dates through 1994. Future aggregate
minimum rent payments on noncancelable leases are as follows:
<CAPTION>
YEAR ENDED
----------
<S> <C>
1993................................. $ 146,275
1994................................. 99,986
---------
Total........................ $ 246,261
=========
</TABLE>
5. RELATED PARTY TRANSACTIONS
PM provides certain support services to Parametric. Services provided
include employee participation in a pension plan maintained by PM.
6. PROFIT-SHARING AND COMPENSATION PLANS
Parametric has a nonqualified profit-sharing plan (the "Profit-Sharing
Plan") covering certain key employees. The Profit-Sharing Plan provides for
awards based on the profitability of Parametric, as defined in the employment
agreements. All profit-sharing awards fully vest at the end of each year, and
are payable by March 15 of the following year.
Parametric has a long-term compensation plan granted to certain key
employees in connection with programs designed to retain their employment.
Compensation under this plan is based upon profitability. Upon certain criteria
being met, as defined in the agreement, eligible employees will be paid out over
a seven year period. Eligible employees may leave Parametric's employment and
collect such amounts over the period subject to not-to-compete terms. Other
assets and other liabilities included on the accompanying statement of financial
position primarily relate to deferred compensation expense and accrued
compensation. No payments have been made under this plan.
A-4
<PAGE>
EXHIBIT B
<TABLE>
PARAMETRIC PORTFOLIO ASSOCIATES, INC.
UNAUDITED BALANCE SHEET
OCTOBER 31, 1993
ASSETS
<S> <C>
Current Assets
Cash.............................................. $ 942,944
Petty cash........................................ 5,000
Accounts receivable............................... 1,501,423
Prepaid expenses.................................. 121,615
----------
Total current assets................................ 2,570,982
Other assets
Net fixed assets.................................. 134,867
Other............................................. 2,648,292
----------
Total other assets............................. 2,783,159
----------
Total assets........................................ $5,354,141
==========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable -- PM............................ $ 66,415
Accounts payable -- other......................... 257,201
Taxes payable..................................... 103,966
----------
Total current liabilities........................... 427,582
Other liabilities
Deferred compensation liability................... 185,698
Accounts payable -- long term..................... 3,624,297
Deferred income taxes............................. 33,897
----------
Total other liabilities............................. 3,843,892
----------
Total liabilities................................... 4,271,474
Stockholders' equity
Common stock...................................... 1,000
Paid in capital................................... 1,199,000
----------
Total capital....................................... 1,200,000
Retained earnings
Opening retained earnings......................... 458,288
YTD profit........................................ 541,956
Accumulated dividends to parent................... 201,000
----------
Total retained earnings............................. 117,332
----------
Total stockholders' equity.......................... 1,082,668
----------
Total liabilities & equity.......................... $5,354,142
==========
</TABLE>
B-1
<PAGE>
EXHIBIT C
<TABLE>
INVESTMENT COMPANIES SERVICED BY PARAMETRIC
<CAPTION>
ANNUAL RATE OF FEE
EXPRESSED AS A PERCENTAGE
NET ASSETS OF AVERAGE DAILY NET
COMPANY AT 10/30/93 ASSETS
------- ------------ -------------------------
<S> <C> <C>
PACIFIC FINANCIAL ASSET
MANAGEMENT COMPANY:
Enhanced Equity
Portfolios $53 million 0.45%
International Equity
Portfolio $66 million 0.45%
</TABLE>
C-1
<PAGE>
EXHIBIT D
THE TRUST FOR TRAK INVESTMENTS
FORM OF INVESTMENT ADVISORY AGREEMENT
[Date]
[Name and address of Adviser]
Dear Sirs:
Under an agreement (the "Management Agreement") between The Trust for TRAK
Investments, a Massachusetts business trust (the "Trust"), and Smith, Barney
Advisers Inc. (the "Manager"), the Manager serves as the Trust's investment
manager and has the responsibility of evaluating, recommending, supervising and
compensating investment advisers to each series of the Trust.
The Manager hereby confirms its agreement with [Name of Adviser] (the
"Advisor") with respect to the Advisor's serving as an investment advisor of
[Name of Portfolio] (the "Portfolio"), a series of the Trust, as follows:
SECTION 1. INVESTMENT DESCRIPTION; APPOINTMENT
(a) The Trust desires to employ the Portfolio's capital by investing and
reinvesting in investments of the kind and in accordance with the investment
objectives, policies and limitations specified in its Master Trust Agreement
dated April 12, 1991, as amended from time to time (the "Trust Agreement"), in
the prospectus (the "Prospectus") and in the statement of additional information
(the "Statement of Additional Information") filed with the Securities and
Exchange Commission (the "SEC") as part of the Trust's Registration Statement on
Form N-1A, as amended from time to time (the "Registration Statement"), and in
the manner and to the extent as may from time to time be approved in the manner
set forth in the Trust Agreement. Copies of the Trust's Prospectus, the
Statement of Additional Information and the Trust Agreement have been or will be
submitted to the Advisor.
(b) The Manager, with the approval of the Trust, hereby appoints the
Advisor to act as an investment advisor to the Portfolio for the periods and on
the terms set forth in this Agreement. The Advisor accepts such appointment and
agrees to furnish the services herein set forth for the compensation herein
provided.
D-1
<PAGE>
SECTION 2. PORTFOLIO MANAGEMENT DUTIES
(a) Subject to the supervision of the Manager and the Trust's Board of
Trustees, the Advisor will (i) manage the portion of the Portfolio's assets
allocated to the Advisor upon the recommendation of the Manager and the approval
of the Board of Trustees ("Allocated Assets") in accordance with the Portfolio's
investment objectives, policies and limitations as stated in the Trust's
Prospectus and Statement of Additional Information; (ii) make investment
decisions with respect to Allocated Assets; and (iii) place orders to purchase
and sell securities and, where appropriate, commodity futures contracts with
respect to Allocated Assets.
(b) The Advisor will keep the Trust and the Manager informed of
developments materially affecting the Portfolio and shall, on the Advisor's own
initiative, furnish to the Trust and the Manager from time to time whatever
information the Advisor believes appropriate for this purpose.
(c) The Advisor agrees that it will comply with the Investment Company Act
of 1940, as amended (the "Act"), and all rules and regulations thereunder, all
applicable federal and state laws and regulations and with any applicable
procedures adopted by the Trust's Board of Trustees.
SECTION 3. BROKERAGE
(a) The Advisor agrees that it will place orders pursuant to its investment
determinations with respect to Allocated Assets either directly with the issuer
or with brokers or dealers selected by it in accordance with the standards
specified in paragraphs (b) and (c) of this Section 3. The Advisor may place
orders with respect to Allocated Assets with Smith Barney Shearson Inc. or its
affiliates in accordance with Section 11(a) of the Securities Exchange Act of
1934 and Rule 11a2-2(T) thereunder, Section 17(e) of the Act and Rule 17e-1
thereunder and other applicable laws and regulations.
(b) In placing orders with brokers and dealers, the Advisor will use its
best efforts to seek the best overall terms available. In assessing the best
overall terms available for any portfolio transaction, the Advisor will consider
all factors it deems relevant including, but not limited to, the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer and the reasonableness of any
commission for the specific transaction and on a continuing basis.
(c) In selecting brokers or dealers to execute a particular transaction and
in evaluating the best overall terms available, the Advisor may consider the
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934) provided to the Trust and/or other accounts
over which the Advisor or an affiliate exercise investment discretion.
D-2
<PAGE>
SECTION 4. INFORMATION PROVIDED TO THE MANAGER AND THE TRUST
(a) The Advisor agrees that it will make available to the Manager and the
Trust promptly upon their request copies of all of its investment records and
ledgers with respect to the Portfolio to assist the Manager and the Trust in
monitoring compliance with the Act and the Investment Advisers Act of 1940, as
amended (the "Advisers Act"), as well as other applicable laws. The Advisor will
furnish the Trust's Board of Trustees with respect to the Portfolio such
periodic and special reports as the Manager and the Board of Trustees may
reasonably request.
(b) The Advisor agrees that it will immediately notify the Manager and the
Trust in the event that the Advisor or any of its affiliates: (i) becomes
subject to a statutory disqualification that prevents the Advisor from serving
as investment advisor pursuant to this Agreement; or (ii) is or expects to
become the subject of an administrative proceeding or enforcement action by the
SEC or other regulatory authority. The Advisor has provided the information
about itself set forth in the Registration Statement and has reviewed the
description of its operations, duties and responsibilities as stated therein and
acknowledges that they are true and correct and contain no material misstatement
or omission, and it further agrees to notify the Manager and the Trust's
Administrator immediately of any material fact known to the Advisor respecting
or relating to the Advisor that is not contained in the Prospectus or Statement
of Additional Information of the Trust, or any amendment or supplement thereto,
or any statement contained therein that becomes untrue in any material respect.
(c) The Advisor represents that it is an investment adviser registered
under the Advisers Act and other applicable laws and that the statements
contained in the Advisor's registration under the Advisers Act on Form ADV, as
of the date hereof, are true and correct and do not omit to state any material
fact required to be stated therein or necessary in order to make the statement
therein not misleading. The Advisor agrees to maintain the completeness and
accuracy of its registration on Form ADV in accordance with all legal
requirements relating to that Form. The Advisor acknowledges that it is an
"investment adviser" to the Portfolio within the meaning of the Act and the
Advisers Act.
SECTION 5. BOOKS AND RECORDS
In compliance with the requirements of Rule 31a-3 under the Act, the
Advisor hereby agrees that all records that it maintains for the Trust are the
property of the Trust and further agrees to surrender promptly to the Trust
copies of any such records upon the Trust's request. The Advisor further agrees
to preserve for the periods prescribed by Rule 31a-2 under the Act the records
required to be maintained by Rule 31a-1 under the Act and to preserve the
records required by Rule 204-2 under the Advisers Act for the period specified
in that Rule.
D-3
<PAGE>
SECTION 6. COMPENSATION
(a) In consideration of services rendered pursuant to this Agreement, the
Manager will pay the Advisor a fee that is computed daily and paid monthly at
the annual rate of the value of * of the average daily net assets of the
Portfolio, multiplied by a fraction, the numerator of which is the average daily
value of Allocated Assets and the denominator of which is the average daily net
asset value of the Portfolio (the "Portfolio Advisory Fee"). The Portfolio
Advisory Fee payable to the Advisor shall be reduced in the same proportion as
the Portfolio Advisory Fee bears to the Manager's fee from the Portfolio to the
extent, in any fiscal year of the Portfolio, the aggregate expenses of the
Portfolio (including fees pursuant to this Agreement and the Trust's
Administration Agreement with the Administrator, but excluding interest, taxes,
brokerage fees, and, if permitted by state securities commissions, extraordinary
expenses) exceed the expense limitation of any state having jurisdiction over
the Portfolio.
(b) The Portfolio Advisory Fee for the period from the date of this
Agreement becomes effective to the end of the month during which this Agreement
becomes effective shall be prorated according to the proportion that such period
bears to the full monthly period. Upon any termination of this Agreement before
the end of a month, the fee for such part of that month shall be prorated
according to the proportion that such period bears to the full monthly period
and shall be payable upon the date of termination of this Agreement.
(c) For the purpose of determining fees payable to the Advisor, the value
of the Portfolio's net assets shall be computed at the time and in the manner
specified in the Trust's Prospectus and/or the Statement of Additional
Information.
SECTION 7. COSTS AND EXPENSES
<TABLE>
During the term of this Agreement, the Advisor will pay all expenses
incurred by it and its staff in connection with the performance of its services
under this Agreement, including the payment of salaries of all officers and
employees who are employed by it and the Trust.
- ---------------
<S> <C> <C>
* Newbold's Asset Management, 0.30%
Inc.
Provident Investment Counsel 0.30%
Boston Structured Advisors 0.20% of the first $300
million;
0.15% thereafter
Parametric Portfolio 0.20% of the first $300
Associates, Inc. million;
0.15% thereafter
</TABLE>
D-4
<PAGE>
SECTION 8. STANDARD OF CARE
The Advisor shall exercise its best judgment in rendering the services
provided by it under this Agreement. The Advisor shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Manager or
the Trust in connection with the matter to which this Agreement relates,
provided that nothing in this Agreement shall be deemed to protect or purport to
protect the Advisor against any liability to the Manager or the Trust or to
holders of the Trust's shares representing interests in the Portfolio to which
the Advisor would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or by
reason of the Advisor's reckless disregard of its obligations and duties under
this Agreement.
SECTION 9. SERVICES TO OTHER COMPANIES OR ACCOUNTS
(a) It is understood that the services of the Advisor are not exclusive,
and nothing in this Agreement shall prevent the Advisor from providing similar
services to other investment companies (whether or not their investment
objectives and policies are similar to those of the Trust) or from engaging in
other activities; provided, however, that the Advisor agrees that neither it nor
any of its affiliated persons (as defined in the Act) shall accept retention as
investment adviser, investment manager or similar service provider during the
pendency of this Agreement and for the period of one (1) year after the
termination of this Agreement with or for the benefit of any investment company
registered under the Act that seeks as a primary market for its shares asset
allocation programs similar in nature or market to TRAK Personalized Investment
Advisory Service.
(b) The proviso set forth in paragraph (a) of this Section 9 shall not
apply to the continuation of any contractual relationship to which the Advisor
is a party that is in effect on the date of this Agreement.
(c) When the Advisor recommends the purchase or sale of a security for
other investment companies and other clients, and at the same time the Advisor
recommends the purchase or sale of the same security for the Trust, it is
understood that in light of its fiduciary duty to the Trust such transactions
will be executed on a basis that is fair and equitable to the Trust.
(d) The Trust and the Manager understand and acknowledge that the persons
employed by the Advisor to assist in the performance of its duties under this
Agreement will not devote their full time to that service; nothing contained in
this Agreement will be deemed to limit or restrict the right of the Advisor or
any affiliate of the Advisor to engage in and devote time and attention to other
businesses or to render services of whatever kind or nature, subject to the
proviso set forth in paragraph (a) of this Section 9.
D-5
<PAGE>
SECTION 10. DURATION AND TERMINATION
(a) This Agreement shall become effective on the date on which it is
approved by shareholders of the Portfolio and shall continue for two years from
that date, and thereafter shall continue automatically for successive annual
periods, provided such continuance is specifically approved at least annually by
(i) the Trust's Board of Trustees or (ii) a vote of a majority of the
Portfolio's outstanding voting securities (as defined in the Act), provided that
the continuance is also approved by a majority of the Trustees who are not
"interested persons" (as defined in the Act) of the Trust, by vote cast in
person at a meeting called for the purpose of voting on such approval.
(b) Notwithstanding the foregoing, this Agreement may be terminated (i) by
the Manager at any time without penalty, upon notice to the Advisor and the
Trust, (ii) at any time without penalty by the Trust, upon the vote of a
majority of the Trust's Trustees or by vote of the majority of the Trust's
outstanding voting securities, upon notice to the Manager and the Trust or (iii)
by the Advisor at any time without penalty, upon sixty (60) days' written notice
to the Manager and the Trust.
(c) This Agreement will terminate automatically in the event of its
assignment (as defined in the Act and in rules adopted under the Act).
SECTION 11. AMENDMENTS
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against whom enforcement of the change, waiver, discharge or termination is
sought, and no amendment of this Agreement shall be effective until approved in
accordance with applicable law.
SECTION 12. MISCELLANEOUS
(a) This Agreement shall be governed by the laws of the State of New York,
provided that nothing herein shall be construed in a manner inconsistent with
the Act, the Advisers Act, or rules or orders of the SEC thereunder.
(b) The captions of this Agreement are included for convenience only and in
no way define or limit any of the provisions thereof or otherwise affect their
construction or effect.
(c) If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
D-6
<PAGE>
(d) Nothing herein shall be construed as constituting the Advisor as an
agent of the Trust or the Manager.
If the terms and conditions described above are in accordance with your
understanding, kindly indicate your acceptance of this Agreement by signing and
returning to us the enclosed copy of this Agreement.
SMITH, BARNEY ADVISERS, INC.
By:____________________________________
Name:
Title:
Accepted:
[NAME OF ADVISER]
By:___________________________________
Name:
Title:
D-7
<PAGE>
EXHIBIT E
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
of Newbold's Asset Management, Inc.
In our opinion, the accompanying statement of financial condition presents
fairly, in all material respects, the financial position of Newbold's Asset
Management, Inc. (a wholly-owned subsidiary of United Asset Management
Corporation) at December 31, 1992, in conformity with generally accepted
accounting principles. This financial statement is the responsibility of the
Company's management; our responsibility is to express an opinion on this
financial statement based on our audit. We conducted our audit in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether this financial
statement is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
Price Waterhouse
February 15, 1993
E-1
<PAGE>
NEWBOLD'S ASSET MANAGEMENT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
UNITED ASSET MANAGEMENT CORPORATION)
<TABLE>
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1992
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................... $ 890,848
Net cash surrender value of company owned life
insurance......................................... 778,476
Investment advisory fees receivable................. 8,672,694
Prepaid expenses.................................... 125,999
-----------
Total current assets...................... 10,468,017
Furniture, equipment, and improvements at cost, net
of accumulated depreciation and amortization of
$227,543.......................................... 118,065
Cost assigned to employment agreements, net of
accumulated amortization of $2,820,000............ 9,180,680
Goodwill, net of accumulated amortization of
$2,572,767........................................ 3,537,997
-----------
Total assets.............................. $23,304,759
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current compensation payable........................ $ 290,514
Due to affiliates................................... 301,675
Other liabilities................................... 806,904
-----------
Total current liabilities................. 1,399,093
Deferred compensation payable....................... 978,392
-----------
Total liabilities......................... 2,377,485
-----------
Commitments and contingencies
STOCKHOLDER'S EQUITY
Common stock, par value $.01 per share, authorized
1,000 shares; issued and outstanding 100 shares... 1
Additional paid-in capital.......................... 29,886,008
Accumulated deficit................................. (96,114)
-----------
29,789,895
Less advances to parent............................. (8,862,621)
-----------
Total stockholder's equity................ 20,927,274
-----------
Total liabilities and stockholder's
equity.................................. $23,304,759
===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
E-2
<PAGE>
NEWBOLD'S ASSET MANAGEMENT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
UNITED ASSET MANAGEMENT CORPORATION)
NOTES TO FINANCIAL STATEMENT
1. OWNERSHIP AND FORMATION OF THE COMPANY
Newbold's Asset Management, Inc. (the Company), a registered investment
advisor, is a wholly-owned subsidiary of United Asset Management Corporation
(UAM).
On September 11, 1990 the stock of the Company was acquired by UAM. Because
the stock of the Company was purchased and the Company was not liquidated, UAM's
cost basis in the Company was not recorded on the books and records of the
Company. As part of this transaction, capital contributed to the Company by UAM
was used to pay off a deferred compensation plan whose vesting and bonus
provisions were triggered by the acquisition. As provided in the plan, the
participants in the plan elected to take payment upon change of control.
Additional capital contributed was used to induce key executives to enter into
long-term employment and non-competition agreements. During 1992, $1,091,154 was
distributed to key executives pursuant to these agreements and has been recorded
as an increase to cost assigned to employment agreements in the accompanying
statement of financial condition.
2. SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with an
original maturity of three months or less.
Cost Assigned to Employment Agreements
The cost assigned to employment and non-competition agreements is amortized
using the straight-line method over the service and non-competition period, with
lives ranging from five to ten years.
Goodwill
Goodwill from a transaction prior to the UAM acquisition is being amortized
on a straight-line basis over nine and one-half years.
Depreciation and Amortization
Depreciation on furniture and equipment is provided on a straight-line
basis over their estimated useful lives, which range from two to five years.
Leasehold
E-3
<PAGE>
NEWBOLD'S ASSET MANAGEMENT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
UNITED ASSET MANAGEMENT CORPORATION)
NOTES TO FINANCIAL STATEMENT -- (CONTINUED)
improvements are amortized over the lesser of the economic useful life of the
improvements or the term of the lease.
Income Taxes
The taxable income of the Company is included in the consolidated tax
returns of UAM. For financial reporting purposes, a charge in lieu of income
taxes is imputed to the Company. The amount so charged is determined by applying
a rate that approximates the combined federal and state (net of federal benefit)
rates to income before charge in lieu of income taxes.
3. DEFERRED COMPENSATION PLAN
The Company has a supplemental income plan for certain employees that
provides for payments over 15 years upon retirement or death. At December 31,
1992 the Company has recorded a liability of $978,392 for this plan. The Company
has purchased life insurance contracts which may be used to fund the retirement
benefits.
4. RELATED PARTY TRANSACTIONS
Under the terms of an agreement between the Company, its principal
officers, and UAM, the Company remits a defined portion of its revenues to UAM.
Cash so remitted is used to satisfy obligations accrued for management fees and
imputed income taxes charged by UAM and licensing fees charged by an affiliate
with the balance accounted for as "Advances to Parent." Upon formal declaration
of dividends in amounts representing "Advances to Parent," dividends are charged
to retained earnings to the extent of cumulative net income that has been
distributed and remaining dividends are accounted for as a return of capital.
In connection with this agreement, the Company remitted to UAM $9,886,000
during 1992 which consisted of $293,000 owed to affiliates at December 31, 1991,
management fees of $3,578,000 charged by UAM during 1992, local taxes of $55,000
charged by UAM during 1992, license fees of $750,000 charged by an affiliate in
1992, charge in lieu of income taxes of $3,326,000 charged by UAM during 1992
and Advances to Parent of $1,884,000. In addition, included in "Due to
affiliates" on the statement of financial condition is $261,000 for licensing
fees charged to the Company by an affiliate during 1992.
E-4
<PAGE>
NEWBOLD'S ASSET MANAGEMENT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
UNITED ASSET MANAGEMENT CORPORATION)
NOTES TO FINANCIAL STATEMENT -- (CONTINUED)
Amounts to be remitted to UAM in excess of actual advances to UAM are
considered to be stockholder's equity unless dividends in excess of Advances to
Parent have been formally declared. At December 31, 1992, amounts to be remitted
in excess of Advances to Parent, included in stockholder's equity, were
$4,406,000.
5. COMMITMENTS AND CONTINGENCIES
<TABLE>
The Company leases its office and certain office and computer equipment
under noncancellable operating leases with terms ranging from three to five
years. At December 31, 1992 rental commitments under these leases were as
follows:
<CAPTION>
TWELVE MONTHS
ENDED DECEMBER
--------------
<S> <C>
1993...................... $267,937
1994...................... 127,248
1995...................... 127,248
1996...................... 94,772
1997...................... 4,476
</TABLE>
All of the outstanding common stock of the Company is pledged as security
for certain borrowings of UAM.
E-5
<PAGE>
EXHIBIT F
NEWBOLD'S ASSET MANAGEMENT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF UNITED ASSET MANAGEMENT CORPORATION)
<TABLE>
STATEMENT OF FINANCIAL CONDITION
(UNAUDITED)
NOVEMBER 30, 1993
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 3,241,662
Net cash surrender value of company owned life
insurance..................................... 788,476
Investment advisory fees receivable.............. 9,348,255
Prepaid expenses................................. 155,053
-----------
Total current assets.......................... 13,533,446
Furniture, equipment, and improvements at cost,
net of accumulated depreciation and
amortization of $276,690...................... 142,307
Cost assigned to employment agreements, net of
accumulated amortization of $3,942,000........ 8,058,680
Goodwill, net of accumulated amortization of
$3,162,367.................................... 2,948,397
-----------
Total assets.................................. $24,682,830
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current compensation payable..................... $ 3,703,518
Due to affiliates................................ 174,348
Other liabilities................................ 291,867
-----------
Total current liabilities..................... 4,169,733
Deferred compensation payable...................... 1,022,925
-----------
Total liabilities............................. 5,190,658
-----------
Commitments and Contingencies
Stockholder's equity:
Common stock, par value $.01 per share,
authorized 1,000 shares; issued and
outstanding 100 shares........................ 1
Additional paid-in capital....................... 29,886,008
Retained earnings................................ 12,209,792
-----------
42,095,801
Less advances to parent.......................... (22,603,629)
-----------
Total stockholder's equity.................... 19,492,172
-----------
Total liabilities and stockholder's equity.... $24,682,830
===========
</TABLE>
F-1
<PAGE>
EXHIBIT G
<TABLE>
INVESTMENT COMPANIES SERVICED BY
NEWBOLD'S ASSET MANAGEMENT, INC.
<CAPTION>
ANNUAL RATE OF FEE
EXPRESSED AS A
NET ASSETS AT PERCENTAGE OF
INVESTMENT COMPANY 11/30/93 AVERAGE DAILY NET ASSETS
------------------ ------------- ------------------------
<S> <C> <C>
TRUST FOR TRAK
INVESTMENTS:
Large Capitalization
Value Equity
Investments $660 million 0.30%
USLICO Equity Fund $ 12 million 0.25%
USLICO Asset Allocation $ 3 million 0.25%
Fourm Funds, Inc. $ 9 million 0.40%
Allmerica Growth and 0.36% of first $100
Income Fund $ 10 million million*
0.34% of next $100
million
0.32% of next $200
million
0.30% over $400 million
<FN>
- ---------------
* Aggregated with assets of the Select Growth and Income Fund of Allmerica
Investment Trust, whose assets were $53 million as of November 30, 1993.
</TABLE>
G-1
<PAGE>
EXHIBIT H
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors of
PanAgora Asset Management, Inc.:
We have audited the accompanying balance sheets of PanAgora Asset
Management, Inc. as of December 31, 1992 and 1991 and the related statements of
operations, changes in stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits of the financial statements provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PanAgora Asset Management,
Inc. at December 31, 1992 and 1991, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND
Boston, Massachusetts
February 10, 1993
H-1
<PAGE>
PANAGORA ASSET MANAGEMENT, INC.
<TABLE>
BALANCE SHEETS
DECEMBER 31, 1992 AND 1991
<CAPTION>
1992 1991
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................... $5,189,388 $4,891,718
Fees receivable.............................. 2,161,597 1,395,451
Due from affiliates (Note F)................. 499,887 815,034
Prepaid expenses and other assets............ 214,871 179,102
---------- ----------
Total current assets.................. 8,065,743 7,281,305
Investments (Note E)........................... 228,530 187,999
Equipment, fixtures, and improvements:
Computer equipment........................... 1,127,070 1,045,936
Furniture and fixtures....................... 731,382 725,365
Leasehold improvements....................... 45,702 44,378
Other assets................................. 93,260 61,795
---------- ----------
1,997,414 1,877,474
Less accumulated depreciation and
amortization............................... (714,647) (396,291)
---------- ----------
Net equipment, fixtures and improvements... 1,282,767 1,481,183
---------- ----------
Total assets.......................... $9,577,040 $8,950,487
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses........ 380,013 330,790
Accrued compensation......................... 75,606 779,611
Accrued income taxes (Note C)................ 91,543 252,893
Due to affiliates (Note F)................... 1,864,146 1,291,162
Deferred revenue............................. 110,787 118,061
---------- ----------
Total current liabilities............. 2,522,095 2,772,517
Deferred income taxes (Note C)................. 50,838 24,179
Commitments (Note D)...........................
STOCKHOLDERS' EQUITY
Common stock, $5 par value; authorized 3,000
shares; issued and outstanding, 400 shares... 2,000 2,000
Additional paid-in capital..................... 4,498,005 4,498,005
Retained earnings............................ 2,504,102 1,653,786
---------- ----------
Total stockholders' equity............ 7,004,107 6,153,791
---------- ----------
Total liabilities and stockholders'
equity.............................. $9,577,040 $8,950,487
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
H-2
<PAGE>
PANAGORA ASSET MANAGEMENT, INC.
<TABLE>
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1992 AND 1991
<CAPTION>
1992 1991
------------ ------------
<S> <C> <C>
Revenue:
Advisory fees....................... $ 11,945,557 $ 10,768,502
Expenses:
Salaries and benefits............... 5,301,011 4,970,017
Expense reimbursements to affiliates
(Note F)......................... 1,097,921 1,216,050
Selling, general and
administrative................... 1,815,060 1,653,007
Occupancy........................... 456,331 450,427
Depreciation and amortization....... 318,356 279,016
Other............................... 337,646 239,804
------------ ------------
Total expenses.............. 9,326,325 8,808,321
------------ ------------
Income from operations...... 2,619,232 1,960,181
Investment income..................... 182,537 242,242
------------ ------------
Income before income
taxes..................... 2,801,769 2,202,423
Provision for income taxes (Note C)... 1,124,561 871,454
------------ ------------
Net income.................. $ 1,677,208 $ 1,330,969
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
H-3
<PAGE>
PANAGORA ASSET MANAGEMENT, INC.
<TABLE>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1992 AND 1991
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
December 31, 1990....... $2,000 $4,498,005 $ 322,817 $ 4,822,822
Net income.............. 1,330,969 1,330,969
------ ---------- ---------- -----------
December 31, 1991....... 2,000 4,498,005 1,653,786 6,153,791
Net income.............. 1,677,208 1,677,208
Dividends paid.......... (826,892) (826,892)
------ ---------- ---------- -----------
December 31, 1992....... $2,000 $4,498,005 $2,504,102 $ 7,004,107
====== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
H-4
<PAGE>
PANAGORA ASSET MANAGEMENT, INC.
<TABLE>
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1992 AND 1991
<CAPTION>
1992 1991
---------- -----------
<S> <C> <C>
Cash flow from operating activities:
Net income.............................. $1,677,208 $ 1,330,969
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization........... 318,356 279,016
Loss on disposal of assets.............. -- 22,240
Deferred income taxes................... 26,659 (15,821)
Change in assets and liabilities:
Fees receivable...................... (766,146) (32,279)
Due from affiliates.................. 315,147 444,315
Prepaid expenses and other assets.... (35,769) (160,784)
Accounts payable and accrued
expenses........................... 49,223 132,800
Accrued compensation................. (704,005) 61,611
Accrued income taxes................. (161,350) 46,893
Due to affiliates.................... 572,984 (1,496,022)
Deferred revenue..................... (7,274) 118,061
---------- -----------
Net cash provided from operating
activities.................... 1,285,033 730,999
Cash flow from investing activities:
Capital expenditures.................... (119,940) (266,473)
Proceeds from sale of investments....... 154,820 --
Purchases of investments................ (195,351) (187,999)
---------- -----------
Net cash used for investing
activities.................... (160,471) (454,472)
---------- -----------
Cash flow from financing activities:
Dividends paid.......................... (826,892) --
---------- -----------
Net cash provided from financing
activities.................... (826,892) --
---------- -----------
Net increase in cash and cash
equivalents............................. 297,670 276,527
Cash and cash equivalents at beginning of
year.................................... 4,891,718 4,615,191
---------- -----------
Cash and cash equivalents at end of
year.................................... $5,189,388 $ 4,891,718
========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the year:
Income taxes......................... $1,259,253 $ 840,082
========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
H-5
<PAGE>
PANAGORA ASSET MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
A. ORGANIZATION
PanAgora Asset Management, Inc. ("PanAgora" or "the Company"), a Delaware
corporation, is both an investment advisor registered under the Investment
Advisers Act of 1940 and a commodity trading advisor registered with the
Commodity Futures Trading Commission. PanAgora structures securities and
commodities portfolios, through computer programs, to match a particular index
or predetermined investment characteristics to meet client objectives of risk
and return. The Company was incorporated on September 22, 1989 and commenced
operations on April 27, 1990. A sister company, PanAgora Asset Management, Ltd.
(PanAgora-L) was organized in the U.K. at approximately the same time and under
a similar ownership structure to that of the Company.
PanAgora was previously operated as a division of The Boston Company
("TBC"). TBC is indirectly a wholly-owned subsidiary of Shearson Lehman Brothers
Holdings Inc. ("Shearson") which, in turn, is indirectly a majority-owned
subsidiary of the American Express Company.
On April 5, 1990, PanAgora sold 199 shares of its common stock to Shearson
for $4,435,000 and one share of its common stock to Nippon Life Insurance
Company ("NLI") for $65,000. In addition, TBC exchanged client investment
advisory contracts of its Structured Investment Products ("SIP") division,
customer approved, for 199 shares of PanAgora common stock. NLI subsequently
purchased 99 shares and 100 shares of the common stock from Shearson and TBC,
respectively. As a result of these transactions, NLI owns 200 shares of
PanAgora's common stock and Shearson and TBC each own 100 shares.
In March 1992, PanAgora declared and paid a total dividend of $826,892
($2,067 per share) to its owners based on their outstanding ownership shares of
the Company.
On September 14, 1992, Shearson entered into an agreement for the sale of
TBC to Mellon Bank Corporation. The transaction, which is subject to certain
conditions and approvals is intended to be consummated during the first quarter
of 1993. The shares owned by TBC will be distributed to Shearson.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
PanAgora earns fees for both investment advisory and commodity trading
advisory services provided primarily to pension trusts and investment companies.
At December 31, 1992, such pension trusts and investment companies to
H-6
<PAGE>
PANAGORA ASSET MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
whom PanAgora provides services have aggregate net assets of approximately $11.0
billion.
Investment advisory and subinvestment advisory fees are based on both the
nature of services performed and on a percentage of the net asset values of the
investments managed. The Company accounts for advisory fees received in advance
by deferring such amounts until the related services are performed. Performance
fees, if any, are recorded at the conclusion of the specified measurement
period. In addition, services that are completed according to contractual
agreements and not yet billed at December 31, 1992 and 1991 are included in fees
receivable.
Affiliated Entity Allocations
Management believes the cost allocation methods used by TBC in determining
the charges applied to PanAgora for services described in Note F below are
reasonable and appropriate in the circumstances; however, PanAgora's financial
position and results of operations may not necessarily be indicative of the
financial condition and results that would have existed if PanAgora had been
operated as an unaffiliated entity.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of highly liquid investments in
money market accounts on deposit at Boston Safe Deposit and Trust Company, which
is a wholly-owned subsidiary of TBC. In addition, cash and cash equivalents
include an investment in a tax-exempt municipal money market fund that has
investments with original maturities of three months or less. The carrying
amount approximates fair value because of the short maturity of those
instruments.
Investments
Investments are recorded at the lower of cost or market.
Equipment, Fixtures and Improvements
Computer equipment, furniture and fixtures, and leasehold improvements are
recorded at cost. Computer equipment, and furniture and fixtures are depreciated
using the straight-line method over their estimated useful lives of three to ten
years.
H-7
<PAGE>
PANAGORA ASSET MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Leasehold improvements are amortized using the straight-line method over
the lease term or estimated useful life, whichever is shorter. Expenditures for
maintenance and repairs are charged to operations as incurred.
Basis of Presentation
Certain items in the financial statements for the period ended December 31,
1991 have been reclassified to conform with the presentation for the year ended
December 31, 1992.
<TABLE>
C. INCOME TAXES
Components of the provision for taxes on income are as follows:
<CAPTION>
1992 1991
----------- --------
<S> <C> <C>
Current provision:
Federal................. $ 825,137 $672,527
State................... 272,765 214,748
----------- --------
1,097,902 887,275
Deferred provision:
Federal................. 20,369 (12,525)
State................... 6,290 (3,296)
----------- --------
26,659 (15,821)
----------- --------
$ 1,124,561 $871,454
=========== ========
</TABLE>
Income reported for federal tax purposes differs from pretax accounting
income due to variations between requirements of tax regulations and financial
accounting practices. Timing differences arise primarily from accelerated
depreciation, deferred revenue and other noncash accounting activity.
<TABLE>
The following table summarizes the differences between the statutory tax
rate and the Company's effective tax rate for financial statement purposes at
December 31, 1992 and 1991:
<CAPTION>
1992 1991
---- ----
<S> <C> <C>
Statutory tax rate........ 34.0% 34.0%
State taxes, net.......... 6.6 6.4
Other..................... (0.5) (0.8)
---- ----
Effective tax rate........ 40.1% 39.6%
==== ====
</TABLE>
H-8
<PAGE>
PANAGORA ASSET MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
D. LEASES
<TABLE>
The Company has entered into certain noncancelable operating lease
agreements, principally for occupancy and equipment. Total lease expense under
operating leases for the periods ended December 31, 1992 and 1991 amounted to
$509,211 and $506,823. Future minimum lease payments, as of December 31, 1992
under noncancelable operating leases are as follows:
<S> <C>
1993................. $ 509,211
1994................. 499,955
1995................. 236,966
-----------
$ 1,246,132
===========
</TABLE>
E. INVESTMENTS
PanAgora, serving as subinvestment advisor, has made an initial investment
to establish the TBC Asset Manager's Equity Fund (the Fund). The market value of
the Company's investment in the Fund was $235,855 and $224,173 at December 31,
1992 and 1991, respectively. Market value was determined based upon the quoted
market price for the Fund. PanAgora realized $23,505 of gains on redemptions for
the year ended December 31, 1992. The cost of the securities sold was based on
the identified cost method. There were no sales of investments during 1991.
F. RELATED PARTY TRANSACTIONS
The balance sheet caption "Due to Affiliates" represents the aggregate
unsettled balance relating principally to operational expenses or
reimbursements, paid on behalf of PanAgora by TBC and/or affiliates. "Due from
Affiliates" consists primarily of sub-investment advisory fees for those clients
where PanAgora serves as subadvisor and TBC acts as investment advisor and other
fee and commission arrangements with PanAgora-L.
The net amount due to PanAgora (to)/from PanAgora-L included in PanAgora's
intercompany accounts was ($85,166) and $97,330 at December 31, 1992 and 1991,
respectively. In addition, PanAgora is due $4,720 and $86,685 from PanAgora-L,
which is due to TBC and included in PanAgora's intercompany accounts at December
31, 1992 and 1991, respectively.
On April 27, 1990 TBC and PanAgora entered into a three-year general
services agreement under which TBC and its subsidiaries agreed to perform
substantially all of the business support services previously provided to
H-9
<PAGE>
PANAGORA ASSET MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PanAgora when it was operating as the SIP group including: securities processing
and custody, payroll servicing and employee benefits. Most of PanAgora's
employees are covered under the TBC pension plan and TBC is reimbursed for these
costs under the general services agreement. Total expenses incurred by PanAgora
under this agreement were $160,836 and $205,958 for 1992 and 1991, respectively.
The net amount due to TBC for general services and other payroll and
benefit expenses processed was $1,572,657 and $950,345 at December 31, 1992 and
1991, respectively. Effective January 1, 1993, PanAgora will be providing its
own payroll servicing and benefits administration. PanAgora has elected to
continue to utilize TBC for securities processing and custody.
TBC remains the contractual advisor to its Pooled Employee Funds ("Pooled
Funds"), and PanAgora continued to act as a subadvisor to these funds during the
year ended December 31, 1992. In fulfilling its role, PanAgora provides
investment advisory and/or related administrative and accounting services to TBC
in connection with the Pooled Funds. For its role as subadvisor PanAgora earns
95% of the advisory fees charged by TBC to the Pooled Funds' participants, which
totaled $3,329,985 and $2,957,548 for the years ended December 31, 1992 and
1991, respectively. Expenses related to these services were $937,086 and
$1,010,092 for 1992 and 1991, respectively. The net amount due from TBC for
subadvisory fees was $318,629 and $527,494 at December 31, 1992 and 1991,
respectively.
PanAgora has certain other arrangements with TBC and Shearson affiliates as
investment advisor and sub-investment advisor. For these services PanAgora
earned approximately $1,719,000 and $1,855,000 in fees and incurred $59,000 and
$106,500 of expenses for 1992 and 1991, respectively. The net amount due from
TBC and Shearson affiliates to PanAgora under these arrangements was $30,500 and
$12,750 at December 31, 1992 and 1991, respectively.
PanAgora has certain arrangements with NLI affiliates as investment advisor
and sub-investment advisor. For these services PanAgora earned $227,437 and
$224,391 during 1992 and 1991, respectively. No advisory service fees are due to
NLI affiliates from PanAgora at either December 31, 1992 or at December 31,
1991.
NLI has employees working at PanAgora whose salaries were paid by PanAgora
in 1992 and 1991 and partially subsidized by NLI. PanAgora agreed to reimburse
NLI for these and other expenses totalling $116,390 and $102,598 for 1992 and
1991, respectively. The net amount due to NLI under this agreement was $50,845
and $51,642 at December 31, 1992 and 1991, respectively.
H-10
<PAGE>
EXHIBIT I
PANAGORA ASSET MANAGEMENT, INC.
BALANCE SHEET
<TABLE>
SEPTEMBER 30, 1993
(UNAUDITED)
<CAPTION>
9/30/93
----------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $3,103,865
Fees receivable.................................... 2,461,597
Due from affiliates................................ 812,106
Prepaid expenses and other assets.................. 179,252
----------
Total current assets....................... 6,558,820
Investments.......................................... 1,029,160
Equipment, fixtures and improvements:
Computer equipment................................. 1,287,758
Furniture and fixtures............................. 717,385
Leasehold improvements............................. 49,622
Other assets....................................... 333,247
----------
2,388,012
Less accumulated depreciation and amortization..... (980,662)
----------
Net equipment, fixtures and improvements........ 1,407,350
----------
Total assets............................... $8,995,330
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses.............. 404,077
Accrued compensation............................... 1,072,167
Accrued income taxes............................... -0-
Due to affiliates.................................. 277,238
Deferred revenues.................................. 110,787
Total current liabilities.................. 1,862,269
----------
Deferred income taxes................................ 50,838
Commitments..........................................
Stockholders' equity:
Common stock, $5 par value; authorized 3,000
shares, issued and outstanding, 400 shares...... 2,000
Additional paid-in capital........................... 4,498,005
Retained earnings.................................. 2,580,218
----------
Total stockholders' equity.................... 7,080,223
Total liabilities and stockholders'
equity................................... $8,995,330
==========
</TABLE>
I-1
<PAGE>
EXHIBIT J
<TABLE>
PANAGORA ASSET MANAGEMENT
INVESTMENT ADVISORY SERVICES
<CAPTION>
ANNUAL RATE OF
COMPENSATION AS A
NET ASSETS AS OF PERCENTAGE OF AVERAGE
NAME 10/31/93 DAILY NET ASSETS
---- ---------------- ---------------------
<S> <C> <C>
THE BOSTON COMPANY
TBC Asset Allocation........... $ 33,400,000 0.50%
TBC International.............. $ 4,000,000 0.75%
Asset Managers Equity
Fund......................... $ 13,400,000 0.50%
SMITH BARNEY SHEARSON
Sector Analysis
Portfolio.................... $ 145,100,000 0.20%
Shearson Series Fund........... $ 7,900,000 0.04%
OTHER
S&P 100 Plus Portfolio
(Principal Preservation
Portfolios, Inc.............. $ 33,300,000 0.375%
Preferred Asset Allocation Fund
(Caterpillar)................ $ 26,700,000 0.50% of first $10 million in net
assets; 0.40% of the next $40
million in net assets; 0.20% of the
next $50 million in net assets; and
0.10% of net assets thereafter
OFFSHORE
TBC Enhanced Asset Allocation,
N.V.......................... $ 33,800,000 0.50%
U.S. Tactical Asset Allocation,
N.V.......................... $ 43,700,000 0.50%
Short-Term World Income Fund
(Cayman)..................... $ 29,700,000 0.75%
Garzarelli Sector Analysis
Portfolio NV................. $ 31,900,000 0.20%
BT Landmark North American
Tactical Asset Allocation RSP
Fund......................... $ 26,500,000 0.30%
BT Landmark World Tactical
Asset Allocation Fund........ $ 37,000,000 0.40%
PANAGORA
PanAgora International Equity
Fund......................... $ 13,300,000 0.80%
PanAgora Asset Allocation
Fund......................... $ 2,400,000 0.60%
PanAgora Global Fund........... $ 38,500,000 0.70%
</TABLE>
J-1
<PAGE>
EXHIBIT K
INDEPENDENT AUDITORS' REPORT
Board of Directors
Provident Investment Counsel
Pasadena, California
We have audited the accompanying balance sheets of Provident Investment
Counsel (an S corporation) as of December 31, 1992 and 1991 and the related
statements of operations, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Provident Investment Counsel
as of December 31, 1992 and 1991 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
MAGINNIS, KNECHTEL & MCINTYRE
Pasadena, California
March 5, 1993
K-1
<PAGE>
PROVIDENT INVESTMENT COUNSEL
(AN S CORPORATION)
<TABLE>
BALANCE SHEETS
DECEMBER 31, 1992 AND 1991
<CAPTION>
1992 1991
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................... $ 2,735,092 $ 1,779,338
Accounts receivable......................... 9,349,345 7,586,902
Prepaid expenses............................ 147,404 82,638
----------- -----------
Total current assets................. 12,231,841 9,448,878
Advances to mutual funds for start-up costs... 100,000 100,000
Investments (Note 2).......................... 462,861 316,195
Notes receivable (Note 3)..................... 265,099 395,146
Property and equipment
Office furniture and equipment.............. 1,764,359 1,034,567
Leasehold improvements...................... 798,279 390,366
Fine arts................................... 89,874 84,208
----------- -----------
2,652,512 1,509,141
Less accumulated depreciation and
amortization.............................. (1,006,166) (651,562)
----------- -----------
1,646,346 857,579
Deposits and other assets..................... 1,921 1,921
----------- -----------
$14,708,068 $11,119,719
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable............................ $ 528,416 $ 482,545
Accrued bonuses............................. 2,700,875 2,077,411
Profit sharing and 401(k) savings plan (Note
5)........................................ 438,336 411,738
Dividends payable........................... 1,501,000 --
Notes payable -- stockholders (Note 4)...... 3,139,000 3,000,000
----------- -----------
Total current liabilities............ 8,307,627 5,971,694
Accrued rent (Note 8)......................... 746,959 799,893
----------- -----------
Total liabilities.................... 9,054,586 6,771,587
Commitments (Note 8)
STOCKHOLDERS' EQUITY
Capital stock (Note 8)
Authorized 1,000,000 shares par value
$.01, 161,041 and 187,385 shares issued
and outstanding, 1992 and 1991,
respectively.............................. 1,610 1,874
Paid in capital............................. 30,605 35,611
Retained earnings........................... 5,621,267 4,310,647
----------- -----------
Total stockholders' equity........... 5,653,482 4,348,132
----------- -----------
$14,708,068 $11,119,719
=========== ===========
</TABLE>
See accompanying notes to financial statements.
K-2
<PAGE>
PROVIDENT INVESTMENT COUNSEL
(AN S CORPORATION)
<TABLE>
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1992 AND 1991
<CAPTION>
1992 1991
----------- -----------
<S> <C> <C>
Revenues
Fee income.......................... $59,871,610 $40,018,717
Interest income..................... 759,670 541,872
Other............................... 54,366 1,697
----------- -----------
60,685,646 40,562,286
Costs and expenses
Salaries and benefits............... 53,177,077 34,528,815
General and administrative
expenses......................... 3,603,688 3,307,192
Depreciation and amortization....... 420,598 246,738
----------- -----------
57,201,363 38,082,745
----------- -----------
Income before income taxes............ 3,484,283 2,479,541
Provision for income taxes (Note 6)... 66,750 85,040
----------- -----------
Net income............................ $ 3,417,533 $ 2,394,501
=========== ===========
</TABLE>
See accompanying notes to financial statements.
K-3
<PAGE>
PROVIDENT INVESTMENT COUNSEL
(AN S CORPORATION)
<TABLE>
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1992 AND 1991
<CAPTION>
ACCUMULATED OTHER
CAPITAL PAID IN ADJUSTMENTS ADJUSTMENTS RETAINED
STOCK CAPITAL ACCOUNT ACCOUNT EARNINGS TOTAL
------- -------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1990... $2,460 $46,748 $ 236,025 $ (843,055) $3,038,405
$2,480,583
Reclassification............. (680,949) 627,696 53,253 --
Stock redemption (Note 7).... (586) (11,137) (515,229) (526,952)
Net income:
Taxable income.............. 2,301,706 2,301,706
Nontaxable interest
income.................... 321,875 321,875
Nondeductible expenses...... (13,580 (271,607) (285,187)
Book and tax timing
differences............... 56,107 56,107
------- ------- ---------- ----------- ---------- ----------
Total net income....... 2,288,126 106,375 2,394,501
Balance, December 31, 1991... 1,674 35,611 1,843,202 (108,984 2,576,429 4,348,132
Stock redemption (Note 7).... (264) (5,006) (605,913) (611,183)
Net income:
Taxable income.............. 3,526,383 3,526,383
Nontaxable interest
income.................... 559,389 559,389
Nondeductible expenses...... (14,317) (397,675) (411,992)
Book and tax timing
differences............... (256,247) (256,247)
---------- ----------- ----------
Total net income....... 3,512,066 (94,533) 3,417,533
Dividends declared........... (1,501,000) (1,501,000)
------- ------- ---------- ----------- ---------- ----------
Balance, December 31, 1992... $1,610 $30,605 $5,355,268 $(1,704,517) $1,970,516
$5,653,482
====== ======= ========== =========== ==========
==========
</TABLE>
See accompanying notes to financial statements.
K-4
<PAGE>
PROVIDENT INVESTMENT COUNSEL
(AN S CORPORATION)
<TABLE>
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1992 AND 1991
<CAPTION>
1992 1991
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................. $ 3,417,533 $ 2,394,501
Adjustments to reconcile net income to
net cash provided by operating
activities:
Loss on disposal of property and
equipment........................... 2,909 2,179
Loss on investments.................... 38,192 20,655
Depreciation and amortization.......... 420,598 246,738
(Increase) decrease in:
Accounts receivable................. (1,762,443) (2,645,977)
Prepaid expenses.................... (64,766) (78,559)
Increase (decrease) in:
Accounts payable.................... 45,871 (90,077)
Accrued bonuses..................... 623,464 1,004,129
Profit sharing...................... 26,598 20,353
Accrued rent........................ (52,934) 46,409
----------- -----------
Total adjustments............... (722,511) (1,474,150)
Net cash provided by
operating activities..... 2,695,022 920,351
Cash flows from investing activities:
Proceeds from notes
receivable -- stockholders............... -- 369,767
Proceeds from notes receivable............. 130,047 69,215
Distributions from limited partnerships.... 15,142 18,429
Receipt of advances to mutual funds for
start-up costs........................... 100,000 --
Advances to mutual funds for start-up
costs.................................... (100,000) (100,000)
Purchase of mutual funds................... (200,000) --
Purchase of property and equipment......... (1,212,274) (327,875)
Advances on notes receivable............... -- (412,767)
----------- -----------
Net cash used in investing
activities............... (1,267,085) (383,231)
Cash flows from financing activities:
Proceeds from notes
payable -- stockholders.................. 3,139,000 3,000,000
Stock redemption........................... (611,183) (526,952)
Payments on bank note payable.............. -- (2,000,000)
Payments on notes
payable -- stockholders.................. (3,000,000) --
----------- -----------
Net cash provided (used) in
financing activities..... (472,183) 473,048
----------- -----------
Net increase in cash......................... 955,754 1,010,168
Cash and cash equivalents at beginning of
year....................................... 1,779,338 769,170
----------- -----------
Cash and cash equivalents at end of year..... $ 2,735,092 $ 1,779,338
=========== ===========
Supplemental disclosures.....................
Taxes paid................................. $ 93,750 $ 11,000
Interest paid.............................. 29,524 34,926
</TABLE>
See accompanying notes to financial statements.
K-5
<PAGE>
PROVIDENT INVESTMENT COUNSEL
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1992 AND 1991
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the business
Provident Investment Counsel (the Company) acts as a discretionary
investment manager and is registered under the Investment Advisers Act of 1940.
Revenue recognition
Fee income is recognized in the period for which the Company provides
advisory services. Fees generally are based on a percentage of the market values
of the portfolios under management. Accounts receivable are considered fully
collectable as of December 31, 1992.
Investments
Investments are carried at the lower of cost or market.
Property and equipment
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment are computed on the straight-line and declining balance
methods over the useful lives of the assets, or in the case of leasehold
improvements the life of the lease. These lives range from five to ten years.
Income tax
The Company, with the consent of its stockholders, has elected under the
Internal Revenue Code to be an S corporation. In lieu of corporation income
taxes, the stockholders of an S corporation are taxed on their proportionate
share of the Company's taxable income. Under those provisions, the Company does
not pay federal corporate income taxes on its taxable income. Instead, the
stockholders are liable for individual federal income taxes on the Company's
taxable income.
The Company has also elected by consent of its stockholders to be taxed
under the California S corporation provisions. Under such regulations the state
corporate tax rate is 2 1/2%.
K-6
<PAGE>
PROVIDENT INVESTMENT COUNSEL
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Amounts provided for state income taxes are based on earnings reported for
financial statement purposes, adjusted for differences between reported
financial and taxable income.
Cash and cash equivalents
For the purpose of the statement of cash flows, the Company considers all
short-term highly liquid investments with original maturities of three months or
less to be cash equivalents.
The Company had uninsured cash balances of $3,107,537 and $1,633,318 at
December 31, 1992 and 1991, respectively.
2. INVESTMENTS
<TABLE>
Investments at December 31 consist of:
<CAPTION>
1992 1991
--------- ---------
<S> <C> <C>
Limited partnerships........ $ 216,672 $ 232,340
PIC Pinnacle Growth Fund.... 100,000 --
PIC Pinnacle Balanced
Fund...................... 100,000 --
Common stocks............... 46,189 83,855
--------- ---------
$ 462,861 $ 316,195
========= =========
</TABLE>
The Company uses the equity method of accounting for investments in limited
partnerships. Under this method, investments are stated at cost, adjusted for
the equity in taxable earnings or losses and distributions as reported by the
general partners. These limited partnerships are for a specified term at which
time any cash or stock held by the partnerships will be distributed to the
partners. Management believes the recorded value is not materially different
from the fair market value of these investments.
At December 31, 1992 the aggregate cost of the PIC Pinnacle Funds and
common stocks approximated market.
K-7
<PAGE>
PROVIDENT INVESTMENT COUNSEL
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. NOTES RECEIVABLE
<TABLE>
Notes receivable are due from:
<CAPTION>
1992 1991
--------- ---------
<S> <C> <C>
Automobile leasing agent.... $ 265,099 $ 357,642
Other....................... -- 37,504
--------- ---------
$ 265,099 $ 395,146
========= =========
</TABLE>
During 1991 the Company established a program to fund the purchase of
automobiles leased by the Company. Amounts advanced to the leasing agent are in
the form of notes to be repaid over the life of the lease.
4. NOTES PAYABLE -- STOCKHOLDERS
In December 1992 and 1991, certain stockholders made loans to the Company.
The 1992 notes required interest at prime plus 1% while the 1991 notes required
interest at 8% per annum. Principal and interest are due on demand. The Company
repaid these notes in the first quarter of each subsequent year.
5. PROFIT SHARING AND 401(K) SAVINGS PLAN
All employees are eligible for the Company's qualified profit sharing and
401(k) plan after meeting certain age requirements and one year of service.
Employee contributions to the 401(k) plan are fully vested and made through a
payroll deduction plan. Company contributions to this plan are made at the
discretion of management, and are allocated on the basis of employee plan
participation and ERISA regulations. All Company contributions are 100% vested
after three years of service. The Company's expense was $516,392 and $482,479
for 1992 and 1991, respectively.
6. PROVISION FOR TAXES
<TABLE>
Tax expense consists of the following:
<CAPTION>
1992 1991
-------- --------
<S> <C> <C>
Current
State....................... $ 66,750 $ 85,040
======== ========
</TABLE>
K-8
<PAGE>
PROVIDENT INVESTMENT COUNSEL
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCK REDEMPTION
<TABLE>
In January 1992 and 1991, the Company redeemed shares of its common stock
from certain stockholders as follows:
<CAPTION>
1992 1991
-------- --------
<S> <C> <C>
Shares redeemed............ 26,344 58,615
Purchase price............. $611,183 $526,952
</TABLE>
8. COMMITMENTS
<TABLE>
The Company leases its facilities in Pasadena, California under long-term
operating lease agreements. The leases expire in 1999 with two five-year options
to renew and in 1996. Rental payments on the first lease were not required for
several months. The Company recognizes rent expense ratably over the period of
the leases. Accrued rent amounted to $746,959 at December 31, 1992, which is
being amortized over the period in which rental payments are made. Additionally,
the Company leases automobiles for certain officers and stockholders. Rent
expense was $633,363 and $515,395 for the year ended December 31, 1992 and 1991,
respectively. Future minimum rental payments required are as follows:
<S> <C>
1993............................ $ 777,219
1994............................ 812,116
1995............................ 818,614
1996............................ 690,990
1997............................ 662,370
Thereafter...................... 993,555
----------
$4,754,864
==========
</TABLE>
Stockholder agreements
An officer of the Company has an employment contract that requires a fixed
salary plus discretionary bonuses, and other benefits. This agreement requires
the officer not to compete with the Company for a period of five years after
K-9
<PAGE>
PROVIDENT INVESTMENT COUNSEL
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
retirement. Future minimum payments required under this contract are as follows:
<S> <C>
1993............................ $ 840,000
1994............................ 840,000
1995............................ 840,000
1996............................ 840,000
1997............................ 495,600
----------
$3,855,600
==========
</TABLE>
Other stockholders and officers of the Company have agreements which
provide for payments by the Company in the event of involuntary severance, death
or disability. The Company agrees to pay a percentage of annual revenues or
three years salary, beginning in the period subsequent to the involuntary
severance, death or disability. The Company is self insured for these benefits.
K-10
<PAGE>
EXHIBIT L
PROVIDENT INVESTMENT COUNSEL
BALANCE SHEET
<TABLE>
NOVEMBER 30, 1993
(UNAUDITED)
<CAPTION>
11/30/93
-----------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash.............................................. $16,829,163
Accounts receivable............................... 12,710,043
Other current assets.............................. 424,248
-----------
Total current assets...................... 29,963,454
Long-term assets and equipment................. 2,346,127
-----------
Total assets.............................. $32,309,581
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Payables.......................................... 367,044
Deferred income................................... 5,983,812
Accrued rent...................................... 769,015
Other current liabilities......................... 102,554
-----------
Total current liabilities................. 7,222,424
-----------
Shareholders' equity................................ 25,087,157
-----------
Total liabilities and equity.............. $32,309,581
===========
</TABLE>
L-1
<PAGE>
EXHIBIT M
<TABLE>
INVESTMENT COMPANIES SERVICED BY PROVIDENT INVESTMENT COUNSEL
<CAPTION>
NET ASSETS
COMPANY AT 11/30/93 ANNUAL RATE OF FEE+
------- ----------- -------------------
<S> <C> <C>
The Managers Sp. Eq..... $27,023,629 0.500%*
Mastodont............... $28,715,434 1.000%**
Enterprise.............. $100,775,514 0.750%***
Liberty................. $147,702,668 0.400%***
Lincoln................. $184,165,850 0.700% -- First $10
million
0.525% -- Next $10 million
0.375% -- On Balance
Flex Growth Equity...... $89,864,454 0.500% -- First $25
million
0.400% -- Next $25 million
0.300% -- On Balance
Flex Growth Balance..... $141,882,800 0.500% -- First $25
million
0.400% -- Next $25 million
0.300% -- On Balance
The Trust for TRAK
Investments........... $285,939,047 0.300%
Large Capitalization
Growth Investments....
PIC Growth Portfolio.... $155,879,774 0.800%***
PIC Balance Portfolio... $ 6,482,193 0.600%***
Allmerica............... $47,433,032 0.500% -- First $50
million
0.450% -- Next $100
million
0.350% -- Next $100
million
0.300% -- Next $100
million
0.250% -- On Balance
Blanchard Group......... $21,125,638 0.500% -- First $150
million
0.450% -- Next $100
million
0.400% -- Next $150
million
0.350% -- On Balance
Broad Inc. --
SunAmerica............ $42,708,953 0.500% -- First $50
million
0.450% -- Next $100
million
0.350% -- Next $100
million
0.300% -- Next $100
million
0.250% -- On Balance
PIC Small Cap/DowFund... $78,291,993 0.800%***
<FN>
- ---------------
* Based on quarterly average market value on balance
** Based on quarter end market value on balance
*** Based on daily market value, paid monthly
+ Based on fee as a percentage of average daily net assets, unless otherwise
specified
</TABLE>
M-1
