As filed with the Securities and Exchange Commission on
December 29,
1995
Registration No. 33-40823
811-6318
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
X
Pre-Effective Amendment No. _______
Post-Effective Amendment No. 13 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940
Amendment No. 15 X
CONSULTING GROUP CAPITAL MARKETS FUNDS
(Exact name of Registrant as Specified in Charter)
222 Delaware Avenue, Wilmington, Delaware 19801
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(302) 888-4104
Christina T. Sydor
Consulting Group Capital Markets Funds
388 Greenwich Street, 22nd Floor
New York, New York 10013
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
As soon as possible after this Post-Effective Amendment
becomes effective
It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule 485(b)
on January 2, 1995 pursuant to Rule 485(b)
60 days after filing pursuant to Rule 485(a)
on _________________ pursuant to Rule 485(a)
___________________________________
The Registrant has previously filed a declaration of
indefinite
registration of its shares pursuant to Rule 24f-2 under the
Investment
Company Act of 1940. Registrant's Rule 24f-2 Notice for the
fiscal year
ended August 31, 1995 was filed on October 31, 1995.
CONSULTING GROUP CAPITAL MARKETS FUNDS
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
Part A.
Item No. Prospectus Heading
1. Cover Page Cover Page
2. Synopsis Summary
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Cover Page; Summary;
Objectives
and Policies of the Portfolios; Additional Information
5. Management of the Fund Summary; TRAK Fees; Portfolio
Expenses;
Management of the Trust; Custodian and Transfer Agent
6. Capital Stock and Other Securities Cover Page;
Dividends,
Distributions and Taxes; Additional Information
7. Purchase of Securities Being Offered Summary;
Purchase of
Shares; Net Asset Value; Exchange Privilege
8. Redemption or Repurchase Redemption of Shares; Exchange
Privilege
9. Pending Legal Proceedings Not Applicable
Part B Heading in Statement of
Item No. Additional Information
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and History Management of the
Trust; See
Prospectus -- "Additional Information"
13. Investment Objectives and Policies Objectives and
Policies of the
Portfolios
14. Management of the Fund Management of the Trust;
Custodian and
Transfer Agent
15. Control Persons and Principal Holders of Securities
Management of
the Trust
16. Investment Advisory and Other Services Purchase of
Shares;
Management of the Trust; Custodian and Transfer Agent; See
Prospectus --
"TRAK Fees; Portfolio Expenses"; "Custodian and Transfer
Agent" and
"Management of the Trust"
17. Brokerage Allocation and Other Practices Objectives
and Policies of
the Portfolios
18. Capital Stock and Other Securities See Prospectus --
"Dividends,
Distributions and Taxes" and "Additional Information"
19. Purchase, Redemption and Pricing of Purchase of
Shares; Net Asset
Value;
Securities Being Offered See Prospectus -- "Exchange
Privilege"
20. Tax Status Taxes; See Prospectus -- "Dividends,
Distributions and
Taxes"
21. Underwriters Objectives and Policies of the
Portfolios; Purchase
of Shares; See Prospectus -- "Purchase of Shares"
22. Calculation of Performance Data Determination of
Performance; See
Prospectus - "Performance of the Portfolios"
23. Financial Statements Report of Independent
Accountants; Statement
of Assets and Liabilities
CONSULTING GROUP CAPITAL MARKETS FUNDS
PART A
CONSULTING GROUP CAPITAL MARKETS FUNDS
THIS MATERIAL CONSISTS OF A DESCRIPTION OF TRAK PERSONALIZED
INVESTMENT
ADVISORY SERVICE AND A PROSPECTUS OF CONSULTING GROUP
CAPITAL MARKETS
FUNDS.
A TABLE LISTING THE COSTS AND EXPENSES ASSOCIATED WITH AN
INVESTMENT IN THE
TRUST APPEARS ON PAGES 4 AND 5 OF THE PROSPECTUS. READ THE
DESCRIPTION AND
THE
PROSPECTUS CAREFULLY BEFORE INVESTING.
January 1, 1996
PROSPECTUS
CONSULTING GROUP CAPITAL MARKETS FUNDS
222 Delaware Avenue ~ Wilmington, Delaware 19801 ~ (212)
816-TRAK
<PAGE>
[LOGO] TRAK(R)
--------------------------------------
Personalized Investment Advisory Service
CONSULTING GROUP
CAPITAL MARKETS FUNDS
THIS MATERIAL CONSISTS OF A DESCRIPTION OF TRAK PERSONALIZED
INVESTMENTADVISORY
SERVICE AND A PROSPECTUS OF CONSULTING GROUP CAPITAL MARKETS
FUNDS.
A TABLE LISTING THE COSTS AND EXPENSES ASSOCIATED WITH AN
INVESTMENTIN THE
TRUST APPEARS ON PAGES 4 AND 5 OF THE PROSPECTUS. READ THE
DESCRIPTION AND
THE
PROSPECTUS CAREFULLY BEFORE INVESTING.
January
1, 1996
SMITH BARNEY
------------
A Member of
TravelersGroup[LOGO]
<PAGE>
[LOGO] TRAK(R)
--------------------------------------
Personalized Investment Advisory Service
TRAK Personalized Investment Advisory Service ("TRAK") is
a securities
advisory service offered by the Consulting Group (the
"Consulting Group") of
Smith Barney Inc. ("Smith Barney") designed to assist a
client in devising and
implementing a reasoned, systematic, long-term investment
strategy tailored to
the client's financial circumstances. TRAK links the
Consulting Group's
experience in evaluating an investor's investment objectives
and risk
tolerances, the abilities of investment advisers to meet
those objectives and
risk tolerances and the historic performance of various
asset classes, with
the convenience and cost effectiveness of a broad array of
investment
portfolios. TRAK consists of the following elements for
programs other than
certain qualified employee benefit plans:
THE REQUEST
The core of TRAK is the Consulting Group's evaluation of
the client's
financial goals and risk tolerances based on the Request,
a confidential
client questionnaire that the client completes with the
assistance of his
or her Financial Consultant. In reviewing and processing a
client's
Request, the Consulting Group considers the client's
specific investment
goals--a secure retirement, the education of children, the
preservation and
growth of an inheritance or savings or the accumulation of
capital for the
formation of a business--in terms of the client's time
horizon for
achievement of those goals, immediate and projected
financial means and
needs and overall tolerances for investment risk.
THE RECOMMENDATION
Based on its evaluation of the client's financial goals
and
circumstances, the Consulting Group prepares and issues a
Recommendation.
In the Recommendation, the Consulting Group provides
advice as to an
appropriate mix of investment types designed to balance
the client's
financial goals against his or her means and risk
tolerances as part of a
long term investment strategy. Numerous financial studies,
including a
study in the Financial Analysis Journal, a major
publication forum for
investment research, have concluded that the single most
important
component determining the performance of an investment
portfolio is how
that portfolio is allocated among different types of
investments. The
Recommendation draws on Smith Barney's experience in
analyzing
macroeconomic events worldwide and designing asset
allocation strategies as
well as the Consulting Group's experience in monitoring
and evaluating the
performance of various market segments over substantial
periods of time and
correlating that information with the client's financial
characteristics.
The Recommendation provides specific advice about
implementing investment
decisions through Consulting Group Capital Markets Funds
(the "Trust"), a
series of investment portfolios (the "Portfolios") that
covers a spectrum
of investments from a money market fund that limits its
investment to U.S.
Government securities and repurchase agreements
exclusively for those
securities, to an emerging markets fund that offers the
potential for
significant returns to the client that can commit a
portion of his or her
portfolio to more volatile markets. The Recommendation
specifies a
combination of investments in the Portfolios considered
suitable for the
client. The Recommendation employs an asset allocation
theory based on a
framework discussed in "Portfolio Selection," a paper
published in the
Journal of Finance that earned its author a Nobel Prize.
The Financial
Consultant assists the client in evaluating the advice
contained in the
Recommendation, offers interpretations in light of
personal knowledge of
the client's circumstances and implements the client's
investment
decisions, but has no investment discretion over the
client's accounts. All
decisions on investing among the Portfolios remain with
the client. The
client has the option of accepting the Recommendation or
selecting an
alternative combination of investments in the Portfolios.
i
<PAGE>
THE INVESTMENTS
The Portfolios offer a convenient and economical means
through which to
implement the Recommendation. The Trust consists of the
following Portfolios,
which are described in greater detail in the Prospectus that
accompanies this
description:
(1) Government Money Investments (7) Large
Capitalization Value Equity
(2) Intermediate Fixed Income Investments
Investments (8) Large
Capitalization Growth
(3) Long-Term Bond Investments Investments
(4) Municipal Bond Investments (9) Small
Capitalization Value Equity
(5) Mortgage Backed Investments Investments
(6) Balanced Investments (10) Small
Capitalization Growth
Investments
(11) International
Equity Investments
(12) International
Fixed Income
Investments
(13) Emerging Markets Equity Investments
The Trust offers investors the opportunity to invest in
Portfolios that are
advised by investment firms ("Advisors") identified,
retained, supervised and
compensated by the Consulting Group in its capacity as
Manager to the Trust.
Shares of the Portfolios may be purchased, redeemed or
exchanged daily at the
net asset value next determined without imposition of any
sales or redemption
charge. As described below, participation in TRAK is subject
to payment of a
quarterly fee at the maximum annual rate of 1.50% of TRAK
assets held in an
account at Smith Barney (an "Account"). Financial
Consultants are compensated
based on client participation in TRAK but do not receive
compensation or
incentives based on which of the Portfolios are selected for
investment.
THE REVIEW
TRAK is a continuing investment advisory service. Once a
TRAK program is
active, the client receives, at least quarterly, a Review
highlighting all
TRAK activity for the preceding quarter. The Review is a
monitoring report
containing an analysis and evaluation of the client's TRAK
assets to ascertain
whether the client's objectives for the TRAK assets are
being met and
recommending, when appropriate, changes in the allocation of
assets among the
Portfolios. Information presented within the Review includes
a market
commentary, a record of the client's asset performance and
rates of return as
compared to several appropriate market indices (illustrated
in a manner that
includes any fees for participation in TRAK actually
incurred during the
period), the client's actual portfolio showing the breakdown
of investments
made in each Portfolio, year-to-date and cumulative realized
gains and losses
in and income received from each Portfolio, all purchase,
sale and exchange
activity and dividends and interest received and/or
reinvested. The
information in the Review is especially useful for tax
preparation purposes.
FINANCIAL CONSULTANT SUPPORT
Integral to TRAK is the personal and confidential
relationship between the
client and his or her Financial Consultant. With a Financial
Consultant a
client at all times has available a registered investment
professional backed
by the full resources of the Consulting Group to discuss his
or her financial
circumstances and strategy. The Financial Consultant serves
the client by
assisting the client in identifying his or her financial
characteristics,
completing and transmitting the Request, reviewing with the
client the
Recommendation and Reviews, responding to identified changes
in the client's
financial circumstances and implementing investment
decisions. When financial
circumstances change, the Financial Consultant can be
consulted and a new
evaluation commissioned at no additional charge.
ABOUT THE CONSULTING GROUP
TRAK and the Trust build on the experience of the
Consulting Group and its
related affiliate, the Consulting Services Division of Smith
Barney, in
providing coordinated personalized investment advice and
investment advisor
selection services. The predecessor of the Consulting
Services Division was
(continued)
ii
<PAGE>
established in 1973 with the primary objective of matching
the investment
needs of institutional and individual clients of Smith
Barney's predecessor
with appropriate and qualified money management
organizations throughout the
nation. In 1989, the Consulting Services Division was
restructured and its
research and investment advisory evaluation services
functions were segregated
and named the Consulting Group. The Consulting Group's
analysts draw on over
20 years of experience in performing asset manager searches
for institutional
and individual clients. They rely on the Consulting Group's
comprehensive
database of money management firms, through which it tracks
the historical and
ongoing performance of over 800 registered investment
advisors, and over 300
evaluations annually of investment advisors. As of November
30, 1995, the
Consulting Group and the Consulting Services Division
provided services with
respect to over $67 billion in client assets representing
more than 199,000
separate accounts under a variety of programs designed for
individual and
institutional investors.
GETTING STARTED
Getting started is easy. Prospective clients should make
an appointment to
speak with a Financial Consultant. The Financial Consultant
will assist in the
preparation of a Request. After the prospective client
completes the Request,
the Financial Consultant will forward this document for
evaluation and
processing by the Consulting Group. When the Consulting
Group completes its
review, the Financial Consultant will review the
Recommendation with the
client and provide the client with a copy of this
description of TRAK together
with the accompanying Prospectus of the Trust and a copy of
the form of
investment advisory agreement between the Consulting Group
and the client
relating to participation in TRAK, as well as a copy of that
agreement for the
client's records. Upon the client's execution of the
investment advisory
agreement and its acceptance by Smith Barney, the Financial
Consultant will
implement the client's investment decisions. The client will
be sent a
confirmation of his or her investments, which will be
accompanied by a copy of
a brochure required by federal law that contains more
detailed information
about the Consulting Group and TRAK.
PARTICIPATION
The annual fee for participation in TRAK is payable
quarterly, partially in
advance, and varies based upon the value of the client's
Portfolio shares at
the initiation of the advisory relationship and on a
continuing basis at the
last day of the preceding calendar quarter as follows: 1.50%
of the value of
TRAK assets up to $500,000, 1.20% of the value in excess of
$500,000 up to
$1,000,000 and 1.00% of the account value in excess of
$1,000,000. The annual
participation fee on TRAK assets and minimum initial
investment may be subject
to negotiation. The minimum initial TRAK investment is
$10,000 and there is no
minimum subsequent investment. As a shareholder in the
Portfolios, the client
will also bear a proportionate share of the Portfolios' fees
and expenses,
which are described in detail in the accompanying
Prospectus. The TRAK fee in
respect of an initial investment will begin to accrue on the
business day
following the initial investment in the Portfolios (the
"Opening Date"), will
be based on the proportion of the current quarter then
remaining and will be
payable on the seventh business day after the initial
investment is made.
Notwithstanding the foregoing, if the initial investment is
made within five
business days of the end of any quarter, the initial fee
payment will cover
the period from the Opening Date through the last day of the
following
quarter, and the fee will be pro-rated accordingly. Each
time that additional
funds aggregating $5,000 or more are invested in Portfolios
during any one
quarter, the applicable fee, pro-rated for the number of
days then remaining
in the quarter and covering the amount of such additional
funds, shall be
charged and shall become due two business days later. Each
time that Portfolio
shares aggregating $5,000 or more are redeemed during any
one quarter, the
client will receive a credit to the Account in which the
Portfolio shares were
held, for the TRAK fee applicable to the Portfolio shares
redeemed, based on
the proportion of the quarter remaining after the redemption
is effected. Such
credit shall be applied on the day that the quarterly fee is
due for the
quarter in which the Portfolio shares are redeemed, or two
business days after
the Portfolio shares are redeemed, whichever is later. For
purposes of
calculating additional fees or credits during a quarter,
additional
investments and redemptions are netted, and accordingly may
offset each other.
iii
<PAGE>
In the case of individual retirement accounts, retirement
plans for self-
employed individuals and employee benefit plans subject to
the Employee
Retirement Income Security Act of 1974, as amended
(collectively, "Plans"),
the minimum initial TRAK investment is $10,000 and the fee
for participation
in TRAK by a Plan will be reduced by an amount equal to, for
all Portfolios in
which Plan assets are invested, (A) the value of Plan assets
invested in a
Portfolio on the last calendar day of the previous calendar
quarter (or on the
day an initial investment is made during the calendar
quarter), multiplied by
(B) the reduction factor specified below, multiplied by (C)
a fraction, the
numerator of which is the number of days in the period for
which the TRAK fee
is being assessed and the denominator of which is the actual
number of days in
the calendar year of which that period is a part. The
reduction factor for
Portfolios (1) through (4) on page (ii) above shall be 0%;
for Portfolios (5)
and (12) shall be 0.05%; and for Portfolios (6) through (11)
and (13) shall be
0.10%.
For subsequent investments or redemptions aggregating to
$5,000 or more, the
pro-rated fee or credit for the balance of the quarter will
be calculated on
the basis of the net percentage TRAK fee paid for the
quarter during which the
subsequent investment or redemption was made.
TRAK participants should note that, although the
Consulting Group as the
Trust's Manager receives a fee in respect of Government
Money Investments, the
entire amount of that fee is paid by the Manager to that
Portfolio's Advisor.
Thus, the Manager retains no management fee in respect of
that Portfolio.
Once a TRAK program is active, Reviews covering all
settled TRAK activity
for the preceding quarter will be mailed on or about the
20th day of April,
July, October and January of each year and will contain a
debit notice
indicating the amount of the fee payable, partially in
advance, for the
current calendar quarter. The fee will be payable on the
tenth business day of
the month after the month in which the Review was mailed. If
the client pays
this fee by check, these funds will be deposited in the
client's Smith Barney
brokerage Account and may be invested in shares of a Smith
Barney money market
fund designated by the client until the specified payment
date. To relieve the
client of the burden of making separate payment, however,
each client's
investment advisory agreement provides that fees charged by
the Consulting
Group pursuant to the agreement may be paid through
automatic redemption, on
the specified payment date, of a portion of the Portfolio
shares held in the
client's Account. Unless otherwise specified by the client,
automatic payments
will be made first from redemptions of shares of Government
Money Investments;
next from free credit balances held in the client's Smith
Barney brokerage
Account; next from redemptions of shares of any money market
fund held in that
brokerage Account in which free credit balances are
routinely and
automatically invested; and next from redemptions of shares
of the other
Portfolios successively in the order listed on page (ii)
above until the
payment obligation is satisfied. Clients may terminate their
participation in
TRAK at any time by giving five days' notice to Smith
Barney. If a termination
is effected within five business days of receipt of the
confirmation and
brochure described above, any TRAK fee paid will be credited
to the client's
Account or paid by check mailed to the client if the client
so instructs. The
Consulting Group reserves the right to reject any investor's
participation in
TRAK. Termination of a TRAK program by a client must be
effected by a
redemption order for all Portfolio shares held in the
Account.
The Consulting Group serves as investment advisor to each
client in TRAK,
for which it receives a fee from the client that does not
vary based on the
Portfolios recommended for the client's investments. At the
same time, the
Consulting Group serves as the Trust's Manager with
responsibility for
identifying, retaining, supervising and compensating each
Portfolio's
Advisor(s) and receives a fee from each Portfolio, a varying
portion of which
is retained by the Manager based on the Portfolio involved.
Consequently, the
Consulting Group, when making asset allocation
recommendations for TRAK
clients, may be presented with a conflict of interest as to
the specific
Portfolios recommended for investment. The fee structure for
Plan TRAK
programs is intended to minimize any such conflict of
interest. The Consulting
Group is subject to and intends to comply fully with
standards of fiduciary
duty that require that it act solely in the best interest of
the client when
making investment recommendations.
CERTAIN QUALIFIED EMPLOYEE BENEFIT PLANS MAY INVEST IN THE
TRAK PROGRAM
ON
TERMS WHICH DIFFER FROM THOSE OUTLINED ABOVE. TO FIND OUT
MORE ABOUT THIS,
PLEASE CONTACT YOUR FINANCIAL CONSULTANT.
iv
<PAGE>
PROSPECTUS
CONSULTING GROUP CAPITAL MARKETS FUNDS
222 Delaware Avenue . Wilmington, Delaware 19801 .
(212) 816-TRAK
Consulting Group Capital Markets Funds, (the "Trust"), is
an open-end,
management investment company providing a convenient means
of investing in
separate investment portfolios (the "Portfolios")
professionally managed by
the Consulting Group (the "Manager" or the "Consulting
Group") of Smith Barney
Mutual Funds Management Inc. ("SBMFM"). Each of the
Portfolios benefits from
discretionary advisory services by an investment advisor
(the "Advisor" or
"Advisors") identified, retained, supervised and compensated
by the Manager.
The Trust is a series company that currently consists of the
following
Portfolios to which this Prospectus relates:
.Government Money Investments .Large Capitalization
Value Equity
.Intermediate Fixed Income Investments
Investments .Large Capitalization
Growth Investments
.Long-Term Bond Investments .Small Capitalization
Value Equity
.Municipal Bond Investments Investments
.Mortgage Backed Investments .Small Capitalization
Growth Investments
.Balanced Investments .International Equity
Investments
.International Fixed
Income Investments
.Emerging Markets Equity Investments
Each of the Portfolios is a diversified Portfolio of the
Trust, except
International Fixed Income Investments, which is a non-
diversified Portfolio.
Shares of Government Money Investments are not guaranteed or
insured by the
U.S. government and, although Government Money Investments
attempts to
maintain a constant net asset value of $1.00 per share,
there can be no
assurance that it will be able to do so at all times.
Shares of the Portfolios are offered exclusively to
participants in TRAK (R)
Personalized Investment Advisory Service ("TRAK"), an
investment advisory
service that directly provides to investors asset allocation
recommendations
with respect to the Portfolios based on an evaluation of an
investor's
investment objectives and risk tolerances, as well as to or
for the benefit of
participants in other investment advisory services offered
by qualified
investment advisors. Participation in TRAK is subject to
payment of a separate
investment advisory fee at a maximum annual rate of 1.50% of
assets held in a
TRAK account, which may be subject to negotiation. Other
investment advisory
services purchasing Portfolio shares on behalf of their
clients also may
separately impose different investment advisory fees for
different levels of
services as agreed upon with their clients. The operating
expenses of the
Portfolios, when combined with any investment advisory fees
separately paid,
may involve greater fees and expenses than other investment
companies whose
shares are purchased without the benefit of asset allocation
recommendations
rendered by investment advisors.
This Prospectus sets forth concisely certain information
about the Trust,
including expenses, that prospective investors will find
helpful in making an
investment decision. Investors are encouraged to read this
Prospectus
carefully and retain it for future reference.
Additional information about the Trust is contained in a
Statement of
Additional Information which is available upon request and
without charge by
calling or writing the Trust at the telephone number or
address listed above
or by contacting any Smith Barney Inc. ("Smith Barney")
Financial Consultant.
The Statement of Additional Information, which has been
filed with the
Securities and Exchange Commission, bears the same date as
this Prospectus and
is incorporated by reference into this Prospectus in its
entirety.
SHARES OF THE PORTFOLIOS ARE NOT INSURED BY THE FDIC;
ARE NOT A
DEPOSIT OR OTHER OBLIGATION OF, OR GUARANTEED BY ANY
BANK; AND
ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES
AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
January 1, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary............................. 1
TRAK Fees; Portfolio Expenses....... 4
Financial Highlights................ 6
Objectives and Policies of the Port-
folios............................. 13
Management of the Trust............. 30
Purchase of Shares.................. 37
Redemption of Shares................ 39
Net Asset Value..................... 40
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Exchange Privilege.................. 40
Dividends, Distributions and
Taxes.............................. 41
Custodian and Transfer Agent........ 43
Performance of the Portfolios....... 43
Additional Information.............. 45
Appendix A.......................... A-1
Appendix B.......................... B-1
</TABLE>
SUMMARY
The following summary is qualified in its entirety by the
more detailed
information included elsewhere in this Prospectus.
The Trust. The Trust is a management investment company
providing a
convenient means of investing in separate Portfolios
professionally managed by
the Manager. The assets of each of the Portfolios are
managed on a
discretionary basis by one or more separate Advisors. See
"Management of the
Trust." The Trust is a series company currently consisting
of the following 13
Portfolios:
. Government Money Investments, whose Advisor is Standish,
Ayer & Wood,
Inc.
. Intermediate Fixed Income Investments, whose Advisor is
Standish, Ayer &
Wood, Inc.
. Long-Term Bond Investments, whose Advisor is Wolf, Webb,
Burk & Campbell,
Inc.
. Municipal Bond Investments, whose Advisor is Smith
Affiliated Capital
Corp.
. Mortgage Backed Investments, whose Advisor is Atlantic
Portfolio
Analytics & Management, Inc.
. International Fixed Income Investments, whose Advisor is
Julius Baer
Investment Management Inc.
. Balanced Investments, whose Advisor is Palley-Needelman
Asset Management,
Inc.
. Large Capitalization Value Equity Investments, whose
Advisors are
Newbold's Asset Management, Inc. and Parametric
Portfolio Associates.
. Small Capitalization Value Equity Investments, whose
Advisors are NFJ
Investment Group and Wells Fargo Nikko Investment
Advisors.
. Large Capitalization Growth Investments, whose Advisors
are Provident
Investment Counsel and Boston Structured Advisors.
. Small Capitalization Growth Investments, whose Advisors
are Pilgrim
Baxter & Associates, Inc and Mellon Capital Management
Corporation.
. International Equity Investments, whose Advisors are
Oechsle
International Advisors, L.P. and State Street Global
Advisors.
. Emerging Markets Equity Investments, whose Advisor is
John Govett & Co.
Limited.
Management. The Consulting Group acts as the Portfolios'
Manager. Each of the
Portfolios benefits from discretionary advisory services
made available by one
or more Advisors identified, retained, supervised and
compensated by the
Manager. SBMFM serves as the Portfolios' administrator and
generally manages
all aspects of the Trust's administration and operation. See
"Management of the
Trust."
TRAK and Other Investment Advisory Services. Shares of the
Portfolios are
offered exclusively to or for the benefit of participants in
TRAK and other
investment advisory services offered by qualified investment
<PAGE>
advisors. TRAK is an investment advisory service pursuant to
which the
Consulting Group in its capacity as investment advisor to
participants in TRAK,
generally directly provides to investors asset allocation
recommendations and
related services with respect to the Portfolios based on an
evaluation of an
investor's investment objectives and risk tolerances. The
Consulting Group is
paid directly by the client a quarterly fee at the maximum
annual rate of 1.50%
of assets held in a TRAK account for its services. Investors
purchasing
Portfolio shares based on the recommendations of investment
advisors other than
the Consulting Group, or who contract with the Consulting
Group for services
other than those described above, pay, in lieu of TRAK
charges, different fees
for different levels of services as agreed upon with their
investment advisors.
See "Purchase of Shares--General."
Purchase and Redemption of Shares. Shares of the
Portfolios are offered for
purchase and redemption at their respective net asset values
next determined,
without imposition of any initial sales charge. Investors
purchasing shares
through participation in TRAK will pay the fee discussed
above. See "Purchase
of Shares" and "Redemption of Shares."
Risk Factors and Special Considerations. No assurance can
be given that the
Portfolios will achieve their investment objectives.
Investing in an investment
company that invests in securities of companies and
governments of foreign
countries, particularly developing countries, involves risks
that go beyond the
usual risks inherent in an investment company limiting its
holdings to domestic
investments. In particular, because Emerging Markets Equity
Investments will
invest in emerging markets countries, an investment in such
Portfolio should be
considered more speculative than an investment in a mutual
fund that invests in
securities of U.S. companies and investment in this
Portfolio involves certain
risks and considerations not associated with an investment
in a mutual fund
that invests in securities of countries with better
developed and more stable
markets. In addition, this Portfolio is authorized to borrow
for investment
purposes which will have the effect of magnifying gains and
losses on the
Portfolio's investments. A substantial portion of assets of
certain of the
Portfolios may be held in securities denominated in one or
more foreign
currencies, which will result in the Portfolio's bearing the
risk that those
currencies may lose value in relation to the U.S. dollar.
Certain Portfolios
may also be subject to certain risks of using investment
techniques and
strategies such as entering into forward currency contracts
and repurchase
agreements and trading futures contracts and options on
futures contracts. In
addition, Mortgage Backed Investments may invest in high
yield, high risk
securities that are predominantly speculative with respect
to the issuer's
capacity to pay interest and repay principal, and Mortgage
Backed Investments,
Intermediate Fixed Income Investments and Long-Term Bond
Investments may invest
in government stripped mortgage related securities and zero
coupon securities,
which, due to changes in interest rates, may be more
speculative and subject to
greater fluctuations in value than securities that pay
interest currently. See
"Objectives and Policies of the Portfolios--Certain
Securities, Investment
Techniques and Risk Factors."
Investors should be aware that the Consulting Group serves
as investment
advisor to each participant in TRAK, for which it receives a
fee from the
participant that does not vary based on the Portfolios
recommended for the
participant's investments. At the same time, the Consulting
Group serves as the
Trust's Manager with responsibility for identifying,
retaining, supervising and
compensating each Portfolio's Advisor and receives a fee
from each Portfolio.
The portion of such fee that is retained by the Manager
varies based on the
Portfolio involved. Consequently, the Consulting Group, when
making asset
allocation recommendations for TRAK participants, may be
presented with a
conflict of interest as to the specific Portfolios
recommended for investment.
The Consulting Group, however, is subject to and intends to
comply fully with
standards of fiduciary duty that require that it act solely
in the best
interest of the participants when making investment
recommendations. Investors
also should be aware that the Manager may be subject to a
conflict of interest
when making decisions regarding the retention and
compensation of particular
Advisors. However, the Manager's decisions, including the
identity of an
Advisor and the specific amount of the Manager's
compensation to be paid to the
Advisor, are subject to review and approval by a majority of
the Board of
Trustees and separately by a majority of the Trustees who
are not affiliated
with the Manager or any of its affiliates. See "Management
of the Trust--
Investment Manager" and "Purchase of Shares--General--TRAK."
2
<PAGE>
The Portfolios are intended as vehicles for the
implementation of long-term
asset allocation strategies rendered through investment
advisory programs, such
as TRAK, that are based on an evaluation of an investor's
investment objectives
and risk tolerances. Because these asset allocation
strategies are designed to
spread investment risk across the various segments of the
securities markets
through investment in a number of Portfolios, each
individual Portfolio
generally intends to be substantially fully invested in
accordance with its
investment objectives and policies during most market
conditions. Although an
Advisor of a Portfolio may, upon the concurrence of the
Manager, take a
temporary defensive position during adverse market
conditions, it can be
expected that a defensive posture will be adopted less
frequently than it would
be by other mutual funds. This policy may impede an
Advisor's ability to
protect a Portfolio's capital during declines in the
particular segment of the
market to which the Portfolio's assets are committed.
Consequently, no single
Portfolio should be considered a complete investment program
and an investment
among the Portfolios should be regarded as a long-term
commitment that should
be held through several market cycles. In addition, although
the Consulting
Group intends to recommend adjustments in the allocation of
assets among the
Portfolios based on, among other things, anticipated market
trends, there can
be no assurance that these recommendations can be developed,
transmitted and
acted upon in a manner sufficiently timely to avoid market
shifts, which can be
sudden and substantial. TRAK participants should recognize
that TRAK is a
nondiscretionary investment advisory service and that all
investment decisions
rest with the participant alone. Therefore, TRAK
participants are urged
strongly to adhere to the Consulting Group's asset
allocation recommendations
and to act promptly upon any recommended reallocation of
assets among the
Portfolios. Investors intending to purchase Portfolio shares
through different
investment advisory services should evaluate carefully
whether the service is
ongoing and continuous, as well as their investment
advisors' ability to
anticipate and respond to market trends. See "Objectives and
Policies of the
Portfolios--Certain Securities, Investment Techniques and
Risk Factors--
Temporary Investments."
Dividends and Distributions. Each Portfolio intends to
distribute annually to
its shareholders substantially all of its net investment
income and its net
realized long- and short-term capital gains. Dividends from
the net investment
income of Government Money Investments are declared daily
and paid monthly.
Dividends from the net investment income of Intermediate
Fixed Income
Investments, Long-Term Bond Investments, Mortgage Backed
Investments, Municipal
Bond Investments, International Fixed Income Investments and
Balanced
Investments are declared and paid monthly. Dividends from
the net investment
income of the remaining Portfolios are declared and paid
annually.
Distributions of any net realized long-term and short-term
capital gains earned
by a Portfolio will be made annually. See "Dividends,
Distributions and Taxes."
Taxation. Each of the Portfolios has qualified and intends
to continue to
qualify as a regulated investment company for U.S. federal
income tax purposes.
As such, the Trust anticipates that no Portfolio will be
subject to U.S.
federal income tax on income and gains that are distributed
to shareholders. It
is expected that certain capital gains and certain dividends
and interest
earned by International Equity Investments and Emerging
Markets Equity
Investments will be subject to foreign withholding taxes.
These taxes may be
deductible or creditable in whole or in part by shareholders
of the Portfolio
for U.S. federal income tax purposes. Although any foreign
withholding taxes
paid by International Fixed Income Investments are not
expected to be
creditable by its shareholders for U.S. federal income tax
purposes, the
Portfolio will be managed in a manner so as to minimize, to
the extent
practicable, the payment of any foreign withholding taxes.
See "Dividends,
Distributions and Taxes."
Custodian and Transfer Agent. PNC Bank, National
Association ("PNC") and
Morgan Guaranty and Trust Company ("Morgan") serve as the
custodians of the
Trust's assets and may employ sub-custodians outside the
United States approved
by the Trustees of the Trust in accordance with regulations
of the Securities
and Exchange Commission (the "SEC"). PNC provides services
for Portfolios
predominately comprised of domestic securities, whereas
Morgan provides
services for international Portfolios. First Data Investor
Services Group,
Inc., formerly called The Shareholder Servicer Group Inc.
("FDIS"), a
subsidiary of First Data Corporation, serves as the transfer
agent for the
Portfolios' shares. See "Custodian and Transfer Agent."
3
<PAGE>
TRAK FEES; PORTFOLIO EXPENSES
The following table lists the costs and expenses,
including fees for TRAK
(but not those for different investments advisory services
paid separately),
that an investor will incur either directly or indirectly as
a shareholder of
each Portfolio based on the Portfolio's operating expenses
for the most recent
fiscal year, with the exception of Large Capitalization
Investments and Large
Capitalization Growth Investments, which reflect partial
management fee waivers
that took effect on the date of this Prospectus, and
Balanced Investments and
Emerging Markets Equity Investments, which are based on the
Portfolio's
projected annual operating expenses.
<TABLE>
<CAPTION>
ANNUAL
PORTFOLIO OPERATING EXPENSES+
--------------
- ----------------------------
MAXIMUM MANAGEMENT
SHAREHOLDER ANNUAL FEES (NET
DISTRIBUTION TOTAL
TRANSACTIONS TRAK OF FEE
(RULE 12B-1) OTHER OPERATING
EXPENSES FEE* WAIVERS)
EXPENSES EXPENSES EXPENSES
------------ ------- ---------- ---
- --------- -------- ---------
<S> <C> <C> <C> <C>
<C> <C>
Government Money
Investments............ None 1.50% 0.08%
None 0.52% 0.60%
Intermediate Fixed
Income Investments..... None 1.50% 0.60%
None 0.20% 0.80%
Long-Term Bond
Investments............ None 1.50% 0.46%
None 0.34% 0.80%
Municipals Bond
Investments............ None 1.50% 0.48%
None 0.32% 0.80%
Mortgage Backed
Investments............ None 1.50% 0.46%
None 0.34% 0.80%
Balanced Investments.... None 1.50% 0.00%
None 1.00% 1.00%
Large Capitalization
Value Equity
Investments............ None 1.50% 0.76%
None 0.12% 0.88%
Large Capitalization
Growth Investments..... None 1.50% 0.76%
None 0.22% 0.98%
Small Capitalization
Value Equity
Investments............ None 1.50% 0.80%
None 0.26% 1.06%
Small Capitalization
Growth Investments..... None 1.50% 0.80%
None 0.40% 1.20%
International Equity
Investments............ None 1.50% 0.90%
None 0.29% 1.19%
International Fixed
Income Investments..... None 1.50% 0.59%
None 0.36% 0.95%
Emerging Markets
Equity Investments..... None 1.50% 0.44%
None 1.28% 1.72%
</TABLE>
Management Fees; Expenses. Each Portfolio pays the Manager
a fee for the
services that is computed daily and paid monthly at the
annual rate ranging
from 0.15% to 0.90% of the value of the average daily net
assets of the
Portfolio. The fees of each Advisor are paid by the Manager.
Each Portfolio
pays SBMFM a fee for administration services that is
computed daily and paid
monthly at an annual rate of 0.20% of the value at the
Portfolio's average
daily net assets. The nature of the services provided to,
and the management
fees paid by, each services, custodial fees, legal and
accounting fees,
printing costs, registration fees, the costs of regulatory
and the costs
involved in the Trust's communications with shareholders.
The Manager and SBMFM
may voluntarily waive a portion or all of their respective
fees otherwise
payable to them and the "Total Operating Expenses" without
waivers would have
been 0.84%, 0.95%, 0.93%, 1.06%, 2.01%, Municipal Bond
Investments, Mortgage
Backed Investments, Balanced Investments, Large
Capitalization and Emerging
Markets Equity Investments, respectively.
- --------
+As a percentage of average net asset.
*As a percentage of the value of Portfolio shares held on
the last calendar day
of the previous quarter.
4
<PAGE>
A shareholder would pay the following expenses on a $1,000
investment
assuming (i) a 5% annual return and (ii) redemption at the
end of each period.
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS
FIVE YEARS TEN YEARS
-------- ----------- -
- --------- ---------
<S> <C> <C>
<C> <C>
Government Money Investments.........
Intermediate Fixed Income
Investments.........................
Long-Term Bond Investments...........
Municipals Bond Investments..........
Mortgage Backed Investments..........
Balanced Investments.................
Large Capitalization Value Equity
Investments.........................
Large Capitalization Growth
Investments.........................
Small Capitalization Value Equity
Investments.........................
Small Capitalization Growth
Investments.........................
International Equity Investments.....
International Fixed Income
Investments.........................
Emerging Markets Equity Investments..
</TABLE>
The purpose of this example is to assist an investor in
understanding various
costs and expenses that an investor in a Portfolio will bear
directly or
indirectly. This example should not be considered to be a
representation of the
past or future expenses; actual expenses may be greater or
less than those
shown. Moreover, although the table assumes a 5% annual
return, a Portfolio's
actual performance will vary and may result in an actual
return greater or less
than 5%.
5
<PAGE>
FINANCIAL HIGHLIGHTS
The following information for the fiscal year ended August
31, 1995 has been
audited by KPMG Peat Marwick LLP, independent auditors,
whose report thereon
appears in the Trust's Annual Report dated August 31, 1995.
This information
should be read in conjunction with the financial statements
and related notes
that appear in the Trust's Annual Report dated August 31,
1995, which is
available upon request and incorporated by reference into
the Statement of
Additional Information. The following information for the
fiscal year ended
August 31, 1992 through August 31, 1994 has been audited by
Coopers & Lybrand
LLP.
GOVERNMENT MONEY INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING
THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995 1994
1993 1992
- --------------------- -------- -------- -
- ------ -------
<S> <C> <C>
<C> <C>
NET ASSET VALUE, beginning of year. $ 1.00 $ 1.00 $
1.00 $ 1.00
-------- -------- -
- ------ -------
Net investment income#............. 0.05 0.03
0.03 0.03
Dividends from net investment in-
come.............................. (0.05) (0.03)
(0.03) (0.03)
-------- -------- -
- ------ -------
NET ASSET VALUE, end of year....... $ 1.00 $ 1.00 $
1.00 $ 1.00
======== ========
======= =======
Total return++..................... 5.24 % 3.10 %
2.76 % 2.72 %
======== ========
======= =======
Ratios to average net
assets/Supplemental Data:
NET ASSETS, end of year (in 000's). $241,590 $184,656
$84,034 $30,353
Ratio of operating expenses to av-
erage net assets+................. 0.60 % 0.55 %
0.50 % 0.49 %**
Ratio of net investment income to
average net assets................ 5.14 % 3.16 %
2.71 % 3.37 %**
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived
and/or expenses
reimbursed by the Service Providers for the years ended
August 31, 1995,
1994, and 1993 and the period ended August 31, 1992 were
0.74%, 0.84%,
1.39% and 2.48%, respectively.
++ Total return represents aggregate total return for the
period indicated.
# Net investment income before fees waived and/or expenses
reimbursed by the
Service Providers for the years ended August 31, 1995,
1994 and 1993 and the
period ended August 31, 1992 were $0.05, $0.03, $0.02, and
$0.01,
respectively.
INTERMEDIATE FIXED INCOME INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING
THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995 1994
1993 1992
- --------------------- -------- -------- --
- ------ -------
<S> <C> <C>
<C> <C>
NET ASSET VALUE, beginning of
year............................. $ 7.92 $ 8.58 $
8.25 $ 8.00
-------- -------- --
- ------ -------
Income from investment operations:
Net investment income#............ 0.50 0.47
0.51 0.34
Net realized and unrealized
gain/(loss) on investments....... 0.16 (0.56)
0.33 0.25
-------- -------- --
- ------ -------
Total from investment operations.. 0.66 (0.09)
0.84 0.59
Less Distributions:
Distributions from net investment
income........................... (0.48) (0.50)
(0.48) (0.34)
Distributions from net realized
capital gains.................... -- (0.05)
(0.03) --
Distributions in excess of net re-
alized gains..................... -- (0.01)
- -- --
Distributions from capital........ -- (0.01)
- -- --
-------- -------- --
- ------ -------
Total Distributions............... (0.48) (0.57)
(0.51) (0.34)
-------- -------- --
- ------ -------
NET ASSET VALUE; end of year...... $ 8.10 $ 7.92 $
8.58 $ 8.25
======== ========
======== =======
Total return++.................... 8.70 % (1.13)%
10.59 % 7.53 %
======== ========
======== =======
Ratios to average net
assets/Supplemental Data:
NET ASSETS, end of year (in
000's)........................... $246,323 $223,548
$140,580 $58,545
Ratio of operating expenses to av-
erage net assets+................ 0.80 % 0.80 %
0.80 % 0.79 %**
Ratio of net investment income to
average net assets............... 6.40 % 5.77 %
5.94 % 6.00 %**
Portfolio turnover rate........... 98 % 86 %
92 % 169 %
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized
+ Annualized operating expense ratios before fees waived by
the Service
Providers for the year ended August 31, 1993 and the
period ended August
31, 1992 were 0.88% and 1.30%, respectively.
++ Total return represents aggregate total return for the
period indicated.
# Net investment income before fees waived by the Service
Providers for the
year ended August 31, 1993 and the period ended August 31,
1992 was $0.50
and $0.31, respectively.
6
<PAGE>
FINANCIAL HIGHLIGHTS
LONG-TERM BOND INVESTMENTS (FORMERLY TOTAL
RETURN FIXED INCOME INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING
THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995 1994
1993 1992
- --------------------- -------- ------- -
- ------ -------
<S> <C> <C>
<C> <C>
NET ASSET VALUE, beginning of year. $ 7.86 $ 8.70 $
8.26 $ 8.00
-------- ------- -
- ------ -------
Income from investment operations:
Net investment income#............. 0.45 0.38
0.47 0.31
Net realized and unrealized
gain/(loss) on investments........ 0.36 (0.75)
0.42 0.26
-------- ------- -
- ------ -------
Total from investment operations... (0.81) (0.37)
0.89 0.57
Less Distributions:
Distribution from net investment
income............................ (0.44) (0.41)
(0.45) (0.31)
Distribution from net realized cap-
ital gains........................ -- (0.01)
- -- --
Distribution in excess of net real-
ized gains........................ -- (0.05)
Distribution from capital.......... -- (0.00)@
- -- --
-------- ------- -
- ------ -------
Total Distributions................ (0.44) (0.47)
(0.45) (0.31)
-------- ------- -
- ------ -------
NET ASSET VALUE, end of year....... $ 8.23 $ 7.86 $
8.70 $ 8.26
======== =======
======= =======
Total return++..................... 10.71 % (3.93) %
11.08 % 7.37 %
======== =======
======= =======
Ratios to average net
assets/Supplemental Data:
NET ASSETS, end of year (in 000's). $137,545 $94,628
$64,734 $34,986
Ratio of operating expenses to av-
erage net assets+................. 0.80 % 0.80 %
0.80 % 0.79 %**
Ratio of net investment income to
average net assets................ 5.80 % 5.34 %
5.40 % 5.69 %**
Portfolio turnover rate............ 62 % 43 %
35 % 4 %
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived
and/or expenses
reimbursed by the Service Providers for the years ended
August 31, 1995,
1994 and 1993 and the period ended August 31, 1992 were
0.93%, 0.95%, 1.09%
and 1.91%, respectively.
++ Total return represents aggregate total return for the
period indicated.
# Net investment income before fees waived and/or expense
reimbursed by the
Service Providers for the years ended August 31, 1995,
1994 and 1993 and the
period ended August 31, 1992 were $0.44, $0.37, $0.44 and
$0.25,
respectively.
@ Amount represents less than $0.01 per portfolio share.
MUNICIPAL BOND INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING
THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995 1994
1993 1992
- --------------------- ------- ------- -
- ------ -------
<S> <C> <C>
<C> <C>
NET ASSET VALUE, beginning of year.. $ 8.06 $ 8.85 $
8.25 $ 8.00
------- ------- -
- ------ -------
Income from investment operations: --
Net investment income#.............. 0.40 0.40
0.41 0.30
Net realized and unrealized
gain/(loss) on investments......... 0.21 (0.71)
0.62 0.25
------- ------- -
- ------ -------
Total from investment operations.... (0.31)
1.03 0.55
Less Distributions: (0.40)
Distributions from net investment
income............................. (0.00) (0.40)
(0.41) (0.30)
Distributions in excess of net in-
vestment income.................... (0.00)@ --
- -- --
Distributions from net realized cap-
ital gains......................... -- (0.05)
(0.02) --
Distributions in excess of net real-
ized capital gains................. -- (0.03)
- -- --
------- ------- -
- ------ -------
Total Distributions................. (0.40) (0.48)
(0.43) (0.30)
------- ------- -
- ------ -------
NET ASSET VALUE, end of year........ $ 8.27 $ 8.06 $
8.85 $ 8.25
======= =======
======= =======
Total return++...................... 7.86 % (3.78) %
12.94 % 7.06 %
======= =======
======= =======
Ratios to average net
assets/Supplemental Data:
NET ASSETS, end of year (in 000's).. $45,356 $56,625
$47,811 $21,795
Ratio of operating expenses to aver-
age net assets+.................... 0.80 % 0.80 %
0.80 % 0.79 %**
Ratio of net investment income to
average net assets................. 4.99 % 4.59 %
4.76 % 4.71 %**
Portfolio turnover rate............. 49 % 132 %
15 % 76 %
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived
and/or expenses
reimbursed by the Service Providers for the years ended
August 31, 1995,
1994 and 1993 and the period ended August 31, 1992 were
1.04%, .93%, 1.02%
and 1.66%, respectively.
++ Total return represents aggregate total return for the
period indicated.
# Net investment income before fees waived and/or expenses
reimbursed by the
Service Providers for the years ended August 31, 1995,
1994 and 1993 and the
period ended August 31, 1992 were $0.38, $0.39, $0.39 and
$0.24,
respectively.
@ Amount represents less than $/0/./0//1/ per portfolio
share.
7
<PAGE>
FINANCIAL HIGHLIGHTS
MORTGAGE BACKED INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING
THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995 1994
1993 1992
- --------------------- ------- -------- -
- ------ -------
<S> <C> <C>
<C> <C>
NET ASSET VALUE, beginning of year.. $ 7.69 $ 8.21 $
8.19 $ 8.00
------- -------- -
- ------ -------
Income from investment operations:
Net investment income#.............. 0.51 0.41
0.53 0.40
Net realized and unrealized
gain/(loss) on investments......... 0.22 (0.41)
0.00@ 0.19
------- -------- -
- ------ -------
Total from investment operations.... 0.73 0.00
0.53 0.59
Less distributions:
Distributions from net investment
income............................. (0.49) (0.41)
(0.42) (0.40)
Distributions from net realized cap-
ital gains......................... -- (0.01)
- -- --
Distributions in excess of net real-
ized capital gains................. -- --
(0.04) --
Distributions from capital.......... (0.02) (0.10)
(0.05) --
------- -------- -
- ------ -------
Total Distributions................. (0.51) (0.52)
(0.51) (0.40)
------- -------- -
- ------ -------
NET ASSET VALUE, end of year........ $ 7.91 $ 7.69 $
8.21 $ 8.19
======= ========
======= =======
Total return++...................... 9.96% (0.20)%
6.68 % 7.56 %
======= ========
======= =======
Ratios to average net assets/ Sup-
plemental Data:
NET ASSETS, end of year (in 000's).. 104,789 $120,427
$94,421 $35,694
Ratio of operating expenses to aver-
age net assets+.................... 0.80% 0.80 %
0.80 % 0.79 %**
Ratio of net investment income to
average net assets................. 6.85% 6.38 %
6.53 % 6.55 %**
Portfolio turnover rate............. 30 % 53 %
93 % 35 %
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived
and/or expenses
reimbursed by the Service Providers for the years ended
August 31, 1995,
1994 and 1993 and the period ended August 31, 1992 were
1.09%, 1.06%, 1.13%
and 1.66%, respectively.
++ Total return represents aggregate total return for the
period indicated.
# Net investment income before fees waived and/or expenses
reimbursed by the
Service Providers for the years ended August 31, 1995,
1994 and 1993 and the
period ended August 31, 1992 were $0.49, $0.39, $0.49 and
$0.35,
respectively.
@ Amount represents less than $0.01 per Portfolio share.
BALANCED INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING
THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995
1994 1993
- --------------------- -------
- ------- ------
<S> <C>
<C> <C>
NET ASSET VALUE, beginning of year............... $ 8.63
$ 8.41 $ 8.00
-------
- ------- ------
Income from investment operations:
Net investment income#........................... 0.26
0.21 0.09
Net realized and unrealized gain on investments.. 0.81
0.16 0.42
-------
- ------- ------
Total from investment operations................. 1.07
0.37 0.51
Less distributions:
Distributions from net investment income......... (0.29)
(0.15) (0.10)
Distribution from net realized capital gains..... (0.04)
- -- --
Distributions from capital....................... --
- -- (0.00)@
-------
- ------- ------
Total Distributions.............................. (0.33)
(0.15) (0.10)
-------
- ------- ------
NET ASSET VALUE, end of year..................... $ 9.33
$ 8.63 $ 8.41
=======
======= ======
Total return++................................... 12.76%
4.62 % 6.35 %
=======
======= ======
Ratios to average net assets/ Supplemental Data:
NET ASSETS, end of year (in 000's)............... $30,268
$14,940 $5,258
Ratio of operating expenses to average net as-
sets+........................................... 1.00%
1.00 % 1.00 %**
Ratio of net investment income to average net as-
sets............................................ 3.28%
2.66 % 2.67 %**
Portfolio turnover rate.......................... 47%
43 % 10 %
</TABLE>
- --------
* The Portfolio commenced operations on February 16, 1993.
** Annualized.
+ Annualized operating expense ratio before fees waived
and/or expenses
reimbursed by the Service Providers for the year ended
August 31, 1995, and
1994 and the period ended August 31, 1993 were 1.75%,
2.01%, 5.55%,
respectively.
++ Total return represents aggregate total return for the
period indicated.
# Net investment income/(loss) before fees waived and/or
expenses reimbursed by
the Service Providers for the years ended August 31, 1995
and 1994 and the
period ended August 31, 1993 were $0.20, $0.13 and
$(0.06), respectively.
@ Amount represents less than $0.01 per portfolio share.
8
<PAGE>
FINANCIAL HIGHLIGHTS
LARGE CAPITALIZATION VALUE EQUITY
INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING
THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995 1994
1993 1992
- --------------------- ---------- -------- --
- ------ --------
<S> <C> <C>
<C> <C>
NET ASSET VALUE, beginning of
year........................... $ 9.39 $ 9.35 $
8.77 $ 8.00
---------- -------- --
- ------ --------
Income from investment
operations:
Net investment income#.......... 0.27 0.17
0.25 0.09
Net realized and unrealized gain
on investments................. 1.16 0.02
0.54 0.68
---------- -------- --
- ------ --------
Total from investment
operations..................... 1.43 0.19
0.79 0.77
Less Distributions:
Distributions from net
investment income.............. (0.24) (0.15)
(0.14) --
Distributions from net realized
capital gains.................. (0.16) 0.00@
(0.07) --
---------- -------- --
- ------ --------
Total Distributions............. (0.40) (0.15)
(0.21) --
---------- -------- --
- ------ --------
NET ASSET VALUE, end of year.... $ 10.42 $ 9.39 $
9.35 $ 8.77
========== ========
======== ========
Total return+................... 16.14 % 2.09 %
9.25 % 9.63%
========== ========
======== ========
Ratios to average net
assets/Supplemental Data:
NET ASSETS, end of year (in
000's)......................... $1,070,037 $832,138
$562,507 $197,695
Ratio of operating expenses to
average net assets+++.......... 0.83 % 0.88 %
0.95 % 1.24%**
Ratio of net investment income
to average net assets.......... 2.93 % 2.57 %
2.88 % 3.24%**
Portfolio turnover rate......... 21 % 108 %
47 % 12%
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Total return represents aggregate total return for the
period indicated.
++ Per share amounts have been calculated using the monthly
average shares
method, which more appropriately presents the per share
data for the
period since the use of the undistributed net investment
income method
does not accord with results of operations.
+++ Annualized operating expense ratio before fee waivers by
the Service
Providers for the years ended August 31, 1995 and 1994
were 0.93% and
0.92%, respectively.
@ Amount represents less than $0.01 per portfolio share.
# Net investment income before fees waived by the Service
Providers for the
years ended August 31, 1995 and 1994 were $0.26 and $0.17,
respectively.
LARGE CAPITALIZATION GROWTH INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING
THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995 1994
1993 1992
- --------------------- -------- -------- -
- ------- -------
<S> <C> <C>
<C> <C>
NET ASSET VALUE, beginning of year.. $ 10.00 $ 9.76 $
8.88 $ 8.00
-------- -------- -
- ------- -------
Income from investment operations:
Net investment income#.............. 0.09 0.03
0.00@ 0.01
Net realized and unrealized gain on
investments........................ 2.13 0.21
0.89 0.87
-------- -------- -
- ------- -------
Total from investment operations.... 2.22 0.24
0.89 0.88
Less Distributions:
Distributions from net investment
income............................. (0.08) --
(0.00)@ --
Distributions in excess of net in-
vestment income.................... (0.01) --
(0.01) --
Distributions from net realized cap-
ital gains......................... (0.01) --
- -- --
Distributions from capital.......... -- --
(0.00)@ --
-------- -------- -
- ------- -------
Total Distributions................. (0.09) --
(0.01) --
-------- -------- -
- ------- -------
NET ASSET VALUE, end of year ....... $ 12.14 $ 10.00 $
9.76 $ 8.88
======== ========
======== =======
Total return++...................... 22.30 % 2.46%
10.00 % 11.00%
======== ========
======== =======
Ratios to average net
assets/Supplemental Data:
NET ASSETS, end of year (in 000's) . $782,394 $457,588
$238,256 $85,401
Ratio of operating expenses to aver-
age net assets+.................... 0.88 % 0.98%
1.12 % 1.24%**
Ratio of net investment
income/(loss) to average net as-
sets............................... 0.98 % 0.39%
(0.04)% 0.31%**
Portfolio turnover rate............. 38 % 104%
47 % 19%
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratio before fees waived by
the Service
Providers for the years ended August 31, 1995 and 1994
and period ended
August 31, 1992 were 0.98%, 1.02% and 1.42%,
respectively.
++ Total return represents aggregate total return for the
period indicated.
+++ Per share amounts have been calculated using the monthly
average shares
method, which more appropriately presents the per share
data for the
period since the use of the undistributed net investment
income method
does not accord with results of operations.
# Net investment income before fees waived by the Service
Providers for the
years ended August 31, 1995 and 1994 and for the period
ended August 31,
1992 were $0.09, $0.03 and $0.00, respectively.
@ Amount represents less than $0.01 per portfolio share.
9
<PAGE>
FINANCIAL HIGHLIGHTS
SMALL CAPITALIZATION VALUE EQUITY
INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING
THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995 1994
1993 1992
- --------------------- -------- -------- -
- ------- -------
<S> <C> <C>
<C> <C>
NET ASSET VALUE, beginning of year. $ 9.03 $ 9.94 $
8.68 $ 8.00
-------- -------- -
- ------- -------
Income from investment operations:
Net investment income#............. 0.15 0.08
0.06 0.03
Net realized and unrealized
gain/(loss) on investments........ 0.95 (0.40)
1.31 0.65
-------- -------- -
- ------- -------
Total from investment operations... 1.10 (0.32)
1.37 0.68
Less distributions:
Distributions from net investment
income............................ (0.12) (0.07)
(0.03) --
Distributions from net realized
capital gains..................... (0.00)@ (0.51)
(0.08) --
Distributions in excess of net
realized capital gains............ -- (0.01)
- -- --
-------- -------- -
- ------- -------
Total Distributions................ (0.12) (0.59)
(0.11) --
-------- -------- -
- ------- -------
NET ASSET VALUE, end of year....... $ 10.01 $ 9.03 $
9.94 $ 8.68
======== ========
======== =======
Total return++..................... 12.50 % (3.30)%
15.74 % 8.50%
======== ========
======== =======
Ratios to average net
assets/Supplemental Data:
NET ASSETS, end of year (in 000's). $340,306 $342,388
$183,051 $93,458
Ratio of operating expenses to
average net assets................ 1.11 % 1.06 %
1.11 % 1.24%**
Ratio of net investment income to
average net assets................ 1.54 % 1.12 %
0.82 % 0.99%**
Portfolio turnover rate............ 115 % 65 %
70 % 20%
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratio before fees waived by
the Service
Providers for the year ended August 31, 1995 and for the
period ended
August 31, 1992 were 1.13% and 1.40% respectively.
++ Total return represents aggregate total return for the
period indicated.
# Net investment income before fees waived by the Service
Providers for the
year ended August 31, 1995 and for the period ended August
31, 1992 were
$0.15 and $0.02.
@ Amount represents $0.01 per portfolio share.
SMALL CAPITALIZATION GROWTH INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995 1994
1993 1992
- --------------------- -------- -------- -
- ------ -------
<S> <C> <C>
<C> <C>
NET ASSET VALUE, beginning of year. $ 12.50 $ 11.21 $
7.99 $ 8.00
-------- -------- -
- ------ -------
Income from investment operations:
Net investment loss#............... (0.05) (0.09)
(0.07) (0.01)
Net realized and unrealized gain on
investments....................... 4.81 1.56
3.29 --
-------- -------- -
- ------ -------
Total from investment operations... 4.76 1.47
3.22 (0.01)
Less distributions:
Distributions from net realized
capital gains..................... (0.07) (0.04)
- -- --
Distributions in excess of net
realized capital gains............ -- (0.10)
- -- --
Distributions from capital......... -- (0.04)
- -- --
-------- -------- -
- ------ -------
Total Distributions................ (0.07) (0.18)
- -- --
-------- -------- -
- ------ -------
NET ASSET VALUE, end of year....... $ 17.19 $ 12.50 $
11.21 $ 7.99
======== ========
======= =======
Total return++..................... 38.25 % 13.18 %
40.30 % (0.13)%
======== ========
======= =======
Ratios to average net
assets/Supplemental Data:
NET ASSETS, end of year (in 000's). $315,033 $180,175
$75,498 $22,145
Ratio of operating expenses to
average net assets+............... 1.14 % 1.20 %
1.25 % 1.24 %**
Ratio of net investment loss to
average net assets................ (0.35)% (0.78)%
(0.72)% (0.25)%**
Portfolio turnover rate............ 174 % 94 %
97 % 35 %
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived
and/or expenses
reimbursed by the Service Providers for the years ended
August 31, 1995,
1994 and 1993 and the period ended August 31, 1992 were
1.16%, 1.49% and
2.61%, respectively.
++ Total return represents aggregate total return for the
period indicated.
+++ Per share amounts have been calculated using the monthly
average shares
method, which more appropriately presents the per share
data for the
period since the use of the undistributed net investment
income method
does not accord with results of operations.
# Net investment loss before fees waived and/or expenses
reimbursed by the
Service Providers for the year ended August 31, 1995, and
1993 and the
period ended August 31, 1992 were $0.05, $0.09 and $0.05,
respectively.
10
<PAGE>
FINANCIAL HIGHLIGHTS
INTERNATIONAL EQUITY INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING
THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995 1994
1993 1992
- --------------------- -------- -------- ---
- ----- --------
<S> <C> <C> <C>
<C>
NET ASSET VALUE, beginning of
year............................ $ 10.86 $ 9.57 $
7.76 $ 8.00
Income from investment opera-
tions:
Net investment income#........... 0.05 0.02
0.05 0.03
Net realized and unrealized
gain/(loss) on investments...... (0.09) 1.54
1.79 (0.27)
-------- -------- ---
- ----- --------
Total from investment operations. (0.04) 1.56
1.84 (0.24)
Less distributions:
Distributions from net investment
income.......................... -- (0.03)
(0.03) --
Distributions from net realized
capital gains................... (0.32) (0.24)
- -- --
-------- -------- ---
- ----- --------
Total Distributions.............. (0.32) (0.27)
(0.03) --
-------- -------- ---
- ----- --------
NET ASSET VALUE, end of year (in
000's).......................... $ 10.50 $ 10.86 $
9.57 $ 7.76
======== ========
======== ========
Total return++................... (0.18)% 16.74 %
23.73 % (3.00)%
======== ========
======== ========
Ratios to average net
assets/Supplemental Data:
NET ASSETS, end of year (in
000's).......................... $663,130 $594,965
$270,302 $115,779
Ratio of operating expenses to
average net assets+............. 1.19 % 1.19 %
1.32 % 1.50 %**
Ratio of net investment income to
average net assets.............. 0.43 % 0.23 %
0.61 % 1.08 %**
Portfolio turnover rate.......... 28 % 33 %
46 % 10 %
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
**Annualized.
+ Annualized operating expense ratio before fees waived by
the Service
Providers for the period ended August 31, 1992 was
1.52%.
++ Total return represents aggregate total return for the
period indicated.
+++ Per share amounts have been calculated using the monthly
average shares
method, which more appropriately presents the per share
data for the period
since use of the undistributed net investment income
method does not accord
with results of operations.
# Net investment income before fees waived by the Service
Providers for the
period ended August 31, 1992 was $0.03.
INTERNATIONAL FIXED INCOME INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING
THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995 1994
1993 1992
- --------------------- -------- -------- --
- ------ -------
<S> <C> <C>
<C> <C>
NET ASSETS VALUE, beginning of
year............................. $ 8.17 $ 8.86 $
8.71 $ 8.00
-------- -------- --
- ------ -------
Income from investment operations:
Net investment income#............ 0.56 0.40
0.51 0.39
Net realized and unrealized
gain/(loss) on investments....... 0.84 (0.32)
0.20 0.69
-------- -------- --
- ------ -------
Total from investment operations.. 1.40 0.08
0.71 1.08
Less Distributions:
Distributions from net investment
income........................... (0.56) (0.65)
(0.55) (0.37)
Distributions from net realized
capital gains.................... -- (0.07)
(0.01) --
Distributions in excess of net re-
alized capital gains............. -- (0.05)
- -- --
Distributions from capital........ -- (0.00)@
- -- --
-------- -------- --
- ------ -------
Total Distributions............... (0.56) (0.77)
(0.56) (0.37)
-------- -------- --
- ------ -------
NET ASSET VALUE, end of year...... $ 9.01 $ 8.17 $
8.86 $ 8.71
======== ========
======== =======
Total return++.................... 17.66 % 1.00 %
8.67 % 13.93 %
======== ========
======== =======
Ratios to average net
assets/Supplemental Data:
NET ASSETS, end of year (in
000's)........................... $105,884 $116,929
$100,362 $39,182
Ratio of operating expenses to av-
erage net assets+................ 0.95 % 0.95 %
0.95 % 0.95 %**
Ratio of net investment income to
average net assets............... 6.50 % 5.54 %
6.03 % 6.34 %**
Portfolio turnover rate........... 307 % 358 %
251 % 106 %
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived
and/or expenses
reimbursed by the Service Providers for the years ended
August 31, 1995,
1994 and 1993 and the period ended August 31, 1992 were
1.18%, 1.08%, 1.22%
and 1.87%, respectively.
++ Total return represents aggregate total return for the
period indicated.
# Net investment income before fees waived and/or expenses
reimbursed by the
Service Providers for the years ended August 31, 1995,
1994 and 1993 and the
period ended August 31, 1992 were $0.54, $0.39, $0.49 and
$0.33,
respectively.
@ Amount represents less than $0.01 per Portfolio share.
11
<PAGE>
FINANCIAL HIGHLIGHTS
EMERGING MARKETS EQUITY INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING
THROUGHOUT THE YEAR.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995 1994
- --------------------- ------ -------
<S> <C> <C>
NET ASSET VALUE, begin-
ning of year........... $ 9.49 $ 8.00
Income from investment
operations:
Net investment
gain/(loss)#........... 0.01 (0.02)
Net realized and
unrealized gain on in-
vestments.............. (1.45) 1.51
------ -------
Total from investment
operations............. (1.44) 1.49
------ -------
Total Distribution...... (0.20)
------ -------
NET ASSET VALUE, end of
year................... $ 7.85 $ 9.49
====== =======
Total return++.......... (15.13)% 18.63 %
====== =======
Ratios to average net
assets/Supplemental Da-
ta:
NET ASSET, end of year
(in 000's)............. 59,333 $36,365
Ratio of operating ex-
penses to average net
assets+................ 1.75 % 1.72 %**
Ratio of net investment
gain/(loss) to average
net assets............. 0.15 % (0.42)%**
Portfolio turnover rate. 89 % 16 %
</TABLE>
- --------
* The Portfolio commenced operations on April 21, 1994.
** Annualized.
+ Annualized operating expense ratios before fees waived by
the Service
Providers for the year ended August 31, 1995 and for the
period ended
August 31, 1994 was 1.96% and 2.56%.
++ Total return represents aggregate total return for the
period indicated.
# Net investment loss per share before fees waived by the
Service Providers
for the year ended August 31, 1995 and for the period
ended August 31, 1994
was $0.01 and $(0.04).
12
<PAGE>
OBJECTIVES AND POLICIES OF THE PORTFOLIOS
Set forth below is a description of the investment
objectives and policies of
each Portfolio. There can be no assurance that any Portfolio
will achieve its
investment objectives. Further information about the
investment policies of
each Portfolio, including a list of those restrictions on
its investment
activities that cannot be changed without shareholder
approval, appears in the
Statement of Additional Information.
GOVERNMENT MONEY INVESTMENTS
Government Money Investments is advised by Standish, Ayer
& Wood, Inc. The
Portfolio's investment objective is to provide maximum
current income to the
extent consistent with the maintenance of liquidity and the
preservation of
capital by investing exclusively in short-term securities
issued or guaranteed
by the U.S. government, its agencies or instrumentalities
("U.S. Government
Securities") and repurchase agreements with respect to those
securities. The
Portfolio may purchase securities on a when-issued or
delayed-delivery basis
and may lend its portfolio securities. See "Certain
Securities, Investment
Techniques and Risk Factors." The Portfolio will invest only
in securities that
are purchased with and payable in U.S. dollars and that have
remaining
maturities of 397 days or less at the time of purchase. The
Portfolio maintains
a dollar-weighted average portfolio maturity of 90 days or
less. All securities
purchased by the Portfolio, including repurchase agreements,
will present
minimal credit risks in the opinion of the Advisor acting
under the supervision
of the Trustees. The Portfolio follows these policies in
order to maintain a
constant net asset value of $1.00 per share, although there
can be no assurance
it can do so on a continuing basis. The Portfolio is not
insured or guaranteed
by the U.S. government. The yield attained by the Portfolio
may not be as high
as that of other funds that invest in lower quality or
longer term securities.
INTERMEDIATE FIXED INCOME INVESTMENTS
Intermediate Fixed Income Investments is advised by
Standish, Ayer & Wood,
Inc. The Portfolio seeks, as its investment objectives,
current income and
reasonable stability of principal. The Portfolio seeks to
achieve its
objectives through investment in high quality fixed income
securities. The
average maturity of the securities held by the Portfolio may
be shortened, but
not below three years, in order to preserve capital if the
Advisor anticipates
a rise in interest rates. Conversely, the average maturity
may be lengthened,
but not beyond ten years, to maximize returns if interest
rates are expected to
decline.
The Portfolio invests in U.S. Government Securities,
corporate bonds,
debentures, non-convertible fixed income preferred stocks,
mortgage related
securities including collateralized mortgage obligations
("CMOs") and
government stripped mortgage related securities, Eurodollar
certificates of
deposit, Eurodollar bonds and Yankee bonds. The securities
held by the
Portfolio are actively managed. The Portfolio limits its
investments to
investment grade securities, which are securities rated
within the four highest
categories established by Moody's Investors Service, Inc.
("Moody's") or
Standard & Poor's Corporation ("S&P"), and unrated
securities determined by the
Advisor to be of comparable quality. See the Appendix to the
Statement of
Additional Information for a description of Moody's and S&P
ratings and
"Certain Securities, Investment Techniques and Risk Factors-
- -Medium and Lower
Rated and Unrated Securities" for a description of certain
risks associated
with securities in the fourth highest rating category. The
Portfolio also may
attempt to hedge against unfavorable changes in interest
rates by entering into
interest rate futures contracts and purchasing and writing
put and call options
thereon. The Portfolio will not invest more than 25% of its
assets in privately
issued mortgage related securities. The Portfolio also may
engage in repurchase
agreements, purchase temporary investments, purchase
securities on a when-
issued basis and lend its portfolio securities. See "Certain
Securities,
Investment Techniques and Risk Factors."
LONG-TERM BOND INVESTMENTS
Long-Term Bond Investments, is advised by Wolf, Webb, Burk
& Campbell, Inc.
The Portfolio seeks, as its investment objective, total
return consisting of
current income and appreciation of capital through
investments in fixed income
securities without regard to remaining maturity. The average
maturity of the
13
<PAGE>
Portfolio's holdings may be shortened in order to preserve
capital if the
Advisor anticipates a rise in interest rates, but, under
normal circumstances,
at least 65% of the value of the Portfolio's net assets is
invested in bonds or
debentures so that the average maturity of the portfolio is
at least 10 years
or more. Conversely, the maturity may be lengthened to
maximize returns if
interest rates are expected to decline.
The Portfolio invests in U.S. Government Securities,
corporate bonds,
debentures, non-convertible fixed income preferred stocks,
mortgage related
securities including CMOs and government stripped mortgage
related securities
and other domestic asset backed securities, Eurodollar
certificates of deposit
and Eurodollar bonds. The Portfolio may invest up to 15% of
its assets in
"Yankee Bonds" or dollar-denominated bonds sold in the
United States by non-
U.S. issuers. The securities held by the Portfolio are
actively managed. The
Portfolio limits its investments to securities that are
considered to be
"investment grade," that is securities that are rated at
least Bbb by Moody's
or BBB by S&P and unrated securities determined to be of
comparable quality by
the Advisor. The Portfolio will not invest more than 25% of
its assets in
privately issued mortgage related securities. The Portfolio
may engage in
repurchase agreements, purchase temporary investments,
purchase securities on a
when-issued basis and lend its portfolio securities. The
Portfolio may attempt
to hedge against unfavorable changes in interest rates by
entering into
interest rate futures contracts and purchasing and writing
put and call options
thereon. See "Certain Securities, Investment Techniques and
Risk Factors."
MUNICIPAL BOND INVESTMENTS
Municipal Bond Investments is advised by Smith Affiliated
Capital Corp. The
Portfolio seeks, as its investment objective, a high level
of interest income
that is excluded from federal income taxation to the extent
consistent with
prudent investment management and the preservation of
capital. The Portfolio
seeks to achieve its objectives through investment in a
diversified portfolio
of general obligation, revenue and private activity bonds
and notes that are
issued by or on behalf of states, territories and
possessions of the United
States and the District of Columbia and their political
subdivisions, agencies
and instrumentalities, or multi-state agencies or
authorities, the interest on
which, in the opinion of counsel to the issuer of the
instrument, is excluded
from gross income for federal income tax purposes
("Municipal Obligations").
Portfolio composition generally covers a full range of
maturities with broad
geographic and issuer diversification. The Portfolio may
invest in private
activity bonds collateralized by letters of credit issued by
banks having
stockholders' equity in excess of $100 million as of the
date of their most
recent published statement of financial condition. The
Portfolio may also
invest in variable rate Municipal Obligations, most of which
permit the holder
thereof to receive the principal amount on demand upon seven
days' notice. The
Portfolio limits its investments to Municipal Obligations
that are rated at
least A, MIG-2 or Prime 2 by Moody's or A, SP-2 or A-2 by
S&P and unrated
securities determined to be of comparable quality by the
Advisor.
It is a fundamental policy of the Portfolio that under
normal circumstances
at least 80% of its assets will be invested in Municipal
Obligations and at
least 65% of its assets will be invested in bonds. The
Portfolio will not
invest more than 25% of its total assets in Municipal
Obligations whose issuers
are located in the same state or more than 25% of its total
assets in Municipal
Obligations that are secured by revenues from entities in
any one of the
following categories: hospitals and health facilities; ports
and airports; or
colleges and universities. The Portfolio will also not
invest more than 25% of
its assets in private activity bonds of similar projects.
The Portfolio may,
however, invest more than 25% of its total assets in
Municipal Obligations of
one or more of the following types: turnpikes and toll
roads; public housing
authorities, general obligations of states and localities;
state and local
housing finance authorities; municipal utilities systems;
bonds that are
secured or backed by the U.S. Treasury or other U.S.
government guaranteed
securities; and pollution control bonds.
The Portfolio may invest without limit in private activity
bonds, although it
does not currently expect to invest more than 20% of its
total assets in
private activity bonds. Dividends attributable to interest
income
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<PAGE>
on certain types of private activity bonds issued after
August 7, 1986 to
finance nongovernmental activities are a specific tax
preference item for
purposes of the federal individual and corporate alternative
minimum taxes.
Dividends derived from interest income on all Municipal
Obligations are a
component of the "current earnings" adjustment item for
purposes of the federal
corporate alternative minimum tax.
When the Portfolio is maintaining a temporary defensive
position, it may
invest in short-term investments, some of which may not be
tax exempt.
Securities eligible for short-term investment by the
Portfolio are tax exempt
notes of municipal issuers having, at the time of purchase,
a rating within the
three highest grades of Moody's or S&P or, if not rated,
having an issue of
outstanding Municipal Obligations rated within the three
highest grades by
Moody's or S&P, and taxable short-term instruments having
quality
characteristics comparable to those for Municipal
Obligations. The Portfolio
may invest in temporary investments for defensive reasons in
anticipation of a
market decline. At no time will more than 20% of the
Portfolio's total assets
be invested in temporary investments unless the Portfolio
has adopted a
defensive investment policy. The Portfolio will purchase tax
exempt temporary
investments pending the investment of the proceeds from the
sale of the
securities held by the Portfolio or from the purchase of the
Portfolio's shares
by investors or in order to have highly liquid securities
available to meet
anticipated redemptions. To the extent that the Portfolio
holds temporary
investments, it may not achieve its investment objective.
The Portfolio may
purchase securities on a when-issued basis. See "Certain
Securities, Investment
Techniques and Risk Factors."
MORTGAGE BACKED INVESTMENTS
Mortgage Backed Investments is advised by Atlantic
Portfolio Analytics &
Management, Inc. The primary investment objective of the
Portfolio is high
current income and its secondary objective is capital
appreciation, each to the
extent consistent with the protection of capital. The
Portfolio seeks to
achieve these objectives by investing, under normal
circumstances, at least 65%
of its assets in mortgage related securities.
The mortgage related securities in which the Portfolio
invests represent
pools of mortgage loans assembled for sale to investors by
various governmental
agencies, such as the Government National Mortgage
Association ("GNMA") and
government related organizations, such as the Federal
National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage
Corporation ("FHLMC")
as well as by private issuers, such as commercial banks,
savings and loan
institutions, mortgage bankers and private mortgage
insurance companies. The
Portfolio may also invest in government stripped mortgage
related securities
and CMOs collateralized by mortgage loans or mortgage pass-
through
certificates. Under current market conditions, the
Portfolio's holdings of
mortgage related securities may be expected to consist
primarily of securities
issued by GNMA, FNMA and FHLMC. However, the composition of
the Portfolio's
assets will vary from time to time based upon a
determination by the Advisor of
how best to achieve the Portfolio's investment objectives
taking into account
such factors as the liquidity, yield and creditworthiness of
various mortgage
related securities. Mortgage related securities held by the
Portfolio will
generally be rated no lower than A by Moody's or S&P or, if
not rated, will be
of equivalent investment quality as determined by the
Advisor. Although up to
20% of the Portfolio's assets may be invested in securities
rated as low as B
by Moody's or S&P (or, if unrated, judged by the Advisor to
be of comparable
quality), a program of investments in securities rated below
A will only be
made upon the concurrence of the Manager. In order to
enhance current income,
the Portfolio may enter into forward roll transactions with
respect to mortgage
related securities issued by GNMA, FNMA and FHLMC. The
Portfolio may invest in
government stripped mortgage related securities issued and
guaranteed by GNMA,
FNMA or FHLMC. The Portfolio will not invest more than 25%
of its assets in
privately issued mortgage related securities. The Portfolio
may engage in
repurchase agreements, purchase temporary investments,
purchase securities on a
when-issued basis and lend its portfolio securities. The
Portfolio may attempt
to hedge against unfavorable changes in interest rates by
entering into
interest rate futures contracts and purchasing and writing
put and call options
thereon. See "Certain Securities, Investment Techniques and
Risk Factors."
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<PAGE>
BALANCED INVESTMENTS
Balanced Investments is advised by Palley-Needelman Asset
Management, Inc.
The investment objective of the Portfolio is total return
through a combination
of current income and capital appreciation. The Portfolio
seeks to achieve its
objective through investment in common stocks and in fixed
income senior
securities rated within the four highest categories
established by Moody's or
S&P and unrated securities determined to be of comparable
quality by the
Portfolio's Advisor. See the Appendix to the Statement of
Additional
Information for a description of Moody's and S&P ratings and
"Certain
Securities, Investment Techniques and Risk Factors--Medium
and Lower Rated and
Unrated Securities" in this Prospectus for a description of
certain risks
associated with securities in the fourth highest rating
category. It is the
Portfolio's policy not to purchase a security if as a result
of the purchase
less than 25% of the Portfolio's total assets would be
invested in fixed-income
senior securities, including short- and long-term debt
securities, preferred
stocks and convertible debt securities and convertible
preferred stocks to the
extent their value is attributable to their fixed income
characteristics.
Subject to this policy, the Portfolio's assets will be
invested in each type of
security in such proportions as are deemed appropriate by
the Advisor under
prevailing economic and market conditions.
Shares of Balanced Investments are intended for purchase
by investors that
participate in TRAK through employee benefit plans, the
sponsors of which have
elected to make available less than the full range of
Portfolios offered by the
Trust. Consequently, the Consulting Group does not intend to
advise the
purchase of these shares to other TRAK participants as part
of a recommended
asset allocation strategy.
Balanced Investments may purchase American Depositary
Receipts ("ADRs"),
which are dollar-denominated receipts issued generally by
domestic banks and
represent the deposit with the bank of a security of a
foreign issuer. ADRs are
publicly traded on exchanges or over-the-counter in the
United States.
LARGE CAPITALIZATION VALUE EQUITY INVESTMENTS
Large Capitalization Value Equity Investments is advised
by Newbold's Asset
Management, Inc. and Parametric Portfolio Associates. It is
currently
anticipated that Newbold's Asset Management, Inc. and
Parametric Portfolio
Associates will manage twenty percent (20%) and eighty
percent (80%),
respectively, of the Portfolio's current assets and will be
allocated for
management twenty percent (20%) and eighty percent (80%),
respectively, of the
Portfolio's future assets. The Trust's Board of Trustees,
may, upon the advice
of the Consulting Group, reallocate the management of the
Portfolio's assets
between the investment advisers in its discretion from time
to time. The
Portfolio seeks, as its investment objective, total return
consisting of
capital appreciation and dividend income by investing
primarily in a
diversified portfolio of highly liquid common stocks that,
in the Advisor's
opinion, have above average price appreciation potential at
the time of
purchase. In general, these securities are characterized as
having above
average dividend yields and below average price earnings
ratios relative to the
stock market in general, as measured by the Standard &
Poor's 500 Composite
Stock Price Index (the "S&P 500"). Other factors, such as
earnings and dividend
growth prospects as well as industry outlook and market
share, also are
considered. Under normal conditions, at least 80% of the
Portfolio's assets
will be invested in common stocks and at least 65% of the
Portfolio's assets
will be invested in common stocks that, at the time of
investment, will be
expected to pay regular dividends. No less than 65% of the
Portfolio's assets
will be invested in common stocks of issuers with total
market capitalization
of $1 billion or greater at the time of purchase. The
Portfolio may purchase
temporary investments, lend its portfolio securities and
purchase stock index
futures contracts and purchase and write options thereon.
See "Certain
Securities, Investment Techniques and Risk Factors."
LARGE CAPITALIZATION GROWTH INVESTMENTS
Large Capitalization Growth Investments is advised by
Provident Investment
Counsel and Boston Structured Advisors. Currently, Provident
Investment Counsel
and Boston Structured Advisors manage twenty percent (20%)
and eighty percent
(80%), respectively, of the Portfolio's current assets and
will be allocated
for management twenty percent (20%) and eighty percent
(80%), respectively, of
the Portfolio's
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<PAGE>
future assets. The Trust's Board of Trustees may, upon the
advice of the
Consulting Group, reallocate the management of the
Portfolio's assets between
the investment advisers in its discretion from time to time.
The Portfolio seeks substantial capital appreciation by
investing primarily
in a diversified portfolio of common stocks that, in the
Advisor's opinion, are
characterized by a growth of earnings at a rate faster than
that of the S&P
500. Dividend income is an incidental consideration in the
selection of
investments. The securities held by the Portfolio can be
expected to experience
greater volatility than those of Large Capitalization Value
Equity Investments.
In selecting securities for the Portfolio, the Advisor
evaluates factors
believed to be favorable to long-term capital appreciation
including specific
financial characteristics of the issuer such as historical
earnings growth,
sales growth, profitability and return on equity. The
Advisor also analyzes the
issuer's position within its industry as well as the quality
and experience of
the issuer's management. Under normal conditions, at least
80% of the
Portfolio's assets will be invested in common stocks and at
least 65% of the
Portfolio's assets will be invested in common stocks of
issuers with total
market capitalization of $1 billion or greater at the time
of purchase. The
Portfolio may purchase temporary investments, lend its
portfolio securities and
purchase stock index futures contracts and purchase and
write options thereon.
See "Certain Securities, Investment Techniques and Risk
Factors."
SMALL CAPITALIZATION VALUE EQUITY INVESTMENTS
Small Capitalization Value Equity Investments is advised
by NFJ Investment
Group and Wells Fargo Nikko Investment Advisors. It is
currently anticipated
that NFJ Investment Group and Wells Fargo Nikko Investment
Advisors will each
manage approximately fifty percent (50%) of the Portfolio's
current and future
assets. The Trust's Board of Trustees may, upon the advice
of the Consulting
Group, allocate and reallocate the management of the
Portfolio's assets between
the investment advisors in its discretion from time to time.
The Portfolio seeks above average capital appreciation.
With respect to the
portion of the Portfolio allocated to Wells Fargo Nikko
Investment Advisors,
the Advisor seeks to track the performance of the Russell
2000 Value Index.
With respect to the remainder of the Portfolio, the Advisor
will invest
primarily in a diversified portfolio of common stocks that,
in the Advisor's
opinion, are undervalued or "neglected" in the marketplace
at the time of
purchase. In general, these securities are characterized as
having below
average price earnings ratios and a small number of shares
outstanding relative
to the stock market in general and enjoy below average
industry analyst
coverage. Other factors, such as earnings and dividend
growth prospects as well
as industry outlook and market share, also are considered.
Current dividend
income is only an incidental consideration in the selection
of investments.
Under normal conditions, at least 80% of the Portfolio's
assets will be
invested in common stocks, at least 65% of the Portfolio's
assets will be
invested in common stocks of issuers with total market
capitalization of less
than $1 billion and at least one third of the Portfolio's
assets will be
invested in common stocks of companies with total market
capitalization of $550
million or less at the time of purchase. The Portfolio may
purchase temporary
investments, lend its portfolio securities and purchase
stock index futures
contracts and purchase and write options thereon. See
"Certain Securities,
Investment Techniques and Risk Factors."
SMALL CAPITALIZATION GROWTH INVESTMENTS
Small Capitalization Growth Investments is advised by
Pilgrim Baxter &
Associates, Inc. and Mellon Capital Management Corporation.
It is currently
anticipated that Pilgrim Baxter & Associates, Inc. and
Mellon Capital
Management Corporation will each manage approximately fifty
percent (50%) of
the Portfolio's current and future assets. The Trust's Board
of Trustees may,
upon the advice of the Consulting Group, allocate and
reallocate the management
of the Portfolio's assets between the investment advisors in
its discretion
from time to time.
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<PAGE>
The Portfolio seeks, as its investment objective, maximum
capital
appreciation. With respect to the portion of the Portfolio
allocated to Mellon
Capital Management Corporation, the Advisor seeks to track
the performance of
the Russell 2000 Growth Index. With respect to the remainder
of the Portfolio,
the Advisor attempts to achieve its objective through
investment of at least
65% of the Portfolio's assets in the common stock of
"emerging growth"
companies with total market capitalization of less than $1
billion and at least
one third of the Portfolio's assets allocated to it will be
invested in common
stocks of companies with total market capitalization of $550
million or less.
Dividend income is not a consideration in the selection of
investments. Pilgrim
Baxter & Associates Ltd. seeks to invest in small
capitalization companies that
it believes are undervalued in the marketplace, or have
earnings that may be
expected to grow faster than the U.S. economy in general.
These companies
typically possess a relatively high rate of return on
invested capital so that
future growth can be financed from internal sources. The
Advisor may also
invest in companies that offer the possibility of
accelerating earnings growth
because of management changes, new products or structural
changes in the
economy. Companies in which the Advisor is likely to invest
may have limited
product lines, markets or financial resources and may lack
management depth.
The securities of these companies may have limited
marketability and may be
subject to more abrupt or erratic market movements than
securities of larger,
more established companies or the market averages in
general. The Portfolio may
purchase temporary investments, lend its portfolio
securities and purchase
stock index futures contracts and purchase and write options
thereon. See
"Certain Securities, Investment Techniques and Risk
Factors."
INTERNATIONAL EQUITY INVESTMENTS
International Equity Investments is advised by Oechsle
International
Advisors, L.P. and State Street Global Advisors. It is
currently anticipated
that Oechsle International Advisors, L.P. and State Street
Global Advisors will
each manage approximately fifty percent (50%) of the
Portfolio's current and
future assets. The Trust's Board of Trustees may, upon the
advice of the
Consulting Group, allocate and reallocate the management of
the Portfolio's
assets between the investment advisors in its discretion
from time to time.
The investment objective of the Portfolio is capital
appreciation. The
Portfolio ordinarily invests at least 80% of its assets in
equity securities of
companies domiciled outside the United States. For purposes
of the Portfolio's
investment policies, equity securities consist of common and
preferred stock
and securities such as bonds, rights and warrants that are
convertible into
common stock.
Under normal market conditions, at least 65% of the
Portfolio's assets will
be invested in securities of issuers domiciled in at least
three foreign
countries. Investments may be made in companies in developed
as well as
developing countries. Investing in the equity markets of
developing countries
involves exposure to economies that are generally less
diverse and mature, and
to political systems that can be expected to have less
stability, than those of
developed countries. With respect to that portion of the
Portfolio allocated to
State Street Global Advisors, the Advisor seeks to track the
performance of the
Morgan Stanley Capital International Europe, Australia and
Far East ("EAFE")
Index. With respect to the remainder of the Portfolio, the
Advisor attempts to
limit exposure to investments in developing countries where
both liquidity and
sovereign risks are high. Although there is no established
definition, a
developing country is generally considered to be a country
that is in the
initial stages of its industrialization cycle with per
capita gross national
product of less than $5,000. Historical experience indicates
that the markets
of developing countries have been more volatile than the
markets of developed
countries, although securities traded in the former markets
have provided
higher rates of return to investors. For a discussion of the
risks associated
with investing in foreign securities, see "Certain
Securities, Investment
Techniques and Risk Factors--Foreign Securities."
The Portfolio intends to invest in non-U.S. companies
whose securities are
traded on exchanges located in the countries in which the
issuers are
principally based. The Portfolio may invest in securities of
foreign issuers in
the form of ADRs. European Depositary Receipts ("EDRs"),
which are sometimes
referred to as Continental Depositary Receipts ("CDRs"), may
also be purchased
by the Portfolios. EDRs and CDRs are
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<PAGE>
generally issued by foreign banks and evidence ownership of
either foreign or
domestic securities. The Portfolio may attempt to hedge
against unfavorable
changes in currency exchange rates by engaging in forward
currency
transactions, purchasing and writing put and call options on
foreign currencies
and trading currency futures contracts and options thereon.
The Portfolio may
purchase temporary investments, lend its portfolio
securities and purchase
stock index futures contracts and purchase and write options
thereon. See
"Certain Securities, Investment Techniques and Risk
Factors."
INTERNATIONAL FIXED INCOME INVESTMENTS
International Fixed Income Investments is advised by
Julius Baer Investment
Management Inc. The Portfolio seeks, as its investment
objective, to maximize
current income consistent with protection of principal by
investing primarily
in a managed portfolio of non-U.S. dollar debt securities
issued by foreign
governments and supranational entities. Under normal market
conditions, at
least 65% of the Portfolio's assets will be invested in
fixed income securities
of issuers domiciled in at least three foreign countries.
The Portfolio will
not invest more than 25% of its assets in the securities of
governments in any
one country. The Portfolio limits its purchases of debt
securities to those
that are rated within the four highest categories
established by S&P or Moody's
or, if unrated, are deemed by the Advisor to be of
comparable quality. See the
Appendix to the Statement of Additional Information for a
description of
Moody's and S&P's ratings and "Certain Securities,
Investment Techniques and
Risk Factors--Medium and Lower Rated and Unrated Securities"
for a description
of certain risks associated with securities in the fourth
highest rating
category. The Portfolio may attempt to hedge against
unfavorable changes in
currency exchange rates by engaging in forward currency
transactions and
trading currency futures contracts and options thereon. The
Portfolio may
purchase temporary investments, purchase securities on a
when-issued basis and
lend its portfolio securities.
The Portfolio is classified as a "non-diversified"
investment company under
the Investment Company Act of 1940, as amended (the "1940
Act"), which means
that it is not limited by the 1940 Act in the proportion of
its assets that it
may invest in the securities of a single issuer. The
Portfolio, as a non-
diversified investment company, may invest in a smaller
number of individual
issuers than a diversified investment company. Thus, an
investment in the
Portfolio may, due to changes in the financial condition or
in the market's
assessment of those issuers, present greater risk to an
investor than an
investment in a diversified investment company. However, the
Portfolio intends
to conduct its operations so as to qualify as a "regulated
investment company"
for purposes of the Internal Revenue Code of 1986, as
amended (the "Code"),
which will relieve the Portfolio of any liability for
federal income tax to the
extent that its earnings are distributed to shareholders. In
order to so
qualify, among other things, the Portfolio must ensure that,
at the close of
each quarter of the taxable year, (i) not more than 25% of
the market value of
the Portfolio's total assets is invested in the securities
(other than U.S.
Government Securities) of a single issuer or of two or more
issuers that the
Portfolio controls and that are engaged in the same, similar
or related trades
or businesses and (ii) at least 50% of the market value of
the Portfolio's
total assets is represented by (a) cash and cash items, (b)
U.S. Government
Securities and (c) other securities limited in respect of
any one issuer to an
amount not greater in value than 5% of the market value of
the Portfolio's
total assets and to not more than 10% of the outstanding
voting securities of
the issuer.
EMERGING MARKETS EQUITY INVESTMENTS
Emerging Markets Equity Investments is advised by John
Govett & Co. Limited.
The Portfolio seeks to achieve long-term capital
appreciation through
investment primarily in a diversified portfolio of equity
securities of issuers
in countries having "emerging markets." For this purpose, a
country with an
emerging market is generally one in which the per capita
income is in the low
to middle ranges, as determined by the International Bank
for Reconstruction
and Development (World Bank). The Portfolio currently
expects to invest in the
following emerging markets countries: Argentina, Austria (as
a "gateway" into
Czech Republic and Hungary), Brazil, Chile, China, Colombia,
Greece, Hong Kong
(as a "gateway" into China), India, Indonesia, Israel, South
Korea, Malaysia,
Mexico, Pakistan, Philippines, Portugal, Singapore, Sri
Lanka,
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<PAGE>
Taiwan, Thailand, Turkey and Venezuela. The Portfolio may
from time to time
discontinue investments in any of the above-mentioned
countries and/or begin
investing in other countries with emerging markets.
The Portfolio anticipates normally investing at least 65%
of its total assets
in securities of issuers located in at least three different
countries, other
than the United States. At least 65% of the Portfolio's
total assets typically
will be invested in equity securities and equity derivative
securities such as
preferred stocks and warrants. Most of the equity securities
in which the
Portfolio will invest will be listed on recognized foreign
securities
exchanges, although the Portfolio may also invest in over-
the-counter
securities. Under normal market conditions, not more than 5%
of the Portfolio's
net assets will be invested in the securities of any one
issuer (excluding the
United States government and its agencies and
instrumentalities) and not more
than 25% of the Portfolio's total assets will be invested in
issuers in the
same industry.
In choosing the issuers in whose securities the Portfolio
will invest, the
Portfolio's Advisor first analyzes the economic factors and
background of each
emerging markets country and estimates the rate of Gross
Domestic Product
growth, the rate of inflation and currency exchange rates
for the following six
months. Anticipated returns for each country are then
determined based on
prospective price earnings ratios relative to bond yields
and other relevant
historical interest rate measures, and asset allocation
decisions are made
among the different emerging markets countries. Within each
market chosen for
investment, the Portfolio's Advisor will then choose the
issuers offering the
best relative value, based on relative price earnings
ratios, dividend yields,
dividend and interest cover and balance sheets.
The Portfolio may enter into forward currency contracts,
use options and
options on futures contracts to hedge against movements in
currency exchange
rates, purchase temporary investments and enter into reverse
repurchase
agreements. The Portfolio, which is designed for investors
who do not require
regular current income and who can accept a high degree of
risk in their
investment, may be viewed as speculative in nature.
Investing in the securities
of issuers in emerging markets countries involves certain
risks and special
considerations not inherent in investments in securities of
U.S. companies. See
"Certain Securities, Investment Techniques and Risk
Factors."
CERTAIN SECURITIES, INVESTMENT TECHNIQUES AND RISK FACTORS
TEMPORARY INVESTMENTS. For temporary defensive purposes
during periods when
the Advisor of a Portfolio, other than Government Money
Investments, believes,
in consultation with the Manager, that pursuing the
Portfolio's basic
investment strategy may be inconsistent with the best
interests of its
shareholders, the Portfolio may invest its assets in the
following money market
instruments: U.S. Government Securities (including those
purchased in the form
of custodial receipts), repurchase agreements, certificates
of deposit and
bankers' acceptances issued by U.S. banks or savings and
loan associations
having assets of at least $500 million as of the end of
their most recent
fiscal year and high quality commercial paper. Each of these
Portfolio's U.S.
dollar-denominated temporary investments are managed by
SBMFM. See "Management
of the Trust--Administrator." In addition, for the same
purposes the Advisors
of Emerging Markets Equity Investments, International Fixed
Income Investments
and International Equity Investments may invest in
obligations issued or
guaranteed by foreign governments or by any of their
political subdivisions,
authorities, agencies or instrumentalities that are rated at
least AA by S&P or
Aa by Moody's or, if unrated, are determined by the Advisor
to be of equivalent
quality. Emerging Markets Equity Investments may also invest
in obligations
issued by foreign banks, but will limit its investments in
such obligations to
U.S. dollar-denominated obligations of foreign banks which
at the time of
investment (i) have assets with a value of more than $10
billion; (ii) are
among the 75 largest foreign banks in the world, based on
amount of assets;
(iii) have branches in the United States; and (iv) are of
comparable quality to
obligations issued by United States banks in which the
Portfolio may invest, in
the opinion of the Portfolio's Advisor. See "Foreign
Securities" below. Each
Portfolio also may hold a portion of its assets in money
market instruments or
cash in amounts designed to pay expenses, to meet
anticipated redemptions or
pending investment in accordance with its objectives and
policies. Any
temporary investments may be purchased on a when-issued
basis. A Portfolio's
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<PAGE>
investment in any other short-term debt instruments would be
subject to the
Portfolio's investment objectives and policies, and to
approval by the Trust's
Board of Trustees.
The Portfolios are intended as vehicles for the
implementation of long-term
asset allocation strategies rendered through investment
advisory programs, such
as TRAK, that are based on an evaluation of an investor's
investment objectives
and risk tolerances. Because these asset allocation
strategies are designed to
spread investment risk across the various segments of the
securities markets
through investment in a number of Portfolios, each
individual Portfolio
generally intends to be substantially fully invested in
accordance with its
investment objectives and policies during most market
conditions. Although the
Advisor of a Portfolio may, upon the concurrence of the
Manager, take a
temporary defensive position during adverse market
conditions, it can be
expected that a defensive posture will be adopted less
frequently than it would
be by other mutual funds. This policy may impede an
Advisor's ability to
protect a Portfolio's capital during declines in the
particular segment of the
market to which the Portfolio's assets are committed.
Consequently, no single
Portfolio should be considered a complete investment program
and an investment
among the Portfolios should be regarded as a long-term
commitment that should
be held through several market cycles. In addition, although
the Consulting
Group intends to recommend adjustments in the allocation of
assets among the
Portfolios based on, among other things, anticipated market
trends, there can
be no assurance that these recommendations can be developed,
transmitted and
acted upon in a manner sufficiently timely to avoid market
shifts, which can be
sudden and substantial. TRAK participants should recognize
that TRAK is a
nondiscretionary investment advisory service and that all
investment decisions
rest with the participant alone. Therefore, TRAK
participants are urged
strongly to adhere to the Consulting Group's asset
allocation recommendations
and to act promptly upon any recommended reallocation of
assets among the
Portfolios. Investors intending to purchase Portfolio shares
through different
investment advisory services should evaluate carefully
whether the service is
ongoing and continuous, as well as their investment
advisors' ability to
anticipate and respond to market trends.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS.
Each of the
Portfolios may engage in repurchase agreement transactions.
Under the terms of
a typical repurchase agreement, a Portfolio would acquire an
underlying debt
obligation for a relatively short period (usually not more
than one week)
subject to an obligation of the seller to repurchase, and
the Portfolio to
resell, the obligation at an agreed-upon price and time,
thereby determining
the yield during the Portfolio's holding period. This
arrangement results in a
fixed rate of return that is not subject to market
fluctuations during the
Portfolio's holding period. A Portfolio may enter into
repurchase agreements
with respect to U.S. Government Securities with member banks
of the Federal
Reserve System and certain non-bank dealers approved by the
Board of Trustees.
Under each repurchase agreement, the selling institution is
required to
maintain the value of the securities subject to the
repurchase agreement at not
less than their repurchase price. The Portfolio's Advisor,
acting under the
supervision of the Board of Trustees, reviews on an ongoing
basis the value of
the collateral and the creditworthiness of those non-bank
dealers with whom the
Portfolio enters into repurchase agreements. A Portfolio
will not invest in a
repurchase agreement maturing in more than seven days if the
investment,
together with illiquid securities held by the Portfolio,
exceeds 10% of the
Portfolio's total assets. See "Certain Investment Policies."
In entering into a
repurchase agreement, a Portfolio bears a risk of loss in
the event that the
other party to the transaction defaults on its obligations
and the Portfolio is
delayed or prevented from exercising its rights to dispose
of the underlying
securities, including the risk of a possible decline in the
value of the
underlying securities during the period in which the
Portfolio seeks to assert
its rights to them, the risk of incurring expenses
associated with asserting
those rights and the risk of losing all or a part of the
income from the
agreement.
Emerging Markets Equity Investments may enter into reverse
repurchase
agreements with the financial institutions with which it may
enter into
repurchase agreements. Under a reverse repurchase agreement,
the Portfolio
would sell securities to a financial institution and agree
to repurchase them
at a mutually agreed upon date, price and rate of interest.
During the period
between the sale and repurchase, the Portfolio would not be
entitled to
principal and interest paid on the securities sold by the
Portfolio. The
Portfolio, however,
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would seek to achieve gains derived from the difference
between the current
sales price and the forward price for the future purchase as
well as the
interest earned on the proceeds on the initial sale. Reverse
repurchase
agreements will be viewed as borrowings by the Portfolio for
the purpose of
calculating the Portfolio's indebtedness and will have the
effect of leveraging
the Portfolio's assets.
BORROWING. Leverage increases investment risk as well as
investment
opportunity. If the income and investment gains on
securities purchased with
borrowed money exceed the interest paid on the borrowing,
the net asset value
of the Portfolio's shares will rise faster than would
otherwise be the case. On
the other hand, if the income and investment gains fail to
cover the cost,
including interest, of the borrowings, or if there are
losses, the net asset
value of the Portfolio's shares will decrease faster than
otherwise would be
the case.
U.S. GOVERNMENT SECURITIES. Each Portfolio may invest in
U.S. Government
Securities, which are obligations issued or guaranteed by
the U.S. Government,
its agencies, authorities or instrumentalities. Some U.S.
Government
Securities, such as U.S. Treasury bills, Treasury notes and
Treasury bonds,
which differ only in their interest rates, maturities and
times of issuance,
are supported by the full faith and credit of the United
States. Others are
supported by: (i) the right of the issuer to borrow from the
U.S. Treasury,
such as securities of the Federal Home Loan Banks; (ii) the
discretionary
authority of the U.S. Government to purchase the agency's
obligations, such as
securities of the FNMA; or (iii) only the credit of the
issuer, such as
securities of the Student Loan Marketing Association. No
assurance can be given
that the U.S. Government will provide financial support in
the future to U.S.
Government agencies, authorities or instrumentalities that
are not supported by
the full faith and credit of the United States.
Securities guaranteed as to principal and interest by the
U.S. Government,
its agencies, authorities or instrumentalities include: (i)
securities for
which the payment of principal and interest is backed by an
irrevocable letter
of credit issued by the U.S. Government or any of its
agencies, authorities or
instrumentalities; and (ii) participations in loans made to
foreign governments
or other entities that are so guaranteed. The secondary
market for certain of
these participations is limited and, therefore, may be
regarded as illiquid.
U.S. Government Securities may include zero coupon
securities that may be
purchased when yields are attractive and/or to enhance
portfolio liquidity.
Zero coupon U.S. Government Securities are debt obligations
that are issued or
purchased at a significant discount from face value. The
discount approximates
the total amount of interest the security will accrue and
compound over the
period until maturity or the particular interest payment
date at a rate of
interest reflecting the market rate of the security at the
time of issuance.
Zero coupon U.S. Government Securities do not require the
periodic payment of
interest. These investments benefit the issuer by mitigating
its need for cash
to meet debt service, but also require a higher rate of
return to attract
investors who are willing to defer receipt of cash. These
investments may
experience greater volatility in market value than U.S.
Government Securities
that make regular payments of interest. A Portfolio accrues
income on these
investments for tax and accounting purposes, which is
distributable to
shareholders and which, because no cash is received at the
time of accrual, may
require the liquidation of other portfolio securities to
satisfy the
Portfolio's distribution obligations, in which case the
Portfolio will forego
the purchase of additional income producing assets with
these funds. Zero
coupon U.S. Government Securities include STRIPS and CUBES,
which are issued by
the U.S. Treasury as component parts of U.S. Treasury bonds
and represent
scheduled interest and principal payments on the bonds.
As part of its investments in U.S. Government Securities,
a Portfolio, other
than Government Money Investments, may invest up to 5% of
its net assets in
exchange rate-related U.S. Government Securities, which are
described in the
Statement of Additional Information.
CUSTODIAL RECEIPTS. Each Portfolio other than Government
Money Investments
may acquire custodial receipts or certificates, such as
CATS, TIGRs and FICO
Strips, underwritten by securities dealers or banks that
evidence ownership of
future interest payments, principal payments or both on
certain notes or bonds
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issued by the U.S. Government, its agencies, authorities or
instrumentalities.
The underwriters of these certificates or receipts purchase
a U.S. Government
Security and deposit the security in an irrevocable trust or
custodial account
with a custodian bank, which then issues receipts or
certificates that evidence
ownership of the periodic unmatured coupon payments and the
final principal
payment on the U.S. Government Security. Custodial receipts
evidencing specific
coupon or principal payments have the same general
attributes as zero coupon
U.S. Government Securities, described above. Although
typically under the terms
of a custodial receipt a Portfolio is authorized to assert
its rights directly
against the issuer of the underlying obligation, the
Portfolio may be required
to assert through the custodian bank such rights as may
exist against the
underlying issuer. Thus, in the event the underlying issuer
fails to pay
principal and/or interest when due, a Portfolio may be
subject to delays,
expenses and risks that are greater than those that would
have been involved if
the Portfolio had purchased a direct obligation of the
issuer. In addition, in
the event that the trust or custodial account in which the
underlying security
has been deposited is determined to be an association
taxable as a corporation,
instead of a non-taxable entity, the yield on the underlying
security would be
reduced in respect of any taxes paid.
LENDING PORTFOLIO SECURITIES. To generate income for the
purpose of helping
to meet its operating expenses, each Portfolio other than
Municipal Bond
Investments may lend securities to brokers, dealers and
other financial
organizations. These loans, if and when made, may not exceed
30% of a
Portfolio's assets taken at value. A Portfolio's loans of
securities will be
collateralized at least 100% by cash, letters of credit or
U.S. Government
Securities, which will be marked to market daily. The cash
or instruments
collateralizing a Portfolio's loans of securities will be
maintained at all
times in a segregated account with the Portfolio's
custodian, or with a
designated sub-custodian, in an amount at least equal to the
current market
value of the loaned securities. In lending securities to
brokers, dealers and
other financial organizations, a Portfolio is subject to
risks, which, like
those associated with other extensions of credit, include
delays in recovery
and possible loss of rights in the collateral should the
borrower fail
financially.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. To secure
prices deemed
advantageous at a particular time, each Portfolio may
purchase securities on a
when-issued or delayed-delivery basis, in which case
delivery of the securities
occurs beyond the normal settlement period; payment for or
delivery of the
securities would be made prior to the reciprocal delivery or
payment by the
other party to the transaction. A Portfolio will enter into
when-issued or
delayed-delivery transactions for the purpose of acquiring
securities and not
for the purpose of leverage. When-issued securities
purchased by the Portfolio
may include securities purchased on a "when, as and if
issued" basis under
which the issuance of the securities depends on the
occurrence of a subsequent
event, such as approval of a merger, corporate
reorganization or debt
restructuring. The Portfolio will establish with its
custodian, or with a
designated sub-custodian, a segregated account consisting of
cash, U.S.
Government Securities or other liquid high grade debt
obligations in an amount
equal to the amount of its when-issued or delayed-delivery
purchase
commitments.
Securities purchased on a when-issued or delayed-delivery
basis may expose a
Portfolio to risk because the securities may experience
fluctuations in value
prior to their actual delivery. The Portfolio does not
accrue income with
respect to a when-issued or delayed-delivery security prior
to its stated
delivery date. Purchasing securities on a when-issued or
delayed-delivery basis
can involve the additional risk that the yield available in
the market when the
delivery takes place may be higher than that obtained in the
transaction
itself.
FIXED INCOME SECURITIES. The market value of fixed income
obligations of the
Portfolios will be affected by general changes in interest
rates which will
result in increases or decreases in the value of the
obligations held by the
Portfolios. The market value of the obligations held by a
Portfolio can be
expected to vary inversely to changes in prevailing interest
rates. Investors
also should recognize that, in periods of declining interest
rates, a
Portfolio's yield will tend to be somewhat higher than
prevailing market rates
and, in periods of rising interest rates, a Portfolio's
yield will tend to be
somewhat lower. Also, when interest rates are falling, the
inflow of net new
money to a Portfolio from the continuous sale of its shares
will tend to be
invested in
23
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instruments producing lower yields than the balance of its
portfolio, thereby
reducing the Portfolio's current yield. In periods of rising
interest rates,
the opposite can be expected to occur. In addition,
securities in which a
Portfolio may invest may not yield as high a level of
current income as might
be achieved by investing in securities with less liquidity,
less
creditworthiness or longer maturities.
Ratings made available by S&P and Moody's are relative and
subjective and are
not absolute standards of quality. Although these ratings
are initial criteria
for selection of portfolio investments, a Portfolio also
will make its own
evaluation of these securities. Among the factors that will
be considered are
the long-term ability of the issuers to pay principal and
interest and general
economic trends.
MUNICIPAL OBLIGATIONS. The term "Municipal Obligations"
generally is
understood to include debt obligations issued to obtain
funds for various
public purposes, the interest on which is, in the opinion of
bond counsel to
the issuer, excluded from gross income for federal income
tax purposes. In
addition, if the proceeds from private activity bonds are
used for the
construction, repair or improvement of privately operated
industrial or
commercial facilities, the interest paid on such bonds may
be excluded from
gross income for federal income tax purposes, although
current federal tax laws
place substantial limitations on the size of these issues.
The two principal classifications of Municipal Obligations
are "general
obligation" and "revenue" bonds. General obligation bonds
are secured by the
issuer's pledge of its faith, credit, and taxing power for
the payment of
principal and interest. Revenue bonds are payable from the
revenues derived
from a particular facility or class of facilities or, in
some cases, from the
proceeds of a special excise or other specific revenue
source, but not from the
general taxing power. Sizable investments in these
obligations could involve an
increased risk to the Portfolio should any of the related
facilities experience
financial difficulties. Private activity bonds are in most
cases revenue bonds
and do not generally carry the pledge of the credit of the
issuing
municipality. There are, of course, variations in the
security of Municipal
Obligations, both within a particular classification and
between
classifications.
MORTGAGE RELATED SECURITIES. Intermediate Fixed Income
Investments, Long-Term
Bond Investments and Mortgage Backed Investments may invest
in mortgage related
securities without limit. There are several risks associated
with mortgage
related securities generally. One is that the monthly cash
inflow from the
underlying loans may not be sufficient to meet the monthly
payment requirements
of the mortgage related security.
Prepayment of principal by mortgagors or mortgage
foreclosures will shorten
the term of the underlying mortgage pool for a mortgage
related security. Early
returns of principal will affect the average life of the
mortgage related
securities remaining in a Portfolio. The occurrence of
mortgage prepayments is
affected by factors including the level of interest rates,
general economic
conditions, the location and age of the mortgage and other
social and
demographic conditions. In periods of rising interest rates,
the rate of
prepayment tends to decrease, thereby lengthening the
average life of a pool of
mortgage related securities. Conversely, in periods of
falling interest rates
the rate of prepayment tends to increase, thereby shortening
the average life
of a pool. Reinvestment of prepayments may occur at higher
or lower interest
rates than the original investment, thus affecting the yield
of a Portfolio.
Because prepayments of principal generally occur when
interest rates are
declining, it is likely that a Portfolio will have to
reinvest the proceeds of
prepayments at lower interest rates than those at which the
assets were
previously invested. If this occurs, a Portfolio's yield
will correspondingly
decline. Thus, mortgage related securities may have less
potential for capital
appreciation in periods of falling interest rates than other
fixed income
securities of comparable maturity, although these securities
may have a
comparable risk of decline in market value in periods of
rising interest rates.
To the extent that a Portfolio purchases mortgage related
securities at a
premium, unscheduled prepayments, which are made at par,
will result in a loss
equal to any unamortized premium.
CMOs are obligations fully collateralized by a portfolio
of mortgages or
mortgage related securities. Payments of principal and
interest on the
mortgages are passed through to the holders of the CMOs on
the
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<PAGE>
same schedule as they are received, although certain classes
of CMOs have
priority over others with respect to the receipt of
prepayments on the
mortgages. Therefore, depending on the type of CMOs in which
a Portfolio
invests, the investment may be subject to a greater or
lesser risk of
prepayment than other types of mortgage related securities.
Mortgage related securities may not be readily marketable.
To the extent any
of these securities are not readily marketable in the
judgment of the Advisor,
the investment restriction limiting a Portfolio's investment
in illiquid
instruments to not more than 10% of the value of its net
assets will apply. See
"Certain Investment Policies."
GOVERNMENT STRIPPED MORTGAGE RELATED SECURITIES. Each of
Intermediate Fixed
Income Investments, Long-Term Bond Investments and Mortgage
Backed Investments
may invest up to 25% of its total assets in certain
government stripped
mortgage related securities issued and guaranteed by GNMA,
FNMA or FHLMC. These
securities represent beneficial ownership interests in
either periodic
principal distributions ("principal-only") or interest
distributions
("interest-only") on mortgage related certificates issued by
GNMA, FNMA or
FHLMC, as the case may be. The certificates underlying the
government stripped
mortgage related securities represent all or part of the
beneficial interest in
pools of mortgage loans. A Portfolio will invest in
government stripped
mortgage related securities in order to enhance yield or to
benefit from
anticipated appreciation in value of the securities at times
when its Advisor
believes that interest rates will remain stable or increase.
In periods of
rising interest rates, the expected increase in the value of
government
stripped mortgage related securities may offset all or a
portion of any decline
in value of the securities held by a Portfolio.
Investing in government stripped mortgage related
securities involves the
risks normally associated with investing in mortgage related
securities issued
by government or government related entities. See "Mortgage
Related Securities"
above. In addition, the yields on government stripped
mortgage related
securities are extremely sensitive to the prepayment
experience on the mortgage
loans underlying the certificates collateralizing the
securities. If a decline
in the level of prevailing interest rates results in a rate
of principal
prepayments higher than anticipated, distributions of
principal will be
accelerated, thereby reducing the yield to maturity on
interest-only government
stripped mortgage related securities and increasing the
yield to maturity on
principal-only government stripped mortgage related
securities. Sufficiently
high prepayment rates could result in a Portfolio not fully
recovering its
initial investment in an interest-only government stripped
mortgage related
security. Under current market conditions, the Portfolios
expect that
investments in government stripped mortgage related
securities will consist
primarily of interest-only securities. Government stripped
mortgage related
securities are currently traded in an over-the-counter
market maintained by
several large investment banking firms. There can be no
assurance that the
Portfolios will be able to effect a trade of a government
stripped mortgage
related security at a time when it wishes to do so. The
Portfolios will acquire
government stripped mortgage related securities only if a
secondary market for
the securities exists at the time of acquisition. Except for
government
stripped mortgage related securities based on fixed rate
FNMA and FHLMC
mortgage certificates that meet certain liquidity criteria
established by the
Board of Trustees, a Portfolio will treat government
stripped mortgage related
securities as illiquid and will limit its investments in
these securities,
together with other illiquid investments, to not more than
10% of its net
assets.
FORWARD ROLL TRANSACTIONS. In order to enhance current
income, Mortgage
Backed Investments may enter into forward roll transactions
with respect to
mortgage related securities issued by GNMA, FNMA and FHLMC.
In a forward roll
transaction, a Portfolio sells a mortgage related security
to a financial
institution, such as a bank or broker-dealer, and
simultaneously agrees to
repurchase a similar security from the institution at a
later date at an
agreed-upon price. The mortgage related securities that are
repurchased will
bear the same interest rate as those sold, but generally
will be collateralized
by different pools of mortgages with different prepayment
histories than those
sold. During the period between the sale and repurchase, the
Portfolio will not
be entitled to receive interest and principal payments on
the securities sold.
Proceeds of the sale will be invested in short-term
instruments, particularly
repurchase agreements, and the
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<PAGE>
income from these investments, together with any additional
fee income received
on the sale, is intended to generate income for the
Portfolio exceeding the
yield on the securities sold. Forward roll transactions
involve the risk that
the market value of the securities sold by the Portfolio may
decline below the
repurchase price of those securities. At the time the
Portfolio enters into a
forward roll transaction, it will place in a segregated
custodial account cash,
U.S. Government Securities or high quality debt obligations
having a value
equal to the repurchase price (including accrued interest)
and will
subsequently monitor the account to insure that the
equivalent value is
maintained. Forward roll transactions are considered to be
borrowings by the
Portfolio.
MEDIUM AND LOWER RATED AND UNRATED SECURITIES. Securities
rated in the fourth
highest category by S&P or Moody's, although considered
investment grade, may
possess speculative characteristics, and changes in economic
or other
conditions are more likely to impair the ability of issuers
of these securities
to make interest and principal payments than is the case
with respect to
issuers of higher grade bonds.
Generally, medium or lower rated securities and unrated
securities of
comparable quality, sometimes referred to as junk bonds,
offer a higher current
yield than is offered by higher rated securities, but also
(i) will likely have
some quality and protective characteristics that, in the
judgment of the rating
organizations, are outweighed by large uncertainties or
major risk exposures to
adverse conditions and (ii) are predominantly speculative
with respect to the
issuer's capacity to pay interest and repay principal in
accordance with the
terms of the obligation. The market values of certain of
these securities also
tend to be more sensitive to individual corporate
developments and changes in
economic conditions than higher quality bonds. In addition,
medium and lower
rated securities and comparable unrated securities generally
present a higher
degree of credit risk. The risk of loss due to default by
these issuers is
significantly greater because medium and lower rated
securities and unrated
securities of comparable quality generally are unsecured and
frequently are
subordinated to the prior payment of senior indebtedness. In
light of these
risks, the Board of Trustees has instructed the Advisors, in
evaluating the
creditworthiness of an issue, whether rated or unrated, to
take various factors
into consideration, which may include, as applicable, the
issuer's financial
resources, its sensitivity to economic conditions and
trends, the operating
history of and the community support for the facility
financed by the issue,
the ability of the issuer's management and regulatory
matters.
In addition, the market value of securities in lower rated
categories is more
volatile than that of higher quality securities, and the
markets in which
medium and lower rated or unrated securities are traded are
more limited than
those in which higher rated securities are traded. The
existence of limited
markets may make it more difficult for the Portfolios to
obtain accurate market
quotations for purposes of valuing their respective
portfolios and calculating
their respective net asset values. Moreover, the lack of a
liquid trading
market may restrict the availability of securities for the
Portfolios to
purchase and may also have the effect of limiting the
ability of a Portfolio to
sell securities at their fair value either to meet
redemption requests or to
respond to changes in the economy or the financial markets.
Lower rated debt obligations also present risks based on
payment
expectations. If an issuer calls the obligation for
redemption, a Portfolio may
have to replace the security with a lower yielding security,
resulting in a
decreased return for investors. Also, as the principal value
of bonds moves
inversely with movements in interest rates, in the event of
rising interest
rates the value of the securities held by a Portfolio may
decline
proportionately more than a portfolio consisting of higher
rated securities. If
a Portfolio experiences unexpected net redemptions, it may
be forced to sell
its higher rated bonds, resulting in a decline in the
overall credit quality of
the securities held by the Portfolio and increasing the
exposure of the
Portfolio to the risks of lower rated securities.
Investments in zero coupon
bonds may be more speculative and subject to greater
fluctuations in value due
to changes in interest rates than bonds that pay interest
currently.
Subsequent to its purchase by a Portfolio, an issue of
securities may cease
to be rated or its rating may be reduced below the minimum
required for
purchase by the Portfolio. Neither event will require sale
of these securities
by the Portfolio, but the Advisor will consider this event
in its determination
of whether the Portfolio should continue to hold the
securities.
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NON-PUBLICLY TRADED SECURITIES. Each Portfolio may invest
in non-publicly
traded securities, which may be less liquid than publicly
traded securities.
Although these securities may be resold in privately
negotiated transactions,
the prices realized from these sales could be less than
those originally paid
by the Portfolios. In addition, companies whose securities
are not publicly
traded are not subject to the disclosure and other investor
protection
requirements that may be applicable if their securities were
publicly traded.
SUPRANATIONAL ENTITIES. International Fixed Income
Investments, subject to
applicable diversification requirements of the Code, may
invest up to 25% of
its total assets in debt securities issued by supranational
organizations such
as the International Bank for Reconstruction and Development
(commonly referred
to as the World Bank), which was chartered to finance
development projects in
developing member countries; the European Community, which
is a twelve-nation
organization engaged in cooperative economic activities; the
European Coal and
Steel Community, which is an economic union of various
European nations' steel
and coal industries; and the Asian Development Bank, which
is an international
development bank established to lend funds, promote
investment and provide
technical assistance to member nations in the Asian and
Pacific regions. As
supranational entities do not possess taxing authority, they
are dependent upon
their members' continued support in order to meet interest
and principal
payments.
FOREIGN SECURITIES. Investing in securities issued by
foreign companies and
governments involves considerations and potential risks not
typically
associated with investing in obligations issued by the U.S.
government and
domestic corporations. Substantially less information may be
available about
foreign companies, particularly emerging market country
companies, than about
domestic companies and, even when public information about
such companies is
available, it may be less reliable than information
concerning U.S. companies.
Foreign companies generally are not subject to uniform
accounting, auditing and
financial reporting standards and such standards may differ,
in some cases
significantly, from standards in other countries, including
the United States.
The values of foreign investments are affected by changes in
currency rates or
exchange control regulations, restrictions or prohibitions
on the repatriation
of foreign currencies, application of foreign tax laws,
including withholding
taxes, changes in governmental administration or economic or
monetary policy
(in the United States or abroad) or changed circumstances in
dealings between
nations. Costs are also incurred in connection with
conversions between various
currencies. In addition, foreign brokerage commissions and
custody fees are
generally higher than those charged in the United States,
and foreign
securities markets may be less liquid, more volatile and
less subject to
governmental supervision than in the United States.
Investments in foreign
countries could be affected by other factors not present in
the United States,
including expropriation, confiscatory taxation, lack of
uniform accounting and
auditing standards and potential difficulties in enforcing
contractual
obligations and could be subject to extended clearance and
settlement periods.
INVESTING IN EMERGING MARKETS COUNTRIES. Investing in
securities of issuers
in emerging markets countries involves exposure to economic
structures that are
generally less diverse and mature than, and to political
systems that can be
expected to have less stability than, those of developed
countries. Other
characteristics of emerging markets countries that may
affect investment in
their markets include certain national policies that may
restrict investment by
foreigners and the absence of developed legal structures
governing private and
foreign investments and private property. The typically
small size of the
markets for securities issued by issuers located in emerging
markets countries
and the possibility of a low or nonexistent volume of
trading in those
securities may also result in a lack of liquidity and in
price volatility of
those securities.
Included among the emerging markets in which Emerging
Markets Equity
Investments may invest are the formerly communist countries
of Eastern Europe
and the People's Republic of China (collectively, "Communist
Countries"). Upon
the accession to power of Communist regimes approximately 40
to 70 years ago,
the governments of a number of Communist Countries
expropriated a large amount
of property. The claims of many property owners against
those governments were
never finally settled. There can be no assurance that the
Portfolio's
investments in Communist Countries, if any, would not also
be expropriated,
nationalized or otherwise confiscated, in which case the
Portfolio could lose
its entire investment in the
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<PAGE>
Communist Country involved. In addition, any change in the
leadership or
policies of Communist Countries may halt the expansion of or
reverse the
liberalization of foreign investment policies now occurring.
CURRENCY EXCHANGE RATES. A Portfolio's share value may
change significantly
when the currencies, other than the U.S. dollar, in which
the Portfolio's
investments are denominated strengthen or weaken against the
U.S. dollar.
Currency exchange rates generally are determined by the
forces of supply and
demand in the foreign exchange markets and the relative
merits of investments
in different countries as seen from an international
perspective. Currency
exchange rates can also be affected unpredictably by
intervention by U.S. or
foreign governments or central banks or by currency controls
or political
developments in the United States or abroad.
FORWARD CURRENCY CONTRACTS. Each Portfolio that may invest
in foreign
currency-denominated securities may hold currencies to meet
settlement
requirements for foreign securities and may engage in
currency exchange
transactions in order to protect against uncertainty in the
level of future
exchange rates between a particular foreign currency and the
U.S. dollar or
between foreign currencies in which the Portfolio's
securities are or may be
denominated. Forward currency contracts are agreements to
exchange one currency
for another--for example, to exchange a certain amount of
U.S. dollars for a
certain amount of French francs at a future date. The date
(which may be any
agreed-upon fixed number of days in the future), the amount
of currency to be
exchanged and the price at which the exchange will take
place will be
negotiated with a currency trader and fixed for the term of
the contract at the
time that the Portfolio enters into the contract. To assure
that a Portfolio's
forward currency contracts are not used to achieve
investment leverage, the
Portfolio will segregate cash or high grade securities with
its custodian in an
amount at all times equal to or exceeding the Portfolio's
commitment with
respect to these contracts.
In hedging specific portfolio positions, a Portfolio may
enter into a forward
contract with respect to either the currency in which the
positions are
denominated or another currency deemed appropriate by the
Portfolio's Advisor.
The amount the Portfolio may invest in forward currency
contracts is limited to
the amount of the Portfolio's aggregate investments in
foreign currencies.
Risks associated with entering into forward currency
contracts include the
possibility that the market for forward currency contracts
may be limited with
respect to certain currencies and, upon a contract's
maturity, the inability of
a Portfolio to negotiate with the dealer to enter into an
offsetting
transaction. Forward currency contracts may be closed out
only by the parties
entering into an offsetting contract. In addition, the
correlation between
movements in the prices of those contracts and movements in
the price of the
currency hedged or used for cover will not be perfect. There
is no assurance
that an active forward currency contract market will always
exist. These
factors will restrict a Portfolio's ability to hedge against
the risk of
devaluation of currencies in which a Portfolio holds a
substantial quantity of
securities and are unrelated to the qualitative rating that
may be assigned to
any particular security. See the Statement of Additional
Information for
further information concerning forward currency contracts.
FUTURES CONTRACTS AND RELATED OPTIONS. Each Portfolio
other than Government
Money Investments, Balanced Investments and Municipal Bond
Investments may
enter into futures contracts and purchase and write (sell)
options on these
contracts, including but not limited to interest rate,
securities index and
foreign currency futures contracts and put and call options
on these futures
contracts. These contracts will be entered into only upon
the concurrence of
the Manager that such contracts are necessary or appropriate
in the management
of the Portfolio's assets. These contracts will be entered
into on exchanges
designated by the Commodity Futures Trading Commission
("CFTC") or, consistent
with CFTC regulations, on foreign exchanges. These
transactions may be entered
into for bona fide hedging and other permissible risk
management purposes
including protecting against anticipated changes in the
value of securities a
Portfolio intends to purchase.
A Portfolio will not enter into futures contracts and
related options for
which the aggregate initial margin and premiums exceed 5% of
the fair market
value of the Portfolio's assets after taking into account
unrealized profits
and unrealized losses on any contracts it has entered into.
All futures and
options on futures
28
<PAGE>
positions will be covered by owning the underlying security
or segregation of
assets. With respect to long positions in a futures contract
or option (e.g.,
futures contracts to purchase the underlying instrument and
call options
purchased or put options written on these futures contracts
or instruments),
the underlying value of the futures contract at all times
will not exceed the
sum of cash, short-term U.S. debt obligations or other high
quality obligations
set aside for this purpose.
A Portfolio may lose the expected benefit of these futures
or options
transactions and may incur losses if the prices of the
underlying commodities
move in an unanticipated manner. In addition, changes in the
value of the
Portfolio's futures and options positions may not prove to
be perfectly or even
highly correlated with changes in the value of its portfolio
securities.
Successful use of futures and related options is subject to
an Advisor's
ability to predict correctly movements in the direction of
the securities
markets generally, which ability may require different
skills and techniques
than predicting changes in the prices of individual
securities. Moreover,
futures and options contracts may only be closed out by
entering into
offsetting transactions on the exchange where the position
was entered into (or
a linked exchange), and as a result of daily price
fluctuation limits there can
be no assurance that an offsetting transaction could be
entered into at an
advantageous price at any particular time. Consequently, a
Portfolio may
realize a loss on a futures contract or option that is not
offset by an
increase in the value of its portfolio securities that are
being hedged or a
Portfolio may not be able to close a futures or options
position without
incurring a loss in the event of adverse price movements.
CERTAIN INVESTMENT POLICIES
The Trust on behalf of each Portfolio has adopted certain
investment
restrictions that are enumerated in detail in the Statement
of Additional
Information. Among other restrictions, each Portfolio except
International
Fixed Income Investments may not, with respect to 75% of its
total assets taken
at market value, invest more than 5% of its total assets in
the securities of
any one issuer, except U.S. Government Securities, or
acquire more than 10% of
any class of the outstanding voting securities of any one
issuer. In addition,
except as described above with respect to Municipal Bond
Investments, each
Portfolio may not invest more than 25% of its total assets
in securities of
issuers in any one industry. The Trust on behalf of a
Portfolio may borrow
money as a temporary measure from banks in an aggregate
amount not exceeding
one-third of the value of the Portfolio's total assets to
meet redemptions and
for other temporary or emergency purposes not involving
leveraging. Forward
roll transactions, which may be entered into by Mortgage
Backed Investments,
will be aggregated with bank borrowings for purposes of this
calculation. A
Portfolio (other than Mortgage Backed Investments to the
extent that forward
roll transactions are deemed to be borrowings) may not
purchase securities
while borrowings exceed 5% of the value of the Portfolio's
assets. A Portfolio
will not invest more than 10% of the value of its net assets
in securities that
are illiquid, including certain government stripped mortgage
related
securities, repurchase agreements maturing in more than
seven days that cannot
be liquidated prior to maturity and securities that are
illiquid by virtue of
the absence of a readily available market. Securities that
have legal or
contractual restrictions on resale but have a readily
available market are
deemed not illiquid for this purpose.
The investment restrictions listed above as well as the
Portfolios'
investment objectives are fundamental policies and
accordingly may not be
changed with respect to any Portfolio without the approval
of a majority of the
outstanding shares of that Portfolio, as defined in the 1940
Act. Unless
otherwise specifically stated, however, the investment
policies and practices
of each Portfolio are not fundamental and may be changed by
the Board of
Trustees.
PORTFOLIO TURNOVER
Generally, a Portfolio, other than Small Capitalization
Growth Investments
and International Equity Investments, will not trade in
securities for short-
term profits but, when circumstances warrant, securities may
be sold without
regard to the length of time held. The Portfolios specified
in the previous
sentence may engage in active short-term trading to benefit
from yield
disparities among different issues of securities, to
29
<PAGE>
seek short-term profits during periods of fluctuating
interest rates or for
other reasons. Active trading will increase a Portfolio's
rate of turnover,
certain transaction expenses and the incidence of short-term
capital gain
taxable as ordinary income. An annual turnover rate of 100%
would occur when
all the securities held by the Portfolio are replaced one
time during a period
of one year.
Increased portfolio turnover may result in greater
brokerage commissions
paid and in realization of net short-term capital gains
which, when
distributed, are taxed to shareholders (other than
retirement plans) at
ordinary income tax rates.
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
Overall responsibility for management and supervision of
the Trust and the
Portfolios rests with the Trust's Board of Trustees. The
Trustees approve all
significant agreements between the Trust and the persons and
companies that
furnish services to the Trust and the Portfolios, including
agreements with
the Trust's distributor, custodian, transfer agent, the
Manager, Advisors and
administrator. One of the Trustees and four of the Trust's
executive officers
are affiliated with Smith Barney and/or its affiliates. The
Statement of
Additional Information contains background information
regarding each Trustee
and executive officer of the Trust as well as the
Portfolios' investment
officers.
INVESTMENT MANAGER
The Consulting Group, located at 222 Delaware Avenue,
Wilmington, Delaware
19801, serves as the Trust's Manager. The Consulting Group
is a division of
SBMFM, a registered investment advisor whose principal
executive offices are
located at 388 Greenwich Street, New York, New York 10013.
SBMFM is a wholly
owned subsidiary of Smith Barney Holdings Inc. ("Holdings"),
which is in turn
a wholly owned subsidiary of The Travelers Group Inc.
("Travelers").
The Trust has entered into an investment management
agreement (the
"Management Agreement") with the Manager which, in turn, has
entered into an
advisory agreement ("Advisory Agreement") with each Advisor
selected for the
Portfolios. It is the Manager's responsibility to select,
subject to the
review and approval of the Board of Trustees, the Advisors
who have
distinguished themselves by able performance in their
respective areas of
expertise in asset management and to review their continued
performance.
Although the Manager does not serve as investment manager
for any other
registered investment company, the Manager and its related
office, the
Consulting Services Division of Smith Barney, have over 20
years of experience
in evaluating investment advisers for individuals and
institutional investors.
As of January 31, 1995, the Manager rendered advisory
services with respect to
assets with a value in excess of $67 billion.
Subject to the supervision and direction of the Trust's
Board of Trustees,
the Manager provides to the Trust investment management
evaluation services
principally by performing initial due diligence on
prospective Advisors for
each Portfolio and thereafter monitoring Advisor performance
through
quantitative and qualitative analysis as well as periodic
in-person,
telephonic and written consultations with Advisors. In
evaluating prospective
Advisors, the Manager considers, among other factors, each
Advisor's level of
expertise; relative performance and consistency of
performance over a minimum
period of five years; level of adherence to investment
discipline or
philosophy; personnel, facilities and financial strength;
and quality of
service and client communications. The Manager has
responsibility for
communicating performance expectations and evaluations to
Advisors and
ultimately recommending to the Board of Trustees of the
Trust whether
Advisors' contracts should be renewed, modified or
terminated. The Manager
provides written reports to the Board of Trustees regarding
the results of its
evaluation and monitoring functions. The Manager is also
responsible for
conducting all operations of the Trust except those
operations contracted to
the Advisors, custodian, transfer agent or administrator.
Each Portfolio pays
the Manager a fee for its services that is computed daily
and paid monthly at
the annual rate specified below of the value of the average
net
30
<PAGE>
assets of the Portfolio, and the Manager in turn pays each
Advisor a fee for
its services provided to the Portfolio that is computed
daily and paid monthly
at the annual rate specified below of the value of the
Portfolio's average
daily net assets:
<TABLE>
<CAPTION>
TOTAL
MANAGER'S FEE ADVISOR'S FEES
(PAID BY
THE (PAID BY THE
PORTFOLIO
PORTFOLIOS) MANAGER)
--------- --------
- ----- --------------
<S> <C>
<C>
Government Money Investments....................
0.15% 0.15%
Intermediate Fixed Income Investments...........
0.40% 0.20%
Long-Term Bond Investments......................
0.40% 0.20%
Municipal Bond Investments......................
0.40% 0.20%
Mortgage Backed Investments.....................
0.50% 0.25%
Balanced Investments............................
0.60% 0.30%
Large Capitalization Value Equity Investments... *
*
Large Capitalization Growth Investments......... **
**
Small Capitalization Value Equity Investments... ***
***
Small Capitalization Growth Investments......... ****
****
International Equity Investments................
***** *****
International Fixed Income Investments..........
0.50% 0.25%
Emerging Markets Equity Investments.............
0.90% 0.60%
</TABLE>
- --------
* With respect to the portion of the assets of Large
Capitalization Value
Investments allocated to Newbold's Asset Management
("NAM"), that
Portfolio pays fees to the Manager at the annual rate
of 0.60% of the
average daily value of such assets. The Manager, in
turn, pays fees to
NAM at the annual rate of 0.30% of such assets. With
respect to that
portion of Large Capitalization Value Equity
Investments allocated by
the Manager to Parametric Portfolio Associates.
("PPA"), the Manager has
agreed to waive a portion of the fees it otherwise
would receive so that
such Portfolio will pay fees to the Manager at the
annual rate of 0.50%
of the first $300 million of its average daily net
assets allocated to
PPA and 0.45% of the average daily net assets
allocated to PPA
thereafter. The Manager in turn pays PPA a fee at the
annual rate of
0.20% of the first $300 million of the Portfolio's
average daily net
assets allocated to PPA and 0.15% of the average daily
net assets
allocated to PPA thereafter.
** With respect to the portion of the assets of Large
Capitalization Growth
Investments allocated to Provident Investment Counsel
("PIC"), that
Portfolio pays fees to the Manager at the annual rate
of 0.60% of the
average daily value of such assets. The Manager, in
turn, pays fees to
PIC at the annual rate of 0.30% of such assets. With
respect to that
portion of Large Capitalization Growth Investments
allocated by the
Manager to Boston Structured Advisors ("BSA"), the
Manager has agreed to
waive a portion of the fees it otherwise would receive
so that such
Portfolio will pay fees to the Manager at the annual
rate of 0.50% of
the first $300 million of its average daily net assets
allocated to BSA
and 0.45% of the average daily net assets allocated to
BSA thereafter.
The Manager in turn pays BSA a fee at the annual rate
of 0.20% of the
first $300 million of the Portfolio's average daily
net assets allocated
to BSA and 0.15% of the average daily net assets
allocated to BSA
thereafter.
*** With respect to the portion of the assets of Small
Capitalization Value
Equity Investments allocated to NFJ Investment Group
("NFJ"), that
Portfolio pays fees to the Manager at the annual rate
of 0.60% of the
average daily value of such assets. The Manager, in
turn, pays fees to
NFJ at the annual rate of 0.30% of such assets. With
respect to that
portion of Small Capitalization Value Equity
Investments allocated by
the Manager to Wells Fargo Nikko Investment Advisors
("WFNIA"), the
Manager has agreed to waive a portion of the fees it
otherwise would
receive so that such Portfolio will pay fees to the
Manager at the
annual rate of 0.45% of the first $200 million of its
average daily net
assets allocated to WFNIA, 0.40% of the next $100
million of its average
daily net assets allocated to WFNIA and 0.35% of the
average daily net
assets allocated to WFNIA thereafter. The Manager in
turn pays WFNIA a
fee at the annual rate of 0.15% of the first $200
million of the
Portfolio's average daily net assets allocated to
WFNIA, 0.10% of the
next $100 million of the Portfolio's average daily net
assets allocated
to WFNIA and 0.05% of the average daily net assets
allocated to WFNIA
thereafter.
**** With respect to the portion of the assets of Small
Capitalization Growth
Investments allocated to Pilgrim Baxter & Associates,
Inc. ("PBA"), that
Portfolio pays fees to the Manager at the annual rate
of 0.60% of the
average daily value of such assets. The Manager, in
turn, pays fees to
PBA at the annual rate of 0.30% of such assets. With
respect to that
portion of Small Capitalization Growth Investments
allocated by the
Manager to Mellon Capital Management Corporation
("MCM"), the Manager
has agreed to
31
<PAGE>
waive a portion of the fees it otherwise would receive
so that such
Portfolio will pay fees to the Manager at the annual
rate of 0.45% of the
first $200 million of its average daily net assets
allocated to MCM, 0.40%
of the next $100 million of its average daily net assets
allocated to MCM
and 0.35% of the average daily net assets allocated to
MCM thereafter. The
Manager in turn pays MCM a fee at the annual rate of
0.15% of the first
$200 million of the Portfolio's average daily net assets
allocated to MCM,
0.10% of the next $100 million of the Portfolio's
average daily net assets
allocated to MCM and 0.05% of the average daily net
assets allocated to
MCM thereafter.
***** With respect to the portion of the assets of
International Equity
Investments allocated to Oechsle International
Advisors, L.P. ("OIA"),
that Portfolio pays fees to the Manager at the annual
rate of 0.70% of
the average daily value of such assets. The Manager,
in turn, pays fees
to OIA at the annual rate of 0.40% of such assets.
With respect to that
portion of International Equity Investments allocated
by the Manager to
State Street Global Advisors ("SSGA"), the Manager has
agreed to waive a
portion of the fees it otherwise would receive so that
such Portfolio
will pay fees to the Manager at the annual rate of
0.37%. The Manager in
turn pays SSGA a fee at the annual rate of 0.07% of
the Portfolio's
average daily net assets allocated to SSGA.
Investors should be aware that the Manager may be subject
to a conflict of
interest when making decisions regarding the retention and
compensation of
particular Advisors. However, the Manager's decisions,
including the identity
of an Advisor and the specific amount of the Manager's
compensation to be paid
to the Advisor, are subject to review and approval by a
majority of the Board
of Trustees and separately by a majority of the Trustees who
are not
affiliated with the Manager or any of its affiliates.
The Trust has received an exemption (the "Exemption") from
certain
provisions of the 1940 Act which would otherwise require the
Manager to obtain
formal shareholder approval prior to engaging and entering
into investment
advisory agreements with Advisors. The requested relief is
based on the
conditions set forth in the Exemption that, among other
things: (1) the
Manager will select, monitor, evaluate and allocate assets
to, the Advisors
and ensure that the Advisors comply with the relevant
Portfolio's investment
objective, policies and restrictions; (2) before a Portfolio
may rely on the
Exemption, the Exemption must be approved by the
shareholders of the
Portfolios operating under the Exemption; (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 Advisor and its investment
advisory contract
within 90 days of the engagement of a new Advisor; (5) the
Trust will disclose
in this Prospectus the terms of the Exemption; and (6) the
Trustees, including
a majority of the "non-interested" Trustees, must approve
each investment
advisory contract in the manner required under the 1940 Act.
Any changes to
the Investment Management Agreement between the Trust and
the Consulting Group
would still require shareholder approval. As required by the
Exemption, the
shareholders of each Portfolio have to permit the Trust to
replace or add
Advisors and to enter into investment advisory agreements
with Advisors upon
approval of the Board of Trustees but without formal
shareholder approval.
ADVISORS
The Advisors have agreed to the foregoing fees, which are
generally lower
than the fees they charge to institutional accounts for
which they serve as
investment advisor, and perform all administrative functions
associated with
serving in that capacity in recognition of the reduced
administrative
responsibilities they have undertaken with respect to the
Portfolios. By
virtue of the management, supervisory and administrative
functions performed
by the Manager and SBMFM, and the fact that Advisors are not
required to make
decisions regarding the allocation of assets among the major
sectors of the
securities markets, the Advisors serve in a sub-advisory
capacity to the
Portfolios. Subject to the supervision and direction of the
Manager and,
ultimately, the Board of Trustees, each Advisor's
responsibilities are limited
to managing the securities held by the Portfolio it serves
in accordance with
the Portfolio's stated investment objective and policies,
making investment
decisions for the Portfolio and placing orders to purchase
and sell securities
on behalf of the Portfolio.
32
<PAGE>
The following sets forth certain information about each of
the Advisors:
Standish, Ayer & Wood, Inc. ("SAW") serves as Advisor to
Intermediate Fixed
Income Investments and Government Money Investments. SAW is
owned by 23
individuals, each of whom is an active employee of SAW. No
individual owns more
than 20% of the voting securities of SAW. SAW is registered
as a commodity
trading adviser with the National Futures Association. SAW
has been registered
as an investment advisor under the Investment Advisers Act
of 1940, as amended
(the "Advisers Act"), since 1940. SAW provides investment
advisory services to
individual and institutional clients. As of December 31,
1994, SAW had assets
under management of approximately $28.8 billion. SAW's
principal executive
offices are located at One Financial Center, Boston,
Massachusetts 02111.
Richard Doll has been a Vice President since joining the
firm in November 1984
and a Director of SAW since January 1, 1987 and has been
responsible for the
day-to-day management of Intermediate Fixed Income
Investments since its
inception. Prior to that time, he served as Vice President
of Bank of New
England. Jennifer Pline has been a Vice President of SAW
since January 4, 1990
and has been responsible for the day-to-day management of
Government Money
Investments since its inception. She completed her MBA at
Boston College in
1987 and then joined SAW.
Wolf, Webb, Burk & Campbell, Inc. ("WWBC") serves as
Advisor to Long-Term
Bond Investments. WWBC is a wholly owned subsidiary of
Consolidated Asset
Management Inc. ("CAM"). WWBC has been a registered
investment advisor under
the Advisers Act since 1980 and provides investment advisory
services to
individuals and institutional clients. As of September 30,
1995 WWBC had assets
under management of approximately $490 million. WWBC's
principal executive
offices are located at 1525 Locust Street, 11th floor,
Philadelphia,
Pennsylvania 19102. Raymond Munsch, a Vice President of WWBC
since 1989, has
been responsible for the day-to-day management of the
Portfolio since
inception.
Smith Affiliated Capital Corp. ("SACC") serves as Advisor
to Municipal Bond
Investments. Of the outstanding voting securities of SACC,
80% is owned by
Robert G. Smith, an officer and director of SACC. SACC has
been a registered
investment advisor under the Advisers Act since April 1982.
In addition to
serving as investment advisor to individuals and
institutions, SACC is a
general partner of, and investment advisor to, a limited
partnership primarily
invested in municipal bonds. As of September 30, 1995, SACC
had assets under
management of approximately $1.4 billion. SACC's principal
executive offices
are located at 880 Third Avenue, New York, New York 10022.
John Pandolfino,
Vice President has been a Portfolio Manager of SACC since
1989 and has been
responsible for the day-to-day management of Municipal Bond
Investments since
its inception.
Atlantic Portfolio Analytics & Management, Inc. ("APAM")
serves as Advisor to
Mortgage Backed Investments. Registered as an investment
advisor under the
Advisers Act since 1984, APAM is controlled by J. Anthony
Huggins, Jon M.
Knight and Ali Alp Kerestecioglu, each a director of APAM.
APAM serves as an
investment advisor to institutional investors including
banks, insurance
companies, foundations and tax-exempt funds. As of September
30, 1995, APAM had
assets under management of approximately $5 billion. APAM's
principal executive
offices are located at 201 East Pine Street, Suite 600,
Orlando, Florida 32801.
A team management approach is employed for the management of
Mortgaged Backed
Investments whose direct oversight is closely monitored by a
Risk Management
Committee consisting of the Chief Financial Officer, Chief
Executive Officer,
and Director of Valuation Technology.
Palley-Needelman Asset Management, Inc. ("PNAM") serves as
Advisor to
Balanced Investments. The outstanding shares of capital
stock of PNAM are owned
by Roger B. Palley and Chet J. Needelman. PNAM, the
predecessor of which has
been registered as an investment advisor under the Advisers
Act since 1974,
provides investment advisory services to individuals and
institutions,
including retirement plans, foundations and endowments. As
of September 30,
1995, PNAM had assets under management of approximately $3.2
billion. PNAM's
principal executive offices are located at 800 Newport
Center Drive, Suite 450,
Newport Beach, California 92660. Roger Palley has been the
President of PNAM
since 1985 and has been responsible for the day-to-day
management of Balanced
Investments since its commencement of operations on February
16, 1993.
33
<PAGE>
NAM serves as an Advisor to Large Capitalization Value
Equity Investments.
Registered as an investment advisor under the Advisers Act
since 1943, NAM is a
wholly owned subsidiary of United Asset Management
Corporation, a professional
services holding company listed on the NYSE. NAM provides
investment advisory
services to individual and institutional clients. As of
January 31, 1995, NAM
had assets under management of approximately $6.8 billion,
and United Asset
Management Corporation, its parent corporation, had assets
under management of
approximately $119 billion. NAM's principal executive
offices are located at
937 Haverford Road, Bryn Mawr, Pennsylvania 19010. Denise B.
Taylor has been a
Senior Vice President of NAM since January, 1991 and has
been responsible for
the day-to-day management of Large Capitalization Value
Equity Investments
since its inception. Prior to that time, she served as a
Portfolio Manager of
NAM with analytical responsibilities.
PPA also serves as an Advisor to Large Capitalization
Value Equity
Investments. PPA is an investment management firm organized
as a general
partnership. PPA is the successor to Parametric Portfolio
Associates, Inc.,
formerly a wholly owned subsidiary of Pacific Financial
Asset Management
Corporation ("PFAMCo"), which became a subsidiary
partnership of PIMCO Advisors
L.P. as a part of the consolidation of the investment
advisory and other
businesses of PFAMCo and certain of its subsidiaries with
Thomson Advisory
Group L.P. ("Consolidation"). The Consolidation closed on
November 15, 1994.
PPA has two partners, PIMCO Advisors as the supervisory
partner, and Parametric
Management, Inc. as the managing partner. Parametric
Portfolio Associates,
Inc., the predecessor to Parametric, commenced operations in
1987. PPA is a
registered investment adviser and as of October 31, 1995 had
assets under
management of $1.52 billion. PPA's principal executive
offices are located at
7310 Columbia Center, 701 Fifth Avenue, Seattle, Washington
98104. Linda Mauzy
is primarily responsible for the day-to-day management of
those assets of the
Portfolio allocated to PPA for management. Ms. Mauzy has
been a Portfolio
Manager with PPA or its predecessor since 1988.
PIC serves as Advisor to Large Capitalization Growth
Investments. Registered
as an investment advisor under the Advisers Act since 1951,
PIC is a wholly
owned subsidiary of United Asset Management Corporation, a
professional
services holding company listed on the NYSE. PIC provides
investment advisory
services to individual and institutional clients. As of
September 30, 1995, PIC
had assets under management of approximately $17.9 billion,
and United Asset
Management Corporation, its parent corporation, had assets
under management of
approximately $104 billion. PIC's principal executive
offices are located at
300 North Lake Avenue, Pasadena, California 91101. Thomas J.
Condon is a
managing director of PIC and has been with PIC for thirteen
years. Paula B.
Blacher, CFA, has been a Vice President of PIC, and has been
responsible for
the day-to-day management of Large Capitalization Growth
Investments, since
November 1991. Prior to that time, she served as a Portfolio
Manager of PIC.
BSA also serves as an Advisor to Large Capitalization
Growth Investments. BSA
is a division of PanAgora Asset Management, Inc. ("PanAgora
Boston"), which was
formed on September 22, 1989 as a wholly owned subsidiary of
The Boston Company
Inc. PanAgora Boston is owned 50% by Nippon Life Insurance
Company and 50% by
Lehman Brothers Holdings, Inc. As of September 30, 1995,
PanAgora Boston had
$14.9 billion in assets under management. The principal
offices of both BSA and
PanAgora Boston are located at 260 Franklin Street, Boston,
Massachusetts
02110. Paul Samuelson is primarily responsible for the day-
to-day management of
those assets of the Portfolio allocated to BSA for
management. Mr. Samuelson
has been Director of Fixed Income and Equity at PanAgora
Boston since
September, 1993. Prior to that time, he was a partner at the
investment
management firm of Hagler, Mastrovita and Hewitt.
NFJ Investment Group ("NFJ") serves as an Adviser to Small
Capitalization
Value Equity Investments. NFJ is an investment management
firm organized as a
general partnership. NFJ is the successor to NFJ Investment
Group, Inc.,
formerly a wholly owned subsidiary of PFAMCo, which became a
subsidiary
partnership of PIMCO Advisors as a part of the Consolidation
described above.
NFJ has two partners, PIMCO Advisors as the supervisory
partner, and NFJ
Management, Inc. as the managing partner. NFJ Investment
Group, Inc., the
predecessor to NFJ, commenced operations in 1989. NFJ is
registered with the
SEC as an investment advisor and, as of October 31, 1995, it
had assets under
management of
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approximately $1.3 billion. NFJ's principal executive
offices are located at
2121 San Jacinto Street, Suite 1440, Dallas, Texas 75201.
Benno Fischer has
been a Managing Director and Portfolio Manager of NFJ or its
predecessors since
January, 1989 and has been responsible for the day-to-day
management of those
assets of the Portfolio allocated to NFJ or its predecessor
for management
since August 1, 1993, the date on which NFJ's predecessor
began serving as an
Advisor to the Portfolio.
Wells Fargo Nikko Investment Advisors ("WFNIA") serves as
an Advisor to Small
Capitalization Value Equity Investments. WFNIA is a general
partnership owned
50% by Wells Fargo Investment Advisors, a wholly owned
subsidiary of Wells
Fargo Bank, and 50% by The Nikko Building USA, Inc., a
wholly owned subsidiary
of The Nikko Securities Co., Ltd., a Japanese securities
firm. WFNIA also
serves as the investment adviser or sub-investment adviser
to several other
registered open-end management investment companies. As of
December 31, 1994,
WFNIA was responsible for managing or providing investment
advice for assets of
approximately $160 billion. WFNIA's principal executive
offices are located at
45 Fremont Street, San Francisco, California 94105. WFNIA
uses a team-
management approach to manage indexed portfolios. The
investment group of WFNIA
will be responsible for the day-to-day management of those
assets of the
Portfolio allocated to WFNIA.
Pilgrim Baxter & Associates, Inc. ("PBA") serves as an
Advisor to Small
Capitalization Growth Investments. PBA is an autonomous
wholly-owned subsidiary
of United Asset Management Inc., a financial services
holding company. PBA has
been a registered investment advisor under the Advisers Act
since November
1982. PBA is the investment advisor of various institutional
clients. As of
December 31, 1994, PBA had assets under management of
approximately $4.1
billion. PBA's principal executive offices are located at
1255 Drummers Lane,
Wayne, Pennsylvania 19087. Since June 1995, John Force and
Michael Jones have
shared the day to day management of those assets of the
Small Capitalization
Growth Investments allocated to PBA. Mr. Force has managed
this allocation
since January 1993. Prior to January 1993, Mr. Force served
as Vice President
and Portfolio Manager for a Chicago-based investment
advisory firm. Mr. Jones
joined PBA in February 1995. Previously, Mr. Jones was a
portfolio manager for
a New York bank.
Mellon Capital Management Corporation ("MCM") also serves
as an Advisor to
Small Capitalization Growth Investments. MCM is a wholly
owned subsidiary of
MBC Investment Corporation, which itself is a subsidiary of
Mellon. MCM is a
professional counseling firm which manages well-diversified
stock and bond
portfolios for institutional clients. As of September 30,
1995, 1994, MCM had
assets under management of approximately $40.2 billion.
MCM's principal
executive offices are located at 595 Market Street, Suite
3000, San Francisco,
California 94105. MCM will use a team-management approach to
manage indexed
portfolios. The investment group of MCM will be responsible
for the day-to-day
management of those assets of the Portfolio allocated to
MCM.
Oechsle International Advisors, L.P. ("OIA") serves as an
Advisor to
International Equity Investments. Oechsle Group, L.P. holds
100% of the voting
securities of OIA. Oechsle Group, L.P. is a limited
partnership whose business
consists exclusively of global investment management
services. The general
partners of Oechsle Group, L.P. are individuals who also
serve as officers of
OIA. OIA has been a registered investment advisor under the
Advisers Act since
1986. OIA provides investment advisory services to
individual and institutional
clients. As of December 31, 1994, OIA had assets under
management of
approximately $6.5 billion. OIA's principal executive
offices are located at
One International Place, Boston, Massachusetts 02110. Walter
Oechsle is the
General Managing Partner and a Portfolio Manager of OIA, and
has been
responsible for the day-to-day management of those assets of
International
Equity Investments allocated to OIA, since November, 1991.
Mr. Oechsle has been
General Managing Partner of OIA since its inception in 1986.
State Street Global Advisors ("SSGA") serves as an Advisor
to International
Equity Investments. SSGA is a division of State Street Bank
and Trust Company.
SSGA provides investment advisory services to a wide variety
of institutional
clients world-wide. As of January 31, 1995, SSGA had assets
under management of
approximately $140 billion. SSGA's principal executive
offices are located at
Two International Place, Boston, Massachusetts 02110. Peter
G. Leahy and
Jeffrey P. Davis will be primarily responsible for the day-
to-day management of
SSGA's portion of International Equity Investments. Mr.
Leahy has been with
SSGA since
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1991 and Mr. Davis has been with SSGA since 1992. Prior to
1991, Mr. Leahy was
a Portfolio Manager at Bankers Trust Investment Management.
Prior to 1992, Mr.
Davis was a Senior Portfolio Manager at PanAgora Asset
Management.
Julius Baer Investment Management Inc. ("JBIM") serves as
Advisor to
International Fixed Income Investments. JBIM is a majority
owned subsidiary of
Julius Baer Securities Inc., a registered broker-dealer and
investment advisor,
which in turn is a wholly owned subsidiary of Baer Holding
Ltd. Julius Baer
Securities Inc. owns 95% of the outstanding stock of JBIM
and 5% is owned by an
employee of JBIM. JBIM has been registered as an investment
advisor under the
Advisers Act since April 1983. Directly and through Julius
Baer Securities
Inc., JBIM provides investment management services to a wide
variety of
individual and institutional clients, including registered
investment
companies. As of September 30, 1995, JBIM had assets under
management of
approximately $3.1 billion and Julius Baer Securities Inc.
had assets under
management of approximately $100 million. JBIM's principal
executive offices
are located at 330 Madison Avenue, New York, New York 10017.
Edward Dove, a
Director Fixed-Income Portfolio Manager of JBIM, has been
employed by JBIM
since 1992, and has been responsible for the day-to-day
management of
International Fixed Income Investments since that time.
Prior to that time, he
was employed as a fixed-income manager by Chemical Global
Investors Limited in
London.
John Govett & Co. Limited ("JGC") serves as Advisor for
Emerging Markets
Equity Investments. JGC was organized in 1920's and is
registered with the SEC
as an investment advisor. JGC is a wholly owned subsidiary
of Govett & Company
Limited (formerly known as Berkeley Govett & Company
Limited), a financial
services company whose shares are listed on the London Stock
Exchange and on
NASDAQ in the U.S. JGC's sole business is the provision of
investment advice
and services on behalf of institutions, private clients,
investment trusts and
open-ended funds. As of January 31, 1995, JGC had
approximately $4.2 billion in
assets under management. Rachael Maunder is primarily
responsible for the day-
to-day management of the Portfolio's assets. Ms. Maunder has
been a Manager of
emerging markets funds of JGC since 1991. Prior to that
time, she served as
Assistant Director of Invesco Mim Management in London. On
December 8, 1995 JGC
announced its agreement with Allied Irish Bank PLC for the
acquisition of JGC.
The Board of Trustees approved a new Advisory Agreement with
the successor
entity to be effective upon closing of the acquisition. The
change of control
is expected prior to February 1996.
ADMINISTRATOR
SBMFM serves as the Trust's administrator and generally
oversees all aspects
of the Trust's administration and operations. SBMFM provides
investment
management and administration services to investment
companies that had
aggregate assets under management as of December 31, 1994,
in excess of $50.4
billion. Each Portfolio pays SBMFM a fee for these services
that is computed
daily and paid monthly at the annual rate of 0.20% of the
value of the
Portfolio's average daily net assets.
EXPENSES OF THE PORTFOLIOS
Each Portfolio bears its own expenses, which generally
include all costs not
specifically borne by the Manager, the Advisors, and SBMFM.
Included among a
Portfolio's expenses are: costs incurred in connection with
the Portfolio's
organization; investment management and administration fees;
fees for necessary
professional and brokerage services; fees for any pricing
service; the costs of
regulatory compliance; and costs associated with maintaining
the Trust's legal
existence and shareholder relations. The Trust's agreement
with the Manager
provide that it will reduce its fees to a Portfolio to the
extent required by
applicable state laws for certain expenses that are
described in the Statement
of Additional Information.
PORTFOLIO TRANSACTIONS
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 of
Trustees of the Trust has determined that transactions for a
Portfolio may be
executed through Smith Barney and other affiliated broker-
dealers if, in the
judgment of the Advisor, 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.
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<PAGE>
PURCHASE OF SHARES
GENERAL
Purchases of shares of a Portfolio by a TRAK participant
must be made through
a brokerage account maintained with Smith Barney. Payment
for Portfolio shares
must be made by check directly to Smith Barney or to a
broker that clears
securities transactions through Smith Barney (an
"Introducing Broker"). No
brokerage account or inactivity fee is charged in connection
with a brokerage
account through which an investor purchases shares of a
Portfolio.
Shares of the Portfolios are available exclusively to
participants in TRAK
and to or for the benefit of participants in different
investment advisory
services offered by qualified investment advisors. TRAK and
different
investment advisory services and the Trust are designed to
relieve investors of
the burden of devising an asset allocation strategy to meet
their individual
needs as well as selecting individual investments within
each asset category
among the myriad choices available.
TRAK. The Consulting Group, in its capacity as investment
advisor to
participants in TRAK, provides advisory services in
connection with investments
among the Portfolios by identifying the investor's risk
tolerances and
investment objectives through evaluation of a Request, an
investor
questionnaire; identifying and recommending in writing an
appropriate
allocation of assets among the Portfolios that conform to
those tolerances and
objectives in a Recommendation; and providing on a periodic
basis, at least
quarterly, a Review, which is a monitoring report to the
investor containing an
analysis and evaluation of the investor's TRAK account and
recommending any
appropriate changes in the allocation of assets among the
Portfolios. The
Consulting Group will not, however, have any investment
discretion over the
investor's TRAK account, all investment decisions ultimately
resting with the
investor.
Under TRAK, Financial Consultants provide services to the
investor by
assisting the investor in identifying his or her financial
characteristics and
completing the Consulting Group's investor questionnaire.
Financial Consultants
are also responsible for reviewing the Consulting Group's
Recommendation and
Reviews with the investor, providing any interpretations of
his or her own,
monitoring identified changes in the investor's financial
characteristics and
communicating these to the Consulting Group for reevaluation
and implementing
investment decisions.
The Consulting Group is paid a quarterly fee at the
maximum annual rate of
1.50% of assets held in a TRAK account for the services
comprising TRAK
directly by each advisory client participating in TRAK,
either by redemption of
Portfolio shares or by separate payment. This fee may be
reduced or waived at
various levels of assets, for participation by employees of
Travelers and its
subsidiaries and for participation by certain individual
retirement accounts,
retirement plans for self-employed individuals and employee
benefit plans
subject to the Employee Retirement Income Security Act of
1974, as amended
(collectively "Plans"). When the client is a Plan, the
Consulting Group may
provide different services than those described above for
different fees. Fees
may be subject to negotiation and fees may differ based upon
a number of
factors, including, but not limited to, the type of account,
the size of the
account, the amount of TRAK assets and the number and range
of supplemental
advisory services to be provided by Financial Consultants.
Financial
Consultants receive a portion of any TRAK fee paid in
consideration of
providing services to clients participating in TRAK.
Investors should be aware that the Consulting Group serves
as investment
advisor to each participant in TRAK, for which it receives a
fee from the
participant that does not vary based on the Portfolios
recommended for the
participant's investments. At the same time, the Consulting
Group serves as the
Trust's Manager with responsibility for identifying,
retaining, supervising and
compensating each Portfolio's Advisor and receives a fee
from each Portfolio,
the portion of which that is retained by the Manager varies
based on the
Portfolio involved. Consequently, the Consulting Group, when
making asset
allocation recommendations for TRAK participants, may be
presented with a
conflict of interest as to the specific Portfolios
recommended
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<PAGE>
for investment. The Consulting Group, however, is subject to
and intends to
comply fully with standards of fiduciary duty that require
that it act solely
in the best interest of the participant when making
investment recommendations.
Other Advisory Programs. Shares of the Portfolios are also
available for
purchase by or for the benefit of clients of certain
investment advisors as a
means of implementing asset allocation recommendations based
on an investor's
investment objectives and risk tolerances. In order to
qualify to purchase
shares on behalf of its clients, the investment advisor must
be approved by the
Consulting Group. Investors purchasing shares through
investment advisory
programs other than TRAK will bear different fees for
different levels of
services as agreed upon with the investment advisors
offering the programs.
Investment advisors interested in utilizing the Portfolios
for the purposes
described above should call (302) 888-4104.
Payment for shares of the Trust is due at Smith Barney or
at an Introducing
Broker no later than the third business day after the order
is placed (the
"Settlement Date"). No order of a participant in TRAK may be
placed until the
investor has completed a Request, reviewed the analysis
contained in the
Recommendation and executed an investment advisory agreement
with the
Consulting Group. Investors who make payment prior to the
Settlement Date may
permit the payment to be held in their brokerage accounts or
may designate a
temporary investment (such as a money market fund) for the
payment until the
Settlement Date. When an investor makes payment before the
Settlement Date, the
funds will be held as a free credit balance in the
investor's brokerage account
and Smith Barney will benefit from the temporary use of the
funds. If the
investor instructs Smith Barney to invest the funds in a
Smith Barney money
market fund, the amount of the investment will be included
as part of the
average daily net assets of both the Portfolio and the Smith
Barney money
market fund. Affiliates of Smith Barney that serve these
funds in an investment
advisory or administrative capacity will benefit by
receiving fees from both of
the funds, computed on the basis of their average daily net
assets. The Board
of Trustees has been advised of the benefits to Smith Barney
resulting from
these settlement procedures and will take these benefits
into consideration
when reviewing the Management Agreement, the Advisory
Agreements and the
Administration Agreement.
Systematic Investment Plan. The Trust offers shareholders
a Systematic
Investment Plan under which shareholders may authorize Smith
Barney to place a
purchase order each month or quarter for Portfolio shares in
an amount not less
than $100 per month or quarter. The purchase price is paid
automatically from
cash held in the shareholder's Smith Barney brokerage
account, through the
automatic redemption of the shareholder's shares of a Smith
Barney money market
fund, or through the liquidation of other securities held in
the investor's
Smith Barney brokerage account. If the TRAK assets are held
in a Smith Barney
FMA(R) account, the shareholder may arrange for pre-
authorized automatic fund
transfers, on a regular basis, from the shareholder's bank
account to the
shareholder's FMA account. Shareholders may utilize this
service in conjunction
with the Systematic Investment Plan to facilitate regular
TRAK investments. For
further information regarding the Systematic Investment
Plan, the FMA account
or the automatic funds transfer service, shareholders should
contact their
Financial Consultants.
Minimum Investment. The minimum initial investment in the
Trust is $19,000
and the minimum investment in any individual Portfolio is
$100. There is no
minimum subsequent investment. TRAK Programs for employees
of Smith Barney,
accounts of their immediate families and individual
retirement accounts and
certain employee benefit plans for those persons will be
subject to a $5,000
minimum investment. The Trust reserves the right at any time
to vary the
initial and subsequent investment minimums.
Purchase orders for shares of a Portfolio received by
Smith Barney or by an
Introducing Broker prior to the close of regular trading on
the New York Stock
Exchange, Inc. (the "NYSE") (currently 4:00 p.m., New
York time) on any day that a Portfolio's net asset value is
calculated are
priced according to the net asset value determined on that
day. Purchase orders
received after the close of the NYSE are priced as of the
time
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the net asset value per share is next determined. See "Net
Asset Value" below
for a description of the times at which a Portfolio's net
asset value per share
is determined.
REDEMPTION OF SHARES
REDEMPTIONS IN GENERAL
Shares of a Portfolio may be redeemed at no charge on any
day that the
Portfolio calculates its net asset value as described below
under "Net Asset
Value." Redemption requests received in proper form prior to
the close of
regular trading on the NYSE will be effected at the net
asset value per share
determined on that day. Redemption requests received after
the close of regular
trading on the NYSE will be effected at the net asset value
next determined. A
Portfolio is required to transmit redemption proceeds for
credit to the
shareholder's account at Smith Barney or at an Introducing
Broker at no charge
within seven days after receipt of a redemption request.
Generally, these funds
will not be invested for the shareholder's benefit without
specific instruction
and the Introducing Broker will benefit from the use of
temporarily uninvested
funds. A shareholder who pays for Portfolio shares by
personal check will be
credited with the proceeds of a redemption of those shares
when the purchase
check has been collected, which may take up to 15 days or
more. Shareholders
who anticipate the need for more immediate access to their
investment should
purchase shares with Federal funds or bank wire or by a
certified or cashier's
check. Redemption proceeds held by investors either in the
form of uninvested
cash balances in their Smith Barney brokerage accounts or as
unnegotiated
checks from FDU, the Trust's transfer agent, will generally
not earn any income
for those investors, who should discuss alternative
investments with their
Financial Consultants or other advisors.
Redemption requests may be given to Smith Barney or to an
Introducing Broker.
Smith Barney or the Introducing Broker will transmit all
properly received
redemption requests to FDU. In order to be effective, a
redemption request of a
shareholder other than an individual may require the
submission of documents
commonly required to assure the safety of a particular
account. A redemption
request received by Smith Barney or an Introducing Broker
will be deemed to
have been received by FDU for purposes of determining the
time when the
redemption becomes effective.
Each investor's investment advisory agreement with the
Consulting Group
relating to participation in TRAK provides that, absent
separate payment by the
participant, fees charged by the Consulting Group pursuant
to that agreement
may be paid through automatic redemptions of a portion of
the participant's
account. Termination of a TRAK account must be effected by a
redemption order
for the participant's entire Trust account.
Automatic Cash Withdrawal Plan. The Trust offers
shareholders an automatic
cash withdrawal plan, under which shareholders who own
shares with a value of
at least $10,000 may elect to receive cash payments of at
least $100 monthly or
quarterly. The withdrawal plan will be carried over on
exchanges between
Portfolios of the Trust. For further information regarding
the automatic cash
withdrawal plan, shareholders should contact a Financial
Consultant.
INVOLUNTARY REDEMPTIONS
Due to the relatively high cost of maintaining small
accounts, the Trust may
redeem an account having a current value of $7,500 or less
as a result of
redemptions, but not as a result of a fluctuation in a
Portfolio's net asset
value or redemptions to pay TRAK fees, after the shareholder
has been given at
least 30 days in which to increase the account balance to
more than that
amount. Proceeds of an involuntary redemption will be
deposited in the
shareholder's brokerage account unless Smith Barney is
instructed to the
contrary. Investors should be aware that involuntary
redemptions may result in
the liquidation of Portfolio holdings at a time when the
value of those
holdings is lower than the investor's cost of the investment
or may result in
the realization of taxable capital gains.
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<PAGE>
NET ASSET VALUE
Each Portfolio's net asset value per share is calculated
by SBMFM on each
day, Monday through Friday, except on days on which the NYSE
is closed. The
NYSE is currently scheduled to be closed on New Year's Day,
Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and
Christmas, and on the preceding Friday when one of those
holidays falls on a
Saturday or on the subsequent Monday when one of those
holidays falls on a
Sunday.
Net asset value per share is determined for each of the
Portfolios, except
Emerging Markets Equity Investments, as of the close of
trading on the NYSE and
is computed by dividing the value of a Portfolio's net
assets by the total
number of its shares outstanding. The net asset value per
share for Emerging
Markets Equity Investments is determined as of noon each day
and is computed in
the same manner as the other Portfolios. Generally, a
Portfolio's investments
are valued at market value or, in the absence of a market
value, at fair value
as determined by or under the direction of the Board of
Trustees.
Securities that are primarily traded on foreign exchanges
are generally
valued for purposes of calculating a Portfolio's net asset
value at the
preceding closing values of the securities on their
respective exchanges,
except that, when an occurrence subsequent to the time a
value was so
established is likely to have changed that value, the fair
market value of
those securities will be determined by consideration of
other factors by or
under the direction of the Board of Trustees. A security
that is primarily
traded on a domestic or foreign stock exchange is valued at
the last sale price
on that exchange or, if no sales occurred during the day, at
the current quoted
bid price. All portfolio securities held by Government Money
Investments and
short-term dollar-denominated investments of the other
Portfolios that mature
in 60 days or less are valued on the basis of amortized cost
(which involves
valuing an investment at its cost and, thereafter, assuming
a constant
amortization to maturity of any discount or premium,
regardless of the effect
of fluctuating interest rates on the market value of the
investment) when the
Board of Trustees has determined that amortized cost
represents fair value. An
option that is written by a Portfolio is generally valued at
the last sale
price or, in the absence of the last sale price, the last
offer price. An
option that is purchased by the Portfolio is generally
valued at the last sale
price or, in the absence of the last sale price, the last
bid price. The value
of a futures contract is equal to the unrealized gain or
loss on the contract
that is determined by marking the contract to the current
settlement price for
a like contract on the valuation date of the futures
contract. A settlement
price may not be used if the market makes a limit move with
respect to a
particular futures contract or if the securities underlying
the futures
contract experience significant price fluctuations after the
determination of
the settlement price. When a settlement price cannot be
used, futures contracts
will be valued at their fair market value as determined by
or under the
direction of the Board of Trustees.
All assets and liabilities initially expressed in foreign
currency values
will be converted into U.S. dollar values at the mean
between the bid and
offered quotations of the currencies against U.S. dollars as
last quoted by any
recognized dealer. If the bid and offered quotations are not
available, the
rate of exchange will be determined in good faith by the
Board of Trustees. In
carrying out the Board's valuation policies, SBMFM may
consult with an
independent pricing service retained by the Trust. Further
information
regarding the Portfolios' valuation policies is contained in
the Statement of
Additional Information.
EXCHANGE PRIVILEGE
Shares of a Portfolio may be exchanged without payment of
any exchange fee
for shares of another Portfolio at their respective net
asset values. Portfolio
shares are not exchangeable with shares of other Smith
Barney Mutual Funds.
An exchange of shares is treated for federal income tax
purposes as a
redemption (sale) of shares given in exchange by the
shareholder, and an
exchanging shareholder may, therefore, realize a taxable
gain or loss in
connection with the exchange. Shareholders exchanging shares
of a Portfolio for
shares of another Portfolio
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should review the disclosure provided herein relating to the
exchanged-for
shares carefully prior to making an exchange. The exchange
privilege is
available to shareholders residing in any state in which
Portfolio shares being
acquired may be legally sold.
Although the exchange privilege is an important benefit,
excessive exchange
transactions can be detrimental to a Portfolio's performance
and its
shareholders. Each Portfolio's investment adviser may
determine that a pattern
of frequent exchanges is excessive and contrary to the best
interests of the
Portfolio's other shareholders. In this event, the
Portfolio's investment
adviser will notify Smith Barney, and Smith Barney may, at
its discretion,
decide to limit additional purchases and/or exchanges by the
shareholder. Upon
such a determination, Smith Barney will provide notice in
writing or by
telephone to the shareholder at least 15 days prior to
suspending the exchange
privilege and during the 15-day period the shareholder will
be required to (a)
redeem his or her shares in the Portfolio or (b) remain
invested in the
Portfolio or exchange into any of the other Portfolios,
which position the
shareholder would expect to maintain for a significant
period of time. All
relevant factors will be considered in determining what
constitutes an abusive
pattern of exchanges.
For further information regarding the exchange privilege,
investors should
contact their Financial Consultants. Smith Barney reserves
the right to reject
any exchange request and the exchange privilege may be
modified or terminated
after 60 days' written notice to shareholders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Net investment income (i.e., income other than long- and
short-term capital
gains) and net realized long- and short-term capital gains
will be determined
separately for each Portfolio. Dividends derived from net
investment income and
distributions of net realized long- and short-term capital
gains paid by a
Portfolio to a shareholder will be automatically reinvested
(at current net
asset value) in additional shares of that Portfolio (which
will be deposited in
the shareholder's account) unless the shareholder instructs
the Trust, in
writing, to pay all dividends and/or distributions in cash.
Dividends
attributable to substantially all the net investment income
of Government Money
Investments will be declared daily and paid monthly.
Shareholders of those
Portfolios receive dividends from the day following the
purchase up to and
including the date of redemption. Dividends attributable to
the net investment
income of Intermediate Fixed Income Investments, Long-Term
Bond Investments,
Mortgage Backed Investments, Municipal Bond Investments,
Balanced Investments
and International Fixed Income Investments are declared and
paid monthly.
Dividends attributable to the net investment income of the
remaining Portfolios
are declared and paid at least annually. Distributions of
any net realized
long-term and short-term capital gains earned by a Portfolio
will be made
annually.
TAXES
As each Portfolio is treated as a separate entity for
federal income tax
purposes, the amounts of net investment income and net
realized capital gains
subject to tax will be determined separately for each
Portfolio (rather than on
a Trust-wide basis).
Each Portfolio separately has qualified and intends to
qualify each year as a
regulated investment company for federal income tax
purposes. The requirements
for qualification (i) may cause a Portfolio, among other
things, to restrict
the extent of its short-term trading or its transactions in
warrants,
currencies, options, futures or forward contracts and (ii)
will cause each of
the Portfolios to maintain a diversified asset portfolio.
A regulated investment company will not be subject to
federal income tax on
its net investment income and its capital gains that it
distributes to
shareholders, so long as it meets certain overall
distribution requirements and
other conditions under the Code. Each Portfolio intends to
satisfy these
overall distribution requirements and any other required
conditions. In
addition, each Portfolio is subject to a 4% nondeductible
41
<PAGE>
excise tax measured with respect to certain undistributed
amounts of ordinary
income and capital gains. The Trust intends to have each
Portfolio pay
additional dividends and make additional distributions as
are necessary in
order to avoid application of the excise tax, if such
payments and
distributions are determined to be in the best interest of
the Portfolio's
shareholders. Dividends declared by a Portfolio in October,
November or
December of any calendar year and payable to shareholders of
record on a
specified date in such a month shall be deemed to have been
received by each
shareholder on December 31 of such calendar year and to have
been paid by the
Portfolio not later than such December 31 provided that such
dividend is
actually paid by the Portfolio during January of the
following year.
Dividends derived from a Portfolio's taxable net
investment income and
distributions of a Portfolio's net realized short-term
capital gains (including
short term gains from investments in tax exempt obligations)
will be taxable to
shareholders as ordinary income for federal income tax
purposes, regardless of
how long shareholders have held their Portfolio shares and
whether the
dividends or distributions are received in cash or
reinvested in additional
shares. Distributions of net realized long-term capital
gains (including long-
term gains from investments in tax exempt obligations) will
be taxable to
shareholders as long-term capital gains for federal income
tax purposes,
regardless of how long a shareholder has held his Portfolio
shares and whether
the distributions are received in cash or reinvested in
additional shares.
Dividends and distributions paid by Government Money
Investments, Municipal
Bond Investments and Mortgage Backed Investments and
distributions of capital
gains paid by all the Portfolios will not qualify for the
dividend received
deduction for corporations. As a general rule, dividends
paid by a Portfolio,
to the extent derived from dividends attributable to certain
types of stock
issued by U.S. corporations, will qualify for the dividend
received deduction
for corporations. Some states, if certain asset and
diversification
requirements are satisfied, permit shareholders to treat
their portions of a
Portfolio's dividends that are attributable to interest on
U.S. Treasury
securities and certain U.S. Government Securities as income
that is exempt from
state and local income taxes. Dividends attributable to
repurchase agreement
earnings are, as a general rule, subject to state and local
taxation.
Dividends paid by Municipal Bond Investments that are
derived from interest
earned on qualifying tax-exempt obligations are expected to
be "exempt-
interest" dividends that shareholders may exclude from their
gross incomes for
federal income tax purposes if the Portfolio satisfies
certain asset percentage
requirements. To the extent that the Portfolio invests in
bonds, the interest
on which is a specific tax preference item for federal
income tax purposes
("AMT-Subject Bonds"), any exempt-interest dividends derived
from interest on
AMT-Subject Bonds will be a specific tax preference item for
purposes of the
federal individual and corporate alternative minimum taxes.
In any event, all
exempt-interest dividends will be a component of the
"current earnings"
adjustment item for purposes of the federal corporate
alternative minimum
income tax and corporate shareholders may incur a larger
federal environmental
tax liability through the receipt of Portfolio dividends and
distributions.
Net investment income or capital gains earned by the
Portfolios investing in
foreign securities may be subject to foreign income taxes
withheld at the
source. The United States has entered into tax treaties with
many foreign
countries that entitle the Portfolios to a reduced rate of
tax or exemption
from tax on this related income and gains. It is impossible
to determine the
effective rate of foreign tax in advance since the amount of
these Portfolios'
assets to be invested within various countries is not known.
The Portfolios
intend to operate so as to qualify for treaty-reduced rates
of tax where
applicable. Furthermore, if a Portfolio qualifies as a
regulated investment
company, if certain distribution requirements are satisfied,
and if more than
50% of the value of the Portfolio's assets at the close of
the taxable year
consists of stocks or securities of foreign corporations,
the Portfolio may
elect, for U.S. federal income tax purposes, to treat
foreign income taxes paid
by the Portfolio that can be treated as income taxes under
U.S. income tax
principles as paid by its shareholders. The Trust
anticipates that
International Equity Investments and Emerging Markets Equity
Investments will
qualify for and make this election in most, but not
necessarily all, of its
taxable years. If a Portfolio were to make an election, an
amount equal to the
foreign income taxes paid by the Portfolio would be included
in the income of
its shareholders and the shareholders would be entitled to
credit their portions
42
<PAGE>
of this amount against their U.S. tax liabilities, if any,
or to deduct such
portions from their U.S. taxable income, if any. Shortly
after any year for
which it makes an election, a Portfolio will report to its
shareholders, in
writing, the amount per share of foreign tax that must be
included in each
shareholder's gross income and the amount which will be
available for deduction
or credit. No deduction for foreign taxes may be claimed by
a shareholder who
does not itemize deductions. Certain limitations will be
imposed on the extent
to which the credit (but not the deduction) for foreign
taxes may be claimed.
As noted above, shareholders, out of their own assets,
will pay a TRAK or
different investment advisory fee. For most shareholders who
are individuals,
this fee will be treated as a "miscellaneous itemized
deduction" for federal
income tax purposes. Under current federal income tax law,
an individual's
miscellaneous itemized deductions for any taxable year shall
be allowed as a
deduction only to the extent that the aggregate of these
deductions exceeds 2%
of adjusted gross income. Such deductions are also subject
to the general
limitation on itemized deductions for individuals having, in
1995, adjusted
gross income in excess of $111,800 ($55,900 for married
individuals filing
separately).
Statements as to the tax status of each shareholder's
dividends and
distributions are mailed annually. Shareholders will also
receive, if
appropriate, various written notices after the close of the
Portfolios' taxable
year with respect to certain foreign taxes paid by the
Portfolios and certain
dividends and distributions that were, or were deemed to be,
received by
shareholders from the Portfolios during the Portfolios'
prior taxable year.
Shareholders should consult with their own tax advisors with
specific reference
to their own tax situations.
CUSTODIAN AND TRANSFER AGENT
PNC is located at 17th and Chestnut Streets, Philadelphia,
Pennsylvania 19103
and Morgan is located at 60 Wall Street, New York, New York
19103, and serving
as the Trust's Custodian.
First Data Investors Services Group Inc. is located at
Exchange Place,
Boston, Massachusetts 02109, and serves as the Trust's
transfer agent.
PERFORMANCE OF THE PORTFOLIOS
YIELD
The Trust may, from time to time, include the yield and
effective yield of
Government Money Investments in advertisements or reports to
shareholders or
prospective investors. Current yield for Government Money
Investments will be
based on income received by a hypothetical investment over a
given 7-day period
(less expenses accrued during the period and the maximum fee
for participation
in TRAK during the period), and then "annualized" (i.e.,
assuming that the 7-
day yield would be received for 52 weeks, stated in terms of
an annual
percentage return on the investment). "Effective yield" for
Government Money
Investments will be calculated in a manner similar to that
used to calculate
yield, but will reflect the compounding effect of earnings
on reinvested
dividends.
For Intermediate Fixed Income Investments, Long-Term Bond
Investments,
Mortgage Backed Investments and Municipal Bond Investments,
from time to time,
the Trust may advertise the 30-day "yield" and, with respect
to Municipal Bond
Investments, an "equivalent taxable yield." The yield of a
Portfolio refers to
the income generated by an investment in the Portfolio over
the 30-day period
identified in the advertisement and is computed by dividing
the net investment
income per share earned by the Portfolio during the period
(less the maximum
fee for participation in TRAK during the period) by the net
asset value
per share on the last day of the period. This income is
"annualized" by
assuming that the amount of income is generated each month
over a one-year
period and is compounded semi-annually. The annualized
income is then shown as
a percentage of the net asset value.
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<PAGE>
EQUIVALENT TAXABLE YIELD
The equivalent taxable yield of Municipal Bond Investments
demonstrates the
yield on a taxable investment necessary to produce an after-
tax yield equal to
the Portfolio's tax-exempt yield. It is calculated by
increasing the yield
shown for the Portfolio, calculated as described above, to
the extent necessary
to reflect the payment of specified tax rates. Thus, the
equivalent taxable
yield always will exceed the Portfolio's yield.
The table below shows individual taxpayers how to
translate the tax savings
from investments such as the Portfolio into an equivalent
return from a taxable
investment. The yields used below are for illustration only
and are not
intended to represent current or future yields for the
Portfolio, which may be
higher or lower than those shown.
<TABLE>
<CAPTION>
SAMPLE FEDERAL
TAXABLE MARGINAL TAX-EXEMPT
YIELDS
INCOME RATE* 4.00% 5.00% 6.00%
7.00% 8.00% 9.00%
- ------------------------------------------------------------
- -------------
EQUIVALENT
TAXABLE YIELD
SINGLE JOINT RETURN ----------------------
- -------------
<S> <C> <C> <C> <C> <C> <C>
<C> <C>
$ 23,500 $ 39,000 15 4.71 5.88 7.06
8.24 9.41 10.59
56,550 94,250 28 5.56 6.94 8.33
9.72 11.11 12.50
117,950 143,600 31 5.80 7.25 8.70
10.14 11.59 13.04
256,500 256,500 36 6.25 7.81 9.38
10.94 12.50 14.06
over $256,500 over $256,500 39.60 6.62 8.28 9.93
11.59 13.25 14.90
</TABLE>
- --------
* The federal tax rates shown are those currently in effect
for 1995 and are
subject to change. The calculations assume that no income
will be subject to
the federal individual alternative minimum tax.
TOTAL RETURN
From time to time, the Trust may advertise a Portfolio's
(other than
Government Money Investments') "average annual total return"
over various
periods of time. This total return figure shows the average
percentage change
in value of an investment in the Portfolio from the
beginning date of the
measuring period to the ending date of the measuring period
and is reduced by
the maximum fee for participation in TRAK during the
measuring period. The
figure reflects changes in the price of the Portfolio's
shares and assumes that
any income, dividends and/or capital gains distributions
made by the Portfolio
during the period are reinvested in shares of the Portfolio.
Figures will be
given for recent one-, five- and ten-year periods (if
applicable) and may be
given for other periods as well (such as from commencement
of the Portfolio's
operations or on a year-by-year basis). When considering
average total return
figures for periods longer than one year, investors should
note that a
Portfolio's annual total return for any one year in the
period might have been
greater or less than the average for the entire period. A
Portfolio also may
use aggregate total return figures for various periods,
representing the
cumulative change in value of an investment in the Portfolio
for the specific
period (again reflecting changes in the Portfolio's share
price, the effect of
the maximum fee for participation in TRAK during the period
and assuming
reinvestment of dividends and distributions). Aggregate
total returns may be
shown by means of schedules, charts or graphs, and may
indicate subtotals of
the various components of total return (that is, the change
in value of initial
investment, income dividends and capital gains
distributions).
It is important to note that yield and total return
figures are based on
historical earnings and are not intended to indicate future
performance. The
Statement of Additional Information describes the method
used to determine a
Portfolio's yield and total return. Shareholders may make
inquiries regarding a
Portfolio, including current yield quotations or total
return figures, to his
or her Financial Consultant.
In reports or other communications to shareholders or in
advertising
material, a Portfolio may quote total figures that do not
reflect fees for
participation in TRAK (provided that these figures are
accompanied by
standardized total return figures calculated as described
above), as well as
compare its performance with that of other mutual funds as
listed in the
rankings prepared by Lipper Analytical Services, Inc. or
similar independent
services that monitor the performance of mutual funds or
with other appropriate
indices of
44
<PAGE>
investment securities, such as the Salomon Brothers World
Government Bond
Index, Lehman Brothers Government Bond Index and Lehman
Brothers Mortgage-
Backed Securities Index. The performance information also
may include
evaluations of the Portfolios published by nationally
recognized ranking
services and by financial publications that are nationally
recognized, such as
Barron's, Business Week, CDA Investment Technologies, Inc.,
Changing Times,
Forbes, Fortune, Institutional Investor, Investor's Daily,
Kiplinger's Personal
Finance Magazine, Money, Morningstar Mutual Fund Values, The
New York Times,
USA Today and The Wall Street Journal.
ADDITIONAL INFORMATION
The Trust was organized under the laws of the Commonwealth
of Massachusetts
pursuant to a Master Trust Agreement dated April 12, 1991,
as amended, and is a
business entity commonly known as a "Massachusetts business
trust." Each of the
Portfolios offers shares of beneficial interest of separate
series with a par
value of $0.001 per share. When matters are submitted for
shareholder vote,
shareholders of each of the Portfolios will have one vote
for each full share
held and proportionate, fractional votes for fractional
shares held. Generally,
shares of the Trust vote by individual Portfolio on all
matters except (i)
matters affecting all of the Portfolios, or (ii) when the
1940 Act requires
that shares of the Portfolios be voted in the aggregate.
Normally, no meetings
of shareholders will be held for the purpose of electing
Trustees unless and
until such time as less than a majority of the Trustees
holding office have
been elected by shareholders, at which time the Trustees
then in office will
call a shareholders' meeting for the election of Trustees.
Shareholders of
record of no less than two-thirds of the outstanding shares
of a Portfolio may
remove a Trustee through a declaration in writing or by vote
cast in person or
by proxy at a meeting called for that purpose. A meeting
will be called for the
purpose of voting on the removal of a Trustee at the written
request of holders
of 10% of the Portfolio's outstanding shares. Shareholders
who satisfy certain
criteria will be assisted by the Trust in communicating with
other shareholders
in seeking the holding of the meeting.
Massachusetts law provides that shareholders of a
Portfolio can, under
certain circumstances, be held personally liable for the
obligations of the
Portfolio. The Trust has been structured, and will be
operated in such a way,
so as to ensure as much as possible, that shareholders will
not be liable for
obligations of the Trust. A more complete discussion of
potential liability of
shareholders of a Portfolio under Massachusetts law is
contained in the
Statement of Additional Information under the heading
"Management of the
Trust--Organization of the Trust."
Smith Barney has received an exemption from the Department
of Labor from
certain provisions of the Employee Retirement Income
Security Act of 1974
relating to the purchase of Trust Shares, and participation
in TRAK, by certain
retirement plans. This exemption replaced an exemption
previously received by
Shearson Lehman Brothers, Inc., the former distributor of
the Trust.
The Trust sends to each shareholder a semi-annual report
and an audited
annual report, each of which includes a list of the
investment securities held
by the Portfolios. Shareholders may seek information
regarding a Portfolio,
including the current performance of the Portfolio, from
their Financial
Consultants.
45
<PAGE>
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No person has been authorized to give any information or
to make any
representations other than those contained in this
Prospectus, the Statement
of Additional Information or the Trust's official sales
literature in
connection with the offering of shares, and if given or
made, such other
information or representations must not be relied upon as
having been
authorized by the Trust. This Prospectus does not constitute
an offer in any
state in which, or to any person to whom, such offer may not
lawfully be made.
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Consulting Group Capital Markets Funds
Government Money Investments
Intermediate Fixed Income Investments
Long-Term Bond Investments
Municipal Bond Investments
Mortgage Backed Investments
Balanced Investments
Large Capitalization Value Equity
Investments
Large Capitalization Growth Investments
Small Capitalization Value Equity
Investments
Small Capitalization Growth Investments
International Equity Investments
International Fixed Income Investments
Emerging Markets Equity Investments
-----------------
PROSPECTUS
January 1, 1996
-----------------
Smith Barney Inc.
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<PAGE>
[APPENDICIES TO FOLLOW]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
APPENDIX A
INVESTMENT INDICES
Following are definitions of indicies that are utilized in
the Client's
Recommendation.
LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX
Composed of publicly issued, fixed rate, non-convertible
domestic debt in three
major classifications: industrial, utility, financial as
well as the domestic
debt of the U.S. Government or any agency thereof. All
issues have at least one
year to maturity, or an outstanding par value of at least
$100 million for U.S.
Government issues and $50 million for corporate issues. All
corporate issues
have a minimum rating of Baa by Moody's or BBB by Standard &
Poor's.
LEHMAN BROTHERS LONG TERM GOVERNMENT/CORPORATE BOND INDEX
Includes all bonds covered by the Lehman Brothers
Government/Corporate Bond
Index, with maturities of 10 years or longer. Total return
includes income and
appreciation/ depreciation as a percentage of original
investment.
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX
A subset of the Lehman Brothers Government/Corporate Bond
Index covering issues
with maturities up to ten years.
LEHMAN BROTHERS MORTGAGE BACKED SECURITIES BOND INDEX
Contains all fixed securities issued and backed by mortgage
pools of GNMA's,
FHLMC's, FNMA's, Graduated Payment Mortgage (GPM's), but not
Graduated Equity
Mortgages (GEM).
LEHMAN BROTHERS MUNICIPAL BOND INDEX
A composite measure of the total return performance of the
municipal bond
market, which includes more than two million different bond
issues. For
simplicity, the market is divided into seven major sectors,
with the
performance of each sector weighted according to issue
volume (adjusted
annually).
MORGAN STANLEY EAFE (CAPITALIZATION WEIGHTED)
A composite portfolio of equity (stock market) total returns
for the countries
of Europe, Australia, New Zealand and the Far East. The
return for each country
is weighted on the basis of its market capitalization.
MORGAN STANLEY EMERGING EQUITY MARKETS FREE GROSS DIVIDEND
INDEX
A composite portfolio consisting of equity total returns for
countries with low
to middle per capita income, as determined by the World
Bank. Some of these
countries include: Argentina, Greece, India, Malaysia,
Portugal and Turkey. The
return for each country is weighted on the basis of its
total market
capitalization.
90-DAY TREASURY BILL INDEX
Unweighted average of weekly auction offering rates of 90-
Day Treasury Bills.
Treasury Bills are backed by the full faith and credit of
the U.S. Government.
RUSSELL 1000 INDEX
The 1,000 largest U.S. companies by market capitalization,
the smallest of
which has about $457 million in market capitalization. The
average market
capitalization for a company in this index is $3.42 billion.
RUSSELL 1000 VALUE INDEX
Contains those Russell 1000 securities with less-than-
average growth
orientation. Companies in this index generally have low
price-to-book and
earnings ratios and higher dividend yields than stocks in
the Russell 1000
Growth Index.
RUSSELL 1000 GROWTH INDEX
Contains those Russell 1000 securities with greater-than-
average growth
orientation. Companies in this index tend to exhibit high
price-to-book and
earnings ratios and lower dividend yields than stocks in the
Russell 1000 Value
Index.
RUSSELL 2000 INDEX
Composed of the 2,000 smallest U.S. securities as determined
by total market
capitalization, representing about 7.1% of the U.S. equity
market
capitalization. The average market capitalization for a
company in this index
is $155 million, with the largest being $457 million.
RUSSELL 2000 VALUE INDEX
Contains those Russell 2000 securities with less-than-
average growth
orientation. Companies in this index generally have low
price-to-book and
earnings ratios and higher dividend yields than stocks in
the Russell 2000
Growth Index.
RUSSELL 2000 GROWTH INDEX
Contains those Russell 2000 securities with greater-than-
average growth
orientation. Companies in this index tend to exhibit high
price-to-book and
earnings ratios and lower dividend yields than stocks in the
Russell 2000 Value
Index.
STANDARD & POOR'S 500 INDEX
Tracks the total return of 500 of the largest stocks (400
industrial, 40
utility, 20 transportation and 40 financial companies) in
the United States,
which represent about 78% of the New York Stock Exchange's
total market
capitalization. The return of each stock is weighted on the
basis of the
stock's capitalization.
SALOMON BROTHERS NON-U.S. GOVERNMENT BOND INDEX
A market capitalization-weighted index consisting of
government bond markets of
Austria, France, Spain, Australia, Germany, Sweden, Belgium,
Italy, United
Kingdom, Canada, Japan, Denmark and the Netherlands.
A-1
<PAGE>
APPENDIX B
The following are copies of the proposed and final
exemptions from the
Department of Labor from certain provisions of the Employee
Retirement Income
Security Act of 1974 relating to the purchase of shares and
participation in
TRAK by certain retirement plans.
PROPOSED EXEMPTION
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- --------------------
PENSION AND WELFARE BENEFITS ADMINISTRATION
[APPLICATION NO. D-8723]
PROPOSED EXEMPTIONS; SHEARSON LEHMAN BROTHERS, INC.
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Notice of proposed exemptions.
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- --------------------
SUMMARY: This document contains notices of pendency before
the Department of
Labor (the Department) of proposed exemptions from certain
of the prohibited
transaction restrictions of the Employee Retirement Income
Security Act of 1974
(the Act) and/or the Internal Revenue Code of 1986 (the
Code).
WRITTEN COMMENTS AND HEARING REQUESTS: All interested
persons are invited to
submit written comments or request for a hearing on the
pending exemptions,
unless otherwise stated in the Notice of Proposed Exemption,
within 45 days
from the date of publication of this FEDERAL REGISTER
Notice. Comments and
request for a hearing should state: (1) The name, address,
and telephone number
of the person making the comment or request, and (2) the
nature of the person's
interest in the exemption and the manner in which the person
would be adversely
affected by the exemption. A request for a hearing must also
state the issues
to be addressed and include a general description of the
evidence to be
presented at the hearing. A request for a hearing must also
state the issues to
be addressed and include a general description of the
evidence to be presented
at the hearing.
ADDRESSES: All written comments and request for a hearing
(at least three
copies) should be sent to the Pension and Welfare Benefits
Administration,
Office of Exemption Determinations, room N-5649, U.S.
Department of Labor, 200
Constitution Avenue NW., Washington, DC 20210. Attention:
Application No.
stated in each Notice of Proposed Exemption. The
applications for exemption and
the comments received will be available for public
inspection in the Public
Documents Room of Pension and Welfare Benefits
Administration, U.S. Department
of Labor, room N-5507, 200 Constitution Avenue N.W.,
Washington, DC 20210.
NOTICE TO INTERESTED PERSONS: Notice of the proposed
exemptions will be
provided to all interested persons in the manner agreed upon
by the applicant
and the Department within 15 days of the date of publication
in the FEDERAL
REGISTER. Such notice shall include a copy of the notice of
proposed exemption
as published in the FEDERAL REGISTER and shall inform
interested persons of
their right to comment and to request a hearing (where
appropriate).
SUPPLEMENTARY INFORMATION: The proposed exemptions were
requested in
applications filed pursuant to section 408(a) of the Act
and/or section
4975(c)(2) of the Code, and in accordance with procedures
set forth in 29 CFR
part 2570, subpart B (55 FR 32836, 32847, August 10, 1990).
Effective December
31, 1978, section 102 of Reorganization Plan No. 4 of 1978
(43 FR 47713,
October 17, 1978) transferred the authority of the Secretary
of the Treasury to
issue exemptions of the type requested to the Secretary of
Labor. Therefore,
these notices of proposed exemption are issued solely by the
Department.
The applications contain representations with regard to the
proposed
exemptions which are summarized below. Interested persons
are referred to the
applications on file with the Department for a complete
statement of the facts
and representations.
SHEARSON LEHMAN BROTHERS, INC. (SHEARSON LEHMAN), LOCATED IN
NEW YORK, NY
[Application No. D-8723]
PROPOSED EXEMPTION
Section I. Covered Transactions
The Department is considering granting an exemption under
the authority of
section 408(a) of the Act and section 4975(c)(2) of the Code
and in accordance
with the procedures set forth in 29 CFR part 2570, subpart B
(55 FR 32836,
32847, August 10, 1990). If the exemption is granted, the
restrictions of
section 406(a) of the Act and the sanctions resulting from
the application of
section 4975 of the Code, by reason of section 4975(c)(1)(A)
through (D) shall
not apply to the proposed purchase or redemption of shares
by an employee
benefit plan, an individual retirement account (the IRA) or
a retirement plan
for a self-employed individual (the Keogh Plan;
collectively, the Plans) in the
Shearson Lehman-established Trust for TRAK Investments (the
Trust) in
connection with such Plans' participation in the TRAK
Personalized Investment
Advisory Service (the TRAK Program). In addition, the
restrictions of section
406(b)(1) and (b)(2) of the Act and the sanctions resulting
from the
application of section 4975 of the Code by reason of section
4975(c)(1)(E)
shall not apply to the provision, by the Consulting Group
Division of Shearson
Lehman (the Consulting Group), investment advisory services
to an independent
fiduciary of a participating Plan (the Independent Plan
Fiduciary) which may
result in such fiduciary's selection of a portfolio grouping
(the Portfolio-
Type) in the TRAK Program for the investment of Plan assets.
This proposed exemption is subject to the following
conditions that are set
forth below in section II.
Section II. General Conditions
(1) The participation of Plans in the TRAK Program will be
approved by a Plan
fiduciary which is independent of Shearson Lehman.
(2) The total fees paid to the Consulting Group and its
affiliates will
constitute no more than reasonable compensation.
(3) No Plan will pay a fee or commission by reason of the
acquisition or
redemption of shares in the Trust.
(4) The terms of each purchase or redemption of Trust
shares shall remain at
least as favorable to an investing Plan as those obtainable
in an arm's length
transaction with an unrelated party.
(5) The Consulting Group will provide written documentation
to an Independent
Plan Fiduciary of its recommendations or evaluations based
upon objective
criteria.
(6) Any recommendation or evaluation made by the Consulting
Group to an
Independent Plan Fiduciary will be implemented only at the
express direction of
such independent fiduciary.
(7) The Consulting Group will generally give investment
advice to an
Independent Plan Fiduciary with respect to Portfolio-Types.
However, in the
case of a Plan providing for participant-directed
investments (the Section
404(c) Plan), the Consulting Group will provide investment
advice that is
limited to the Portfolios made available under the Plan.
B-1
<PAGE>
(8) Any sub-adviser (the Sub-Adviser) that is appointed by
the Consulting
Group to exercise investment discretion over a Portfolio
will be independent of
Shearson Lehman and its affiliates.
(9) Immediately following the acquisition by a Portfolio of
any securities
that are issued by Shearson Lehman and/or its affiliates,
the percentage of
that Portfolio's net assets invested in such securities will
not exceed one
percent.
(10) The quarterly investment advisory fee that is paid by
a Plan to the
Consulting Group for investment advisory services rendered
to such Plan will be
offset by such amount as is necessary to assure that the
Consulting Group
retains no more than 20 basis points from any Portfolio
which contains
investments attributable to the Plan investor.
(11) The Consulting Group will not retain an investment
advisory or management
fee from the Government Money Investments Portfolio.
(12) With respect to its participation in the TRAK Program
prior to purchasing
Trust shares.
(a) Each Plan will receive the following written or oral
disclosures from the
Consulting Group:
(1) A copy of the prospectus (the Prospectus) for the Trust
discussing the
investment objectives of the Portfolios comprising the
Trust, the policies
employed to achieve these objectives, the corporate
affiliation existing
between the Consulting Group, Shearson Lehman and its
subsidiaries and the
compensation paid to such entities.
(2) Upon written or oral request to Shearson Lehman, a
Statement of Additional
Information supplementing the Prospectus which describes the
types of
securities and other instruments in which the Portfolios may
invest, the
investment policies and strategies that the Portfolios may
utilize and certain
risks attendant to those investments, policies and
strategies.
(3) A copy of the investment advisory agreement between the
Consulting Group
and such Plan relating to participation in the TRAK Program.
(4) A copy of the respective investment advisory agreement
between the
Consulting Group and the Sub-Advisers upon written request
to Shearson Lehman.
(5) In the case of a Section 404(c) Plan, if required by
the arrangement
negotiated between the Consulting Group and the Plan, an
explanation by a
Shearson Lehman Financial Consultant (the Financial
Consultant) to eligible
participants in such Plan, of the services offered under the
TRAK Program and
the operation and objectives of the Portfolios.
(b) If accepted as an investor in the TRAK Program, an
Independent Plan
Fiduciary of an IRA or Keogh Plan, will be required to
acknowledge, in writing,
prior to purchasing Trust shares that such fiduciary has
received copies of
such documents.
(c) With respect to a Section 404(c) Plan, written
acknowledgement of the
receipt of such documents will be provided by the
Independent Plan Fiduciary
(i.e., the plan administrator, trustee or named fiduciary,
as the recordholder
of Trust shares). Such Independent Plan Fiduciary will be
required to represent
in writing to Shearson Lehman that such fiduciary is (1)
independent of
Shearson Lehman and its affiliates and (2) knowledgeable
with respect to the
Plan in administrative matters and funding matters related
thereto, and able to
make an informed decision concerning participation in the
TRAK Program.
(d) With respect to a Plan that is covered under title I of
the Act, where
investment decisions are made by a trustee, investment
manager or a named
fiduciary, such Independent Plan Fiduciary will be required
to acknowledge, in
writing, receipt of such documents and represent to Shearson
Lehman that such
fiduciary is (1) independent of Shearson Lehman and its
affiliates, (2) capable
of making an independent decision regarding the investment
of Plan assets and
(3) knowledgeable with respect to the Plan in administrative
matters and
funding matters related thereto, and able to make an
informed decision
concerning participation in the TRAK Program.
(13) Each Plan will receive the following written or oral
disclosures with
respect to its ongoing participation in the TRAK Program.
(a) The Trust's semi-annual and annual report which will
include financial
statements for the Trust and investment management fees paid
by each Portfolio.
(b) A written quarterly monitoring report containing an
analysis and an
evaluation of a Plan investor's account to ascertain whether
the Plan's
investment objectives have been met and recommending, if
required, changes in
Portfolio allocations.
(c) If required by the arrangement negotiated between the
Consulting Group and
a Section 404(c) Plan, a quarterly, detailed investment
performance monitoring
report, in writing, provided to an Independent Plan
Fiduciary of such Plan
showing Plan level asset allocations, Plan cash flow
analysis and annualized
risk adjusted rates of return for Plan investments. In
addition, if required by
such arrangement, Financial Consultants will meet
periodically with Independent
Plan Fiduciaries of Section 404(c) Plans to discuss the
performance monitoring
report as well as with eligible participants to review their
accounts'
performance.
(d) If required by the arrangement negotiated between the
Consulting Group and
a Section 404(c) Plan, a quarterly participant performance
monitoring report
provided to a Plan participant which accompanies the
participant's benefit
statement and describes the investment performance of the
Portfolios, the
investment performance of the participant's individual
investment in the TRAK
Program, and gives market commentary and toll-free numbers
that will enable the
participant to obtain more information about the TRAK
Program or to amend his
or her investment allocations.
(e) On a quarterly and annual basis, written disclosures to
all Plans of the
(1) percentage of each Portfolio's brokerage commissions
that are paid to
Shearson Lehman and its affiliates and (2) the average
brokerage commission per
share paid by each Portfolio to Shearson Lehman and its
affiliates, as compared
to the average brokerage commission per share paid by the
Trust to brokers
other than Shearson Lehman and its affiliates, both
expressed as cents per
share.
(14) Shearson Lehman shall maintain, for a period of six
years, the records
necessary to enable the persons described in paragraph (15)
of this section to
determine whether the conditions of this exemption have been
met, except that
(a) a prohibited transaction will not be considered to have
occurred if, due to
circumstances beyond the control of Shearson Lehman and/or
its affiliates, the
records are lost or destroyed prior to the end of the six
year period, and (b)
no party in interest other than Shearson Lehman shall be
subject to the civil
penalty that may be assessed under section 502(1) of the
Act, or the taxes
imposed by section 4975(a) and (b) of the Code, if the
records are not
maintained, or are not available for examination as required
by paragraph (15)
below.
(15) (a) Except as provided in section (b) of this
paragraph and
notwithstanding any provisions of subsections (a)(2)and (b)
of section 504 of
the Act, the records referred to in paragraph (14) of this
section shall be
unconditionally available at their customary location during
normal business
hours by:
(1) Any duly authorized employee or representative of the
Department or the
Internal Revenue Service (the Service):
(2) Any fiduciary of a participating Plan or any duly
authorized
representative of such fiduciary:
(3) Any contributing employer to any participating Plan or
any duly authorized
employee representative of such employer; and
B-2
<PAGE>
(4) Any participant or beneficiary of any participating
Plan, or any duly
authorized representative of such participant or
beneficiary.
(b) None of the persons described above in subparagraphs
(2)-(4) of this
paragraph (15) shall be authorized to examine the trade
secrets of Shearson
Lehman or commercial or financial information which is
privileged or
confidential.
The availability of this exemption is subject to the
express condition that
the material facts and representations contained in the
application are true
and complete, and that the application accurately describes
all material facts
which are the subject of this exemption.
SUMMARY OF FACTS AND REPRESENTATIONS
1. Shearson Lehman, whose principal executive offices are
located in New York,
New York, is a wholly owned subsidiary of Shearson Lehman
Brothers Holdings,
Inc. (Shearson Holdings). Shearson Holdings is one of the
leading full-line
securities firms servicing institutions, governments and
individual investors
in the United States and throughout the world. Shearson
Holdings conducts its
principal businesses through two divisions--Shearson Lehman
Brothers (referred
to herein as Shearson Lehman) and Lehman Brothers. Shearson
Lehman is
responsible for individual investor services and asset
management while Lehman
Brothers is responsible for securities underwriting,
financial advisory,
investment and merchant banking services and securities and
commodities trading
as principal and agent. Shearson Holdings is a member of all
principal
securities and commodities exchanges in the United States
and the National
Association of Securities Dealers, Inc. In addition, it
holds memberships or
associate memberships on several principal foreign
securities and commodities
exchanges.
Shearson Holdings was incorporated in Delaware on December
29, 1983. The
American Express Company owns 100 percent of Shearson
Holdings' issued and
outstanding common stock, which represents 92 percent of its
issued and
outstanding voting stock. The 8 percent remaining shares of
Shearson Holdings'
issued and outstanding voting stock is preferred stock which
is owned by Nippon
Life Insurance Company. Although Shearson Holdings is not an
operating company
and, as such, it maintains no assets under management, as of
December 31, 1991,
Shearson Lehman and its subsidiaries rendered investment
advisory services with
respect to $91 billion in assets.
2. On April 12, 1991, Shearson Lehman formed the Trust, a
no load, open-end,
diversified management investment company registered under
the Investment
Company Act of 1940, as amended. The Trust is organized as a
Massachusetts
business trust and it has an indefinite duration. As of
January 17, 1992, the
Trust had net assets of $132,608,001.
The Trust consists of twelve different portfolios which
range from Government
Money Investments to International Fixed Income Investments
and which pay
monthly or annual dividends to investors. The Portfolios
currently have a per
share value ranging from $0 per share for Balanced
Investments to $9.45 per
share for Small Capitalization Growth Equity Investments.
The composition of
the Portfolios covers a spectrum of investments which
include U.S. Government-
related securities of equity or debt securities issued by
foreign or domestic
corporations. The Portfolios are further categorized under
four major
Portfolio-Types./1/
3. Shares in the Trust are offered by Shearson Lehman, as
distributors, at no
load, to participants in the TRAK Program./2/ Although
investors in the Trust
currently consist of institutions and individuals, it is
proposed that
prospective investors will include plans for which Shearson
Lehman may or may
not currently maintain investment accounts. A majority of
these Plans will be
IRAs or Keogh Plans. In addition, it is proposed that Plans
for which Shearson
Lehman or an affiliate serves as a prototype sponsor and/or
a nondiscretionary
trustee or custodian be permitted to invest in the Trust./3/
The applicant represents that the initial purchase of
shares in the Trust by a
Plan may give rise to a prohibited transaction where
Shearson Lehman or an
affiliate has a party in interest relationship with the
Plan. Shearson Lehman
also acknowledges that a prohibited transaction could arise
upon a subsequent
purchase or redemption of shares in the Trust by a
participating Plan inasmuch
as the party in interest relationship between Shearson
Lehman and the Plan may
have been established at that point. Accordingly, Shearson
Lehman has requested
prospective exemptive relief from the Department with
respect to the purchase
and redemption of shares in the Trust by participating Plans
which it does not
sponsor or have discretionary investment authority over the
Plan's assets which
would be invested in Trust shares./4/ Such shares will be
held in a brokerage
account maintained by the Plan with Shearson Lehman. No
commissions or fees
will be paid with respect to such transactions.
According to the applicant, the minimum initial investment
in the Trust is set
at $20,000, and may be reduced periodically to $10,000.
Effectively, therefore,
a Plan with less than $20,000 in assets ($10,000 when the
minimum has been
reduced) would not be able to participate in the TRAK
Program. The minimum
investment in a Portfolio is $100.
4. Overall responsibility for the management and
supervision of the Trust and
the Portfolios rests with the Trust's Board of Trustees (The
Trustees) which is
comprised of twelve members. The Trustees approve all
significant agreements
involving the Trust and the persons and companies that
provide services to the
Trust and the Portfolios. Three of the Trustees and all of
the Trust's
executive officers are affiliated with Shearson Lehman
and/or its affiliates.
The nine remaining Trustees are not affiliated with Shearson
Lehman.
5. Boston Advisors, located in Boston, Massachusetts, is a
wholly owned
subsidiary of The Boston Company, a financial services
holding company which
is, in turn, wholly owned by Shearson Lehman. Boston
Advisors provides
investment management, investment advisory and/or
administrative services to
investment companies with total assets in excess of $83
billion as of July 31,
1991. Boston Advisors serves as the Trust's administrator.
In
- -------
/1/ Because a Portfolio is not precluded from investing in
securities that are
issued by Shearson Lehman or its affiliates, Shearson Lehman
represents that,
as a limitation, the percentage of that Portfolio's net
assets invested in
these securities will never exceed one percent.
/2/ According to the Statement of Additional Information
which accompanies the
Prospectus for the TRAK Program, shares in the Trust are not
certificated for
reasons of economy and convenience. Boston Safe Deposit and
Trust Company, the
Trust's custodian, however, maintains a record of each
investor's ownership of
shares. Although Trust shares are transferable and accord
voting rights to
their owners, they do not confer pre-emptive rights (i.e.,
the privilege of a
shareholder to maintain a proportionate share of ownership
of a company by
purchasing a proportionate share of any new stock issues).
Shearson Lehman
represents that in the context of an open-end investment
company, that
continuously issues and redeems shares, a pre-emptive right
would make the
normal operations of the Trust impossible. Therefore, such
right is precluded
in the charter documents of the Trust's Master Trust
Agreement as well as those
of other open-end investment companies.
As for voting rights, Shearson Lehman states that they are
accorded to
recordholders of Trust shares. Shearson Lehman notes that a
recordholder of
Trust shares may determine to seek the submission of proxies
by Plan
participants and vote Trust shares accordingly. In the case
of individual
account plans such as Section 404(c) Plans. Shearson Lehman
notes that most
Plans will pass-through the vote to participants on a pro-
rata basis.
/3/ The Department notes that the general standards of
fiduciary conduct
promulgated under the Act would apply to the participation
in the TRAK Program
by an Independent Plan Fiduciary. Section 404 of the Act
requires that a
fiduciary discharge his duties respecting a plan solely in
the interest of the
plan's participants and beneficiaries and in a prudent
fashion. Accordingly, an
Independent Plan Fiduciary must act prudently with respect
to the decision to
enter into the TRAK Program with the Consulting Group as
well as with respect
to the negotiation of services that will be performed
thereunder and the
compensation that will be paid to Shearson Lehman and its
affiliates. The
Department expects that an Independent Plan Fiduciary, prior
to entering in the
TRAK Program, to understand fully all aspects of such
arrangement following
disclosure by Shearson Lehman of all relevant information.
/4/ The applicant represents that employee benefit plans
for are maintained by
Shearson Lehman may purchase or redeem shares in the Trust
under the provisions
of Prohibited Transaction Exemption (PTE) 77-3 (42 FR 18734,
April 8, 1977).
The applicant further represents that, although the
exemptive relief proposed
above would not permit Shearson Lehman or an affiliate,
while serving as a Plan
fiduciary with discretionary authority over the management
of a Plan's assets,
to invest a Plan's assets in the Trust shares, a purchase or
redemption of
Trust shares under such circumstances will comply with the
terms and conditions
of class PTE 77-4 (42 FR 18732, April 8, 1977). The
Department expresses no
opinion herein as to whether such transactions will comply
with the terms and
conditions of PTEs 77-3 and 77-4.
B-3
<PAGE>
particular, Boston Advisors calculates the net asset
value/5/ of the
Portfolios' shares and manages all aspects of the
Portfolios' administration
and operation. In addition, Boston Advisors is responsible
for managing each
Portfolio's temporary investments in money market
instruments, as well as
making arrangements for, and managing collateral received
with respect to, the
lending of securities by each Portfolio.
6. Organized within Shearson Lehman, is the Consulting
Group, which is located
in Wilmington, Delaware. The Consulting Group serves as the
investment manager
of the Trust and the underlying Portfolios. Although the
Consulting Group has
not previously served as investment manager for a registered
investment
company, it and its related division, the Consulting
Services Division of
Shearson Lehman (Consulting Services), have over eighteen
years of experience
in evaluating investment advisers for individual and
institutional investors.
Together the Consulting Group and Consulting Services
provide various financial
consulting services to over 30,000 accounts, representing
more than $30 billion
in client assets. Account sizes range from institutional
accounts in excess of
$1 billion to individual accounts with $100,000 minimum
investments. As of July
31, 1991, the Consulting Group rendered advisory services
with respect to
assets with a value in excess of $42.7 billion.
7. Under its investment management agreement, the
Consulting Group is required
to make recommendations to the Trustees regarding (a) the
investment policies
of each Portfolio and (b) the selection and retention of
certain Sub-Advisers
which exercise investment discretion over each Portfolio./6/
In addition,
through the TRAK Program, the Consulting Group provides
investors with non-
binding, generalized asset allocation recommendations with
respect to such
investors' investments in the Portfolios. For example, the
Consulting Group
evaluates an investor's risk tolerances and financial goals,
provides
investment
advice as to the appropriate mix of investment types
designed to balance the
investor's risk tolerances as part of a long-term investment
strategy and
provides the investor with advice about implementing its
investment decisions
through the Trust. However, the applicant states that the
Consulting Group does
not have any discretionary authority or control with respect
to the allocation
of an investor's assets among the Portfolios. In the case of
an IRA, a Keogh
Plan or a Title I Plan, the applicant represents that all of
the Consulting
Group's recommendations and evaluations will be presented to
a Plan fiduciary
which is independent of Shearson Lehman and will be
implemented only if accepted
and acted upon by such Independent Plan Fiduciary. In the
case of a Section
404(c) Plan, Shearson Lehman represents that participants in
such Plan will be
presented with the Consulting Group's recommendations and
evaluations only to
the extent agreed to by Shearson Lehman and the Plan
sponsor. Shearson Lehman
expects that some sponsors of Section 404(c) Plans will
elect to have the
Consulting Group's recommendations and evaluations passed-
through to
participants, while others will elect to have the
Independent Plan Fiduciary
responsible for selecting the Portfolios made available to
Plan participants
receive such advice./7/ 8. As stated above, the Consulting
Group is responsible
for selecting the Sub-Advisers which provide discretionary
advisory services
with respect to the investment of the assets of the
individual Portfolios on the
basis of their "able" performance in their respective areas
of expertise in
asset management. The applicant represents that there are
presently eleven Sub-
Advisers, all of which are independent of, and will remain
independent of,
Shearson Lehman and/or its affiliates./8/ The Sub-Advisers
are registered
investment advisers under the Investment Adviser's Act of
1940. They maintain
their principal executive offices in the eastern and western
regions of the
United States. As of June 30, 1991, the Sub-Advisers had
assets under
management ranging from $62 million to $51 billion.
9. In order for a Plan to participate in the TRAK Program,
Shearson Lehman or
the Consulting Group will provide an Independent Plan
Fiduciary with a copy of
the Trust Prospectus discussing the investment objectives of
the Portfolios
comprising the Trust, the policies employed to achieve these
objectives, the
corporate affiliation existing between the Consulting Group,
Shearson Lehman
and its subsidiaries and the compensation paid to such
entities. In addition,
upon written or oral request to Shearson Lehman, the
Independent Plan Fiduciary
will be given a Statement of Additional Information
supplementing the
Prospectus which describes the types of securities and other
instruments in
which the Portfolios may invest, the investment policies and
strategies that
the Portfolios may utilize and certain risks attendant to
those investments,
policies and strategies./9/ Further, each Plan will be given
a copy of the
investment advisory agreement between the Consulting Group
and such Plan
relating to participation in the TRAK Program, and upon
written request to
Shearson Lehman, with a copy of the respective investment
advisory agreement
between the Consulting Group and the Sub-Advisers.
With respect to a Section 404(c) Plan, Financial
Consultants affiliated with
Shearson Lehman will explain the services offered under the
TRAK Program to
eligible Section 404(c) Plan participants as well as the
operation and
objectives of the Portfolios, if required by the arrangement
negotiated between
the Consulting Group and the Plan./10/
If accepted as a Trust investor, an Independent Plan
Fiduciary will be
required by
- -------
/5/ Each Portfolio's net asset value per share is
calculated by Boston
Advisors on each weekday, except on days on which the New
York Stock Exchange
(the NYSE) is closed. In general, the net asset value for
securities is
determined as of the close of trading on the NYSE or a
foreign exchange by
dividing the value of a Portfolio net assets by the total
number of its shares
outstanding. Typically, a Portfolio's investments are valued
at market value.
However, in the absence of a market value, Portfolio
investments are valued at
fair market value as determined by, or under the direction
of, the Trustees.
/6/ Subject to the supervision and direction of the
Trustees, the Consulting
Group was required to perform initial "due diligence" on
prospective Sub-
Advisers for each Portfolio and thereafter to monitor each
Sub-Adviser's
performance through qualitative and quantitative analysis as
well as through
periodic, in person, telephonic and written consultations.
The Consulting Group
is also required to communicate its performance expectations
and evaluations to
the Sub-Advisers and ultimately recommend whether a Sub-
Adviser's contract
should be renewed, modified or terminated. In this regard,
the Consulting Group
is further obligated to provide written reports to the
Trustees of its
evaluation and monitoring functions.
/7/ If the Independent Plan Fiduciary of a Section 404(c)
Plan is the
recipient of the Consulting Group's investment advice, the
applicant explains
that the Consulting Group will work with the Independent
Plan Fiduciary by
identifying and drafting investment objectives, selecting
investment categories
or actual Portfolios to be offered to Plan participants. In
addition to these
services (and as described above), the applicant explains
that the Consulting
Group will provide an Independent Plan Fiduciary with a
detailed investment
performance monitoring report on a quarterly basis.
Furthermore, a Financial
Consultant affiliated with Shearson Lehman will meet
periodically with the
Independent Plan Fiduciary to discuss the investment
performance monitoring
report.
However, if investment advisory services are provided
directly to a
participant in a Section 404(c) Plan, the applicant explains
(as also described
herein above) that a Financial Consultant will provide a
participant with pre-
enrollment meetings and ongoing communications regarding the
TRAK Program. In
addition, the applicant notes that the Consulting Group will
recommend long
term investment allocations to the participant and provide
the participant with
a written, quarterly performance monitoring report.
/8/ Although there are presently twelve Portfolios
comprising the Trust, there
are only eleven Sub-Advisers. One Sub-Adviser, Standish,
Ayer and Wood, Inc.
advises both the Government Money Investments Portfolio and
the Intermediate
Fixed Income Investments Portfolio.
/9/ In the case of a Section 404(c) Plan, the applicant
represents that the
Plan administrator, trustee or named fiduciary, as the
recordholder of Trust
shares, will make available the Trust's Prospectus to
Section 404(c) Plan
participants. In addition, Shearson Lehman will make
available to such
Independent Plan Fiduciaries sufficient quantities of
Prospectuses for this
purpose, as well as provide Statements of Additional
Information to any party
upon request.
/10/ The Department is expressing no opinion as to whether
the information
provided under the TRAK Program is sufficient to enable a
participant to
exercise independent control over assets in his or her
account as contemplated
by section 404(c) of the Act.
B-4
<PAGE>
Shearson Lehman to acknowledge, in writing, prior to
purchasing Trust shares
that such fiduciary has received copies of the
aforementioned documents. With
respect to a Plan that is covered by Title I of the Act
(e.g., a defined
contribution plant), where investment decisions will be made
by a trustee,
investment manager or a named fiduciary. Shearson Lehman
will require (except
if relying on Class PTE 77-3) that such Independent Plan
Fiduciary acknowledge
in writing receipt of such documents and represent to
Shearson Lehman that such
fiduciary is (a) independent of Shearson Lehman and its
affiliates, (b) capable
of making an independent decision regarding the investment
of Plan assets and
(c) knowledgeable with respect to the Plan in administrative
matters and
funding matters related thereto, and able to make an
informed decision
concerning participation in the TRAK Program.
With respect to Section 404(c) Plan, written acknowledgment
of the receipt of
such documents will be provided by the Independent Plan
Fiduciary (i.e., the
Plan administrator, trustee or named fiduciary, as the
recordholder of Trust
shares). Such Independent Plan Fiduciary will be required to
represent, in
writing, to Shearson Lehman that such fiduciary is (a)
independent of Shearson
Lehman and its affiliates and (b) knowledgeable with respect
to the Plan in
administrative matters and funding matters related thereto,
and able to make an
informed decision concerning participation in the TRAK
Program.
10. The books of the Trust will be audited annually by
independent public
accountants selected by the Trustees and approved by the
investors. All
investors will receive copies of an audited financial report
no later than 60
days after the close of each Trust fiscal year. The books
and financial records
of the Trust will be open for inspection by any investor, as
well as the
Department and the Service, at all times during regular
business hours.
11. As noted under the TRAK Program, the Consulting Group
will provide the
Independent Plan Fiduciary with asset allocation advice
related to the
Portfolios. In this regard, the applicant states that the
Consulting Group's
asset allocation advice will not focus on recommendations
that a Plan's assets
be allocated to a specific Portfolio. Rather, the applicant
represents that the
Consulting Group will recommend only that Plan assets be
allocated among
particular types of Portfolios (e.g., Growth, Fixed Income,
etc.)
After the selection of specific Portfolios by an
Independent Plan Fiduciary,
the Consulting Group will continue to render general
Portfolio-Type selection
advice to Plans or Plan fiduciaries relating to asset
allocations among the
selected Portfolios. However, in the case of a Section
404(c) Plan in which at
least three to five Portfolios may be selected by the Plan
sponsor, the
Consulting Group's initial asset allocation advice will be
limited to the
suggested Portfolio-Types offered under the Plan. The
Consulting Group may also
work with the Independent Plan Fiduciary to identify and
draft investment
objectives, select investment categories or actual
Portfolios to be offered to
Plan participants, if such fiduciary is the recipient of the
Consulting Group's
asset allocation advice, or recommend appropriate long-term
investment
allocations to an individual participant, if the participant
receives such
advice.
12. The Consulting Group will also identify a Plan's risk
tolerances and
investment objectives, the performance of each Portfolio in
which assets are
invested, and recommend, in writing, an appropriate
allocation of assets among
the Portfolio-Types that conform to these tolerances and
objectives. The
Consulting Group will not have the authority to implement
its advice or
recommendations and will not participate in the
deliberations regarding the
decision by an investor of whether or not to act upon such
advice. As noted
earlier, the applicant represents that the decision of a
Plan to invest in the
TRAK Program will be made by an unrelated Plan fiduciary
acting on the basis of
his or her own investigation into the advisability of
participating in the TRAK
Program.
13. The Consulting Group will provide, at least quarterly,
monitoring reports
to a Title I, IRA or Keogh Plan containing an analysis and
evaluation of the
Plan's account to ascertain whether the investor's
objectives are being met and
recommending, when appropriate, changes in the allocation
among the Portfolios.
If required by the arrangement negotiated with the
Independent Plan Fiduciary,
the Consulting Group will provide an Independent Plan
Fiduciary of a Section
404(c) Plan with a written, detailed investment performance
monitoring report,
that will contain Plan level asset allocations showing the
performance of the
Plan's investment vehicles and the performance of relevant
indices for
evaluating the performance of each Portfolio, a Plan cash
flow analysis and
annualized risk adjusted rates of return for Plan investment
vehicles. Such
report will be provided on a quarterly basis.
In addition, to the extent required by the arrangement
negotiated with the
Consulting Group, a Section 404(c) Plan participant will
receive a written,
quarterly performance monitoring report with his or her
quarterly benefit
statement which includes the investment performance of the
Portfolios, the
investment performance for the participant's account, and
specifies market
commentary and toll-free numbers for such participant to
call Shearson Lehman
in order to obtain more information about the TRAK Program
or to amend the
participant's investment allocations. Further, if required
by such arrangement,
a Financial Consultant will meet periodically with an
Independent Plan
Fiduciary of a Section 404(c) Plan to review and discuss the
investment
performance monitoring report. The Financial Consultant may
also meet
periodically with an eligible participant to review the
performance of the
participant's account. The applicant notes that this
intermittent contact will
not prevent the participant from contacting the Financial
Consultant at any
time to inquire about his or her participation in the TRAK
Program.
Finally, on a quarterly and annual basis, the Consulting
Group will provide
written disclosures to all Plans with respect to (1) the
percentage of each
Trust Portfolio's brokerage commissions that are paid to
Shearson Lehman and
its affiliates and (2) the average brokerage commission per
share paid by each
Portfolio to Shearson Lehman as compared to the average
brokerage commission
per share paid by each Portfolio to brokers other than
Shearson Lehman and its
affiliates, both expressed as cents per share.
14. Shares of a Portfolio will be redeemed by Shearson
Lehman, at no charge,
and generally on a daily basis (weekends and holidays
excepted) when the
Portfolio calculates its net asset value. Redemption
requests received in
proper form prior to the close of trading on the NYSE will
be affected at the
net asset value per share determined on that day. Redemption
requests received
after the close of regular trading on the NYSE will be
effected at the net
asset value at the close of business of the next day, except
on weekends or
holidays when the NYSE is closed. A Portfolio is required to
transmit
redemption proceeds for credit to an investor's account with
Shearson Lehman or
to an "introducing" broker/11/ within 7 days after receipt
of the redemption
request. In the case of an IRA or Keogh Plan investor,
Shearson Lehman will not
hold redemption proceeds as free credit balances and will,
in the absence of
receiving investment instructions, place all such assets in
- -------
/11/ According to the applicant, Shearson Lehman provides
clearance,
settlement and other back office services to other broker-
dealers. The
applicant notes that Shearson Lehman may also provide
confirmations and account
statements to clients of brokers who have "introduced"
clients to Shearson
Lehman such as The Robinson Humphrey Company, Inc. a wholly-
owned broker-dealer
subsidiary of Shearson Lehman.
B-5
<PAGE>
a money market fund that is not affiliated with Shearson
Lehman. In the case of
Plans that are covered by title I of the Act, the redemption
proceeds will be
invested by Shearson Lehman in accordance with the
investment directions of the
Independent Plan Fiduciary responsible for the management of
the Plan's assets.
With respect to a Section 404(c) Plan, the treatment of such
investment assets
will depend upon the arrangement for participant investment
instructions
selected by the Plan sponsor./12/ In the event that the
Independent Plan
Fiduciary does not give other investment directions, such
assets will be swept
weekly into a money market fund that is not affiliated with
Shearson Lehman for
the benefit of the Plan.
Due to the high costs of maintaining small accounts, the
Trust may also redeem
an account having a current value of $7,500 or less, after
the investor has
been given at least 30 days in which to increase the account
balance to more
than the $7,500 amount. Proceeds of an involuntary
redemption will be deposited
in the investor's brokerage account unless Shearson Lehman
is otherwise
instructed.
15. Shares of a Portfolio may be exchanged by an investor
with another
investor in the TRAK Program without payment of any exchange
fee for shares of
another Portfolio at their respective net asset values.
However, Portfolio
shares are not exchangeable with shares of other funds
within the Shearson
Lehman Group of funds or portfolio families.
16. With respect to brokerage transactions that are entered
into under the
TRAK Program for a Portfolio, such transactions may be
executed through
Shearson-Lehman and other affiliated broker-dealers, if in
the judgment of the
Sub-Adviser, the use of such broker-dealer is likely to
result in price and
execution at least as favorable, and at a commission charge
at least as
comparable to those of other qualified broker-dealers. In
addition, Shearson
Lehman may not execute transactions for a Portfolio on the
floor of any
national securities exchange but it may effect transactions
by transmitting
orders to other brokers for execution. In this regard,
Shearson Lehman is
required to pay fees charged by those persons performing the
floor brokerage
elements out of the brokerage compensation it receives from
a Portfolio.
17. Each Portfolio bears its own expenses, which generally
include all costs
that are not specifically borne by the Consulting Group, the
Sub-Advisers or
Boston Advisors. Included among a Portfolio's expenses are
costs incurred in
connection with the Portfolio's organization, investment
management and
administration fees, fees for necessary professional and
brokerage services,
fees for any pricing service, the costs of regulatory
compliance and costs
associated with maintaining the Trust's legal existence and
shareholder
relations. No Portfolio, however, will impose sales charges
on purchases,
reinvested dividends, deferred sales charges, redemption
fees, nor will any
Portfolio incur distribution expenses.
18. The total fees that are paid to the Consulting Group
and its affiliates
will constitute no more than reasonable compensation. In
this regard, for its
asset allocation and related services, the Consulting Group
charges an investor
a quarterly investment advisory fee. This "outside fee" is
negotiated between
the Consulting Group and the investor and it varies up to an
annual maximum of
1.50 percent of the net asset value of the investor's Trust
shares computed
each quarter based on the value determined on the last
calendar day of the
previous calendar quarter. The outside fee is charged
directly to an investor
and it is not affected by the allocation of assets among the
Portfolios nor by
whether an investor follows or ignores the Consulting
Group's advice./13/ For
Plan investors, the outside fee for a calendar quarter will
be reduced by an
amount equal to, for all Portfolios in which Plan assets are
invested (a) the
value of Plan assets invested in a Portfolio on the last
calendar day of the
previous calendar quarter (or the value of an initial
investment in the
Portfolio, as of the day such initial investment is made
during the calendar
quarter) multiplied by (b) a reduction factor (the Reduction
Factor) which is
described in below, multiplied by (c) a fraction, the
numerator of which is the
number of days in the period for which the outside fee is
being assessed and
the denominator of which is the actual number of days in the
calendar year of
which that period is a part. For subsequent investments or
redemptions
aggregating to more than $5,000, the pro-rated fee for
credit
for the balance of the quarter will be calculated on the
basis of the net
percentage of the outside fee paid for the quarter during
which the subsequent
investment or redemption is made.
In addition, for investment management and related services
provided to the
Trust, the Consulting Group is paid, from each Portfolio, a
management fee
which computed daily and paid monthly at an annual rate
ranging from .15
percent to .70 percent of the value of the Portfolio's
average daily net assets
depending upon the Portfolio's objective. From these
management fees, the
Consulting Group compensates the Sub-Adviser. This "inside
fee," which is the
difference between the individual Portfolio's total
management fee and the fee
paid by the Consulting Group to the Sub-Adviser, varies from
20 to 30 basis
points depending on the Portfolio (except for the Government
Money Investments
Portfolio which, for competitive purposes, pays a management
fee equal to the
Sub-Adviser's fee). Each Portfolio also pays Boston Advisors
a management fee
that is computed daily and paid monthly for the services it
performs as
administrator to the Trust at an annual fixed rate of .20
percent of the value
of the Portfolio's average daily net assets. Such fee is
also included in the
total management fee.
The management fees that are paid at the Portfolio level to
Boston Advisors,
the Consulting Group and the Sub-Advisers are set forth in
the table below. For
purposes of the table, Boston Advisors is referred to as
"BA", the Consulting
Group as "CG" and the Sub-Advisers as "SA." As noted in the
table, the sum of
the management fees paid by a Portfolio to Boston Advisors
plus the fees
retained by the Consulting Group and the Sub-Advisers equals
the total
management fee paid by that Portfolio.
- -------
/12/ Shearson Lehman explains that, under one alternative,
Plan participants
who give instructions to redeem shares of a Portfolio must
give corresponding
instructions to reinvest proceeds in another investment
vehicle made available
under the Plan, thus ensuring that a participant's
investment assets are
continually invested. Under a second alternative which is
described above,
Shearson Lehman represents that participants will not be
required to give
corresponding instructions and all investment assets for
which no investment
instructions have been given will be swept into a money
market fund that is not
affiliated with Shearson Lehman. In this regard, the
Department is expressing
no opinion regarding whether any of the arrangements
described above comply
with the requirements of section 404(c) of the Act.
/13/ The applicant represents that the outside fee is not
imposed on
accounts of employees of American Express and its
subsidiaries, including
Shearson Lehman, accounts of their immediate families and
IRAs and certain
employee pension benefit plans for these persons. The
applicant states that
this fee is waived to encourage employees to invest in
Shearson Lehman. With
respect to IRAs or Plans maintained by Shearson Lehman and
its affiliates, the
applicant asserts that such waiver would be required by PTE
77-3.
B-6
<PAGE>
<TABLE>
- ------------------------------------------------------------
- --------------------
<CAPTION>
TOTAL TOTAL FEE SA
RETAINED CG RETAINED
MANAGE- BA FEE SA/CG
FEE FEE
PORTFOLIO MENT FEE (PERCENT) (PERCENT)
(PERCENT) (PERCENT)
- ------------------------------------------------------------
- --------------------
<S> <C> <C> <C> <C>
<C>
Government Money Invest-
ments..................... 0.35 0.20 0.15
0.15 0.00
Intermediate Fixed Income
Investments............... .60 .20 .40
.20 .20
Total Return Fixed Income
Investments............... .60 .20 .40
.20 .20
Municipal Bond Invest-
ments..................... .60 .20 .40
.20 .20
Mortgage Backed Invest-
ments..................... .70 .20 .50
.25 .25
Balanced Investments...... .80 .20 .60
.30 .30
Large Capitalization Value
Equity Investments........ .80 .20 .60
.30 .30
Large Capitalization
Growth Investments........ .80 .20 .60
.30 .30
Small Capitalization Value
Equity Investments........ .80 .20 .60
.30 .30
Small Capitalization
Growth Investments........ .80 .20 .60
.30 .30
International Equity In-
vestments................. .90 .20 .70
.40 .30
International Fixed Income
Investments............... .70 .20 .50
.25 .25
- ------------------------------------------------------------
- --------------------
</TABLE>
Shearson Lehman proposes to offset, quarterly, against the
outside fee such
amount as is necessary to assure that the Consulting Group
retains no more than
20 basis points from any Portfolio on investment of assets
attributable to any
Plan./14/ In this way, the aggregate of the inside fees and
the outside fees
retained by the Consulting Group will remain constant
regardless of the
distribution of a Plan's assets among the Portfolio.
Shearson Lehman has developed the following example to
demonstrate how the fee
offset mechanism would work:
Assume that as of March 31, 1992, the average daily value
of Trust Portfolio
shares held by a Plan investor was $1,000. Investment assets
attributable to
the Plan were distributed among five Trust Portfolios: (1)
Government Money
Investments in which the Plan made a $50 investment and from
which the
Consulting Group would not retain an inside fee; (2) Total
Return Fixed Income
investments in which the Plan made a $200 investment and the
Consulting Group
would retain an inside fee of .20 percent; (3) Small
Capitalization Growth
Investments in which the Plan made a $250 investment and the
Consulting Group
would be entitled to receive an inside fee of .30 percent;
(4) Large
Capitalization Growth Investments in which the Plan made a
$250 investment and
the Consulting Group would retain an inside fee of .30
percent; and (5)
International Equity Investments in which the Plan made a
$250 investment and
the Consulting Group would be entitled to receive an inside
fee of .30 percent.
Assume that the Plan investor pays the maximum annual
outside fee of 1.50
percent so that the total outside fee for the calendar
quarter April 1 through
June 30, prior to the fee offset would be ($1,000) 1.50%
(.25)=$3.75. Under the
proposed fee offset, the outside fee charged to the Plan
must be reduced by a
Reduction Factor to ensure that the Consulting Group retains
an inside fee of no
more than .20% from each of the Portfolios on investment
assets attributable to
the Plan. The following table shows the Reduction Factor as
applied to each of
the Portfolios comprising the Trust:
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
CG REDUC-
RETAINED FEE TION
FEE OFFSET FACTOR
(PER- (PER- (PER-
PORTFOLIO
CENT) CENT) CENT)
- ------------------------------------------------------------
- --------------------
<S>
<C> <C> <C>
Government Money Investments.............................
0.00 0.20 0.00
Intermediate Fixed Income Investments....................
.20 .20 .00
Total Return Fixed Income Investments....................
.20 .20 .00
Municipal Bond Investments...............................
.20 .20 .00
Mortgage Backed Investments..............................
.25 .20 .05
Balanced Investments.....................................
.30 .20 .10
Large Capitalization Value Equity Investments............
.30 .20 .10
Large Capitalization Growth Investments..................
.30 .20 .10
Small Capitalization Value Equity Investments............
.30 .20 .10
Small Capitalization Growth Investments..................
.30 .20 .10
International Equity Investments.........................
.30 .20 .10
International Fixed Income Investments...................
.25 .20 .05
- ------------------------------------------------------------
- --------------------
</TABLE>
Under the proposed fee offset, a Reduction Factor of .10%
is applied against
the quarterly outside fee with respect to the value of Plan
assets that have
been invested in Portfolios (3), (4) and (5) only. As noted
above Portfolios
(1) and (2) do not involve a Reduction Factor because the
fee retained by the
Consulting Group for these Portfolios does not exceed 20
basis points.
Therefore, the quarterly offset for the plan investor is
computed as follows:
(.25) [($250) .10%+($250) .10%+($250) .10%]=$0.1875.
In the foregoing example, the Plan investor, like all other
investors in the
TRAK Program, would receive a statement for its TRAK account
on or about April
15, 1992. This statement would show the outside fee to be
charged for the
calendar quarter April 1, through June 30 (i.e., $3.75-
$0.1875=$3.5625). The
Plan investor would be asked to pay the outside fee for that
quarter by May 3,
1992 (i.e., the third day of the second month of the
calendar quarter). If the
outside fee were not paid by that date, Shearson Lehman
would debit the account
of the Plan investor (as with other investors) for the
amount of the outside
fee (pursuant to the authorization contained in the TRAK
Investment Advisory
Agreement, and as described in the Statement of Additional
Information appended
to the Prospectus)./15/
Because the Consulting Group will retain no inside fee with
respect to assets
invested in the
- -------
/14/ Shearson Lehman asserts that it chose 20 basis points
as the maximum
net fee retained for management services rendered to the
Portfolios because
this amount represents the lowest percentage management fee
charged by Shearson
Lehman among the Portfolios (excluding the Government Money
Investments
Portfolio for which Shearson Lehman charges no management
fee).
/15/ The applicant explains that the foregoing example
illustrates the fact
that the outside fee and the fee offset are computed
contemporaneously and that
Plan investors will get the benefit of the fee offset
contemporaneously upon
the payment of the outside fee. Because the inside fee is
paid monthly and the
fee offset is computed quarterly, the applicant also
explains that Shearson
Lehman does not receive the benefit of a "float" as a result
of such
calculations because the fee offset will always be realized
no later than the
time that the outside fee is paid (i.e., on or about the
third day of the
second month of the calendar quarter). Since the inside fee
is paid at the end
of each calendar month, the applicant further explains that
Plan investors will
realize the full benefit of the offset before the time that
the inside fee is
paid for the second and third months of the calendar
quarter.
B-7
<PAGE>
Government Money Investment Portfolio, Shearson Lehman notes
that a potential
conflict may exist by reason of the variance in net inside
fees among the
Government Money Investments Portfolio and the other
Portfolios. Shearson
Lehman also recognizes that this factor could result in the
Consulting Group's
recommendation of a higher-fee generating Portfolio-Type to
an investing Plan.
To address this potential conflict, Shearson Lehman will
disclose to all
participants in the TRAK Program that the Consulting Group
will retain no
inside fee for assets invested in the Government Money
Investments Portfolio.
19. In summary, it is represented that the proposed
transactions will meet the
statutory criteria for an exemption under section 408(a) of
the Act because:
(a) The investment of a Plan's assets in the TRAK Program
will be made and
approved by a Plan fiduciary which is independent of
Shearson Lehman and its
affiliates such that Independent Plan Fiduciaries will
maintain complete
discretion with respect to participating in the TRAK
Program; (b) Independent
Plan Fiduciaries will have an opportunity to redeem their
shares in the Trust
in such fiduciaries' individual discretion; (c) no Plan will
pay a fee or
commission by reason of the acquisition or redemption of
shares in the Trust;
(d) prior to making an investment in TRAK, each Independent
Plan Fiduciary will
receive offering materials and disclosures from either
Shearson Lehman or the
Consulting Group which disclose all material facts
concerning the purpose,
structure, operation and investment in the TRAK Program; (e)
the Consulting
Group will provide written documentation to an Independent
Plan Fiduciary of
its recommendations or evaluations, including the reasons
and objective
criteria forming the basis for such recommendations or
evaluations; (f) any
sub-Adviser that is appointed by the Consulting Group to
exercise investment
discretion over a Portfolio will always be independent of
Shearson Lehman and
its affiliates; (g) the annual investment advisory fee that
is paid by a Plan
to the Consulting Group for investment advisory services
rendered to such Plan
will be offset by such amount as is necessary to assure that
the Consulting
Group retains no more than 20 basis points from any
Portfolio on investment
assets attributable to the Plan investor; (h) the Consulting
Group or Shearson
Lehman will make periodic written disclosures to
participating Plans with
respect to the financial condition of the TRAK Program, the
total fees that it
and its affiliates will receive from such Plan investors and
the value of the
Plan's interest in the TRAK Program; and (i) on a quarterly
and annual basis,
the Consulting Group will provide written disclosures to all
Plans with respect
to (1) the percentage of each Trust Portfolio's brokerage
commissions that are
paid to Shearson Lehman and its affiliates and (2) the
average brokerage
commission per share paid by each Portfolio to Shearson
Lehman as compared to
the average brokerage commission per share paid by each
Portfolio to brokers
other than Shearson Lehman and its affiliates, both
expressed as cents per
share.
FOR FURTHER INFORMATION CONTACT:
Ms. Jan D. Broady of the Department, telephone (202) 523-
8881. (This is not a
toll-free number.)
GENERAL INFORMATION
The attention of interested persons is directed to the
following:
(1) The fact that a transaction is the subject of an
exemption under section
408(a) of the Act and/or section 4975(c)(20) of the Code
does not relieve a
fiduciary or other party in interest of disqualified person
from certain other
provisions of the Act and/or the Code, including any
prohibited transaction
provisions to which the exemption does not apply and the
general fiduciary
responsibility provisions of section 404 of the Act, which
among other things
require a fiduciary to discharge his duties respecting the
plan solely in the
interest of the participants and beneficiaries of the plan
and in a prudent
fashion in accordance with section 404(a)(1)(b) of the act,
nor does it affect
the requirement of section 401(a) of the Code that the plan
must operate for
the exclusive benefit of the employees of the employer
maintaining the plan and
their beneficiaries;
(2) Before an exemption may be granted under section 408(a)
of the Act and/or
section 4975(c)(2) of the Code, the Department must find
that the exemption is
administratively feasible, in the interests of the plan and
of its participants
and beneficiaries and protective of the rights of
participants and
beneficiaries of the plan;
(3) The proposed exemptions, if granted, will be
supplemental to, and not in
derogation of, any other provisions of the Act and/or the
Code, including statutory or administrative exemptions and
transitional rules.
Furthermore, the fact that a transaction is subject to an
administrative or
statutory exemption is not dispositive of whether the
transaction is in fact a
prohibited transaction; and
(4) The proposed exemptions, if granted, will be subject to
the express
condition that the material facts and representations
contained in each
application are true and complete, and that each application
accurately
describes all material terms of the transaction which is the
subject to the
exemption.
Signed at Washington, DC, this 31st day of March 1992.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare
Benefits
Administration, U.S. Department of Labor.
(FR Doc. 92-7712 Filed 4-2-92; 8:45 am)
BILLING CODE 4510-29-M
FINAL EXEMPTION
SHEARSON LEHMAN BROTHERS, INC. (SHEARSON LEHMAN), LOCATED IN
NEW YORK, NY
[Prohibited Transaction Exemption 92-77; Exemption
Application No. D-8723]
EXEMPTION
Section I. Converted Transactions
The restrictions of section 406(a) of the Act and the
sanctions resulting from
the application of section 4975 of the Code, by reason of
section 4975(c)(1)
(A) through (D) shall not apply to the proposed purchase or
redemption of
shares by an employee benefit plan, an individual retirement
account (the IRA)
or a retirement plan for a self-employed individual (the
Keogh Plan;
collectively, the Plans) in the Shearson Lehman-established
Trust for TRAK
Investments (the Trust) in connection with such Plans'
participation in the
TRAK Personalized Investment Advisory Service (the TRAK
Program). In addition,
the restrictions of section 406 (b)(1) and (b)(2) of the Act
and the sanctions
resulting from the application of section 4975 of the Code
by reason of section
4975(c)(1)(E) shall not apply to the provision, by the
Consulting Group
Division of Shearson Lehman (the Consulting Group), of
investment advisory
services to an independent fiduciary of a participating Plan
(the Independent
Plan Fiduciary) which may result in such fiduciary's
selection of a portfolio
grouping (the Portfolio-Type) in the TRAK Program for the
investment of Plan
assets.
This exemption is subject to the following conditions that
are set forth below
in section II.
Section II. General Conditions
(1) The participation of Plans in the TRAK Program will be
approved by an
Independent Plan Fiduciary. For purposes of this
requirement, an employee,
officer or director of Shearson Lehman and/or its affiliates
covered by an IRA
not subject to title I of the Act will be considered an
Independent Plan
Fiduciary with respect to such IRA.
B-8
<PAGE>
(2) The total fees paid to the Consulting Group and its
affiliates will
constitute no more than reasonable compensation.
(3) No Plan will pay a fee or commission by reason of the
acquisition or
redemption of shares in the Trust.
(4) The terms of each purchase or redemption of Trust
shares shall remain at
least as favorable to an investing Plan as those obtainable
in an arm's length
transaction with an unrelated party.
(5) The Consulting Group will provide written documentation
to an Independent
Plan Fiduciary of its recommendations or evaluations based
upon objective
criteria.
(6) Any recommendation or evaluation made by the Consulting
Group to an
Independent Plan Fiduciary will be implemented only at the
express direction of
such independent fiduciary.
(7) The Consulting Group will generally give investment
advice to an
Independent Plan Fiduciary with respect to Portfolio-Types.
However, in the
case of a Plan providing for participant-directed
investments (the Section
404(c) Plan), the Consulting Group will provide investment
advice that is
limited to the Portfolios made available under the Plan.
(8) Any sub-adviser (the Sub-Adviser) that acts for the
Trust to exercise
investment discretion over a Portfolio will be independent
of Shearson Lehman
and its affiliates.
(9) Immediately following the acquisition by a Portfolio of
any securities
that are issued by Shearson Lehman and/or its affiliates,
the percentage of
that Portfolio's net assets invested in such securities will
not exceed one
percent.
(10) The quarterly investment advisory fee that is paid by
a Plan to the
Consulting Group for investment advisory services rendered
to such Plan will be
offset by such amount as is necessary to assure that the
Consulting Group
retains no more than 20 basis points from any Portfolio
which contains
investments attributable to the Plan investor.
(11) The Consulting Group will not retain an investment
advisory or management
fee from the Government Money Investments Portfolio.
(12) With respect to its participation in the TRAK Program
prior to purchasing
Trust shares
(a) Each Plan will receive the following written or oral
disclosures from the
Consulting Group:
(1) A copy of the prospectus (The Prospectus) for the Trust
discussing the
investment objectives of the Portfolios comprising the
Trust, the policies
employed to achieve these objectives, the corporate
affiliation existing
between the Consulting Group, Shearson Lehman and its
subsidiaries and the
compensation paid to such entities.
(2) Upon written or oral request to Shearson Lehman, a
Statement of Additional
Information supplementing the Prospectus which describes the
types of
securities and other instruments in which the Portfolios may
invest, the
investment policies and strategies that the Portfolios may
utilize and certain
risks attendant to those investments, policies and
strategies.
(3) A copy of the investment advisory agreement between the
Consulting Group
and such Plan relating to participation in the TRAK Program.
(4) Upon written request of Shearson Lehman, copy of the
respective investment
advisory agreement between the Consulting Group and the Sub-
Advisers.
(5) In the case of a Section 404(c) Plan, if required by
the arrangement
negotiated between the Consulting Group and the Plan, an
explanation by a
Shearson Lehman Financial Consultant (the Financial
Consultant) to eligible
participants in such Plan, of the services offered under the
TRAK Program and
the operation and objectives of the Portfolios.
(b) If accepted as an investor in the TRAK Program, an
Independent Plan
Fiduciary of an IRA or Keogh Plan, will be required to
acknowledge, in writing,
prior to purchasing Trust shares that such fiduciary has
received copies of
such documents.
(c) With respect to a Section 404(c) Plan, written
acknowledgement of the
receipt of such documents will be provided by the
Independent Plan Fiduciary
(i.e., the Plan administrator, trustee or named fiduciary,
as the recordholder
of Trust shares). Such Independent Plan Fiduciary will be
required to represent
in writing to Shearson Lehman that such fiduciary is (1)
independent of
Shearson Lehman and its affiliates and (2) knowledgeable
with respect to the
Plan in administrative matters and funding matters related
thereto, and able to
make an informed decision concerning participation in the
TRAK Program.
(d) With respect to a Plan that is covered under Title 1 of
the Act, where
investment decisions are made by a trustee, investment
manager or named
fiduciary, and Independent Plan Fiduciary will be required
to acknowledge, in
writing, receipt of such documents and represent to Shearson
Lehman that such
fiduciary is (1) independent of Shearson Lehman and its
affiliates, (2) capable
of making an independent decision regarding the investment
of Plan assets and
(3) knowledgeable with respect to the Plan in administrative
matters and
funding matters related thereto, and able to make an
informed decision
concerning participation in the TRAK Program.
(13) Each Plan will receive the following: written or oral
disclosures with
respect to its ongoing participation in the TRAK Program;
(a) The Trust's semi-annual and annual report which will
include financial
statements for the Trust and investment management fees paid
by each Portfolio.
(b) A written quarterly monitoring report containing an
analysis and an
evaluation of a Plan investor's account to ascertain whether
the Plan's
investment objectives have been met and recommending, if
required, changes in
Portfolio allocations.
(c) If required by the arrangement negotiated between the
Consulting Group and
a Section 404(c) Plan, a quarterly, detailed investment
performance monitoring
report, in writing, provided to an Independent Plan
Fiduciary of such Plan
showing Plan level asset allocations. Plan cash flow
analysis and annualized
risk adjusted rates of return for Plan investments. In
addition, if required by
such arrangement, Financial Consultants will meet
periodically with Independent
Plan Fiduciaries of Section 404(c) Plans to discuss the
performance monitoring
report as well as with eligible participants to review their
accounts'
performance.
(d) If required by the arrangement negotiated between the
Consulting Group and
a Section 404(c) Plan, a quarterly participant performance
monitoring report
provided to a Plan participant which accompanies the
participant's benefit
statement and describes the investment performance of the
Portfolios, the
investment performance of the participant's individual
investment in the TRAK
Program, and gives market commentary and toll-free numbers
that will enable the
participant to obtain more information about the TRAK
Program or to amend his
or her investment allocations.
(e) On a quarterly and annual basis, written disclosures to
all Plans of the
(1) percentage of each Portfolio's brokerage commissions
that are paid to
Shearson Lehman and its affiliates and (2) the average
brokerage commission per
share paid by each Portfolio to Shearson Lehman and its
affiliates, as compared
to the average brokerage commission per share paid by the
Trust to brokers
other than Shearson Lehman and its affiliates, both
expressed as cents per
share.
(14) Shearson Lehman shall maintain, for a period of six
years, the records
necessary to enable the persons described in paragraph (10)
of this section to
determine whether the conditions of this exemption have been
met, except that
(a) a prohibited transaction will not
B-9
<PAGE>
be considered to have occurred if, due to circumstances
beyond the control of
Shearson Lehman and/or its affiliates, the records are lost
or destroyed prior
to the end of the six year period, and (b) no party in
interest other than
Shearson Lehman shall be subject to the civil penalty that
may be assessed
under section 502(i) of the Act, or to the taxes imposed by
section 4975 (a)
and (b) of the Code, if the records are not maintained, or
are not available
for examination as required by paragraph (15) below.
(15) (a) Except as provided in section (b) of this
paragraph and
notwithstanding any provisions of subsections (a)(2) and (b)
of section 504 of
the Act, the records referred to in paragraph (14) of this
section shall be
unconditionally available at their customary location during
normal business
hours by:
(1) Any duly authorized employee or representative of the
Department or the
Internal Revenue Service (the Service);
(2) Any fiduciary of a participating Plan or any duly
authorized
representative of such fiduciary;
(3) Any contributing employer to any participating Plan or
any duly authorized
employee representative of such employer; and
(4) Any participant or beneficiary of any participating
Plan, or any duly
authorized representative of such participant or
beneficiary.
(b) None of the persons described above in subparagraphs
(2)-(4) of this
paragraph (15) shall be authorized to examine the trade
secrets of Shearson
Lehman or commercial or financial information which is
privileged or
confidential.
Section III. Definitions
For purposes of this exemption:
(1) An "affiliate" of Shearson Lehman includes--
(a) Any person directly or indirectly through one or more
intermediaries,
controlling, controlled by, or under common control with
Shearson Lehman. (For
purposes of this subsection, the term "control" means the
power to exercise a
controlling influence over the management or policies of a
person other than an
individual.)
(b) Any officer, director or partner in such person, and
(c) Any corporation or partnership of which such person is
an officer,
director or a 5 percent partner or owner.
(2) An "Independent Plan Fiduciary" is a Plan fiduciary
which is independent
of Shearson Lehman and its affiliates and is either
(a) A Plan administrator, trustee or named fiduciary, as
the recordholder of
Trust shares of a Section 404(c) Plan,
(b) A participant in a Keogh Plan,
(c) An individual covered under a self-directed IRA which
invests in Trust
shares, or
(d) A trustee, investment manager or named fiduciary
responsible for
investment decisions in the case of a title I Plan that does
not permit
individual direction as contemplated by Section 404(c) of
the Act.
For a more complete statement of the facts and
representations supporting the
Department's decision to grant this exemption, refer to the
notice of proposed
exemption (the Notice) published on April 3, 1992 at 57 FR
11514.
EFFECTIVE DATE: This exemption is effective as of April 3,
1992.
WRITTEN COMMENTS
The Department received one comment letter with respect to
the Notice and no
requests for a public hearing. The letter, which was
submitted by Shearson
Lehman, addresses certain clarifications to the Notice,
including
clarifications to the General Conditions and the Summary of
Facts and
Representations. Discussed below are the changes suggested
by Shearson Lehman
and the Department's responses thereto. In addition, the
Department has made
several clarifying changes to the final exemption which are
also discussed
below.
With respect to the General Conditions that are set forth
in Section II of the
Notice. Shearson Lehman wishes to make several
clarifications. In this regard,
Shearson Lehman notes that, in general, in the case of IRAs
that are maintained
by employees of Shearson Lehman or its affiliates, such
employees should be
considered "Independent Plan Fiduciaries." In addition,
Shearson Lehman
requests that Condition (1) should read as follows in order
that it will
conform to the other General Conditions:
The participation of plans in the TRAK Program will be
approved by an
Independent Plan Fiduciary.
To clarify that Sub-Advisers act for the Trust after having
been approved by
the Trust in accordance with the terms of section 15(a) and
(c) of the
Investment Company Act of 1940, as amended (the 1940 Act),
or any exemption
granted by the Securities and Exchange Commission, Shearson
Lehman recommends
that Condition (8) of the General Conditions be modified to
read as follows:
Any sub-adviser (the Sub-Adviser) that acts for the Trust
to exercise
investment discretion over a Portfolio will be independent
of Shearson Lehman
and its affiliates.
In the case of a Plan covering one or more employees of the
Plan sponsor (such
as a Section 404(c) Plan), Shearson Lehman notes that
Condition (10) requires
only that the investment advisory fee paid by the Plan be
offset in the manner
described in the condition (i.e., the offset will be
determined based on the
aggregate investment of the Plan accounts). Shearson Lehman
represents that it
does not have control over how the Plan, for internal
expenses, allocates the
offset among individual accounts. As long as the fee is
offset at the Plan
level, Shearson Lehman represents that it cannot be
construed to have any
economic incentive to provide investment allocation advice
favoring one
Portfolio over another.
Shearson Lehman observes that several of the General
Conditions refer to
"Shearson Lehman and its affiliates" but the Notice does not
define the term
"affiliate." After giving due consideration to this comment,
the Department has
determined to add a new Section III to the exemption titled
"Definitions" in
which the terms "affiliate," and "Independent Plan
Fiduciary" are defined as
follows:
An "affiliate" of Shearson Lehman includes (a) any person
directly or
indirectly through one or more intermediaries, controlling,
controlled by, or
under common control with Shearson Lehman (For purposes of
this subsection, the
term "control" means the power to exercise a controlling
influence over the
management of policies of a person other than an
individual.) (b) any officer,
director or partner in such person, and (c) any corporation
or partnership of
which such person is an officer, director or a 5 percent
partner or owner.
An "Independent Plan Fiduciary" is a Plan fiduciary which
is independent of
Shearson Lehman and its affiliates and is either (a) a Plan
administrator,
trustee or named fiduciary, as the recordholder of Trust
shares of a Section
404(c) Plan, (b) a participant in a Keogh Plan, (c) an
individual covered under
a self-directed IRA which invests in Trust shares, or (d) a
trustee, investment
manager or named fiduciary responsible for investment
decisions in the case of
a Title I Plan that does not permit individual direction as
contemplated by
section 404(c) of the Act.
With respect to modifications to the Summary of Facts and
Representations,
Shearson Lehman represents that the first paragraph of Item
1 of the Notice
which was based on the application for exemption confuses
the descriptions of
Shearson Holdings, Shearson Lehman and Shearson Lehman
Brothers. Accordingly,
Shearson Lehman requests that the third, fourth and fifth
sentences of that
paragraph be amended to read as follows:
B-10
<PAGE>
Shearson Holdings conducts its principal businesses through
two divisions of
Shearson Lehman--Shearson Lehman Brothers and Lehman
Brothers. Shearson Lehman
Brothers is responsible for individual investor services and
asset management
while Lehman Brothers is responsible for securities
underwriting, financial
advisory, investment and merchant banking services and
securities and
commodities trading as principal and agent. Shearson Lehman
is a member of all
principal securities and commodities exchanges in the United
States and the
National Association of Securities Dealers, Inc.
Shearson Lehman also wishes to update the second sentence
of the second
paragraph under Item 2 of the Notice by noting that the
Balanced Investments
Portfolio is expected to be offered in July 1992 at an
initial per share value
of $8.00.
In order that Footnote 1 of the Notice more closely tracks
the language of
Condition (9). Shearson Lehman suggests the following
modification:
Because a Portfolio is not precluded from investing in
securities that are
issued by Shearson Lehman or its affiliates. Shearson Lehman
represents that,
as a limitation, immediately following the acquisition by a
Portfolio of any
securities that are issued by Shearson Lehman and/or its
affiliates, the
percentage of that Portfolio's net assets invested in such
securities will not
exceed one percent.
Since Shearson Lehman cannot assure that Section 404(c)
Plans participating in
the TRAK Program will pass through voting rights to
participants on a pro rata
basis, it recommends that the second paragraph of Footnote 2
of the Notice be
amended to read as follows:
In the case of individual account plans such as Section
404(c) Plans, Shearson
Lehman believes that most Plans will pass-through the vote
to participants on a
pro rata basis.
Shearson Lehman also represents that it may serve as
prototype sponsor for
Plans participating in the TRAK Program. Therefore, the
third sentence of the
second paragraph under Item 3 of the Notice should be
amended by adding the
following language:
Accordingly, Shearson Lehman has requested prospective
exemptive relief from
the Department with respect to the purchase and redemption
of shares in the
Trust by participating Plans which it does not sponsor
(other than only as
prototype sponsor) of have discretionary investment
authority over the Plan's
assets which would be invested in Trust shares.
To clarify that Plans for which Shearson Lehman has a pre-
existing
relationship will be able to participate in TRAK, Shearson
Lehman asks that the
second sentence of Footnote 4 be amended to read as follows:
The applicant further represents that although the
exemptive relief proposed
above would not permit Shearson Lehman or an affiliate,
while serving as a Plan
fiduciary with discretionary authority over the management
of a Plan's assets,
to invest in Trust shares those assets over which it
exercises discretionary
authority, a purchase or redemption of Trust shares under
such circumstances
would be permissible if made in compliance with the terms
and conditions of
Class Prohibited Transaction Exemption (PTE) 77-4 [42 FR
16732. April 8, 1977).
Shearson Lehman represents that the Trust's Board of
Directors consists of
seven members, four of whom are not affiliated with Shearson
Lehman and three
of whom are affiliated with Shearson Lehman, all in
accordance with the
provisions of section 10(b) of the 1940 Act. Accordingly,
Shearson Lehman
recommends that Item 4 of the Notice be amended to read as
follows:
Overall responsibility for the management and supervision
of the Trust and the
Portfolios rests with the Trust's Board of Trustees (the
Trustees) which
currently is comprised of seven members. The Trustees
approve all significant
agreements involving the Trust and the persons and companies
who provide
services to the Trust and the Portfolios. Three of the
Trustees and all of the
Trust's executive officers are affiliated with Shearson
Lehman and/or its
affiliates. The four remaining Trustees are not affiliated
with Shearson
Lehman.
Because the applicant now represents that not all services
described in
Footnote 7 of the Notice will be provided to every Section
404(c) Plan.
Shearson Lehman believes that an updated, clarifying
paragraph should be added
to the footnote which would read as follows:
The applicant notes that not all of the services described
in the preceding
two paragraphs will be provided to every Section 404(c)
Plan. The services
provided to each Plan will depend on the arrangement
negotiated between
Shearson Lehman and the Independent Plan Fiduciary.
Shearson Lehman represents that it cannot assure that the
Plan administrator,
trustee or named fiduciary of a Section 404(c) Plan will
make available a copy
of the Trust Prospectus to each participant. Therefore, it
requests that
Footnote 8 of the Notice be amended to read as follows:
In the case of a Section 404(c) Plan, the applicant
represents that the Plan
administrator, trustee or named fiduciary, as the
recordholder of Trust shares,
will receive a copy of the Trust Prospectus. If requested by
such Plan
administrator, trustee or named fiduciary, Shearson Lehman
will make available
to such Independent Plan Fiduciary sufficient quantities of
Prospectuses for a
distribution to Plan participants, as well as provide
Statements of Additional
Information to any party upon request.
Item 15 of the Notice inadvertently states that investors
in the TRAK Program
may exchange Portfolio shares with one another. Shearson
Lehman wishes to
clarify that the first sentence of Item 15 should be amended
to read as
follows:
Shares of a Portfolio may be exchanged by an investor,
without any exchange
fee, for shares of another Portfolio at their respective net
asset values.
Shearson Lehman states that PTE 77-3 applies only to
employee benefit plans
and is, therefore, inapplicable to IRAs maintained by
employees of Shearson
Lehman or its affiliates. In addition, Shearson Lehman
states that it does not
currently charge an outside fee for such IRA accounts but it
may do so in the
future. Accordingly, Shearson Lehman recommends that the
first and last
sentences of Footnote 13 of the Notice be amended to read as
follows:
The applicant represents that the outside fee is not
currently imposed on
accounts of American Express and its subsidiaries, including
Shearson Lehman,
accounts of their immediate families and IRAs and certain
employee pension
benefit plans for these persons * * * With respect to
employee pension benefit
plans maintained by Shearson Lehman or its affiliates for
their employees, the
applicant asserts that such waiver would be required by PTE
77-3.
With respect to the TRAK fee structure described in the
Notice in Item 18 and
the accompanying example, Shearson Lehman wishes to make two
clarifications.
First, because the TRAK fee and corresponding fee offset for
a calendar quarter
are based on the "net asset value" of Trust Portfolio shares
at the end of the
immediately preceding calendar quarter rather than the
"average daily value" of
Trust Portfolio shares, Shearson Lehman requests that the
first sentence of the
example be amended to read as follows:
Assume that as of March 31, 1992, the net asset value of
Trust Portfolio
shares held by a Plan Investor was $2,000.
Second, Shearson Lehman has updated its submission by
representing that the
last parenthetical of the last paragraph of the example
should not refer to the
"Statement of Additional Information" but should instead
refer to the "TRAK
Program Description."
B-11
<PAGE>
Therefore, Shearson Lehman recommends that the parenthetical
read as follows:
(pursuant to the authorization contained in the TRAK
Investment Advisory
Agreement, and as described in the TRAK Program Description
appended to the
Prospectus)
Finally, Shearson Lehman suggests that Clause (e) under
Item 19 should be
modified to track the language of Condition (5) as follows:
the Consulting Group will provide written documentation to
an Independent Plan
Fiduciary of its recommendations or evaluations based on
objective criteria.
The Department has reviewed the clarifications and
amendments as described
above, and concurs with these changes. Accordingly, upon
consideration of the
entire record, including the written comment received, the
Department has
determined to grant the exemption subject to the
aforementioned changes.
B-12
<PAGE>
- ------------------------------------------------------------
- --------------------
[APPLICATION NOS. D-9337 AND D-9415]
SMITH BARNEY SHEARSON (SBS), LOCATED IN NEW YORK, NY
NEW AGENCY: Pension and Welfare Benefits Administration,
Labor.
ACTION: Notice of proposed exemption to modify and replace
prohibited
transaction exemption (PTE) 92-77 involving Shearson Lehman
Brothers, Inc.
(Shearson Lehman).
- ------------------------------------------------------------
- --------------------
SUMMARY: This document contains a notice of pendency before
the Department of
Labor (the Department) of a proposed individual exemption
which, if granted,
would replace PTE 92-77 (55 FR 45833, October 5, 1992). PTE
92-77 permits the
purchase or redemption of shares by an employee benefit
plan, an individual
retirement account (the IRA) or a retirement plan for a
self-employed
individual (the Keogh Plan; collectively the Plans) in the
Trust for TRAK
Investments (the Trust) established by Shearson Lehman, in
connection with such
loans' participation in the TRAK Personalized Investment
Advisory Service (the
TRAK Program). In addition, PTE 92-77 permits the provision,
by the Consulting
Group Division of Shearson Lehman (the Consulting Group), of
investment
advisory services to an independent fiduciary of a
participating Plan (the
Independent Plan Fiduciary) which may result in such
fiduciary's selection of a
portfolio (the Portfolio) in the TRAK Program for the
investment of Plan
assets. These transactions are described in a notice of
pendency that was
published in the Federal Register on April 3, 1992 at 57 FR
11514. PTE 92-77 is
effective as of April 3, 1992.
If granted, the proposed exemption would replace PTE 92-77,
which as discussed
below, expired by operation of the law. The new proposed
exemption would permit
the replacement of Shearson Lehman with a newly-merged
entity known as "Smith
Barney Shearson, Inc." It would also permit the adoption of
a daily-traded
collective investment fund (the GIC Fund) for Plans
providing for participant
directed investments (the Section 404(c) Plans). The
proposed exemption would
provide conditional relief that is identical to that
provided by PTE 92-77. In
addition, the proposed exemption would affect participants
and beneficiaries
of, and fiduciaries with respect to, Plans participating in
the TRAK Program.
DATES: Written comments and requests for a public hearing
should be received by
the Department on or before the expiration of 60 days from
the publication of
this proposed exemption in the Federal Register. If granted,
the proposed
exemption will be effective July 31, 1993 for transactions
that are covered by
PTE 92-77. With respect to transactions involving the GIC
Fund, the proposed
exemption will be effective as of the date the grant notice
is published in the
Federal Register.
ADDRESSES: All written comments and requests for a public
hearing (preferably,
three copies) should be sent to the Office of Exemption
Determinations, Pension
and Welfare Benefits Administration, Room N-5849, U.S.
Department of Labor, 200
Constitution Avenue, NW., Washington, DC 20210. Attention:
Application Nos. D-
9337 and D-9415. The applications pertaining to the proposed
exemption and the
comments received will be available for public inspection in
the Public
Documents Room of the Pension and Welfare Benefits
Administration. U.S.
Department of Labor, Room N-3307, 200 Constitution Avenue,
NW., Washington, DC
20210.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady, Office
of Exemption
Determinations, Pension and Welfare Benefits Administration,
U.S. Department of
Labor, telephone (202) 219-8881. (This is not a toll-free
number.)
SUPPLEMENTARY INFORMATION: Notice is hereby given of the
pendency before the
Department of a proposed exemption that would replace PTE
92-77. PTE 92-77
provides an exemption from certain prohibited transaction
restrictions of
section 406 of the Employee Retirement Income Security Act
of 1974 (the Act)
and from the sanctions resulting from the application of
section 4975 of the
Internal Revenue Code of 1986 (the Code), as amended, by
reason of section
4975(c)(1) of the Code. The proposed exemption was requested
in an application
filed by SBS pursuant to section 408(a) of the Act and
section 4975(c)(2) of
the Code, and in accordance with the procedures (the
Procedures) set forth in
29 CFR Part 2570, Subpart 3 (55 FR 32836, August 10, 1990).
Effective December
31, 1978, section 102 of Reorganization Plan No. 4 of 1978
(43 FR 47713,
October 17, 1978) transferred the authority of the Secretary
of the Treasury to
issue exemptions of the type requested to the Secretary of
Labor. Accordingly,
this proposed replacement exemption is being issued solely
by the Department.
As stated briefly above, PTE 92-77 allows Shearson Lehman
to make the TRAK
Program available to Plans that acquire shares in the Trust
subject to certain
conditions. Specifically, PTE 92-77 provides exemptive
relief from section
406(a) of the Act and the sanctions resulting from the
application of section
4975 of the Code, by reason of section 4975(c)(1) (A)
through (D) of the Code,
with respect to the purchase or redemption of shares in the
Trust by Plans
investing therein. In addition, PTE 92-77 provides exemptive
relief from the
restrictions of section 408(b)(1) and (b)(2) of the Act and
the sanctions
resulting from the application of section 4975 of the Code,
by reason of
section 4975(c)(1)(E) of the Code, with respect to the
provision, by the
Consulting Group of Shearson Lehman, of investment advisory
services to an
Independent Plan Fiduciary of a Plan participating in the
TRAK Program which
may result in such fiduciary's selection of a Portfolio in
the TRAK Program for
the investment of Plan assets.
Subsequent to the granting of PTE 92-77, Shearson Lehman
informed the
Department that it had signed an asset purchase agreement
with Primerica
Corporation (Primerica) and Smith Barney Harris Upham &
Company, Inc. (Smith
Barney), an indirect wholly owned subsidiary. The terms of
the agreement
provided for the sale of substantially all of the assets of
Shearson Lehman and
its Asset Management Divisions (collectively, the Shearson
Divisions) to Smith
Barney./1/ The transaction was completed on July 31, 1993.
As a result of the
transaction, most of the assets and business of the Shearson
Divisions were
transferred to Smith Barney which, upon merger with Shearson
Lehman, was
renamed "Smith Barney Shearson." (Smith Barney Shearson is
denoted herein as
SBS.) Shearson Lehman received cash and an interest-bearing
note from SBS. As
further consideration for the asset sale, SBS agreed to pay
future contingent
amounts based upon the combined performance of SBS and
certain other Shearson
Divisions acquired from Shearson Lehman. Shearson Lehman
also assigned to the
American Express Company (American Express) the right to
receive 2.5 million
shares of certain convertible preferred stock issued by
Primerica and a
warrant. As consideration for the assignment, American
Express agreed to pay
Shearson Lehman for the stock and the warrant based on their
value as of March
12, 1993, the date of the Asset Purchase Agreement. At
present, SBS offers the
TRAK Program to investors through one or more of its
subsidiaries or divisions.
Since PTE 92-77 was granted, SBS informed the Department
that it wished to
modify the exemption in order to improve the TRAK Program
and make it more
responsive to the needs of investors. Specifically, SBS
proposes to add to the
Portfolios currently available under
- -------
/1/ Shearson Lehman's other primary division, Lehman
Brothers, which is
responsible for securities underwriting, financial advisory,
investment and
merchant banking services and commodities trading as a
principal and agent has
been retained by Shearson Lehman it has been renamed "Lehman
Brothers Inc."
B-13
<PAGE>
the TRAK Program, the GIC Fund, which is designed to invest
primarily in
guaranteed investment contracts (the GIC's), synthetic GIC
products and/or
units of other GIC collective funds. The GIC Fund will not
differ in any
material respects from the Government Money Investments
Portfolio which
generally permits daily redemptions of its shares. In
addition, the GIC Fund
will operate in a manner that is consistent with the
requirements of PTE 92-77.
SBS believes it is important to offer the GIC Fund to
Section 404(c) Plans
because these Plans may prefer to offer participants this
type of investment
option instead of the Government Money Investments Portfolio
presently offered
to such Plans under the TRAK Program. Therefore, SBS
requests exemptive relief
in order that the GIC Fund may be added to the Portfolios
that are available
under the Trust.
The proposed GIC Fund will be a collective trust fund
established and
maintained by Smith Barney Shearson Trust Company (SBS
Trust), a wholly owned
subsidiary of Primerica. The GIC Fund will invest primarily
in a portfolio of
GICs with varying maturities issued by highly-rated
insurance companies, and/or
units of other collective funds invested in GICs. The GIC
Fund may also invest
in asset-backed investment products designed to offer risk
and return
characteristics similar to those of GICs (i.e., synthetic
GIC products). In
addition, the GIC Fund may hold short-term, low risk
securities where the
investment of all fund assets in GICs and/or units of other
GIC collective
funds is not feasible.
SBS Trust will serve as the trustee of the GIC Fund. SBS
Trust will employ a
sub-adviser (the Sub-Adviser) which is independent of SBS
and its affiliates to
make recommendations on purchases of GICs and/or units of
other GIC collective
funds. Currently, SBS Trust employs Morley Capital
Management (Morley Capital)
of Lake Oswego, Oregon as the Sub-Adviser of the GIC Fund.
SBS Trust will also
employ Boston Company Investors Services Group (ISG), a
business group of The
Boston Company to provide custody and valuation services and
The Shareholder
Services Group, Inc. (TSSG), an entity which is indirectly
owned by American
Express, as transfer agent. Both ISG and TSSG are not
affiliated with SBS.
SBS represents that the GIC Fund will not pay a management
or other similar
fee to it or SBS Trust. (SBS Trust's fees for general trust
services provided
to a Section 404(c) Plan is included in such plan's
investment advisory or
"outside" fee.) A management fee may be paid to Morley
Capital or any other
Sub-Adviser which is independent of SBS and its affiliates.
The GIC Fund will
pay ISG, as custodian and provider of fund valuation
services, a fee for such
services, and TSSG, as transfer agent, a fee of $8.50 to
$9.50 per Section
404(c) Plan, plus out-of-pocket expenses. With respect to
the fees paid to SBS
and its affiliates, the GIC Fund will not differ materially
from the Government
Money Investments Portfolio in that it will not pay a
management or other
similar fee to SBS or SBS Trust.
SBS will describe the GIC Fund, in the prospectus (the
Prospectus) and
promotional materials it furnishes to Section 404(c) Plan
participants who are
interested in investing in the GIC Fund. Such disclosures
will reflect, in all
material respects, the information discussed above.
Because of the foregoing material changes to the factual
representations
supporting PTE 92-77, the Department has determined that the
prior exemption
was no longer effective as of July 31, 1993, the date
Shearson Lehman sold the
assets described above to SBS. Thus, the Department is of
the view that PTE 92-
77 would be unavailable for use by SBS and its subsidiaries
with respect to the
subject transactions.
Accordingly, the Department has decided to publish a new
exemption which, if
granted, would replace PTE 92-77. Under the replacement
exemption, all
references to Shearson Lehman would be replaced with
references to SBS. In
addition, the replacement exemption would incorporate the
new GIC Fund, SBS
Trust, ISG and TSSG. Further, the replacement exemption
would have an effective
date of July 31, 1993 for transactions described in PTE 92-
77. With respect to
transactions involving the GIC Fund, the replacement
exemption would become
effective as of the date of the grant of the notices of
pendency.
NOTICE TO INTERESTED PERSONS
Notice of the proposed exemption will be mailed by first
class mail to each
Plan which invests in the TRAK Program. The notice will
contain a copy of the
notice of proposed exemption as published in the Federal
Register and an
explanation of the rights of interested persons to comment
on and/or request
such a hearing with respect thereto. Such notice will be
sent to the above-
named parties within 30 days of the publication of the
proposed exemption in
the Federal Register. Written comments and hearing request
are due within 60
days of the publication of the proposed exemption in the
Federal Register.
GENERAL INFORMATION
The attention of interested persons is directed to the
following:
(1) This fact that a transaction is the subject of an
exemption under section
408(a) of the Act and section 4973(c)(2) of the Code does
not relieve a
fiduciary or other party in interest or disqualified person
from certain other
provisions of the Act and the Code, including any prohibited
transaction
provisions to which the exemption does not apply and the
general fiduciary
responsibility provisions of section 404 of the Act, which
require, among other
things, a fiduciary to discharge his or her duties
respecting the plan solely
in the interest of the participants and beneficiaries of the
plan and in a
prudent fashion in accordance with section 404(a)(1)(B) of
the Act; nor does it
affect the requirements of section 401(a) of the Code that
the Plan operate for
the exclusive benefit of the employees of the employer
maintaining the plan and
their beneficiaries;
(2) Before an exemption can be granted under section 408(a)
of the Act and
section 4975(c)(2) of the Code, the Department must find
that the exemption is
administratively feasible, in the interest of the plan and
of its participants
and beneficiaries and protective of the rights of
participants and
beneficiaries of the plan; and
(3) The proposed exemption, if granted, will be
supplemental to, and not in
derogation of, any other provisions of the Act and the Code,
including
statutory or administrative exemptions. Furthermore, the
fact that a
transaction is subject to an administrative or statutory
exemption is not
dispositive of whether the transaction is in fact a
prohibited transaction.
(4) In addition to transactions involving the GIC Fund, the
proposed
exemption, if granted, will be applicable to the
transactions previously
described in PTE 92-77 only if the conditions specified
therein are met.
WRITTEN COMMENTS AND HEARING REQUESTS
All interested persons are invited to submit written
comments or requests for
a hearing on the proposed replacement exemption to the
address above, within
the time period set forth above. All comments will be made a
part of the
record. Comments and requests for a hearing should state the
reasons for the
writer's interest in the proposed exemption. Comments
received will be
available for public inspection with the referenced
applications at the address
set forth above.
PROPOSED EXEMPTION
Under the authority of section 408(a) of the Act and
section 4975(c)(2) of the
Code and in accordance with the Procedures cited above,
B-14
<PAGE>
the Department proposes to replace PTE 92-77 as follows:
Section 1. Covered Transactions
(a) The restrictions of section 406(a) of the Act and the
sanctions resulting
from the application of section 4975 of the Code, by reason
of section
4975(c)(1)(A) through (D) of the Code, shall not apply to
the purchase or
redemption of shares by Plans in the SBS-established Trust
in connection with
such Plans' participation in the TRAK Personalized
Investment Advisory Service.
(b) The restrictions of action 406(b) of the Act and the
sanctions resulting
from the application of section 4975 of the Code by reason
of section
4975(c)(1)(E) and (F) of the Code, shall not apply to the
provision, by the
Consulting Group, of investment advisory services to an
Independent Plan
Fiduciary of a participating Plan which may result in such
fiduciary's
selection of a Portfolio in the TRAK Program for the
investment of Plan assets.
The proposed exemption is subject to the following
conditions that are set
forth in Section II.
Section II. General Conditions
(a) The participation of Plans in the TRAK Program will be
approved by an
Independent Plan Fiduciary. For purposes of this
requirement, an employee,
officer or director of SBS and/or its affiliates covered by
an IRA not subject
to Title I of the Act will be considered an Independent Plan
Fiduciary with
respect to such IRA.
(b) The total fees paid to the Consulting Group and its
affiliates will
constitute no more than reasonable compensation.
(c) No Plan will pay a fee or commission by reason of the
acquisition or
redemption of shares in the Trust.
(d) The terms of each purchase or redemption of Trust
shares shall remain at
least as favorable to an investing Plan as those obtainable
in an arm's length
transaction with an unrelated party.
(e) The Consulting Group will provide written documentation
to an Independent
Plan Fiduciary of its recommendations or evaluations based
upon objective
criteria.
(f) Any recommendation or evaluation made by the Consulting
Group to an
Independent Plan Fiduciary will be implemented only at the
express direction of
such independent fiduciary.
(g) The Consulting Group will generally give investment
advice in writing to
an Independent Plan Fiduciary with respect to all available
Portfolios.
However, in the case of a Section 404(c) Plan, the
Consulting Group will
provide investment advice that is limited to the Portfolios
made available
under the Plan.
(h) Any Sub-Adviser that acts for the Trust to exercise
investment discretion
over a Portfolio will be independent of SBS and its
affiliates.
(i) Immediately following the acquisition by a Portfolio of
any securities
that are issued by SBS and/or its affiliates, the percentage
of that
Portfolio's net assets invested in such securities will not
exceed one percent.
(j) The quarterly investment advisory fee that is paid by a
Plan to the
Consulting Group for investment advisory services rendered
to such Plan will be
offset by such amount as is necessary to assure that the
Consulting Group
retains no more than 20 basis points from any Portfolio
(with the exception of
the Government Money Investments Portfolio and the GIC Fund
Portfolio for which
the Consulting Group and SBS Trust will retain no investment
management fee)
which contains investments attributable to the Plan
investor.
(k) With respect to its participation in the TRAK Program
prior to purchasing
Trust shares.
(1) Each Plan will receive the following written or oral
disclosures from the
Consulting Group:
(A) A copy of the Prospectus for the Trust discussing the
investment
objectives of the Portfolios comprising the Trust, the
policies employed to
achieve these objectives, the corporate affiliation existing
between the
Consulting Group, SBS and its subsidiaries and the
compensation paid to such
entities.
(B) Upon written or oral request to SBS, a Statement of
Additional Information
supplementing the Prospectus which describes the types of
securities and other
instruments in which the Portfolios may invest, the
investment policies and
strategies that the Portfolios may utilize and certain risks
attendant to those
investments, policies and strategies.
(C) A copy of the investment advisory agreement between the
Consulting Group
and such Plan relating to participation in the TRAK Program.
(D) Upon written request of SBS, a copy of the respective
investment advisory
agreement between the Consulting Group and the Sub-Advisers.
(E) In the case of a section 404(c) Plan, if required by
the arrangement
negotiated between the Consulting Group and the Plan, an
explanation by an SBS
Financial Consultant (the Financial Consultant) to eligible
participants in
such Plan, of the services offered under the TRAK Program
and the operation and
objectives of the Portfolios.
(F) Copies of PTE 92-77 and documents pertaining to the
proposed replacement
exemption.
(2) If accepted as an investor in the TRAK Program, an
Independent Plan
Fiduciary of an IRA or Keogh Plan, is required to
acknowledge in writing, prior
to purchasing Trust shares that such fiduciary has received
copies of the
documents described above in subparagraph (k)(1) of this
section.
(3) With respect to a section 404(c) Plan, written
acknowledgement of the
receipt of such documents will be provided by the
Independent Plan Fiduciary
(i.e., the Plan administrator, trustee or named fiduciary,
as the recordholder
of Trust shares). Such Independent Plan Fiduciary will be
required to represent
in writing to SBS that such fiduciary is (a) independent of
SBS and its
affiliates and (b) knowledgeable with respect to the Plan in
administrative
matters and funding matters related thereto, and able to
make an informed
decision concerning participation in the TRAK Program.
(4) With respect to a Plan that is covered under Title I of
the Act, where
investment decisions are made by a trustee, investment
manager or a named
fiduciary, such Independent Plan Fiduciary is required to
acknowledge, in
writing, receipt of such documents and represent to SBS that
such fiduciary is
(a) independent of SBS and its affiliates, (b) capable of
making an independent
decision regarding the investment of Plan assets and (c)
knowledgeable with
respect to the Plan in administrative matters and funding
matters related
thereto, and able to make an informed decision concerning
participation in the
TRAK Program.
(l) Subsequent to its participation in the TRAK Program,
each Plan receives
the following written or oral disclosures with respect to
its ongoing
participation in the TRAK Program:
(1) The Trust's semi-annual and annual report which will
include financial
statement for the Trust and investment management fees paid
by each Portfolio.
(2) A written quarterly monitoring statement containing an
analysis and an
evaluation of a Plan investor's account to ascertain whether
the Plan's
investment objectives have been met and recommending, if
required, changes in
Portfolio allocations.
(3) If required by the arrangement negotiated between the
Consulting Group and
a section 404(c) Plan, a quarterly, detailed investment
performance monitoring
report, in writing, provided to an Independent Plan
Fiduciary of such Plan
showing, Plan level asset allocation, Plan cash flow
analysis and
B-15
<PAGE>
annualized risk adjusted rates of return for Plan
investments. In addition, if
required by such arrangement, Financial Consultants will
meet periodically with
Independent Plan Fiduciaries of section 404(c) Plans to
discuss the report as
well as with eligible participants to review their accounts'
performance.
(4) If required by the arrangement negotiated between the
Consulting Group and
a section 404(c) Plan, a quarterly participant performance
monitoring report
provided to a Plan participant which accompanies the
participant's benefit
statement and describes the investment performance of the
Portfolios, the
investment performance of the participant's individual
investment in the TRAK
Program, and gives market commentary and toll-free numbers
that will enable the
participant to obtain more information about the TRAK
Program or to amend his
or her investment allocations.
(5) On a quarterly and annual basis, written disclosures to
all Plans of the
(a) percentage of each Portfolio's brokerage commissions
that are paid to SBS
and its affiliates and (b) the average brokerage commission
per share paid by
each Portfolio to SBS and its affiliates; as compared to the
average brokerage
commission per share paid by the Trust to brokers other than
SBS and its
affiliates, both expressed as cents per share.
(m) SBS shall maintain, for a period of six years, the
records necessary to
enable the persons described in paragraph (n) of this
section to determine
whether the conditions of this exemption have been met,
except that (1) a
prohibited transaction will not be considered to have
occurred if, due to
circumstances beyond the control of SBS and/or its
affiliates, the records are
lost or destroyed prior to the end of the six year period,
and (2) no party in
interest other than SBS shall be subject to the civil
penalty that may be
assessed under section 502(i) of the Act, or to the taxes
imposed by section
4975(a) and (b) of the Code, if the records are not
maintained, or are not
available for examination as required by paragraph (n)
below.
(n)(1) Except as provided in section (2) of this paragraph
and notwithstanding
any provisions of subsections (a)(2) and (b) of section 504
of the Act, the
records referred to in paragraph (m) of this section shall
be unconditionally
available at their customary location during normal business
hours by:
(A) Any duly authorized employee or representative of the
Department or the
Service;
(B) Any fiduciary of a participating Plan or any duly
authorized
representative of such fiduciary;
(C) Any contributing employer to any participating Plan or
any duly authorized
employee representative of such employer; and
(D) Any participant or beneficiary of any participating
Plan, or any duly
authorized representative of such participant or
beneficiary.
(2) None of the persons described above in subparagraphs
(B)-(D) of this
paragraph (n) shall be authorized to examine the trade
secrets of SBS or
commercial or financial information which is privileged or
confidential.
Section III. Definitions
For purposes of this exemption:
(a) An "affiliate" of SBS includes--
(1) Any person directly or indirectly through one or more
intermediaries,
controlling, controlled by, or under common control with
SBS. (For purposes of
this subsection, the term "control" means the power to
exercise a controlling
influence over the management or policies of a person other
than an
individual.)
(2) Any officer, director or partner in such person, and
(3) Any corporation or partnership of which such person is
an officer,
director or a 5 percent partner or owner.
(b) An "Independent Plan Fiduciary" is a Plan fiduciary
which is independent
of SBS and its affiliates and is either--
(1) A Plan administrator, sponsor, trustee or named
fiduciary, as the
recordholder of Trust shares of a section 404(c) Plan.
(2) A participant in a Keogh Plan.
(3) An individual covered under a self-directed IRA which
invests in Trust
shares, or
(4) A trustee, investment manager or named fiduciary
responsible for
investment decisions in the case of a Title I Plan that does
not permit
individual direction as contemplated by section 404(c) of
the Act.
Section IV. Effective Dates
This exemption will be effective as of July 31, 1993,
except for transactions
involving the GIC Fund. The exemption will be effective upon
its grant with
respect to the inclusion of the GIC Fund in the TRAK
Program.
The availability of this proposed exemption is subject to
the express
condition that the material facts and representations
contained in the
applications for exemption are true and complete and
accurately describe all
material terms of the transactions. In the case of
continuing transactions, if
any of the material facts or representations described in
the applications
change, the exemption will cease to apply as of the date of
such change. In the
event of any such change, an application for a new exemption
must be made to
the Department.
For a more complete statement of the facts and
representations supporting the
Department's decision to grant PTE 92-77, refer to the
proposed exemption and
grant notice which are cited above.
Signed at Washington, D.C. this 23rd day of March, 1994.
Ivan L. Strasfeld,
Director of Exemption Determinations, Pension and Welfare
Benefits
Administration, U.S. Department of Labor.
[FR Doc. 94-7271 Filed 3-28-94; 8:45 am]
B-16
<PAGE>
- ------------------------------------------------------------
- --------------------
[PROHIBITED TRANSACTION EXEMPTION 94-45; APPLICATION NOS. D-
9337 AND D-9415]
SMITH BARNEY, INC. (SBI) LOCATED IN NEW YORK, NY
AGENCY: Pension and Welfare Benefits Administration.
ACTION: Grant of individual exemption to modify and replace
prohibited
transaction exemption (PTE) 92-77 involving Shearson Lehman
Brothers, Inc.
(Shearson Lehman).
- ------------------------------------------------------------
- --------------------
SUMMARY: This document contains an individual exemption
which supersedes PTE
92-77 (57 FR 45833, October 5, 1992)./1/ This exemption
permits the replacement
of Shearson Lehman with an entity known as "Smith Barney
Inc."/2/ It also
allows SBI to adopt a daily-traded collective investment
fund (the GIC Fund)
for Plans investing in the Consulting Group Capital Markets
Funds (the Trust).
The exemption provides conditional relief that is identical
to that provided by
PTE 92-77 and it will affect participants and beneficiaries
of, and fiduciaries
with respect to, Plans participating in the Trust.
EFFECTIVE DATE: This exemption is effective July 31, 1993
for transactions that
are covered by PTE 92-77. With respect to transactions
involving the GIC Fund,
the exemption is effective March 29, 1994.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady, Office
of Exemption
Determinations, Pension and Welfare Benefits Administration,
U.S. Department of
Labor, telephone (202) 219-8881. (This is not a toll-free
number.)
SUPPLEMENTARY INFORMATION: On March 29, 1994, the Department
of Labor (the
Department) published a notice of proposed exemption (the
Notice) in the
FEDERAL REGISTER (59 FR 14680) that would replace PTE 92-77.
PTE 92-77 provides
an exemption from certain prohibited transaction
restrictions of section 406 of
the Employee Retirement Income Security Act of 1974 (the
Act) and from the
sanctions resulting from the application of section 4975 of
the Internal
Revenue Code of 1986 (the Code), as amended, by reason of
section 4975(c)(1) of
the Code. The proposed exemption was requested in an
application filed by SBI
pursuant to section 408(a) of the Act and section 4975(c)(2)
of the Code, and
in accordance with the procedures (the Procedures) set forth
in 29 CFR Part
2570, Subpart B (55 FR 32836, August 10, 1990). Effective
December 31, 1978,
section 102 of Reorganization Plan No. 4 of 1978 (43 FR
47713, October 17,
1978) transferred the authority of the Secretary of the
Treasury to issue
exemptions of the type requested to the Secretary of Labor.
Accordingly, this
replacement exemption is being issued solely by the
Department.
The Notice gave interested persons an opportunity to
comment on the proposed
exemption and to request a public hearing. The only written
comments submitted
to the Department during the comment period were made by
SBI. These comments
expressed SBI's substantive concerns about the Notice and
offered suggestions
for clarifying certain language of the Notice. Discussed
below are SBI's
comments and the Department's responses thereto. Also
discussed is a comment
made by the Department.
SBI's Comments
SBI notes that there is an ambiguity regarding the
effective date of the GIC
Fund. SBI represents that the Notice provides in the last
paragraph under the
heading "Supplementary Information," that with respect to
transactions
involving the GIC Fund, the exemption "would become
effective as of the date of
the grant of the notice of pendency." However, under the
captions EFFECTIVE
DATES and DATES, SBI explains that the Notice states that
the exemption will be
effective "upon its grant," or "as of the date the grant
notice is published."
Because it was the intention of the parties that the
effective date for
transactions involving the GIC Fund would be March 29, 1994,
the date of
publication of the Notice in the FEDERAL REGISTER, SBI
requests that the
Department make the exemption retroactive to this date for
the GIC Fund.
The Department has considered SBI's comment and has made
the requested
modification.
SBI wishes to modify the exemption in order that it may
offer the GIC Fund to
both fiduciary-directed Plans as well as Plans providing for
participant-
directed investments (the Section 404(c) Plans). The
Department believes this
comment has merit and that it would be potentially
beneficial to participants
and beneficiaries since it provides different types of Plans
participating in
the TRAK Program with the opportunity to invest in the GIC
Fund.
SBI explains that in the preamble to the Notice there is a
statement to the
effect that it will "describe the GIC Fund in a prospectus
(the Prospectus) and
promotional materials that will be furnished to Section
404(c) Plan
participants." SBI represents that interests in the GIC Fund
are not subject to
the registration and Prospectus delivery requirements of the
Securities Act of
1933. Also, SBI points out that the conditions of PTE 92-77
require it to
deliver copies of the Trust Prospectus only to the Plan
administrator and not
to the individual participants. Because it has no practical
means of delivering
Prospectuses or other disclosures to participants, SBI
indicates that the
responsibility for providing these materials to participants
rests with the
Plan administrator. In this regard, SBI represents that the
disclosure
information it will make available to all Plans proposing to
invest in the GIC
Fund will include copies of the Trust Prospectus and a
separate description of
the GIC Fund's investment objectives, policies and
processes. SBI explains that
its description of the GIC Fund will be designed to provide
a participant with
sufficient information in order that the participant can
make an informed
investment decision.
The Department concurs with these comments.
In addition to principal comments discussed above, SBI has
made certain
technical clarifications and updates to the Notice in the
following areas:
(1) General.
a. Redesignations. SBI explains that effective December 31,
1993, Primerica
Corporation changed its name to "The Travelers Inc." and
that effective May 9,
1994, the "Trust for TRAK Investments" was renamed
"Consulting Group Capital
Markets Funds." Also effective June 1, 1994, "Smith Barney
Shearson Inc." was
renamed "Smith Barney Inc."
(2) Supplementary Information.
a. Asset Sale Transaction. SBI explains that the
transaction by which Smith
Barney Harris Upham & Company, Inc. (Smith Barney) acquired
Shearson Lehman and
its Asset Management Divisions was an asset sale and not a
merger. Accordingly,
SBI suggests that the fourth sentence of the third paragraph
under the heading
"Supplementary Information," read as follows: "As a result
of the transaction,
most of the assets and business of the Shearson divisions
were transferred to
- -------
/1/ PTE 92-77 provides exemptive relief from section 406(a)
of the Act and the
sanctions resulting from the application of section 4975 of
the Code, by reason
of section 4975(c)(1) (A) through (D) of the Code, with
respect to the purchase
or redemption of shares in the Trust for TRAK Investments
(which has been
redesignated as the "Consulting Group Capital Markets Funds"
and is referred to
herein as the Trust) by Plans investing therein. In
addition, PTE 92-77
provides exemptive relief from the restrictions of section
406(b)(1) and (b)(2)
of the Act and the sanctions resulting from the application
of section 4975 of
the Code, by reason of section 4975(c)(1)(E) of the Code,
with respect to the
provision, by the Consulting Group of Shearson Lehman, of
investment advisory
services to an Independent Plan Fiduciary of a Plan
participating in the TRAK
Personalized Investment Advisory Service (the TRAK Program)
which may result in
such fiduciary's selection of a Portfolio in the TRAK
Program for the
investment of Plan assets.
/2/ Effective June /1/, /1//9//9//4/, Smith Barney
Shearson, Inc. (SBS) was
renamed "Smith Barney Inc." Hereinafter, SBS is referred to
in this grant
notice as either "Smith Barney Inc." or "SBI."
B-17
<PAGE>
Smith Barney, which was renamed "Smith Barney Shearson Inc.'
"
b. Fees Paid to Transfer Agent. SBI represents that in the
seventh paragraph
under the heading "Supplementary Information," the Notice
states that The
Shareholder Services Group (TSSG), as transfer agent, will
charge a fee of
$8.50 to $9.50 per plan for its transfer agency services.
While these are the
current expected fee levels, SBI notes that such fees may
increase or decrease
in the future. Because TSSG is no longer an affiliate, SBI
requests that the
paragraph be amended to provide that TSSG as transfer agent
will receive a
reasonable fee for its services rather than specifying a
precise dollar amount.
(3) General Conditions.
a. Written Disclosures. Section II(k)(1)(F) of the General
Conditions of the
Notice states that SBI will provide copies of PTE 92-77 and
documents
pertaining to the proposed replacement exemption to each
Plan participating in
the TRAK Program. SBI wishes to clarify that the "documents
pertaining to the
proposed replacement exemption" refer to copies of the
Notice and, when issued,
the final exemption.
The Department concurs with the above supplemental
clarifications to the
Notice that have been made by SBI and hereby incorporates
these changes, as
well as the substantive changes also described above, by
reference into the
Notice and, where applicable, into this final exemption.
Department's Comment
Section III of the Notice, which is captioned
"Definitions," provides several
meanings of the term "Independent Plan Fiduciary" in
subparagraph (b). For
purposes of the exemption, the term "Independent Plan
Fiduciary" may include a
Plan administrator, a participant in a Keogh Plan, an
individual covered under
a self-directed IRA or a trustee of a Title I Plan that does
not permit
participant-directed investments as contemplated under
section 404(c) of the
Act. However, due to an oversight, the definition does not
extend to a
participant in a Section 404(c) Plan. Because the TRAK
Program is being
marketed as an investment alternative to Section 404(c)
Plans and the
individual participant of such Plan makes the decision on
whether to invest
therein, the Department has amended the definition of the
term "Independent
Plan Fiduciary" by providing a new subparagraph (b)(5) which
includes a Section
404(c) Plan participant.
Accordingly, after consideration of the entire exemption
record, including the
written comments, the Department has determined to grant the
replacement
exemption as modified herein.
GENERAL INFORMATION
The attention of interested persons is directed to the
following:
(1) The fact that a transaction is the subject of an
exemption under section
408(a) of the Act and section 4975(c)(2) of the Code does
not relieve a
fiduciary or other party in interest or disqualified person
from certain other
provisions of the Act and the Code, including any prohibited
transaction
provisions to which the exemption does not apply and the
general fiduciary
responsibility provisions of section 404 of the Act, which
require, among other
things, a fiduciary to discharge his or her duties
respecting the plan solely
in the interest of the participants and beneficiaries of the
plan and in a
prudent fashion in accordance with section 404(a)(1)(B) of
the Act; nor does it
affect the requirements of section 401(a) of the Code that
the plan operate for
the exclusive benefit of the employees of the employer
maintaining the plan and
their beneficiaries;
(2) In accordance with section 408(a) of the Act and
section 4975(c)(2) of the
Code, the Department has found that the exemption is
administratively feasible,
in the interest of the Plans and their participants and
beneficiaries and
protective of the rights of participants and beneficiaries
of the Plans; and
(3) The exemption is supplemental to, and not in derogation
of, any other
provisions of the Act and the Code, including statutory or
administrative
exemptions. Furthermore, the fact that a transaction is
subject to an
administrative or statutory exemption is not dispositive of
whether the
transaction is in fact a prohibited transaction.
(4) In addition to transactions involving the GIC Fund, the
exemption is
applicable to the transactions previously described in PTE
92-77 only if the
conditions specified therein are met.
EXEMPTION
Under the authority of section 408(a) of the Act and
section 4975(c)(2) of the
Code and in accordance with the Procedures cited above, the
Department hereby
replaces PTE 92-77 as follows:
Section I. Covered Transactions
(a) The restrictions of section 406(a) of the Act and the
sanctions resulting
from the application of section 4975 of the Code, by reason
of section
4975(c)(1)(A) through (D) of the Code, shall not apply to
the purchase or
redemption of shares by Plans in the SBI-established Trust
in connection with
such Plans' participation in the TRAK Personalized
Investment Advisory Service.
(b) The restrictions of section 406(b) of the Act and the
sanctions resulting
from the application of section 4975 of the Code by reason
of section
4975(c)(1)(E) and (F) of the Code, shall not apply to the
provision, by the
Consulting Group, of investment advisory services to an
Independent Plan
Fiduciary of a participating Plan which may result in such
fiduciary's
selection of a Portfolio in the TRAK Program for the
investment of Plan assets.
The exemption is subject to the following conditions that
are set forth in
Section II.
Section II. General Conditions
(a) The participation of Plans in the TRAK Program will be
approved by an
Independent Plan Fiduciary. For purposes of this
requirement, an employee,
officer or director of SBI and/or its affiliates covered by
an IRA not subject
to Title I of the Act will be considered an Independent Plan
Fiduciary with
respect to such IRA.
(b) The total fees paid to the Consulting Group and its
affiliates will
constitute no more than reasonable compensation.
(c) No Plan will pay a fee or commission by reason of the
acquisition or
redemption of shares in the Trust.
(d) The terms of each purchase or redemption of Trust
shares remain at least
as favorable to an investing Plan as those obtainable in an
arm's length
transaction with an unrelated party.
(e) The Consulting Group will provide written documentation
to an Independent
Plan Fiduciary of its recommendations or evaluations based
upon objective
criteria.
(f) Any recommendation or evaluation made by the Consulting
Group to an
Independent Plan Fiduciary will be implemented only at the
express direction of
such independent fiduciary.
(g) The Consulting Group will generally give investment
advice in writing to
an Independent Plan Fiduciary with respect to all available
Portfolios.
However, in the case of a Section 404(c) Plan, the
Consulting Group will
provide investment advice that is limited to the Portfolios
made available
under the Plan.
(h) Any Sub-Adviser that acts for the Trust to exercise
investment discretion
over a Portfolio will be independent of SBI and its
affiliates.
(i) immediately following the acquisition by a Portfolio of
any securities
that are issued by SBI and/or its affiliates, the percentage
of that
Portfolio's net assets invested in such securities will not
exceed one percent.
(j) The quarterly investment advisory fee that is paid by a
Plan to the
Consulting Group for investment advisory services rendered
to
B-18
<PAGE>
such Plan will be offset by such amount as is necessary to
assure that the
Consulting Group retains no more than 20 basis points from
any Portfolio (with
the exception of the Government Money Investments Portfolio
and the GIC Fund
Portfolio for which the Consulting Group and SBI Trust will
retain no
investment management fee) which contains investments
attributable to the Plan
investor.
(k) With respect to its participation in the TRAK Program
prior to purchasing
Trust shares.
(1) Each Plan will receive the following written or oral
disclosures from the
Consulting Group:
(A) A copy of the Prospectus for the Trust discussing the
investment
objectives of the Portfolios comprising the Trust, the
policies employed to
achieve these objectives, the corporate affiliation existing
between the
Consulting Group, SBI and its subsidiaries and the
compensation paid to such
entities./3/
(B) Upon written or oral request to SBI, a Statement of
Additional Information
supplementing the Prospectus which describes the types of
securities and other
instruments in which the Portfolios may invest, the
investment policies and
strategies that the Portfolios may utilize and certain risks
attendant to those
investments, policies and strategies.
(C) A copy of the investment advisory agreement between the
Consulting Group
and such Plan relating to participation in the TRAK Program.
(D) Upon written request of SBI, a copy of the respective
investment advisory
agreement between the Consulting Group and the Sub-Advisers.
(E) In the case of a Section 404(c) Plan, if required by
the arrangement
negotiated between the Consulting Group and the Plan, an
explanation by an SBI
Financial Consultant (the Financial Consultant) to eligible
participants in
such Plan, of the services offered under the TRAK Program
and the operation and
objectives of the Portfolios.
(F) Copies of PTE 92-77 and documents pertaining to the
replacement exemption.
(2) If accepted as an investor in the TRAK Program, an
Independent Plan
Fiduciary of an IRA or Keogh Plan, is required to
acknowledge, in writing,
prior to purchasing Trust shares that such fiduciary has
received
copies of the documents described above in subparagraph
(k)(1) of this Section.
(3) With respect to a Section 404(c) Plan, written
acknowledgement of the
receipt of such documents will be provided by the
Independent Plan Fiduciary
(i.e., the Plan administrator, trustee or named fiduciary,
as the recordholder
of Trust shares). Such Independent Plan Fiduciary will be
required to represent
in writing to SBI that such fiduciary is (a) independent of
SBI and its
affiliates and (b) knowledgeable with respect to the Plan in
administrative
matters and funding matters related thereto, and able to
make an informed
decision concerning participation in the TRAK Program.
(4) With respect to a Plan that is covered under Title I of
the Act, where
investment decisions are made by a trustee, investment
manager or a named
fiduciary, such Independent Plan Fiduciary is required to
acknowledge, in
writing, receipt of such documents and represent to SBI that
such fiduciary is
(a) independent of SBI and its affiliates, (b) capable of
making an independent
decision regarding the investment of Plan assets and (c)
knowledgeable with
respect to the Plan in administrative matters and funding
matters related
thereto, and able to make an informed decision concerning
participation in the
TRAK Program.
(l) Subsequent to its participation in the TRAK Program,
each Plan receives
the following written or oral disclosures with respect to
its ongoing
participation in the TRAK Program:
(1) The Trust's semi-annual and annual report which will
include financial
statement for the Trust and investment management fees paid
by each Portfolio.
(2) A written quarterly monitoring statement containing an
analysis and an
evaluation of a Plan investor's account to ascertain whether
the Plan's
investment objectives have been met and recommending, if
required, changes in
Portfolio allocations.
(3) If required by the arrangement negotiated between the
Consulting Group and
a Section 404(c) Plan, a quarterly, detailed investment
performance monitoring
report, in writing, provided to an Independent Plan
Fiduciary of such Plan
showing, Plan level asset allocations, Plan cash flow
analysis and annualized
risk adjusted rates of return for Plan investments. In
addition, if required by
such arrangement, Financial Consultants will meet
periodically with Independent
Plan Fiduciaries of Section 404(c) Plans to discuss the
report as well as with
eligible participants to review their accounts' performance.
(4) If required by the arrangement negotiated between the
Consulting Group and
a Section 404(c) Plan, a quarterly participant performance
monitoring report
provided to a Plan participant which accompanies the
participant's benefit
statement and describes the investment performance of the
Portfolios, the
investment performance of the participant's individual
investment in the TRAK
Program, and gives market commentary and toll-free numbers
that will enable the
participant to obtain more information about the TRAK
Program or to amend his
or her investment allocations.
(5) On a quarterly and annual basis, written disclosures to
all Plans of the
(a) percentage of each Portfolio's brokerage commissions
that are paid to SBI
and its affiliates and (b) the average brokerage commission
per share paid by
each Portfolio to SBI and its affiliates, as compared to the
average brokerage
commission per share paid by the Trust to brokers other than
SBI and its
affiliates, both expressed as cents per share.
(m) SBI shall maintain, for a period of six years, the
records necessary to
enable the persons described in paragraph (n) of this
Section to determine
whether the conditions of this exemption have been met,
except that (1) a
prohibited transaction will not be considered to have
occurred if, due to
circumstances beyond the control of SBI and/or its
affiliates, the records are
lost or destroyed prior to the end of the six year period,
and (2) no party in
interest other than SBI shall be subject to the civil
penalty that may be
assessed under section 502(i) of the Act, or to the taxes
imposed by section
4975(a) and (b) of the Code, if the records are not
maintained, or are not
available for examination as required by paragraph (n)
below.
(n)(1) Except as provided in section (2) of this paragraph
and notwithstanding
any provisions of subsections (a)(2) and (b) of section 504
of the Act, the
records referred to in paragraph (m) of this Section shall
be unconditionally
available at their customary location during normal business
hours by:
(A) Any duly authorized employee or representative of the
Department or the
Internal Revenue Service;
(B) Any fiduciary of a participating Plan or any duly
authorized
representative of such fiduciary;
(C) Any contributing employer to any participating Plan or
any duly authorized
employee representative of such employer; and
(D) Any participant or beneficiary of any participating
Plan, or any duly
authorized representative of such participant or
beneficiary.
- -------
/3/ The fact that certain transactions and fee arrangements
are the subject of
an administrative exemption does not relieve the Independent
Plan Fiduciary
from the general fiduciary responsibility provisions of
section 404 of the Act.
In this regard, the Department expects the Independent Plan
Fiduciary to
consider carefully the totality of fees and expenses to be
paid by the Plan
including the fees paid directly to SBI or to other third
parties and paid
directly through the Trust to SBI.
B-19
<PAGE>
(2) None of the persons described above in subparagraphs
(B)-(D) of this
paragraph (n) shall be authorized to examine the trade
secrets of SBI or
commercial or financial information which is privileged or
confidential.
Section III. Definitions
For purposes of this exemption:
(a) An "affiliate" of SBI includes--
(1) Any person directly or indirectly through one or more
intermediaries,
controlling, controlled by, or under common control with
SBI. (For purposes of
this subsection, the term "control" means the power to
exercise a controlling
influence over the management or policies of a person other
than an
individual.)
(2) Any officer, director or partner in such person, and
(3) Any corporation or partnership of which such person is
an officer,
director or a 5 percent partner or owner.
(b) An "Independent Plan Fiduciary" is a Plan fiduciary
which is independent
of SBI and its affiliates and is either
(1) A Plan administrator, sponsor, trustee or named
fiduciary, as the
recordholder of Trust shares of a Section 404(c) Plan,
(2) A participant in a Keogh Plan,
(3) An individual covered under a self-directed IRA which
invests in Trust
shares,
(4) A trustee, investment manager or named fiduciary
responsible for
investment decisions in the case of a Title I Plan that does
not permit
individual direction as contemplated by Section 404(c) of
the Act, or
(5) A participant in a Section 404(c) Plan.
Section IV. Effective Dates
This exemption will be effective as of July 31, 1993,
except for transactions
involving the GIC Fund. The exemption will be effective
March 29, 1994 with
respect to the inclusion of the GIC Fund in the TRAK
Program.
The availability of this exemption is subject to the
express condition that
the material facts and representations contained in the
applications for
exemption are true and complete and accurately describe all
material terms of
the transactions. In the case of continuing transactions, if
any of the
material facts or representations described in the
applications change, the
exemption will cease to apply as of the date of such change.
In the event of
any such change, an application for a new exemption must be
made to the
Department.
For a more complete statement of the facts and
representations supporting the
Department's decision to grant PTE 92-77, refer to the
proposed exemption and
grant notice which are cited above.
Signed at Washington, DC, this 16th day of June 1994.
Ivan L. Strasfeld,
Director of Exemption Determinations, Pension and Welfare
Benefits
Administration, U.S. Department of Labor.
[FR Doc. 94-15006 Filed 6-20-94; 8:45 am]
BILLING CODE 4510-28-P
B-20
<PAGE>
SMITH BARNEY PROVIDES A BROAD RANGE OF INVESTMENT
SERVICES TO INDIVIDUALS, FINANCIAL INSTITUTIONS,
GOVERNMENT AND CORPORATIONS IN THE UNITED STATES AND
AROUND THE WORLD. THE FIRM IS A MEMBER OF TRAVELERS
GROUP, A LEADING DIVERSIFIED FINANCIAL SERVICE COMPANY
LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL
TRV.
(C)1996 SMITH BARNEY INC.
TK2088 1/96
29XXX C5
PART B
January 1, 1996
STATEMENT OF ADDITIONAL INFORMATION
CONSULTING GROUP CAPITAL MARKETS
FUNDS
222 Delaware Avenue ~ Wilmington, Delaware 19801 ~ (212)
816-TRAK
This Statement of Additional Information supplements the
information
contained in the current Prospectus (the "Prospectus") of
Consulting
Group Capital Markets Funds (the "Trust"), dated January 1,
1996, and
should be read in conjunction with the Prospectus. The
Prospectus may be
obtained by contacting any Financial Consultant of Smith
Barney Inc.
("Smith Barney"), or by writing or calling the Trust at the
address or
telephone number listed above. This Statement of Additional
Information,
although not in itself a prospectus, is incorporated by
reference into
the Prospectus in its entirety.
____________________________________________________________
____________
CONTENTS
Financial Statements
Appendix-Description of S&P and Moody's Ratings. A-1
Objectives and Policies of the Portfolios 2
Management of the Trust 12
Purchase of Shares 18
Redemption of Shares 20
Net Asset Value 20
Determination of Performance (See in the Prospectus
"Performance of the Portfolios"). 21
Taxes (See in the Prospectus
"Dividends, Distributions and Taxes") 26
Custodian and Transfer Agent 28
For ease of reference, the section headings used in this
Statement of
Additional Information are identical to those used in the
Prospectus
except where noted. Capitalized terms used but not defined
in this
Statement of Additional Information have the meanings
accorded to them
in the Prospectus.
OBJECTIVES AND POLICIES OF THE PORTFOLIOS
The Prospectus discusses the investment objectives of
the
investment portfolios (the "Portfolios") comprising the
Trust and the
policies to be employed to achieve those objectives.
Supplemental
information is set out below concerning the types of
securities and
other instruments in which the Portfolios may invest, the
investment
policies and strategies that the Portfolios may utilize and
certain
risks attendant to those investments, policies and
strategies.
Ratings as Investment Criteria
In general, the ratings of Moody's Investors Service,
Inc.
("Moody's") and Standard & Poor's Corporation ("S&P")
represent the
opinions of those agencies as to the quality of debt
obligations that
they rate. It should be emphasized, however, that these
ratings are
relative and subjective, are not absolute standards of
quality and do
not evaluate the market risk of securities. These ratings
will be used
by the Portfolios as initial criteria for the selection of
portfolio
securities, but the Portfolios also will rely upon the
independent
advice of their respective investment advisors
(collectively, the
"Advisors") to evaluate potential investments. Among the
factors that
will be considered are the long term ability of the issuer
to pay
principal and interest and general economic trends. The
Appendix to this
Statement of Additional Information contains further
information
concerning the ratings of Moody's and S&P and their
significance.
Subsequent to its purchase by a Portfolio, an issue of
debt
obligations may cease to be rated or its rating may be
reduced below the
minimum required for purchase by the Portfolio. Neither
event will
require the sale of the debt obligation by the Portfolio,
but the
Portfolio's Advisor will consider the event in its
determination of
whether the Portfolio should continue to hold the
obligation. In
addition, to the extent that the ratings change as a result
of changes
in rating organizations or their rating systems or owing to
a corporate
restructuring of Moody's or S&P, the Portfolio will attempt
to use
comparable ratings as standards for its investments in
accordance with
its investment objectives and policies.
U.S. Government Securities
Securities issued or guaranteed by the U.S. government
or one of
its agencies, authorities or instrumentalities ("U.S.
Government
Securities") in which the Portfolios may invest include debt
obligations
of varying maturities issued by the U.S. Treasury or issued
or
guaranteed by an agency or instrumentality of the U.S.
government,
including the Federal Housing Administration, Federal
Financing Bank,
Farmers Home Administration, Export-Import Bank of the U.S.,
Small
Business Administration, Government National Mortgage
Association
("GNMA"), General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Home Loan
Banks,
Federal Home Loan Mortgage Corporation ("FHLMC"), Federal
National
Mortgage Association ("FNMA"), Maritime Administration,
Tennessee Valley
Authority, District of Columbia Armory Board, Student Loan
Marketing
Association, Resolution Trust Corporation and various
institutions that
previously were or currently are part of the Farm Credit
System (which
has been undergoing reorganization since 1987). Direct
obligations of
the U.S. Treasury include a variety of securities that
differ in their
interest rates, maturities and dates of issuance. Because
the U.S.
government is not obligated by law to provide support to an
instrumentality that it sponsors, a Portfolio will invest in
obligations
issued by an instrumentality of the U.S. government only if
the Advisor
determines that the instrumentality's credit risk does not
make its
securities unsuitable for investment by the Portfolio.
Emerging Markets Countries
John Govett & Co. Limited ("JGC") believes the bulk of
performance
is determined by country allocation. Empirical studies
suggest that
between 70 and 90 percent of emerging market fund investment
performance
is explained by country allocation. JGC is firmly committed
to the
notion that diversification is essential to coping with an
array of
volatile markets and it follows a rigorous country
allocation scheme
which prevents excessive exposure to any single country.
Once this "top-
down" country allocation is complete, Govett follows a
fundamentally-
grounded security selection process.
Emerging Markets Equity Investments may invest in the
securities
of companies domiciled in, and in markets of, so-called
"emerging
markets countries." These investments may be subject to
potentially
higher risks than investments in developed countries. These
risks
include:
(1) unfavorable and unstable political and economic
conditions.
The economies of countries in which the Portfolio may invest
may differ
favorably or unfavorably from the U.S. economy in such
respects as the
rate of growth of gross domestic product, the rate of
inflation, capital
reinvestment, resource self-sufficiency and balance of
payments
position. Some of the countries in which the Portfolio may
invest have
experienced over the past decade, and may continue to
experience,
significant economic problems. The areas of concern may
include budget
deficits; high, and in some cases unmanageable, interest
payments on
foreign debt; lack of investment in plant and machinery;
hyper-inflation
due to rapid expansion of the local money supply; and
political
instability, which may result in the failure to adopt
economic
adjustment policies;
(2) the small size and volatility of the markets and
the low
volume of trading in such markets. The securities and debt
markets of
some of the countries in which the Portfolio may invest are
substantially smaller and less liquid than the major
securities and debt
markets in the United States and as a result, in periods of
rising
market prices, the Portfolio may be unable to participate in
price
increases fully to the extent that it is unable to acquire
desired
securities positions quickly; the Portfolio's inability to
dispose fully
and promptly of positions in declining markets may
conversely cause its
net asset value to decline as the value of unsold positions
is marked to
lower prices. A high proportion of the shares of many
companies traded
in emerging market countries may be held by a small number
of persons,
which may restrict the number of shares available for
investment by the
Portfolio;
(3) the existence of national policies which may
restrict the
Portfolio's investment opportunities. Foreign investment in
some
countries in which the Portfolio may invest is restricted or
controlled
to varying degrees. Although the Portfolio's manager will in
its asset
allocation procedure seek to identify countries that exhibit
certain
improved credentials, these restrictions or controls may at
times limit
or preclude foreign investment in certain issuers and
increase the costs
and expenses of the Portfolio.
(4) governmental regulation of the relevant securities
markets.
The governments of some emerging markets countries have
exercised and
continue to exercise substantial influence over many aspects
of the
private sector, including, for example, imposing wage and
price controls
to control inflation. In some cases, the government owns or
controls
many companies, including some of the largest in the
country.
Governments of some countries have in the past participated,
and may
continue in the future to participate, directly in the
securities
markets of their countries, which participation may affect
the
availability, prices and liquidity of securities traded in
those
markets. Similar government actions in the future could have
an effect
on economic conditions in such countries, and in turn affect
private
sector companies, market conditions, prices and yields of
securities
held by the Portfolio. The extent of government supervision
and
regulations of securities exchanges, underwriters, brokers,
dealers and
issuers in emerging markets countries, however, may be less
than in
other countries;
(5) the lack of adequate financial and other reporting
standards
and the absence of information regarding issuers in emerging
markets
countries. Accounting, auditing, financial and other
reporting standards
in countries in which the Portfolio may invest may differ,
in some cases
significantly, from standards in other countries, including
the United
States. In particular, the assets and profits appearing on
the financial
statements of an issuer in certain emerging markets
countries may not
reflect its financial position or results of operations in
the manner in
which such information would have been reflected in
financial statements
prepared in accordance with U.S. generally accepted
accounting
principles. In addition, companies in certain emerging
markets countries
must restate certain assets and liabilities on their
financial
statements to reflect the effect of inflation on those
assets. As a
result, financial statements and reported earnings may
differ from those
of companies in other countries, such as the United States.
Although a
principal objective of the securities laws of the countries
in which the
Portfolio may invest is to promote full and fair disclosure
of all
material corporate information, substantially less
information may be
publicly available about the issuers of securities in the
markets of
those countries than is regularly published by issuers in
other
countries, and disclosure of certain material information
may not be
made. Moreover, even when public information about such
companies and
governments is available, it may be less reliable than
information
concerning the U.S. government and U.S. companies. In
addition, the
extent of government supervision and regulation of
securities exchanges,
underwriters, brokers, dealers and issuers may be less in
countries in
which the Portfolio may invest than in other countries; and
(6) differences in the value of the U.S. dollar and the
currencies
of other countries. To the extent the Portfolio invests in
securities
denominated in the currencies of countries other than the
United States,
a change in the value of any of those currencies relative to
the dollar
will result in a corresponding change in the dollar value of
the
Portfolio's investments denominated in the currency. In
addition,
although some of the Portfolio's income may be received in
the currency
of a country other than the United States, the Portfolio
will measure
distributions, including those made in connection with the
redemption of
shares, from its income in U.S. dollars. Therefore, if the
value of a
particular currency falls relative to the U.S. dollar
between accrual of
the income and the making of a distribution, the amount of
the currency
to be converted into U.S. dollars by the Portfolio to pay
the
distribution will increase and the Portfolio could be
required to
liquidate portfolio investments to make the distribution.
Exchange Rate-Related U.S. Government Securities
Each Portfolio, except Government Money Investments,
may invest up
to 5% of its net assets in U.S. Government Securities for
which the
principal repayment at maturity, while paid in U.S. dollars,
is
determined by reference to the exchange rate between the
U.S. dollar and
the currency of one or more foreign countries ("Exchange
Rate-Related
Securities"). The interest payable on these securities is
denominated in
U.S. dollars and is not subject to foreign currency risk
and, in most
cases, is paid at rates higher than most other U.S.
Government
Securities in recognition of the foreign currency risk
component of
Exchange Rate-Related Securities.
Exchange Rate-Related Securities are issued in a
variety of forms,
depending on the structure of the principal repayment
formula. The
principal repayment formula may be structured so that the
security
holder will benefit if a particular foreign currency to
which the
security is linked is stable or appreciates against the U.S.
dollar. In
the alternative, the principal repayment formula may be
structured so
that the securityholder benefits if the U.S. dollar is
stable or
appreciates against the linked foreign currency. Finally,
the principal
repayment formula can be a function of more than one
currency and,
therefore, be designed as a combination of those forms.
Investments in Exchange Rate-Related Securities entail
special
risks. There is the possibility of significant changes in
rates of
exchange between the U.S. dollar and any foreign currency to
which an
Exchange Rate-Related Security is linked. If currency
exchange rates do
not move in the direction or to the extent anticipated by
the Advisor at
the time of purchase of the security, the amount of
principal repaid at
maturity might be significantly below the par value of the
security,
which might not be offset by the interest earned by the
Portfolios over
the term of the security. The rate of exchange between the
U.S. dollar
and other currencies is determined by the forces of supply
and demand in
the foreign exchange markets. These forces are affected by
the
international balance of payments and other economic and
financial
conditions, government intervention, speculation and other
factors. The
imposition or modification of foreign exchange controls by
the U.S. or
foreign governments or intervention by central banks could
also affect
exchange rates. Finally, there is no assurance that
sufficient trading
interest to create a liquid secondary market will exist for
a particular
Exchange Rate-Related Security due to conditions in the debt
and foreign
currency markets. Illiquidity in the forward foreign
exchange market and
the high volatility of the foreign exchange market may from
time to time
combine to make it difficult to sell an Exchange Rate-
Related Security
prior to maturity without incurring a significant price
loss.
Mortgage Backed Securities
The average maturity of pass-through pools of mortgage
backed securities
varies with the maturities of the underlying mortgage
instruments. In
addition, a pool's stated maturity may be shortened by
unscheduled
payments on the underlying mortgages. Factors affecting
mortgage
prepayments include the level of interest rates, general
economic and
social conditions, the location of the mortgaged property
and age of the
mortgage. Because prepayment rates of individual pools vary
widely, it
is not possible to accurately predict the average life of a
particular
pool. Common practice is to assume that prepayments will
result in an
average life ranging from two to ten years for pools of
fixed rate 30-
year mortgages. Pools of mortgages with other maturities of
different
characteristics will have varying average life assumptions.
Mortgage backed securities may be classified as
private,
governmental or government related, depending on the issuer
or
guarantor. Private mortgage backed securities represent
pass-through
pools consisting principally of conventional residential
mortgage loans
created by non-governmental issuers, such as commercial
banks, savings
and loan associations and private mortgage insurance
companies.
Governmental mortgage backed securities are backed by the
full faith and
credit of the United States. GNMA, the principal U.S.
guarantor of such
securities, is a wholly owned U.S. Governmental Corporation
within the
Department of Housing and Urban Development. Government
related mortgage
backed securities are not backed by the full faith and
credit of the
United States. Issuers of these securities include FNMA and
FHLMC. FNMA
is a government sponsored corporation owned entirely by
private
stockholders that is subject to general regulation by the
Secretary of
Housing and Urban Development. Pass-through securities
issued by FNMA
are guaranteed as to timely payment of principal and
interest by FNMA.
FHLMC is a corporate instrumentality of the United States,
the stock of
which is owned by the Federal Home Loan Banks. Participation
certificates representing interests in mortgages from
FHLMC's national
portfolio are guaranteed as to the timely payment of
interest and
ultimate collection of principal by FHLMC.
The Trust expects that private and governmental
entities may
create mortgage loan pools offering pass-through investments
in addition
to those described above. The mortgages underlying these
securities may
be alternative mortgage instruments, that is, mortgage
instruments whose
principal or interest payments may vary or whose terms to
maturity may
be shorter than previously customary. As new types of
mortgage backed
securities are developed and offered to investors, the
Trust, consistent
with the Portfolio's investment objectives and policies,
will consider
making investments in those new types of securities on
behalf of that
Portfolio.
The Portfolios also may invest in pass-through
securities backed
by adjustable rate mortgages that have been introduced by
GNMA, FNMA and
FHLMC. These securities bear interest at a rate that is
adjusted
monthly, quarterly or annually. The prepayment experience of
the
mortgages underlying these securities may vary from that for
fixed rate
mortgages. The Portfolio will only purchase mortgage related
securities
issued by persons that are governmental agencies or
instrumentalities or
fall outside, or are excluded from, the definition of
investment company
under the Investment Company Act of 1940, as amended (the
"1940 Act").
Forward Currency Contracts
Forward currency contracts (i) are traded in an
interbank market
conducted directly between currency traders (typically
commercial banks
or other financial institutions) and their customers, (ii)
generally
have no deposit requirements and (iii) are typically
consummated without
payment of any commissions. Certain Portfolios, however, may
enter into
forward currency contracts containing either or both deposit
requirements and commissions.
The cost to a Portfolio of engaging in forward currency
transactions varies with factors such as the currency
involved, the
length of the contract period and market conditions then
prevailing.
Because transactions in currency exchange contracts are
usually
conducted on a principal basis, no fees or commissions are
involved.
Hedging transactions may be made from any foreign currency
into U.S.
dollars or into other appropriate currencies. As noted in
the
Prospectus, if a Portfolio enters into a position hedging
transaction,
cash or liquid high grade debt securities will be placed in
a segregated
account with the Portfolio's custodian in an amount equal to
the value
of the Portfolio's total assets committed to the
consummation of the
forward currency contract. If the value of the securities
placed in the
segregated account declines, additional cash or securities
will be
placed in the account so that the value of the account will
equal the
amount of the Portfolio's commitment with respect to the
contract.
At or before the maturity of a forward currency
contract, a
Portfolio may either sell a portfolio security and make
delivery of the
currency, or retain the security and offset its contractual
obligation
to deliver the currency by purchasing a second contract
pursuant to
which the Portfolio will obtain, on the same maturity date,
the same
amount of the currency that it is obligated to deliver. If
the Portfolio
retains the portfolio security and engages in an offsetting
transaction,
the Portfolio, at the time of execution of the offsetting
transaction,
will incur a gain or a loss to the extent that movement has
occurred in
forward currency contract prices. Should forward prices
decline during
the period between the Portfolio's entering into a forward
currency
contract for the sale of a currency and the date it enters
into an
offsetting contract for the purchase of the currency, the
Portfolio will
realize a gain to the extent the price of the currency it
has agreed to
sell exceeds the price of the currency it has agreed to
purchase. Should
forward prices increase, the Portfolio will suffer a loss to
the extent
the price of the currency it has agreed to purchase exceeds
the price of
the currency it has agreed to sell.
The use of forward currency contracts does not
eliminate
fluctuations in the underlying prices of the securities, but
it does
establish a rate of exchange that can be achieved in the
future. In
addition, although forward currency contracts limit the risk
of loss
owing to a decline in the value of the hedged currency, at
the same
time, they limit any potential gain that might result should
the value
of the currency increase. If a devaluation is generally
anticipated, the
Portfolio may not be able to contract to sell currency at a
price above
the devaluation level it anticipates. The successful use of
forward
currency contracts as a hedging technique draws upon special
skills and
experience with respect to these instruments and usually
depends on the
ability of the Portfolio's Advisor to forecast interest rate
and
currency exchange rate movements correctly. Should interest
or exchange
rates move in an unexpected manner, the Portfolio may not
achieve the
anticipated benefits of forward currency contracts or may
realize losses
and thus be in a worse position than if those strategies had
not been
used. Many forward currency contracts are subject to no
daily price
fluctuation limits so that adverse market movements could
continue with
respect to those contracts to an unlimited extent over a
period of time.
Futures Contracts and Related Options
Futures contracts and options thereon may be undertaken
for
hedging and other risk management purposes in an effort to
reduce the
impact of several kinds of anticipated price fluctuation
risks on the
securities held by a Portfolio. For example, futures
contracts for the
sale of foreign currency might be entered into to protect
against
declines in the value of currencies in which portfolio
securities are
denominated; and put options on interest rate futures might
be purchased
to protect against declines in the market values of debt
securities
occasioned by higher interest rates. If these transactions
are
successful, the futures or options positions taken by the
Portfolio will
rise in value by an amount which approximately offsets the
decline in
value of the portion of the securities held by a Portfolio
that is being
hedged.
On other occasions, a Portfolio may enter into
contracts to
purchase the underlying instrument. For example, futures
contracts for
the purchase of debt securities might be entered into to
protect against
an anticipated increase in the price of debt securities to
be purchased
in the future resulting from decreased interest rates.
A Portfolio will incur brokerage costs whether or not
its hedging
is successful and will be required to post and maintain
"margin" as a
good-faith deposit against performance of its obligations
under futures
contracts and under options written by the Portfolio.
Futures and
options positions are marked to the market daily and the
Portfolio may
be required to make subsequent "variation" margin payments
depending
upon whether its positions increase or decrease in value. In
this
context margin payments involve no borrowing on the part of
the
Portfolio.
Lending Portfolio Securities
Each Portfolio other than Municipal Bond Investments
may lend
portfolio securities to brokers, dealers and other financial
organizations. These loans, if and when made, may not exceed
30% of the
value of a Portfolio's total assets. A Portfolio will not
lend
securities to Smith Barney, the Trust's distributor, unless
the
Portfolio has applied for and received specific authority to
do so from
the Securities and Exchange Commission (the "SEC"). A
Portfolio's loans
of securities will be collateralized by cash, letters of
credit or U.S.
Government Securities. The cash or instruments
collateralizing a
Portfolio's loans of securities will be maintained at all
times in a
segregated account with the Portfolio's custodian or with a
designated
sub-custodian in an amount at least equal to the current
market value of
the loaned securities. From time to time, a Portfolio may
pay a part of
the interest earned from the investment of collateral
received for
securities loaned to the borrower and/or a third party that
is
unaffiliated with the Portfolio and is acting as a "finder."
A Portfolio
will comply with the following conditions whenever it loans
securities:
(i) the Portfolio must receive at least 100% cash collateral
or
equivalent securities from the borrower; (ii) the borrower
must increase
the collateral whenever the market value of the securities
loaned rises
above the level of the collateral; (iii) the Portfolio must
be able to
terminate the loan at any time; (iv) the Portfolio must
receive
reasonable interest on the loan, as well as any dividends,
interest or
other distributions on the loaned securities and any
increase in market
value; (v) the Portfolio may pay only reasonable custodian
fees in
connection with the loan; and (vi) voting rights on the
loaned
securities may pass to the borrower except that, if a
material event
adversely affecting the investment in the loaned securities
occurs, the
Trust's Board of Trustees must terminate the loan and regain
the right
to vote the securities.
When-Issued and Delayed-Delivery Securities
When a Portfolio engages in when-issued or delayed-
delivery
securities transactions, it relies on the other party to
consummate the
trade. Failure of the seller to do so may result in the
Portfolio's
incurring a loss or missing an opportunity to obtain a price
considered
to be advantageous.
Rule 144A Securities
A Portfolio may purchase securities that are not
registered under
the Securities Act of 1933, as amended (the "1933 Act"), but
that can be
sold to "qualified institutional buyers" in accordance with
Rule 144A
under the 1933 Act ("Rule 144A Securities"). Particular Rule
144A
Securities will be considered illiquid and therefore subject
to the
Portfolio's 10% limitation on the purchase of illiquid
securities,
unless the Trust's Board of Trustees determines on an
ongoing basis that
an adequate trading market exists for the Rule 144A
Securities. This
investment practice could have the effect of increasing the
level of
illiquidity in a Portfolio to the extent that qualified
institutional
buyers become uninterested for a time in purchasing Rule
144A
Securities. The Board of Trustees has instructed the
Portfolios'
Advisors to determine and monitor on a daily basis the
liquidity of Rule
144A Securities, although the Board of Trustees will retain
ultimate
responsibility for any determination regarding liquidity.
American Depository Receipts
A Portfolio may purchase American Depository Receipts
("ADRs"),
which are dollar denominated receipts issued generally by
domestic banks
and represent the deposit with the bank of a security of a
foreign
issuer. ADRs are publicly traded on exchanges or over-the-
counter in the
United States.
Investment Restrictions
The investment restrictions numbered 1 through 12 below
have been
adopted by the Trust as fundamental policies of the
Portfolios. Under
the 1940 Act, a fundamental policy may not be changed
without the vote
of a majority of the outstanding voting securities of a
Portfolio, which
is defined in the 1940 Act as the lesser of (i) 67% or more
of the
shares present at a Portfolio meeting, if the holders of
more than 50%
of the outstanding shares of the Portfolio are present or
represented by
proxy, or (ii) more than 50% of the outstanding shares of
the Portfolio.
Investment restrictions 13 through 17 may be changed by a
vote of a
majority of the Board of Trustees at any time.
Under the investment restrictions adopted by the Portfolios:
1. A Portfolio, other than International Fixed Income
Investments,
will not purchase securities (other than U.S. Government
Securities) of
any issuer if, as a result of the purchase, more than 5% of
the value of
the Portfolio's total assets would be invested in the
securities of the
issuer, except that up to 25% of the value of the
Portfolio's total
assets may be invested without regard to this 5% limitation.
2. A Portfolio, other than International Fixed Income
Investments,
will not purchase more than 10% of the voting securities of
any one
issuer, or more than 10% of the securities of any class of
any one
issuer, except that this limitation is not applicable to the
Portfolio's
investments in U.S. Government Securities, and up to 25% of
the
Portfolio's assets may be invested without regard to these
10%
limitations.
3. A Portfolio, other than Municipal Bond Investments,
will invest
no more than 25% of the value of its total assets in
securities of
issuers in any one industry, the term industry being deemed
to include
the government of a particular country other than the United
States.
This limitation is not applicable to a Portfolio's
investments in U.S.
Government Securities.
4. A Portfolio will not borrow money, except that a
Portfolio may
borrow from banks for temporary or emergency (not
leveraging) purposes,
including the meeting of redemption requests that might
otherwise
require the untimely disposition of securities, in an amount
not to
exceed one-third of the value of the Portfolio's total
assets (including
the amount borrowed) valued at market less liabilities (not
including
the amount borrowed) at the time the borrowing is made,
except that
Mortgage Backed Investments may engage in forward roll
transactions and
Emerging Markets Equity Investments may engage in reverse
repurchase
transactions. Whenever a Portfolio's borrowings exceed 5% of
the value
of its total assets, the Portfolio, other than Mortgage
Backed
Investments and Emerging Markets Equity Investments, will
not make any
additional investments.
5. A Portfolio will not pledge, hypothecate, mortgage
or otherwise
encumber its assets, except to secure permitted borrowings.
6. A Portfolio will not lend any funds or other assets,
except
through purchasing debt obligations, lending portfolio
securities and
entering into repurchase agreements consistent with the
Portfolio's
investment objective and policies.
7. A Portfolio will not purchase securities on margin,
except that
the Portfolio may obtain any short-term credits necessary
for the
clearance of purchases and sales of securities. For purposes
of this
restriction, the deposit or payment of initial or variation
margin in
connection with futures contracts or options on futures
contracts will
not be deemed to be a purchase of securities on margin.
8. A Portfolio will not make short sales of securities
or maintain
a short position, unless at all times when a short position
is open it
owns an equal amount of the securities or securities
convertible into or
exchangeable for, without payment of any further
consideration,
securities of the same issue as, and equal in amount to, the
securities
sold short ("short sales against the box"), and unless not
more than 10%
of the Portfolio's net assets (taken at market value) is
held as
collateral for such sales at any one time. It is the
Portfolios' present
intention to make short sales against the box only for the
purpose of
deferring realization of gain or loss for federal income tax
purposes.
9. A Portfolio will not purchase or sell real estate or
real
estate limited partnership interests, except that it may
purchase and
sell mortgage related securities and securities of companies
that deal
in real estate or interests therein.
10. A Portfolio will not purchase or sell commodities
or commodity
contracts (except currencies, forward currency contracts,
stock index
and interest rate futures contracts and related options and
other
similar contracts).
11. A Portfolio will not act as an underwriter of
securities,
except that the Portfolio may acquire restricted securities
under
circumstances in which, if the securities were sold, the
Portfolio might
be deemed to be an underwriter for purposes of the 1933 Act.
12. A Portfolio will not invest in oil, gas or other
mineral
leases or exploration or development programs.
13. A Portfolio will not make investments for the
purpose of
exercising control of management.
14. A Portfolio will not purchase any security if as a
result
(unless the security is acquired pursuant to a plan of
reorganization or
an offer of exchange) the Portfolio would own any securities
of a
registered open-end investment company or more than 3% of
the total
outstanding voting stock of any registered closed-end
investment company
or more than 5% of the value of the Portfolio's total assets
would be
invested in securities of any one or more registered closed-
end
investment companies.
15. A Portfolio will not purchase any security if as a
result the
Portfolio would then have more than 5% of its total assets
invested in
securities of companies (including predecessors) that have
been in
continuous operation for fewer than three years.
16. A Portfolio will not purchase or retain securities
of any
company if, to the knowledge of the Trust, any of the
Trust's officers
or Trustees, or any officer or director of the Consulting
Group (the
"Manager" or the "Consulting Group") or the Advisor(s)
individually owns
more than 1/2 of 1% of the outstanding securities of the
company and
together they own beneficially more than 5% of the
securities.
17. A Portfolio will not invest in excess of 5% of the
value of
its net assets in warrants, valued at the lower of cost or
market value.
Included within this amount, but not to exceed 2% of the
value of the
Portfolio's net assets, may be warrants that are not listed
on the New
York or American Stock Exchanges. Warrants acquired by the
Portfolio in
units or attached to securities may be deemed to be without
value.
The Trust may make commitments more restrictive than the
restrictions
listed above so as to permit the sale of shares of a
Portfolio in
certain states. Should the Trust determine that a commitment
is no
longer in the best interests of the Portfolio and its
shareholders, the
Trust will revoke the commitment by terminating the sale of
shares of
the Portfolio in the state involved. The percentage
limitations
contained in the restrictions listed above apply at the time
of purchase
of securities. For purposes of item 9, publicly traded
Real Estate
Investment Trusts ("REITS") will be considered to be
"companies that
deal in real estate"
Portfolio Transactions
Decisions to buy and sell securities for a Portfolio
are made by
the Advisor(s), subject to the overall review of the Manager
and the
Board of Trustees. Although investment decisions for the
Portfolios are
made independently from those of the other accounts managed
by an
Advisor, investments of the type that the Portfolios may
make also may
be made by those other accounts. When a Portfolio and one or
more other
accounts managed by an Advisor 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
Advisor 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 some 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. On most foreign exchanges,
commissions
are generally fixed. No stated commission is generally
applicable to
securities traded in U.S. over-the-counter markets, but the
underwriters
include an underwriting commission or concession and the
prices at which
securities are purchased from and sold to dealers include a
dealer's
mark-up or mark-down. U.S. Government Securities generally
are purchased
from underwriters or dealers, although certain newly issued
U.S.
Government Securities may be purchased directly from the
U.S. Treasury
or from the issuing agency or instrumentality.
In selecting brokers or dealers to execute securities
transactions
on behalf of a Portfolio, its Advisor seeks the best overall
terms
available. In assessing the best overall terms available for
any
transaction, the Advisor will consider the factors it deems
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,
each
Advisory Agreement between the Trust and the Advisor
authorizes the
Advisor, in selecting brokers or dealers to execute a
particular
transaction, and in evaluating the best overall terms
available, to
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
Portfolio and/or other accounts over which the Advisor or
its affiliates
exercise investment discretion. The fees under the
Management Agreement
and the Advisory Agreements, respectively, are not reduced
by reason of
a Portfolio's Advisor receiving brokerage and research
services. The
Board of Trustees of the Trust will periodically review the
commissions
paid by a Portfolio to determine if the commissions paid
over
representative periods of time were reasonable in relation
to the
benefits inuring to the Portfolio. Over-the-counter
purchases and sales
by a Portfolio 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 of Trustees has determined that transactions for a
Portfolio
may be executed through Smith Barney and other affiliated
broker-dealers
if, in the judgment of the Advisor, 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, and if, in the
transaction,
the affiliated broker-dealer charges the Portfolio a fair
and reasonable
rate.
The Portfolios will not purchase any security,
including U.S.
Government Securities or Municipal Obligations, during the
existence of
any underwriting or selling group relating thereto of which
Smith Barney
is a member, except to the extent permitted by the SEC.
The Portfolios may use Smith Barney and other
affiliated broker-
dealers as a commodities broker in connection with entering
into futures
contracts and options on futures contracts if, in the
judgment of the
Advisor, 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, and if, in the transaction, the affiliated
broker-dealer
charges the Portfolio a fair and reasonable rate. Smith
Barney has
agreed to charge the Portfolios commodity commissions at
rates
comparable to those charged by Smith Barney to its most
favored clients
for comparable trades in comparable accounts.
The following table sets forth certain information
regarding each
Portfolio's payment of brokerage commissions for the year
ended August
31, 1995:
BROKERAGE COMMISSIONS PAID TO
SMITH BARNEY
Total Paid to % of
% of
Amount Smith Barney Commis-
Trans-
sions
actions
Balanced Investments $36,073 N/A N/A
N/A
Large Capitalization
Value Investments $819,528 $35,134 4.29%
.25%
Large Capitalization
Growth Investments $743,269 $2,448 0.33%
.02%
Small Capitalization
Value Investments $1,272,329 $23,322 1.83%
.12%
Small Capitalization
Growth Investments $519,901 $7,587 1.46%
.10%
Emerging Markets
Equity Investments $391,066 N/A N/A
N/A
International Equity
Investments $330,684 N/A N/A
N/A
Government Money Investments, Intermediate Fixed Income
Investments,
Long-Term Bond Income Investments, Municipal Bond
Investments, Mortgage
Backed Investments and International Fixed Income
Investments did not
pay brokerage commissions during the year ended August 31,
1995.
Portfolio Turnover
Government Money Investments may attempt to increase
yields by
trading to take advantage of short-term market variations,
which results
in high portfolio turnover. Because purchases and sales of
money market
instruments are usually effected as principal transactions,
this policy
does not result in high brokerage commissions to the
Portfolio. The
other Portfolios do not intend to seek profits through
short-term
trading. Nevertheless, the Portfolios will not consider
portfolio
turnover rate a limiting factor in making investment
decisions.
A Portfolio's turnover rate is calculated by dividing
the lesser
of purchases or sales of its portfolio securities for the
year by the
monthly average value of the portfolio securities.
Securities or options
with remaining maturities of one year or less on the date of
acquisition
are excluded from the calculation. Under certain market
conditions, a
Portfolio authorized to engage in transactions in options
may experience
increased portfolio turnover as a result of its investment
strategies.
For instance, the exercise of a substantial number of
options written by
a Portfolio (due to appreciation of the underlying security
in the case
of call options or depreciation of the underlying security
in the case
of put options) could result in a turnover rate in excess of
100%. A
portfolio turnover rate of 100% would occur if all of a
Portfolio's
securities that are included in the computation of turnover
were
replaced once during a period of one year.
The Portfolios' portfolio turnover rates were as follows:
Portfolio Year Ended Year Ended
Year Ended
August 31, August 31,
August 31,
1995 1994
1993
Government Money Investments N/A N/A
N/A
Intermediate Fixed Income
Investments 98% 86%
92%
Long-Term Bond Investments 62% 43%
35%
Municipal Bond Investments 49% 132%
15%
Mortgage Backed Investments 30% 53%
93%
Balanced Investments( 47% 43%
10%
Large Capitalization Value
Equity Investments 21% 108%
47%
Large Capitalization Growth
Investments 38% 104%
47%
Small Capitalization Value
Equity Investments 115% 65%
70%
Small Capitalization Growth
Investments 174% 94%
97%
International Equity
Investments 28% 33%
46%
International Fixed Income
Investments 307% 358%
251%
Emerging Markets Equity
Investments( 89% 16%
N/A
Certain practices that may be employed by a Portfolio
could result
in high portfolio turnover. For example, portfolio
securities may be
sold in anticipation of a rise in interest rates (market
decline) or
purchased in anticipation of a decline in interest rates
(market rise)
and later sold. In addition, a security may be sold and
another of
comparable quality purchased at approximately the same time
to take
advantage of what an Adviser believes to be a temporary
disparity in the
normal yield relationship between the two securities. These
yield
disparities may occur for reasons not directly related to
the investment
quality of particular issues or the general movement of
interest rates,
such as changes in the overall demand for, or supply of,
various types
of securities. Portfolio turnover rates may vary greatly
from year to
year as well as within a particular year and may be affected
by cash
requirements for redemptions of a Portfolio's shares as well
as by
requirements that enable the Portfolio to receive favorable
tax
treatment.
MANAGEMENT OF THE TRUST
Trustees and Officers of the Trust
The Trustees and executive officers of the Trust,
together with
information as to their principal business occupations, are
set forth
below. The executive officers of the Trust are employees of
organizations that provide services to the Portfolios. Each
Trustee who
is an "interested person" of the Trust, as defined in the
1940 Act, is
indicated by an asterisk. As of the date of this Statement
of Additional
Information and the Prospectus, the Trustees and officers of
the Trust
as a group did not own any of the outstanding shares of the
Portfolios.
*Walter E. Auch, Trustee (Age 73). Consultant to
companies in the
financial services industry; Director of Pimco Advisers L.P.
His address
is 6001 N. 62nd Place, Paradise Valley, Arizona 85253.
Martin Brody, Trustee (Age 73). Vice Chairman of the
Board of
Restaurant Associates Industries, Inc.; prior to April 1990,
Chairman of
the Board of Restaurant Associates Industries, Inc. His
address is c/o
HNK Associates, Three ADP Boulevard, Roseland, New Jersey
07068.
Stephen E. Kaufman, Trustee (Age 63). Attorney. His
address is 277
Park Avenue, New York, New York 10017.
Armon E. Kamesar, Trustee (Age 67). Chairman TEC, an
international
organization of Chief Executive Officers; Trustee, U.S.
Bankruptcy
Court. His address is 7328 Country Club Drive, LaJolla, CA
92037.
*Heath B. McLendon, Trustee and Chairman (Age 61).
Executive Vice
President, Smith Barney; prior to July 1993, Senior
Executive Vice
President of Shearson Lehman Brothers; Vice Chairman of
Shearson Asset
Management, a member of the Asset Management Group of
Shearson Lehman
Brothers; and a Director of PanAgora Asset Management, Inc.
and PanAgora
Asset Management Limited. His address is 388 Greenwich
Street, New York,
New York 10013.
Madelon DeVoe Talley, Trustee (Age 62). Author.
Governor-at-large
of the National Association of Securities Dealers, Inc. Her
address is
876 Park Avenue, New York, New York 10021.
H. John Ellis, Jr., President (Age 67). Prior to 1992,
Executive
Vice President of the Consulting Services Division of
Shearson Lehman
Brothers. His address is 222 Delaware Avenue, Wilmington,
Delaware
19801.
W. Thomas Matthews, Executive Vice President and
Investment
Officer (Age 46) Prior to joining the Consulting Services
in 1995 he
worked as National Sales Director for Smith Barney. His
address is 388
Greenwhich Street, New York, New York 10013
Lewis E. Daidone, Senior Vice President and Treasurer
(Age 37).
Managing Director and Chief Financial Officer of Smith
Barney; Director
and Senior Vice President of SBMFM. His address is 388
Greenwich Street,
New York, New York 10013.
Donald T. Marchesiello, Vice President and Investment
Officer (Age
36). Prior to joining the Consulting Service in 1992 he
worked as a
Senior Investment Analyst for the New York City
Comptroller's Office
Bureau of Asset Management. His address is 222 Delaware
Avenue,
Wilmington, Delaware 19801.
Donald G. Robinson, Vice President and Investment
Officer (Age
36). Executive Vice President and Director of Investment
Advisory
Services of the Consulting Group. Prior to 1989, Vice
President of Chase
Manhattan Bank. His address is 222 Delaware Avenue,
Wilmington, Delaware
19801.
Christina T. Sydor, Secretary (Age 44). Managing
Director of Smith
Barney; General Counsel and Secretary of SBMFM. Her address
is 388
Greenwich Street, New York New York 10013.
Remuneration
No director, officer or employee of Smith Barney, the
Manager,
SBMFM, or any of their affiliates will receive any
compensation from the
Trust for serving as an officer or Trustee of the Trust. The
Trust pays
each Trustee who is not a director, officer or employee of
Smith Barney,
the Managers, any Advisor, SBMFM, or any of their affiliates
a fee of
$10,000 per annum plus $500 per meeting attended and
reimburses them for
travel and out-of-pocket expenses. For the fiscal year
ended August 31,
1995, such fees and expenses totaled $45,640.
For the calendar year ended August 31, 1995, the Trustees of
the Trust
were paid the following compensation:
TRUSTEE AGGREGATE COMPENSATION AGGREGATE
COMPENSATION
FROM THE TRUST (as of FROM THE SMITH
BARNEY
September 21, 1995) COMPLEX/ NUMBER
OF
PORTFOLIOS FOR
WHICH
DIRECTOR SERVES
WITHIN
SMITH BARNEY
COMPLEX*
Walter E. Auch $19,500 $19,500/1
Martin Brody $19,500 $103,625/15
Stephen E. Kaufman $18,500 $83,600/10
Armon E. Kamesar $19,500 $19,500/1
Madelon DeVoe Talley $19,500 $63,500/3
Heath B. McLendon $ 0 $ 0/41
* Aggregate Compensation for Smith Barney Complex reflects
all
compensation received during the 1994 calendar year.
Manager; Advisors; Administrator
The Manager serves as investment manager to the Trust
pursuant to
an investment management agreement ("Management Agreement").
Each
Advisor serves as investment advisor to a Portfolio pursuant
to separate
written agreements with each Portfolio ("Advisory
Agreements"), SBMFM
serves as administrator to each Portfolio pursuant to a
written
agreement ("Administration Agreement") Prior to May 4,
1994, Boston
Advisors served as administrator for each Portfolio.
Subsequently,
until August 31, 1995, Boston Advisors provided sub-
administration
services through SBMFM. The Management Agreement was most
recently
approved by the Board of Trustees, including a majority of
the Trustees
who are not "interested persons" of the Trust, the Manager,
the
Advisors, on September 21, 1995 and by the shareholders of
the Trust on
June 1, 1993. The Administration Agreement was most recently
approved by
The Trust's Board of Trustees, including a majority of the
disinterested
Trustees, on September 21, 1995. Certain of the services
provided and
the fees paid by the Trust under the Management Agreement,
the Advisory
Agreements and the Administration Agreement are described in
the
Prospectus. In addition to the services described in the
Prospectus, as
administrator, SBMFM furnishes the Trust with statistical
and research
data, clerical help, accounting, data processing,
bookkeeping, internal
auditing and legal services and certain other services
required by the
Trust, prepares reports to the Trust's shareholders and
prepares tax
returns, reports to and filings with the SEC and state blue
sky
authorities.
For the year ended August 31, 1993 (the period from
commencement of
operations on February 16, 1993 through August 31, 1993 for
Balanced
Investments), the Portfolios accrued investment management
and
administration fees as follows:
Porfolio Advisory Fee Net Management
Administration
Fee
Fee
Government Money
Investments $81,187 $0
$108,250
Intermediate Fixed
Income Investments 191,413 191,413
191,413
Long-Term Bond
Investments 100,197 100,197
100,197
Municipal Bond
Investments 67,430 67,430
67,430
Mortgage Backed
Investments 159,082 159,082
127,265
Balanced Investments 5,250 5,250
3,500
Large Capitalization Value
Equity Investments 1,063,789 1,063,789
709,193
Large Capitalization
Growth Investments 458,139 458,139
305,426
Small Capitalization Value
Equity Investments 430,533 430,533
287,022
Small Capitalization
Growth Investments 139,760 139,760
93,173
International Equity
Investments 673,384 505,036
336,692
International Fixed
Income Investments 161,372 161,372
129,098
For the year ended August 31, 1993, 100% of the
Manager's fees and
Boston Advisors' fees were waived by the Manager and Boston
Advisors for
Government Money Investments. For the period from
commencement of
operations on February 16, 1993 through August 31, 1993,
100% of the
Manager's and Boston Advisors' fees were waived by the
Manager and
Boston Advisors for Balanced Investments. Additionally, the
Portfolio
was reimbursed by the Manager and Boston Advisors in the
amounts of
$106,617 and $142,156, respectively for Government Money
Investments and
$25,580 and $8,527, respectively, for Balanced Investments.
Of the fees incurred by the following Portfolios, the
Manager and
Boston Advisors waived fees as follows: Intermediate Fixed
Income
Investments-$48,030 and $24,016; Small Capitalization Growth
Investments-$77,072 and $25,691; Long-Term Bond Investments-
$90,890 and
$45,445 and international Fixed Income Investments-$108,626
and $43,450;
Municipal Bond Investments-$46,592 and $23,296; Mortgage
Backed
Investments-$138,688 and $55,476.
For the year ended August 31, 1994 (the period from
commencement
of operation on April 21, 1994 through August 31, 1994 for
Emerging
Markets Equity Investments), the Portfolios accrued
investment
management and administration fees as follows:
Porfolio Advisory Fee Net Management
Administration
Fee
Fee
Government Money
Investments $233,770 $0
$311,693
Intermediate Fixed
Income Investments 385,855 385,855
385,855
Long-Term Bond
Investments 173,719 173,917
173,719
Municipal Bond
Investments 118,593 118,593
118,593
Mortgage Backed
Investments 280,108 280,108
224,086
Balanced Investments 36,835 36,835
24,557
Large Capitalization Value
Equity Investments 1,836,351 2,411,963
1,416,105
Large Capitalization
Growth Investments 932,049 1,182,386
704,811
Small Capitalization Value
Equity Investments 772,382 772,382
514,919
Small Capitalization
Growth Investments 388,852 388,852
259,235
International Equity
Investments 1,283,535 1,711,363
861,250
International Fixed
Income Investments 302,931 302,931
242,345
Emerging Markets
Investments 42,615 21,308
14,205
For the year ended August 31, 1994, 100% of the
Management fees
and the Advisory fees were waived for Balanced Investments.
Additionally, the Portfolio was reimbursed by the Manager in
the amount
of $7,747 and by the Administrator and Sub-Administrator in
the amount
of $2,582.
Of the fees incurred by the following Portfolios,
Management,
Administration and Custody fees, in the aggregate, were
waived as
follows: Government Money Investments-$455,786, Long-Term
Bond
Investments-$130,363, Municipal Bond Investments-$78,258,
Mortgage
Backed Investments-$292,235, Large Capitalization Value
Equity
Investments-$287,806, Large Capitalization Growth
Investments-$125,168,
International Fixed Income Investments-$159,363, and
Emerging Markets
Equity Investments-$59,781.
Effective March 21, 1994, the Manager has agreed to
waive a
portion of the fees otherwise payable to it by each of Large
Capitalization Value Equity Investments and Large
Capitalization Growth
Investments so that the Manager would retain, as its annual
management
fee, no more than 0.30% of each such Portfolio's average
daily net
assets. Absent such waivers, the Manager would retain, as
its annual
management fee, between 0.40% and 0.45% of the assets of
Large
Capitalization Value Equity Investments and Large
Capitalization Growth
Investments managed by Parametric Portfolio Associates, Inc.
and Boston
Structured Advisors, respectively.
For the year ended August 31, 1995, the Portfolios
accrued
investment management and administration fees as follows:
Porfolio Management Administration
Fee
Fee
Government Money
Investments $332,386 $444,181
Intermediate Fixed
Income Investments 881,208 440,604
Long-Term Bond
Investments 525,476 262,738
Municipal Bond
Investments 189,270 94,635
Mortgage Backed
Investments 526,392 210,557
Balanced Investments 114,764 38,254
Large Capitalization Value
Equity Investments 5,293,946 1,764,649
Large Capitalization
Growth Investments 3,720,760 1,240,253
Small Capitalization Value
Equity Investments 1,754,756 584,919
Small Capitalization
Growth Investments 1,405,674 468,558
International Equity
Investments 4,163,115 1,189,461
International Fixed
Income Investments 536,934 214,773
Emerging Markets
Investments 445,779 99,062
Although the Manager does not serve as an investment
manager for
any other registered investment company, the Manager and its
related
office, the Consulting Services Division of Smith Barney,
have extensive
experience in providing investment advisor selection
services. The
Consulting Services Division, through its predecessor, was
established
in 1973 with the primary objective of matching the
investment needs of
institutional and individual clients with appropriate and
qualified
money management organizations throughout the nation. In
1989, the
Consulting Services Division was restructured and its
research and
investment advisory evaluation services functions were
segregated and
named the Consulting Group. The Manager's analysts have, in
the
aggregate, over 18 years of experience performing asset
manager searches
for institutional and individual clients. These analysts
rely on the
Manager's comprehensive database of money management firms,
through
which the Manager tracks the historic and ongoing
performance of over
800 of the more than 16,000 registered investment advisors,
and over 300
on-sight evaluation visits annually to advisors. As of
November 30,
1994, the Manager and the Consulting Services Division
provided services
with respect to over $67 billion in client assets
representing more than
199,000 separate accounts under a variety of programs
designed for
individual and institutional investors.
The Manager, SBMFM, and the Advisors each pays the
salaries of
all officers and employees who are employed by it and the
Trust, and
SBMFM maintains office facilities for the Trust. The
Manager, SBMFM,
and the Advisors bear all expenses in connection with the
performance of
their respective services under the Management Agreement,
the Advisory
Agreements, and the Administration Agreement.
As noted in the Prospectus, subject to the supervision
and
direction of the Manager and, ultimately, the Board of
Trustees, each
Advisor manages the securities held by the Portfolio it
serves in
accordance with the Portfolio's stated investment objectives
and
policies, makes investment decisions for the Portfolio and
places orders
to purchase and sell securities on behalf of the Portfolio.
Each Advisor
has agreed that neither it nor any of its affiliated persons
(as defined
in the 1940 Act) shall accept retention as investment
advisor,
investment manager or similar service provider during the
pendency of
its Advisory Agreement, and for the period of one year after
the
termination of the Advisory Agreement, with or for the
benefit of any
investment company registered under the 1940 Act that seeks
as a primary
market for its shares asset allocation programs similar in
nature or
market to TRAK. This limitation does not apply to the
continuation of
any contractual relationship to which the Advisor was a
party that was
in effect on the date of its Advisory Agreement.
Each of the Manager and SBMFM has agreed that if in any
fiscal
year the aggregate expenses of the Portfolios (including
fees payable
pursuant to the Management Agreement, but excluding
interest, taxes,
brokerage fees and, if permitted by the relevant state
securities
commissions, extraordinary expenses) exceed the expense
limitation of
any state having jurisdiction over the Portfolios, the
Manager and
Boston Advisors will reduce their fees by the amount of the
excess
expenses, the amount to be allocated among them in the
proportion their
respective fees bear to the aggregate of the fees paid to
them by the
Portfolios. A fee reduction, if any, will be reconciled
monthly. As of
the date of this Statement of Additional Information, the
most
restrictive state expense limitation applicable to the
Portfolios is
2.5% of the first $30 million of each Portfolio's average
daily net
assets, 2% of the next $70 million of each Portfolio's
average daily net
assets and 1.5% of each Portfolio's remaining average daily
net assets.
No such fee reduction was required for the years ended
August 31, 1995
and 1994.
Counsel and Auditors
Willkie Farr & Gallagher serves as counsel to the
Trust. Stroock &
Stroock & Lavan serves as counsel to the Trustees who are
not interested
persons of the Trust.
KPMG Peat Marwick LLP, independent auditors, Park
Avenue, New
York, New York 10154, currently serve as auditors of the
Trust and
rendered an opinion on the Trust's most recent financial
statements.
Organization of the Trust
The Trust has been organized as an unincorporated
business trust
under the laws of The Commonwealth of Massachusetts pursuant
to a Master
Trust Agreement dated April 12, 1991, as amended from time
to time (the
"Trust Agreement").
In the interest of economy and convenience,
certificates
representing shares in the Trust are not physically issued.
PNC, the
Trust's custodian, maintains a record of each shareholder's
ownership of
Trust shares. Shares do not have cumulative voting rights,
which means
that holders of more than 50% of the shares voting for the
election of
Trustees can elect all Trustees. Shares are transferable,
but have no
preemptive, conversion or subscription rights. Shareholders
generally
vote on a Trust-wide basis, except with respect to
continuation of the
Advisory Agreements, in which case shareholders vote by
Portfolio.
Massachusetts law provides that shareholders could,
under certain
circumstances, be held personally liable for the obligations
of the
Trust. The Trust Agreement disclaims shareholder liability
for acts or
obligations of the Trust, however, and requires that notice
of the
disclaimer be given in each agreement, obligation or
instrument entered
into or executed by the Trust or a Trustee. The Trust
Agreement provides
for indemnification from the Trust's property for all losses
and
expenses of any shareholder held personally liable for the
obligations
of the Trust. Thus, the risk of a shareholder's incurring
financial loss
on account of shareholder liability is limited to
circumstances in which
the Trust would be unable to meet its obligations, a
possibility that
the Trust's management believes is remote. Upon payment of
any liability
incurred by the Trust, the shareholder paying the liability
will be
entitled to reimbursement from the general assets of the
Trust. The
Trustees intend to conduct the operations of the Trust in a
manner so as
to avoid, as far as possible, ultimate liability of the
shareholders for
liabilities of the Trust.
PURCHASE OF SHARES
TRAK Personalized Investment Advisory Service
As described in the Prospectus, shares of the Trust are
available
to participants in TRAK Personalized Investment Advisory
Service
("TRAK").
TRAK is an investment advisory service offered by the
Consulting
Group designed to assist a client in devising and
implementing a
reasoned, systematic, long-term investment strategy tailored
to the
client's financial circumstances. TRAK links the Consulting
Group's
experience in evaluating an investor's investment objectives
and risk
tolerances and the abilities of investment advisers to meet
those
objectives and risk tolerances and the historic performance
of various
asset classes, with the convenience and cost effectiveness
of a broad
array of investment portfolios. TRAK and the Trust offer to
individual
investors access to investment decision making services
routinely
utilized by institutional investors. Prior to the inception
of TRAK,
account sizes for the Consulting Group's services ranged
from $100,000
for individuals to more than $1 billion for institutions.
TRAK is
available for a quarterly fee at the maximum annual rate
specified in
the Prospectus under the caption "Purchase of Shares-
General." In
accordance with applicable law, each client will receive, in
connection
with participation in TRAK, a brochure containing the
information
included in Part II of Smith Barney's Form ADV relating to
participation
in TRAK. Smith Barney, the distributor of the Trust, has
received an
exemption from the Department of Labor from certain
provisions of the
Employee Retirement Income Security Act of 1974 relating to
the purchase
of Trust Shares, and participation in TRAK, by certain
retirement plans.
TRAK consists of the following elements for programs other
than
participant directed employee benefit plans:
The Request. The core of TRAK is the Consulting Group's
evaluation
of the client's financial goals and risk tolerances based on
the
Request, a confidential client questionnaire that the client
completes
with the assistance of his or her Financial Consultant. In
reviewing and
processing a client's Request, the Consulting Group
considers the
client's specific investment goals-a secure retirement, the
education of
children, the preservation and growth of an inheritance or
savings or
the accumulation of capital for the formation of a business-
in terms of
the client's time horizon for achievement of those goals,
immediate and
projected financial means and needs and overall tolerances
for
investment risk.
The Recommendation. Based on its evaluation of the
client's
financial goals and circumstances, the Consulting Group
prepares and
issues a Recommendation. In the Recommendation, the
Consulting Group
provides advice as to an appropriate mix of investment types
designed to
balance the client's financial goals against his or her
means and risk
tolerances as part of a long term investment strategy.
Numerous
financial studies, including a study in the Financial
Analysis Journal,
a major publication forum for investment research, have
concluded that
the single most important component determining the
performance of an investment portfolio is how that portfolio
is
allocated among different types of investments. The
Recommendation draws
on Smith Barney's experience in analyzing macroeconomic
events worldwide
and designing asset allocation strategies as well as the
Consulting
Group's experience in
monitoring and evaluating the performance of various market
segments
over substantial periods of time and correlating that
information with
the client's financial characteristics. The Recommendation
provides
specific advice about implementing investment decisions
through the
Trust. The Recommendation employs an asset allocation theory
based on a
framework discussed in "Portfolio Selection," a paper
published in the
Journal of Finance that earned its author a Nobel Prize. The
Recommendation specifies a combination of investments in the
Portfolios
considered suitable for the client. The Financial Consultant
assists the
client in evaluating the advice contained in the
Recommendation, offers
interpretations in light of personal knowledge of the
client's
circumstances and implements the client's investment
decisions, but has
no investment discretion over the client's account. All
decisions on
investing among the Portfolios remain with the client. The
client has
the option of accepting the Recommendation or selecting an
alternative
combination of investments in the Portfolios.
The Review. TRAK is a continuing investment advisory
service.
Once a TRAK program is active, the client receives, at least
quarterly,
a Review highlighting all account activity for the preceding
quarter.
The Review is a monitoring report containing an analysis and
evaluation
of the client's TRAK assets to ascertain whether the
client's objectives
for the TRAK assets are being met and recommending, when
appropriate,
changes in the allocation of assets among the Portfolios.
Information
presented within the Review includes a market commentary, a
record of
the client's asset performance and rates of return as
compared to
several appropriate market indices (illustrated in a manner
including
any fees for participation in TRAK actually incurred during
the period),
the client's actual portfolio showing the breakdown of
investments made
in each Portfolio, year-to-date and cumulative realized
gains and losses
in and income received from each Portfolio, all purchase,
sale and
exchange activity and dividends and interest received and/or
reinvested.
The information in the Review is especially useful for tax
preparation
purposes.
Financial Consultant Support. Integral to TRAK is the
personal and
confidential relationship between the client and his or her
Financial
Consultant. With a Financial Consultant a client at all
times has
available a registered investment professional backed by the
full
resources of the Consulting Group to discuss his or her
financial
circumstances and strategy. The Financial Consultant serves
the client
by assisting the client in identifying his or her financial
characteristics, completing and transmitting the Request,
reviewing with
the client the Recommendation and Reviews, responding to
identified
changes in the client's financial circumstances and
implementing
investment decisions. When financial circumstances change,
the Financial
Consultant can be consulted and a new evaluation
commissioned at no
additional charge. The Financial Consultant is not
compensated on the
basis of the Portfolios selected for investment and the
decision about
which Portfolios to purchase and in what proportions at all
times rests
with the client alone. Financial Consultants will be
appropriately
registered and/or qualified under
any state laws applicable to investment advisors and
advisory
representatives.
Where the client is a qualified employee benefit plan,
the
Consulting Group may provide different services than those
described
above, for different fees.
REDEMPTION OF SHARES
Detailed information on how to redeem shares of a
Portfolio is
included in the Prospectus. The right of redemption of
shares of a
Portfolio may be suspended or the date of payment postponed
(i) for any
periods during which the New York Stock Exchange, Inc. (the
"NYSE") is
closed (other than for customary weekend and holiday
closings), (ii)
when trading in the markets the Portfolio normally utilizes
is
restricted, or an emergency, as defined by the rules and
regulations of
the SEC, exists making disposal of the Portfolio's
investments or
determination of its net asset value not reasonably
practicable or (iii)
for such other periods as the SEC by order may permit for
the protection
of the Portfolio's shareholders.
Redemptions in Kind
If the Board of Trustees determines that it would be
detrimental
to the best interests of a Portfolio's shareholders to make
a redemption
payment wholly in cash, the Portfolio may pay, in accordance
with rules
adopted by the SEC, any portion of a redemption in excess of
the lesser
of $250,000 or 1% of the Portfolio's net assets by a
distribution in
kind of readily marketable portfolio securities in lieu of
cash.
Redemptions failing to meet this threshold must be made in
cash.
Shareholders receiving distributions in kind of portfolio
securities may
incur brokerage commissions when subsequently disposing of
those
securities.
NET ASSET VALUE
As noted in the Prospectus, the Trust will not
calculate the net
asset value of the Portfolios on certain holidays. On those
days,
securities held by a Portfolio may nevertheless be actively
traded and
the value of the Portfolio's shares could be significantly
affected.
Certain of the Portfolios may invest in foreign
securities. As a
result, the calculation of a Portfolio's net asset value may
not take
place contemporaneously with the determination of the prices
of certain
of the portfolio securities used in the calculation. A
security that is
listed or traded on more than one exchange is valued for
purposes of
calculating the Portfolio's net asset value at the quotation
on the
exchange determined to be the primary market for the
security.
In carrying out the Board's valuation policies, SBMFM,
as
administrator, may consult with an independent pricing
service (the
"Pricing Service") retained by the Trust. Debt securities of
U.S.
issuers (other than U.S. Government Securities and short-
term
investments) are valued by SBMFM after consultation with the
Pricing
Service. When in the judgment of the Pricing Service quoted
bid prices
for investments are readily available and are representative
of the bid
side of the market, these investments are valued at the mean
between the
quoted bid prices and asked prices. Investments for which no
readily
obtainable market quotations are available, in the judgment
of the
Pricing Service, are carried at fair value as determined by
the Pricing
Service. The procedures of the Pricing Service are reviewed
periodically
by the officers of the Trust under the general supervision
and
responsibility of the Board of Trustees.
The valuation of the securities held by Government
Money
Investments and U.S. dollar-denominated securities with less
than 60
days to maturity held by the other Portfolios is based upon
their
amortized cost, which does not take into account unrealized
capital
gains or losses. Amortized cost valuation involves initially
valuing an
instrument at its cost and, thereafter, assuming a constant
amortization
to maturity of any discount or premium, regardless of the
impact of
fluctuating interest rates on the market value of the
instrument. While
this method provides certainty in valuation, it may result
in periods
during which value, as determined by amortized cost, is
higher or lower
than the price that the Portfolio would receive if it sold
the
instrument.
Government Money Investments' use of the amortized cost
method of
valuing its portfolio securities is permitted by a rule
adopted by the
SEC. Under this rule, the Portfolio must maintain a dollar-
weighted
average portfolio maturity of 90 days or less, purchase only
instruments
having remaining maturities of 397 days or less, and invest
only in
securities determined by the Advisor, under the supervision
of the Board
of Trustees of the Trust, to be of high quality with minimal
credit
risks.
Pursuant to the rule, the Board of Trustees also has
established
procedures designed to stabilize, to the extent reasonably
possible,
Government Money Investments' price per share as computed
for the
purpose of sales and redemptions at $1.00. These procedures
include
review of the Portfolios'
holdings by the Board of Trustees, at such intervals as it
may deem
appropriate, to determine whether the Portfolio's net asset
value
calculated by using available market quotations or market
equivalents
deviates from $1.00 per share based on amortized cost.
The rule also provides that the extent of any deviation
between
Government Money Investments' net asset value based on
available market
quotations or market equivalents and the $1.00 per share net
asset value
based on amortized cost must be examined by the Board of
Trustees. In
the event that the Board of Trustees determines that a
deviation exists
that may result in material dilution or other unfair results
to
investors or existing shareholders, pursuant to the rule the
Board of
Trustees must cause the Portfolio to take any corrective
action the
Board of Trustees regards as necessary and appropriate,
including:
selling portfolio instruments prior to maturity to realize
capital gains
or losses or to shorten average portfolio maturity;
withholding
dividends or paying distributions from capital or capital
gains;
redeeming shares in kind; or establishing a net asset value
per share by
using available market quotations.
DETERMINATION OF PERFORMANCE
From time to time, the Trust may quote a Portfolio's
yield or
total return in advertisements or in reports and other
communications to
shareholders.
Yield and Equivalent Taxable Yield
For a Portfolio other than Government Money
Investments, the 30-
day yield figure described in the Prospectus is calculated
according to
a formula prescribed by the SEC, expressed as follows:
YIELD = 2 [ (a-b\1)( -1]
cd
Where:
a = dividends and interest earned during the period.
b= expenses accrued for the period (net of reimbursement),
including a
ratable portion of the maximum annual fee for
participation in
TRAK.
c= the average daily number of shares outstanding during the
period that
were entitled to receive dividends.
d= the maximum offering price per share on the last day of
the period.
For the purpose of determining the interest earned
(variable "a"
in the formula) on debt obligations that were purchased by
the Portfolio
at a discount or premium, the formula generally calls for
amortization
of the discount or premium; the amortization schedule will
be adjusted
monthly to reflect changes in the market values of the debt
obligations.
A Portfolio's equivalent taxable 30-day yield is
computed by
dividing that portion of the Portfolio's 30-day yield that
is tax exempt
by one minus a stated income tax rate and adding the product
to any
portion of the Portfolio's yield that is not tax exempt.
The yield for Government Money Investments is computed
by (a)
determining the net change, exclusive of capital changes, in
the value
of a hypothetical pre-existing account in the Portfolio
having a balance
of one share at the beginning of a seven day period for
which yield is
to be quoted; (b) subtracting a hypothetical charge
reflecting
deductions from shareholder accounts; (c) dividing the
difference by the
value of the account at the beginning of the period to
obtain the base
period return; and (d) annualizing the results (i.e.,
multiplying the
base period return by 365/7). The net change in the value of
the account
reflects the value of additional shares purchased with
dividends
declared on the original share and any such additional
shares, but does
not include realized gains and losses or unrealized
appreciation and
depreciation. In addition, the Portfolio may calculate a
compound
effective annualized yield by adding one to the base period
return
(calculated as described above), raising the sum to a power
equal to
365/7 and subtracting one.
Investors should recognize that in periods of declining
interest
rates, a Portfolio's yield will tend to be somewhat higher
than
prevailing market rates, and in periods of rising interest
rates will
tend to be somewhat lower. In addition, when interest rates
are falling,
the inflow of net new money to a Portfolio from the
continuous sale of
its shares will likely be invested in instruments producing
lower yields
than the balance of its portfolio of securities, thereby
reducing the
current yield of the Portfolio. In periods of rising
interest rates the
opposite can be expected to occur.
Average Annual Total Return
A Portfolio's average annual total return figures
described in the
Prospectus are computed according to a formula prescribed by
the SEC,
expressed as follows:
P(1+T)n = ERV
Where:
P= a hypothetical initial payment of $1,000
T= average annual total return, including the effect of the
maximum
annual fee for participation in TRAK.
n= number of years
ERV= Ending Redeemable Value of a hypothetical $1,000
investment made at
the beginning of a 1-, 5- or 10-year period at the end of
a 1-, 5- or
10-year period (or fractional portion thereof), assuming
reinvestment
of all dividends and distributions and the effect of the
maximum
annual fee for participation in TRAK.
The ERV assumes complete redemption of the hypothetical
investment
at the end of the measuring period. A Portfolio's net
investment income
changes in response to fluctuations in interest rates and
the expenses
of the Portfolio.
The Portfolios' average annual total returns without
the effect of
the maximum annual fee for participation in TRAK and with
the effect of
fee waivers were as follows:
Portfolio 12 Months ended From
Inception to
August 31, 1995 August 31,
1995***
Intermediate Fixed
Income Investments 8.70% 6.70%
Long-Term Bond Investments 10.71% 6.49%
Municipal Bond Investments 7.86% 6.18%
Mortgage Backed Investments 9.96% 6.28%
Balanced Investments* 12.76% 9.31%
Large Capitalization
Value Equity Investments 16.14% 9.71%
Large Capitalization
Growth Investments 22.30% 11.90%
Small Capitalization
Value Equity Investments 12.50% 8.60%
Small Capitalization
Growth Investments 38.25% 23.06%
International Equity
Investments (0.18)% 9.27%
International Fixed
Income Investments 17.66% 10.75%
Emerging Markets
Equity Investments** (15.13)% 0.50%
- ------
* Balanced Investments commenced operations on February
16, 1993.
** Aggregate from April 21, 1994 through August 31, 1994.
Since
Emerging Markets
Equity Investments commenced operations on April 21,
1994.
*** The remaining Portfolios commenced operations on
November 18, 1991.
The Portfolios' average annual total returns with the
effect of
the maximum annual fee for participation in TRAK and with
the effect of
fee waivers were as follows:
Portfolio 12 Months ended From
Inception to
August 31, 1995 August 31,
1995***
Intermediate Fixed
Income Investments 7.08% 5.10%
Long-Term Bond Investments 9.07% 4.90%
Municipal Bond Investments 6.25% 4.60%
Mortgage Backed Investments 8.33% . %
Balanced Investments* 11.09% 7.69%
Large Capitalization
Value Equity Investments 14.41% 8.07%
Large Capitalization
Growth Investments 20.48% 10.22%
Small Capitalization
Value Equity Investments 10.83% 6.98%
Small Capitalization
Growth Investments 36.19% 21.22%
International Equity
Investments (1.66)% 7.64%
International Fixed
Income Investments 15.92% 9.09%
Emerging Markets
Equity Investments** (16.39)% (1.00)%
- ------
* Balanced Investments commenced operations on February
16, 1993.
** Aggregate from April 21, 1994 through August 31, 1994.
Since
Emerging Markets
Equity Investments commenced operations on April 21,
1994.
*** The remaining Portfolios commenced operations on
November 18, 1991.
Aggregate Total Return
A Portfolio's aggregate total return figures described
in the
Prospectus represent the cumulative change in the value of
an investment
in the Portfolio for the specified period and are computed
by the
following formula:
ERV - P
P
Where:
P= a hypothetical initial payment of $1,000.
ERV= Ending Redeemable Value of a hypothetical $1,000
investment made at
the beginning of the 1-, 5- or 10-year period at the end
of the 1-, 5-
or 10-year period (or fractional portion thereof),
assuming
reinvestment of all dividends and distributions and the
effect of the
maximum annual fee for participation in TRAK.
The ERV assumes complete redemption of the hypothetical
investment at
the end of the measuring period.
The Portfolios' aggregate total returns without the
effect of the
maximum annual fee for participation in TRAK and with the
effect of fee
waivers were as follows:
Portfolio 12 Months ended From
Inception to
August 31, 1995 August 31,
1995***
Intermediate Fixed
Income Investments 8.70% 27.81%
Long-Term Bond Investments 10.71% 26.84%
Municipal Bond Investments 7.86% 25.48%
Mortgage Backed Investments 9.96% 25.93%
Balanced Investments* 12.76% 25.32%
Large Capitalization
Value Equity Investments 16.14% 42.00%
Large Capitalization
Growth Investments 22.30% 53.00%
Small Capitalization
Value Equity Investments 12.50% 36.61%
Small Capitalization
Growth Investments 38.25% 119.26%
International Equity
Investments (0.18)% 39.87%
International Fixed
Income Investments 17.66% 47.13%
Emerging Markets
Equity Investments** (15.13)% 0.68%
The Portfolios' aggregate total returns with the effect
of the
maximum annual fee for participation in TRAK and with the
effect of fee
waivers were as follows:
From September 1, 1994
through August 31, 1995 From Inception*** through August
31, 1995
Intermediate Fixed Income Investments 7.08% 20.87%
Long-Term Bond Investments 9.07% 19.86%
Municipal Bond Investments 6.25% 18.57%
Mortgage Backed Investments 8.33% 19.00%
Balanced Investments* 11.09% 20.64%
Large Capitalization Value Equity Investments 14.41%
34.16%
Large Capitalization Growth Investments 20.48% 44.54%
Small Capitalization Value Equity Investments 10.83%
29.07%
Small Capitalization Growth Investments 36.19% 107.14%
International Equity Investments (1.66)% 32.14%
International Fixed Income Investments 15.92% 39.04%
Emerging Markets Equity Investments** (16.39)% (1.37)%
- ------
* Balanced Investments commenced operations on February
16, 1993.
** Emerging Markets Equity Investments commenced operations
on April
21, 1994.
*** The remaining Portfolios commenced operations on
November 18, 1991.
A Portfolio's net investment income changes in response
to
fluctuations in interest rates and the expenses of the
Portfolio.
Consequently, the given performance quotations should not be
considered
as representative of the Portfolio's performance for any
specified
period in the future.
A Portfolio's performance will vary from time to time
depending
upon market conditions, the composition of its portfolio and
its
operating expenses. Consequently, any given performance
quotation should
not be considered representative of a Portfolio's
performance for any
specified period in the future. In addition, because
performance will
fluctuate, it may not provide a basis for comparing an
investment in the
Portfolio with certain bank deposits or other investments
that pay a
fixed yield for a stated period of time. Investors comparing
a
Portfolio's performance with that of other mutual funds
should give
consideration to the quality and maturity of the respective
investment
companies' portfolio securities.
Comparative performance information may be used from
time to time
in advertising the Portfolios' shares, including data from
Lipper
Analytical Services, Inc., Standard & Poor's 500 Composite
Stock Price
Index, the Dow Jones Industrial Average and other industry
publications.
TAXES
Each Portfolio intends to continue to qualify in each
year as a
"regulated investment company" under the Internal Revenue
Code of 1986,
as amended (the "Code"). Provided that a Portfolio (i) is a
regulated
investment company and (ii) distributes to its shareholders
at least 90%
of its taxable net investment income (including, for this
purpose, its
net realized short-term capital gains) and 90% of its tax
exempt
interest income (reduced by certain expenses), it will not
be liable for
federal income taxes to the extent its taxable net
investment income and
its net realized long-term and short-term capital gains,
if any, are distributed to its shareholders.
Interest on indebtedness incurred by a shareholder to
purchase or
carry shares of Municipal Bond Investments will not be
deductible for
federal income tax purposes. If a shareholder receives
exempt-interest
dividends with respect to any share of Municipal Bond
Investments and if
the share is held by the
shareholder for six months or less, then any loss on the
sale or
exchange of the share may, to the extent of the exempt-
interest
dividends, be disallowed. In addition, the Code may require
a
shareholder that receives exempt-interest dividends to treat
as taxable
income a portion of certain otherwise non-taxable
social security and railroad retirement benefit payments.
Furthermore,
that portion of any exempt-interest dividend paid by
Municipal Bond
Investments that represents income derived from certain
revenue or AMT-
Subject Bonds held by the Portfolio may not retain its tax
exempt status
in the hands of a shareholder who is a "substantial user" of
a facility
financed by such bonds, or a "related person" thereof.
Moreover, as
noted in the Prospectus, (i) some or all of Municipal Bond
Investments'
exempt-interest dividends may be a specific preference item,
or a
component of an adjustment item, for purposes of the federal
individual
and corporate alternative minimum taxes and (ii) the receipt
of
Municipal Bond Investments' dividends and distributions may
affect a
corporate shareholder's federal "environmental" tax
liability. In
addition, the receipt of Municipal Bond Investments'
dividends and
distributions may affect a foreign corporate shareholder's
federal
"branch profits" tax liability and federal "excess net
passive income"
tax liability of a shareholder of a Subchapter S
corporation.
Shareholders should consult their own tax advisors as to
whether they
are (i) "substantial users" with respect to a facility or
"related" to
such users within the meaning of the Code or (ii) subject to
a federal
alternative minimum tax, the federal "environmental" tax,
the federal
"branch profits" tax, or the federal "excess net passive
income" tax.
As described above and in the Prospectus, each
Portfolio other
than Government Money Investments, Municipal Bond
Investments and
Balanced Investments may invest in certain types of
warrants, foreign
currencies, forward contracts, options and futures
contracts. These
Portfolios anticipate that these investment activities will
not prevent
them from qualifying as regulated investment companies.
A Portfolio's transactions in foreign currencies,
forward
contracts, options and futures contracts (including options
and futures
contracts on foreign currencies) will be subject to special
provisions
of the Code that, among other things, may affect the
character of gains
and losses realized by the Portfolio (i.e., may affect
whether gains or
losses are ordinary or capital), accelerate recognition of
income to the
Portfolio and defer Portfolio losses. These rules could
therefore affect
the character, amount and timing of distributions to
shareholders. These
provisions also (i) will require a Portfolio to mark-to-
market certain
types of the positions in its portfolio (i.e., treat them as
if they
were closed out), and (ii) may cause a Portfolio to
recognize income
without receiving cash with which to pay dividends or make
distributions
in amounts necessary to satisfy the distribution
requirements for
avoiding income and excise taxes that are described above
and in the
Prospectus. Each of the Portfolios will monitor its
transactions, will
make the appropriate tax elections and will make the
appropriate entries
in its books and records when it acquires any foreign
currency, forward
contract, option, futures contract or hedged investment in
order to
mitigate the effect of these rules and prevent
disqualification of the
Portfolio as a regulated investment company.
As a general rule, a Portfolio's gain or loss on a sale
or
exchange of an investment will be a long-term capital gain
or loss if
the Portfolio has held the investment for more than one year
and will be
a short-term capital gain or loss if it has held the
investment for one
year or less. Furthermore, as a general rule, a
shareholder's gain or
loss on a sale or redemption of Portfolio shares will be a
long-term
capital gain or loss if the shareholder has held his or her
Portfolio
shares for more than one year and will be a short-term
capital gain or
loss if he or she has held his or her Portfolio shares for
one year or
less.
The Portfolios other than Government Money Investments,
Intermediate Fixed Income Investments, Municipal Bond
Investments and
Mortgage Backed Investments expect to realize a significant
amount of
net long-term capital gains that will be distributed as
described in the
Prospectus. Distributions of net realized long-term capital
gains
("capital gain dividends") will be taxable to shareholders
as long-term
capital gains, regardless of how long a shareholder has held
Portfolio
shares, and will be designated as capital gain dividends in
a written
notice mailed to the shareholders after the close of the
Portfolio's
prior taxable year. If a shareholder receives a capital gain
dividend
with respect to any share held for six months or less, then
any loss (to
the extent not disallowed pursuant to the other six-month
rule described
above with respect to Municipal Bond Investments) on the
sale or
exchange of the share, to the extent of the capital gain
dividend, shall
be treated as a long-term capital loss.
Each shareholder will receive after the close of the
calendar year
an annual statement as to the federal income tax status of
his or her
dividends and distributions for the prior calendar year.
These
statements will also designate the amount of exempt-interest
dividends
that is a specific preference item for purposes of the
federal
individual and corporate alternative minimum taxes. Each
shareholder
will also receive, if appropriate, various written notices
after the
close of a Portfolio's prior taxable year as to the federal
income tax
status of his or her Portfolio during the Portfolio's prior
taxable
year. Shareholders should consult their tax advisors as to
any state and
local taxes that may apply to these dividends and
distributions. The
dollar amount of dividends paid by Municipal Bond
Investments that are
excluded from federal income taxation and the dollar amount
of dividends
paid by Municipal Bond Investments that are subject to
federal income
taxation, if any, will vary for each shareholder depending
upon the size
and duration of each shareholder's investment in a
Portfolio. To the
extent that Municipal Bond Investments earns taxable net
investment
income, it intends to designate as taxable dividends the
same percentage
of each day's dividend as its taxable net investment income
bears to its
total net investment income earned on that day. Therefore,
the
percentage of each day's dividend designated as taxable, if
any, may
vary from day to day.
If a Portfolio is the holder of record of any stock on
the record
date for any dividends payable with respect to the stock,
these
dividends shall be included in the Portfolio's gross income
as of the
later of (i) the date the stock became ex-dividend with
respect to the
dividends (i.e., the date on which a buyer of the stock
would not be
entitled to receive the declared, but unpaid, dividends) or
(ii) the
date the Portfolio acquired the stock. Accordingly, in order
to satisfy
its income distribution requirements, a Portfolio may be
required to pay
dividends based on anticipated earnings, and shareholders
may receive
dividends in an earlier year than would otherwise be the
case.
Investors considering buying shares of a Portfolio on
or just
prior to the record date for a taxable dividend or capital
gain
distribution should be aware that the amount of the
forthcoming dividend
or distribution payment will be a taxable dividend or
distribution
payment.
If a shareholder fails to furnish a correct taxpayer
identification number, fails to report fully dividend or
interest
income, or fails to certify that he or she has provided a
correct
taxpayer identification number and that he or she is not
subject to
"backup withholding," then the shareholder may be subject to
a 31% "backup withholding" tax with respect to (i) taxable
dividends and
distributions and (ii) the proceeds of any redemptions of
Portfolio
shares. An individual's taxpayer identification number is
his or her
social security number. The 31% "backup withholding" tax is
not an
additional tax and may be
credited against a taxpayer's regular federal income tax
liability.
The foregoing is only a summary of certain tax
considerations
generally affecting a Portfolio and its shareholders, and is
not
intended as a substitute for careful tax planning.
Shareholders are
urged to consult their tax advisors with specific reference
to their own
tax situations, including their state and
local tax liabilities.
CUSTODIAN AND TRANSFER AGENT
PNC and Morgan serve as the custodians for the Trust.
The assets
of the Trust are held under bank custodianship in accordance
with the
1940 Act. Under its custody agreement with the Trust, PNC
and Morgan
authorized to establish separate accounts for foreign
securities owned
by the Portfolios to be held with foreign branches of U.S.
banks as well
as certain foreign banks and securities depositories as sub-
custodians
of assets owned by the Portfolios. For its custody services,
PNC and
Morgan, respectively, receives monthly fees charged to a
Portfolio
based upon the month-end, aggregate net asset value of the
Portfolio
plus certain charges for securities transactions. PNC and
Morgan are
also reimbursed by the Portfolios for out-of-pocket expenses
including
the costs of any foreign and domestic sub-custodians.
First Data Investors Services Group Inc., formerly
Shareholder
Services Group, Inc. ("FDIS"), a subsidiary of First Data
Corporation,
serves as the Trust's transfer agent. For its services as
transfer
agent, FDIS receives fees charged to a Portfolio at an
annual rate based
upon the number of shareholder accounts maintained during
the year. FDIS
is also reimbursed by the Portfolios for out-of-pocket
expenses.
FINANCIAL STATEMENTS
The Trust's Annual Report for the year ended August 31,
1995, was
previously sent to all shareholders and is incorporated into
this
Statement of Additional Information by reference.
CONSULTING GROUP CAPITAL MARKETS FUNDS
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Financial Highlights
Included in Part B:
Portfolio Highlights
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Financial Highlights
Portfolios of Investments
Notes to Financial Statements
Report of Independent Accountants
All of the above financial statements are incorporated
by reference to
the Trust's Annual Report dated August 31, 1995 filed via
EDGAR on
November 2, 1995 pursuant to Rule 30d-1 under the Investment
Company Act
of 1940 (Accession No. 91155-95-406).
Included in Part C:
None.
(b) Exhibits
1(a) Master Trust Agreement is incorporated by reference to
Registrant's
Registration Statement on Form N-1A as filed with the
Securities and
Exchange Commission (the "Commission") on May 24, 1991 (the
"Registration
Statement").
1(b) Amendment No. 1 to Master Trust Agreement is
incorporated by
reference to the Registration Statement.
1(c) Amendment No. 2 to Master Trust Agreement is
incorporated by
reference to Pre-Effective Amendment No. 1 to the
Registration Statement on
Form N-1A as filed with the Commission on July 22, 1991
("Pre-Effective
Amendment No. 1").
1(d) Amendment No. 3 to Master Trust Agreement is
incorporated by
reference to Post-Effective Amendment No. 6 ("Post-Effective
Amendment No.
6") to the Registration Statement on Form N-1A filed on
March 18, 1994.
2(a) By-Laws are incorporated by reference to the
Registration Statement.
2(b) Amended and Restated By-Laws are incorporated by
reference to Pre-
Effective Amendment No. 1.
3 Not Applicable.
4 Not Applicable.
5(a) Investment Management Agreement dated July 30, 1993
between the
Registrant and The Consulting Group, a division of Smith,
Barney Advisers,
Inc., is incorporated by reference to Post-Effective
Amendment No. 3
("Post-Effective Amendment No. 3") to the Registration
Statement on Form N-
1A filed with the Commission on October 29, 1993.
5(b) Investment Advisory Agreement dated July 30, 1993
between Smith,
Barney Advisers, Inc. and Pilgrim Baxter & Associates, Ltd.
relating to
Registrant's Small Capitalization Growth Investments
Portfolio is
incorporated by reference to Post-Effective Amendment No. 3.
5(c) Investment Advisory Agreement dated July 30, 1993
between Smith,
Barney Advisers, Inc. and Smith Affiliated Capital Corp.
relating to
Registrant's Municipal Bond Investments Portfolio is
incorporated by
reference to Post-Effective Amendment No. 3.
5(d) Investment Advisory Agreement dated July 30, 1993
between Smith,
Barney Advisers, Inc. and Atlantic Portfolio Analytics &
Management, Inc.
relating to Registrant's Mortgage Backed Investments
Portfolio is
incorporated by reference to Post-Effective Amendment No. 3.
5(e) Investment Advisory Agreement dated July 30, 1993
between Smith,
Barney Advisers, Inc. and Palley-Needelman Asset Management,
Inc. relating
to Registrant's Balanced Investments Portfolio is
incorporated by reference
to Post-Effective Amendment No. 3.
5(f) Investment Advisory Agreement dated July 30, 1993
between Smith,
Barney Advisers, Inc. and Standish, Ayer & Wood, Inc.
relating to
Registrant's Intermediate Fixed Income Investments Portfolio
is
incorporated by reference to Post-Effective Amendment No. 3.
5(g) Investment Advisory Agreement dated July 30, 1993
between Smith,
Barney Advisers, Inc. and Julius Baer Investment Management
Inc. relating
to Registrant's International Fixed Income Investments
Portfolio is
incorporated by reference to Post-Effective Amendment No. 3.
5(h) Investment Advisory Agreement dated January 13, 1993
between Shearson
Lehman Brothers Inc. and Thorsell, Parker Partners Inc.
relating to
Registrant's Small Capitalization Value Equity Investments
Portfolio is
incorporated by reference to Post-Effective Amendment No. 3.
5(i) Amendment dated April 1, 1993 to Investment Advisory
Agreement dated
January 13, 1993 between Shearson Lehman Brothers Inc. and
Thorsell, Parker
Partners Inc. relating to Registrant's Small Capitalization
Value Equity
Investments Portfolio is incorporated by reference to Post-
Effective
Amendment No. 3.
5(j) Investment Advisory Agreement dated April 1, 1993
between Smith,
Barney Advisers, Inc. and Thorsell, Parker Partners Inc.
relating to
Registrant's Small Capitalization Value Equity Investments
Portfolio is
incorporated by reference to Post-Effective Amendment No. 3.
5(k) Investment Advisory Agreement dated April 1, 1993
between Smith,
Barney Advisers, Inc. and NFJ Investment Group Inc. relating
to
Registrant's Small Capitalization Value Equity Investments
Portfolio is
incorporated by reference to Post-Effective Amendment No. 3.
5(l) Investment Advisory Agreement dated September 20, 19953
between Smith
Barney Mutual Funds Management Inc. and Wolf, Webb, Burk &
Campbell, Inc.
relating to Registrant's Long-Term Fixed Income Investments
Portfolio is
to be filed by amendment.
5(m) Amended and Restated Investment Advisory Agreement
dated March 3,
1994 between Smith, Barney Advisers, Inc. and Newbold's
Asset Management,
Inc. relating to Registrant's Large Capitalization Value
Equity Investments
Portfolio is incorporated by reference to Post-Effective
Amendment No.
6.
5(n) Investment Advisory Agreement dated March 3, 1994
between Smith,
Barney Advisers, Inc. and Parametric Portfolio Associates,
Inc. relating to
Registrant's Large Capitalization Value Equity Investments
Portfolio is
incorporated by reference to Post-Effective Amendment No. 6.
5(o) Amended and Restated Investment Advisory Agreement
dated March 3,
1994 between Smith, Barney Advisers, Inc. and Provident
Investment Counsel
relating to Registrant's Large Capitalization Growth
Investments Portfolio
is incorporated by reference to Post-Effective Amendment No.
6.
5(p) Investment Advisory Agreement dated March 3, 1994
between Smith
Barney Advisers, Inc. and Boston Structured Advisors, a
division of
PanAgora Asset Management, Inc. relating to Registrant's
Large
Capitalization Growth Investments Portfolio is incorporated
by reference to
Post-Effective Amendment No. 6.
5(q) Investment Advisory Agreement dated July 30, 1993
between Smith,
Barney Advisers, Inc. and Standish, Ayer & Wood, Inc.
relating to
Registrant's Government Money Investments Portfolio is
incorporated by
reference to Post-Effective Amendment No. 3.
5(r) Investment Advisory Agreement dated July 30, 1993
between Smith,
Barney Advisers, Inc. and Oechsle International Advisors
L.P. relating to
Registrant's International Equity Investments Portfolio is
incorporated by
reference to Post-Effective Amendment No. 3.
5(s) Investment Advisory Agreement dated March 3, 1994
between Smith,
Barney Advisers, Inc. and John Govett & Company, Ltd.
relating to
Registrant's Emerging Markets Equity Investments Portfolio
is incorporated
by reference to Post-Effective Amendment No. 6.
5(t) Administration Agreement dated June 2, 1994 between the
Registrant
and Smith, Barney Advisers, Inc. to be filed by amendment.
6 Distribution Agreement dated July 30, 1993 between the
Registrant and
Smith Barney Shearson Inc. is incorporated by reference to
Post-Effective
Amendment No. 3.
7 Not Applicable.
8 Custody Agreements between the Registrant and PNC
Bank and Morgan
Guaranty and Trust Company dated March ___, and August ___,
1995, respectively
filed herewith.
9 Transfer Agency and Registrar Agreement between the
Registrant and
The Shareholder Services Group, Inc., dated September 1993,
is incorporated
by reference to Post-Effective Amendment No. 4 to the
Registration
Statement on Form N-1A, as filed with the Commission on
December 30, 1993.
10 Opinion of Willkie Farr & Gallagher, including Consent,
is
incorporated by reference to Pre-Effective Amendment No. 2.
11 Consent of KPMG Peat Marwick filed herewith.
12 Not Applicable.
13 Purchase Agreement between the Registrant and Shearson
Lehman
Brothers Inc. is incorporated by reference to Post-Effective
Amendment No.
1.
14 Not Applicable.
15 Not Applicable.
16 Schedule for computation of performance data is
incorporated by
reference to Post-Effective Amendment No. 1.
17 Financial Data Schedules filed herewith.
18 Not Applicable.
19 Powers of Attorney are incorporated by reference to
Post-Effective
Amendment No. 3.
Item 25. Persons Controlled by or Under Common Control with
Registrant
None.
Item 26. Number of Holders of Securities
(1) (2)
Number of Record Holders
Title of Class as of October 31, 1995
Shares of beneficial interest, par value $.001 per share
Government Money Investments 56,275
Intermediate Fixed-Income Investments 18,008
Long-Term Fixed Income Investments 18,955
Municipal Bond Investments 2,964
Mortgage Backed Investments 19,655
Balanced Investments 378
Large Capitalization Value Equity Investments 65,323
Large Capitalization Growth Investments 65,804
Small Capitalization Value Equity Investments 59,889
Small Capitalization Growth Investments 53,441
International Equity Investments 62,315
International Fixed Income Investments 20,856
Emerging Markets Equity Investments 14,561
Item 27. Indemnification
Incorporated by reference to Pre-Effective Amendment
No. 2.
Item 28.(a) Business and Other Connections of Investment
Advisors
Investment Manager - The Consulting Group
The Consulting Group and its predecessor have been in
the investment
counseling business since 1973. The Consulting Group is a
division of
Smith Mutual Funds Management Inc. (formerly, Smith, Barney
Advisers, Inc.)
("SBMFM")), which was incorporated in 1968 under the laws of
the State of
Delaware. SBMFM is a wholly owned subsidiary of Smith
Barney Holdings Inc.,
which is in turn a wholly owned subsidiary of Traveler's
Group Inc. (formerly
Primerica Corporation).
The list required by this Item 28 of officers and
directors of SBMFM
and the Consulting Group, together with information as to
any other
business, profession, vocation or employment of a
substantial nature
engaged in by such officers and directors during the past
two fiscal years,
is incorporated by reference to Schedules A and D of Form
ADV filed by SBMFM
on behalf of the Consulting Group pursuant to the Advisers
Act (SEC File
No. 801-8314).
Item 28.(b) Business and Other Connections of Advisors
Advisors - Standish, Ayer & Wood, Inc.
Standish, Ayer & Wood, Inc. ("SAW") serves as
investment advisor to
Intermediate Fixed Income Investments and Government Money
Investments.
SAW is registered as a commodity trading adviser with the
National Futures
Association. SAW has been registered as an investment
advisor under the
Advisers Act since 1940. SAW provides investment advisory
services to
individuals and institutions. SAW's principal executive
offices are
located at One Financial Center, Boston, Massachusetts
02111.
The list required by this Item 28 of officers and
directors of SAW,
together with information as to any other business,
profession, vocation or
employment of a substantial nature engaged in by such
officers and
directors during the past two years, is incorporated by
reference to
Schedules A and D of Form ADV filed by SAW pursuant to the
Advisers Act
(SEC File No. 801-584).
Advisors - Wolf, Webb, Burk & Campbell, Inc.
Wolf, Webb, Burk & Campbell, Inc. ("WWBC") serves as
investment
advisor to Total Return Fixed Income Investments. WWBC has
been registered
as an investment advisor under the Advisers Act since 1980
and provides
investment advisory services to individuals and
institutions. WWBC's
principal executive offices are located at 1525 Locust
Street, 11th Floor,
Philadelphia, Pennsylvania 19102.
The list required by this Item 28 of officers and
directors of WWBC,
together with information as to any other business,
profession, vocation or
employment of a substantial nature engaged in by such
officers and
directors during the past two years, including its
acquisition by Consoli-
dated Asset Management is incorporated by reference to
Schedules A and D of
Form ADV filed by WWBC pursuant to the Advisers Act (SEC
File No. 801-15571).
Advisors - Smith Affiliated Capital Corp.
Smith Affiliated Capital Corp. ("SACC") serves as
investment advisor
to Municipal Bond Investments. SACC has been registered as
an investment
advisor under the Advisers Act since 1982. SACC provides
investment
advisory services to individuals and institutions, and is a
general partner
of, and investment advisor to, a limited partnership
primarily investment
in municipal bonds. SAW's principal executive offices are
located at 880
Third Avenue, New York, New York 10022.
The list required by this Item 28 of officers and
directors of SACC,
together with information as to any other business,
profession, vocation or
employment of a substantial nature engaged in by such
officers and
directors during the past two years, is incorporated by
reference to
Schedules A and D of Form ADV filed by SACC pursuant to the
Advisers Act
(SEC File No. 801-17037).
Advisors - Atlantic Portfolio Analytics & Management,
Inc.
Atlantic Portfolio Analytics & Management, Inc.
("APAM") serves as
investment advisor to Mortgage Backed Investments. APAM has
been
registered as an investment advisor under the Advisers Act
since 1984.
APAM serves as an investment advisor to institutions.
APAM's principal
executive offices are located at 201 East Pine Street, Suite
600, Orlando,
Florida 32801.
The list required by this Item 28 of officers and
directors of APAM,
together with information as to any other business,
profession, vocation or
employment of a substantial nature engaged in by such
officers and
directors during the past two years, is incorporated by
reference to
Schedules A and D of Form ADV filed by APAM pursuant to the
Advisers Act
(SEC File No. 801-24775).
Advisors - Palley-Needelman Asset Management, Inc.
Palley-Needelman Asset Management, Inc. ("PNAM") serves
as investment
advisor to Balanced Investments. PNAM, the predecessor of
which has been
registered as an investment advisor under the Advisers Act
since 1974,
provides investment advisory services to individuals and
institutions,
including retirement plans, foundations and endowments.
PNAM's principal
executive offices are located at 800 Newport Center Drive,
Suite 450,
Newport Beach, California 92660.
The list required by this Item 28 of officers and
directors of PNAM,
together with information as to any other business,
profession, vocation or
employment of a substantial nature engaged in by such
officers and
directors during the past two years, is incorporated by
reference to
Schedules A and D of Form ADV filed by PNAM pursuant to the
Advisers Act
(SEC File No. 801-9755).
Advisors - Newbold's Asset Management, Inc.
Newbold's Asset Management, Inc. ("NAM") serves as co-
investment
advisor to Large Capitalization Value Equity Investments.
NAM has been
registered as an investment advisor under the Advisers Act
since 1943. NAM
provides investment advisory services to individual and
institutional
clients. NAM's principal executive offices are located at
937 Haverford
Road, Bryn Mawr, Pennsylvania 19010.
The list required by this Item 28 of officers and
directors of NAM,
together with information as to any other business,
profession, vocation or
employment of a substantial nature engaged in by such
officers and
directors during the past two years, is incorporated by
reference to
Schedules A and D of Form ADV filed by NAM pursuant to the
Advisers Act
(SEC File No. 801-33560).
Advisors - Parametric Portfolio Associates, Inc.
Parametric Portfolio Associates, Inc. ("PPA") serves as
co-investment
advisor to Large Capitalization Value Equity Investments.
PPA has been
registered as an investment advisor under the Advisers Act
since 1987. PPA
provides investment advisory services to a number of
individual and
institutional clients. PPA's principal executive offices
are located at
7310 Columbia Center, 701 Fifth Avenue, Seattle, Washington
98104-7090.
The list required by this Item 28 of officers and
directors of PPA,
together with information as to any other business,
profession, vocation or
employment of a substantial nature engaged in by such
officers and
directors during the past two years, is incorporated by
reference to
Schedules A and D of Form ADV filed by PPA pursuant to the
Advisers Act
(SEC File No. 801-29855).
Advisors - Provident Investment Counsel, Inc.
Provident Investment Counsel, Inc. ("PIC") serves as
investment
advisor to Large Capitalization Growth Investments. PIC has
been
registered as an investment advisor under the Advisers Act
since 1951. PIC
provides investment advisory services to individual and
institutional
clients. PIC's principal executive offices are located at
300 North Lake
Avenue, Pasadena, California 91101.
The list required by this Item 28 of officers and
directors of PIC,
together with information as to any other business,
profession, vocation or
employment of a substantial nature engaged in by such
officers and
directors during the past two years, is incorporated by
reference to
Schedules A and D of Form ADV filed by PIC pursuant to the
Advisers Act
(SEC File No. 801-11303).
Advisors - Boston Structured Advisors
Boston Structured Advisors serves as co-investment
adviser to Large
Capitalization Growth Investments. Boston Structured
Advisors is a
division of PanAgora Asset Management Inc. ("PanAgora
Boston"), which has
been registered as an investment advisor under the Advisers
Act since 1989.
PanAgora Boston provides investment services to a number of
individual and
institutional clients. PanAgora Boston's principal offices
are located at
260 Franklin Street, Boston, Massachusetts 02110.
The list required by this Item 28 of officers and
directors of
PanAgora Boston, together with information as to any other
business,
profession, vocation or employment of a substantial nature
engaged in by
such officers and directors during the past two years, is
incorporated by
reference to Schedules A and D of Form ADV filed by PanAgora
Boston
pursuant to the Advisers Act (SEC File No. 801-35497).
Advisors - Thorsell, Parker Partners Inc.
Thorsell, Parker Partners Inc. ("TPP") serves as co-
investment
advisor to Small Capitalization Value Equity Investments.
TPP has been
registered as an investment advisor under the Advisors Act
since 1992. The
sole investment company for which TPP provides services is
Small
Capitalization Value Equity Investments. TPP's principal
executive offices
are located at 215 Main Street, Westport, Connecticut 06880.
The list required by this Item 28 of officers and
directors of TPP,
together with information as to any other business,
profession, vocation or
employment of a substantial nature engaged in by such
officers and
directors during the past two years, is incorporated by
reference to
Schedules A and D of Form ADV filed by TPP pursuant to the
Advisers Act
(SEC File No. 801-42814).
Advisors - NFJ Investment Group, Inc.
NFJ Investment Group, Inc. ("NFJ") serves as co-
investment advisor to
Small Capitalization Value Equity Investments. NFJ has been
registered as
an investment advisor under the Advisors Act since 1989.
NFJ provides
investment advisory services to a number of individual and
institutional
clients. NFJ's principal executive offices are located at
2121 San Jacinto
Street, Suite 1440, Dallas, Texas 75201.
The list required by this Item 28 of officers and
directors of NFJ,
together with information as to any other business,
profession, vocation or
employment of a substantial nature engaged in by such
officers and
directors during the past two years, is incorporated by
reference to
Schedules A and D of Form ADV filed by NFJ pursuant to the
Advisers Act
(SEC File No. 801-42814).
Advisors - Pilgrim Baxter & Associates, Ltd.
Pilgrim Baxter & Associates, Ltd. ("PBA") serves as
investment
advisor to Small Capitalization Growth Investments. PBA has
been
registered as an investment advisor under the Advisers Act
since 1982. PBA
is the investment adviser of various institutional clients.
PBA's
principal executive offices are located at 1255 Drummers
Lane, Wayne,
Pennsylvania 19087.
The list required by this Item 28 of officers and
directors of PBA,
together with information as to any other business,
profession, vocation or
employment of a substantial nature engaged in by such
officers and
directors during the past two years, is incorporated by
reference to
Schedules A and D of Form ADV filed by PBA pursuant to the
Advisers Act
(SEC File No. 801-19165).
Advisors - Oechsle International Advisors, L.P.
Oechsle International Advisors, L.P. ("OIA") serves as
investment
advisor to International Equity Investments. OIA has been
registered as an
investment advisor under the Advisers Act since 1986. OIA
provides
investment advisory services to a number of individual and
institutional
clients. OIA's principal executive offices are located at
One
International Place, Boston, Massachusetts 02110.
The list required by this Item 28 of officers and
directors of OIA,
together with information as to any other business,
profession, vocation or
employment of a substantial nature engaged in by such
officers and
directors during the past two years, is incorporated by
reference to
Schedules A and D of Form ADV filed by OIA pursuant to the
Advisers Act
(SEC File No. 801-28111).
Advisors - Julius Baer Investment Management Inc.
Julius Baer Investment Management Inc. ("JBIM") serves
as investment
advisor to International Fixed Income Investments. JBIM has
been
registered as an investment advisor under the Advisers Act
since 1984.
Directly and through Julius Baer Securities Inc., JBIM
provides investment
advisory services to a wide variety of individual and
institutional
clients, including registered investment companies. JBIM's
principal
executive offices are located at 330 Madison Avenue, New
York, New York
10017.
The list required by this Item 28 of officers and
directors of JBIM
together with information as to any other business,
profession, vocation or
employment of a substantial nature engaged in by such
officers and
directors during the past two years, is incorporated by
reference to
Schedules A and D of Form ADV filed by JBIM pursuant to the
Advisers Act
(SEC File No. 801-18766).
Advisors - John Govett & Company, Ltd.
John Govett & Company, Ltd. ("JGC") will serve as
investment advisor
to Emerging Markets Equity Investments. JGC has been
registered as an
investment advisor under the Advisers Act since 1972. JGC
is the
investment adviser of various institutional clients. JGC's
principal
executive offices are located at Shackleton House, 4
Battlebridge Lane,
London, SE1-2HR.
The list required by this Item 28 of officers and
directors of JGC,
together with information as to any other business,
profession, vocation or
employment of a substantial nature engaged in by such
officers and
directors during the past two years, is incorproated by
reference to
Schedule A and D of Form ADV filed by JGC pursuant to the
Advisers Act (SEC
File No.801-34730).
Item 29. Principal Underwriters
Smith Barney Inc. ("Smith Barney") currently acts as
distributor for Smith
Barney Managed Municipals Fund Inc., Smith Barney New York
Municipals Fund
Inc., Smith Barney California Municipals Fund Inc., Smith
Barney
Massachusetts Municipals Fund, Smith Barney Aggressive
Growth Fund Inc., Smith
Barney Appreciation Fund Inc., Smith Barney Principal Return
Fund, Smith
Barney Municipal Money Market Fund Inc., Smith Barney
Managed Governments Fund
Inc., Smith Barney Income Funds, Smith Barney Equity Funds,
Smith Barney
Investment Funds Inc., Smith Barney Precious Metals and
Minerals Fund Inc.,
Smith Barney Telecommunications Trust, Smith Barney Arizona
Municipals Fund
Inc., Smith Barney New Jersey Municipals Fund Inc., The USA
High Yield Fund
N.V., Smith Barney Fundamental Value Fund Inc., Smith Barney
Series Fund,
Consulting Group Capital Markets Funds, Smith Barney
Investment Trust, Smith
Barney Adjustable Rate Government Income Fund, Smith Barney
Florida Municipals
Fund, Smith Barney Funds, Inc., Smith Barney Muni Funds,
Smith Barney World
Funds, Inc., Smith Barney Money Funds, Inc., Smith Barney
Tax Free Money Fund,
Inc., Smith Barney Variable Account Funds, Smith Barney U.S.
Dollar Reserve
Fund (Cayman), Worldwide Special Fund, N.V., Worldwide
Securities Limited,
(Bermuda), and various series of unit investment trusts.
Smith Barney is a wholly owned subsidiary of Smith Barney
Holdings Inc.,
which in turn is a wholly owned subsidiary of Travelers
Group Inc. (formerly
Primerica Corporation). The information required by this
Item 29 with
respect to each director, officer and partner of Smith
Barney is
incorporated by reference to Schedule A of FORM BD filed by
Smith Barney
pursuant to the Securities Exchange Act of 1934 (SEC File
No. 812-8510).
Item 30. Location of Accounts and Records
Consulting Group Capital Markets Funds
222 Delaware Avenue
Wilmington, Delaware 19801
PNC Bank
17th and Chestnuts Streets
Philadelphia, Pennsylvania
Morgan Guaranty and Trust Company
60 Wall Street
New York, New York
Smith Barney Inc.
388 Greenwich Street, 22nd Floor
New York, New York 10013
First Data Investor Services Group Inc.
Exchange Place
Boston, MA 02109
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) The Registrant hereby undertakes to call a meeting of
its
shareholders for the purpose of voting upon the question of
removal of a
trustee or trustees of Registrant when requested in writing
to do so by the
holders of at least 10% of Registrant's outstanding shares.
Registrant
undertakes further, in connection with the meeting, to
comply with the
provisions of Section 16(c) of the Investment Company Act of
1940, as
amended, relating to communications with the shareholders of
certain
common-law trusts.
(b) The Registrant hereby undertakes to furnish to each
person to whom
the Registrant's Prospectus is delivered a copy of the
Registrant's latest
annual report to shareholders, upon request and without
charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
as amended, and
the Investment Company Act of 1940, as amended, the
Registrant, Consulting
Group Capital Markets Funds, has duly caused this Post-
Effective Amendment No.
12 to the Registration Statement to be signed on its behalf
by the
undersigned, thereunto duly authorized, all in the City of
New York, State of
New York on the 29th day of December, 1995.
CONSULTING GROUP CAPITAL MARKETS FUNDS
By: /s/ Heath B. McLendon
Chairman of the Board
WITNESS our hands on the date set forth below.
Pursuant to the requirements of the Securities Act of
1933, this
Amendment to the Registration Statement has been signed
below by the
following persons in the capacities and on the dates
indicated.
Signature Title Date
/s/ Heath B. McLendon, Trustee and Chairman of the Board
December 29, 1995
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone, Senior Vice President and Treasurer
December 29, 1995
Lewis E. Daidone (Chief Financial and Accounting
Officer)
/s/ Walter E. Auch, Sr.*
Walter E. Auch, Sr., Trustee
December 29, 1995
/s/
Armon E. Kamesar, Trustee
December 29, 1995
/s/ Martin Brody*
Martin Brody, Trustee
December 29, 1995
/s/ Stephen E. Kaufman*
Stepehn E. Kaufman, Trustee
December 29, 1995
/s/ Madelon DeVoe Talley*
Madelon DeVoe Talley, Trustee
December 29, 1995
* Signed pursuant to power of attorney
filed October 29, 1993 as an exhibit
to Post-Effective Amendment No. 3.
/s/ Heath B. McLendon
Heath B. McLendon
December 29, 1995
Rev. 2/94 2.CUS
1022.cc
Securities, Trust & Information Services
(GCIC -
Brussels)
Global Custody Agreement
Agreement dated as of _______, 1995 between Morgan Guaranty
Trust
Company of New York (the "Custodian"), acting through its
office at 35 avenue des Arts, Brussels, Belgium, and
Consulting Group Capital Markets Funds (the "Client").
Whereas, the Client desires to arrange for the custody of
certain of its assets and the provision of related services
by the Custodian;
Now, Therefore, in consideration of the mutual agreements
contained herein, the Custodian and the Client agree as
follows:
1. Definitions. The following terms, as used herein, shall
have the following meanings:
"Authorized Instruction" means (i) a written, oral or
electronic communication accepted by the Custodian in good
faith that has been transmitted subject to the Security
Procedures agreed upon in writing by the Custodian and the
Client or (ii) any other written, oral or electronic
communication that the Custodian believes in good faith to
have been given by an Authorized Person.
"Authorized Persons" means those individuals who have been
designated by or duly authorized by the Client pursuant to
necessary corporate or other action (which shall be
evidenced by appropriate documentation delivered to the
Custodian) to act on behalf of the Client in connection with
this Agreement. Such persons shall continue to be
Authorized Persons until such time as the Client has
delivered to the Custodian appropriate documents revoking
the authority of such persons.
"Cash" has the meaning set forth in Section 5.
"Cash Account" means a current account (which may be divided
into a number of subaccounts, denominated in U.S. dollars,
Belgian francs or any other currency or Composite Currency
Unit acceptable to the Custodian) opened by the Custodian on
its books in the name of the Client.
"Communication Products" has the meaning set forth in
Section 28.
"Composite Currency Units" means the European Currency Unit
("ECU"), the Special Drawing Right ("SDR") or another
composite unit consisting of the aggregate of specified
amounts of specified currencies, as such ECU, SDR or other
unit may be constituted from time to time.
"Morgan Affiliate" means any office or branch of Morgan
Guaranty Trust Company of New York ("Morgan") and any other
entity that directly, or indirectly through one or more
intermediaries, controls Morgan or that is controlled by or
is under common control with Morgan.
"Securities Account" means any securities account opened by
the Custodian on its books in the name of the Client.
"Securities Depository" means any securities depository,
bookentry system or clearing system used by the Custodian
from time to time in accordance with Section 4(e) hereof.
"Security" means any share, stock, bond, debenture, note,
certificate of indebtedness, warrant or other security or
financial instrument acceptable to the Custodian (whether
represented by a certificate or by a book-entry on the
records of the issuer or other entity responsible for
recording such book-
entries) that is from time to time held for the account of
the Client directly, or indirectly through a Subcustodian or
Securities Depository, by the Custodian pursuant to this
Agreement.
"Security Procedure" means, for any specified method of
communication, a procedure agreed upon in writing by the
Custodian and the Client for the purpose of verifying that
an Authorized Instruction given pursuant to such method of
communication is that of the Client or detecting error in
the transmission or the content of such Authorized
Instruction. A Security Procedure may require the use of
algorithms or other codes, identifying words or numbers,
encryption, callback procedures, or similar security
devices.
"Subcustodian" means any bank or other institution (other
than a Securities Depository) used by the Custodian to hold
Securities from time to time in accordance with Section 4(e)
hereof.
2 (a). Representations, Warranties and Covenants of the
Client. The Client represents and warrants that the
execution, delivery and performance by the Client of this
Agreement (i) are within the Client's corporate, trust or
other constitutive powers; (ii) have been duly authorized by
all necessary corporate, trust or other appropriate action
under its organizational documents; (iii) require no action
by or in respect of, or filing with, any governmental body,
agency or official (including without limitation any
exchange control approvals) other than those set forth in
Appendix B under "Consents and Filings", which have been
duly taken or made or will be duly taken or made as and when
required; and (iv) do not contravene, or constitute a
default under, any provision of applicable law or regulation
or of the organizational documents of the Client or of any
agreement, judgment, injunction, order, decree or other
instrument binding upon the Client. In addition, the Client
represents and warrants that each of the statements set
forth in Appendix B under "Additional Information" is true
and correct. The Client represents, warrants and covenants
that the Custodian shall be entitled to deal with all
Securities free of any proprietary or equitable interest of
any person or entity (other than interests of the Client and
interests of the Custodian, Subcustodians and Securities
Depositories that are created by this Agreement). The
Client agrees to inform the Custodian immediately if any
statement set forth in this Section 2 or in Appendix B
ceases to be true and correct as of any date after the date
hereof.
2(b). Massachusetts Business Trust - Limitation of
Liability. The Client and the Custodian agree that the
obligations of the Client under this Agreement shall not be
binding upon any of the Trustees, shareholders, nominees,
officers, employees or agents, whether past, present or
future, of the Client, individually, but are binding only
upon the assets and property of the Client, as provided in
the Declaration and Agreement of Trust. The execution and
delivery of this Agreement have been authorized by the
Trustees of the Client, and signed by an authorized officer
of the Client, acting as such, and neither such
authorizationby such Trustees nor such execution and
delivery by such officer shall be deemed to have been made
by any of them or any shareholder of the Client pesonally,
but shall bind only the assets and property of the Client as
provided in the Master Trust Agreement.
3. Securities Accounts. The Client hereby establishes with
the Custodian one or more Securities Accounts, which shall
contain,
in the manner and on the terms specified herein, the
Client's Securities.
4. Terms of Custody.
(a) Authority to Hold Securities. Subject to the terms and
conditions of this Agreement, the Client hereby authorizes
the Custodian to hold any Securities received from time to
time for the account of the Client. The Custodian may, at
its sole discretion, hold the Securities directly or
indirectly through one or more Subcustodians or Securities
Depositories. Securities held indirectly through any
Subcustodian shall be held subject to the terms and
conditions of the Custodian's agreement with such
Subcustodian. Securities held indirectly through any
Securities Depository shall be held subject to the terms of
any agreement between the Custodian or Subcustodian and such
Securities Depository and to the rules and terms and
conditions of such Securities Depository.
(b) Fungibility. The Client agrees that all Securities
held by the Custodian directly, or indirectly through any
Subcustodian or Securities Depository, shall be subject to
the provisions of the Belgian Royal Decree No. 62 of
November 10, 1967, as amended. In accordance with the Royal
Decree, all Securities of any issue shall be treated as
fungible with all other securities of the same issue held by
the Custodian directly, or indirectly through any
Subcustodian or Securities Depository. Therefore, the
Client shall have no right to any specific securities of an
issue but shall instead be entitled, subject to applicable
laws and regulations and to the terms of this Agreement, to
transfer, deliver or repossess from the Custodian an amount
of securities of such issue that is equivalent to the amount
of such securities credited to a Securities Account, without
regard to the certificate numbers (or other identifying
information) of the securities originally deposited, and the
Custodian's obligation to the Client with respect to such
Securities shall be limited to effecting such transfer,
delivery or repossession.
(c) Identification of Client's Interests. The Custodian
shall cause the Client's interest in any Securities held by
the Custodian directly, or indirectly through any
Subcustodian or Securities Depository, to be evidenced by a
credit to a Securities Account on the books of the
Custodian. The Custodian shall instruct each Subcustodian
to credit all Securities held by such Subcustodian directly,
or indirectly through a Securities Depository, to an account
of the Custodian on the books of such Subcustodian. The
Custodian shall instruct, or direct the relevant
Subcustodian to instruct, each Securities Depository to
credit all Securities held by such Securities Depository to
an account of the Custodian or the relevant Subcustodian on
the books of such Securities Depository. Securities may be
registered in the name of the Custodian's nominee or, as to
any Securities held by an entity other than the Custodian,
in the name of such entity's nominee. The Client agrees to
hold any such nominee harmless from any liability as a
holder of record of such Securities.
(d) Liens of Subcustodians and Securities Depositories.
Unless the Custodian has received Authorized Instructions to
the contrary, the Custodian shall hold Securities indirectly
through a Subcustodian or Securities Depository only if (i)
the Securities are not subject to any right, charge,
security interest, lien or claim of any kind in favor of
such Subcustodian or Securities Depository or the creditors
or operators of any of them, including a receiver or trustee
in bankruptcy or similar
authority, except for a claim of payment for the safe
custody or administration of the Securities or for funds
advanced on behalf of the Client by such Subcustodian or
Securities Depository and (ii) beneficial ownership of the
Securities is freely transferable without the payment of
money or value other than for safe custody or
administration.
(e) Selection of Subcustodians and Securities Depositories.
The list of Subcustodians and Securities Depositories used
by the Custodian as of the date hereof is listed on Appendix
A hereto. The Custodian reserves the right to add and delete
subcustodians and securities depositories to and from such
list from time to time by notice to the Client. The
Custodian agrees that, if it replaces the subcustodian or
securities depository used in any country with another
subcustodian or securities depository, it will not transfer
any of the Client's securities from the former subcustodian
or securities depository for such country to the replacement
subcustodian or securities depository for such country
without giving the Client at least 30 days' prior written
notice, during which time the Client may make arrangements
to have the Securities transferred to another Custodian if
it does not approve of the replacement.
5. Cash Account.
(a) The Client hereby establishes and shall maintain with
the Custodian a Cash Account to be used in connection with
transactions relating to the Securities. The collected
balance from time to time in the Cash Account shall
constitute "Cash". Any credit made to the Cash Account shall
be provisional and may be reversed if such payment is not
actually collected or received.
(b) Except as otherwise provided by law, the Cash Account
(including subdivisions maintained in different currencies,
including Composite Currency Units) shall constitute one
single and indivisible current account. Consequently, the
Custodian has the right, among others, of transferring the
balance of any subaccount of the Cash Account to any other
subaccount at any time and without prior notice.
(c) The Custodian may in accordance with customary practice
hold any currency (other than Belgian Francs) or Composite
Currency Unit in which any subdivision of the Cash Account
is denominated on deposit in, and effect transactions
relating thereto through, an account (a "Foreign Account")
with a Morgan Affiliate or another bank in the country where
such currency is the lawful currency or in other countries
where such currency or Composite Currency Unit may be
lawfully held on deposit.
(d) The Custodian shall have no liability for any loss or
damage arising from the applicability of any law or
regulation now or hereafter in effect, or from the
occurrence of any event, which may affect the
transferability, convertibility, or availability of any
currency (other than Belgian Francs) or Composite Currency
Unit in the countries where such Foreign Accounts are
maintained and in no event shall the Custodian be obligated
to substitute another currency for a currency (including a
currency that is a component of a Composite Currency Unit)
whose transferability, convertibility or availability has
been affected by such law, regulation or event. To the
extent that any such law, regulation or event imposes a cost
or charge upon the Custodian in relation to the
transferability, convertibility, or availability of any such
currency or Composite Currency Unit, such cost or charge
shall be for the account of the Client. If pursuant to any
such
law or regulation, or as a result of any such event, the
Custodian cannot deal in any component currency of a
Composite Currency Unit or effect a particular transaction
in a Composite Currency Unit on behalf of the Client, the
Custodian may thereafter treat any account denominated in an
affected Composite Currency Unit as a group of separate
accounts denominated in the relevant component currencies.
(e) Transactions in a currency or Composite Currency Unit
shall be subject to the regulations laid down by the
exchange control authorities of Belgium and of the country
where such currency (or component currency) is the lawful
currency or where such currency or Composite Currency Unit
is held on deposit.
6. Instructions by the Client.
(a) Generally. The Client shall give an Authorized
Instruction with respect to Cash and Securities only to the
Custodian or to the Custodian's designee. The Client agrees
to be bound by all Authorized Instructions, whether or not
such instructions were duly authorized in accordance with
the Client's own procedures. The Custodian shall not be
required to follow any Authorized Instruction that would
violate any applicable law, decree, regulation or order of
any government or governmental body (including any court or
tribunal) or that would be contrary to any provision of this
Agreement.
(b) Payments. Payments shall be made by the Custodian, or
a Subcustodian at the direction of the Custodian, only to
the extent that sufficient Cash in the applicable currency
is available in the Cash Account or otherwise available
therefor and only (i) as specified by an Authorized
Instruction, (ii) as permitted by Sections 14 and 15 or
(iii) upon the termination of this Agreement as set forth in
Section 17 hereof. The Custodian may make payments, or
direct a Subcustodian to make payments, from time to time on
behalf of the Client when sufficient Cash in the applicable
currency is not available in the Cash Account or otherwise
available therefor, but neither the Custodian nor any
Subcustodian shall have any obligation to make such
payments. If any payments are made that result in an
overdraft in a particular currency, then such overdraft
shall be payable on demand by the Custodian and shall bear
interest for each day outstanding at the rate customarily
charged by the Custodian for overdrafts in such currency.
(c) Delivery of Securities. Any Securities held by a
Subcustodian shall be subject only to the instructions of
the Custodian and any Securities held by a Securities
Depository shall be subject only to the instructions of the
Custodian or the Subcustodian for which such Securities
Depository is acting. Securities shall be transferred,
exchanged, or delivered by the Custodian, or a Subcustodian
at the direction of the Custodian, only to the extent that
sufficient Securities are actually in the Securities Account
and available for delivery and only:
(i) as specified by an Authorized Instruction;
(ii) in exchange for or upon conversion into other
Securities or Cash pursuant to a plan of merger,
consolidation, reorganization, recapitalization or
readjustment;
(iii) upon the conversion of Securities pursuant to their
terms into other Securities;
(iv) as permitted by Sections 14 and 15; or
(v) upon the termination of this Agreement as set forth in
Section 17 hereof.
7. Corporate Events.
(a) Collections. Unless the Custodian has received an
Authorized Instruction to the contrary, the Custodian shall,
or shall instruct the appropriate Subcustodian to, collect
dividends, interest and other payments made and stock
dividends, rights and similar distributions made or issued
with respect to Securities and present for payment maturing
Securities and those called for redemption, in each case net
of any applicable taxes or other charges withheld by the
maker of such payment or distribution. Neither the
Custodian nor any Subcustodian shall have any obligation to
commence legal proceedings or to take other extraordinary
actions to collect any of the foregoing payments or
distributions.
(b) Rights Offerings. Promptly after the Custodian becomes
aware thereof, the Custodian shall notify the Client of any
rights offering by an issuer of Securities. If the Client
does not send an Authorized Instruction to the Custodian
regarding the exercise of rights under such offering by the
deadline set by the Custodian in such notice, then to the
extent permitted by applicable law and consistent with local
market practice, the Custodian or the applicable
Subcustodian shall sell such rights in the principal market
for such rights and deposit the proceeds of such sale in the
Cash Account.
(c) Partial Redemptions. Promptly after the Custodian
becomes aware thereof, the Custodian shall notify the Client
of the partial redemption of any Securities. If the
Custodian or any Subcustodian or Securities Depository holds
any Securities in which the Client has an interest as part
of a fungible mass, the Custodian or such Subcustodian or
Securities Depository may select the securities to
participate in partial redemptions, partial payments or
other actions affecting less than all securities of the
relevant class in any non-discriminatory manner that it
customarily uses to make such selection.
(d) Authority of Custodian. Unless the Custodian has
received an Authorized Instruction to the contrary, the
Custodian shall, or shall instruct the appropriate
Subcustodian to: (i) execute in the name of the Client such
ownership and other certificates as may be required to
obtain payment or exercise any rights in respect of any
Securities; (ii) accept and open all mail directed to the
Client in care of the Custodian or such Subcustodian; and
(iii) retain or dispose of fractional interests received by
the Custodian or such Subcustodian as a result of stock
dividends in accordance with local law and practice. With
respect to any corporate events not listed above, the
Custodian shall (in the absence of an Authorized Instruction
from the Client within any prescribed deadline) take any
action that it considers appropriate in the circumstances;
provided that the Custodian shall not be liable for the
consequences of any such action.
8. Reporting.
(a) Statements. The Custodian shall mail, or cause to be
mailed, or transmit electronically to the Client (or, with
prior written consent of the Client, make available
electronically) monthly statements of the Securities
Accounts and Cash Account. Such statements shall list all
Securities and Cash and specify
(i) whether the Securities are held directly by the
Custodian or indirectly through a Subcustodian or Securities
Depository and (ii) the amount of Cash held on deposit in
each currency. The Client agrees that each such statement
shall be binding on the Client 60 days after (a) in the case
of any statement sent by mail, it has been mailed by first
class mail, postage prepaid or (b) in the case of any
statement transmitted or made available electronically, it
has been transmitted or made available electronically to the
Client, unless the Client has theretofore notified the
Custodian in writing of any inaccuracy in such statement.
(b) Access to Records. The Custodian shall allow the
Client and its independent public accountants reasonable
access to the records of the Custodian relating to the
Securities and Cash as is required by the Client or its
accountants in connection with their examination of the
books and records pertaining to the affairs of the Client
and shall require each Subcustodian and Securities
Depository to grant such access to the Client and its
independent public accountants to the extent consistent with
applicable law and regulations. The Custodian has no
obligation to maintain any records for a period of more than
10 years. The Custodian shall have no obligation to require
any Subcustodian or Securities Depository to maintain
records for any specified period of time.
(c) Other Information. From time to time the Custodian may
provide additional reporting information to the Client on
terms and conditions agreed upon by the parties hereto in
writing. The additional information may include data
obtained from third parties, such as pricing valuation
information relating to the Securities. The Client agrees
that it shall not redistribute or resell data obtained by
the Custodian from third parties, except that it may provide
such data to the beneficial owners of the Securities as
recorded on the Client's books and records.
9. Taxes. The respective responsibilities of the Client
and the Custodian with respect to tax matters are set forth
in Appendix C hereto and incorporated by reference herein.
10. Responsibilities; Indemnification by the Custodian.
(a) Standard of Care. The Custodian shall use reasonable
care in the performance of its duties hereunder and shall
exercise the same degree of care with respect to the
Securities as it would with respect to its own securities.
The Custodian shall require each Subcustodian to use
reasonable care in the performance of its duties and to
exercise the same degree of care with respect to the
Securities as it would with respect to its own securities.
The Custodian shall be responsible to ensure that each
Subcustodian that is a Morgan Affiliate performs in
accordance with the foregoing standard. The Custodian's
responsibility with respect to any Securities held by a
Subcustodian (other than a Morgan Affiliate) or any carrier
of Securities acting for the Custodian or any Subcustodian
is limited to the failure on the part of the Custodian (or a
Subcustodian that is a Morgan Affiliate) to exercise
reasonable care in the selection or retention of such
Subcustodian or carrier. The Custodian shall have no
responsibility for the selection or retention of any
Securities Depository or for the performance of any
Securities Depository.
(b) Insurance. The Custodian shall, and shall require each
Subcustodian to, maintain insurance coverage with respect to
the
Securities covering such risks and in such amounts as the
Custodian or such Subcustodian maintains with respect to
securities which the Custodian or such Subcustodian holds
for its own account and for the account of other customers.
(c) Indemnification by the Custodian and Subcustodians.
The Custodian shall indemnify the Client against, and hold
the Client harmless from, any loss or liability (including,
without limitation, the reasonable fees and disbursements of
counsel and other legal advisors, but excluding all losses
and liabilities of the types described in Section 11 hereof)
incurred by the Client by reason of the negligence (whether
through action or inaction) or willful misconduct of the
Custodian or any Subcustodian that is a Morgan Affiliate in
connection with the services provided pursuant to this
Agreement or the applicable subcustodian agreement. The
Custodian shall require each Subcustodian that is not a
Morgan Affiliate to indemnify the Custodian and the Client
against, and hold the Custodian and the Client harmless
from, any loss or liability (including, without limitation,
the reasonable fees and disbursements of counsel, but
excluding all losses and liabilities of the types specified
in Section 11) incurred by the Custodian or the Client by
reason of the negligence (whether through action or
inaction) or willful misconduct of such Subcustodian in
connection with the services provided by such Subcustodian
pursuant to the applicable subcustodian agreement.
11. Limitations on Responsibilities and Liabilities.
(a) Generally. The Custodian shall be responsible for the
performance of only those duties as are set forth herein or
contained in an Authorized Instruction that is not contrary
to the provisions of this Agreement.
(b) Consequential Damages. Under no circumstances shall
the Custodian or any Subcustodian be liable to the Client or
any other person for indirect, special or consequential
damages, even if the Custodian or such Subcustodian is
apprised of the likelihood of such damages.
(c) Corporate Actions. The Custodian shall not be liable
for any loss occasioned by the failure of the Custodian to
notify the Client of any payment of dividends or interest or
any redemption, rights offering or other distribution made
with respect to any Security or any other corporate action
taken or to be taken with respect to any Security if the
Custodian or a Subcustodian has not received notice of such
transaction directly from or on behalf of the issuer of such
Security or if such distribution or action was not included
in the reports of an internationallyrecognized investment
data service selected by the Custodian.
(d) Authorized Instructions. Neither the Custodian nor any
Subcustodian shall be liable for any action taken upon an
Authorized Instruction.
(e) Payment and Delivery Instructions. In some securities
markets, securities deliveries and payments therefor may not
be or are not customarily made simultaneously. Accordingly,
the Client agrees that, notwithstanding the Client's
instruction to deliver Securities against payment or to pay
for Securities against delivery, the Custodian or a
Subcustodian may make or accept payment for or delivery of
Securities at such time and in such form and manner as shall
be in accordance with relevant local law and practice or
with the customs prevailing in the relevant market among
securities dealers. The Client shall bear the risk that (i)
the recipient of Securities may fail to make
payment, return such Securities or hold such Securities or
the proceeds of their sale in trust for the Client and (ii)
the recipient of payment for Securities may fail to deliver
the Securities (such failure to include, without limitation,
delivery of forged or stolen Securities) or to return such
payment, in each case whether such failure is total or
partial or merely a failure to perform on a timely basis.
Neither the Custodian nor any Subcustodian shall be liable
to the Client for any loss resulting from any of the
foregoing events.
(f) Reversals. In some securities markets and cash
clearing systems, deliveries of securities and cash may be
reversed under certain circumstances. Accordingly, credits
of securities to a Securities Account and cash to the Cash
Account are provisional and subject to reversal if, in
accordance with relevant local law and practice, the
delivery of the security or cash giving rise to the credit
is reversed.
(g) Foreign Currency Risks. The Client shall bear all
risks of investing in Securities or holding Cash denominated
in a currency other than that of the Client's home
jurisdiction. Without limiting the foregoing, the Client
shall bear the risks that rules or procedures imposed by
Securities Depositories, exchange controls, asset freezes or
other laws or regulations shall prohibit or impose burdens
or costs on the transfer to, by or for the account of the
Client of Securities or Cash held outside the Client's
jurisdiction or denominated in a currency other than the
currency of the Client's home jurisdiction or the conversion
of Cash from one currency into another currency. The
Custodian shall not be obligated to substitute another
currency for a currency (including a currency that is a
component of a Composite Currency Unit) whose
transferability, convertibility or availability has been
affected by such law, regulation, rule or procedure.
Neither the Custodian nor any Subcustodian shall be liable
to the Client for any loss resulting from any of the
foregoing events.
(h) Force Majeure. Notwithstanding any other provision
contained herein, neither the Custodian nor any Subcustodian
shall be liable for any action taken, or any failure to take
any action required to be taken, hereunder or otherwise to
fulfill its obligations hereunder (including without
limitation the failure to receive or deliver securities or
the failure to receive or make any payment) in the event and
to the extent that the taking of such action or such failure
arises out of or is caused by war, insurrection, riot, civil
commotion, act of God, accident, fire, water damage,
explosion, mechanical breakdown, computer or system failure
or other failure of equipment, or malfunction or failures
caused by computer virus, failure or malfunctioning of any
communications media for whatever reason, interruption
(whether partial or total) of power supplies or other
utility of service, strike or other stoppage (whether
partial or total) of labor, any law, decree, regulation or
order of any government or governmental body (including any
court or tribunal), or any other cause (whether similar or
dissimilar to any of the foregoing) whatsoever beyond its
reasonable control.
(i) Delays. Except in the case of a failure by the
Custodian or a Morgan Affiliate to exercise the standard of
care required by Section 10(a), the Custodian shall not be
liable for delays in carrying out payment instructions given
by the Client. In the event that a delay in the carrying
out of a payment instruction is caused by such a failure of
the Custodian or a Morgan Affiliate, the liability of the
Custodian shall not exceed an interest equivalent for the
period from the day when the payment would have been carried
out, but for the negligence of the
Custodian or such Morgan Affiliate, until the day when it is
actually carried out (excluding any portion of such period
during which the Custodian cannot carry out such
instructions as a result of any event referred to in Section
11(h)); provided that if the Client shall fail to report the
delay to the Custodian within 10 days from the date when the
payment would, but for the negligence of the Custodian or a
Morgan Affiliate, have been made, then the Custodian shall
not be liable for an interest equivalent for more than a
total of 10 days.
(j) Client's Reporting Obligations. The Client shall be
solely responsible for compliance with any notification,
license or other requirement of any jurisdiction relating to
or affecting the Client's beneficial ownership of the
Securities, and neither the Custodian nor any Subcustodian
assumes liability for noncompliance with such requirements.
(k) No Investment Advice. Neither the Custodian nor any
Subcustodian or Morgan Affiliate is under any duty to
provide the Client with investment advice or to supervise
its investments.
(l) Fraudulent Securities. Neither the Custodian nor any
Subcustodian shall have any liability for losses incurred by
the Client or any other person as a result of the receipt or
acceptance of fraudulent, forged or invalid Securities (or
Securities which are otherwise not freely transferable or
deliverable without encumbrance in any relevant market).
(m) Third Party Information. The Custodian shall have no
responsibility for the accuracy of any information provided
by the Custodian to the Client that has been obtained from
third parties pursuant to Section 7 or 8(c) of this
Agreement.
12. Use of Morgan Affiliates.
(a) Executing Orders. The Custodian shall, in its sole
discretion and if permitted by applicable law, accept orders
from the Client for the purchase or sale of Securities and
either execute such orders itself or by means of Morgan
Affiliates or brokers or other financial organizations of
its choice, subject to the fees and commissions in effect
from time to time. The Custodian shall not be responsible
for any act or omission, or for the solvency, of any broker
or other financial organization so selected to effect any
transaction for the account of the Client. When instructed
to buy or sell Securities for which the Custodian or a
Morgan Affiliate acts as a dealer, the Custodian may buy or
sell such Securities from or to either itself, as principal,
or such Morgan Affiliate.
(b) Disclosure to Morgan Affiliates. Notwithstanding the
provisions of Section 26 hereof, the Custodian may disclose
to any Morgan Affiliate details with respect to the
Securities and the transactions effected hereunder. Such
disclosure shall be for the purpose of identifying banking,
securities and financial services that Morgan Affiliates may
be able to provide to the Client.
(c) Sub-Contracting. The Client hereby agrees that the
Custodian may arrange with any Morgan Affiliate to perform
on behalf of the Custodian any act required to be performed
by the Custodian hereunder.
13. Fees. The Client agrees to pay the Custodian as
compensation for the services provided hereunder a fee
computed
at rates determined by the Custodian from time to time and
communicated to the Client in advance, as well as all
assessments, charges and expenses (including legal expenses
and attorney's fees associated with enforcing the
Custodian's rights hereunder) incurred by the Custodian in
connection with this Agreement.
14. Right to Debit and Set-Off. The Custodian has the
right to debit any subaccount of the Cash Account for any
amount payable by the Client in connection with any and all
obligations of the Client to the Custodian, whether or not
relating to or arising under this Agreement. In addition to
the rights of the Custodian under applicable law and other
agreements, at any time when the Client shall not have
honored any and all of its obligations to the Custodian,
whether or not relating to or arising under this Agreement,
the Custodian shall have the right without notice to the
Client to retain or set-off, against such obligations of the
Client, any assets the Custodian or any Morgan Affiliate may
directly or indirectly hold for the account of the Client,
and any obligations (whether matured or unmatured) that the
Custodian or any Morgan Affiliate may have to the Client in
any currency or Composite Currency Unit, including time
deposits and all assets credited to any Securities Account.
Any such asset of, or obligation to, the Client may be
transferred among the Custodian and any Morgan Affiliates in
order to effect the above rights.
15. Security Interests. In order to secure the prompt and
complete payment when due of any and all obligations of the
Client to the Custodian, now outstanding or which may be
outstanding at any time in the future, whether or not
relating to or arising out of this Agreement, the Client
hereby pledges and grants to the Custodian a security
interest in (i) all of the Client's right, title and
interest in and to all Cash Accounts, including any credit
or debit balance which now appears or may at any time in the
future appear in any currency or Composite Currency Unit
subaccount of a Cash Account, (ii) all of the Client's
right, title and interest in and to all time deposit
accounts and notice accounts that the Client may open from
time to time with the Custodian, (iii) all of the Client's
right, title and interest in and to all Securities Accounts
and the amount of all securities which are now or at any
time in the future shall be standing to the credit of a
Securities Account (clauses (i), (ii) and (iii) of this
Section 15 being referred to collectively herein as the
"Collateral"), (iv) all amounts of cash, securities or other
property or countervalue received or to be received with
respect to or in exchange for any and all of the then
existing Collateral which are, or are intended, to be
credited to a Cash Account or a Securities Account and (v)
to the extent not covered by the foregoing, all proceeds,
product, offspring, rents or profits of any or all of the
foregoing (whether acquired before or after the commencement
of any bankruptcy or liquidation proceeding by or in respect
of the Client) which are, or are intended to be credited to
a Cash Account or a Securities Account. All time deposit
accounts and notice accounts shall be deemed constituted for
an indefinite period, even though the Client and the
Custodian may agree from time to time that interest thereon
will be paid on specified dates rather than only at final
maturity. The foregoing security interests are granted as
security only and shall not subject the Custodian to, or
transfer or in any way affect or modify, any obligation or
liability of the Client with respect to any of the
Collateral or any transaction in connection therewith. The
Client authorizes the Custodian to perform all acts which
the Custodian, in its sole discretion, deems necessary or
desirable
to perfect and preserve its security interests and rights
under this Section 15. Upon any breach by the Client of its
obligations hereunder, the Custodian shall be entitled to
exercise all of the remedies available to a secured creditor
under applicable law.
16. Indemnification by the Client. The Client agrees to
indemnify the Custodian and each Subcustodian and to hold
the Custodian and each such Subcustodian harmless from any
loss or liability (including, without limitation, the
reasonable fees and disbursements of counsel and other legal
advisors) incurred by the Custodian or such Subcustodian in
rendering services hereunder or in connection with any
breach of the terms of this Agreement by the Client, except
such loss or liability which results from the Custodian's or
such Subcustodian's failure to exercise the standard of care
required by Section 10(a) hereof.
17. Termination. This Agreement may be terminated by the
Custodian or the Client following receipt by the other party
of not less than 60 days' prior written notice thereof;
provided that such termination may be immediate if the other
party shall be in breach of its obligations hereunder or
shall become the subject of bankruptcy, insolvency,
reorganization, receivership or other similar proceedings.
If notice of termination is given by the Custodian, then the
Client shall, within 60 days following receipt of such
notice, specify in an Authorized Instruction the names of
the persons to whom all Securities and Cash shall be
delivered or paid. In such case, the Custodian shall,
subject to the payment of amounts owed to it pursuant to
Sections 6(b) and 13 hereof, deliver such Securities and
Cash, and instruct each Subcustodian to deliver any
Securities or Cash held by such Subcustodian, to the persons
so specified. If within 60 days following the receipt of a
notice of termination by the Custodian, the Custodian does
not receive from the Client the names of the persons to whom
such Securities and Cash shall be delivered, the Custodian,
at its election, may deliver such Securities and Cash, and
instruct each Subcustodian holding any Securities or Cash to
deliver such Securities and Cash, to a bank or a trust
company doing business in the state or country where such
Securities and Cash were held. Securities or Cash so
delivered shall be held and disposed of pursuant to the
provisions of this Agreement or an Authorized Instruction or
may be continued to be held until the names of such persons
are delivered to the Custodian. If notice of termination is
given by the Client, the Custodian shall, subject to the
payment of all amounts owed to it pursuant to Sections 6(b)
and 13 hereof, deliver such Securities and Cash, and
instruct each Subcustodian holding any Securities or Cash to
deliver such Securities or Cash, to the persons specified in
an Authorized Instruction. If this Agreement is terminated
by the Custodian or the Client, but the Custodian or a
Morgan Affiliate continues to provide other services to the
Client in connection with which the Client uses
Communication Products, then the provisions of Sections 27
and 28 hereof shall survive the termination of this
Agreement until the time that no such other services
continue to be provided by the Custodian or a Morgan
Affiliate to the Client or until otherwise terminated in
writing by the Client or the Custodian. The provisions of
Sections 20, 24, 26 and Appendix G hereof and the indemnity
provisions of this Agreement and the provisions limiting the
liabilities of the Custodian and the Subcustodians shall
survive the termination of this Agreement (including any
subsequent termination of Sections 27 and 28 hereof).
18. Notices. Except as otherwise specified herein, any
notice or other communication to the Custodian or Client is
to be addressed to the respective party as set forth in
Appendix D hereto or in such other manner as may be
specified by the one party to the other in writing from time
to time. Unless otherwise specified herein, notices shall
be effective when received. If any Authorized Instruction
is given to the Custodian orally, then the Custodian's
record of such instruction shall constitute conclusive
evidence of the contents of such instruction,
notwithstanding any conflicting written confirmation or
record of such instruction provided by the Client.
19. Amendments and Waivers. Any provision of this
Agreement (including Appendices B through G hereto) may be
amended or waived if, but only if, such amendment or waiver
is in writing and is signed by the Client and the Custodian.
20. Claims. Any claim arising out of or related to this
Agreement must be brought no later than one year after such
claim has accrued.
21. Successors and Assigns; Governing Law; Jurisdiction.
This Agreement shall bind the successors and assigns of the
Custodian and the Client. Except as otherwise provided by
the terms of this Agreement, neither the Custodian nor the
Client may assign any of its rights or obligations under
this Agreement without the prior written consent of the
other party. This Agreement shall be governed by and
construed in accordance with the law of State of New York
except that the provisions set forth in Sections 4(b) and 15
shall be governed by the law of Belgium. The Client hereby
submits to the non-exclusive jurisdiction of any any federal
or state court in New York City for purposes of all legal
proceedings arising out of or relating to this Agreement or
the transactions contemplated hereby. The Client hereby
irrevocably waives, to the fullest extent permitted by
applicable law, any objection which it may now or hereafter
have to the laying of venue of any such proceeding brought
in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient
forum. The Client and the Custodian each hereby irrevocably
waives any and all rights to trial by jury in any legal
proceeding arising out of or relating to this Agreement.
22. Counterparts. This Agreement may be signed in any
number of counterparts with the same effect as if the
signatures thereto and hereto were upon the same instrument.
23. Headings. The section headings used herein are for
information only and shall not affect the interpretation of
any provision of this Agreement.
24. Evidence. The Custodian's books and records (whether
on paper, microfilm, microfiche, by electronic or magnetic
recording, or any other mechanically reproducible form or
otherwise) shall be deemed to constitute, in the absence of
manifest error, sufficient evidence of the facts stated
therein and of any obligations of the Client to the
Custodian.
25. Integration. This Agreement constitutes the entire
agreement between the parties hereto as it pertains to the
provision of global custody services and supersedes any and
all prior agreements and understanding, oral or written,
relating to the subject matter hereof.
26. Confidentiality. Notwithstanding any other provision
herein, the Custodian may disclose the Client's name,
address and securities position and other information to
such persons and to such an extent as required by law
(including, but not limited to, article 28 of the Belgian
Law of December 4, 1990 relating to securities transactions
suspected of constituting market manipulation, insider
trading and other breaches of financial regulations), the
rules of any stock exchange or regulatory or self-regulatory
organization or any order or decree of any court or
administrative body that is binding on the Custodian or any
Subcustodian or Securities Depository or the terms of the
organizational documents of the issuer of any Security or
the term of any Security itself.
27. Security Procedures. The Client acknowledges that it
has been fully informed of the protections and risks
associated with the various methods of communication for
transmitting Authorized Instructions to the Custodian. The
Custodian has recommended that the Client transmit
Authorized Instructions to the Custodian using one or more
specified methods of communication and has recommended a
type of Security Procedure for each such method. The Client
hereby agrees that the Security Procedure actually agreed
between the Client and the Custodian shall be deemed
commercially reasonable even if such Security Procedure
offers less protection than the Security Procedure
recommended by the Custodian. If the Client elects to
transmit Authorized Instructions to the Custodian by a
method of communication for which no Security Procedure has
been agreed, the Client agrees to be bound by any such
Authorized Instruction that the Custodian believes in good
faith to have been given by an Authorized Person. The
Client shall (i) not disclose, or permit any Authorized
Person to disclose, except on a "need to know" basis, any
aspects of any Security Procedure, (ii) notify the Custodian
immediately if the confidentiality of any Security Procedure
is compromised and (iii) act to prevent the Security
Procedures from being further compromised. The Client shall
designate one or more persons, as identified in Appendix E,
to receive Security Procedure materials from the Custodian.
The Client may amend Appendix E from time to time upon seven
days' prior written notice to the Custodian in accordance
with Section 18 of this Agreement.
28. License. The Custodian hereby grants to the Client a
personal, nontransferable and nonexclusive license to use,
for its internal purposes only, the respective number of
copies of any hardware, firmware, microcode and software set
forth in Appendix F or hereafter identified by the Custodian
in writing as communication products (the "Communication
Products"), for the respective terms set forth in Appendix F
and at the respective locations set forth in Appendix F,
solely in connection with transmitting and receiving
electronic communications to and from the Custodian in
connection with this Agreement. The Client hereby
acknowledges and agrees that this license is subject to the
terms and conditions set forth in Appendix G.
29. Severability. In the event any of the terms or
provisions of this Agreement shall be held to be
unenforceable, the
remaining terms and provisions shall be unimpaired and the
unenforceable term or provision shall be replaced by such
enforceable term or provision as comes closest to the
intention underlying the unenforceable term or provision.
In Witness Whereof, the parties have caused this Agreement
to
be duly executed by their respective authorized
representatives as of the day and year first above written.
Morgan Guaranty Trust Company of Smith Barney
Precious Metals and
New York Minerals Fund Inc
By: ______________________________ By:
______________________________
Title: ______________________________ Title:
______________________________
Appendix A
Global Custody Network
Country Subcustodian
Depository1
Argentina Morgan Guaranty Trust Co.
Caja de Valores
of New York - Buenos Aires
Office
Australia ANZ Banking Group
Austraclear
Austria Creditanstalt-Bankverein
OeKB-WSB (Wertpapiersammelbank bei der Oesterreichischen
Kontrollbank AG)
Belgium Morgan Guaranty Trust Co.
CIK (Caisse Interprofessionnelle
of New York - Brussels Office
de Depots et de Virements de Titres)
Euroclear Clearance System Limited
Brazil Morgan Guaranty Trust Co.
BOVESPA (Bolsa de Valores de Sao Paulo;
of New York - Sao Paulo Office
equities)
BVRJ
(Bolsa de Valores de Rio de Janeiro; equities)
CETIP
(Central de Custodia e Liquidacao Financiera de Titulos;
corporate bonds)
SELIC
(Sistema Especial de Liquidacao e Custodia; government
securities)
Canada Canadian Imperial Bank CDS
(Canadian Depository for
of Commerce
Securities)
Chile Citibank, N.A.
People's Republic of China - Hongkong and Shanghai
Banking
Shanghai and Shenzhen Corporation
Denmark Den Danske Bank VP
(Vaerdipapircentralen; Danish Securities Centre)
Finland Union Bank of Finland
France Morgan Guaranty Trust Co.
SICOVAM (Societe Interprofessionnelle
of New York - Paris Office
Pour La Compensation des Valeurs
Mobilieres)
Germany J.P. Morgan GmbH DKV
(Deutscher Kassenverein)
Greece National Bank of Greece S.A.
Hong Kong Hongkong and Shanghai Banking
CCASS
(Central Clearing and Settlement
Corporation
System)
Hungary Citibank Budapest Rt
India Hong Kong and Shanghai
Banking
Corporation
Indonesia Hongkong and Shanghai Banking
Corporation
Ireland Allied Irish Banks PLC
Italy Morgan Guaranty Trust Co.
Monte Titoli S.p.A.
of New York - Milan Office
Japan The Fuji Bank, Ltd.
JASDEC (Japanese Securities
Depository Center)
JSA
(Japan Securities Agency)2
Korea Bank of Seoul
KSSC (Korea Securities Settlement Corporation)
Luxembourg Banque Internationale a
CEDEL (Central de Livraison
Luxembourg, S.A.
des Valeurs Mobilieres)
Malaysia Hongkong and Shanghai Banking
SCANS
(Securities Clearing Automated
Corporation
Network Services)
Mexico Citibank, N.A.
Indeval
Netherlands Bank Van Haften
Labouchere
NECIGEF (Nederlands Centraal Instituut Voor
Giraal Effectenverkeer BV)
New Zealand ANZ Banking Group Ltd.
Austraclear
Norway Den Norske Bank VPS
(Verdipapirsentralen; Norwegian Registry of
Securities) Philippines
Hongkong and Shanghai Banking
Corporation
Portugal Banco Espirito Santo
e Comercial de Lisboa
Singapore Development Bank of Singapore
(CDP)
Central Depository Pte
Spain Morgan Guaranty Trust Co.
of New York - Madrid Office
Banco de Santander
Sri Lanka Hongkong and Shanghai Banking
Corporation
Sweden Skandinaviska Enskilda Banken
VPC (Vaerdepappercentralen;
Securities Register Centre)
Switzerland Morgan Guaranty Trust Co.
SEGA (Schweizerische
of New York - Zurich Office
Effekten - Giro AG)
Taiwan Hongkong and Shanghai Banking
Corporation
Thailand Hongkong and Shanghai Banking
Corporation
Turkey3 Citibank, N.A.
Ottoman Bank
United Kingdom Morgan Guaranty Trust Co.
TALISMAN (Transfer, Accounting and
of New York - London Office
Lodgement for Investors Stock Management
for
Jobbers) - Sepon Limited
CGO
(Central Gilts Office)
CMO
(Central Money Markets Office)
ESO
(European Settlements Office)
United States Morgan Guaranty Trust Co.
The Depository Trust Co.
of New York
The
Participants Trust Co.
Venezuela Citibank, N.A.
Appendix B
Consents and Filings
Additional Information
Appendix C
Tax Matters
The provisions of this Appendix C shall govern the rights,
responsibilities, duties and liabilities of the Client and
the
Custodian with respect to the payment or withholding of all
taxes, assessments, duties or other governmental charges
(including any interest or penalty thereon or with respect
thereto) imposed by any governmental authority upon or with
respect to (i) any Cash, (ii) any Securities, and any
distributions with respect thereto, and (iii) the purchase,
sale, loan or other transfer of any Security by the
Custodian,
any Subcustodian or any Securities Depository on behalf of
the
Client and any proceeds or other income from such a sale,
loan
or other transfer (any such tax, assessment, duty or other
governmental charge being referred to herein as a "Tax").
All
capitalized terms not defined herein shall have the meanings
assigned to them in the Global Custody Agreement.
1. As further provided in this Appendix C, the Client shall
be
liable for all Taxes and shall indemnify and hold harmless
the
Custodian, each Subcustodian and each Securities Depository
for
the amount of any Tax that the Custodian or such
Subcustodian
or Securities Depository is required under applicable laws
(whether by assessment or otherwise) to pay on behalf of, or
in
respect of income earned by or payments or distributions
made
to or for the account of, the Client (including any payment
of
Tax required by reason of an earlier failure to withhold).
2. The Custodian shall, and shall instruct each
Subcustodian
and
Securities Depository to, withhold the amount of any Tax
which
the Custodian or such Subcustodian or Securities Depository
is
required to withhold under applicable law upon collection
(on
behalf of the Client pursuant to an Authorized Instruction)
of
(i) any dividend, interest or other cash distribution made
with
respect to any Security, (ii) any stock dividend or
distribution of rights, warrants or other property with
respect
to any Security and (iii) any proceeds or income from the
sale,
loan or other transfer of any Security. The Custodian
shall,
and shall instruct each Subcustodian and Securities
Depository
to, timely remit the amount of any such tax withheld to the
appropriate governmental authority in the manner required by
applicable law. The Custodian has, and is authorized to
grant
to each Subcustodian and Securities Depository, complete
discretion to determine the amount of any Tax which the
Custodian or such Subcustodian or Securities Depository is
required to withhold from any distribution, proceeds or
income
under any applicable law.
3. In the event that (A) the Custodian or any Subcustodian
or
Securities Depository is required under applicable law to
pay
any Tax on behalf of the Client (including a payment due by
reason of an earlier failure to withhold such Tax) or (B)
the
Custodian or any Subcustodian or Securities Depository is
required under applicable law to withhold or otherwise pay
any
Tax from or with respect to any distribution or payment in
property other than cash which is collected by the Custodian
or
such Subcustodian or Securities Depository (on behalf of the
Client pursuant to an Authorized Instruction), the Custodian
shall be authorized to withdraw Cash from any subaccount of
the
Cash Account in the amount and currency required to pay such
Tax and to use such Cash, or to remit such Cash to the
appropriate Subcustodian or Securities Depository for the
timely payment of such Tax in the manner required by
applicable
law. If the Cash Account does not contain sufficient Cash
in
the appropriate currency to pay such Tax, the Custodian
shall
be authorized to withdraw Cash of any other currency from
any
subaccount of the Cash Account in an amount which, when
converted to the appropriate currency at the exchange rate
prevailing on the date of withdrawal, is sufficient to
enable
the Custodian or such Subcustodian or Securities Depository
to
pay such Tax. If the aggregate amount of Cash in all
subaccounts of the Cash Account is not sufficient to pay
such
Tax, the Custodian shall promptly notify the Client of the
additional amount of Cash (in the appropriate currency)
required, and the Client shall deposit such additional
amount
in the Cash Account promptly after receipt of such notice
for
use by the Custodian as specified herein. In the event that
the Custodian or any Subcustodian or Securities Depository
is
required to pay any such Tax prior to the deposit by the
Client
of an additional amount as required hereunder, the Custodian
shall be authorized to withdraw such additional amount
(following deposit thereof) from any subaccount of the Cash
Account for payment to its own account or the account of
such
Subcustodian or Securities Depository in satisfaction of the
Client's indemnification obligation hereunder.
4. The information delivered to the Client each month
pursuant
to Section 8(a) of the Global Custody Agreement shall
include
the amount of each Tax (i) withheld by the Custodian or any
Subcustodian or Securities Depository from any payment
collected on behalf of the Client, (ii) withheld by the
payor
of any payment collected by the Custodian or any
Subcustodian
or Securities Depository on behalf of the Client or (iii)
paid
by the Custodian or any Subcustodian or Securities
Depository
on
behalf of the Client with Cash withdrawn from the Cash
Account
or otherwise obtained pursuant to paragraph 3 of this
Appendix
C, in each case during the period since the date of the
immediately preceding monthly report.
5. In the event that the Client is eligible, pursuant to
the
provisions of any tax treaty, for a reduced rate of, or
exemption from, any Tax which the Custodian or any
Subcustodian
or Securities Depository is otherwise required to withhold
or
pay on behalf of the Client under any applicable law, the
Custodian shall, or shall instruct such Subcustodian or
Securities Depository to, either withhold or pay such Tax at
such reduced rate or refrain from withholding or paying such
Tax, as appropriate; provided that the Custodian has
received
from the Client all documentary evidence of residence or
other
qualification for such reduced rate or exemption required to
be
received under such applicable law. As soon as practicable
following the execution of the Global Custody Agreement, the
Client shall notify the Custodian of the Client's
eligibility
for the benefits of any tax treaty between the Client's
country
of residence and the countries listed in Appendix A to the
Global Custody Agreement and to the extent possible, furnish
to
the Custodian all forms or other documentary evidence
required
under applicable law to establish such eligibility. The
Custodian shall, and shall instruct each Subcustodian and
Securities Depository to, withhold or pay any Tax at a
reduced
rate hereunder, or refrain from withholding or paying any
Tax,
only in reliance upon documentation furnished to the
Custodian
pursuant to this paragraph 5. The Custodian and each
Subcustodian and Securities Depository shall have no
responsibility for the accuracy or validity of any forms or
documentation provided by the Client to the Custodian
hereunder, and the Client hereby indemnifies and agrees to
hold
harmless the Custodian and each Subcustodian and Securities
Depository in respect of any liability arising from any
underwithholding or underpayment of any Tax which results
from
the inaccuracy or invalidity of any such forms or other
documentation.
6. In the event that the Custodian becomes aware that any
person is required under applicable law of any country to
withhold any Tax from any payment collected by the Custodian
or
any Subcustodian or Securities Depository on behalf of the
Client, and the Client has previously provided to the
Custodian
pursuant to paragraph 5 of this Appendix C all forms or
other
documentary evidence required under applicable law to
establish
eligibility for an exemption from or reduced rate of such
withholding pursuant to any tax treaty between such country
and
the Client's country of residence, then the Custodian shall
furnish, or shall instruct such Subcustodian or Securities
Depository to furnish, to the extent permissible and
effective
to establish such eligibility under applicable law, such
forms
or other documentary evidence on behalf of the Client to the
person required to withhold such Tax. In the event that the
Custodian or such Subcustodian or Securities Depository is
not
permitted under applicable law to furnish the necessary
forms
or other documentary evidence on behalf of the Client, the
Custodian shall make reasonable efforts to notify the
Client,
reasonably promptly after it becomes aware of such
requirement,
that the Client is required under such law to furnish such
items to the person required to withhold such Tax. In the
event that (i) the Tax which any such person is required to
withhold is imposed under an applicable law of a country
other
than those listed in Appendix A to the Global Custody
Agreement
or (ii) the Custodian or an appropriate governmental
authority
or withholding agent has
determined that any forms or other documentation previously
provided to the Custodian pursuant to paragraph 5 of this
Appendix C are insufficient to establish the eligibility of
the
Client for a reduced rate of, or exemption from, withholding
of
any Tax imposed under the applicable law of a country listed
in
Appendix A to the Global Custody Agreement, the Custodian
shall
make reasonable efforts to so notify the Client reasonably
promptly after the Custodian becomes aware that such Tax is
required to be withheld.
7. In the event that (i) the Client is eligible pursuant to
the provisions of any tax treaty for a reduced rate of, or
exemption from, withholding of any Tax, which reduced rate
or
exemption is obtainable only by means of application to the
appropriate governmental authority for a refund of tax paid
or
withheld, or (ii) the Custodian or any Subcustodian or
Securities Depository withholds from any distribution,
proceeds
or income collected on behalf of the Client an amount which
is
subsequently determined to be greater than the amount
required
under applicable law to have been withheld, the Custodian
shall, or shall instruct the appropriate Subcustodian or
Securities Depository to, assist the Client, to the extent
permissible under applicable law, to obtain a refund of such
Tax from the appropriate governmental authority in the
amount
for which the Client is eligible.
Appendix D
Notices to the Custodian
Morgan Guaranty Trust Company of New York, Brussels Office
35 avenue des Arts
Brussels 1040, Belgium
Attention: Securities Trust and
Information Services, Global
Custody
Facsimile No. 322-512-4977
Telephone No. 322-508-8365
Notices to the Client
388 Greenwich Street
New York, NY 10013
Attention Lewis Daidone
Appendix E
Persons Authorized by the Client to Receive Security
Procedure Materials
[To be provided by Client]
Appendix F
Communication Products
(To be provided)
Appendix G
Communication Products - Terms and Conditions
1. Misuse; Confidentiality; Copies. The Client shall not
transfer, sublicense, rent, lease, convey, translate,
convert
to another programming language, decompile, disassemble,
modify
or change any Communication Product for any purpose. The
Client shall not use any Communication Product in a manner
which would violate this license or infringe the proprietary
rights of the Custodian or others or violate the laws,
tariffs
or regulations of any country. The Client agrees not to
disclose to any other party and to keep confidential all of
the
Communication Products and all information contained in or
related to the Communication Products and related
documentation. The Client may make only one copy of each
licensed software Communication Product for backup purposes
in
support of its authorized use of the software. The Client
shall include any applicable copyright notice on any such
software backup. The Client is permitted to use each
licensed
copy of any Communication Product on only one computer or
local
area network at a time.
2. Compatible Products. The Client shall be responsible
for
obtaining and maintaining hardware, software and other
equipment and products that are compatible with the
Communication Products, as compatibility is defined by the
Custodian from time to time. The Custodian shall give the
Client reasonable advance notice of any changes in such
compatibility requirements.
3. Documentation. If available, the Custodian shall give
the
Client one copy of a user manual and related documentation
(the
"Documentation") for each licensed Communication Product.
The
Documentation is intended to be used for training and
informational purposes. The Documentation describes
Security
Procedures that the Client must comply with in using the
Communication Products. The Client shall immediately notify
the Custodian in writing if it believes any Security
Procedure
has been compromised or if any Communication Product fails
to
perform as described in the Documentation.
4. Installation. At its option, the Custodian shall either
install the Communication Products at the locations
specified
by the Client or shall furnish the Client with installation
instructions. From time to time, at its option, the
Custodian
shall either install new releases of the Communication
Products
or furnish the Client with installation instructions and
direct
the Client to install such new releases by itself. The
Client
agrees to allow the Custodian to install such new releases
or
to install such new releases by itself if directed to do so
by
the Custodian.
5. Returns, Repairs and Replacements. Upon the termination
of
this License with respect to any Communication Product, the
Client agrees to return all copies of such Communication
Product and related documentation to the Custodian. The
Client
agrees to pay any shipping charges incurred in connection
with
the return of any Communication Product to the Custodian for
replacement, update or upon termination of this License with
respect to such
Communication Product. Communication Products that are
lost,
damaged or otherwise rendered inoperable due to the Client's
negligent, reckless or intentional misuse, or due to reasons
beyond the Custodian's control, shall be repaired or
replaced
at the Client's expense. Communication Product repairs
shall
only be performed by the Custodian or a party authorized by
the
Custodian to perform such repairs.
6. Fees; Taxes. The Client agrees to pay the Custodian
license fees and such other fees as the parties hereto may
agree upon in writing from time to time in connection with
obtaining the Communication Products. The Client agrees to
reimburse the Custodian for, or shall pay directly to the
relevant taxing authorities, any sales, use, value-added,
excise or other taxes, other than taxes based on the
Custodian's net income, incurred by the Custodian or which
may
in the future be incurred by the Custodian as a result of
this
License or on or measured by the prices and other charges of
the Communication Products furnished for the Client's use,
however designated, levied or based, whenever the Custodian
has
paid or shall be liable to pay or collect any such tax from
the
Client pursuant to applicable law, as interpreted by the
departmental authorities of the taxing unit.
7. Warranty. The Custodian warrants that, for a period of
30
days after delivery of a Communication Product to the Client
such Communication Product will perform substantially in
accordance with the then current specifications therefor as
set
forth in the Documentation. If a Communication Product
fails
to meet the foregoing warranty and the Client gives the
Custodian written notice thereof during the applicable
warranty
period, the Custodian's sole obligation shall be to provide
technical services to attempt to correct the failure,
provided
that (i) the Client gives the Custodian detailed information
regarding such failure and the Custodian is able to
duplicate
same and (ii) the Communication Product has not been used in
an
unauthorized manner or otherwise misused or abused. The
Client
acknowledges that the Communication Products are complex,
may
not be error free, and that all errors, if any, may not be
correctable or avoidable. Except and to the extent expressly
provided above, and in lieu of all other warranties, the
Communication Products are provided "as is", all warranties
and
representations of any kind with regard to the Communication
Products are hereby disclaimed, including any implied
warranties of merchantability or fitness for a particular
purpose.
8. Infringement. The Custodian shall defend or settle, at
its
own expense, any cause of action or proceeding brought
against
the Client which is based on a claim that the use of a
Communication Product infringes any patent, copyright, trade
secret or other proprietary right. The Custodian shall
indemnify and hold the Client harmless against any final
judgment that may be awarded by a court of competent
jurisdiction against the Client as a result of the
foregoing.
The Custodian's obligations hereunder are conditioned upon
its
receiving from the Client (i) prompt written notice of each
such claim, (ii) reasonable cooperation and information in
Client's possession and (iii) the right to control and
direct
the investigation, defense and settlement of each such
claim.
If a claim is made that a Communication Product infringes
any
patent, copyright, trade secret or other proprietary right,
the
Custodian may, in the Custodian's sole discretion, either
procure for the Client the right to continue using such
Communication Product, modify it to
make its use noninfringing, or replace it with a
noninfringing
product; provided that if none of the foregoing is
reasonably
available to the Custodian, the Custodian may terminate the
license granted herein and require the Client to return all
copies of the relevant Communication Product.
Notwithstanding
the foregoing, the Custodian shall not be liable to the
Client
pursuant to this Section if a claim is based on (i) a
combination of a Communication Product with data or other
software or devices not supplied by the Custodian, (ii)
modifications to a Communication Product not made by the
Custodian or (iii) use of a Communication Product in an
unauthorized manner.
9. Related Services. These terms and conditions and the
Documentation are intended to define the rights and
obligations
of the Client with respect to Communication Products used by
the Client in connection with all services (e.g., custody,
funds transfers, foreign exchange etc.) offered by Morgan
Guaranty Trust Company of New York and its affiliates to the
Client. The provisions of this Agreement and any documents
relating to other services offered by Morgan Guaranty Trust
Company of New York and its affiliates may supplement these
terms and conditions but in the event of any inconsistency
between this Agreement or such other documents and these
terms
and conditions, these terms and conditions shall prevail.
10. Intraday Reports. The Client acknowledges that
intraday
reports received by the Client by means of any Communication
Product may contain information that is subject to
correction,
and that corrections of such information will routinely
occur
without notice to the Client. The Client understands that
intraday reports are provided for informational purposes
only
and are not to be relied upon for purposes of final
reconciliations or otherwise. Neither Morgan Guaranty Trust
Company of New York nor any affiliate or subsidiary of
Morgan
Guaranty Trust Company of New York that provides data with
respect to intraday reports makes any representation or
warranty that such reports are accurate or complete.
_______________________________
1In addition to the central bank, if applicable.
2JSA currently does not meet Rule 17-5 requirements.
3Citibank meets the capital requirements of Rule 17f-5
and
Ottoman bank currently does not.
INDEPENENT AUDITORS' CONSENT
To the Shareholders and Trustees of
Consulting Group Capital Markets Funds:
We consent to the use of our report dated October 24, 1995
with respect
to the Consulting Group Capital Markets Funds, incorporated
herein by
reference, and to the references to our Firm under the
headings "Financial
Highlights" in the Prospectus and "Counsel and Auditors" in
the Statement
of Additional Information.
KPMG Peat Marwick LLP
/s/ KPMG Peat Marwick LLP
New York, New York
December 22, 1995
[ARTICLE] 6
[SERIES]
[NUMBER] 6
[NAME] CGCM BALANCED
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] AUG-31-1995
[PERIOD-END] AUG-31-1995
[INVESTMENTS-AT-COST]
28,253,919
[INVESTMENTS-AT-VALUE]
29,886,989
[RECEIVABLES]
861,605
[ASSETS-OTHER]
0
[OTHER-ITEMS-ASSETS]
136,100
[TOTAL-ASSETS]
30,884,694
[PAYABLE-FOR-SECURITIES]
524,435
[SENIOR-LONG-TERM-DEBT]
0
[OTHER-ITEMS-LIABILITIES]
91,853
[TOTAL-LIABILITIES]
616,288
[SENIOR-EQUITY]
0
[PAID-IN-CAPITAL-COMMON]
28,007,834
[SHARES-COMMON-STOCK]
3,230,004
[SHARES-COMMON-PRIOR]
1,730,524
[ACCUMULATED-NII-CURRENT]
93,066
[OVERDISTRIBUTION-NII]
0
[ACCUMULATED-NET-GAINS]
534,436
[OVERDISTRIBUTION-GAINS]
0
[ACCUM-APPREC-OR-DEPREC]
1,633,070
[NET-ASSETS]
30,268,406
[DIVIDEND-INCOME]
360,712
[INTEREST-INCOME]
457,765
[OTHER-INCOME]
0
[EXPENSES-NET]
190,916
[NET-INVESTMENT-INCOME]
627,561
[REALIZED-GAINS-CURRENT]
534,576
[APPREC-INCREASE-CURRENT]
1,278,055
[NET-CHANGE-FROM-OPS]
2,440,192
[EQUALIZATION]
0
[DISTRIBUTIONS-OF-INCOME]
636,646
[DISTRIBUTIONS-OF-GAINS]
70,178
[DISTRIBUTIONS-OTHER]
0
[NUMBER-OF-SHARES-SOLD]
3,206,487
[NUMBER-OF-SHARES-REDEEMED]
1,789,639
[SHARES-REINVESTED]
82,632
[NET-CHANGE-IN-ASSETS]
15,327,959
[ACCUMULATED-NII-PRIOR]
102,151
[ACCUMULATED-GAINS-PRIOR]
70,038
[OVERDISTRIB-NII-PRIOR]
0
[OVERDIST-NET-GAINS-PRIOR]
0
[GROSS-ADVISORY-FEES]
114,764
[INTEREST-EXPENSE]
0
[GROSS-EXPENSE]
334,025
[AVERAGE-NET-ASSETS]
19,127,049
[PER-SHARE-NAV-BEGIN]
8.63
[PER-SHARE-NII]
0.26
[PER-SHARE-GAIN-APPREC]
0.81
[PER-SHARE-DIVIDEND]
0.29
[PER-SHARE-DISTRIBUTIONS]
0.04
[RETURNS-OF-CAPITAL]
0.00
[PER-SHARE-NAV-END]
9.37
[EXPENSE-RATIO]
1.00
[AVG-DEBT-OUTSTANDING]
0
[AVG-DEBT-PER-SHARE]
0.00
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 13
[NAME] CGCM EMERGING MARKETS EQUITY
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] AUG-31-1995
[PERIOD-END] AUG-31-1995
[INVESTMENTS-AT-COST]
59,715,930
[INVESTMENTS-AT-VALUE]
58,568,262
[RECEIVABLES]
774,818
[ASSETS-OTHER]
0
[OTHER-ITEMS-ASSETS]
780,797
[TOTAL-ASSETS]
60,123,877
[PAYABLE-FOR-SECURITIES]
572,707
[SENIOR-LONG-TERM-DEBT]
0
[OTHER-ITEMS-LIABILITIES]
218,082
[TOTAL-LIABILITIES]
790,789
[SENIOR-EQUITY]
0
[PAID-IN-CAPITAL-COMMON]
63,734,217
[SHARES-COMMON-STOCK]
7,559,614
[SHARES-COMMON-PRIOR]
3,829,945
[ACCUMULATED-NII-CURRENT]
(179,606)
[OVERDISTRIBUTION-NII]
0
[ACCUMULATED-NET-GAINS]
0
[OVERDISTRIBUTION-GAINS]
3,065,529
[ACCUM-APPREC-OR-DEPREC]
(1,155,994)
[NET-ASSETS]
59,333,088
[DIVIDEND-INCOME]
893,697
[INTEREST-INCOME]
50,970
[OTHER-INCOME]
0
[EXPENSES-NET]
867,964
[NET-INVESTMENT-INCOME]
76,703
[REALIZED-GAINS-CURRENT]
(2,599,014)
[APPREC-INCREASE-CURRENT]
(5,147,019)
[NET-CHANGE-FROM-OPS]
(7,669,330)
[EQUALIZATION]
0
[DISTRIBUTIONS-OF-INCOME]
0
[DISTRIBUTIONS-OF-GAINS]
1,164,897
[DISTRIBUTIONS-OTHER]
0
[NUMBER-OF-SHARES-SOLD]
6,214,297
[NUMBER-OF-SHARES-REDEEMED]
2,632,648
[SHARES-REINVESTED]
148,020
[NET-CHANGE-IN-ASSETS]
31,802,438
[ACCUMULATED-NII-PRIOR]
(84,673)
[ACCUMULATED-GAINS-PRIOR]
526,746
[OVERDISTRIB-NII-PRIOR]
0
[OVERDIST-NET-GAINS-PRIOR]
0
[GROSS-ADVISORY-FEES]
445,779
[INTEREST-EXPENSE]
0
[GROSS-EXPENSE]
972,703
[AVERAGE-NET-ASSETS]
49,531,071
[PER-SHARE-NAV-BEGIN]
9.49
[PER-SHARE-NII]
0.01
[PER-SHARE-GAIN-APPREC]
(1.45)
[PER-SHARE-DIVIDEND]
0.00
[PER-SHARE-DISTRIBUTIONS]
0.20
[RETURNS-OF-CAPITAL]
0.00
[PER-SHARE-NAV-END]
7.85
[EXPENSE-RATIO]
1.75
[AVG-DEBT-OUTSTANDING]
0
[AVG-DEBT-PER-SHARE]
0.00
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 1
[NAME] CGCM GOVERNMENT MONEY
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] AUG-31-1995
[PERIOD-END] AUG-31-1995
[INVESTMENTS-AT-COST]
241,039,659
[INVESTMENTS-AT-VALUE]
241,039,659
[RECEIVABLES]
1,895,505
[ASSETS-OTHER]
102,525
[OTHER-ITEMS-ASSETS]
0
[TOTAL-ASSETS]
243,037,689
[PAYABLE-FOR-SECURITIES]
0
[SENIOR-LONG-TERM-DEBT]
0
[OTHER-ITEMS-LIABILITIES]
1,447,630
[TOTAL-LIABILITIES]
1,447,630
[SENIOR-EQUITY]
0
[PAID-IN-CAPITAL-COMMON]
241,646,299
[SHARES-COMMON-STOCK]
241,646,299
[SHARES-COMMON-PRIOR]
184,698,498
[ACCUMULATED-NII-CURRENT]
303
[OVERDISTRIBUTION-NII]
[ACCUMULATED-NET-GAINS]
(56,543)
[OVERDISTRIBUTION-GAINS]
0
[ACCUM-APPREC-OR-DEPREC]
0
[NET-ASSETS]
241,590,059
[DIVIDEND-INCOME]
0
[INTEREST-INCOME]
12,725,384
[OTHER-INCOME]
0
[EXPENSES-NET]
1,329,535
[NET-INVESTMENT-INCOME]
11,395,849
[REALIZED-GAINS-CURRENT]
(12,842)
[APPREC-INCREASE-CURRENT]
0
[NET-CHANGE-FROM-OPS]
11,383,007
[EQUALIZATION]
0
[DISTRIBUTIONS-OF-INCOME]
11,396,511
[DISTRIBUTIONS-OF-GAINS]
0
[DISTRIBUTIONS-OTHER]
0
[NUMBER-OF-SHARES-SOLD]
307,350,449
[NUMBER-OF-SHARES-REDEEMED]
261,236,040
[SHARES-REINVESTED]
10,833,392
[NET-CHANGE-IN-ASSETS]
56,934,297
[ACCUMULATED-NII-PRIOR]
965
[ACCUMULATED-GAINS-PRIOR]
0
[OVERDISTRIB-NII-PRIOR]
0
[OVERDIST-NET-GAINS-PRIOR]
43,701
[GROSS-ADVISORY-FEES]
332,386
[INTEREST-EXPENSE]
0
[GROSS-EXPENSE]
1,632,347
[AVERAGE-NET-ASSETS]
221,590,693
[PER-SHARE-NAV-BEGIN]
1.00
[PER-SHARE-NII]
0.05
[PER-SHARE-GAIN-APPREC]
0.00
[PER-SHARE-DIVIDEND]
0.05
[PER-SHARE-DISTRIBUTIONS]
0.00
[RETURNS-OF-CAPITAL]
0.00
[PER-SHARE-NAV-END]
1.00
[EXPENSE-RATIO]
0.60
[AVG-DEBT-OUTSTANDING]
0
[AVG-DEBT-PER-SHARE]
0.00
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 2
[NAME] CGCM INTERMEDIATE FIXED INCOME
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] AUG-31-1995
[PERIOD-END] AUG-31-1995
[INVESTMENTS-AT-COST]
266,873,012
[INVESTMENTS-AT-VALUE]
268,265,560
[RECEIVABLES]
3,344,671
[ASSETS-OTHER]
19,292
[OTHER-ITEMS-ASSETS]
0
[TOTAL-ASSETS]
271,629,523
[PAYABLE-FOR-SECURITIES]
24,884,606
[SENIOR-LONG-TERM-DEBT]
0
[OTHER-ITEMS-LIABILITIES]
422,225
[TOTAL-LIABILITIES]
25,306,831
[SENIOR-EQUITY]
0
[PAID-IN-CAPITAL-COMMON]
251,692,508
[SHARES-COMMON-STOCK]
30,399,179
[SHARES-COMMON-PRIOR]
28,235,114
[ACCUMULATED-NII-CURRENT]
551,398
[OVERDISTRIBUTION-NII]
0
[ACCUMULATED-NET-GAINS]
0
[OVERDISTRIBUTION-GAINS]
(7,313,762)
[ACCUM-APPREC-OR-DEPREC]
1,392,548
[NET-ASSETS]
246,322,692
[DIVIDEND-INCOME]
0
[INTEREST-INCOME]
15,860,225
[OTHER-INCOME]
0
[EXPENSES-NET]
1,765,309
[NET-INVESTMENT-INCOME]
14,094,916
[REALIZED-GAINS-CURRENT]
(3,398,646)
[APPREC-INCREASE-CURRENT]
7,656,383
[NET-CHANGE-FROM-OPS]
18,352,653
[EQUALIZATION]
0
[DISTRIBUTIONS-OF-INCOME]
13,439,233
[DISTRIBUTIONS-OF-GAINS]
0
[DISTRIBUTIONS-OTHER]
0
[NUMBER-OF-SHARES-SOLD]
14,257,926
[NUMBER-OF-SHARES-REDEEMED]
13,738,827
[SHARES-REINVESTED]
1,644,966
[NET-CHANGE-IN-ASSETS]
22,775,117
[ACCUMULATED-NII-PRIOR]
0
[ACCUMULATED-GAINS-PRIOR]
0
[OVERDISTRIB-NII-PRIOR]
0
[OVERDIST-NET-GAINS-PRIOR]
(4,019,401)
[GROSS-ADVISORY-FEES]
881,208
[INTEREST-EXPENSE]
0
[GROSS-EXPENSE]
1,765,309
[AVERAGE-NET-ASSETS]
220,301,451
[PER-SHARE-NAV-BEGIN]
7.92
[PER-SHARE-NII]
0.50
[PER-SHARE-GAIN-APPREC]
0.16
[PER-SHARE-DIVIDEND]
0.48
[PER-SHARE-DISTRIBUTIONS]
0.00
[RETURNS-OF-CAPITAL]
0.00
[PER-SHARE-NAV-END]
8.10
[EXPENSE-RATIO]
0.80
[AVG-DEBT-OUTSTANDING]
0
[AVG-DEBT-PER-SHARE]
0
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 11
[NAME] CGCM INTERNATIONAL EQUITY
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] AUG-31-1995
[PERIOD-END] AUG-31-1995
[INVESTMENTS-AT-COST]
582,609,547
[INVESTMENTS-AT-VALUE]
646,802,300
[RECEIVABLES]
112,510,324
[ASSETS-OTHER]
657,267
[OTHER-ITEMS-ASSETS]
0
[TOTAL-ASSETS]
759,969,891
[PAYABLE-FOR-SECURITIES]
1,371,395
[SENIOR-LONG-TERM-DEBT]
0
[OTHER-ITEMS-LIABILITIES]
95,468,121
[TOTAL-LIABILITIES]
96,839,516
[SENIOR-EQUITY]
0
[PAID-IN-CAPITAL-COMMON]
575,562,266
[SHARES-COMMON-STOCK]
63,168,278
[SHARES-COMMON-PRIOR]
54,793,025
[ACCUMULATED-NII-CURRENT]
0
[OVERDISTRIBUTION-NII]
547,822
[ACCUMULATED-NET-GAINS]
17,657,600
[OVERDISTRIBUTION-GAINS]
0
[ACCUM-APPREC-OR-DEPREC]
70,458,331
[NET-ASSETS]
663,130,375
[DIVIDEND-INCOME]
16,315,813
[INTEREST-INCOME]
1,459,436
[OTHER-INCOME]
0
[EXPENSES-NET]
7,055,763
[NET-INVESTMENT-INCOME]
10,719,486
[REALIZED-GAINS-CURRENT]
13,690,237
[APPREC-INCREASE-CURRENT]
(23,675,709)
[NET-CHANGE-FROM-OPS]
734,014
[EQUALIZATION]
0
[DISTRIBUTIONS-OF-INCOME]
0
[DISTRIBUTIONS-OF-GAINS]
18,399,952
[DISTRIBUTIONS-OTHER]
0
[NUMBER-OF-SHARES-SOLD]
27,699,298
[NUMBER-OF-SHARES-REDEEMED]
21,167,881
[SHARES-REINVESTED]
1,843,836
[NET-CHANGE-IN-ASSETS]
68,165,387
[ACCUMULATED-NII-PRIOR]
0
[ACCUMULATED-GAINS-PRIOR]
14,225,577
[OVERDISTRIB-NII-PRIOR]
3,125,570
[OVERDIST-NET-GAINS-PRIOR]
0
[GROSS-ADVISORY-FEES]
4,163,115
[INTEREST-EXPENSE]
0
[GROSS-EXPENSE]
7,055,763
[AVERAGE-NET-ASSETS]
594,730,666
[PER-SHARE-NAV-BEGIN]
10.86
[PER-SHARE-NII]
0.05
[PER-SHARE-GAIN-APPREC]
(0.03)
[PER-SHARE-DIVIDEND]
0.00
[PER-SHARE-DISTRIBUTIONS]
0.32
[RETURNS-OF-CAPITAL]
0.00
[PER-SHARE-NAV-END]
10.50
[EXPENSE-RATIO]
1.19
[AVG-DEBT-OUTSTANDING]
0
[AVG-DEBT-PER-SHARE]
0.00
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 12
[NAME] CGCM INTERNATIONAL FIXED INCOME
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] AUG-31-1995
[PERIOD-END] AUG-31-1995
[INVESTMENTS-AT-COST]
94,815,682
[INVESTMENTS-AT-VALUE]
95,938,456
[RECEIVABLES]
38,014,886
[ASSETS-OTHER]
0
[OTHER-ITEMS-ASSETS]
22,969,451
[TOTAL-ASSETS]
156,922,793
[PAYABLE-FOR-SECURITIES]
17,100,000
[SENIOR-LONG-TERM-DEBT]
0
[OTHER-ITEMS-LIABILITIES]
33,938,710
[TOTAL-LIABILITIES]
51,038,710
[SENIOR-EQUITY]
0
[PAID-IN-CAPITAL-COMMON]
100,623,883
[SHARES-COMMON-STOCK]
11,757,748
[SHARES-COMMON-PRIOR]
14,320,075
[ACCUMULATED-NII-CURRENT]
4,742,882
[OVERDISTRIBUTION-NII]
0
[ACCUMULATED-NET-GAINS]
0
[OVERDISTRIBUTION-GAINS]
1,531,548
[ACCUM-APPREC-OR-DEPREC]
2,048,866
[NET-ASSETS]
105,884,083
[DIVIDEND-INCOME]
0
[INTEREST-INCOME]
7,997,941
[OTHER-INCOME]
0
[EXPENSES-NET]
1,020,434
[NET-INVESTMENT-INCOME]
6,977,507
[REALIZED-GAINS-CURRENT]
6,952,534
[APPREC-INCREASE-CURRENT]
3,247,949
[NET-CHANGE-FROM-OPS]
17,177,990
[EQUALIZATION]
0
[DISTRIBUTIONS-OF-INCOME]
6,918,169
[DISTRIBUTIONS-OF-GAINS]
0
[DISTRIBUTIONS-OTHER]
0
[NUMBER-OF-SHARES-SOLD]
3,564,496
[NUMBER-OF-SHARES-REDEEMED]
6,898,451
[SHARES-REINVESTED]
771,628
[NET-CHANGE-IN-ASSETS]
(11,045,393)
[ACCUMULATED-NII-PRIOR]
2,877
[ACCUMULATED-GAINS-PRIOR]
0
[OVERDISTRIB-NII-PRIOR]
0
[OVERDIST-NET-GAINS-PRIOR]
3,866,582
[GROSS-ADVISORY-FEES]
536,934
[INTEREST-EXPENSE]
0
[GROSS-EXPENSE]
1,266,878
[AVERAGE-NET-ASSETS]
107,378,506
[PER-SHARE-NAV-BEGIN]
8.17
[PER-SHARE-NII]
0.56
[PER-SHARE-GAIN-APPREC]
0.84
[PER-SHARE-DIVIDEND]
0.56
[PER-SHARE-DISTRIBUTIONS]
0.00
[RETURNS-OF-CAPITAL]
0.00
[PER-SHARE-NAV-END]
9.01
[EXPENSE-RATIO]
0.95
[AVG-DEBT-OUTSTANDING]
0
[AVG-DEBT-PER-SHARE]
0.00
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 7
[NAME] CGCM LARGE CAP VALUE
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] AUG-31-1995
[PERIOD-END] AUG-31-1995
[INVESTMENTS-AT-COST]
951,196,877
[INVESTMENTS-AT-VALUE]
1,076,366,619
[RECEIVABLES]
10,717,723
[ASSETS-OTHER]
19,686
[OTHER-ITEMS-ASSETS]
0
[TOTAL-ASSETS]
1,087,104,028
[PAYABLE-FOR-SECURITIES]
15,384,072
[SENIOR-LONG-TERM-DEBT]
0
[OTHER-ITEMS-LIABILITIES]
1,682,591
[TOTAL-LIABILITIES]
17,066,663
[SENIOR-EQUITY]
0
[PAID-IN-CAPITAL-COMMON]
914,826,324
[SHARES-COMMON-STOCK]
102,690,248
[SHARES-COMMON-PRIOR]
88,580,978
[ACCUMULATED-NII-CURRENT]
22,607,890
[OVERDISTRIBUTION-NII]
0
[ACCUMULATED-NET-GAINS]
7,433,409
[OVERDISTRIBUTION-GAINS]
0
[ACCUM-APPREC-OR-DEPREC]
125,169,742
[NET-ASSETS]
1,070,037,365
[DIVIDEND-INCOME]
31,317,284
[INTEREST-INCOME]
1,892,572
[OTHER-INCOME]
0
[EXPENSES-NET]
7,329,190
[NET-INVESTMENT-INCOME]
25,880,666
[REALIZED-GAINS-CURRENT]
14,835,032
[APPREC-INCREASE-CURRENT]
100,030,653
[NET-CHANGE-FROM-OPS]
140,746,351
[EQUALIZATION]
0
[DISTRIBUTIONS-OF-INCOME]
21,453,227
[DISTRIBUTIONS-OF-GAINS]
14,119,177
[DISTRIBUTIONS-OTHER]
0
[NUMBER-OF-SHARES-SOLD]
40,567,406
[NUMBER-OF-SHARES-REDEEMED]
30,602,117
[SHARES-REINVESTED]
4,143,981
[NET-CHANGE-IN-ASSETS]
237,898,928
[ACCUMULATED-NII-PRIOR]
13,631,925
[ACCUMULATED-GAINS-PRIOR]
11,266,079
[OVERDISTRIB-NII-PRIOR]
0
[OVERDIST-NET-GAINS-PRIOR]
0
[GROSS-ADVISORY-FEES]
5,293,946
[INTEREST-EXPENSE]
0
[GROSS-EXPENSE]
8,220,112
[AVERAGE-NET-ASSETS]
882,324,327
[PER-SHARE-NAV-BEGIN]
9.39
[PER-SHARE-NII]
0.27
[PER-SHARE-GAIN-APPREC]
1.16
[PER-SHARE-DIVIDEND]
0.24
[PER-SHARE-DISTRIBUTIONS]
0.16
[RETURNS-OF-CAPITAL]
0.00
[PER-SHARE-NAV-END]
10.42
[EXPENSE-RATIO]
0.83
[AVG-DEBT-OUTSTANDING]
0
[AVG-DEBT-PER-SHARE]
0
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 8
[NAME] CGCM LARGE CAP GROWTH
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] AUG-31-1995
[PERIOD-END] AUG-31-1995
[INVESTMENTS-AT-COST]
650,961,340
[INVESTMENTS-AT-VALUE]
784,213,722
[RECEIVABLES]
21,814,613
[ASSETS-OTHER]
112,735
[OTHER-ITEMS-ASSETS]
0
[TOTAL-ASSETS]
806,141,070
[PAYABLE-FOR-SECURITIES]
22,615,215
[SENIOR-LONG-TERM-DEBT]
0
[OTHER-ITEMS-LIABILITIES]
1,131,591
[TOTAL-LIABILITIES]
23,746,806
[SENIOR-EQUITY]
0
[PAID-IN-CAPITAL-COMMON]
623,859,182
[SHARES-COMMON-STOCK]
64,474,930
[SHARES-COMMON-PRIOR]
45,747,247
[ACCUMULATED-NII-CURRENT]
3,147,242
[OVERDISTRIBUTION-NII]
0
[ACCUMULATED-NET-GAINS]
21,773,708
[OVERDISTRIBUTION-GAINS]
0
[ACCUM-APPREC-OR-DEPREC]
133,614,132
[NET-ASSETS]
782,394,264
[DIVIDEND-INCOME]
9,809,512
[INTEREST-INCOME]
1,747,211
[OTHER-INCOME]
0
[EXPENSES-NET]
5,463,000
[NET-INVESTMENT-INCOME]
6,093,723
[REALIZED-GAINS-CURRENT]
22,682,334
[APPREC-INCREASE-CURRENT]
108,120,936
[NET-CHANGE-FROM-OPS]
136,896,993
[EQUALIZATION]
0
[DISTRIBUTIONS-OF-INCOME]
4,334,639
[DISTRIBUTIONS-OF-GAINS]
332,576
[DISTRIBUTIONS-OTHER]
0
[NUMBER-OF-SHARES-SOLD]
34,793,582
[NUMBER-OF-SHARES-REDEEMED]
16,532,262
[SHARES-REINVESTED]
466,363
[NET-CHANGE-IN-ASSETS]
324,806,285
[ACCUMULATED-NII-PRIOR]
1,388,158
[ACCUMULATED-GAINS-PRIOR]
0
[OVERDISTRIB-NII-PRIOR]
0
[OVERDIST-NET-GAINS-PRIOR]
(576,050)
[GROSS-ADVISORY-FEES]
3,720,760
[INTEREST-EXPENSE]
0
[GROSS-EXPENSE]
6,057,507
[AVERAGE-NET-ASSETS]
620,126,563
[PER-SHARE-NAV-BEGIN]
10.00
[PER-SHARE-NII]
0.09
[PER-SHARE-GAIN-APPREC]
2.13
[PER-SHARE-DIVIDEND]
0.08
[PER-SHARE-DISTRIBUTIONS]
0.01
[RETURNS-OF-CAPITAL]
0.00
[PER-SHARE-NAV-END]
12.13
[EXPENSE-RATIO]
0.88
[AVG-DEBT-OUTSTANDING]
0
[AVG-DEBT-PER-SHARE]
0
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 3
[NAME] CGCM LONG TERM BOND FUND
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] AUG-31-1995
[PERIOD-END] AUG-31-1995
[INVESTMENTS-AT-COST]
129,047,467
[INVESTMENTS-AT-VALUE]
133,388,927
[RECEIVABLES]
4,673,136
[ASSETS-OTHER]
162,115
[OTHER-ITEMS-ASSETS]
0
[TOTAL-ASSETS]
138,224,178
[PAYABLE-FOR-SECURITIES]
132,000
[SENIOR-LONG-TERM-DEBT]
0
[OTHER-ITEMS-LIABILITIES]
546,768
[TOTAL-LIABILITIES]
678,768
[SENIOR-EQUITY]
0
[PAID-IN-CAPITAL-COMMON]
136,092,657
[SHARES-COMMON-STOCK]
16,714,559
[SHARES-COMMON-PRIOR]
12,039,447
[ACCUMULATED-NII-CURRENT]
222,615
[OVERDISTRIBUTION-NII]
0
[ACCUMULATED-NET-GAINS]
0
[OVERDISTRIBUTION-GAINS]
(3,111,322)
[ACCUM-APPREC-OR-DEPREC]
4,341,460
[NET-ASSETS]
137,545,410
[DIVIDEND-INCOME]
0
[INTEREST-INCOME]
8,669,489
[OTHER-INCOME]
0
[EXPENSES-NET]
1,050,312
[NET-INVESTMENT-INCOME]
7,619,177
[REALIZED-GAINS-CURRENT]
(1,937,986)
[APPREC-INCREASE-CURRENT]
8,674,793
[NET-CHANGE-FROM-OPS]
14,355,984
[EQUALIZATION]
0
[DISTRIBUTIONS-OF-INCOME]
7,376,803
[DISTRIBUTIONS-OF-GAINS]
0
[DISTRIBUTIONS-OTHER]
0
[NUMBER-OF-SHARES-SOLD]
11,749,472
[NUMBER-OF-SHARES-REDEEMED]
7,964,868
[SHARES-REINVESTED]
893,508
[NET-CHANGE-IN-ASSETS]
42,917,294
[ACCUMULATED-NII-PRIOR]
0
[ACCUMULATED-GAINS-PRIOR]
0
[OVERDISTRIB-NII-PRIOR]
0
[OVERDIST-NET-GAINS-PRIOR]
(1,193,095)
[GROSS-ADVISORY-FEES]
525,476
[INTEREST-EXPENSE]
0
[GROSS-EXPENSE]
1,227,896
[AVERAGE-NET-ASSETS]
131,368,819
[PER-SHARE-NAV-BEGIN]
7.86
[PER-SHARE-NII]
0.45
[PER-SHARE-GAIN-APPREC]
0.36
[PER-SHARE-DIVIDEND]
0.44
[PER-SHARE-DISTRIBUTIONS]
0.00
[RETURNS-OF-CAPITAL]
0.00
[PER-SHARE-NAV-END]
8.23
[EXPENSE-RATIO]
0.80
[AVG-DEBT-OUTSTANDING]
0
[AVG-DEBT-PER-SHARE]
0
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 5
[NAME] CGCM MORTGAGE BACKED
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] AUG-31-1995
[PERIOD-END] AUG-31-1995
[INVESTMENTS-AT-COST]
105,695,506
[INVESTMENTS-AT-VALUE]
104,680,490
[RECEIVABLES]
8,198,765
[ASSETS-OTHER]
0
[OTHER-ITEMS-ASSETS]
19,367
[TOTAL-ASSETS]
112,898,622
[PAYABLE-FOR-SECURITIES]
7,775,938
[SENIOR-LONG-TERM-DEBT]
0
[OTHER-ITEMS-LIABILITIES]
333,315
[TOTAL-LIABILITIES]
8,109,253
[SENIOR-EQUITY]
0
[PAID-IN-CAPITAL-COMMON]
106,890,054
[SHARES-COMMON-STOCK]
13,240,341
[SHARES-COMMON-PRIOR]
15,652,423
[ACCUMULATED-NII-CURRENT]
0
[OVERDISTRIBUTION-NII]
0
[ACCUMULATED-NET-GAINS]
(1,085,669)
[OVERDISTRIBUTION-GAINS]
0
[ACCUM-APPREC-OR-DEPREC]
(1,015,016)
[NET-ASSETS]
104,789,369
[DIVIDEND-INCOME]
0
[INTEREST-INCOME]
8,053,255
[OTHER-INCOME]
0
[EXPENSES-NET]
842,319
[NET-INVESTMENT-INCOME]
7,210,936
[REALIZED-GAINS-CURRENT]
(1,209,658)
[APPREC-INCREASE-CURRENT]
3,533,625
[NET-CHANGE-FROM-OPS]
9,534,903
[EQUALIZATION]
0
[DISTRIBUTIONS-OF-INCOME]
6,763,944
[DISTRIBUTIONS-OF-GAINS]
0
[DISTRIBUTIONS-OTHER]
242,721
[NUMBER-OF-SHARES-SOLD]
4,269,136
[NUMBER-OF-SHARES-REDEEMED]
7,555,641
[SHARES-REINVESTED]
874,423
[NET-CHANGE-IN-ASSETS]
(15,637,722)
[ACCUMULATED-NII-PRIOR]
0
[ACCUMULATED-GAINS-PRIOR]
0
[OVERDISTRIB-NII-PRIOR]
0
[OVERDIST-NET-GAINS-PRIOR]
323,003
[GROSS-ADVISORY-FEES]
526,392
[INTEREST-EXPENSE]
0
[GROSS-EXPENSE]
1,148,594
[AVERAGE-NET-ASSETS]
105,278,303
[PER-SHARE-NAV-BEGIN]
7.69
[PER-SHARE-NII]
0.51
[PER-SHARE-GAIN-APPREC]
0.22
[PER-SHARE-DIVIDEND]
0.49
[PER-SHARE-DISTRIBUTIONS]
0.00
[RETURNS-OF-CAPITAL]
0.02
[PER-SHARE-NAV-END]
7.91
[EXPENSE-RATIO]
0.80
[AVG-DEBT-OUTSTANDING]
0
[AVG-DEBT-PER-SHARE]
0.00
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 4
[NAME] CGCM MUNICIPAL BOND
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] AUG-31-1995
[PERIOD-END] AUG-31-1995
[INVESTMENTS-AT-COST]
45,637,384
[INVESTMENTS-AT-VALUE]
44,691,125
[RECEIVABLES]
912,469
[ASSETS-OTHER]
0
[OTHER-ITEMS-ASSETS]
121,867
[TOTAL-ASSETS]
45,725,461
[PAYABLE-FOR-SECURITIES]
0
[SENIOR-LONG-TERM-DEBT]
0
[OTHER-ITEMS-LIABILITIES]
369,739
[TOTAL-LIABILITIES]
369,739
[SENIOR-EQUITY]
0
[PAID-IN-CAPITAL-COMMON]
47,794,817
[SHARES-COMMON-STOCK]
5,481,358
[SHARES-COMMON-PRIOR]
7,024,243
[ACCUMULATED-NII-CURRENT]
0
[OVERDISTRIBUTION-NII]
0
[ACCUMULATED-NET-GAINS]
0
[OVERDISTRIBUTION-GAINS]
1,492,836
[ACCUM-APPREC-OR-DEPREC]
(946,259)
[NET-ASSETS]
45,355,722
[DIVIDEND-INCOME]
0
[INTEREST-INCOME]
2,741,005
[OTHER-INCOME]
0
[EXPENSES-NET]
378,657
[NET-INVESTMENT-INCOME]
2,362,348
[REALIZED-GAINS-CURRENT]
(1,310,665)
[APPREC-INCREASE-CURRENT]
1,972,430
[NET-CHANGE-FROM-OPS]
3,024,113
[EQUALIZATION]
0
[DISTRIBUTIONS-OF-INCOME]
2,352,930
[DISTRIBUTIONS-OF-GAINS]
0
[DISTRIBUTIONS-OTHER]
0
[NUMBER-OF-SHARES-SOLD]
1,867,148
[NUMBER-OF-SHARES-REDEEMED]
3,684,749
[SHARES-REINVESTED]
274,716
[NET-CHANGE-IN-ASSETS]
(11,269,285)
[ACCUMULATED-NII-PRIOR]
0
[ACCUMULATED-GAINS-PRIOR]
0
[OVERDISTRIB-NII-PRIOR]
21,955
[OVERDIST-NET-GAINS-PRIOR]
182,171
[GROSS-ADVISORY-FEES]
189,270
[INTEREST-EXPENSE]
0
[GROSS-EXPENSE]
493,627
[AVERAGE-NET-ASSETS]
46,584,510
[PER-SHARE-NAV-BEGIN]
8.06
[PER-SHARE-NII]
0.40
[PER-SHARE-GAIN-APPREC]
0.21
[PER-SHARE-DIVIDEND]
0.40
[PER-SHARE-DISTRIBUTIONS]
0.00
[RETURNS-OF-CAPITAL]
0.00
[PER-SHARE-NAV-END]
8.27
[EXPENSE-RATIO]
0.80
[AVG-DEBT-OUTSTANDING]
0
[AVG-DEBT-PER-SHARE]
0.00
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 10
[NAME] CGCM SMALL CAPITALZATION GROWTH
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] AUG-31-1995
[PERIOD-END] AUG-31-1995
[INVESTMENTS-AT-COST]
261,064,499
[INVESTMENTS-AT-VALUE]
315,241,696
[RECEIVABLES]
4,106,238
[ASSETS-OTHER]
0
[OTHER-ITEMS-ASSETS]
24,055
[TOTAL-ASSETS]
319,371,989
[PAYABLE-FOR-SECURITIES]
3,790,945
[SENIOR-LONG-TERM-DEBT]
0
[OTHER-ITEMS-LIABILITIES]
547,631
[TOTAL-LIABILITIES]
4,338,576
[SENIOR-EQUITY]
0
[PAID-IN-CAPITAL-COMMON]
210,547,130
[SHARES-COMMON-STOCK]
18,329,222
[SHARES-COMMON-PRIOR]
14,417,825
[ACCUMULATED-NII-CURRENT]
0
[OVERDISTRIBUTION-NII]
0
[ACCUMULATED-NET-GAINS]
50,309,086
[OVERDISTRIBUTION-GAINS]
0
[ACCUM-APPREC-OR-DEPREC]
54,177,197
[NET-ASSETS]
315,033,413
[DIVIDEND-INCOME]
312,785
[INTEREST-INCOME]
1,538,307
[OTHER-INCOME]
0
[EXPENSES-NET]
2,663,175
[NET-INVESTMENT-INCOME]
(812,083)
[REALIZED-GAINS-CURRENT]
54,492,262
[APPREC-INCREASE-CURRENT]
26,169,089
[NET-CHANGE-FROM-OPS]
79,849,268
[EQUALIZATION]
0
[DISTRIBUTIONS-OF-INCOME]
0
[DISTRIBUTIONS-OF-GAINS]
1,133,278
[DISTRIBUTIONS-OTHER]
0
[NUMBER-OF-SHARES-SOLD]
11,435,282
[NUMBER-OF-SHARES-REDEEMED]
7,607,305
[SHARES-REINVESTED]
83,420
[NET-CHANGE-IN-ASSETS]
134,858,404
[ACCUMULATED-NII-PRIOR]
0
[ACCUMULATED-GAINS-PRIOR]
0
[OVERDISTRIB-NII-PRIOR]
0
[OVERDIST-NET-GAINS-PRIOR]
2,311,086
[GROSS-ADVISORY-FEES]
1,405,674
[INTEREST-EXPENSE]
0
[GROSS-EXPENSE]
2,725,453
[AVERAGE-NET-ASSETS]
234,279,177
[PER-SHARE-NAV-BEGIN]
12.50
[PER-SHARE-NII]
(0.05)
[PER-SHARE-GAIN-APPREC]
4.81
[PER-SHARE-DIVIDEND]
0.00
[PER-SHARE-DISTRIBUTIONS]
0.07
[RETURNS-OF-CAPITAL]
0.00
[PER-SHARE-NAV-END]
17.19
[EXPENSE-RATIO]
1.14
[AVG-DEBT-OUTSTANDING]
0
[AVG-DEBT-PER-SHARE]
0.00
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 9
[NAME] CGCM SMALL CAP VALUE EQUITY
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] AUG-31-1995
[PERIOD-END] AUG-31-1995
[INVESTMENTS-AT-COST]
307,776,135
[INVESTMENTS-AT-VALUE]
338,089,903
[RECEIVABLES]
4,953,048
[ASSETS-OTHER]
0
[OTHER-ITEMS-ASSETS]
252,203
[TOTAL-ASSETS]
343,295,154
[PAYABLE-FOR-SECURITIES]
2,230,274
[SENIOR-LONG-TERM-DEBT]
0
[OTHER-ITEMS-LIABILITIES]
758,621
[TOTAL-LIABILITIES]
2,988,895
[SENIOR-EQUITY]
0
[PAID-IN-CAPITAL-COMMON]
312,543,298
[SHARES-COMMON-STOCK]
34,008,451
[SHARES-COMMON-PRIOR]
37,927,063
[ACCUMULATED-NII-CURRENT]
2,927,034
[OVERDISTRIBUTION-NII]
0
[ACCUMULATED-NET-GAINS]
0
[OVERDISTRIBUTION-GAINS]
5,477,841
[ACCUM-APPREC-OR-DEPREC]
30,313,768
[NET-ASSETS]
340,306,259
[DIVIDEND-INCOME]
7,212,168
[INTEREST-INCOME]
522,709
[OTHER-INCOME]
0
[EXPENSES-NET]
3,243,689
[NET-INVESTMENT-INCOME]
4,491,188
[REALIZED-GAINS-CURRENT]
(343,816)
[APPREC-INCREASE-CURRENT]
30,913,921
[NET-CHANGE-FROM-OPS]
35,061,293
[EQUALIZATION]
0
[DISTRIBUTIONS-OF-INCOME]
3,890,576
[DISTRIBUTIONS-OF-GAINS]
5,170
[DISTRIBUTIONS-OTHER]
0
[NUMBER-OF-SHARES-SOLD]
14,946,504
[NUMBER-OF-SHARES-REDEEMED]
19,338,022
[SHARES-REINVESTED]
472,906
[NET-CHANGE-IN-ASSETS]
(2,081,245)
[ACCUMULATED-NII-PRIOR]
2,326,425
[ACCUMULATED-GAINS-PRIOR]
0
[OVERDISTRIB-NII-PRIOR]
0
[OVERDIST-NET-GAINS-PRIOR]
5,128,858
[GROSS-ADVISORY-FEES]
1,754,756
[INTEREST-EXPENSE]
0
[GROSS-EXPENSE]
3,307,137
[AVERAGE-NET-ASSETS]
292,459,488
[PER-SHARE-NAV-BEGIN]
9.03
[PER-SHARE-NII]
0.15
[PER-SHARE-GAIN-APPREC]
0.95
[PER-SHARE-DIVIDEND]
0.12
[PER-SHARE-DISTRIBUTIONS]
0.00
[RETURNS-OF-CAPITAL]
0.00
[PER-SHARE-NAV-END]
10.01
[EXPENSE-RATIO]
1.11
[AVG-DEBT-OUTSTANDING]
0
[AVG-DEBT-PER-SHARE]
0.00
</TABLE>
