As filed with the Securities and Exchange Commission on October 31,
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. 12 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 14 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 _________________ pursuant to Rule 485(b)
X 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
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")
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
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
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
TABLE OF CONTENTS Page
Summary....................................
TRAK Fees; Portfolio Expenses..............
Financial Highlights.......................
Objectives and Policies of the Portfolios..
Management of the Trust....................
Purchase of Shares.........................
Redemption of Shares.......................
Net Asset Value............................
Exchange Privilege..................
Dividends, Distributions and Taxes..
Custodian and Transfer Agent........
Performance of the Portfolios.......
Additional Information..............
Appendix A.......................... A-1
Appendix B.......................... B-1
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 (formerly Total Return Fixed Income 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, Ltd. 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 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 a quarterly fee at the maximum annual
rate of 1.50% of assets held in a TRAK account. 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."
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 and Municipal Bond 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, 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 predominantly comprised of domestic securities whereas Morgan
provides services for international Portfolios. The Shareholder Services
Group, Inc. ("TSSG"), a subsidiary of First Data Corporation, serves as the
transfer agent for the Portfolios' shares. See "Custodian and Transfer Agent."
TRAK FEES; PORTFOLIO EXPENSES
The following table lists the costs and expenses, including fees for TRAK (but
not those for different investment advisory services paid separately), that an
investor will incur either directly or indirectly as a shareholder of each of
the Portfolios based on the Portfolio's operating expenses for the most recent
fiscal year, with the exception of Large Capitalization Value Equity
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 Portfolios' projected annual operating expenses.
<TABLE>
<CAPTION>
Lg.
Capi-
talization
Government Intermediate Long-Term Municipal Mortgage Value
Money Fixed Income Bond Bond Backed Balanced Equity
In-
Investments Investments Investments Investments Investments Investments
vestments
<S> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses 0.00 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Maximum Annual TRAK Fee (as a percen-
tage of the value of Portfolio shares
held on the last calendar day of the
previous quarter) 1.50% 1.50% 1.50% 1.50% 1.50% 1.50 1.50%
Annual Portfolio Operating Expenses
(as a percentage of avg. net assets)
Management Fees (net of fee waivers) [0.08]% [0.60]% [0.46]% [0.48%] [0.46]% [0.00]% [0.76]%
Distribution (12b-1) Expenses 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other Expenses [0.47]% [0.20]% [0.34}% [0.32]% [0.34]% [1.00]% [0.12]%
Total Operating Expenses [0.55]% [0.80]% [0.80]% [0.80]% [0.80]% [1.00]% [0.88]%
<CAPTION>
Large Small Capi- Small Inter-
Capitali- talization Capitali- Inter- national Emerging
zation Value zation national Fixed Markets
Growth Equity Growth Equity Income Equity
Investments Investments Investments Investments Investments Investments
<S> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses 0.00 0.00% 0.00% 0.00% 0.00% 0.00%
Maximum Annual TRAK Fee (as a percen-
tage of the value of Portfolio shares
held on the last calendar day of the
previous quarter) 1.50% 1.50% 1.50% 1.50% 1.50% 1.50
Annual Portfolio Operating Expenses
(as a percentage of avg. net assets)
Management Fees (net of fee waivers) [0.76]% [0.80]% [0.80]% [0.90%] [0.59]% [0.44]%
Distribution (12b-1) Expenses 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other Expenses [0.22]% [0.26]% [0.40}% [0.29]% [0.36]% [1.28]%
Total Operating Expenses [0.98]% [1.06]% [1.20]% [1.19]% [0.95]% [1.72]%
</TABLE>
Management Fees; Expenses. Each Portfolio pays the manager a fee for its
services that is computed daily and paid monthly at an 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 of the Portfolio's average
daily net assets. The nature of the services provided to, and the management
fees paid by, each Portfolio are described under "Management of the Trust."
"Other expenses" include fees for shareholder services, custodial fees, legal
and accounting fees, printing costs, registration fees, the costs of
regulatory and compliance, a Portfolio's allocated portion of the costs
associated with maintaining the Trust's legal existence and the costs involved
in the Trust's communications with shareholders. The Manager and SBMFM
(collectively known as the "Service Providers") may voluntarily waive a
portion or all of their respective fees otherwise payable to them and
reimburse expenses. Before voluntary fee waivers and/or expenses were
reimbursed by the Service Providers, the "Total Operating Expenses" without
waivers would have been [0.84%, 0.95%, 0.93%, 1.06%, 2.01%, 0.92%, 1.02%,
1.08% and 2.56%] for Government Money Investments, Long-Term Bond Investments,
Municipal Bond Investments, Mortgage Backed Investments, Balanced Investments,
Large Capitalization Value Equity Investments, Large Capitalization Growth
Investments, International Fixed Income Investments and Emerging Markets
Equity Investments, respectively.
Example.
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect
to a hypothetical investment in the Portfolios. These amounts, which include
the fees for TRAK but not those for different advisory services, are based
upon (i) payment by the Portfolios of operating expenses at the levels set
forth in the tables above and (ii) the specific assumptions stated below:
A shareholder would pay the following expenses on a $l,000 investment,
assuming (i) a 5% annual return and (ii) redemption at the end of each time
period:
<TABLE>
<CAPTION>
Lg. Capi-
talization
Government Intermediate Long-Term Municipal Mortgage Value
Money Fixed Income Bond Bond Backed Balanced Equity In-
Investments Investments Investments Investments Investments Investments vestments
<S> <C> <C> <C> <C> <C> <C> <C>
1 YEAR $[21] $[21] $[21] $[21] $[21]] $[21] $[21]
3 YEARS $[21] $[21] $[21] $[21] $[21]] $[21] $[21]
5 YEARS $[21] $[21] $[21] $[21] $[21]] $[21] $[21]
10 YEARS $[21] $[21] $[21] $[21] $[21]] $[21] $[21]
<CAPTION>
Large Small Capi- Small Inter-
Capitali- talization Capitali- Inter- national Emerging
zation Value zation national Fixed Markets
Growth Equity Growth Equity Income Equity
Investments Investments Investments Investments Investments Investments
<S> <C> <C> <C> <C> <C> <C>
1 YEAR $[21] $[21] $[21] $[21] $[21]] $[21]
3 YEARS $[21] $[21] $[21] $[21] $[21]] $[21]
5 YEARS $[21] $[21] $[21] $[21] $[21]] $[21]
10 YEARS $[21] $[21] $[21] $[21] $[21]] $[21]
</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
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%.
FINANCIAL HIGHLIGHTS
The following information has been audited by [Coopers & Lybrand L.L.P.],
independent accountants, whose report thereon appears in the Trust's Annual
Report for each respective period. 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.
CONSULTING GROUP CAPITAL MARKETS FUNDS
FINANCIAL HIGHLIGHTS
GOVERNMENT MONEY INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT
EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
8/31/95 8/31/94 8/31/93 8/31/92*
--------- --------- -------- --------
<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 income.......... (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 average 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%**
<FN>
- ------------------------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived and/or expenses
reimbursed by the Agents (see Note 2) 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
Agents 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.
</TABLE>
INTERMEDIATE FIXED INCOME INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT
EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
8/31/95 8/31/94 8/31/93 8/31/92*
-------- -------- -------- --------
<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 realized
gains.................................. -- (0.01) -- --
Distributions from capital (Note 1)...... -- (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 average
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%
<FN>
- ------------------------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived by the Agents for the
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 Agents for the year ended
August 31, 1993 and the period ended August 31, 1992 were $0.50 and $0.31,
respectively.
</TABLE>
LONG-TERM BOND INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT
EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
8/31/95 8/31/94 8/31/93 8/31/92*
--------- --------- --------- --------
<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:
Distributions from net investment income...... (0.44) (0.41) (0.45) (0.31)
Distributions from net realized capital
gains....................................... -- (0.01) -- --
Distributions in excess of net realized
gains....................................... -- (0.05) -- --
Distributions from capital (Note 1)........... -- (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 average 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 %
<FN>
- ------------------------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived and/or expenses
reimbursed by the Agents for the years ended August 31, 1995, 1994, 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 expenses reimbursed by the
Agents for the years ended August 31, 1995, 1994, 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.
</TABLE>
MUNICIPAL BOND INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT
EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
8/31/95 8/31/94 8/31/93 8/31/92*
-------- -------- -------- --------
<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......... 0.61 (0.31) 1.03 0.55
Less Distributions:
Distributions from net investment
income................................. (0.40) (0.40) (0.41) (0.30)
Distributions in excess of net investment
income................................. (0.00)@ -- -- --
Distributions from net realized capital
gains.................................. -- (0.05) (0.02) --
Distributions in excess of net realized
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 average
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%
<FN>
- ------------------------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived and/or expenses
reimbursed by the Agents for the years ended August 31, 1995, 1994 and 1993
and the period ended August 31, 1992 were 1.04%, 0.93%, 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
Agents 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 $0.01 per Portfolio share.
</TABLE>
CONSULTING GROUP CAPITAL MARKETS FUNDS
FINANCIAL HIGHLIGHTS
MORTGAGE BACKED INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT
EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
8/31/95 8/31/94 8/31/93 8/31/92*
--------- --------- --------- --------
<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 capital
gains....................................... -- (0.01) -- --
Distributions in excess of net realized
capital gains............................... -- -- (0.04) --
Distributions from capital (Note 1)........... (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/Supplemental
Data:
NET ASSETS, end of year (in 000's)............ $104,789 $120,427 $94,421 $35,694
Ratio of operating expenses to average 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%
<FN>
- ------------------------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived and/or expenses
reimbursed by the Agents 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
Agents 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.
</TABLE>
BALANCED INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT
EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
8/31/95 8/31/94 8/31/93*
-------- -------- --------
<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)
Distributions from net realized capital gains.......... (0.04) -- --
Distributions from capital (Note 1).................... -- -- (0.00)@
-------- -------- --------
Total Distributions.................................... (0.33) (0.15) (0.10)
-------- -------- --------
NET ASSET VALUE, end of year........................... $ 9.37 $ 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 assets+..... 1.00% 1.00% 1.00%**
Ratio of net investment income to average net assets... 3.28% 2.66% 2.67%**
Portfolio turnover rate................................ 47% 43% 10%
<FN>
- ------------------------
* The Portfolio commenced operations on February 16, 1993.
** Annualized.
+ Annualized operating expense ratio before fees waived and/or expenses
reimbursed by the Agents for the years ended August 31, 1995 and 1994, and
the period ended August 31, 1993 were 1.75%, 2.01% and 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 Agents 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.
</TABLE>
LARGE CAPITALIZATION VALUE EQUITY INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT
EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
YEAR ENDED ENDED ENDED ENDED
8/31/95++ 8/31/94 8/31/93++ 8/31/92*
---------- -------- -------- --------
<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) 0.00
---------- -------- -------- --------
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%
<FN>
- ------------------------
* 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 share
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 Agents 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 Agents for the years ended
August 31, 1995 and 1994 were $0.26 and $0.17, respectively.
</TABLE>
LARGE CAPITALIZATION GROWTH INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT
EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
8/31/95 8/31/94 8/31/93+++ 8/31/92*
-------- -------- -------- --------
<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 investment income....... -- -- (0.01) --
Distributions from net realized capital gains.......... (0.01) -- -- --
Distributions from capital (Note 1).................... -- -- (0.00)@ --
-------- -------- -------- --------
Total Distributions.................................... (0.09) -- (0.01) --
-------- -------- -------- --------
NET ASSET VALUE, end of year........................... $ 12.13 $ 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 average net assets+..... 0.88% 0.98% 1.12% 1.24%**
Ratio of net investment income/(loss) to average net
assets............................................... 0.98% 0.39% (0.04)% 0.31%**
Portfolio turnover rate................................ 38% 104% 47% 19%
<FN>
- ------------------------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratio before fees waived by the Agents for the
years ended August 31, 1995 and 1994 and the 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 share
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 Agents for the years ended
August 31, 1995 and 1994 and the period ended August 31, 1992 were $0.09,
$0.03 and $0.00, respectively.
@ Amount represents less than $0.01 per Portfolio share.
</TABLE>
SMALL CAPITALIZATION VALUE EQUITY INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT
EACH YEAR.
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED ENDED
8/31/95 8/31/94 8/31/93 8/31/92*
----------- ----------- ----------- ---------
<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%
<FN>
- ------------------------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratio before fees waived by the Agents for the
year ended August 31,1995 and 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 per share before fees waived by the Agents for the year
ended August 31, 1995 and the period ended August 31, 1992 were $0.15 and
$0.02, respectively.
@ Amount represents less than $0.01 per Portfolio share.
</TABLE>
SMALL CAPITALIZATION GROWTH INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT
EACH YEAR.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
8/31/95+++ 8/31/94+++ 8/31/93+++ 8/31/92*
----------- ------------ ------------ -------------
<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 realized capital
gains.................................. (0.07) (0.04) -- --
Distributions in excess of net realized
capital gains.......................... -- (0.10) -- --
Distributions from capital (Note 1)...... -- (0.04) -- --
----------- ------------ ------------ -------------
Total Distributions...................... (0.07) (0.18) 0.00 0.00
----------- ------------ ------------ -------------
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%
<FN>
- ------------------------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived and/or expenses
reimbursed by the Agents for the years ended August 31, 1995 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 share
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
Agents for the years ended August 31, 1995 and 1993, and the period ended
August 31, 1992 were $0.05, $0.09 and $0.05, respectively.
</TABLE>
INTERNATIONAL EQUITY INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT
EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
8/31/95 8/31/94+++ 8/31/93 8/31/92*
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year....... $ 10.86 $ 9.57 $ 7.76 $ 8.00
-------- -------- -------- ---------
Income from investment operations:
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............. $ 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%
<FN>
- ------------------------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratio before fees waived by the Agents 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 share
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 Agents for the period ended
August 31, 1992 was $0.03.
</TABLE>
CONSULTING GROUP CAPITAL MARKETS FUNDS
FINANCIAL HIGHLIGHTS
INTERNATIONAL FIXED INCOME INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT
EACH YEAR.
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED ENDED
8/31/95 8/31/94 8/31/93
8/31/92*
----------- ----------- ----------- -------
- -
<S> <C> <C> <C> <C>
NET ASSET 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 realized capital
gains................................................ -- (0.05) -- --
Distributions from capital (Note 1).................... -- (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 average 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%
<FN>
- ------------------------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived and/or expenses
reimbursed by the Agents 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
Agents 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.
</TABLE>
EMERGING MARKETS EQUITY INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT
THE YEAR.
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED ENDED
8/31/95+++ 8/31/94*
----------- -----------
<S> <C> <C>
NET ASSET VALUE, beginning of year..................... $ 9.49 $ 8.00
----------- -----------
Income from investment operations:
Net investment income/(loss)#.......................... 0.01 (0.02)
Net realized and unrealized gain/(loss) on
investments.......................................... (1.45) 1.51
----------- -----------
Total from investment operations....................... (1.44) 1.49
Less Distributions:
Distributions from net realized capital gains.......... (0.20) --
----------- -----------
Total Distributions.................................... (0.20) --
----------- -----------
NET ASSET VALUE, end of year........................... $ 7.85 $ 9.49
----------- -----------
----------- -----------
Total return++......................................... (15.13)% 18.63%
----------- -----------
----------- -----------
Ratios to average net assets/Supplemental Data:
NET ASSETS, end of year (in 000's)..................... $ 59,333 $ 36,365
Ratio of operating expenses to average net assets+..... 1.75% 1.72%**
Ratio of net investment income/(loss) to average net
assets............................................... 0.15% (0.42)%**
Portfolio turnover rate................................ 89% 16%
<FN>
- ------------------------
* The Portfolio commenced operations on April 21, 1994.
** Annualized.
+ Annualized operating expense ratios before fees waived by the Agents for the
year ended August 31, 1995 and the period ended August 31, 1994 were 1.96%
and 2.56%, respectively.
++ Total return represents aggregate total return for the period indicated.
+++Per share amounts have been calculated using the monthly average share
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 loss per share before fees waived by the Agents for the year
ended August 31, 1995 and the period ended August 31, 1994 were $0.01 and
$0.04, respectively.
</TABLE>
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 (formerly, Total Return Fixed Income 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 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 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."
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
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 Ltd. and Mellon Capital Management Corporation. It is currently
anticipated that Pilgrim Baxter & Associates Ltd. 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.
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 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, 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
Boston Advisors. 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 investments in accordance with its objectives and
policies. Any temporary investments may be purchased on a when-issued basis. A
Portfolio's 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, 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
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. Boston Advisors arranges for each Portfolio's securities loans
and manages collateral received in connection with these loans. See
"Management of the Trust-Administrator."
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 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
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 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 aPortfolio
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.
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
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 futurespositions 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 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 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 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:
Manager's Fee Advisor's Fees
(paid by the (paid by the
Portfolio portfolios) Manager)
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% -
- -----
* 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, Ltd. ("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 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 applied for 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 would be 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 (other than Emerging Markets Equity
Investments) determined, at a shareholders' meeting held on March 3, 1994, 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. The sole shareholder of Emerging Markets
Equity Investments made the same determination with respect to such Portfolio
by written consent dated March 18, 1994.
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.
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 21
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 $24.3 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 controlled by four individuals, each owning 25% of the
shares of capital stock of WWBC. WWBC has been a registered investment advisor
under the Advisers Act since 1980 and provides investment advisory services to
individual and institutional clients. As of December 31, 1994, WWBC had assets
under management of approximately $945 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, and
Richard Lunsford, a Vice President of WWBC since 1988, have been responsible
for the day-to-day management of Long-Term Bond Investments since its
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 December 31, 1994, SACC had assets under
management of approximately $1.03 billion. SACC's principal executive offices
are located at 880 Third Avenue, New York, New York 10022. John Pandolfino 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 and Jon M.
Knight, each an officer of APAM. APAM serves as an investment advisor to
institutions. As of December 31, 1994, APAM had assets under management of
approximately $4.8 billion. APAM's principal executive offices are located at
201 East Pine Street, Suite 600, Orlando, Florida 32801. Trent S. Williams has
been responsible for the day-to-day management of Mortgage Backed Investments
since January 15, 1994 and has been a Portfolio Manager of APAM since January
1993. He served as a Portfolio Analyst of APAM between 1991 and 1993 and a
Security Data Specialist of APAM between 1989 and 1991.
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 December 31,
1994, PNAM had assets under management of approximately $2.6 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.
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 December 31, 1994 had assets
under management of $1.53 billion. PPA's principal executive offices are
located at 7310 Columbia Center, 701 Fifth Avenue, Seattle, Washington 98104.
Devin Wate is primarily responsible for the day-to-day management of those
assets of the Portfolio allocated to PPA for management. Mr. Wate has been a
Portfolio Manager with PPA or its predecessor since 1987.
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 December 31, 1994, PIC
had assets under management of approximately $14.2 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 December 31, 1994, PanAgora Boston
had $11.6 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 December 31, 1994, it had assets under
management of approximately $1.1 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, Ltd. ("PBA") serves as an Advisor to Small
Capitalization Growth Investments. PBA is controlled by Gary L. Pilgrim and
Harold J. Baxter, each an officer of PBA. 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. John S. Force has been a Portfolio Manager of PBA, and has been
responsible for the day-to-day management of those assets of Small
Capitalization Growth Investments allocated to PBA, since January, 1993. Prior
to January, 1993, Mr. Force served as Vice President and Portfolio Manager for
a Chicago-based investment advisory firm. On February 6, 1995, PBA announced
that it had agreed
to become an autonomous wholly-owned subsidiary of United Asset Management
Corporation, a financial services holding company. As a result, the
shareholders of the Portfolio must approve a new advisory agreement with PBA
under its new ownership. No change in the advisory fees or portfolio
management is expected to occur as a result of the acquisition. A proxy
statement describing these matters in greater detail is expected to be sent to
shareholders of Small Capitalization Growth Investments early in the second
quarter of 1995.
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 December 31, 1994, MCM had assets
under management of approximately $31.9 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 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 December 31, 1994, 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 Senior 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.
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, SBMFM and 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. The Trust's
agreements with the Manager provides 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.
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 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 fifth business day after the order is placed (the
"Settlement Date"). The Trust anticipates that, in accordance with regulatory
changes, beginning on or about July 1, 1995, the Settlement Date will be the
third business day after the trade 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 $25,000
($20,000 in the case of Plans) 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 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 by 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 TSSG, 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 TSSG. 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 TSSG 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.
NET ASSET VALUE
Each Portfolio's net asset value per share is calculated by SBMFM or Boston
Advisors 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 alike
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, Boston Advisors 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 funds of the 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 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 longand 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 the net investment income of Government Money Investments and
Municipal Bond 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, 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 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
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 0.12%
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 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 10 TSSG
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.
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.
Sample Federal
Taxable Marginal Tax-Exempt Yields
Income Rate* 4.00% 5.00% 6.00% 7.00% 8.00% 9.00%
- ------------------------------------------------------------------------------
Single Joint Return Equivalent Taxable Yield
---------------------------------------
$ 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%
- ------
* 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 indexes of
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.
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.
APPENDIX A
Investment Indices
Following are definitions of indicies that are utilized in the Client's
Recommendation.
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.
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
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.
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.
(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 (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 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 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 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.
<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 Investments.......... 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 Investments............ .60 .20 .40 .20 .20
Mortgage Backed Investments........... .70 .20 .50 .25 .25
Balanced Investments.................. .80 .20 .60 .30 .30
Large Cap. Value Equity Investments... .80 .20 .60 .30 .30
Large Cap. Growth Investments......... .80 .20 .60 .30 .30
Small Cap. Value Equity Investments... .80 .20 .60 .30 .30
Small Cap. Growth Investments......... .80 .20 .60 .30 .30
International Equity Investments...... .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 Cap. Value Equity Investments.. .30 .20 .10
Large Cap. Growth Investments........ .30 .20 .10
Small Cap. Value Equity Investments.. .30 .20 .10
Small Cap. 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 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.
- ----------
/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.
/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.
/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.
/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.
/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.
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.
(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 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:
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." 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.
[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.
- ------
/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."
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 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,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
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 et, 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]
[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.
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/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, 1994, 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."
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 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 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/
- -----
/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) 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.
(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
TRAK 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.
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
(2) Intermediate Fixed Income Investments
(3) Long-Term Bond Investments
(4) Municipal Bond Investments
(5) Mortgage Backed Investments
(6) Balanced Investments
(7) Large Capitalization Value Equity Investments
(8) Large Capitalization Growth Investments
(9) Small Capitalization Value Equity 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
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, 1994, the
Consulting Group and the Consulting Services Division provided services with
respect to over $67 billion in client assets representing more than 184,000
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 $25,000 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.
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 $20,000 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.
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.
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.
CONSULTING GROUP CAPITAL MARKETS FUNDS
PART B
January 1, 1996
CONSULTING GROUP CAPITAL MARKETS FUNDS
STATEMENT OF ADDITIONAL INFORMATION
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 (formerly known as "The Trust for TRAK Investments") (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
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...................
Management of the Trust.....................................
Purchase of Shares..........................................
Redemption of Shares........................................
Net Asset Value.............................................
Determination of Performance................................
(See in the Prospectus "Performance of the Portfolios")
Taxes.......................................................
(See in the Prospectus "Dividends, Distributions and Taxes")
Custodian and Transfer Agent................................
Financial Statements........................................
Appendix-Description of S&P and Moody's Ratings.............
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 ool's stated maturity may be shortened by unscheduled ayments 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 the 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 hird 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 Depositary Receipts
A Portfolio 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.
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 purchases of securities.
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:
[Table with 1994 brokerage information to come]
[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:
Year Ended Year Ended
Portfolio August 31, 1995 August 31, 1994
- ----------------------------------------------- ----------------- ------------
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............
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 74). 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 74). 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 64). Attorney. His address is 277 Park
Avenue, New York, New York 10017.
Armon E. Kamesar, Trustee (Age 68). 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 62). 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 63). 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 68). Prior to 1992, Executive Vice
President of the Consulting Services Division of Shearson Lehman Brothers. 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.
Lewis E. Daidone, Senior Vice President and Treasurer (Age 38). 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.
Christina T. Sydor, Secretary (Age 45). Managing Director of Smith Barney;
General Counsel and Secretary of SBMFM. Her address is 388 Greenwich Street,
New York New York 10013.
Each of the Trust's Trustees serves as a trustee, general partner and/or
director of other mutual funds for which Smith Barney serves as distributor.
Remuneration
No director, officer or employee of Smith Barney, the Manager or 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 $22,000 per annum plus $1000 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 1994, the Trustees of the Trust were
paid the following compensation:
[Trustee compensation table to come]
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").
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 or SBMFM, 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, prepare
reports to the Trust's shareholders and prepare tax returns, reports to and
filings with the SEC and state blue sky authorities.
For the period from commencement of operations on November 18, 1991 through
August 31, 1992, the Portfolios accrued investment advisory, investment
management and administration fees as follows:
[Updated fee information, including waivers to follow]
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.
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 184,000 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 Boston Advisors 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 SBMFM 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. Coopers & Lybrands L.L.P., independent accountants, One Post Office
Square, Boston, Massachusetts 02109, previously served as auditors of the
Trust and rendered an opinion on the Trust's most recent financial statements.
KPMG Peat Marwick LLP, independent accountants, 345 Park Avenue, New York, New
York 10154, currently serves as auditors of the Trust and will render an
opinion on the Trust's financial statements annually.
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 Boston
Advisors 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)6 -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. The yields for
the 30-day period ended August 31, 1995 for Intermediate Fixed Income
Investments, Mortgage Backed Investments, Municipal Bond Investments, Long-
Term Bond Income Investments, and Balanced Investments were [4.75%, 4.79%,
3.49%, 4.61% and 1.57%], respectively.
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 taxable yield for the 30-day
period ended August 31, 1995 for Municipal Bond Investments was [4.88%],
assuming the payment of Federal income taxes at a rate of 31%. 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. For the seven-day period ended August 31, 1995, the annualized yield for
Government Money Investments was [3.96%], and the compounded effective yield
was 4.03%. For the same seven-day period Government Money Investments' average
portfolio maturity was 86 days.
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:
[Updated Total Return Information to Follow]
The Portfolios' average annual total returns without the effect of the
maximum annual fee for participation in TRAK and without the effect of fee
waivers were as follows:
[Updated Total Return Table Information to Follow]
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:
[Updated Total Return Table Information to Follow]
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
abuyer 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 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 are 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, receive 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.
The Shareholder Services Group, Inc. ("TSSG"), a subsidiary of First Data
Corporation, serves as the Trust's transfer agent. For its services as
transfer agent, TSSG receives fees charged to a Portfolio at an annual rate
based upon the number of shareholder accounts maintained during the year. TSSG
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 in this Statement of Additional
Information by reference.
APPENDIX DESCRIPTION OF S&P AND MOODY'S RATINGS
Description of S&P corporate bond ratings:
AAA-Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA-Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A-Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than bonds in higher rated
categories.
BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher rated
categories.
BB and B-Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents a lower degree of
speculation than B. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
Description of Moody's corporate bond ratings:
Aaa-Bonds rated Aaa are judged to be the best quality. They carry the smallest
degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of these issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A-Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa-Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba-Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B-Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
Description of S&P municipal bond ratings:
AAA-Prime-These are the obligations of the highest quality. They have the
strongest capacity for timely payment of debt service.
General Obligation Bonds-In a period of economic stress, the issuers will
suffer the smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue structure
appears more than adequate to meet future expenditure requirements. Quality of
management appears superior.
Revenue Bonds-Debt service coverage has been, and is expected to remain,
substantial. Stability of the pledged revenues is also exceptionally strong
due to the competitive position of the municipal enterprise or to the nature
of the revenues. Basic security provisions (including rate covenant, earnings
test for issuance of additional bonds, debt service reserve requirements) are
rigorous. There is evidence of superior management.
AA-High Grade-The investment characteristics of bonds in this group are only
slightly less marked than those of the prime quality issues. Bonds rated AA
have the second strongest capacity for payment of debt service.
A-Good Grade-Principal and interest payments on bonds in this category are
regarded as safe although the bonds are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than bonds
in higher rated categories. This rating describes the third strongest capacity
for payment of debt service. Regarding Municipal Bonds, the rating differs
from the two higher ratings because:
General Obligation Bonds-There is some weakness, either in the local economic
base, in debt burden, in the balance between revenues and expenditures, or in
quality of management. Under certain adverse circumstances, any one such
weakness might impair the ability of the issuer to meet debt obligations at
some future date.
Revenue Bonds-Debt service coverage is good, but not exceptional. Stability
of the pledged revenues could show some variations because of increased
competition or economic influences on revenues. Basic security provisions,
while satisfactory, are less stringent. Management performance appears
adequate.
S&P's letter ratings may be modified by the addition of a plus or a minus
sign, which is used to show relative standing within the major rating
categories, except in the AAA-Prime Grade category.
Description of S&P municipal note ratings:
Municipal notes with maturities of three years or less are usually given note
ratings (designated SP-1, -2 or -3) to distinguish more clearly the credit
quality of notes as compared to bonds. Notes rated SP-1 have a very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given the designation of SP-
1+. Notes rated SP-2 have a satisfactory capacity to pay principal and
interest.
Description of Moody's municipal bond ratings:
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other
elements present which make the long term risks appear somewhat larger than in
Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Moody's applies the numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
Description of Moody's municipal note ratings:
Moody's ratings for state and municipal notes and other short term loans are
designated Moody's Investment Grade (MIG) and for variable demand obligations
are designated Variable Moody's Investment Grade (VMIG). This distinction
recognizes the differences between short-term credit risk and long-term risk.
Loans bearing the designation MIG 1/VMIG 1 are of the best quality, enjoying
strong protection from established cash flows of funds for their servicing or
from established and broad-based access to the market for refinancing, or
both. Loans bearing the designation MIG 2/VMIG 2 are of high quality, with
margins of protection ample, although not as large as the preceding group.
Loans bearing the designation MIG 3/VMIG 3 are of favorable quality, with all
security elements accounted for but lacking the undeniable strength of the
preceding grades. Market access for refinancing, in particular, is likely to
be less well established.
Description of S&P commercial paper ratings:
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted A-1+.
Capacity for timely payment on commercial paper rated A-2 is strong, but the
relative degree of safety is not as high as for issues designated A-1.
Description of Moody's commercial paper ratings:
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of short-term promissory obligations.
Issuers rated Prime-2 (or related supporting institutions) are considered to
have a strong capacity for repayment of short term promissory obligations.
This will normally be evidenced by many of the characteristics of issuers
rated Prime-1 but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.
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
to be filed by amendment.
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 to be filed by amendment.
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 Powers of Attorney are incorporated by reference to Post-Effective
Amendment No. 3.
27 Financial Data Schedules to be filed by amendment.
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
The Shareholder 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 2nd day of November, 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 November 2, 1995
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone, Senior Vice President and Treasurer November 2, 1995
Lewis E. Daidone (Chief Financial and Accounting Officer)
/s/ Walter E. Auch, Sr.*
Walter E. Auch, Sr., Trustee November 2, 1995
/s/
Armon E. Kamesar, Trustee November 2, 1995
/s/ Martin Brody*
Martin Brody, Trustee November 2, 1995
/s/ Stephen E. Kaufman*
Stepehn E. Kaufman, Trustee November 2, 1995
/s/ Madelon DeVoe Talley*
Madelon DeVoe Talley, Trustee November 2, 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 November 2, 1995
