As filed with the Securities and Exchange Commission on
August 13, 1996
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. 16 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940
Amendment No. 16 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:
X immediately upon filing pursuant to Rule 485(b)
on August 12, 1996 pursuant to Rule 485(b)
60 days after filing pursuant to Rule 485(a)
on _________________ pursuant to Rule 485(a)
___________________________________
The Registrant has previously filed a declaration of
indefinite registration of its shares pursuant to Rule 24f-2
under the
Investment Company Act of 1940. Registrant's Rule 24f-2
Notice for the
fiscal year ended August 31, 1995 was filed on October 31,
1995.
CONSULTING GROUP CAPITAL MARKETS FUNDS
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
Part A.
Item No. Prospectus Heading
1. Cover Page Cover Page
2. Synopsis Summary
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Cover Page; Summary;
Objectives
and Policies of the Portfolios; Additional Information
5. Management of the Fund Summary; 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 -- "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
PART A
<PAGE>
CONSULTING GROUP
CAPITAL MARKETS FUNDS
[SMITH BARNEY
------------
A Member of
TravelersGroupLOGO]
<PAGE>
TRAK(R)
----------------------------------------
Personalized Investment Advisory Service
TRAK Personalized Investment Advisory Service ("TRAK") is
a securities
advisory service offered by the Consulting Group (the
"Consulting Group") of
Smith Barney Inc. ("Smith Barney") designed to assist a
client in devising and
implementing a reasoned, systematic, long-term investment
strategy tailored to
the client's financial circumstances. TRAK links the
Consulting Group's
experience in evaluating an investor's investment objectives
and risk
tolerances, the abilities of investment advisers to meet
those objectives and
risk tolerances and the historic performance of various
asset classes, with
the convenience and cost effectiveness of a broad array of
investment
portfolios. TRAK consists of the following elements for
programs other than
certain qualified employee benefit plans:
THE REQUEST
The core of TRAK is the Consulting Group's evaluation of
the client's
financial goals and risk tolerances based on the Request,
a confidential
client questionnaire that the client completes with the
assistance of his
or her Financial Consultant. In reviewing and processing a
client's
Request, the Consulting Group considers the client's
specific investment
goals--a secure retirement, the education of children, the
preservation and
growth of an inheritance or savings or the accumulation of
capital for the
formation of a business--in terms of the client's time
horizon for
achievement of those goals, immediate and projected
financial means and
needs and overall tolerances for investment risk.
THE RECOMMENDATION
Based on its evaluation of the client's financial goals
and
circumstances, the Consulting Group prepares and issues a
Recommendation.
In the Recommendation, the Consulting Group provides
advice as to an
appropriate mix of investment types designed to balance
the client's
financial goals against his or her means and risk
tolerances as part of a
long term investment strategy. Numerous financial studies,
including a
study in the Financial Analysis Journal, a major
publication forum for
investment research, have concluded that the single most
important
component determining the performance of an investment
portfolio is how
that portfolio is allocated among different types of
investments. The
Recommendation draws on Smith Barney's experience in
analyzing
macroeconomic events worldwide and designing asset
allocation strategies as
well as the Consulting Group's experience in monitoring
and evaluating the
performance of various market segments over substantial
periods of time and
correlating that information with the client's financial
characteristics.
The Recommendation provides specific advice about
implementing investment
decisions through Consulting Group Capital Markets Funds
(the "Trust"),
a series of investment portfolios (the "Portfolios") that
covers a spectrum
of investments from a money
market fund that limits its investment to U.S. Government
securities and
repurchase agreements exclusively for those securities, to
an emerging
markets fund that offers the potential for significant
returns to the
client that can commit a portion of his or her portfolio
to more volatile
markets. The Recommendation specifies a combination of
investments in the
Portfolios considered suitable for the client. The
Recommendation employs
an asset allocation theory based on a framework discussed
in "Portfolio
Selection," a paper published in the Journal of Finance
that earned its
author a Nobel Prize. The Financial Consultant assists the
client in
evaluating the advice contained in the Recommendation,
offers
interpretations in light of personal knowledge of the
client's
circumstances and implements the client's investment
decisions, but has no
investment discretion over the client's accounts. All
decisions on
investing among the Portfolios remain with the client. The
client has the
option of accepting the Recommendation or selecting an
alternative
combination of investments in the Portfolios.
Smith Barney, through the Consulting Group, also offers TRAK
in connection
with investments in mutual funds offered by a variety of
fund families,
including Smith Barney, which cover a spectrum of
investments ("NAV TRAK").
For more information about NAV TRAK, you should contact
your Smith Barney
Financial Consultant. The fees and other compensation
received by Smith
Barney in connection with NAV TRAK may be different from
the fees and other
compensation received by Smith Barney in connection with
TRAK for the
Consulting Group Capital Market Funds.
i
<PAGE>
THE INVESTMENTS
The Portfolios offer a convenient and economical means
through which to
implement the Recommendation. The Trust consists of the
following Portfolios,
which are described in greater detail in the Prospectus that
accompanies this
description:
(1) Government Money Investments (7) Large
Capitalization Value Equity
(2) Intermediate Fixed Income Investments
Investments (8) Large
Capitalization Growth
(3) Long-Term Bond Investments Investments
(4) Municipal Bond Investments (9) Small
Capitalization Value Equity
(5) Mortgage Backed Investments Investments
(6) Balanced Investments (10) Small
Capitalization Growth
Investments
(11) International
Equity Investments
(12) International
Fixed Income
Investments
(13) Emerging Markets Equity Investments
The Trust offers investors the opportunity to invest in
Portfolios that are
advised by investment firms ("Advisors") identified,
retained, supervised and
compensated by the Consulting Group in its capacity as
Manager to the Trust.
Shares of the Portfolios may be purchased, redeemed or
exchanged daily at the
net asset value next determined without imposition of any
sales or redemption
charge. As described below, participation in TRAK is subject
to payment of a
quarterly fee at the maximum annual rate of 1.50% of TRAK
assets held in an
account at Smith Barney (an "Account"). Financial
Consultants are compensated
based on client participation in TRAK but do not receive
compensation or
incentives based on which of the Portfolios are selected for
investment.
THE REVIEW
TRAK is a continuing investment advisory service. Once a
TRAK program is
active, the client receives a periodic Review highlighting
all TRAK activity
for the preceding period. The Review is a monitoring report
containing an
analysis and evaluation of the client's TRAK assets to
ascertain whether the
client's objectives for the TRAK assets are being met and
recommending, when
appropriate, changes in the allocation of assets among the
Portfolios.
Information presented within the Review includes a market
commentary, a record
of the client's asset performance and rates of return as
compared to several
appropriate market indices (illustrated in a manner that
includes any fees for
participation in TRAK actually incurred during the period),
the client's
actual portfolio showing the breakdown of investments made
in each Portfolio,
year-to-date and cumulative realized gains and losses in and
income received
from each Portfolio, all purchase, sale and exchange
activity and dividends
and interest received and/or reinvested. The information in
the Review is
especially useful for tax preparation purposes.
FINANCIAL CONSULTANT SUPPORT
Integral to TRAK is the personal and confidential
relationship between the
client and his or her Financial Consultant. With a Financial
Consultant a
client at all times has available a registered investment
professional backed
by the full resources of the Consulting Group to discuss his
or her financial
circumstances and strategy. The Financial Consultant serves
the client by
assisting the client in identifying his or her financial
characteristics,
completing and transmitting the Request, reviewing with the
client the
Recommendation and Reviews, responding to identified changes
in the client's
financial circumstances and implementing investment
decisions. When financial
circumstances change, the Financial Consultant can be
consulted and a new
evaluation commissioned at no additional charge.
ABOUT THE CONSULTING GROUP
TRAK and the Trust build on the experience of the
Consulting Group and its
related affiliate, the Consulting Services Division of Smith
Barney, in
providing coordinated personalized investment advice and
investment advisor
selection services. The predecessor of the Consulting
Services Division was
(continued)
ii
<PAGE>
PROSPECTUS
CONSULTING GROUP CAPITAL MARKETS FUNDS
222 Delaware Avenue . Wilmington, Delaware 19801 .
(212) 816-8725
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 from an investment adviser
(the "Advisor" or
"Advisors") identified, retained, supervised and compensated
by the Manager.
The Trust is a series company that currently consists of the
following
Portfolios to which this Prospectus relates:
.Government Money Investments .Large Capitalization
Value Equity
Investments
.Intermediate Fixed Income
Investments
.Long-Term Bond Investments .Large Capitalization
Growth Investments
.Municipal Bond Investments .Small Capitalization
Value Equity
.Mortgage Backed Investments Investments
.Balanced 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 to participants in
advisory programs
sponsored by Smith Barney Inc. ("Smith Barney"), including
the TRAK (R)
Personalized Investment Advisory Service ("TRAK"), which
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 (collectively, "Smith Barney Advisory Services").
The Portfolios
may also be offered to participants in other investment
advisory services
offered by qualified investment advisers not affiliated with
Smith Barney
(each an "Advisory Service" and collectively with Smith
Barney Advisory
Services the "Advisory Services"). Participation in an
Advisory Service is
subject to payment of a separate investment advisory fee at
rates that may be
subject to negotiation based on levels of services as agreed
upon with
clients. Currently the maximum annual rate for assets
invested in the
Portfolios under a Smith Barney Advisory Service is 1.50%.
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
an Advisory
Service.
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 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.
August 13, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
- ----
<S>
<C>
Summary.....................................................
......... 2
Advisory Service Fees; Portfolio
Expenses............................ 5
Financial
Highlights.................................................
7
Objectives and Policies of the
Portfolios............................ 14
Management of the
Trust.............................................. 31
Purchase of
Shares...................................................
37
Redemption of
Shares................................................. 39
Net Asset
Value......................................................
40
</TABLE>
<TABLE>
<CAPTION>
Page
- ----
<S>
<C>
Exchange
Privilege...................................................
. 40
Dividends, Distributions and
Taxes.................................... 41
Custodian and Transfer
Agent.......................................... 43
Performance of the
Portfolios......................................... 43
Additional
Information................................................
45
Appendix
A...........................................................
. A-1
Appendix
B...........................................................
. B-1
</TABLE>
SUMMARY
The following summary is qualified in its entirety by the
more detailed
information included elsewhere in this Prospectus.
The Trust. The Trust is a management investment company
providing a
convenient means of investing in separate Portfolios
professionally managed by
the Manager. The assets of each of the Portfolios are
managed on a
discretionary basis by one or more separate Advisors. See
"Management of the
Trust." The Trust is a series company currently consisting
of the following 13
Portfolios:
. Government Money Investments, whose Advisor is Standish,
Ayer & Wood,
Inc. ("Standish, Ayer").
. Intermediate Fixed Income Investments, whose Advisor is
Standish, Ayer.
. Long-Term Bond Investments, whose Advisor is National
Asset Management
Corp. ("National Asset Mgmt.").
. Municipal Bond Investments, whose Advisor is Smith
Affiliated Capital
Corp. ("Smith Affiliated").
. Mortgage Backed Investments, whose Advisor is Atlantic
Portfolio
Analytics & Management, Inc. ("Atlantic Analytics").
. International Fixed Income Investments, whose Advisor is
Julius Baer
Investment Management Inc. ("Julius Baer").
. Balanced Investments, whose Advisor is Palley-Needelman
Asset Management,
Inc. ("Palley-Needelman").
. Large Capitalization Value Equity Investments, whose
Advisors are
Newbold's Asset Management, Inc. ("Newbold") and
Parametric Portfolio
Associates ("Parametric").
. Small Capitalization Value Equity Investments, whose
Advisors are NFJ
Investment Group ("NFJ") and BZW Barclays Global Fund
Advisors ("BZW").
. Large Capitalization Growth Investments, whose Advisors
are Provident
Investment Counsel Inc. ("Provident") and Boston
Structured Advisors
("BSA").
. Small Capitalization Growth Investments, whose Advisors
are Pilgrim
Baxter & Associates, Inc ("Pilgrim Baxter") and Mellon
Capital Management
Corporation ("Mellon").
. International Equity Investments, whose Advisors are
Oechsle
International Advisers, L.P. ("Oechsle") and State
Street Global Advisors
("State Street").
. Emerging Markets Equity Investments, whose Advisor is
John Govett & Co.
Limited ("Govett").
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
2
<PAGE>
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."
Advisory Services, Purchase and Redemption of Shares.
Shares of the
Portfolios are offered to or for the benefit of participants
in Advisory
Services. TRAK is one such investment advisory service
pursuant to which the
Consulting Group in its capacity as investment adviser 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. Shares
of the Portfolios
are offered for purchase and redemption at their respective
net asset values
next determined, without imposition of any initial or
contingent deferred sales
charge except that 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 advisers. 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 through TRAK should be aware that while the
Consulting Group
receives a fee as investment adviser from each participant,
the Consulting
Group also receives a fee from each Portfolio for its
service as the Trust's
Manager with responsibility for identifying, retaining,
supervising and
compensating each Portfolio's Advisor. 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."
3
<PAGE>
The Portfolios are intended as vehicles for the
implementation of long-term
asset allocation strategies rendered through Advisory
Services 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.
Participants in TRAK
should recognize that it is a nondiscretionary investment
advisory service and
that all investment decisions rest with the participant
alone. Therefore, such
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 other Advisory Services should
evaluate carefully
whether the service is ongoing and continuous, as well as
their investment
advisers' ability to anticipate and respond to market
trends. See "Objectives
and Policies of the Portfolios--Certain Securities,
Investment Techniques and
Risk Factors--Temporary Investments."
Dividends and Distributions. Each Portfolio intends to
distribute annually to
its shareholders substantially all of its net investment
income and its net
realized long- and short-term capital gains. Dividends from
the net investment
income of Government Money Investments are declared daily
and paid monthly.
Dividends from the net investment income of Intermediate
Fixed Income
Investments, Long-Term Bond Investments, Mortgage Backed
Investments, Municipal
Bond Investments, International Fixed Income Investments and
Balanced
Investments are declared and paid monthly. Dividends from
the net investment
income of the remaining Portfolios are declared and paid
annually.
Distributions of any net realized long-term and short-term
capital gains earned
by a Portfolio will be made annually. See "Dividends,
Distributions and Taxes."
Taxation. Each of the Portfolios has qualified and intends
to continue to
qualify as a regulated investment company for U.S. federal
income tax purposes.
As such, the Trust anticipates that no Portfolio will be
subject to U.S.
federal income tax on income and gains that are distributed
to shareholders. It
is expected that certain capital gains and certain dividends
and interest
earned by International Equity Investments and Emerging
Markets Equity
Investments will be subject to foreign withholding taxes.
These taxes may be
deductible or creditable in whole or in part by shareholders
of the Portfolio
for U.S. federal income tax purposes. Although any foreign
withholding taxes
paid by International Fixed Income Investments are not
expected to be
creditable by its shareholders for U.S. federal income tax
purposes, the
Portfolio will be managed in a manner so as to minimize, to
the extent
practicable, the payment of any foreign withholding taxes.
See "Dividends,
Distributions and Taxes."
Custodian and Transfer Agent. PNC Bank, National
Association ("PNC") and Bank
of New York ("BONY") serve as the custodians of the Trust's
assets and may
employ sub-custodians outside the United States approved by
the Trustees of the
Trust in accordance with regulations of the Securities and
Exchange Commission
(the "SEC"). PNC provides services for Portfolios
predominately comprised of
domestic securities, whereas BONY provides services for
international
Portfolios. First Data Investor Services Group, Inc., (the
"Transfer Agent"), a
subsidiary of First Data Corporation, serves as the transfer
agent for the
Portfolios' shares. See "Custodian and Transfer Agent."
4
<PAGE>
ADVISORY SERVICE FEES; PORTFOLIO EXPENSES
The following table lists the costs and expenses,
including fees for TRAK
(but not those for other Advisory Services paid separately),
that an investor
will incur either directly or indirectly as a shareholder of
each Portfolio
based on the Portfolio's operating expenses for the most
recent fiscal year.
<TABLE>
<CAPTION>
ANNUAL
PORTFOLIO OPERATING EXPENSES+
---------------
- ---------------------------
MAXIMUM MANAGEMENT
SHAREHOLDER ANNUAL FEES (NET
DISTRIBUTION TOTAL
TRANSACTION TRAK OF FEE
(RULE 12B-1) OTHER OPERATING
EXPENSES FEE* WAIVERS)
EXPENSES EXPENSES EXPENSES
----------- ------- ---------- ----
- -------- -------- ---------
<S> <C> <C> <C> <C>
<C> <C>
Government Money
Investments............ None 1.50% 0.08%
None 0.52% 0.60%
Intermediate Fixed
Income Investments..... None 1.50% 0.60%
None 0.20% 0.80%
Long-Term Bond
Investments**.......... None 1.50% 0.46%
None 0.34% 0.80%
Municipal Bond
Investments............ None 1.50% 0.48%
None 0.32% 0.80%
Mortgage Backed
Investments............ None 1.50% 0.46%
None 0.34% 0.80%
Balanced Investments.... None 1.50% 0.00%
None 1.00% 1.00%
Large Capitalization
Value Equity
Investments............ None 1.50% 0.76%
None 0.07% 0.83%
Large Capitalization
Growth Investments..... None 1.50% 0.76%
None 0.11% 0.87%
Small Capitalization
Value Equity
Investments............ None 1.50% 0.80%
None 0.31% 1.11%
Small Capitalization
Growth Investments..... None 1.50% 0.80%
None 0.34% 1.14%
International Equity
Investments............ None 1.50% 0.90%
None 0.29% 1.19%
International Fixed
Income Investments..... None 1.50% 0.59%
None 0.36% 0.95%
Emerging Markets
Equity Investments..... None 1.50% 0.44%
None 1.31% 1.75%
</TABLE>
- --------
+ As a percentage of average net assets.
* As a percentage of the value of Portfolio shares held on
the last calendar
day of the previous quarter.
** On March 15, 1996, the Board of Trustees terminated the
advisory agreement
with Wolf, Webb, Burke & Campbell and entered into an
agreement with
National Asset Management Inc.
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 Manager and SBMFM (the "Agents") may voluntarily waive a
portion or all of
their respective fees otherwise payable to them and the
"Total Operating
Expenses" without fee waivers and/or expenses reimbursed by
the Agents would
have been 0.74%, 0.93%, 1.09%, 1.04%, 1.75%, 0.93%, 0.98%,
1.13%, 1.16%, 1.18%
and 1.96% 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, Small Capitalization Growth Investments,
International Fixed
Income Investments, and Emerging Markets Equity Investments,
respectively.
5
<PAGE>
Based on the Portfolio expenses set forth above, including
an Advisory
Service fee of 1.50%, a shareholder would pay the following
expenses on a
$1,000 investment assuming (i) a 5% annual return and (ii)
redemption at the
end of each period.
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS
FIVE YEARS TEN YEARS
-------- ----------- -
- --------- ---------
<S> <C> <C>
<C> <C>
Government Money Investments......... $21 $66
$113 $243
Intermediate Fixed Income
Investments......................... 23 72
123 264
Long-Term Bond Investments........... 23 72
123 264
Municipal Bond Investments........... 23 72
123 264
Mortgage Backed Investments.......... 23 72
123 264
Balanced Investments................. 25 78
133 284
Large Capitalization Value Equity
Investments......................... 24 73
125 267
Large Capitalization Growth
Investments......................... 24 74
127 272
Small Capitalization Value Equity
Investments......................... 26 81
139 294
Small Capitalization Growth
Investments......................... 27 82
140 297
International Equity Investments..... 27 84
142 302
International Fixed Income
Investments......................... 25 76
131 279
Emerging Markets Equity Investments.. 33 100
170 355
</TABLE>
The purpose of this example is to assist an investor in
understanding various
costs and expenses that an investor in a Portfolio will bear
directly or
indirectly. This example should not be considered to be a
representation of the
past or future expenses; actual expenses may be greater or
less than those
shown. Moreover, although the table assumes a 5% annual
return, a Portfolio's
actual performance will vary and may result in an actual
return greater or less
than 5%.
6
<PAGE>
FINANCIAL HIGHLIGHTS
The following information for the fiscal year ended August
31, 1995 has been
audited by KPMG Peat Marwick LLP, independent auditors,
whose report thereon
appears in the Trust's Annual Report dated August 31, 1995.
The following
information for the fiscal years ended August 31, 1992
through August 31, 1994
has been audited by other auditors. This information should
be read in
conjunction with the financial statements and related notes
that also 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.
GOVERNMENT MONEY INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING
THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED
AUGUST 31,
1996 -------------------
- --------------------
(UNAUDITED) 1995 1994
1993 1992*
------------ -------- --------
- ------- -------
<S> <C> <C> <C>
<C> <C>
NET ASSET VALUE, begin-
ning of period......... $ 1.00 $ 1.00 $ 1.00
$ 1.00 $ 1.00
-------- -------- --------
- ------- -------
Net investment income#.. 0.26 0.05 0.03
0.03 0.03
Dividends from net in-
vestment income........ (0.26) (0.05)
(0.03) (0.03) (0.03)
-------- -------- --------
- ------- -------
NET ASSET VALUE, end of
period................. $ 1.00 $ 1.00 $ 1.00
$ 1.00 $ 1.00
======== ======== ========
======= =======
Total return++.......... 2.56 % 5.24 % 3.10
% 2.76 % 2.72 %
======== ======== ========
======= =======
Ratios to average net
assets/Supplemental Da-
ta:
NET ASSETS, end of pe-
riod (in 000's)........ $243,468 $241,590 $184,656
$84,034 $30,353
Ratio of operating ex-
penses to average net
assets+................ 0.60 %** 0.60 % 0.55
% 0.50 % 0.49 %**
Ratio of net investment
income to average net
assets................. 5.10 %** 5.14 % 3.16
% 2.71 % 3.37 %**
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived
and/or expenses
reimbursed by the Agents, 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 for the
years ended August 31, 1995, 1994 and 1993 and the period
ended August 31,
1992 were $0.05, $0.03, $0.02, and $0.01, respectively.
INTERMEDIATE FIXED INCOME INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING
THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED
AUGUST 31,
1996 -------------------
- ---------------------
(UNAUDITED) 1995 1994
1993 1992*
------------ -------- --------
- -------- -------
<S> <C> <C> <C>
<C> <C>
NET ASSET VALUE, begin-
ning of period......... $ 8.10 $ 7.92 $ 8.58
$ 8.25 $ 8.00
-------- -------- --------
- -------- -------
Income from investment
operations:
Net investment income#.. 0.25 0.50 0.47
0.51 0.34
Net realized and
unrealized gain/(loss)
on investments......... 0.07 0.16
(0.56) 0.33 0.25
======== ======== ========
======== =======
Total from investment
operations............. 0.32 0.66
(0.09) 0.84 0.59
Less Distributions:
Distributions from net
investment income...... (0.27) (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 capi-
tal.................... -- --
(0.01) -- --
======== ======== ========
======== =======
Total Distributions..... (0.27) (0.48)
(0.57) (0.51) (0.34)
======== ======== ========
======== =======
NET ASSET VALUE, end of
period................. $ 8.15 $ 8.10 $ 7.92
$ 8.58 $ 8.25
======== ======== ========
======== =======
Total return++.......... 3.93 % 8.70 %
(1.13)% 10.59 % 7.53 %
======== ======== ========
======== =======
Ratios to average net
assets/Supplemental Da-
ta:
NET ASSETS, end of pe-
riod (in 000's)........ $281,891 $246,323 $223,548
$140,580 $58,545
Ratio of operating ex-
penses to average net
assets+................ 0.80 %** 0.80 % 0.80
% 0.80 % 0.79 %**
Ratio of net investment
income to average net
assets................. 6.11 %** 6.40 % 5.77
% 5.94 % 6.00 %**
Portfolio turnover rate. 52 % 98 % 86
% 92 % 169 %
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized
+ Annualized operating expense ratios before fees waived
for the year ended
August 31, 1993 and the period ended August 31, 1992 were
0.88% and 1.30%,
respectively.
++ Total return represents aggregate total return for the
period indicated.
# Net investment income before fees waived by the Agents,
for the year ended
August 31, 1993 and the period ended August 31, 1992 was
$0.50 and $0.31,
respectively.
7
<PAGE>
FINANCIAL HIGHLIGHTS
LONG-TERM BOND INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED
AUGUST 31,
1996 -------------------
- --------------------
(UNAUDITED) 1995 1994
1993 1992*
------------ -------- -------
- ------- -------
<S> <C> <C> <C>
<C> <C>
NET ASSET VALUE, begin-
ning of period......... $ 8.23 $ 7.86 $ 8.70
$ 8.26 $ 8.00
-------- -------- -------
- ------- -------
Income from investment
operations:
Net investment income#.. 0.23 0.45 0.38
0.47 0.31
Net realized and
unrealized gain/(loss)
on investments......... 0.06 0.36 (0.75)
0.42 0.26
-------- -------- -------
- ------- -------
Total from investment
operations............. 0.29 0.81 (0.37)
0.89 0.57
Less Distributions:
Distribution from net
investment income...... (.022) (0.44) (0.41)
(0.45) (0.31)
Distribution from net
realized capital gains. -- -- (0.01)
- -- --
Distribution in excess
of net realized gains.. -- -- (0.05)
- -- --
Distribution from capi-
tal.................... -- --
(0.00)@ -- --
-------- -------- -------
- ------- -------
Total Distributions..... (0.22) (0.44) (0.47)
(0.45) (0.31)
-------- -------- -------
- ------- -------
NET ASSET VALUE, end of
period................. $ 8.30 $ 8.23 $ 7.86
$ 8.70 $ 8.26
======== ======== =======
======= =======
Total return++.......... 3.73 % 10.71 % (3.93)
% 11.08 % 7.37 %
======== ======== =======
======= =======
Ratios to average net
assets/Supplemental Da-
ta:
NET ASSETS, end of pe-
riod (in 000's)........ $153,794 $137,545 $94,628
$64,734 $34,986
Ratio of operating ex-
penses to average net
assets+................ 0.80 %** 0.80 % 0.80
% 0.80 % 0.79 %**
Ratio of net investment
income to average net
assets................. 5.81 %** 5.80 % 5.34
% 5.40 % 5.69 %**
Portfolio turnover rate. 11 % 62 % 43
% 35 % 4 %
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived
and/or expenses
reimbursed by the Agents, for the years ended August 31,
1995, 1994 and
1993 and the period ended August 31, 1992 were 0.93%,
0.95%, 1.09% and
1.91%, respectively.
++ Total return represents aggregate total return for the
period indicated.
# Net investment income before fees waived and/or expense
reimbursed by the
Agents, for the years ended August 31, 1995, 1994 and 1993
and the period
ended August 31, 1992 were $0.44, $0.37, $0.44 and $0.25,
respectively.
@ Amount represents less than $/0/./0//1/ per portfolio
share.
MUNICIPAL BOND INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED
AUGUST 31,
1996 -------------------
- -------------------
(UNAUDITED) 1995 1994
1993 1992*
------------ ------- -------
- ------- -------
<S> <C> <C> <C>
<C> <C>
NET ASSET VALUE, begin-
ning of period......... $ 8.27 $ 8.06 $ 8.85
$ 8.25 $ 8.00
------- ------- -------
- ------- -------
Income from investment
operations:
Net investment income#.. 0.20 0.40 0.40
0.41 0.30
Net realized and
unrealized gain/(loss)
on investments......... 0.29 0.21 (0.71)
0.62 0.25
------- ------- -------
- ------- -------
Total from investment
operations............. 0.49 0.61 (0.31)
1.03 0.55
Less Distributions:
Distributions from net
investment income...... (0.20) (0.40) (0.40)
(0.41) (0.30)
Distributions in excess
of net investment in-
come................... -- (0.00)@ --
- -- --
Distributions from net
realized capital gains. -- -- (0.05)
(0.02) --
Distributions in excess
of net realized capital
gains.................. -- -- (0.03)
- -- --
------- ------- -------
- ------- -------
Total Distributions..... (0.20) (0.40) (0.48)
(0.43) (0.30)
------- ------- -------
- ------- -------
NET ASSET VALUE, end of
period................. $ 8.56 $ 8.27 $ 8.06
$ 8.85 $ 8.25
======= ======= =======
======= =======
Total return++.......... 5.90 % 7.86 % (3.78)
% 12.94 % 7.06 %
======= ======= =======
======= =======
Ratios to average net
assets/Supplemental Da-
ta:
NET ASSETS, end of pe-
riod (in 000's)........ $53,008 $45,356 $56,625
$47,811 $21,795
Ratio of operating ex-
penses to average net
assets+................ 0.80 %** 0.80 % 0.80 %
0.80 % 0.79 %**
Ratio of net investment
income to average net
assets................. 4.57 %** 4.99 % 4.59 %
4.76 % 4.71 %**
Portfolio turnover rate. 8 % 49 % 132 %
15 % 76 %
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived
and/or expenses
reimbursed by the Agents, for the years ended August 31,
1995, 1994 and
1993 and the period ended August 31, 1992 were 1.04%,
.93%, 1.02% and
1.66%, respectively.
++ Total return represents aggregate total return for the
period indicated.
# Net investment income before fees waived and/or expenses
reimbursed by the
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.
8
<PAGE>
FINANCIAL HIGHLIGHTS
MORTGAGE BACKED INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED
AUGUST 31,
1996 --------------------
- ------------------
(UNAUDITED) 1995 1994
1993 1992*
------------ ------- --------
- ------- -------
<S> <C> <C> <C>
<C> <C>
NET ASSET VALUE, begin-
ning of period......... $ 7.91 $ 7.69 $ 8.21
$ 8.19 $ 8.00
-------- ------- --------
- ------- -------
Income from investment
operations:
Net investment income#.. 0.25 0.51 0.41
0.53 0.40
Net realized and
unrealized gain/(loss)
on investments......... 0.06 0.22 (0.41)
0.00@ 0.19
-------- ------- --------
- ------- -------
Total from investment
operations............. 0.31 0.73 0.00
0.53 0.59
Less distributions:
Distributions from net
investment income...... (0.26) (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 capi-
tal.................... -- (0.02) (0.10)
(0.05) --
-------- ------- --------
- ------- -------
Total Distributions..... (0.26) (0.51) (0.52)
(0.51) (0.40)
-------- ------- --------
- ------- -------
NET ASSET VALUE, end of
period................. $ 7.96 $ 7.91 $ 7.69
$ 8.21 $ 8.19
======== ======= ========
======= =======
Total return++.......... 3.89% 9.96% (0.20)%
6.68 % 7.56 %
======== ======= ========
======= =======
Ratios to average net
assets/ Supplemental
Data:
NET ASSETS, end of pe-
riod (in 000's)........ $116,032 104,789 $120,427
$94,421 $35,694
Ratio of operating ex-
penses to average net
assets+................ 0.82%** 0.80% 0.80 %
0.80 % 0.79 %**
Ratio of net investment
income to average net
assets................. 6.61%** 6.85% 6.38 %
6.53 % 6.55 %**
Portfolio turnover rate. 23 % 30 % 53 %
93 % 35 %
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived
and/or expenses
reimbursed by the 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.
BALANCED INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED
FEBRUARY 29, YEAR
ENDED AUGUST 31,
1996 ---------
- -----------------
(UNAUDITED) 1995
1994 1993*
------------ -------
- ------- ------
<S> <C> <C>
<C> <C>
NET ASSET VALUE, beginning of pe-
riod............................. $ 9.37 $ 8.63
$ 8.41 $ 8.00
------- -------
- ------- ------
Income from investment operations:
Net investment income#............ 0.13 0.26
0.21 0.09
Net realized and unrealized gain
on investments................... 0.83 0.81
0.16 0.42
------- -------
- ------- ------
Total from investment operations.. 0.96 1.07
0.37 0.51
Less distributions:
Distributions from net investment
income........................... (0.17) (0.29)
(0.15) (0.10)
Distribution from net realized
capital gains.................... (0.33) (0.04)
- -- --
Distributions from capital........ -- --
- -- (0.00)@
------- -------
- ------- ------
Total Distributions............... (0.50) (0.33)
(0.15) (0.10)
------- -------
- ------- ------
NET ASSET VALUE, end of period.... $ 9.83 $ 9.37
$ 8.63 $ 8.41
======= =======
======= ======
Total return++.................... 10.34 % 12.76 %
4.62 % 6.35 %
======= =======
======= ======
Ratios to average net assets/ Sup-
plemental Data:
NET ASSETS, end of period (in
000's)........................... $44,289 $30,268
$14,940 $5,258
Ratio of operating expenses to av-
erage net assets+................ 1.00 %** 1.00 %
1.00 % 1.00 %**
Ratio of net investment income to
average net assets............... 2.73 %** 3.28 %
2.66 % 2.67 %**
Portfolio turnover rate........... 172 % 47 %
43 % 10 %
</TABLE>
- --------
* The Portfolio commenced operations on February 16, 1993.
** Annualized.
+ Annualized operating expense ratios before fees waived
and/or expenses
reimbursed by the Agents, for the year ended August 31,
1995, and 1994 and
the period ended August 31, 1993 were 1.75%, 2.01%,
5.55%, respectively.
++ Total return represents aggregate total return for the
period indicated.
# Net investment income/(loss) before fees waived and/or
expenses reimbursed
by the 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.
9
<PAGE>
FINANCIAL HIGHLIGHTS
LARGE CAPITALIZATION VALUE EQUITY INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31,
------------------
- -------------------------
FOR THE SIX
MONTHS ENDED
FEBRUARY 29,
1996
(UNAUDITED) 1995++
1994 1993 1992*
------------ ---------- -----
- --- -------- --------
<S> <C> <C> <C>
<C> <C>
NET ASSET VALUE,
beginning of period.... $ 10.42 $ 9.39 $
9.35 $ 8.77 $ 8.00
---------- ---------- -----
- --- -------- --------
Income from investment
operations:
Net investment income#.. 0.44 0.27
0.17 0.25 0.09
Net realized and
unrealized gain on
investments............ 3.50 1.16
0.02 0.54 0.68
---------- ---------- -----
- --- -------- --------
Total from investment
operations............. 3.94 1.43
0.19 0.79 0.77
Less Distributions:
Distributions from net
investment income...... (0.34) (0.24)
(0.15) (0.14) --
Distributions from net
realized capital gains. (2.68) (0.16)
0.00@ (0.07) --
---------- ---------- -----
- --- -------- --------
Total Distributions..... (3.02) (0.40)
(0.15) (0.21) --
---------- ---------- -----
- --- -------- --------
NET ASSET VALUE, end of
period................. $ 11.34 $ 10.42 $
9.39 $ 9.35 $ 8.77
========== ==========
======== ======== ========
Total return+........... 12.66 % 16.14 %
2.09 % 9.25 % 9.63%
========== ==========
======== ======== ========
Ratios to average net
assets/Supplemental
Data:
NET ASSETS, end of
period (in 000's)...... $1,348,140 $1,070,037
$832,138 $562,507 $197,695
Ratio of operating
expenses to average net
assets+++.............. 0.71 %** 0.83 %
0.88 % 0.95 % 1.24%**
Ratio of net investment
income to average net
assets................. 2.17 %** 2.93 %
2.57 % 2.88 % 3.24%**
Portfolio turnover rate. 5 % 21 %
108 % 47 % 12%
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Total return represents aggregate total return for the
period indicated.
++ Per share amounts have been calculated using the monthly
average shares
method, which more appropriately presents the per share
data for the period
since the use of the undistributed net investment income
method does not
accord with results of operations.
+++ Annualized operating expense ratios 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.
LARGE CAPITALIZATION GROWTH INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31,
------------------
- ---------------------
FOR THE SIX
MONTHS ENDED
FEBRUARY 29,
1996
(UNAUDITED) 1995 1994
1993+++ 1992*
------------ -------- -------
- - -------- -------
<S> <C> <C> <C>
<C> <C>
NET ASSET VALUE, begin-
ning of period......... $ 12.13 $ 10.00 $
9.76 $ 8.88 $ 8.00
---------- -------- -------
- - -------- -------
Income from investment
operations:
Net investment income#.. 0.03 0.09
0.03 0.00@ 0.01
Net realized and
unrealized gain on in-
vestments.............. 1.30 2.13
0.21 0.89 0.87
---------- -------- -------
- - -------- -------
Total from investment
operations............. 1.33 2.22
0.24 0.89 0.88
Less Distributions:
Distributions from net
investment income...... (0.06) (0.08) --
(0.00)@ --
Distributions in excess
of net investment in-
come................... -- -- --
(0.01) --
Distributions from net
realized capital gains. (0.50) (0.01) --
- -- --
Distributions from capi-
tal.................... -- -- --
(0.00)@ --
---------- -------- -------
- - -------- -------
Total Distributions..... (0.56) (0.09) --
(0.01) --
---------- -------- -------
- - -------- -------
NET ASSET VALUE, end of
period ................ $ 12.90 $ 12.13 $
10.00 $ 9.76 $ 8.88
========== ========
======== ======== =======
Total return++.......... 11.17 % 22.30 %
2.46% 10.00 % 11.00%
========== ========
======== ======== =======
Ratios to average net
assets/Supplemental Da-
ta:
NET ASSETS, end of pe-
riod (in 000's) ....... $1,061,473 $782,394
$457,588 $238,256 $85,401
Ratio of operating ex-
penses to average net
assets+................ 0.81 %** 0.88 %
0.98% 1.12 % 1.24%**
Ratio of net investment
income/(loss) to aver-
age net
assets................. 69 %** 0.98 %
0.39% (0.04)% 0.31%**
Portfolio turnover rate. 24 % 38 %
104% 47 % 19%
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived
by the Agents, for
the years ended August 31, 1995 and 1994 and period
ended August 31, 1992
were 0.98%, 1.02% and 1.42%, respectively.
++ Total return represents aggregate total return for the
period indicated.
+++ Per share amounts have been calculated using the monthly
average shares
method, which more appropriately presents the per share
data for the period
since the use of the undistributed net investment income
method does not
accord with results of operations.
# Net investment income before fees waived by the Agents,
for the years ended
August 31, 1995 and 1994 and for the period ended August
31, 1992 were $0.09,
$0.03 and $0.00, respectively.
@ Amount represents less than $0.01 per portfolio share.
10
<PAGE>
FINANCIAL HIGHLIGHTS
SMALL CAPITALIZATION VALUE EQUITY
INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
FEBRUARY 29, YEAR ENDED
AUGUST 31,
1996 -------------------
- ---------------------
(UNAUDITED) 1995 1994
1993 1992*
------------ -------- --------
- -------- -------
<S> <C> <C> <C>
<C> <C>
NET ASSET VALUE,
beginning of period.... $ 10.01 $ 9.03 $ 9.94
$ 8.68 $ 8.00
-------- -------- --------
- -------- -------
Income from investment
operations:
Net investment income#.. 0.06 0.15 0.08
0.06 0.03
Net realized and
unrealized gain/(loss)
on investments......... 0.51 0.95
(0.40) 1.31 0.65
-------- -------- --------
- -------- -------
Total from investment
operations............. 0.57 1.10
(0.32) 1.37 0.68
Less distributions:
Distributions from net
investment income...... (0.14) (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..... (0.14) (0.12)
(0.59) (0.11) --
-------- -------- --------
- -------- -------
NET ASSET VALUE, end of
period................. $ 10.44 $ 10.01 $ 9.03
$ 9.94 $ 8.68
======== ======== ========
======== =======
Total return++.......... 5.69 % 12.50 %
(3.30)% 15.74 % 8.50%
======== ======== ========
======== =======
Ratios to average net
assets/Supplemental
Data:
NET ASSETS, end of
period (in 000's)...... $408,012 $340,306 $342,388
$183,051 $93,458
Ratio of operating
expenses to average net
assets................. 1.06 %** 1.11 % 1.06
% 1.11 % 1.24%**
Ratio of net investment
income to average net
assets................. 1.35 %** 1.54 % 1.12
% 0.82 % 0.99%**
Portfolio turnover rate. 10 % 115 % 65
% 70 % 20%
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived by
the Agents, for
the year ended August 31, 1995 and for the period ended
August 31, 1992
were 1.13% and 1.40%, respectively.
++ Total return represents aggregate total return for the
period indicated.
# Net investment income before fees waived by the Agents,
for the year ended
August 31, 1995 and for the period ended August 31, 1992
were $0.15 and
$0.02, respectively.
@ Amount represents $0.01 per portfolio share.
SMALL CAPITALIZATION GROWTH INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
FEBRUARY 29, YEAR ENDED
AUGUST 31,
1996 -------------------
- --------------------
(UNAUDITED) 1995+++ 1994+++
1993+++ 1992*
------------ -------- --------
- ------- -------
<S> <C> <C> <C>
<C> <C>
NET ASSET VALUE,
beginning of period.... $ 17.19 $ 12.50 $ 11.21
$ 7.99 $ 8.00
-------- -------- --------
- ------- -------
Income from investment
operations:
Net investment loss#.... (0.05) (0.05)
(0.09) (0.07) (0.01)
Net realized and
unrealized gain on
investments............ 2.19 4.81 1.56
3.29 --
-------- -------- --------
- ------- -------
Total from investment
operations............. 2.14 4.76 1.47
3.22 (0.01)
Less distributions:
Distributions from net
realized capital gains. (2.68) (0.07)
(0.04) -- --
Distributions in excess
of net realized capital
gains.................. -- --
(0.10) -- --
Distributions from
capital................ -- --
(0.04) -- --
-------- -------- --------
- ------- -------
Total Distributions..... (2.68) (0.07)
(0.18) -- --
-------- -------- --------
- ------- -------
NET ASSET VALUE, end of
period................. $ 16.65 $ 17.19 $ 12.50
$ 11.21 $ 7.99
======== ======== ========
======= =======
Total return++.......... 13.56 % 38.25 % 13.18
% 40.30 % (0.13)%
======== ======== ========
======= =======
Ratios to average net
assets/Supplemental
Data:
NET ASSETS, end of
period (in 000's)...... $408,603 $315,033 $180,175
$75,498 $22,145
Ratio of operating
expenses to average net
assets+................ 1.07 %** 1.14 % 1.20
% 1.25 % 1.24 %**
Ratio of net investment
loss to average net
assets................. (0.57)%** (0.35)%
(0.78)% (0.72)% (0.25)%**
Portfolio turnover rate. 25 % 174 % 94
% 97 % 35 %
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived
and/or expenses
reimbursed by the Agents, for the years ended August 31,
1995, 1994 and
1993 and the period ended August 31, 1992 were 1.16%,
1.49% and 2.61%,
respectively.
++ Total return represents aggregate total return for the
period indicated.
+++ Per share amounts have been calculated using the monthly
average shares
method, which more appropriately presents the per share
data for the
period since the use of the undistributed net investment
income method
does not accord with results of operations.
# Net investment loss before fees waived and/or expenses
reimbursed by the
Agents, for the years ended August 31, 1995, and 1994
were $0.05, $0.09 and
$0.05, respectively.
11
<PAGE>
FINANCIAL HIGHLIGHTS
INTERNATIONAL EQUITY INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
FEBRUARY 29, YEAR ENDED
AUGUST 31,
1996 -------------------
- ----------------------
(UNAUDITED) 1995 1994+++
1993 1992*
------------ -------- --------
- -------- --------
<S> <C> <C> <C>
<C> <C>
NET ASSET VALUE, begin-
ning of period......... $ 10.50 $ 10.86 $ 9.57
$ 7.76 $ 8.00
Income from investment
operations:
Net investment income#.. 0.25 0.05 0.02
0.05 0.03
Net realized and
unrealized gain/(loss)
on investments......... 0.21 (0.09) 1.54
1.79 (0.27)
-------- -------- --------
- -------- --------
Total from investment
operations............. 0.46 (0.04) 1.56
1.84 (0.24)
Less distributions:
Distributions from net
investment income...... (0.17) --
(0.03) (0.03) --
Distributions from net
realized capital gains. (0.28) (0.32)
(0.24) -- --
-------- -------- --------
- -------- --------
Total Distributions..... (0.45) (0.32)
(0.27) (0.03) --
-------- -------- --------
- -------- --------
NET ASSET VALUE, end of
period (in 000's)...... $ 10.51 $ 10.50 $ 10.86
$ 9.57 $ 7.76
======== ======== ========
======== ========
Total return++.......... 4.43 % (0.18)% 16.74
% 23.73 % (3.00)%
======== ======== ========
======== ========
Ratios to average net
assets/Supplemental Da-
ta:
NET ASSETS, end of pe-
riod (in 000's)........ $752,707 $663,130 $594,965
$270,302 $115,779
Ratio of operating ex-
penses to average net
assets+................ 1.07 %** 1.19 % 1.19
% 1.32 % 1.50 %**
Ratio of net investment
income to average net
assets................. 4.89 %** 0.43 % 0.23
% 0.61 % 1.08 %**
Portfolio turnover rate. 59 % 28 % 33
% 46 % 10 %
</TABLE>
- --------
* 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 shares
method, which more appropriately presents the per share
data for the
period since use of the undistributed net investment
income method does
not accord with results of operations.
# Net investment income before fees waived by the Agents,
for the period
ended August 31, 1992 was $0.03.
INTERNATIONAL FIXED INCOME INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
FEBRUARY 29, YEAR ENDED
AUGUST 31,
1996 -------------------
- ---------------------
(UNAUDITED) 1995 1994
1993 1992*
------------ -------- --------
- -------- -------
<S> <C> <C> <C>
<C> <C>
NET ASSET VALUE, begin-
ning of period......... $ 9.01 $ 8.17 $ 8.86
$ 8.71 $ 8.00
-------- -------- --------
- -------- -------
Income from investment
operations:
Net investment income#.. 0.36 0.56 0.40
0.51 0.39
Net realized and
unrealized gain/(loss)
on investments......... (0.26) 0.84
(0.32) 0.20 0.69
-------- -------- --------
- -------- -------
Total from investment
operations............. 0.10 1.40 0.08
0.71 1.08
Less Distributions:
Distributions from net
investment income...... (0.24) (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 capi-
tal.................... -- --
(0.00)@ -- --
-------- -------- --------
- -------- -------
Total Distributions..... (0.24) (0.56)
(0.77) (0.56) (0.37)
-------- -------- --------
- -------- -------
NET ASSET VALUE, end of
period................. $ 8.87 $ 9.01 $ 8.17
$ 8.86 $ 8.71
======== ======== ========
======== =======
Total return++.......... 6.21 % 17.66 % 1.00
% 8.67 % 13.93 %
======== ======== ========
======== =======
Ratios to average net
assets/Supplemental Da-
ta:
NET ASSETS, end of pe-
riod (in 000's)........ $122,479 $105,884 $116,929
$100,362 $39,182
Ratio of operating ex-
penses to average net
assets+................ 1.00 %** 0.95 % 0.95
% 0.95 % 0.95 %**
Ratio of net investment
income to average net
assets................. 7.88 %** 6.50 % 5.54
% 6.03 % 6.34 %**
Portfolio turnover rate. 204 % 307 % 358
% 251 % 106 %
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived
and/or expenses
reimbursed by the 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.
12
<PAGE>
FINANCIAL HIGHLIGHTS
EMERGING MARKETS EQUITY INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED
YEAR ENDED
FEBRUARY 29,
AUGUST 31,
1996
- -----------------
(UNAUDITED)
1995+++ 1994*
------------
- ------- -------
<S> <C>
<C> <C>
NET ASSET VALUE, beginning of period....... $ 7.85
$ 9.49 $ 8.00
Income from investment operations:
Net investment gain/(loss)#................ (0.06)
0.01 (0.02)
Net realized and unrealized gain on invest-
ments..................................... 0.48
(1.45) 1.51
-------
- ------- -------
Total from investment operations........... 0.42
(1.44) 1.49
-------
- ------- -------
Distribution from net investment income.... --
- -- --
Distribution from net realized capital
gains..................................... --
(0.20) --
-------
- ------- -------
Total Distribution......................... --
(0.20) --
-------
- ------- -------
NET ASSET VALUE, end of period............. $ 8.27
$ 7.85 $ 9.49
=======
======= =======
Total return++............................. 5.35 %
(15.13)% 18.63 %
=======
======= =======
Ratios to average net assets/Supplemental
Data:
NET ASSETS, end of period (in 000's)....... $78,211
$59,333 $36,365
Ratio of operating expenses to average net
assets+................................... 1.48 %**
1.75 % 1.72 %**
Ratio of net investment gain/(loss) to av-
erage net assets.......................... (1.17)%**
0.15 % (0.42)%**
Portfolio turnover rate.................... 47 %
89 % 16 %
</TABLE>
- --------
* 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 for 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 shares
method, which more appropriately presents the per share
data for the
period since use of the undistributed net investment
income does not
accord with the results of operations.
# Net investment loss per share before fees waived by the
Agents for the
year ended August 31, 1995 and for the period ended
August 31, 1994 was
$0.01 and $0.04, respectively.
13
<PAGE>
OBJECTIVES AND POLICIES OF THE PORTFOLIOS
Set forth below is a description of the investment
objectives and policies of
each Portfolio. There can be no assurance that any Portfolio
will achieve its
investment objectives. Further information about the
investment policies of
each Portfolio, including a list of those restrictions on
its investment
activities that cannot be changed without shareholder
approval, appears in the
Statement of Additional Information.
GOVERNMENT MONEY INVESTMENTS
Government Money Investments seeks, as its investment
objective 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 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 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
14
<PAGE>
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. 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 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 objective 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
15
<PAGE>
on certain types of private activity bonds issued after
August 7, 1986 to
finance nongovernmental activities are a specific tax
preference item for
purposes of the federal individual and corporate alternative
minimum taxes.
Dividends derived from interest income on all Municipal
Obligations are a
component of the "current earnings" adjustment item for
purposes of the federal
corporate alternative minimum tax.
When the Portfolio is maintaining a temporary defensive
position, it may
invest in short-term investments, some of which may not be
tax exempt.
Securities eligible for short-term investment by the
Portfolio are tax exempt
notes of municipal issuers having, at the time of purchase,
a rating within the
three highest grades of Moody's or S&P or, if not rated,
having an issue of
outstanding Municipal Obligations rated within the three
highest grades by
Moody's or S&P, and taxable short-term instruments having
quality
characteristics comparable to those for Municipal
Obligations. The Portfolio
may invest in temporary investments for defensive reasons in
anticipation of a
market decline. At no time will more than 20% of the
Portfolio's total assets
be invested in temporary investments unless the Portfolio
has adopted a
defensive investment policy. The Portfolio will purchase tax
exempt temporary
investments pending the investment of the proceeds from the
sale of the
securities held by the Portfolio or from the purchase of the
Portfolio's shares
by investors or in order to have highly liquid securities
available to meet
anticipated redemptions. To the extent that the Portfolio
holds temporary
investments, it may not achieve its investment objective.
The Portfolio may
purchase securities on a when-issued basis. See "Certain
Securities, Investment
Techniques and Risk Factors."
MORTGAGE BACKED INVESTMENTS
The primary investment objective of Mortgage Backed
Investments 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
Adviser. Although up to
20% of the Portfolio's assets may be invested in securities
rated as low as B
by Moody's or S&P (or, if unrated, judged by the Advisor to
be of comparable
quality), a program of investments in securities rated below
A will only be
made upon the concurrence of the Manager. In order to
enhance current income,
the Portfolio may enter into forward roll transactions with
respect to mortgage
related securities issued by GNMA, FNMA and FHLMC. The
Portfolio may invest in
government stripped mortgage related securities issued and
guaranteed by GNMA,
FNMA or FHLMC. The Portfolio will not invest more than 25%
of its assets in
privately issued mortgage related securities. The Portfolio
may engage in
repurchase agreements, purchase temporary investments,
purchase securities on a
when-issued basis and lend its portfolio securities. The
Portfolio may attempt
to hedge against unfavorable changes in interest rates by
entering into
interest rate futures contracts and purchasing and writing
put and call options
thereon. See "Certain Securities, Investment Techniques and
Risk Factors."
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<PAGE>
BALANCED INVESTMENTS
The investment objective of Balanced Investments 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 the TRAK Advisory Service 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
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 and
Parametric which manage approximately twenty percent (20%)
and eighty percent
(80%), respectively, of the Portfolio's assets although it
is expected that the
percentage allocation will vary from time to time. Changes
of the above
allocation between the Advisors that are less than 10% will
be made by the
Manager. The Trust's Board of Trustees, upon the advice of
the Manager, will
make changes in the above allocation between the Advisors
which are greater
than 10%.
Newbold 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 its opinion, have
above average price appreciation potential at the time of
purchase. With
respect to the remainder of the Portfolio, Parametric seeks
to track the
performance of the Russell 1000 Value Index. 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 and BSA which
manage approximately twenty percent (20%) and eighty percent
(80%),
respectively, of the Portfolio's assets although it is
expected that the
percentage allocation will vary from time to time. Changes
of the above
allocation between the Advisors that are less than 10% will
be made by the
Manager. The Trust's Board of Trustees, upon the advice of
the Manager, will
make changes in the above allocation between the Advisors
which are greater
than 10%.
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<PAGE>
Provident seeks substantial capital appreciation by
investing primarily in a
diversified portfolio of common stocks that, in its opinion,
are characterized
by a growth of earnings at a rate faster than that of the
S&P 500. With respect
to the remainder of the Portfolio, BSA seeks to track the
performance of the
Russell 1000 Growth Index. 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, Provident
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. Provident
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 and BZW which
each manage approximately fifty percent (50%) of the
Portfolio's assets
although it is expected that the percentage allocation will
vary from time to
time. Changes of the above allocation between the Advisors
that are less than
10% will be made by the Manager. The Trust's Board of
Trustees, upon the advice
of the Manager, will make changes in the above allocation
between the Advisors
which are greater than 10%.
With respect to the portion of the Portfolio allocated to
it, BZW seeks to
track the performance of the Russell 2000 Value Index. With
respect to the
remainder of the Portfolio, NFJ will invest primarily in a
diversified
portfolio of common stocks that, in the NFJ'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 and
Mellon with each managing approximately fifty percent (50%)
of the Portfolio's
assets although it is expected that the percentage
allocation will vary from
time to time. Changes of the above allocation between the
Advisors that are
less than 10% will be made by the Manager. The Trust's Board
of Trustees, upon
the advice of the Manager, will make changes in the above
allocation between
the Advisors which are greater than 10%. With respect to the
portion of the
Portfolio allocated to it, Mellon seeks to track the
performance of the Russell
2000 Growth Index. The Portfolio seeks, as its investment
objective, maximum
capital appreciation. With respect to the remainder of the
Portfolio, Pilgrim
Baxter 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
seeks to invest in small
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<PAGE>
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.
Pilgrim Baxter 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
Pilgrim Baxter 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 and
State Street with
each managing approximately fifty percent (50%) of the
Portfolio's assets
although it is expected that the percentage allocation will
vary from time to
time. Changes of the above allocation between the Advisors
that are less than
10% will be made by the Manager. The Trust's Board of
Trustees, upon the advice
of the Manager, will make changes in the above allocation
between the Advisors
which are greater than 10%.
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
it, State Street 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, Oechsle 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 American Depositary Receipts ("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. The
Portfolio seeks as its investment objective, to maximize
current income
consistent with protection of principal by investing
primarily in a
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<PAGE>
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 Julius Baer 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 Govett.
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), Hungary, India, Indonesia, Israel, South Korea,
Jordan, Lebanon,
Malaysia, Mexico, Pakistan, Peru, Philippines, Poland,
Portugal, Singapore,
South Africa, 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 such as common stocks,
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.
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<PAGE>
In choosing the issuers in whose securities the Portfolio
will invest, the
Portfolio's Advisor first analyzes the economic factors and
background of each
emerging markets country and estimates the rate of Gross
Domestic Product
growth, the rate of inflation and currency exchange rates
for the following six
months. Anticipated returns for each country are then
determined based on
prospective price earnings ratios relative to bond yields
and other relevant
historical interest rate measures, and asset allocation
decisions are made
among the different emerging markets countries. Within each
market chosen for
investment, the Portfolio's Advisor will then choose the
issuers offering the
best relative value, based on relative price earnings
ratios, dividend yields,
dividend and interest cover and balance sheets.
The Portfolio may enter into forward currency contracts,
use options and
options on futures contracts to hedge against movements in
currency exchange
rates, purchase temporary investments and enter into reverse
repurchase
agreements. The Portfolio, which is designed for investors
who do not require
regular current income and who can accept a high degree of
risk in their
investment, may be viewed as speculative in nature.
Investing in the securities
of issuers in emerging markets countries involves certain
risks and special
considerations not inherent in investments in securities of
U.S. companies. See
"Certain Securities, Investment Techniques and Risk
Factors."
CERTAIN SECURITIES, INVESTMENT TECHNIQUES AND RISK FACTORS
TEMPORARY INVESTMENTS. For temporary defensive purposes
during periods when
the Advisor of a Portfolio, other than Government Money
Investments, believes,
in consultation with the Manager, that pursuing the
Portfolio's basic
investment strategy may be inconsistent with the best
interests of its
shareholders, the Portfolio may invest its assets in the
following money market
instruments: U.S. Government Securities (including those
purchased in the form
of custodial receipts), repurchase agreements, certificates
of deposit and
bankers' acceptances issued by U.S. banks or savings and
loan associations
having assets of at least $500 million as of the end of
their most recent
fiscal year and high quality commercial paper. Each of these
Portfolio's U.S.
dollar-denominated temporary investments are managed by
SBMFM. See "Management
of the Trust--Administrator." In addition, for the same
purposes the Advisors
of Emerging Markets Equity Investments, International Fixed
Income Investments
and International Equity Investments may invest in
obligations issued or
guaranteed by foreign governments or by any of their
political subdivisions,
authorities, agencies or instrumentalities that are rated at
least AA by S&P or
Aa by Moody's or, if unrated, are determined by the Advisor
to be of equivalent
quality. Emerging Markets Equity Investments may also invest
in obligations
issued by foreign banks, but will limit its investments in
such obligations to
U.S. dollar-denominated obligations of foreign banks which
at the time of
investment: (i) have assets with a value of more than $10
billion; (ii) are
among the 75 largest foreign banks in the world, based on
amount of assets;
(iii) have branches in the United States; and (iv) are of
comparable quality to
obligations issued by United States banks in which the
Portfolio may invest, in
the opinion of the Portfolio's Advisor. See "Foreign
Securities" below. Each
Portfolio also may hold a portion of its assets in money
market instruments or
cash in amounts designed to pay expenses, to meet
anticipated redemptions or
pending investment in accordance with its objectives and
policies. Any
temporary investments may be purchased on a when-issued
basis. A Portfolio's
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 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
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<PAGE>
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.
Participants in TRAK
should recognize that it is a nondiscretionary investment
advisory service and
that all investment decisions rest with the participant
alone. Therefore, such
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 other Advisory Services should
evaluate carefully
whether the service is ongoing and continuous, as well as
their investment
advisers' 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.
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<PAGE>
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
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trust or custodial account in which the underlying security has
been deposited
is determined to be an association taxable as a corporation,
instead of a non-
taxable entity, the yield on the underlying security would
be reduced in
respect of any taxes paid.
LENDING PORTFOLIO SECURITIES. To generate income for the
purpose of helping
to meet its operating expenses, each Portfolio other than
Municipal Bond
Investments may lend securities to brokers, dealers and
other financial
organizations. These loans, if and when made, may not exceed
30% of a
Portfolio's assets taken at value. A Portfolio's loans of
securities will be
collateralized at least 100% by cash, letters of credit or
U.S. Government
Securities, which will be marked to market daily. The cash
or instruments
collateralizing a Portfolio's loans of securities will be
maintained at all
times in a segregated account with the Portfolio's
custodian, or with a
designated sub-custodian, in an amount at least equal to the
current market
value of the loaned securities. In lending securities to
brokers, dealers and
other financial organizations, a Portfolio is subject to
risks, which, like
those associated with other extensions of credit, include
delays in recovery
and possible loss of rights in the collateral should the
borrower fail
financially.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. To secure
prices deemed
advantageous at a particular time, each Portfolio may
purchase securities on a
when-issued or delayed-delivery basis, in which case
delivery of the securities
occurs beyond the normal settlement period; payment for or
delivery of the
securities would be made prior to the reciprocal delivery or
payment by the
other party to the transaction. A Portfolio will enter into
when-issued or
delayed-delivery transactions for the purpose of acquiring
securities and not
for the purpose of leverage. When-issued securities
purchased by the Portfolio
may include securities purchased on a "when, as and if
issued" basis under
which the issuance of the securities depends on the
occurrence of a subsequent
event, such as approval of a merger, corporate
reorganization or debt
restructuring. The Portfolio will establish with its
custodian, or with a
designated sub-custodian, a segregated account consisting of
cash, U.S.
Government Securities or other liquid high grade debt
obligations in an amount
equal to the amount of its when-issued or delayed-delivery
purchase
commitments.
Securities purchased on a when-issued or delayed-delivery
basis may expose a
Portfolio to risk because the securities may experience
fluctuations in value
prior to their actual delivery. The Portfolio does not
accrue income with
respect to a when-issued or delayed-delivery security prior
to its stated
delivery date. Purchasing securities on a when-issued or
delayed-delivery basis
can involve the additional risk that the yield available in
the market when the
delivery takes place may be higher than that obtained in the
transaction
itself.
FIXED INCOME SECURITIES. The market value of fixed income
obligations of the
Portfolios will be affected by general changes in interest
rates which will
result in increases or decreases in the value of the
obligations held by the
Portfolios. The market value of the obligations held by a
Portfolio can be
expected to vary inversely to changes in prevailing interest
rates. Investors
also should recognize that, in periods of declining interest
rates, a
Portfolio's yield will tend to be somewhat higher than
prevailing market rates
and, in periods of rising interest rates, a Portfolio's
yield will tend to be
somewhat lower. Also, when interest rates are falling, the
inflow of net new
money to a Portfolio from the continuous sale of its shares
will tend to be
invested in 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
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<PAGE>
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
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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
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in economic or other conditions are more likely to impair
the ability of
issuers of these securities to make interest and principal
payments than is the
case with respect to issuers of higher grade bonds.
Generally, medium or lower rated securities and unrated
securities of
comparable quality, sometimes referred to as junk bonds,
offer a higher current
yield than is offered by higher rated securities, but also
(i) will likely have
some quality and protective characteristics that, in the
judgment of the rating
organizations, are outweighed by large uncertainties or
major risk exposures to
adverse conditions and (ii) are predominantly speculative
with respect to the
issuer's capacity to pay interest and repay principal in
accordance with the
terms of the obligation. The market values of certain of
these securities also
tend to be more sensitive to individual corporate
developments and changes in
economic conditions than higher quality bonds. In addition,
medium and lower
rated securities and comparable unrated securities generally
present a higher
degree of credit risk. The risk of loss due to default by
these issuers is
significantly greater because medium and lower rated
securities and unrated
securities of comparable quality generally are unsecured and
frequently are
subordinated to the prior payment of senior indebtedness. In
light of these
risks, the Board of Trustees has instructed the Advisors, in
evaluating the
creditworthiness of an issue, whether rated or unrated, to
take various factors
into consideration, which may include, as applicable, the
issuer's financial
resources, its sensitivity to economic conditions and
trends, the operating
history of and the community support for the facility
financed by the issue,
the ability of the issuer's management and regulatory
matters.
In addition, the market value of securities in lower rated
categories is more
volatile than that of higher quality securities, and the
markets in which
medium and lower rated or unrated securities are traded are
more limited than
those in which higher rated securities are traded. The
existence of limited
markets may make it more difficult for the Portfolios to
obtain accurate market
quotations for purposes of valuing their respective
portfolios and calculating
their respective net asset values. Moreover, the lack of a
liquid trading
market may restrict the availability of securities for the
Portfolios to
purchase and may also have the effect of limiting the
ability of a Portfolio to
sell securities at their fair value either to meet
redemption requests or to
respond to changes in the economy or the financial markets.
Lower rated debt obligations also present risks based on
payment
expectations. If an issuer calls the obligation for
redemption, a Portfolio may
have to replace the security with a lower yielding security,
resulting in a
decreased return for investors. Also, as the principal value
of bonds moves
inversely with movements in interest rates, in the event of
rising interest
rates the value of the securities held by a Portfolio may
decline
proportionately more than a portfolio consisting of higher
rated securities. If
a Portfolio experiences unexpected net redemptions, it may
be forced to sell
its higher rated bonds, resulting in a decline in the
overall credit quality of
the securities held by the Portfolio and increasing the
exposure of the
Portfolio to the risks of lower rated securities.
Investments in zero coupon
bonds may be more speculative and subject to greater
fluctuations in value due
to changes in interest rates than bonds that pay interest
currently.
Subsequent to its purchase by a Portfolio, an issue of
securities may cease
to be rated or its rating may be reduced below the minimum
required for
purchase by the Portfolio. Neither event will require sale
of these securities
by the Portfolio, but the Advisor will consider the 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
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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.
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FORWARD CURRENCY CONTRACTS. Each Portfolio that may invest
in foreign
currency-denominated securities may hold currencies to meet
settlement
requirements for foreign securities and may engage in
currency exchange
transactions in order to protect against uncertainty in the
level of future
exchange rates between a particular foreign currency and the
U.S. dollar or
between foreign currencies in which the Portfolio's
securities are or may be
denominated. Forward currency contracts are agreements to
exchange one currency
for another--for example, to exchange a certain amount of
U.S. dollars for a
certain amount of French francs at a future date. The date
(which may be any
agreed-upon fixed number of days in the future), the amount
of currency to be
exchanged and the price at which the exchange will take
place will be
negotiated with a currency trader and fixed for the term of
the contract at the
time that the Portfolio enters into the contract. To assure
that a Portfolio's
forward currency contracts are not used to achieve
investment leverage, the
Portfolio will segregate cash or high grade securities with
its custodian in an
amount at all times equal to or exceeding the Portfolio's
commitment with
respect to these contracts.
In hedging specific portfolio positions, a Portfolio may
enter into a forward
contract with respect to either the currency in which the
positions are
denominated or another currency deemed appropriate by the
Portfolio's Advisor.
The amount the Portfolio may invest in forward currency
contracts is limited to
the amount of the Portfolio's aggregate investments in
foreign currencies.
Risks associated with entering into forward currency
contracts include the
possibility that the market for forward currency contracts
may be limited with
respect to certain currencies and, upon a contract's
maturity, the inability of
a Portfolio to negotiate with the dealer to enter into an
offsetting
transaction. Forward currency contracts may be closed out
only by the parties
entering into an offsetting contract. In addition, the
correlation between
movements in the prices of those contracts and movements in
the price of the
currency hedged or used for cover will not be perfect. There
is no assurance
that an active forward currency contract market will always
exist. These
factors will restrict a Portfolio's ability to hedge against
the risk of
devaluation of currencies in which a Portfolio holds a
substantial quantity of
securities and are unrelated to the qualitative rating that
may be assigned to
any particular security. See the Statement of Additional
Information for
further information concerning forward currency contracts.
FUTURES CONTRACTS AND RELATED OPTIONS. Each Portfolio
other than Government
Money Investments, Balanced Investments and Municipal Bond
Investments may
enter into futures contracts and purchase and write (sell)
options on these
contracts, including but not limited to interest rate,
securities index and
foreign currency futures contracts and put and call options
on these futures
contracts. These contracts will be entered into only upon
the concurrence of
the Manager that such contracts are necessary or appropriate
in the management
of the Portfolio's assets. These contracts will be entered
into on exchanges
designated by the Commodity Futures Trading Commission
("CFTC") or, consistent
with CFTC regulations, on foreign exchanges. These
transactions may be entered
into for bona fide hedging and other permissible risk
management purposes
including protecting against anticipated changes in the
value of securities a
Portfolio intends to purchase.
A Portfolio will not enter into futures contracts and
related options for
which the aggregate initial margin and premiums exceed 5% of
the fair market
value of the Portfolio's assets after taking into account
unrealized profits
and unrealized losses on any contracts it has entered into.
All futures and
options on futures positions will be covered by owning the
underlying security
or segregation of assets. With respect to long positions in
a futures contract
or option (e.g., futures contracts to purchase the
underlying instrument and
call options purchased or put options written on these
futures contracts or
instruments), the underlying value of the futures contract
at all times will
not exceed the sum of cash, short-term U.S. debt obligations
or other high
quality obligations set aside for this purpose.
A Portfolio may lose the expected benefit of these futures
or options
transactions and may incur losses if the prices of the
underlying commodities
move in an unanticipated manner. In addition, changes in the
value of the
Portfolio's futures and options positions may not prove to
be perfectly or even
highly correlated with changes in the value of its portfolio
securities.
Successful use of futures and related options is subject to
an
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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.
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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. 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 adviser 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 Travelers Group Inc.
("Travelers").
The Trust has entered into an investment management
agreement (the
"Management Agreement") with the Manager which, in turn, has
entered into an
advisory agreement ("Advisory Agreement") with each Advisor
selected for the
Portfolios. It is the Manager's responsibility to select,
subject to the
review and approval of the Board of Trustees, the Advisors
who have
distinguished themselves by able performance in their
respective areas of
expertise in asset management and to review their continued
performance.
Although the Manager does not serve as investment manager
for any other
registered investment company, the Manager and its related
office, the
Consulting Services Group of Smith Barney, have over 20
years of experience in
evaluating investment advisers for individuals and
institutional investors. As
of June 30, 1996, the Manager rendered advisory services
with respect to
assets with a value in excess of $72 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 based on the value of the average net
assets of the
Portfolio at a rate as follows: Government Money
Investments, 0.15%;
Intermediate Fixed Income Investments, 0.40%; Long-Term Bond
Investment,
0.40%; Municipal Bond Investments, 0.40%; Mortgage Backed
Investments, 0.50%;
Balanced Investments, 0.60%; Large Capitalization Value
Equity Investments,
with respect to the portion of the portfolio managed by
Newbold, 0.60% and
with respect to the balance allocated to Parametric, the
Manager has agreed to
waive fees so that the rate is 0.50% of the first $300
million and 0.45%
thereafter; Large Capitalization Growth Investments, with
respect to the
portion of the portfolio managed by Provident, 0.60% and
with respect to the
balance allocated to BSA, the Manager has agreed to waive
fees so that the
rate is 0.50% of the first $300 million and 0.45%
thereafter; Small
Capitalization Value Equity Investments, with respect to the
portion of the
portfolio
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<PAGE>
managed by NFJ, 0.60% and with respect to the balance
allocated to BZW, the
Manager has agreed to waive fees so that the rate is 0.45%
of the first $200
million, 0.40% of the next $100 and 0.35% thereafter; Small
Capitalization
Growth Investments, with respect to the portion managed by
Pilgrim Baxter,
0.60% and with respect to the Balance allocated to Mellon,
the Manager has
agreed to waive fees so that the rate is 0.45% of the first
$200 million,
0.40% of the next $100 and 0.35% thereafter; International
Equity Investments,
with respect to the portion of the portfolio managed by
Oechsle, 0.70% and
with respect to the balance allocated to State Street, the
Manager has agreed
to waive fees so that the rate is 0.37%; International Fixed
Income
Investments, 0.50%; and Emerging Markets Equity Investments,
0.90%.
The Manager in turn pays each Advisor a fee for its
services provided to
each Portfolio that is computed daily and paid monthly based
on the value of
the average net assets of the Portfolio at a rate as
follows: Government Money
Investments, 0.15%; Intermediate Fixed Income Investments,
0.20%; Long-Term
Bond Investments, 0.20%; Municipal Bond Investments, 0.20%;
Mortgage Backed
Investments, 0.25%; Balanced Investments, 0.20%; Large
Capitalization Value
Equity Investments, with respect to the portion of the
portfolio managed by
Newbold, 0.30% and with respect to the balance allocated to
Parametric, the
rate is 0.20% of the first $300 million and 0.15%
thereafter; Large
Capitalization Growth Investments, with respect to the
portion of the
portfolio managed by Provident, 0.30% and with respect to
the balance
allocated to BSA, the rate is 0.20% of the first $300
million and 0.15%
thereafter; Small Capitalization Value Equity Investments,
with respect to the
portion of the portfolio managed by NFJ, 0.30% and with
respect to the balance
allocated to BZW, the rate is 0.15% of the first $200
million, 0.10% of the
next $100 and 0.05% thereafter; Small Capitalization Growth
Investments, with
respect to the portion of the Portfolio managed by Pilgrim
Baxter, 0.30% and
with respect to the balance allocated to Mellon, the rate is
0.15% of the
first $200 million, 0.10% of the next $100 and 0.05%
thereafter; International
Equity Investments, with respect to the portion of the
portfolio managed by
Oechsle, 0.40% and with respect to the balance allocated to
State Street, the
rate is 0.07%; International Fixed Income Investments,
0.25%; and Emerging
Markets Equity Investments, 0.60%.
Investors should be aware that the Manager may be subject
to a conflict of
interest when making decisions regarding the retention and
compensation of
particular Advisors. However, the Manager's decisions,
including the identity
of an Advisor and the specific amount of the Manager's
compensation to be paid
to the Advisor, are subject to review and approval by a
majority of the Board
of Trustees and separately by a majority of the Trustees who
are not
affiliated with the Manager or any of its affiliates.
The Trust has received an exemption (the "Exemption") from
certain
provisions of the 1940 Act which would otherwise require the
Manager to obtain
formal shareholder approval prior to engaging and entering
into investment
advisory agreements with Advisors. The Exemption is based
on, 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) 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; (3) 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; (4) the
Trust will disclose in this Prospectus the terms of the
Exemption; and (5) 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
Manager still require shareholder approval. In accordance
with the terms of
the Exemption, a majority of the shareholders of each
Portfolio have approved
the operation of the Trust in accordance with the Exemption.
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 adviser, and perform all administrative functions
associated with
serving in that capacity in recognition of the reduced
administrative
responsibilities they have
32
<PAGE>
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 serves as Advisor to Intermediate Fixed
Income Investments
and Government Money Investments. Standish, Ayer is owned by
23 individuals,
each of whom is an active employee of Standish, Ayer. No
individual owns more
than 20% of the voting securities of Standish, Ayer.
Standish, Ayer has been
registered as an investment adviser under the Investment
Advisers Act of 1940,
as amended (the "Advisers Act"), since 1940 and is also
registered as a
commodity trading adviser with the National Futures
Association. Standish,
Ayer provides investment advisory services to individual and
institutional
clients. As of June 28, 1996, Standish, Ayer had assets
under management of
approximately $29.8 billion. Standish, Ayer'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 Standish, Ayer 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
Standish, Ayer 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 Standish, Ayer.
National Asset Mgmt. serves as Advisor to Long-Term Bonds
Investments.
National Asset Mgmt. is a wholly owned subsidiary of
National City
Corporation. National Asset Mgmt. has been a registered
investment adviser
under the Advisers Act since 1979 and provides investment
advisory service
primarily to institutions such as charitable trusts and
pensions plans. As of
June 28, 1996, National Asset Mgmt. had assets under
management of $6.1
billion. National Asset Mgmt.'s principal executive offices
are located at 101
South Fifth Street, Louisville, Kentucky. Michael C. Heyman,
a principal with
the firm, is responsible for the day-to-day management of
Long-Term Bond
Investments.
Smith Affiliated serves as Advisor to Municipal Bond
Investments. Of the
outstanding voting securities of Smith Affiliated, 80% is
owned by Robert G.
Smith, an officer and director of Smith Affiliated. Smith
Affiliated has been
a registered investment adviser under the Advisers Act since
April 1982. In
addition to serving as investment adviser to individuals and
institutions,
Smith Affiliated is a general partner of, and investment
adviser to, a limited
partnership primarily invested in municipal bonds. As of
June 28, 1996, Smith
Affiliated had assets under management of approximately $1.6
billion. Smith
Affiliated's principal executive offices are located at 880
Third Avenue, New
York, New York 10022. John Pandolfino, Vice President, has
been a Portfolio
Manager of Smith Affiliated since 1989 and has been
responsible for the day-
to-day management of Municipal Bond Investments since its
inception.
Atlantic Analytics serves as Advisor to Mortgage Backed
Investments.
Registered as an investment adviser under the Advisers Act
since 1984,
Atlantic Analytics is controlled by J. Anthony Huggins, Jon
M. Knight and Ali
Alp Kerestecioglu, each a director of Atlantic Analytics.
Atlantic Analytics
serves as an investment adviser to institutional investors
including banks,
insurance companies, foundations and tax-exempt funds. As of
June 28, 1996,
Atlantic Analytics had assets under management exceeding $5
billion. Atlantic
Analytic's principal executive offices are located at 201
East Pine Street,
Suite 600, Orlando, Florida 32801. A team management
approach is employed for
the management of Mortgage Backed Investments whose direct
oversight is
closely monitored by a Risk Management Committee consisting
of the Chief
Financial Officer, Chief Executive Officer, and Director of
Valuation
Technology.
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<PAGE>
Palley-Needelman serves as Advisor to Balanced
Investments. The outstanding
shares of capital stock of Palley-Needelman are owned by
Roger B. Palley and
Chet J. Needelman. Palley-Needelman, the predecessor of
which has been
registered as an investment adviser under the Advisers Act
since 1974, provides
investment advisory services to individuals and
institutions, including
retirement plans, foundations and endowments. As of June 28,
1996, Palley-
Needelman had assets under management of approximately $3.4
billion. Palley-
Needelman's principal executive offices are located at 800
Newport Center
Drive, Suite 450, Newport Beach, California 92660. Roger
Palley has been the
President of Palley-Needelman since 1985 and has been
responsible for the day-
to-day management of Balanced Investments since its
commencement of operations
on February 16, 1993.
Newbold serves as an Advisor to Large Capitalization Value
Equity
Investments. Registered as an investment advisor under the
Advisers Act since
1943, Newbold's is a wholly owned subsidiary of United Asset
Management
Corporation ("UAM"), a professional services holding company
listed on the
NYSE. Newbold's provides investment advisory services to
individual and
institutional clients. As of June 28, 1996, Newbold had
assets under management
of approximately $5.6 billion, and UAM, its parent
corporation, had assets
under management of approximately $119 billion. Newbold's
principal executive
offices are located at 937 Haverford Road, Bryn Mawr,
Pennsylvania 19010.
Denise B. Taylor has been a Senior Vice President of Newbold
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 Newbold with
analytical
responsibilities.
Parametric also serves as an Advisor to Large
Capitalization Value Equity
Investments. Parametric is an investment management firm
organized as a general
partnership. Parametric 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. on November 15, 1994 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 in
November 1994. Parametric 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. Parametric is a registered investment adviser and
as of June 28, 1996
had assets under management of $1.6 billion. Parametric's
principal executive
offices are located at 7310 Columbia Center, 701 Fifth
Avenue, Seattle,
Washington 98104. Linda Mauzy is primarily responsible for
the day-to-day
management of those assets of the Portfolio allocated to
Parametric for
management. Ms. Mauzy has been a Portfolio Manager with
Parametric or its
predecessor since 1988.
Provident serves as Advisor to Large Capitalization Growth
Investments.
Registered as an investment adviser under the Advisers Act
since 1951,
Provident is a wholly owned subsidiary of UAM. Provident
provides investment
advisory services to individual and institutional clients.
As of June 28, 1996,
Provident had assets under management of approximately $18.2
billion.
Provident's principal executive offices are located at 300
North Lake Avenue,
Pasadena, California 91101. Thomas J. Condon is a managing
director of
Provident and has been with Provident for thirteen years.
Paula B. Blacher,
CFA, has been a Vice President of Provident, 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
Provident.
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 currently owned 50% by Nippon Life
Insurance Company
and 50% by Lehman Brothers Holdings, Inc. (BSA employees
substantially same
personal as PanAgora Boston). As of June 28, 1996, PanAgora
Boston had $14.7
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
34
<PAGE>
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 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 June 28,
1996, it had assets under management of approximately $1.5
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.
BZW also serves as an Adviser to Small Capitalization
Value Equity
Investments. BZW is a wholly-owned subsidiary of Barclays
Bank PLC. As of June
28, 1996, BZW was responsible for managing or providing
investment advice for
assets exceeding $160 billion represented in part by other
open-end management
investment companies. BZW's principal executive offices are
located at 45
Fremont Street, San Francisco, California 94105. BZW uses a
team-management
approach to manage indexed portfolios. The investment group
of BZW will be
responsible for the day-to-day management of those assets of
the Portfolio
allocated to BZW.
Pilgrim Baxter serves as an Advisor to Small
Capitalization Growth
Investments. Registered as an investment adviser since
November 1982, Pilgrim
Baxter is a wholly-owned subsidiary of UAM. Pilgrim Baxter
provides investment
advisory services to various institutional clients and as of
June 28, 1996, had
assets under management of approximately $7.1 billion.
Pilgrim Baxter's
principal executive offices are located at 1255 Drummers
Lane, Wayne,
Pennsylvania 19087. Since June 1995, John Force and Michael
Jones have shared
the day to day management of those assets of the Small
Capitalization Growth
Investments allocated to Pilgrim Baxter. Mr. Force has
managed this portfolio
since January 1993. Prior to January 1993, Mr. Force served
as Vice President
and Portfolio Manager for a Chicago-based investment
advisory firm. Mr. Jones
joined Pilgrim Baxter in February 1995. Previously, Mr.
Jones was a portfolio
manager for The Bank of New York.
Mellon also serves as an Advisor to Small Capitalization
Growth Investments.
Mellon is a wholly owned subsidiary of MBC Investment
Corporation, which itself
is a subsidiary of Mellon Bank. Mellon is a professional
counseling firm which
manages diversified stock and bond portfolios for
institutional clients. As of
June 28, 1996, Mellon had assets under management exceeding
$41.2 billion.
Mellon's principal executive offices are located at 595
Market Street, Suite
3000, San Francisco, California 94105. Mellon uses a team-
management approach
to manage indexed portfolios. The investment group of Mellon
will be
responsible for the day-to-day management of those assets of
the Portfolio
allocated to Mellon.
Oechsle serves as an Advisor to International Equity
Investments. Oechsle
Group, L.P. holds 100% of the voting securities of Oechsle.
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 Oechsle. Oechsle
has been a
registered investment adviser under the Advisers Act since
1986. Oechsle
provides investment advisory services to individual and
institutional clients.
As of June 28, 1996, Oechsle had assets under management of
approximately $6.8
billion. Oechsle'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 Oechsle, and has been
responsible for the
day-to-day management of those assets of International
Equity Investments
allocated to Oechsle, since November, 1991. Mr. Oechsle has
been General
Managing Partner of Oechsle since its inception in 1986.
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<PAGE>
State Street serves as an Advisor to International Equity
Investments. State
Street is a division of State Street Bank and Trust Company.
State Street
provides investment advisory services to a wide variety of
institutional
clients world-wide and, as of June 28, 1996, had assets
under management of
approximately $140 billion. State Street's principal
executive offices are
located at Two International Place, Boston, Massachusetts
02110. Peter G. Leahy
and Jeffrey P. Davis are primarily responsible for the day-
to-day management of
State Street's portion of International Equity Investments.
Mr. Leahy has been
with State Street since 1991 and Mr. Davis has been with
State Street 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 serves as Advisor to International Fixed
Income Investments.
Julius Baer is a majority owned subsidiary of Julius Baer
Securities Inc., a
registered broker-dealer and investment adviser, which in
turn is a wholly
owned subsidiary of Baer Holding Ltd. Julius Baer Securities
Inc. owns 95% of
the outstanding stock of Julius Baer and 5% is owned by an
employee. Julius
Baer has been registered as an investment adviser under the
Advisers Act since
April 1983. Directly and through Julius Baer Securities
Inc., Julius Baer
provides investment management services to a wide variety of
individual and
institutional clients, including registered investment
companies. As of June
28, 1996, Julius Baer had assets under management of
approximately $3.3 billion
and Julius Baer Securities Inc. had assets under management
of approximately
$100 million. Julius Baer's principal executive offices are
located at 330
Madison Avenue, New York, New York 10017. Edward Dove, a
Director of Fixed-
Income and Portfolio Manager of Julius Baer has been
employed by Julius Baer
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.
Govett serves as Advisor for Emerging Markets Equity
Investments. Govett was
organized in the 1920's and is registered under the Advisers
Act. With its
principal office for North American operations at 250
Montgomery Street, San
Francisco, California 94104, Govett is a wholly-owned
subsidiary of Allied
Irish Bank PLC, a financial services company. Govett'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 June
28, 1996, Govett
had approximately $4.4 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
Govett since 1991.
Prior to that time, she served as Assistant Director of
Invesco 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, 1995,
in excess of $70
billion. Each Portfolio pays SBMFM a fee for these services
that is computed
daily and paid monthly at the annual rate of 0.20% of the
value of the
Portfolio's average daily net assets.
EXPENSES OF THE PORTFOLIOS
Each Portfolio bears its own expenses, which generally
include all costs not
specifically borne by the Manager, the Advisors, and SBMFM.
Included among a
Portfolio's expenses are: costs incurred in connection with
the Portfolio's
organization; investment management and administration fees;
fees for necessary
professional and brokerage services; fees for any pricing
service; the costs of
regulatory compliance; and costs associated with maintaining
the Trust's legal
existence and shareholder relations. The Trust's agreement
with the Manager
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.
36
<PAGE>
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 through an Advisory
Service 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
Advisory Services and are generally 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. Advisory Services generally provide
investment advice in
connection with investments among the Portfolios by
identifying the investor's
risk tolerances and investment objectives through evaluation
of an investment
questionnaire; identifying and recommending in writing an
appropriate
allocation of assets among the Portfolios that conform to
those tolerances and
objectives in a written recommendation; and providing on a
periodic basis, a
written monitoring report to the investor containing an
analysis and evaluation
of an investor's account and recommending any appropriate
changes in the
allocation of assets among the Portfolios. Usually under an
Advisory Service,
all investment decisions ultimately rest with the investor
and investment
discretion is not given to the investment adviser.
Under an Advisory Service an investor typically pays a
periodic fee at rates
that may vary based upon a variety of factors. Currently the
maximum annual
rate for assets invested in the Portfolios under a Smith
Barney Advisory
Service is 1.50%. The fee may be paid 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"). Advisory Services may provide different services
than those described
above and, accordingly, fees may be subject to negotiation.
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 Advisory
Service assets and the
number and range of supplemental advisory services to be
provided under the
Advisory Service. Financial Consultants receive a portion of
any fee paid in
consideration of providing services to clients participating
in a Smith Barney
Advisory Service.
Investors should be aware that through Smith Barney
Advisory Services the
Consulting Group serves as investment adviser to each
participant in such
service and receives a fee from each 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
participants in Smith Barney Advisory Services, 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.
37
<PAGE>
Other Advisory Services. Shares of the Portfolios are also
available for
purchase by or for the benefit of clients of certain
investment advisers 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 adviser must
be approved by the
Consulting Group. Investors purchasing shares through
investment advisory
services other than Smith Barney Advisory Services may bear
different fees for
different levels of services as agreed upon with the
investment advisers
offering the programs. Investment advisers interested in
utilizing the
Portfolios for the purposes described above should call
(302) 888-4104.
Payment for shares of the Trust is due at Smith Barney or
at an Introducing
Broker no later than the third business day after the order
is placed (the
"Settlement Date"). 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 an investor's 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
Advisory Service
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 $10,000
and the minimum investment in any individual Portfolio is
$100. There is no
minimum subsequent investment. Smith Barney Advisory Service
accounts 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.
38
<PAGE>
REDEMPTION OF SHARES
REDEMPTIONS IN GENERAL
Shares of a Portfolio may be redeemed at no charge on any
day that the
Portfolio calculates its net asset value as described below
under "Net Asset
Value." Redemption requests received in proper form prior to
the close of
regular trading on the NYSE will be effected at the net
asset value per share
determined on that day. Redemption requests received after
the close of regular
trading on the NYSE will be effected at the net asset value
next determined. A
Portfolio is required to transmit redemption proceeds for
credit to the
shareholder's account at Smith Barney or at an Introducing
Broker at no charge
within seven days after receipt of a redemption request.
Generally, these funds
will not be invested for the shareholder's benefit without
specific instruction
and the Introducing Broker will benefit from the use of
temporarily uninvested
funds. A shareholder who pays for Portfolio shares by
personal check will be
credited with the proceeds of a redemption of those shares
when the purchase
check has been collected, which may take up to 15 days or
more. Shareholders
who anticipate the need for more immediate access to their
investment should
purchase shares with Federal funds or bank wire or by a
certified or cashier's
check. Redemption proceeds held by investors either in the
form of uninvested
cash balances in their Smith Barney brokerage accounts or as
unnegotiated
checks from the Transfer Agent will generally not earn any
income for those
investors, who should discuss alternative investments with
their Financial
Consultants or other advisers.
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 the Transfer Agent. 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 the Transfer Agent
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 a Smith Barney Advisory Service
provides that,
absent separate payment by the participant, fees charged by
the Manager
pursuant to that agreement may be paid through automatic
redemptions of a
portion of the participant's account. Termination of a Smith
Barney Advisory
Service 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 the Smith Barney Advisory
Service 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.
39
<PAGE>
NET ASSET VALUE
Each Portfolio's net asset value per share is calculated
by SBMFM on each
day, Monday through Friday, except on days on which the NYSE
is closed. The
NYSE is currently scheduled to be closed on New Year's Day,
Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and
Christmas, and on the preceding Friday when one of those
holidays falls on a
Saturday or on the subsequent Monday when one of those
holidays falls on a
Sunday.
Net asset value per share is determined for each of the
Portfolios 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.
Generally, a Portfolio's investments are valued at market
value or, in the
absence of a market value, at fair value as determined by or
under the
direction of the Board of Trustees.
Securities that are primarily traded on foreign exchanges
are generally
valued for purposes of calculating a Portfolio's net asset
value at the
preceding closing values of the securities on their
respective exchanges,
except that, when an occurrence subsequent to the time a
value was so
established is likely to have changed that value, the fair
market value of
those securities will be determined by consideration of
other factors by or
under the direction of the Board of Trustees. A security
that is primarily
traded on a domestic or foreign stock exchange is valued at
the last sale price
on that exchange or, if no sales occurred during the day, at
the current quoted
bid price. All portfolio securities held by Government Money
Investments and
short-term dollar-denominated investments of the other
Portfolios that mature
in 60 days or less are valued on the basis of amortized cost
(which involves
valuing an investment at its cost and, thereafter, assuming
a constant
amortization to maturity of any discount or premium,
regardless of the effect
of fluctuating interest rates on the market value of the
investment) when the
Board of Trustees has determined that amortized cost
represents fair value. An
option that is written by a Portfolio is generally valued at
the last sale
price or, in the absence of the last sale price, the last
offer price. An
option that is purchased by the Portfolio is generally
valued at the last sale
price or, in the absence of the last sale price, the last
bid price. The value
of a futures contract is equal to the unrealized gain or
loss on the contract
that is determined by marking the contract to the current
settlement price for
a like contract on the valuation date of the futures
contract. A settlement
price may not be used if the market makes a limit move with
respect to a
particular futures contract or if the securities underlying
the futures
contract experience significant price fluctuations after the
determination of
the settlement price. When a settlement price cannot be
used, futures contracts
will be valued at their fair market value as determined by
or under the
direction of the Board of Trustees.
All assets and liabilities initially expressed in foreign
currency values
will be converted into U.S. dollar values at the mean
between the bid and
offered quotations of the currencies against U.S. dollars as
last quoted by a
recognized dealer. If the bid and offered quotations are not
available, the
rate of exchange will be determined in good faith by the
Board of Trustees. In
carrying out the Board's valuation policies, SBMFM may
consult with an
independent pricing service retained by the Trust. Further
information
regarding the Portfolios' valuation policies is contained in
the Statement of
Additional Information.
EXCHANGE PRIVILEGE
Shares of a Portfolio may be exchanged without payment of
any exchange fee
for shares of another Portfolio at their respective net
asset values. Portfolio
shares are not exchangeable with shares of other Smith
Barney Mutual Funds.
An exchange of shares is treated for federal income tax
purposes as a
redemption (sale) of shares given in exchange by the
shareholder, and an
exchanging shareholder may, therefore, realize a taxable
gain or loss in
connection with the exchange. Shareholders exchanging shares
of a Portfolio for
shares of another Portfolio 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.
40
<PAGE>
Although the exchange privilege is an important benefit,
excessive exchange
transactions can be detrimental to a Portfolio's performance
and its
shareholders. The Manager may determine that a pattern of
frequent exchanges is
excessive and contrary to the best interests of a
Portfolio's other
shareholders. In this event, the Trust may, at its
discretion, decide to limit
additional purchases and/or exchanges by the shareholder.
Upon such a
determination, the Trust 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. The Trust reserves the
right to reject any
exchange request and the exchange privilege may be modified
or terminated after
60 days' written notice to shareholders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Net investment income (i.e., income other than long- and
short-term capital
gains) and net realized long- and short-term capital gains
will be determined
separately for each Portfolio. Dividends derived from net
investment income and
distributions of net realized long- and short-term capital
gains paid by a
Portfolio to a shareholder will be automatically reinvested
(at current net
asset value) in additional shares of that Portfolio (which
will be deposited in
the shareholder's account) unless the shareholder instructs
the Trust, in
writing, to pay all dividends and/or distributions in cash.
Dividends
attributable to substantially all the net investment income
of Government Money
Investments will be declared daily and paid monthly.
Shareholders of that
Portfolio receive dividends from the day following the
purchase up to and
including the date of redemption. Dividends attributable to
the net investment
income of Intermediate Fixed Income Investments, Long-Term
Bond Investments,
Mortgage Backed Investments, Municipal Bond Investments,
Balanced Investments
and International Fixed Income Investments are declared and
paid monthly.
Dividends attributable to the net investment income of the
remaining Portfolios
are declared and paid at least annually. Distributions of
any net realized
long-term and short-term capital gains earned by a Portfolio
will be made
annually.
TAXES
As each Portfolio is treated as a separate entity for
federal income tax
purposes, the amounts of net investment income and net
realized capital gains
subject to tax will be determined separately for each
Portfolio (rather than on
a Trust-wide basis).
Each Portfolio separately has qualified and intends to
qualify each year as a
regulated investment company for federal income tax
purposes. The requirements
for qualification (i) may cause a Portfolio, among other
things, to restrict
the extent of its short-term trading or its transactions in
warrants,
currencies, options, futures or forward contracts and (ii)
will cause each of
the Portfolios to maintain a diversified asset portfolio.
A regulated investment company will not be subject to
federal income tax on
its net investment income and its capital gains that it
distributes to
shareholders, so long as it meets certain overall
distribution requirements and
other conditions under the Code. Each Portfolio intends to
satisfy these
overall distribution requirements and any other required
conditions. In
addition, each Portfolio is subject to a 4% nondeductible
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
41
<PAGE>
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.
Distributions of capital gains paid by all the Portfolios
will not qualify for
the dividend received deduction for corporations; however,
dividends paid by a
Portfolio, to the extent derived from dividends attributable
to certain types
of stock issued by U.S. corporations, will qualify for the
dividend received
deduction for corporations. Some states, if certain asset
and diversification
requirements are satisfied, permit shareholders to treat
their portions of a
Portfolio's dividends that are attributable to interest on
U.S. Treasury
securities and certain U.S. Government Securities as income
that is exempt from
state and local income taxes. Dividends attributable to
repurchase agreement
earnings are, as a general rule, subject to state and local
taxation.
Dividends paid by Municipal Bond Investments that are
derived from interest
earned on qualifying tax-exempt obligations are expected to
be "exempt-
interest" dividends that shareholders may exclude from their
gross incomes for
federal income tax purposes if the Portfolio satisfies
certain asset percentage
requirements. To the extent that the Portfolio invests in
bonds, the interest
on which is a specific tax preference item for federal
income tax purposes
("AMT-Subject Bonds"), any exempt-interest dividends derived
from interest on
AMT-Subject Bonds will be a specific tax preference item for
purposes of the
federal individual and corporate alternative minimum taxes.
In any event, all
exempt-interest dividends will be a component of the
"current earnings"
adjustment item for purposes of the federal corporate
alternative minimum
income tax and corporate shareholders may incur a larger
federal environmental
tax liability through the receipt of Portfolio dividends and
distributions.
Net investment income or capital gains earned by the
Portfolios investing in
foreign securities may be subject to foreign income taxes
withheld at the
source. The United States has entered into tax treaties with
many foreign
countries that entitle the Portfolios to a reduced rate of
tax or exemption
from tax on this related income and gains. It is impossible
to determine the
effective rate of foreign tax in advance since the amount of
these Portfolios'
assets to be invested within various countries is not known.
The Portfolios
intend to operate so as to qualify for treaty-reduced rates
of tax where
applicable. Furthermore, if a Portfolio qualifies as a
regulated investment
company 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.
42
<PAGE>
As noted above, shareholders, out of their own assets,
will pay an Advisory
Service fee. For most shareholders who are individuals, this
fee will be
treated as a "miscellaneous itemized deduction" for federal
income tax
purposes. Under current federal income tax law, an
individual's miscellaneous
itemized deductions for any taxable year shall be allowed as
a deduction only
to the extent that the aggregate of these deductions exceeds
2% of adjusted
gross income. Such deductions are also subject to the
general limitation on
itemized deductions for individuals having, in 1995,
adjusted gross income in
excess of $111,800 ($55,900 for married individuals filing
separately).
Statements as to the tax status of each shareholder's
dividends and
distributions are mailed annually. Shareholders will also
receive, if
appropriate, various written notices after the close of the
Portfolios' taxable
year with respect to certain foreign taxes paid by the
Portfolios and certain
dividends and distributions that were, or were deemed to be,
received by
shareholders from the Portfolios during the Portfolios'
prior taxable year.
Shareholders should consult with their own tax advisors with
specific reference
to their own tax situations.
CUSTODIAN AND TRANSFER AGENT
PNC is located at 17th and Chestnut Streets, Philadelphia,
Pennsylvania 19103
and Morgan is located at 60 Wall Street, New York, New York
19103, and each
serves as a Custodian for the Trust.
First Data Investors Services Group Inc. is located at
Exchange Place,
Boston, Massachusetts 02109 and serves as the Trust's
transfer agent.
PERFORMANCE OF THE PORTFOLIOS
YIELD
The Trust may, from time to time, include the yield and
effective yield of
Government Money Investments in advertisements or reports to
shareholders or
prospective investors. Current yield for Government Money
Investments will be
based on income received by a hypothetical investment over a
given 7-day period
(less expenses accrued during the period and the maximum
Smith Barney Advisory
Service fee 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
Smith Barney Advisory Service fee 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.
43
<PAGE>
The table below shows individual taxpayers how to
translate the tax savings
from investments such as the Portfolio into an equivalent
return from a taxable
investment. The yields used below are for illustration only
and are not
intended to represent current or future yields for the
Portfolio, which may be
higher or lower than those shown.
<TABLE>
<CAPTION>
SAMPLE FEDERAL
TAXABLE MARGINAL TAX-EXEMPT
YIELDS
INCOME RATE* 4.00% 5.00% 6.00%
7.00% 8.00% 9.00%
- ------------------------------------------------------------
- -------------------
EQUIVALENT
TAXABLE YIELD
SINGLE JOINT RETURN ----------------------
- ------------------
<S> <C> <C> <C> <C> <C>
<C> <C> <C>
$ 23,500 $ 39,000 15% 4.71% 5.88% 7.06%
8.24% 9.41% 10.59%
56,550 94,250 28 5.56 6.94 8.33
9.72 11.11 12.50
117,950 143,600 31 5.80 7.25 8.70
10.14 11.59 13.04
256,500 256,500 36 6.25 7.81 9.38
10.94 12.50 14.06
over $256,500 over $256,500 39.60 6.62 8.28 9.93
11.59 13.25 14.90
</TABLE>
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* The federal tax rates shown are those currently in effect
for 1996 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 Smith Barney Advisory Service fee 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 Smith Barney Advisory Service fee 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, of 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 Smith Barney
Advisory Service fees (provided that these figures are
accompanied by
standardized total return figures calculated as described
above), as well as
compare its performance with that of other mutual funds as
listed in the
rankings prepared by Lipper Analytical Services, Inc. or
similar independent
services that monitor the performance of mutual funds or
with other appropriate
indices of 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.
44
<PAGE>
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 upon
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 such a meeting.
The Trust sends to each shareholder a semi-annual report
and an audited
annual report, each of which includes a list of the
investment securities held
by the Portfolios. Shareholders may seek information
regarding a Portfolio,
including the current performance of the Portfolio, from
their Financial
Consultants.
45
<PAGE>
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No person has been authorized to give any information or
to make any
representations other than those contained in this
Prospectus, the Statement
of Additional Information or the Trust's official sales
literature in
connection with the offering of shares, and if given or
made, such other
information or representations must not be relied upon as
having been
authorized by the Trust. This Prospectus does not constitute
an offer in any
state in which, or to any person to whom, such offer may not
lawfully be made.
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Consulting Group Capital
Markets Funds
Government Money Investments
Intermediate Fixed Income
Investments
Long-Term Bond Investments
Municipal Bond Investments
Mortgage Backed Investments
Balanced Investments
Large Capitalization Value Equity
Investments
Large Capitalization Growth
Investments
Small Capitalization Value Equity
Investments
Small Capitalization Growth
Investments
International Equity
Investments
International Fixed Income
Investments
Emerging Markets Equity
Investments
-----------------
PROSPECTUS
August 13, 1996
-----------------
Smith Barney Inc.
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<PAGE>
APPENDIX A
INVESTMENT INDICES
Following are definitions of indicies that are utilized in
the Client's
Recommendation.
LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX
Composed of publicly issued, fixed rate, non-convertible
domestic debt in three
major classifications: industrial, utility, financial as
well as the domestic
debt of the U.S. Government or any agency thereof. All
issues have at least one
year to maturity, or an outstanding par value of at least
$100 million for U.S.
Government issues and $50 million for corporate issues. All
corporate issues
have a minimum rating of Baa by Moody's or BBB by Standard &
Poor's.
LEHMAN BROTHERS LONG TERM GOVERNMENT/CORPORATE BOND INDEX
Includes all bonds covered by the Lehman Brothers
Government/Corporate Bond
Index, with maturities of 10 years or longer. Total return
includes income and
appreciation/ depreciation as a percentage of original
investment.
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX
A subset of the Lehman Brothers Government/Corporate Bond
Index covering issues
with maturities up to ten years.
LEHMAN BROTHERS MORTGAGE BACKED SECURITIES BOND INDEX
Contains all fixed securities issued and backed by mortgage
pools of GNMA's,
FHLMC's, FNMA's, Graduated Payment Mortgage (GPM's), but not
Graduated Equity
Mortgages (GEM).
LEHMAN BROTHERS MUNICIPAL BOND INDEX
A composite measure of the total return performance of the
municipal bond
market, which includes more than two million different bond
issues. For
simplicity, the market is divided into seven major sectors,
with the
performance of each sector weighted according to issue
volume (adjusted
annually).
MORGAN STANLEY EAFE (CAPITALIZATION WEIGHTED)
A composite portfolio of equity (stock market) total returns
for the countries
of Europe, Australia, New Zealand and the Far East. The
return for each country
is weighted on the basis of its market capitalization.
MORGAN STANLEY EMERGING EQUITY MARKETS FREE GROSS DIVIDEND
INDEX
A composite portfolio consisting of equity total returns for
countries with low
to middle per capita income, as determined by the World
Bank. Some of these
countries include: Argentina, Greece, India, Malaysia,
Portugal and Turkey. The
return for each country is weighted on the basis of its
total market
capitalization.
90-DAY TREASURY BILL INDEX
Unweighted average of weekly auction offering rates of 90-
Day Treasury Bills.
Treasury Bills are backed by the full faith and credit of
the U.S. Government.
RUSSELL 1000 INDEX
The 1,000 largest U.S. companies by market capitalization,
the smallest of
which has about $457 million in market capitalization. The
average market
capitalization for a company in this index is $3.42 billion.
RUSSELL 1000 VALUE INDEX
Contains those Russell 1000 securities with less-than-
average growth
orientation. Companies in this index generally have low
price-to-book and
earnings ratios and higher dividend yields than stocks in
the Russell 1000
Growth Index.
RUSSELL 1000 GROWTH INDEX
Contains those Russell 1000 securities with greater-than-
average growth
orientation. Companies in this index tend to exhibit high
price-to-book and
earnings ratios and lower dividend yields than stocks in the
Russell 1000 Value
Index.
RUSSELL 2000 INDEX
Composed of the 2,000 smallest U.S. securities as determined
by total market
capitalization, representing about 7.1% of the U.S. equity
market
capitalization. The average market capitalization for a
company in this index
is $155 million, with the largest being $457 million.
RUSSELL 2000 VALUE INDEX
Contains those Russell 2000 securities with less-than-
average growth
orientation. Companies in this index generally have low
price-to-book and
earnings ratios and higher dividend yields than stocks in
the Russell 2000
Growth Index.
RUSSELL 2000 GROWTH INDEX
Contains those Russell 2000 securities with greater-than-
average growth
orientation. Companies in this index tend to exhibit high
price-to-book and
earnings ratios and lower dividend yields than stocks in the
Russell 2000 Value
Index.
STANDARD & POOR'S 500 INDEX
Tracks the total return of 500 of the largest stocks (400
industrial, 40
utility, 20 transportation and 40 financial companies) in
the United States,
which represent about 78% of the New York Stock Exchange's
total market
capitalization. The return of each stock is weighted on the
basis of the
stock's capitalization.
SALOMON BROTHERS NON-U.S. GOVERNMENT BOND INDEX
A market capitalization-weighted index consisting of
government bond markets of
Austria, France, Spain, Australia, Germany, Sweden, Belgium,
Italy, United
Kingdom, Canada, Japan, Denmark and the Netherlands.
A-1
<PAGE>
APPENDIX B
The following are copies of the proposed and final
exemptions from the
Department of Labor from certain provisions of the Employee
Retirement Income
Security Act of 1974 relating to the purchase of shares and
participation in
TRAK by certain retirement plans.
PROPOSED EXEMPTION
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- --------------------
PENSION AND WELFARE BENEFITS ADMINISTRATION
[APPLICATION NO. D-8723]
PROPOSED EXEMPTIONS; SHEARSON LEHMAN BROTHERS, INC.
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Notice of proposed exemptions.
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SUMMARY: This document contains notices of pendency before
the Department of
Labor (the Department) of proposed exemptions from certain
of the prohibited
transaction restrictions of the Employee Retirement Income
Security Act of 1974
(the Act) and/or the Internal Revenue Code of 1986 (the
Code).
WRITTEN COMMENTS AND HEARING REQUESTS: All interested
persons are invited to
submit written comments or request for a hearing on the
pending exemptions,
unless otherwise stated in the Notice of Proposed Exemption,
within 45 days
from the date of publication of this FEDERAL REGISTER
Notice. Comments and
request for a hearing should state: (1) The name, address,
and telephone number
of the person making the comment or request, and (2) the
nature of the person's
interest in the exemption and the manner in which the person
would be adversely
affected by the exemption. A request for a hearing must also
state the issues
to be addressed and include a general description of the
evidence to be
presented at the hearing. A request for a hearing must also
state the issues to
be addressed and include a general description of the
evidence to be presented
at the hearing.
ADDRESSES: All written comments and request for a hearing
(at least three
copies) should be sent to the Pension and Welfare Benefits
Administration,
Office of Exemption Determinations, room N-5649, U.S.
Department of Labor, 200
Constitution Avenue NW., Washington, DC 20210. Attention:
Application No.
stated in each Notice of Proposed Exemption. The
applications for exemption and
the comments received will be available for public
inspection in the Public
Documents Room of Pension and Welfare Benefits
Administration, U.S. Department
of Labor, room N-5507, 200 Constitution Avenue N.W.,
Washington, DC 20210.
NOTICE TO INTERESTED PERSONS: Notice of the proposed
exemptions will be
provided to all interested persons in the manner agreed upon
by the applicant
and the Department within 15 days of the date of publication
in the FEDERAL
REGISTER. Such notice shall include a copy of the notice of
proposed exemption
as published in the FEDERAL REGISTER and shall inform
interested persons of
their right to comment and to request a hearing (where
appropriate).
SUPPLEMENTARY INFORMATION: The proposed exemptions were
requested in
applications filed pursuant to section 408(a) of the Act
and/or section
4975(c)(2) of the Code, and in accordance with procedures
set forth in 29 CFR
part 2570, subpart B (55 FR 32836, 32847, August 10, 1990).
Effective December
31, 1978, section 102 of Reorganization Plan No. 4 of 1978
(43 FR 47713,
October 17, 1978) transferred the authority of the Secretary
of the Treasury to
issue exemptions of the type requested to the Secretary of
Labor. Therefore,
these notices of proposed exemption are issued solely by the
Department.
The applications contain representations with regard to the
proposed
exemptions which are summarized below. Interested persons
are referred to the
applications on file with the Department for a complete
statement of the facts
and representations.
SHEARSON LEHMAN BROTHERS, INC. (SHEARSON LEHMAN), LOCATED IN
NEW YORK, NY
[Application No. D-8723]
PROPOSED EXEMPTION
Section I. Covered Transactions
The Department is considering granting an exemption under
the authority of
section 408(a) of the Act and section 4975(c)(2) of the Code
and in accordance
with the procedures set forth in 29 CFR part 2570, subpart B
(55 FR 32836,
32847, August 10, 1990). If the exemption is granted, the
restrictions of
section 406(a) of the Act and the sanctions resulting from
the application of
section 4975 of the Code, by reason of section 4975(c)(1)(A)
through (D) shall
not apply to the proposed purchase or redemption of shares
by an employee
benefit plan, an individual retirement account (the IRA) or
a retirement plan
for a self-employed individual (the Keogh Plan;
collectively, the Plans) in the
Shearson Lehman-established Trust for TRAK Investments (the
Trust) in
connection with such Plans' participation in the TRAK
Personalized Investment
Advisory Service (the TRAK Program). In addition, the
restrictions of section
406(b)(1) and (b)(2) of the Act and the sanctions resulting
from the
application of section 4975 of the Code by reason of section
4975(c)(1)(E)
shall not apply to the provision, by the Consulting Group
Division of Shearson
Lehman (the Consulting Group), investment advisory services
to an independent
fiduciary of a participating Plan (the Independent Plan
Fiduciary) which may
result in such fiduciary's selection of a portfolio grouping
(the Portfolio-
Type) in the TRAK Program for the investment of Plan assets.
This proposed exemption is subject to the following
conditions that are set
forth below in section II.
Section II. General Conditions
(1) The participation of Plans in the TRAK Program will be
approved by a Plan
fiduciary which is independent of Shearson Lehman.
(2) The total fees paid to the Consulting Group and its
affiliates will
constitute no more than reasonable compensation.
(3) No Plan will pay a fee or commission by reason of the
acquisition or
redemption of shares in the Trust.
(4) The terms of each purchase or redemption of Trust
shares shall remain at
least as favorable to an investing Plan as those obtainable
in an arm's length
transaction with an unrelated party.
(5) The Consulting Group will provide written documentation
to an Independent
Plan Fiduciary of its recommendations or evaluations based
upon objective
criteria.
(6) Any recommendation or evaluation made by the Consulting
Group to an
Independent Plan Fiduciary will be implemented only at the
express direction of
such independent fiduciary.
(7) The Consulting Group will generally give investment
advice to an
Independent Plan Fiduciary with respect to Portfolio-Types.
However, in the
case of a Plan providing for participant-directed
investments (the Section
404(c) Plan), the Consulting Group will provide investment
advice that is
limited to the Portfolios made available under the Plan.
B-1
<PAGE>
(8) Any sub-adviser (the Sub-Adviser) that is appointed by
the Consulting
Group to exercise investment discretion over a Portfolio
will be independent of
Shearson Lehman and its affiliates.
(9) Immediately following the acquisition by a Portfolio of
any securities
that are issued by Shearson Lehman and/or its affiliates,
the percentage of
that Portfolio's net assets invested in such securities will
not exceed one
percent.
(10) The quarterly investment advisory fee that is paid by
a Plan to the
Consulting Group for investment advisory services rendered
to such Plan will be
offset by such amount as is necessary to assure that the
Consulting Group
retains no more than 20 basis points from any Portfolio
which contains
investments attributable to the Plan investor.
(11) The Consulting Group will not retain an investment
advisory or management
fee from the Government Money Investments Portfolio.
(12) With respect to its participation in the TRAK Program
prior to purchasing
Trust shares.
(a) Each Plan will receive the following written or oral
disclosures from the
Consulting Group:
(1) A copy of the prospectus (the Prospectus) for the Trust
discussing the
investment objectives of the Portfolios comprising the
Trust, the policies
employed to achieve these objectives, the corporate
affiliation existing
between the Consulting Group, Shearson Lehman and its
subsidiaries and the
compensation paid to such entities.
(2) Upon written or oral request to Shearson Lehman, a
Statement of Additional
Information supplementing the Prospectus which describes the
types of
securities and other instruments in which the Portfolios may
invest, the
investment policies and strategies that the Portfolios may
utilize and certain
risks attendant to those investments, policies and
strategies.
(3) A copy of the investment advisory agreement between the
Consulting Group
and such Plan relating to participation in the TRAK Program.
(4) A copy of the respective investment advisory agreement
between the
Consulting Group and the Sub-Advisers upon written request
to Shearson Lehman.
(5) In the case of a Section 404(c) Plan, if required by
the arrangement
negotiated between the Consulting Group and the Plan, an
explanation by a
Shearson Lehman Financial Consultant (the Financial
Consultant) to eligible
participants in such Plan, of the services offered under the
TRAK Program and
the operation and objectives of the Portfolios.
(b) If accepted as an investor in the TRAK Program, an
Independent Plan
Fiduciary of an IRA or Keogh Plan, will be required to
acknowledge, in writing,
prior to purchasing Trust shares that such fiduciary has
received copies of
such documents.
(c) With respect to a Section 404(c) Plan, written
acknowledgement of the
receipt of such documents will be provided by the
Independent Plan Fiduciary
(i.e., the plan administrator, trustee or named fiduciary,
as the recordholder
of Trust shares). Such Independent Plan Fiduciary will be
required to represent
in writing to Shearson Lehman that such fiduciary is (1)
independent of
Shearson Lehman and its affiliates and (2) knowledgeable
with respect to the
Plan in administrative matters and funding matters related
thereto, and able to
make an informed decision concerning participation in the
TRAK Program.
(d) With respect to a Plan that is covered under title I of
the Act, where
investment decisions are made by a trustee, investment
manager or a named
fiduciary, such Independent Plan Fiduciary will be required
to acknowledge, in
writing, receipt of such documents and represent to Shearson
Lehman that such
fiduciary is (1) independent of Shearson Lehman and its
affiliates, (2) capable
of making an independent decision regarding the investment
of Plan assets and
(3) knowledgeable with respect to the Plan in administrative
matters and
funding matters related thereto, and able to make an
informed decision
concerning participation in the TRAK Program.
(13) Each Plan will receive the following written or oral
disclosures with
respect to its ongoing participation in the TRAK Program.
(a) The Trust's semi-annual and annual report which will
include financial
statements for the Trust and investment management fees paid
by each Portfolio.
(b) A written quarterly monitoring report containing an
analysis and an
evaluation of a Plan investor's account to ascertain whether
the Plan's
investment objectives have been met and recommending, if
required, changes in
Portfolio allocations.
(c) If required by the arrangement negotiated between the
Consulting Group and
a Section 404(c) Plan, a quarterly, detailed investment
performance monitoring
report, in writing, provided to an Independent Plan
Fiduciary of such Plan
showing Plan level asset allocations, Plan cash flow
analysis and annualized
risk adjusted rates of return for Plan investments. In
addition, if required by
such arrangement, Financial Consultants will meet
periodically with Independent
Plan Fiduciaries of Section 404(c) Plans to discuss the
performance monitoring
report as well as with eligible participants to review their
accounts'
performance.
(d) If required by the arrangement negotiated between the
Consulting Group and
a Section 404(c) Plan, a quarterly participant performance
monitoring report
provided to a Plan participant which accompanies the
participant's benefit
statement and describes the investment performance of the
Portfolios, the
investment performance of the participant's individual
investment in the TRAK
Program, and gives market commentary and toll-free numbers
that will enable the
participant to obtain more information about the TRAK
Program or to amend his
or her investment allocations.
(e) On a quarterly and annual basis, written disclosures to
all Plans of the
(1) percentage of each Portfolio's brokerage commissions
that are paid to
Shearson Lehman and its affiliates and (2) the average
brokerage commission per
share paid by each Portfolio to Shearson Lehman and its
affiliates, as compared
to the average brokerage commission per share paid by the
Trust to brokers
other than Shearson Lehman and its affiliates, both
expressed as cents per
share.
(14) Shearson Lehman shall maintain, for a period of six
years, the records
necessary to enable the persons described in paragraph (15)
of this section to
determine whether the conditions of this exemption have been
met, except that
(a) a prohibited transaction will not be considered to have
occurred if, due to
circumstances beyond the control of Shearson Lehman and/or
its affiliates, the
records are lost or destroyed prior to the end of the six
year period, and (b)
no party in interest other than Shearson Lehman shall be
subject to the civil
penalty that may be assessed under section 502(1) of the
Act, or the taxes
imposed by section 4975(a) and (b) of the Code, if the
records are not
maintained, or are not available for examination as required
by paragraph (15)
below.
(15) (a) Except as provided in section (b) of this
paragraph and
notwithstanding any provisions of subsections (a)(2)and (b)
of section 504 of
the Act, the records referred to in paragraph (14) of this
section shall be
unconditionally available at their customary location during
normal business
hours by:
(1) Any duly authorized employee or representative of the
Department or the
Internal Revenue Service (the Service):
(2) Any fiduciary of a participating Plan or any duly
authorized
representative of such fiduciary:
(3) Any contributing employer to any participating Plan or
any duly authorized
employee representative of such employer; and
B-2
<PAGE>
(4) Any participant or beneficiary of any participating
Plan, or any duly
authorized representative of such participant or
beneficiary.
(b) None of the persons described above in subparagraphs
(2)-(4) of this
paragraph (15) shall be authorized to examine the trade
secrets of Shearson
Lehman or commercial or financial information which is
privileged or
confidential.
The availability of this exemption is subject to the
express condition that
the material facts and representations contained in the
application are true
and complete, and that the application accurately describes
all material facts
which are the subject of this exemption.
SUMMARY OF FACTS AND REPRESENTATIONS
1. Shearson Lehman, whose principal executive offices are
located in New York,
New York, is a wholly owned subsidiary of Shearson Lehman
Brothers Holdings,
Inc. (Shearson Holdings). Shearson Holdings is one of the
leading full-line
securities firms servicing institutions, governments and
individual investors
in the United States and throughout the world. Shearson
Holdings conducts its
principal businesses through two divisions--Shearson Lehman
Brothers (referred
to herein as Shearson Lehman) and Lehman Brothers. Shearson
Lehman is
responsible for individual investor services and asset
management while Lehman
Brothers is responsible for securities underwriting,
financial advisory,
investment and merchant banking services and securities and
commodities trading
as principal and agent. Shearson Holdings is a member of all
principal
securities and commodities exchanges in the United States
and the National
Association of Securities Dealers, Inc. In addition, it
holds memberships or
associate memberships on several principal foreign
securities and commodities
exchanges.
Shearson Holdings was incorporated in Delaware on December
29, 1983. The
American Express Company owns 100 percent of Shearson
Holdings' issued and
outstanding common stock, which represents 92 percent of its
issued and
outstanding voting stock. The 8 percent remaining shares of
Shearson Holdings'
issued and outstanding voting stock is preferred stock which
is owned by Nippon
Life Insurance Company. Although Shearson Holdings is not an
operating company
and, as such, it maintains no assets under management, as of
December 31, 1991,
Shearson Lehman and its subsidiaries rendered investment
advisory services with
respect to $91 billion in assets.
2. On April 12, 1991, Shearson Lehman formed the Trust, a
no load, open-end,
diversified management investment company registered under
the Investment
Company Act of 1940, as amended. The Trust is organized as a
Massachusetts
business trust and it has an indefinite duration. As of
January 17, 1992, the
Trust had net assets of $132,608,001.
The Trust consists of twelve different portfolios which
range from Government
Money Investments to International Fixed Income Investments
and which pay
monthly or annual dividends to investors. The Portfolios
currently have a per
share value ranging from $0 per share for Balanced
Investments to $9.45 per
share for Small Capitalization Growth Equity Investments.
The composition of
the Portfolios covers a spectrum of investments which
include U.S. Government-
related securities of equity or debt securities issued by
foreign or domestic
corporations. The Portfolios are further categorized under
four major
Portfolio-Types./1/
3. Shares in the Trust are offered by Shearson Lehman, as
distributors, at no
load, to participants in the TRAK Program./2/ Although
investors in the Trust
currently consist of institutions and individuals, it is
proposed that
prospective investors will include plans for which Shearson
Lehman may or may
not currently maintain investment accounts. A majority of
these Plans will be
IRAs or Keogh Plans. In addition, it is proposed that Plans
for which Shearson
Lehman or an affiliate serves as a prototype sponsor and/or
a nondiscretionary
trustee or custodian be permitted to invest in the Trust./3/
- -------
/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.
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
- -------
/4/ The applicant represents that employee benefit plans
for are maintained by
Shearson Lehman may purchase or redeem shares in the Trust
under the provisions
of Prohibited Transaction Exemption (PTE) 77-3 (42 FR 18734,
April 8, 1977).
The applicant further represents that, although the
exemptive relief proposed
above would not permit Shearson Lehman or an affiliate,
while serving as a Plan
fiduciary with discretionary authority over the management
of a Plan's assets,
to invest a Plan's assets in the Trust shares, a purchase or
redemption of
Trust shares under such circumstances will comply with the
terms and conditions
of class PTE 77-4 (42 FR 18732, April 8, 1977). The
Department expresses no
opinion herein as to whether such transactions will comply
with the terms and
conditions of PTEs 77-3 and 77-4.
B-3
<PAGE>
particular, Boston Advisors calculates the net asset
value/5/ of the
Portfolios' shares and manages all aspects of the
Portfolios' administration
and operation. In addition, Boston Advisors is responsible
for managing each
Portfolio's temporary investments in money market
instruments, as well as
making arrangements for, and managing collateral received
with respect to, the
lending of securities by each Portfolio.
6. Organized within Shearson Lehman, is the Consulting
Group, which is located
in Wilmington, Delaware. The Consulting Group serves as the
investment manager
of the Trust and the underlying Portfolios. Although the
Consulting Group has
not previously served as investment manager for a registered
investment
company, it and its related division, the Consulting
Services Division of
Shearson Lehman (Consulting Services), have over eighteen
years of experience
in evaluating investment advisers for individual and
institutional investors.
Together the Consulting Group and Consulting Services
provide various financial
consulting services to over 30,000 accounts, representing
more than $30 billion
in client assets. Account sizes range from institutional
accounts in excess of
$1 billion to individual accounts with $100,000 minimum
investments. As of July
31, 1991, the Consulting Group rendered advisory services
with respect to
assets with a value in excess of $42.7 billion.
7. Under its investment management agreement, the
Consulting Group is required
to make recommendations to the Trustees regarding (a) the
investment policies
of each Portfolio and (b) the selection and retention of
certain Sub-Advisers
which exercise investment discretion over each Portfolio./6/
In addition,
through the TRAK Program, the Consulting Group provides
investors with non-
binding, generalized asset allocation recommendations with
respect to such
investors' investments in the Portfolios. For example, the
Consulting Group
evaluates an investor's risk tolerances and financial goals,
provides investment
advice as to the appropriate mix of investment types
designed to balance the
investor's risk tolerances as part of a long-term investment
strategy and
provides the investor with advice about implementing its
investment decisions
through the Trust. However, the applicant states that the
Consulting Group does
not have any discretionary authority or control with respect
to the allocation
of an investor's assets among the Portfolios.
In the case of an IRA, a Keogh Plan or a Title I Plan, the
applicant
represents that all of the Consulting Group's
recommendations and evaluations
will be presented to a Plan fiduciary which is independent
of Shearson Lehman
and will be implemented only if accepted and acted upon by
such Independent
Plan Fiduciary. In the case of a Section 404(c) Plan,
Shearson Lehman
represents that participants in such Plan will be presented
with the Consulting
Group's recommendations and evaluations only to the extent
agreed to by
Shearson Lehman and the Plan sponsor. Shearson Lehman
expects that some
sponsors of Section 404(c) Plans will elect to have the
Consulting Group's
recommendations and evaluations passed-through to
participants, while others
will elect to have the Independent Plan Fiduciary
responsible for selecting the
Portfolios made available to Plan participants receive such
advice./7/
8. As stated above, the Consulting Group is responsible for
selecting the Sub-
Advisers which provide discretionary advisory services with
respect to the
investment of the assets of the individual Portfolios on the
basis of their
"able" performance in their respective areas of expertise in
asset management.
The applicant represents that there are presently eleven Sub-
Advisers, all of which are independent of, and will remain
independent of,
Shearson Lehman and/or its affiliates./8/ The Sub-Advisers
are registered
investment advisers under the Investment Adviser's Act of
1940. They maintain
their principal executive offices in the eastern and western
regions of the
United States. As of June 30, 1991, the Sub-Advisers had
assets under
management ranging from $62 million to $51 billion.
9. In order for a Plan to participate in the TRAK Program,
Shearson Lehman or
the Consulting Group will provide an Independent Plan
Fiduciary with a copy of
the Trust Prospectus discussing the investment objectives of
the Portfolios
comprising the Trust, the policies employed to achieve these
objectives, the
corporate affiliation existing between the Consulting Group,
Shearson Lehman
and its subsidiaries and the compensation paid to such
entities. In addition,
upon written or oral request to Shearson Lehman, the
Independent Plan Fiduciary
will be given a Statement of Additional Information
supplementing the
Prospectus which describes the types of securities and other
instruments in
which the Portfolios may invest, the investment policies and
strategies that
the Portfolios may utilize and certain risks attendant to
those investments,
policies and strategies./9/ Further, each Plan will be given
a copy of the
investment advisory agreement between the Consulting Group
and such Plan
relating to participation in the TRAK Program, and upon
written request to
Shearson Lehman, with a copy of the respective investment
advisory agreement
between the Consulting Group and the Sub-Advisers.
With respect to a Section 404(c) Plan, Financial
Consultants affiliated with
Shearson Lehman will explain the services offered under the
TRAK Program to
eligible Section 404(c) Plan participants as well as the
operation and
objectives of the Portfolios, if required by the arrangement
negotiated between
the Consulting Group and the Plan./1//0/
If accepted as a Trust investor, an Independent Plan
Fiduciary will be
required by
- -------
/5/ Each Portfolio's net asset value per share is
calculated by Boston
Advisors on each weekday, except on days on which the New
York Stock Exchange
(the NYSE) is closed. In general, the net asset value for
securities is
determined as of the close of trading on the NYSE or a
foreign exchange by
dividing the value of a Portfolio net assets by the total
number of its shares
outstanding. Typically, a Portfolio's investments are valued
at market value.
However, in the absence of a market value, Portfolio
investments are valued at
fair market value as determined by, or under the direction
of, the Trustees.
/6/ Subject to the supervision and direction of the
Trustees, the Consulting
Group was required to perform initial "due diligence" on
prospective Sub-
Advisers for each Portfolio and thereafter to monitor each
Sub-Adviser's
performance through qualitative and quantitative analysis as
well as through
periodic, in person, telephonic and written consultations.
The Consulting Group
is also required to communicate its performance expectations
and evaluations to
the Sub-Advisers and ultimately recommend whether a Sub-
Adviser's contract
should be renewed, modified or terminated. In this regard,
the Consulting Group
is further obligated to provide written reports to the
Trustees of its
evaluation and monitoring functions.
/7/ If the Independent Plan Fiduciary of a Section 404(c)
Plan is the
recipient of the Consulting Group's investment advice, the
applicant explains
that the Consulting Group will work with the Independent
Plan Fiduciary by
identifying and drafting investment objectives, selecting
investment categories
or actual Portfolios to be offered to Plan participants. In
addition to these
services (and as described above), the applicant explains
that the Consulting
Group will provide an Independent Plan Fiduciary with a
detailed investment
performance monitoring report on a quarterly basis.
Furthermore, a Financial
Consultant affiliated with Shearson Lehman will meet
periodically with the
Independent Plan Fiduciary to discuss the investment
performance monitoring
report.
However, if investment advisory services are provided
directly to a
participant in a Section 404(c) Plan, the applicant explains
(as also described
herein above) that a Financial Consultant will provide a
participant with pre-
enrollment meetings and ongoing communications regarding the
TRAK Program. In
addition, the applicant notes that the Consulting Group will
recommend long
term investment allocations to the participant and provide
the participant with
a written, quarterly performance monitoring report.
/8/ Although there are presently twelve Portfolios
comprising the Trust, there
are only eleven Sub-Advisers. One Sub-Adviser, Standish,
Ayer and Wood, Inc.
advises both the Government Money Investments Portfolio and
the Intermediate
Fixed Income Investments Portfolio.
/9/ In the case of a Section 404(c) Plan, the applicant
represents that the
Plan administrator, trustee or named fiduciary, as the
recordholder of Trust
shares, will make available the Trust's Prospectus to
Section 404(c) Plan
participants. In addition, Shearson Lehman will make
available to such
Independent Plan Fiduciaries sufficient quantities of
Prospectuses for this
purpose, as well as provide Statements of Additional
Information to any party
upon request.
/10/ The Department is expressing no opinion as to whether
the information
provided under the TRAK Program is sufficient to enable a
participant to
exercise independent control over assets in his or her
account as contemplated
by section 404(c) of the Act.
B-4
<PAGE>
Shearson Lehman to acknowledge, in writing, prior to
purchasing Trust shares
that such fiduciary has received copies of the
aforementioned documents. With
respect to a Plan that is covered by Title I of the Act
(e.g., a defined
contribution plant), where investment decisions will be made
by a trustee,
investment manager or a named fiduciary. Shearson Lehman
will require (except
if relying on Class PTE 77-3) that such Independent Plan
Fiduciary acknowledge
in writing receipt of such documents and represent to
Shearson Lehman that such
fiduciary is (a) independent of Shearson Lehman and its
affiliates, (b) capable
of making an independent decision regarding the investment
of Plan assets and
(c) knowledgeable with respect to the Plan in administrative
matters and
funding matters related thereto, and able to make an
informed decision
concerning participation in the TRAK Program.
With respect to Section 404(c) Plan, written acknowledgment
of the receipt of
such documents will be provided by the Independent Plan
Fiduciary (i.e., the
Plan administrator, trustee or named fiduciary, as the
recordholder of Trust
shares). Such Independent Plan Fiduciary will be required to
represent, in
writing, to Shearson Lehman that such fiduciary is (a)
independent of Shearson
Lehman and its affiliates and (b) knowledgeable with respect
to the Plan in
administrative matters and funding matters related thereto,
and able to make an
informed decision concerning participation in the TRAK
Program.
10. The books of the Trust will be audited annually by
independent public
accountants selected by the Trustees and approved by the
investors. All
investors will receive copies of an audited financial report
no later than 60
days after the close of each Trust fiscal year. The books
and financial records
of the Trust will be open for inspection by any investor, as
well as the
Department and the Service, at all times during regular
business hours.
11. As noted under the TRAK Program, the Consulting Group
will provide the
Independent Plan Fiduciary with asset allocation advice
related to the
Portfolios. In this regard, the applicant states that the
Consulting Group's
asset allocation advice will not focus on recommendations
that a Plan's assets
be allocated to a specific Portfolio. Rather, the applicant
represents that the
Consulting Group will recommend only that Plan assets be
allocated among
particular types of Portfolios (e.g., Growth, Fixed Income,
etc.)
After the selection of specific Portfolios by an
Independent Plan Fiduciary,
the Consulting Group will continue to render general
Portfolio-Type selection
advice to Plans or Plan fiduciaries relating to asset
allocations among the
selected Portfolios. However, in the case of a Section
404(c) Plan in which at
least three to five Portfolios may be selected by the Plan
sponsor, the
Consulting Group's initial asset allocation advice will be
limited to the
suggested Portfolio-Types offered under the Plan. The
Consulting Group may also
work with the Independent Plan Fiduciary to identify and
draft investment
objectives, select investment categories or actual
Portfolios to be offered to
Plan participants, if such fiduciary is the recipient of the
Consulting Group's
asset allocation advice, or recommend appropriate long-term
investment
allocations to an individual participant, if the participant
receives such
advice.
12. The Consulting Group will also identify a Plan's risk
tolerances and
investment objectives, the performance of each Portfolio in
which assets are
invested, and recommend, in writing, an appropriate
allocation of assets among
the Portfolio-Types that conform to these tolerances and
objectives. The
Consulting Group will not have the authority to implement
its advice or
recommendations and will not participate in the
deliberations regarding the
decision by an investor of whether or not to act upon such
advice. As noted
earlier, the applicant represents that the decision of a
Plan to invest in the
TRAK Program will be made by an unrelated Plan fiduciary
acting on the basis of
his or her own investigation into the advisability of
participating in the TRAK
Program.
13. The Consulting Group will provide, at least quarterly,
monitoring reports
to a Title I, IRA or Keogh Plan containing an analysis and
evaluation of the
Plan's account to ascertain whether the investor's
objectives are being met and
recommending, when appropriate, changes in the allocation
among the Portfolios.
If required by the arrangement negotiated with the
Independent Plan Fiduciary,
the Consulting Group will provide an Independent Plan
Fiduciary of a Section
404(c) Plan with a written, detailed investment performance
monitoring report,
that will contain Plan level asset allocations showing the
performance of the
Plan's investment vehicles and the performance of relevant
indices for
evaluating the performance of each Portfolio, a Plan cash
flow analysis and
annualized risk adjusted rates of return for Plan investment
vehicles. Such
report will be provided on a quarterly basis.
In addition, to the extent required by the arrangement
negotiated with the
Consulting Group, a Section 404(c) Plan participant will
receive a written,
quarterly performance monitoring report with his or her
quarterly benefit
statement which includes the investment performance of the
Portfolios, the
investment performance for the participant's account, and
specifies market
commentary and toll-free numbers for such participant to
call Shearson Lehman
in order to obtain more information about the TRAK Program
or to amend the
participant's investment allocations. Further, if required
by such arrangement,
a Financial Consultant will meet periodically with an
Independent Plan
Fiduciary of a Section 404(c) Plan to review and discuss the
investment
performance monitoring report. The Financial Consultant may
also meet
periodically with an eligible participant to review the
performance of the
participant's account. The applicant notes that this
intermittent contact will
not prevent the participant from contacting the Financial
Consultant at any
time to inquire about his or her participation in the TRAK
Program.
Finally, on a quarterly and annual basis, the Consulting
Group will provide
written disclosures to all Plans with respect to (1) the
percentage of each
Trust Portfolio's brokerage commissions that are paid to
Shearson Lehman and
its affiliates and (2) the average brokerage commission per
share paid by each
Portfolio to Shearson Lehman as compared to the average
brokerage commission
per share paid by each Portfolio to brokers other than
Shearson Lehman and its
affiliates, both expressed as cents per share.
14. Shares of a Portfolio will be redeemed by Shearson
Lehman, at no charge,
and generally on a daily basis (weekends and holidays
excepted) when the
Portfolio calculates its net asset value. Redemption
requests received in
proper form prior to the close of trading on the NYSE will
be affected at the
net asset value per share determined on that day. Redemption
requests received
after the close of regular trading on the NYSE will be
effected at the net
asset value at the close of business of the next day, except
on weekends or
holidays when the NYSE is closed. A Portfolio is required to
transmit
redemption proceeds for credit to an investor's account with
Shearson Lehman or
to an "introducing" broker/11/ within 7 days after receipt
of the redemption
request. In the case of an IRA or Keogh Plan investor,
Shearson Lehman will not
hold redemption proceeds as free credit balances and will,
in the absence of
receiving investment instructions, place all such assets in
- -------
/11/ According to the applicant, Shearson Lehman provides
clearance,
settlement and other back office services to other broker-
dealers. The
applicant notes that Shearson Lehman may also provide
confirmations and account
statements to clients of brokers who have "introduced"
clients to Shearson
Lehman such as The Robinson Humphrey Company, Inc. a wholly-
owned broker-dealer
subsidiary of Shearson Lehman.
B-5
<PAGE>
a money market fund that is not affiliated with Shearson
Lehman. In the case of
Plans that are covered by title I of the Act, the redemption
proceeds will be
invested by Shearson Lehman in accordance with the
investment directions of the
Independent Plan Fiduciary responsible for the management of
the Plan's assets.
With respect to a Section 404(c) Plan, the treatment of such
investment assets
will depend upon the arrangement for participant investment
instructions
selected by the Plan sponsor./12/ In the event that the
Independent Plan
Fiduciary does not give other investment directions, such
assets will be swept
weekly into a money market fund that is not affiliated with
Shearson Lehman for
the benefit of the Plan.
Due to the high costs of maintaining small accounts, the
Trust may also redeem
an account having a current value of $7,500 or less, after
the investor has
been given at least 30 days in which to increase the account
balance to more
than the $7,500 amount. Proceeds of an involuntary
redemption will be deposited
in the investor's brokerage account unless Shearson Lehman
is otherwise
instructed.
15. Shares of a Portfolio may be exchanged by an investor
with another
investor in the TRAK Program without payment of any exchange
fee for shares of
another Portfolio at their respective net asset values.
However, Portfolio
shares are not exchangeable with shares of other funds
within the Shearson
Lehman Group of funds or portfolio families.
16. With respect to brokerage transactions that are entered
into under the
TRAK Program for a Portfolio, such transactions may be
executed through
Shearson-Lehman and other affiliated broker-dealers, if in
the judgment of the
Sub-Adviser, the use of such broker-dealer is likely to
result in price and
execution at least as favorable, and at a commission charge
at least as
comparable to those of other qualified broker-dealers. In
addition, Shearson
Lehman may not execute transactions for a Portfolio on the
floor of any
national securities exchange but it may effect transactions
by transmitting
orders to other brokers for execution. In this regard,
Shearson Lehman is
required to pay fees charged by those persons performing the
floor brokerage
elements out of the brokerage compensation it receives from
a Portfolio.
17. Each Portfolio bears its own expenses, which generally
include all costs
that are not specifically borne by the Consulting Group, the
Sub-Advisers or
Boston Advisors. Included among a Portfolio's expenses are
costs incurred in
connection with the Portfolio's organization, investment
management and
administration fees, fees for necessary professional and
brokerage services,
fees for any pricing service, the costs of regulatory
compliance and costs
associated with maintaining the Trust's legal existence and
shareholder
relations. No Portfolio, however, will impose sales charges
on purchases,
reinvested dividends, deferred sales charges, redemption
fees, nor will any
Portfolio incur distribution expenses.
18. The total fees that are paid to the Consulting Group
and its affiliates
will constitute no more than reasonable compensation. In
this regard, for its
asset allocation and related services, the Consulting Group
charges an investor
a quarterly investment advisory fee. This "outside fee" is
negotiated between
the Consulting Group and the investor and it varies up to an
annual maximum of
1.50 percent of the net asset value of the investor's Trust
shares computed
each quarter based on the value determined on the last
calendar day of the
previous calendar quarter. The outside fee is charged
directly to an investor
and it is not affected by the allocation of assets among the
Portfolios nor by
whether an investor follows or ignores the Consulting
Group's advice./1//3/ For
Plan investors, the outside fee for a calendar quarter will
be reduced by an
amount equal to, for all Portfolios in which Plan assets are
invested (a) the
value of Plan assets invested in a Portfolio on the last
calendar day of the
previous calendar quarter (or the value of an initial
investment in the
Portfolio, as of the day such initial investment is made
during the calendar
quarter) multiplied by (b) a reduction factor (the Reduction
Factor) which is
described in below, multiplied by (c) a fraction, the
numerator of which is the
number of days in the period for which the outside fee is
being assessed and
the denominator of which is the actual number of days in the
calendar year of
which that period is a part. For subsequent investments or
redemptions
aggregating to more than $5,000, the pro-rated fee for
credit for the balance of
the quarter will be calculated on the basis of the net
percentage of the outside
fee paid for the quarter during which the subsequent
investment or redemption is
made.
In addition, for investment management and related services
provided to the
Trust, the Consulting Group is paid, from each Portfolio, a
management fee
which computed daily and paid monthly at an annual rate
ranging from .15
percent to .70 percent of the value of the Portfolio's
average daily net assets
depending upon the Portfolio's objective. From these
management fees, the
Consulting Group compensates the Sub-Adviser. This "inside
fee," which is the
difference between the individual Portfolio's total
management fee and the fee
paid by the Consulting Group to the Sub-Adviser, varies from
20 to 30 basis
points depending on the Portfolio (except for the Government
Money Investments
Portfolio which, for competitive purposes, pays a management
fee equal to the
Sub-Adviser's fee). Each Portfolio also pays Boston Advisors
a management fee
that is computed daily and paid monthly for the services it
performs as
administrator to the Trust at an annual fixed rate of .20
percent of the value
of the Portfolio's average daily net assets. Such fee is
also included in the
total management fee.
The management fees that are paid at the Portfolio level to
Boston Advisors,
the Consulting Group and the Sub-Advisers are set forth in
the table below. For
purposes of the table, Boston Advisors is referred to as
"BA", the Consulting
Group as "CG" and the Sub-Advisers as "SA." As noted in the
table, the sum of
the management fees paid by a Portfolio to Boston Advisors
plus the fees
retained by the Consulting Group and the Sub-Advisers equals
the total
management fee paid by that Portfolio.
- -------
/12/ Shearson Lehman explains that, under one alternative,
Plan participants
who give instructions to redeem shares of a Portfolio must
give corresponding
instructions to reinvest proceeds in another investment
vehicle made available
under the Plan, thus ensuring that a participant's
investment assets are
continually invested. Under a second alternative which is
described above,
Shearson Lehman represents that participants will not be
required to give
corresponding instructions and all investment assets for
which no investment
instructions have been given will be swept into a money
market fund that is not
affiliated with Shearson Lehman. In this regard, the
Department is expressing
no opinion regarding whether any of the arrangements
described above comply
with the requirements of section 404(c) of the Act.
/13/ The applicant represents that the outside fee is not
imposed on
accounts of employees of American Express and its
subsidiaries, including
Shearson Lehman, accounts of their immediate families and
IRAs and certain
employee pension benefit plans for these persons. The
applicant states that
this fee is waived to encourage employees to invest in
Shearson Lehman. With
respect to IRAs or Plans maintained by Shearson Lehman and
its affiliates, the
applicant asserts that such waiver would be required by PTE
77-3.
B-6
<PAGE>
<TABLE>
- ------------------------------------------------------------
- --------------------
<CAPTION>
TOTAL TOTAL FEE SA
RETAINED CG RETAINED
MANAGE- BA FEE SA/CG
FEE FEE
PORTFOLIO MENT FEE (PERCENT) (PERCENT)
(PERCENT) (PERCENT)
- ------------------------------------------------------------
- --------------------
<S> <C> <C> <C> <C>
<C>
Government Money Invest-
ments..................... 0.35 0.20 0.15
0.15 0.00
Intermediate Fixed Income
Investments............... .60 .20 .40
.20 .20
Total Return Fixed Income
Investments............... .60 .20 .40
.20 .20
Municipal Bond Invest-
ments..................... .60 .20 .40
.20 .20
Mortgage Backed Invest-
ments..................... .70 .20 .50
.25 .25
Balanced Investments...... .80 .20 .60
.30 .30
Large Capitalization Value
Equity Investments........ .80 .20 .60
.30 .30
Large Capitalization
Growth Investments........ .80 .20 .60
.30 .30
Small Capitalization Value
Equity Investments........ .80 .20 .60
.30 .30
Small Capitalization
Growth Investments........ .80 .20 .60
.30 .30
International Equity In-
vestments................. .90 .20 .70
.40 .30
International Fixed Income
Investments............... .70 .20 .50
.25 .25
- ------------------------------------------------------------
- --------------------
</TABLE>
Shearson Lehman proposes to offset, quarterly, against the
outside fee such
amount as is necessary to assure that the Consulting Group
retains no more than
20 basis points from any Portfolio on investment of assets
attributable to any
Plan./14/ In this way, the aggregate of the inside fees and
the outside fees
retained by the Consulting Group will remain constant
regardless of the
distribution of a Plan's assets among the Portfolio.
Shearson Lehman has developed the following example to
demonstrate how the fee
offset mechanism would work:
Assume that as of March 31, 1992, the average daily value
of Trust Portfolio
shares held by a Plan investor was $1,000. Investment assets
attributable to
the Plan were distributed among five Trust Portfolios: (1)
Government Money
Investments in which the Plan made a $50 investment and from
which the
Consulting Group would not retain an inside fee; (2) Total
Return Fixed Income
investments in which the Plan made a $200 investment and the
Consulting Group
would retain an inside fee of .20 percent; (3) Small
Capitalization Growth
Investments in which the Plan made a $250 investment and the
Consulting Group
would be entitled to receive an inside fee of .30 percent;
(4) Large
Capitalization Growth Investments in which the Plan made a
$250 investment and
the Consulting Group would retain an inside fee of .30
percent; and (5)
International Equity Investments in which the Plan made a
$250 investment and
the Consulting Group would be entitled to receive an inside
fee of .30 percent.
Assume that the Plan investor pays the maximum annual
outside fee of 1.50
percent so that the total outside fee for the calendar
quarter April 1 through
June 30, prior to the fee offset would be ($1,000) 1.50%
(.25)=$3.75.
Under the proposed fee offset, the outside fee charged to
the Plan must be
reduced by a Reduction Factor to ensure that the Consulting
Group retains an
inside fee of no more than .20% from each of the Portfolios
on investment
assets attributable to the Plan. The following table shows
the Reduction Factor
as applied to each of the Portfolios comprising the Trust:
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
CG REDUC-
RETAINED FEE TION
FEE OFFSET FACTOR
(PER- (PER- (PER-
PORTFOLIO
CENT) CENT) CENT)
- ------------------------------------------------------------
- --------------------
<S>
<C> <C> <C>
Government Money Investments.............................
0.00 0.20 0.00
Intermediate Fixed Income Investments....................
.20 .20 .00
Total Return Fixed Income Investments....................
.20 .20 .00
Municipal Bond Investments...............................
.20 .20 .00
Mortgage Backed Investments..............................
.25 .20 .05
Balanced Investments.....................................
.30 .20 .10
Large Capitalization Value Equity Investments............
.30 .20 .10
Large Capitalization Growth Investments..................
.30 .20 .10
Small Capitalization Value Equity Investments............
.30 .20 .10
Small Capitalization Growth Investments..................
.30 .20 .10
International Equity Investments.........................
.30 .20 .10
International Fixed Income Investments...................
.25 .20 .05
- ------------------------------------------------------------
- --------------------
</TABLE>
Under the proposed fee offset, a Reduction Factor of .10%
is applied against
the quarterly outside fee with respect to the value of Plan
assets that have
been invested in Portfolios (3), (4) and (5) only. As noted
above Portfolios
(1) and (2) do not involve a Reduction Factor because the
fee retained by the
Consulting Group for these Portfolios does not exceed 20
basis points.
Therefore, the quarterly offset for the plan investor is
computed as follows:
(.25) [($250) .10%+($250) .10%+($250) .10%]=$0.1875.
In the foregoing example, the Plan investor, like all other
investors in the
TRAK Program, would receive a statement for its TRAK account
on or about April
15, 1992. This statement would show the outside fee to be
charged for the
calendar quarter April 1, through June 30 (i.e., $3.75-
$0.1875=$3.5625). The
Plan investor would be asked to pay the outside fee for that
quarter by May 3,
1992 (i.e., the third day of the second month of the
calendar quarter). If the
outside fee were not paid by that date, Shearson Lehman
would debit the account
of the Plan investor (as with other investors) for the
amount of the outside
fee (pursuant to the authorization contained in the TRAK
Investment Advisory
Agreement, and as described in the Statement of Additional
Information appended
to the Prospectus)./15/
Because the Consulting Group will retain no inside fee with
respect to assets
invested in the
- -------
/14/ Shearson Lehman asserts that it chose 20 basis points
as the maximum
net fee retained for management services rendered to the
Portfolios because
this amount represents the lowest percentage management fee
charged by Shearson
Lehman among the Portfolios (excluding the Government Money
Investments
Portfolio for which Shearson Lehman charges no management
fee).
/15/ The applicant explains that the foregoing example
illustrates the fact
that the outside fee and the fee offset are computed
contemporaneously and that
Plan investors will get the benefit of the fee offset
contemporaneously upon
the payment of the outside fee. Because the inside fee is
paid monthly and the
fee offset is computed quarterly, the applicant also
explains that Shearson
Lehman does not receive the benefit of a "float" as a result
of such
calculations because the fee offset will always be realized
no later than the
time that the outside fee is paid (i.e., on or about the
third day of the
second month of the calendar quarter). Since the inside fee
is paid at the end
of each calendar month, the applicant further explains that
Plan investors will
realize the full benefit of the offset before the time that
the inside fee is
paid for the second and third months of the calendar
quarter.
B-7
<PAGE>
Government Money Investment Portfolio, Shearson Lehman notes
that a potential
conflict may exist by reason of the variance in net inside
fees among the
Government Money Investments Portfolio and the other
Portfolios. Shearson
Lehman also recognizes that this factor could result in the
Consulting Group's
recommendation of a higher-fee generating Portfolio-Type to
an investing Plan.
To address this potential conflict, Shearson Lehman will
disclose to all
participants in the TRAK Program that the Consulting Group
will retain no
inside fee for assets invested in the Government Money
Investments Portfolio.
19. In summary, it is represented that the proposed
transactions will meet the
statutory criteria for an exemption under section 408(a) of
the Act because:
(a) The investment of a Plan's assets in the TRAK Program
will be made and
approved by a Plan fiduciary which is independent of
Shearson Lehman and its
affiliates such that Independent Plan Fiduciaries will
maintain complete
discretion with respect to participating in the TRAK
Program; (b) Independent
Plan Fiduciaries will have an opportunity to redeem their
shares in the Trust
in such fiduciaries' individual discretion; (c) no Plan will
pay a fee or
commission by reason of the acquisition or redemption of
shares in the Trust;
(d) prior to making an investment in TRAK, each Independent
Plan Fiduciary will
receive offering materials and disclosures from either
Shearson Lehman or the
Consulting Group which disclose all material facts
concerning the purpose,
structure, operation and investment in the TRAK Program; (e)
the Consulting
Group will provide written documentation to an Independent
Plan Fiduciary of
its recommendations or evaluations, including the reasons
and objective
criteria forming the basis for such recommendations or
evaluations; (f) any
sub-Adviser that is appointed by the Consulting Group to
exercise investment
discretion over a Portfolio will always be independent of
Shearson Lehman and
its affiliates; (g) the annual investment advisory fee that
is paid by a Plan
to the Consulting Group for investment advisory services
rendered to such Plan
will be offset by such amount as is necessary to assure that
the Consulting
Group retains no more than 20 basis points from any
Portfolio on investment
assets attributable to the Plan investor; (h) the Consulting
Group or Shearson
Lehman will make periodic written disclosures to
participating Plans with
respect to the financial condition of the TRAK Program, the
total fees that it
and its affiliates will receive from such Plan investors and
the value of the
Plan's interest in the TRAK Program; and (i) on a quarterly
and annual basis,
the Consulting Group will provide written disclosures to all
Plans with respect
to (1) the percentage of each Trust Portfolio's brokerage
commissions that are
paid to Shearson Lehman and its affiliates and (2) the
average brokerage
commission per share paid by each Portfolio to Shearson
Lehman as compared to
the average brokerage commission per share paid by each
Portfolio to brokers
other than Shearson Lehman and its affiliates, both
expressed as cents per
share.
FOR FURTHER INFORMATION CONTACT:
Ms. Jan D. Broady of the Department, telephone (202) 523-
8881. (This is not a
toll-free number.)
GENERAL INFORMATION
The attention of interested persons is directed to the
following:
(1) The fact that a transaction is the subject of an
exemption under section
408(a) of the Act and/or section 4975(c)(20) of the Code
does not relieve a
fiduciary or other party in interest of disqualified person
from certain other
provisions of the Act and/or the Code, including any
prohibited transaction
provisions to which the exemption does not apply and the
general fiduciary
responsibility provisions of section 404 of the Act, which
among other things
require a fiduciary to discharge his duties respecting the
plan solely in the
interest of the participants and beneficiaries of the plan
and in a prudent
fashion in accordance with section 404(a)(1)(b) of the act,
nor does it affect
the requirement of section 401(a) of the Code that the plan
must operate for
the exclusive benefit of the employees of the employer
maintaining the plan and
their beneficiaries;
(2) Before an exemption may be granted under section 408(a)
of the Act and/or
section 4975(c)(2) of the Code, the Department must find
that the exemption is
administratively feasible, in the interests of the plan and
of its participants
and beneficiaries and protective of the rights of
participants and
beneficiaries of the plan;
(3) The proposed exemptions, if granted, will be
supplemental to, and not in
derogation of, any other provisions of the Act and/or the
Code, including statutory or administrative exemptions and
transitional rules.
Furthermore, the fact that a transaction is subject to an
administrative or
statutory exemption is not dispositive of whether the
transaction is in fact a
prohibited transaction; and
(4) The proposed exemptions, if granted, will be subject to
the express
condition that the material facts and representations
contained in each
application are true and complete, and that each application
accurately
describes all material terms of the transaction which is the
subject to the
exemption.
Signed at Washington, DC, this 31st day of March 1992.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare
Benefits
Administration, U.S. Department of Labor.
(FR Doc. 92-7712 Filed 4-2-92; 8:45 am)
BILLING CODE 4510-29-M
FINAL EXEMPTION
SHEARSON LEHMAN BROTHERS, INC. (SHEARSON LEHMAN), LOCATED IN
NEW YORK, NY
[Prohibited Transaction Exemption 92-77; Exemption
Application No. D-8723]
EXEMPTION
Section I. Converted Transactions
The restrictions of section 406(a) of the Act and the
sanctions resulting from
the application of section 4975 of the Code, by reason of
section 4975(c)(1)
(A) through (D) shall not apply to the proposed purchase or
redemption of
shares by an employee benefit plan, an individual retirement
account (the IRA)
or a retirement plan for a self-employed individual (the
Keogh Plan;
collectively, the Plans) in the Shearson Lehman-established
Trust for TRAK
Investments (the Trust) in connection with such Plans'
participation in the
TRAK Personalized Investment Advisory Service (the TRAK
Program). In addition,
the restrictions of section 406 (b)(1) and (b)(2) of the Act
and the sanctions
resulting from the application of section 4975 of the Code
by reason of section
4975(c)(1)(E) shall not apply to the provision, by the
Consulting Group
Division of Shearson Lehman (the Consulting Group), of
investment advisory
services to an independent fiduciary of a participating Plan
(the Independent
Plan Fiduciary) which may result in such fiduciary's
selection of a portfolio
grouping (the Portfolio-Type) in the TRAK Program for the
investment of Plan
assets.
This exemption is subject to the following conditions that
are set forth below
in section II.
Section II. General Conditions
(1) The participation of Plans in the TRAK Program will be
approved by an
Independent Plan Fiduciary. For purposes of this
requirement, an employee,
officer or director of Shearson Lehman and/or its affiliates
covered by an IRA
not subject to title I of the Act will be considered an
Independent Plan
Fiduciary with respect to such IRA.
B-8
<PAGE>
(2) The total fees paid to the Consulting Group and its
affiliates will
constitute no more than reasonable compensation.
(3) No Plan will pay a fee or commission by reason of the
acquisition or
redemption of shares in the Trust.
(4) The terms of each purchase or redemption of Trust
shares shall remain at
least as favorable to an investing Plan as those obtainable
in an arm's length
transaction with an unrelated party.
(5) The Consulting Group will provide written documentation
to an Independent
Plan Fiduciary of its recommendations or evaluations based
upon objective
criteria.
(6) Any recommendation or evaluation made by the Consulting
Group to an
Independent Plan Fiduciary will be implemented only at the
express direction of
such independent fiduciary.
(7) The Consulting Group will generally give investment
advice to an
Independent Plan Fiduciary with respect to Portfolio-Types.
However, in the
case of a Plan providing for participant-directed
investments (the Section
404(c) Plan), the Consulting Group will provide investment
advice that is
limited to the Portfolios made available under the Plan.
(8) Any sub-adviser (the Sub-Adviser) that acts for the
Trust to exercise
investment discretion over a Portfolio will be independent
of Shearson Lehman
and its affiliates.
(9) Immediately following the acquisition by a Portfolio of
any securities
that are issued by Shearson Lehman and/or its affiliates,
the percentage of
that Portfolio's net assets invested in such securities will
not exceed one
percent.
(10) The quarterly investment advisory fee that is paid by
a Plan to the
Consulting Group for investment advisory services rendered
to such Plan will be
offset by such amount as is necessary to assure that the
Consulting Group
retains no more than 20 basis points from any Portfolio
which contains
investments attributable to the Plan investor.
(11) The Consulting Group will not retain an investment
advisory or management
fee from the Government Money Investments Portfolio.
(12) With respect to its participation in the TRAK Program
prior to purchasing
Trust shares
(a) Each Plan will receive the following written or oral
disclosures from the
Consulting Group:
(1) A copy of the prospectus (The Prospectus) for the Trust
discussing the
investment objectives of the Portfolios comprising the
Trust, the policies
employed to achieve these objectives, the corporate
affiliation existing
between the Consulting Group, Shearson Lehman and its
subsidiaries and the
compensation paid to such entities.
(2) Upon written or oral request to Shearson Lehman, a
Statement of Additional
Information supplementing the Prospectus which describes the
types of
securities and other instruments in which the Portfolios may
invest, the
investment policies and strategies that the Portfolios may
utilize and certain
risks attendant to those investments, policies and
strategies.
(3) A copy of the investment advisory agreement between the
Consulting Group
and such Plan relating to participation in the TRAK Program.
(4) Upon written request of Shearson Lehman, copy of the
respective investment
advisory agreement between the Consulting Group and the Sub-
Advisers.
(5) In the case of a Section 404(c) Plan, if required by
the arrangement
negotiated between the Consulting Group and the Plan, an
explanation by a
Shearson Lehman Financial Consultant (the Financial
Consultant) to eligible
participants in such Plan, of the services offered under the
TRAK Program and
the operation and objectives of the Portfolios.
(b) If accepted as an investor in the TRAK Program, an
Independent Plan
Fiduciary of an IRA or Keogh Plan, will be required to
acknowledge, in writing,
prior to purchasing Trust shares that such fiduciary has
received copies of
such documents.
(c) With respect to a Section 404(c) Plan, written
acknowledgement of the
receipt of such documents will be provided by the
Independent Plan Fiduciary
(i.e., the Plan administrator, trustee or named fiduciary,
as the recordholder
of Trust shares). Such Independent Plan Fiduciary will be
required to represent
in writing to Shearson Lehman that such fiduciary is (1)
independent of
Shearson Lehman and its affiliates and (2) knowledgeable
with respect to the
Plan in administrative matters and funding matters related
thereto, and able to
make an informed decision concerning participation in the
TRAK Program.
(d) With respect to a Plan that is covered under Title 1 of
the Act, where
investment decisions are made by a trustee, investment
manager or named
fiduciary, and Independent Plan Fiduciary will be required
to acknowledge, in
writing, receipt of such documents and represent to Shearson
Lehman that such
fiduciary is (1) independent of Shearson Lehman and its
affiliates, (2) capable
of making an independent decision regarding the investment
of Plan assets and
(3) knowledgeable with respect to the Plan in administrative
matters and
funding matters related thereto, and able to make an
informed decision
concerning participation in the TRAK Program.
(13) Each Plan will receive the following: written or oral
disclosures with
respect to its ongoing participation in the TRAK Program;
(a) The Trust's semi-annual and annual report which will
include financial
statements for the Trust and investment management fees paid
by each Portfolio.
(b) A written quarterly monitoring report containing an
analysis and an
evaluation of a Plan investor's account to ascertain whether
the Plan's
investment objectives have been met and recommending, if
required, changes in
Portfolio allocations.
(c) If required by the arrangement negotiated between the
Consulting Group and
a Section 404(c) Plan, a quarterly, detailed investment
performance monitoring
report, in writing, provided to an Independent Plan
Fiduciary of such Plan
showing Plan level asset allocations. Plan cash flow
analysis and annualized
risk adjusted rates of return for Plan investments. In
addition, if required by
such arrangement, Financial Consultants will meet
periodically with Independent
Plan Fiduciaries of Section 404(c) Plans to discuss the
performance monitoring
report as well as with eligible participants to review their
accounts'
performance.
(d) If required by the arrangement negotiated between the
Consulting Group and
a Section 404(c) Plan, a quarterly participant performance
monitoring report
provided to a Plan participant which accompanies the
participant's benefit
statement and describes the investment performance of the
Portfolios, the
investment performance of the participant's individual
investment in the TRAK
Program, and gives market commentary and toll-free numbers
that will enable the
participant to obtain more information about the TRAK
Program or to amend his
or her investment allocations.
(e) On a quarterly and annual basis, written disclosures to
all Plans of the
(1) percentage of each Portfolio's brokerage commissions
that are paid to
Shearson Lehman and its affiliates and (2) the average
brokerage commission per
share paid by each Portfolio to Shearson Lehman and its
affiliates, as compared
to the average brokerage commission per share paid by the
Trust to brokers
other than Shearson Lehman and its affiliates, both
expressed as cents per
share.
(14) Shearson Lehman shall maintain, for a period of six
years, the records
necessary to enable the persons described in paragraph (10)
of this section to
determine whether the conditions of this exemption have been
met, except that
(a) a prohibited transaction will not
B-9
<PAGE>
be considered to have occurred if, due to circumstances
beyond the control of
Shearson Lehman and/or its affiliates, the records are lost
or destroyed prior
to the end of the six year period, and (b) no party in
interest other than
Shearson Lehman shall be subject to the civil penalty that
may be assessed
under section 502(i) of the Act, or to the taxes imposed by
section 4975 (a)
and (b) of the Code, if the records are not maintained, or
are not available
for examination as required by paragraph (15) below.
(15) (a) Except as provided in section (b) of this
paragraph and
notwithstanding any provisions of subsections (a)(2) and (b)
of section 504 of
the Act, the records referred to in paragraph (14) of this
section shall be
unconditionally available at their customary location during
normal business
hours by:
(1) Any duly authorized employee or representative of the
Department or the
Internal Revenue Service (the Service);
(2) Any fiduciary of a participating Plan or any duly
authorized
representative of such fiduciary;
(3) Any contributing employer to any participating Plan or
any duly authorized
employee representative of such employer; and
(4) Any participant or beneficiary of any participating
Plan, or any duly
authorized representative of such participant or
beneficiary.
(b) None of the persons described above in subparagraphs
(2)-(4) of this
paragraph (15) shall be authorized to examine the trade
secrets of Shearson
Lehman or commercial or financial information which is
privileged or
confidential.
Section III. Definitions
For purposes of this exemption:
(1) An "affiliate" of Shearson Lehman includes--
(a) Any person directly or indirectly through one or more
intermediaries,
controlling, controlled by, or under common control with
Shearson Lehman. (For
purposes of this subsection, the term "control" means the
power to exercise a
controlling influence over the management or policies of a
person other than an
individual.)
(b) Any officer, director or partner in such person, and
(c) Any corporation or partnership of which such person is
an officer,
director or a 5 percent partner or owner.
(2) An "Independent Plan Fiduciary" is a Plan fiduciary
which is independent
of Shearson Lehman and its affiliates and is either
(a) A Plan administrator, trustee or named fiduciary, as
the recordholder of
Trust shares of a Section 404(c) Plan,
(b) A participant in a Keogh Plan,
(c) An individual covered under a self-directed IRA which
invests in Trust
shares, or
(d) A trustee, investment manager or named fiduciary
responsible for
investment decisions in the case of a title I Plan that does
not permit
individual direction as contemplated by Section 404(c) of
the Act.
For a more complete statement of the facts and
representations supporting the
Department's decision to grant this exemption, refer to the
notice of proposed
exemption (the Notice) published on April 3, 1992 at 57 FR
11514.
EFFECTIVE DATE: This exemption is effective as of April 3,
1992.
WRITTEN COMMENTS
The Department received one comment letter with respect to
the Notice and no
requests for a public hearing. The letter, which was
submitted by Shearson
Lehman, addresses certain clarifications to the Notice,
including
clarifications to the General Conditions and the Summary of
Facts and
Representations. Discussed below are the changes suggested
by Shearson Lehman
and the Department's responses thereto. In addition, the
Department has made
several clarifying changes to the final exemption which are
also discussed
below.
With respect to the General Conditions that are set forth
in Section II of the
Notice. Shearson Lehman wishes to make several
clarifications. In this regard,
Shearson Lehman notes that, in general, in the case of IRAs
that are maintained
by employees of Shearson Lehman or its affiliates, such
employees should be
considered "Independent Plan Fiduciaries." In addition,
Shearson Lehman
requests that Condition (1) should read as follows in order
that it will
conform to the other General Conditions:
The participation of plans in the TRAK Program will be
approved by an
Independent Plan Fiduciary.
To clarify that Sub-Advisers act for the Trust after having
been approved by
the Trust in accordance with the terms of section 15(a) and
(c) of the
Investment Company Act of 1940, as amended (the 1940 Act),
or any exemption
granted by the Securities and Exchange Commission, Shearson
Lehman recommends
that Condition (8) of the General Conditions be modified to
read as follows:
Any sub-adviser (the Sub-Adviser) that acts for the Trust
to exercise
investment discretion over a Portfolio will be independent
of Shearson Lehman
and its affiliates.
In the case of a Plan covering one or more employees of the
Plan sponsor (such
as a Section 404(c) Plan), Shearson Lehman notes that
Condition (10) requires
only that the investment advisory fee paid by the Plan be
offset in the manner
described in the condition (i.e., the offset will be
determined based on the
aggregate investment of the Plan accounts). Shearson Lehman
represents that it
does not have control over how the Plan, for internal
expenses, allocates the
offset among individual accounts. As long as the fee is
offset at the Plan
level, Shearson Lehman represents that it cannot be
construed to have any
economic incentive to provide investment allocation advice
favoring one
Portfolio over another.
Shearson Lehman observes that several of the General
Conditions refer to
"Shearson Lehman and its affiliates" but the Notice does not
define the term
"affiliate." After giving due consideration to this comment,
the Department has
determined to add a new Section III to the exemption titled
"Definitions" in
which the terms "affiliate," and "Independent Plan
Fiduciary" are defined as
follows:
An "affiliate" of Shearson Lehman includes (a) any person
directly or
indirectly through one or more intermediaries, controlling,
controlled by, or
under common control with Shearson Lehman (For purposes of
this subsection, the
term "control" means the power to exercise a controlling
influence over the
management of policies of a person other than an
individual.) (b) any officer,
director or partner in such person, and (c) any corporation
or partnership of
which such person is an officer, director or a 5 percent
partner or owner.
An "Independent Plan Fiduciary" is a Plan fiduciary which
is independent of
Shearson Lehman and its affiliates and is either (a) a Plan
administrator,
trustee or named fiduciary, as the recordholder of Trust
shares of a Section
404(c) Plan, (b) a participant in a Keogh Plan, (c) an
individual covered under
a self-directed IRA which invests in Trust shares, or (d) a
trustee, investment
manager or named fiduciary responsible for investment
decisions in the case of
a Title I Plan that does not permit individual direction as
contemplated by
section 404(c) of the Act.
With respect to modifications to the Summary of Facts and
Representations,
Shearson Lehman represents that the first paragraph of Item
1 of the Notice
which was based on the application for exemption confuses
the descriptions of
Shearson Holdings, Shearson Lehman and Shearson Lehman
Brothers. Accordingly,
Shearson Lehman requests that the third, fourth and fifth
sentences of that
paragraph be amended to read as follows:
B-10
<PAGE>
Shearson Holdings conducts its principal businesses through
two divisions of
Shearson Lehman--Shearson Lehman Brothers and Lehman
Brothers. Shearson Lehman
Brothers is responsible for individual investor services and
asset management
while Lehman Brothers is responsible for securities
underwriting, financial
advisory, investment and merchant banking services and
securities and
commodities trading as principal and agent. Shearson Lehman
is a member of all
principal securities and commodities exchanges in the United
States and the
National Association of Securities Dealers, Inc.
Shearson Lehman also wishes to update the second sentence
of the second
paragraph under Item 2 of the Notice by noting that the
Balanced Investments
Portfolio is expected to be offered in July 1992 at an
initial per share value
of $8.00.
In order that Footnote 1 of the Notice more closely tracks
the language of
Condition (9). Shearson Lehman suggests the following
modification:
Because a Portfolio is not precluded from investing in
securities that are
issued by Shearson Lehman or its affiliates. Shearson Lehman
represents that,
as a limitation, immediately following the acquisition by a
Portfolio of any
securities that are issued by Shearson Lehman and/or its
affiliates, the
percentage of that Portfolio's net assets invested in such
securities will not
exceed one percent.
Since Shearson Lehman cannot assure that Section 404(c)
Plans participating in
the TRAK Program will pass through voting rights to
participants on a pro rata
basis, it recommends that the second paragraph of Footnote 2
of the Notice be
amended to read as follows:
In the case of individual account plans such as Section
404(c) Plans, Shearson
Lehman believes that most Plans will pass-through the vote
to participants on a
pro rata basis.
Shearson Lehman also represents that it may serve as
prototype sponsor for
Plans participating in the TRAK Program. Therefore, the
third sentence of the
second paragraph under Item 3 of the Notice should be
amended by adding the
following language:
Accordingly, Shearson Lehman has requested prospective
exemptive relief from
the Department with respect to the purchase and redemption
of shares in the
Trust by participating Plans which it does not sponsor
(other than only as
prototype sponsor) of have discretionary investment
authority over the Plan's
assets which would be invested in Trust shares.
To clarify that Plans for which Shearson Lehman has a pre-
existing
relationship will be able to participate in TRAK, Shearson
Lehman asks that the
second sentence of Footnote 4 be amended to read as follows:
The applicant further represents that although the
exemptive relief proposed
above would not permit Shearson Lehman or an affiliate,
while serving as a Plan
fiduciary with discretionary authority over the management
of a Plan's assets,
to invest in Trust shares those assets over which it
exercises discretionary
authority, a purchase or redemption of Trust shares under
such circumstances
would be permissible if made in compliance with the terms
and conditions of
Class Prohibited Transaction Exemption (PTE) 77-4 [42 FR
16732. April 8, 1977).
Shearson Lehman represents that the Trust's Board of
Directors consists of
seven members, four of whom are not affiliated with Shearson
Lehman and three
of whom are affiliated with Shearson Lehman, all in
accordance with the
provisions of section 10(b) of the 1940 Act. Accordingly,
Shearson Lehman
recommends that Item 4 of the Notice be amended to read as
follows:
Overall responsibility for the management and supervision
of the Trust and the
Portfolios rests with the Trust's Board of Trustees (the
Trustees) which
currently is comprised of seven members. The Trustees
approve all significant
agreements involving the Trust and the persons and companies
who provide
services to the Trust and the Portfolios. Three of the
Trustees and all of the
Trust's executive officers are affiliated with Shearson
Lehman and/or its
affiliates. The four remaining Trustees are not affiliated
with Shearson
Lehman.
Because the applicant now represents that not all services
described in
Footnote 7 of the Notice will be provided to every Section
404(c) Plan.
Shearson Lehman believes that an updated, clarifying
paragraph should be added
to the footnote which would read as follows:
The applicant notes that not all of the services described
in the preceding
two paragraphs will be provided to every Section 404(c)
Plan. The services
provided to each Plan will depend on the arrangement
negotiated between
Shearson Lehman and the Independent Plan Fiduciary.
Shearson Lehman represents that it cannot assure that the
Plan administrator,
trustee or named fiduciary of a Section 404(c) Plan will
make available a copy
of the Trust Prospectus to each participant. Therefore, it
requests that
Footnote 8 of the Notice be amended to read as follows:
In the case of a Section 404(c) Plan, the applicant
represents that the Plan
administrator, trustee or named fiduciary, as the
recordholder of Trust shares,
will receive a copy of the Trust Prospectus. If requested by
such Plan
administrator, trustee or named fiduciary, Shearson Lehman
will make available
to such Independent Plan Fiduciary sufficient quantities of
Prospectuses for a
distribution to Plan participants, as well as provide
Statements of Additional
Information to any party upon request.
Item 15 of the Notice inadvertently states that investors
in the TRAK Program
may exchange Portfolio shares with one another. Shearson
Lehman wishes to
clarify that the first sentence of Item 15 should be amended
to read as
follows:
Shares of a Portfolio may be exchanged by an investor,
without any exchange
fee, for shares of another Portfolio at their respective net
asset values.
Shearson Lehman states that PTE 77-3 applies only to
employee benefit plans
and is, therefore, inapplicable to IRAs maintained by
employees of Shearson
Lehman or its affiliates. In addition, Shearson Lehman
states that it does not
currently charge an outside fee for such IRA accounts but it
may do so in the
future. Accordingly, Shearson Lehman recommends that the
first and last
sentences of Footnote 13 of the Notice be amended to read as
follows:
The applicant represents that the outside fee is not
currently imposed on
accounts of American Express and its subsidiaries, including
Shearson Lehman,
accounts of their immediate families and IRAs and certain
employee pension
benefit plans for these persons * * * With respect to
employee pension benefit
plans maintained by Shearson Lehman or its affiliates for
their employees, the
applicant asserts that such waiver would be required by PTE
77-3.
With respect to the TRAK fee structure described in the
Notice in Item 18 and
the accompanying example, Shearson Lehman wishes to make two
clarifications.
First, because the TRAK fee and corresponding fee offset for
a calendar quarter
are based on the "net asset value" of Trust Portfolio shares
at the end of the
immediately preceding calendar quarter rather than the
"average daily value" of
Trust Portfolio shares, Shearson Lehman requests that the
first sentence of the
example be amended to read as follows:
Assume that as of March 31, 1992, the net asset value of
Trust Portfolio
shares held by a Plan Investor was $2,000.
Second, Shearson Lehman has updated its submission by
representing that the
last parenthetical of the last paragraph of the example
should not refer to the
"Statement of Additional Information" but should instead
refer to the "TRAK
Program Description."
B-11
<PAGE>
Therefore, Shearson Lehman recommends that the parenthetical
read as follows:
(pursuant to the authorization contained in the TRAK
Investment Advisory
Agreement, and as described in the TRAK Program Description
appended to the
Prospectus)
Finally, Shearson Lehman suggests that Clause (e) under
Item 19 should be
modified to track the language of Condition (5) as follows:
the Consulting Group will provide written documentation to
an Independent Plan
Fiduciary of its recommendations or evaluations based on
objective criteria.
The Department has reviewed the clarifications and
amendments as described
above, and concurs with these changes. Accordingly, upon
consideration of the
entire record, including the written comment received, the
Department has
determined to grant the exemption subject to the
aforementioned changes.
B-12
<PAGE>
- ------------------------------------------------------------
- --------------------
[APPLICATION NOS. D-9337 AND D-9415]
SMITH BARNEY SHEARSON (SBS), LOCATED IN NEW YORK, NY
NEW AGENCY: Pension and Welfare Benefits Administration,
Labor.
ACTION: Notice of proposed exemption to modify and replace
prohibited
transaction exemption (PTE) 92-77 involving Shearson Lehman
Brothers, Inc.
(Shearson Lehman).
- ------------------------------------------------------------
- --------------------
SUMMARY: This document contains a notice of pendency before
the Department of
Labor (the Department) of a proposed individual exemption
which, if granted,
would replace PTE 92-77 (55 FR 45833, October 5, 1992). PTE
92-77 permits the
purchase or redemption of shares by an employee benefit
plan, an individual
retirement account (the IRA) or a retirement plan for a self-
employed
individual (the Keogh Plan; collectively the Plans) in the
Trust for TRAK
Investments (the Trust) established by Shearson Lehman, in
connection with such
loans' participation in the TRAK Personalized Investment
Advisory Service (the
TRAK Program). In addition, PTE 92-77 permits the provision,
by the Consulting
Group Division of Shearson Lehman (the Consulting Group), of
investment
advisory services to an independent fiduciary of a
participating Plan (the
Independent Plan Fiduciary) which may result in such
fiduciary's selection of a
portfolio (the Portfolio) in the TRAK Program for the
investment of Plan
assets. These transactions are described in a notice of
pendency that was
published in the Federal Register on April 3, 1992 at 57 FR
11514. PTE 92-77 is
effective as of April 3, 1992.
If granted, the proposed exemption would replace PTE 92-77,
which as discussed
below, expired by operation of the law. The new proposed
exemption would permit
the replacement of Shearson Lehman with a newly-merged
entity known as "Smith
Barney Shearson, Inc." It would also permit the adoption of
a daily-traded
collective investment fund (the GIC Fund) for Plans
providing for participant
directed investments (the Section 404(c) Plans). The
proposed exemption would
provide conditional relief that is identical to that
provided by PTE 92-77. In
addition, the proposed exemption would affect participants
and beneficiaries
of, and fiduciaries with respect to, Plans participating in
the TRAK Program.
DATES: Written comments and requests for a public hearing
should be received by
the Department on or before the expiration of 60 days from
the publication of
this proposed exemption in the Federal Register. If granted,
the proposed
exemption will be effective July 31, 1993 for transactions
that are covered by
PTE 92-77. With respect to transactions involving the GIC
Fund, the proposed
exemption will be effective as of the date the grant notice
is published in the
Federal Register.
ADDRESSES: All written comments and requests for a public
hearing (preferably,
three copies) should be sent to the Office of Exemption
Determinations, Pension
and Welfare Benefits Administration, Room N-5849, U.S.
Department of Labor, 200
Constitution Avenue, NW., Washington, DC 20210. Attention:
Application Nos. D-
9337 and D-9415. The applications pertaining to the proposed
exemption and the
comments received will be available for public inspection in
the Public
Documents Room of the Pension and Welfare Benefits
Administration. U.S.
Department of Labor, Room N-3307, 200 Constitution Avenue,
NW., Washington, DC
20210.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady, Office
of Exemption
Determinations, Pension and Welfare Benefits Administration,
U.S. Department of
Labor, telephone (202) 219-8881. (This is not a toll-free
number.)
SUPPLEMENTARY INFORMATION: Notice is hereby given of the
pendency before the
Department of a proposed exemption that would replace PTE 92-
77. PTE 92-77
provides an exemption from certain prohibited transaction
restrictions of
section 406 of the Employee Retirement Income Security Act
of 1974 (the Act)
and from the sanctions resulting from the application of
section 4975 of the
Internal Revenue Code of 1986 (the Code), as amended, by
reason of section
4975(c)(1) of the Code. The proposed exemption was requested
in an application
filed by SBS pursuant to section 408(a) of the Act and
section 4975(c)(2) of
the Code, and in accordance with the procedures (the
Procedures) set forth in
29 CFR Part 2570, Subpart 3 (55 FR 32836, August 10, 1990).
Effective December
31, 1978, section 102 of Reorganization Plan No. 4 of 1978
(43 FR 47713,
October 17, 1978) transferred the authority of the Secretary
of the Treasury to
issue exemptions of the type requested to the Secretary of
Labor. Accordingly,
this proposed replacement exemption is being issued solely
by the Department.
As stated briefly above, PTE 92-77 allows Shearson Lehman
to make the TRAK
Program available to Plans that acquire shares in the Trust
subject to certain
conditions. Specifically, PTE 92-77 provides exemptive
relief from section
406(a) of the Act and the sanctions resulting from the
application of section
4975 of the Code, by reason of section 4975(c)(1) (A)
through (D) of the Code,
with respect to the purchase or redemption of shares in the
Trust by Plans
investing therein. In addition, PTE 92-77 provides exemptive
relief from the
restrictions of section 408(b)(1) and (b)(2) of the Act and
the sanctions
resulting from the application of section 4975 of the Code,
by reason of
section 4975(c)(1)(E) of the Code, with respect to the
provision, by the
Consulting Group of Shearson Lehman, of investment advisory
services to an
Independent Plan Fiduciary of a Plan participating in the
TRAK Program which
may result in such fiduciary's selection of a Portfolio in
the TRAK Program for
the investment of Plan assets.
Subsequent to the granting of PTE 92-77, Shearson Lehman
informed the
Department that it had signed an asset purchase agreement
with Primerica
Corporation (Primerica) and Smith Barney Harris Upham &
Company, Inc. (Smith
Barney), an indirect wholly owned subsidiary. The terms of
the agreement
provided for the sale of substantially all of the assets of
Shearson Lehman and
its Asset Management Divisions (collectively, the Shearson
Divisions) to Smith
Barney./1/ The transaction was completed on July 31, 1993.
As a result of the
transaction, most of the assets and business of the Shearson
Divisions were
transferred to Smith Barney which, upon merger with Shearson
Lehman, was
renamed "Smith Barney Shearson." (Smith Barney Shearson is
denoted herein as
SBS.) Shearson Lehman received cash and an interest-bearing
note from SBS. As
further consideration for the asset sale, SBS agreed to pay
future contingent
amounts based upon the combined performance of SBS and
certain other Shearson
Divisions acquired from Shearson Lehman. Shearson Lehman
also assigned to the
American Express Company (American Express) the right to
receive 2.5 million
shares of certain convertible preferred stock issued by
Primerica and a
warrant. As consideration for the assignment, American
Express agreed to pay
Shearson Lehman for the stock and the warrant based on their
value as of March
12, 1993, the date of the Asset Purchase Agreement. At
present, SBS offers the
TRAK Program to investors through one or more of its
subsidiaries or divisions.
Since PTE 92-77 was granted, SBS informed the Department
that it wished to
modify the exemption in order to improve the TRAK Program
and make it more
responsive to the needs of investors. Specifically, SBS
proposes to add to the
Portfolios currently available under
- -------
/1/ Shearson Lehman's other primary division, Lehman
Brothers, which is
responsible for securities underwriting, financial advisory,
investment and
merchant banking services and commodities trading as a
principal and agent has
been retained by Shearson Lehman it has been renamed "Lehman
Brothers Inc."
B-13
<PAGE>
the TRAK Program, the GIC Fund, which is designed to invest
primarily in
guaranteed investment contracts (the GIC's), synthetic GIC
products and/or
units of other GIC collective funds. The GIC Fund will not
differ in any
material respects from the Government Money Investments
Portfolio which
generally permits daily redemptions of its shares. In
addition, the GIC Fund
will operate in a manner that is consistent with the
requirements of PTE 92-77.
SBS believes it is important to offer the GIC Fund to
Section 404(c) Plans
because these Plans may prefer to offer participants this
type of investment
option instead of the Government Money Investments Portfolio
presently offered
to such Plans under the TRAK Program. Therefore, SBS
requests exemptive relief
in order that the GIC Fund may be added to the Portfolios
that are available
under the Trust.
The proposed GIC Fund will be a collective trust fund
established and
maintained by Smith Barney Shearson Trust Company (SBS
Trust), a wholly owned
subsidiary of Primerica. The GIC Fund will invest primarily
in a portfolio of
GICs with varying maturities issued by highly-rated
insurance companies, and/or
units of other collective funds invested in GICs. The GIC
Fund may also invest
in asset-backed investment products designed to offer risk
and return
characteristics similar to those of GICs (i.e., synthetic
GIC products). In
addition, the GIC Fund may hold short-term, low risk
securities where the
investment of all fund assets in GICs and/or units of other
GIC collective
funds is not feasible.
SBS Trust will serve as the trustee of the GIC Fund. SBS
Trust will employ a
sub-adviser (the Sub-Adviser) which is independent of SBS
and its affiliates to
make recommendations on purchases of GICs and/or units of
other GIC collective
funds. Currently, SBS Trust employs Morley Capital
Management (Morley Capital)
of Lake Oswego, Oregon as the Sub-Adviser of the GIC Fund.
SBS Trust will also
employ Boston Company Investors Services Group (ISG), a
business group of The
Boston Company to provide custody and valuation services and
The Shareholder
Services Group, Inc. (TSSG), an entity which is indirectly
owned by American
Express, as transfer agent. Both ISG and TSSG are not
affiliated with SBS.
SBS represents that the GIC Fund will not pay a management
or other similar
fee to it or SBS Trust. (SBS Trust's fees for general trust
services provided
to a Section 404(c) Plan is included in such plan's
investment advisory or
"outside" fee.) A management fee may be paid to Morley
Capital or any other
Sub-Adviser which is independent of SBS and its affiliates.
The GIC Fund will
pay ISG, as custodian and provider of fund valuation
services, a fee for such
services, and TSSG, as transfer agent, a fee of $8.50 to
$9.50 per Section
404(c) Plan, plus out-of-pocket expenses. With respect to
the fees paid to SBS
and its affiliates, the GIC Fund will not differ materially
from the Government
Money Investments Portfolio in that it will not pay a
management or other
similar fee to SBS or SBS Trust.
SBS will describe the GIC Fund, in the prospectus (the
Prospectus) and
promotional materials it furnishes to Section 404(c) Plan
participants who are
interested in investing in the GIC Fund. Such disclosures
will reflect, in all
material respects, the information discussed above.
Because of the foregoing material changes to the factual
representations
supporting PTE 92-77, the Department has determined that the
prior exemption
was no longer effective as of July 31, 1993, the date
Shearson Lehman sold the
assets described above to SBS. Thus, the Department is of
the view that PTE 92-
77 would be unavailable for use by SBS and its subsidiaries
with respect to the
subject transactions.
Accordingly, the Department has decided to publish a new
exemption which, if
granted, would replace PTE 92-77. Under the replacement
exemption, all
references to Shearson Lehman would be replaced with
references to SBS. In
addition, the replacement exemption would incorporate the
new GIC Fund, SBS
Trust, ISG and TSSG. Further, the replacement exemption
would have an effective
date of July 31, 1993 for transactions described in PTE 92-
77. With respect to
transactions involving the GIC Fund, the replacement
exemption would become
effective as of the date of the grant of the notices of
pendency.
NOTICE TO INTERESTED PERSONS
Notice of the proposed exemption will be mailed by first
class mail to each
Plan which invests in the TRAK Program. The notice will
contain a copy of the
notice of proposed exemption as published in the Federal
Register and an
explanation of the rights of interested persons to comment
on and/or request
such a hearing with respect thereto. Such notice will be
sent to the above-
named parties within 30 days of the publication of the
proposed exemption in
the Federal Register. Written comments and hearing request
are due within 60
days of the publication of the proposed exemption in the
Federal Register.
GENERAL INFORMATION
The attention of interested persons is directed to the
following:
(1) This fact that a transaction is the subject of an
exemption under section
408(a) of the Act and section 4973(c)(2) of the Code does
not relieve a
fiduciary or other party in interest or disqualified person
from certain other
provisions of the Act and the Code, including any prohibited
transaction
provisions to which the exemption does not apply and the
general fiduciary
responsibility provisions of section 404 of the Act, which
require, among other
things, a fiduciary to discharge his or her duties
respecting the plan solely
in the interest of the participants and beneficiaries of the
plan and in a
prudent fashion in accordance with section 404(a)(1)(B) of
the Act; nor does it
affect the requirements of section 401(a) of the Code that
the Plan operate for
the exclusive benefit of the employees of the employer
maintaining the plan and
their beneficiaries;
(2) Before an exemption can be granted under section 408(a)
of the Act and
section 4975(c)(2) of the Code, the Department must find
that the exemption is
administratively feasible, in the interest of the plan and
of its participants
and beneficiaries and protective of the rights of
participants and
beneficiaries of the plan; and
(3) The proposed exemption, if granted, will be
supplemental to, and not in
derogation of, any other provisions of the Act and the Code,
including
statutory or administrative exemptions. Furthermore, the
fact that a
transaction is subject to an administrative or statutory
exemption is not
dispositive of whether the transaction is in fact a
prohibited transaction.
(4) In addition to transactions involving the GIC Fund, the
proposed
exemption, if granted, will be applicable to the
transactions previously
described in PTE 92-77 only if the conditions specified
therein are met.
WRITTEN COMMENTS AND HEARING REQUESTS
All interested persons are invited to submit written
comments or requests for
a hearing on the proposed replacement exemption to the
address above, within
the time period set forth above. All comments will be made a
part of the
record. Comments and requests for a hearing should state the
reasons for the
writer's interest in the proposed exemption. Comments
received will be
available for public inspection with the referenced
applications at the address
set forth above.
PROPOSED EXEMPTION
Under the authority of section 408(a) of the Act and
section 4975(c)(2) of the
Code and in accordance with the Procedures cited above,
B-14
<PAGE>
the Department proposes to replace PTE 92-77 as follows:
Section 1. Covered Transactions
(a) The restrictions of section 406(a) of the Act and the
sanctions resulting
from the application of section 4975 of the Code, by reason
of section
4975(c)(1)(A) through (D) of the Code, shall not apply to
the purchase or
redemption of shares by Plans in the SBS-established Trust
in connection with
such Plans' participation in the TRAK Personalized
Investment Advisory Service.
(b) The restrictions of action 406(b) of the Act and the
sanctions resulting
from the application of section 4975 of the Code by reason
of section
4975(c)(1)(E) and (F) of the Code, shall not apply to the
provision, by the
Consulting Group, of investment advisory services to an
Independent Plan
Fiduciary of a participating Plan which may result in such
fiduciary's
selection of a Portfolio in the TRAK Program for the
investment of Plan assets.
The proposed exemption is subject to the following
conditions that are set
forth in Section II.
Section II. General Conditions
(a) The participation of Plans in the TRAK Program will be
approved by an
Independent Plan Fiduciary. For purposes of this
requirement, an employee,
officer or director of SBS and/or its affiliates covered by
an IRA not subject
to Title I of the Act will be considered an Independent Plan
Fiduciary with
respect to such IRA.
(b) The total fees paid to the Consulting Group and its
affiliates will
constitute no more than reasonable compensation.
(c) No Plan will pay a fee or commission by reason of the
acquisition or
redemption of shares in the Trust.
(d) The terms of each purchase or redemption of Trust
shares shall remain at
least as favorable to an investing Plan as those obtainable
in an arm's length
transaction with an unrelated party.
(e) The Consulting Group will provide written documentation
to an Independent
Plan Fiduciary of its recommendations or evaluations based
upon objective
criteria.
(f) Any recommendation or evaluation made by the Consulting
Group to an
Independent Plan Fiduciary will be implemented only at the
express direction of
such independent fiduciary.
(g) The Consulting Group will generally give investment
advice in writing to
an Independent Plan Fiduciary with respect to all available
Portfolios.
However, in the case of a Section 404(c) Plan, the
Consulting Group will
provide investment advice that is limited to the Portfolios
made available
under the Plan.
(h) Any Sub-Adviser that acts for the Trust to exercise
investment discretion
over a Portfolio will be independent of SBS and its
affiliates.
(i) Immediately following the acquisition by a Portfolio of
any securities
that are issued by SBS and/or its affiliates, the percentage
of that
Portfolio's net assets invested in such securities will not
exceed one percent.
(j) The quarterly investment advisory fee that is paid by a
Plan to the
Consulting Group for investment advisory services rendered
to such Plan will be
offset by such amount as is necessary to assure that the
Consulting Group
retains no more than 20 basis points from any Portfolio
(with the exception of
the Government Money Investments Portfolio and the GIC Fund
Portfolio for which
the Consulting Group and SBS Trust will retain no investment
management fee)
which contains investments attributable to the Plan
investor.
(k) With respect to its participation in the TRAK Program
prior to purchasing
Trust shares.
(1) Each Plan will receive the following written or oral
disclosures from the
Consulting Group:
(A) A copy of the Prospectus for the Trust discussing the
investment
objectives of the Portfolios comprising the Trust, the
policies employed to
achieve these objectives, the corporate affiliation existing
between the
Consulting Group, SBS and its subsidiaries and the
compensation paid to such
entities.
(B) Upon written or oral request to SBS, a Statement of
Additional Information
supplementing the Prospectus which describes the types of
securities and other
instruments in which the Portfolios may invest, the
investment policies and
strategies that the Portfolios may utilize and certain risks
attendant to those
investments, policies and strategies.
(C) A copy of the investment advisory agreement between the
Consulting Group
and such Plan relating to participation in the TRAK Program.
(D) Upon written request of SBS, a copy of the respective
investment advisory
agreement between the Consulting Group and the Sub-Advisers.
(E) In the case of a section 404(c) Plan, if required by
the arrangement
negotiated between the Consulting Group and the Plan, an
explanation by an SBS
Financial Consultant (the Financial Consultant) to eligible
participants in
such Plan, of the services offered under the TRAK Program
and the operation and
objectives of the Portfolios.
(F) Copies of PTE 92-77 and documents pertaining to the
proposed replacement
exemption.
(2) If accepted as an investor in the TRAK Program, an
Independent Plan
Fiduciary of an IRA or Keogh Plan, is required to
acknowledge in writing, prior
to purchasing Trust shares that such fiduciary has received
copies of the
documents described above in subparagraph (k)(1) of this
section.
(3) With respect to a section 404(c) Plan, written
acknowledgement of the
receipt of such documents will be provided by the
Independent Plan Fiduciary
(i.e., the Plan administrator, trustee or named fiduciary,
as the recordholder
of Trust shares). Such Independent Plan Fiduciary will be
required to represent
in writing to SBS that such fiduciary is (a) independent of
SBS and its
affiliates and (b) knowledgeable with respect to the Plan in
administrative
matters and funding matters related thereto, and able to
make an informed
decision concerning participation in the TRAK Program.
(4) With respect to a Plan that is covered under Title I of
the Act, where
investment decisions are made by a trustee, investment
manager or a named
fiduciary, such Independent Plan Fiduciary is required to
acknowledge, in
writing, receipt of such documents and represent to SBS that
such fiduciary is
(a) independent of SBS and its affiliates, (b) capable of
making an independent
decision regarding the investment of Plan assets and (c)
knowledgeable with
respect to the Plan in administrative matters and funding
matters related
thereto, and able to make an informed decision concerning
participation in the
TRAK Program.
(l) Subsequent to its participation in the TRAK Program,
each Plan receives
the following written or oral disclosures with respect to
its ongoing
participation in the TRAK Program:
(1) The Trust's semi-annual and annual report which will
include financial
statement for the Trust and investment management fees paid
by each Portfolio.
(2) A written quarterly monitoring statement containing an
analysis and an
evaluation of a Plan investor's account to ascertain whether
the Plan's
investment objectives have been met and recommending, if
required, changes in
Portfolio allocations.
(3) If required by the arrangement negotiated between the
Consulting Group and
a section 404(c) Plan, a quarterly, detailed investment
performance monitoring
report, in writing, provided to an Independent Plan
Fiduciary of such Plan
showing, Plan level asset allocation, Plan cash flow
analysis and
B-15
<PAGE>
annualized risk adjusted rates of return for Plan
investments. In addition, if
required by such arrangement, Financial Consultants will
meet periodically with
Independent Plan Fiduciaries of section 404(c) Plans to
discuss the report as
well as with eligible participants to review their accounts'
performance.
(4) If required by the arrangement negotiated between the
Consulting Group and
a section 404(c) Plan, a quarterly participant performance
monitoring report
provided to a Plan participant which accompanies the
participant's benefit
statement and describes the investment performance of the
Portfolios, the
investment performance of the participant's individual
investment in the TRAK
Program, and gives market commentary and toll-free numbers
that will enable the
participant to obtain more information about the TRAK
Program or to amend his
or her investment allocations.
(5) On a quarterly and annual basis, written disclosures to
all Plans of the
(a) percentage of each Portfolio's brokerage commissions
that are paid to SBS
and its affiliates and (b) the average brokerage commission
per share paid by
each Portfolio to SBS and its affiliates; as compared to the
average brokerage
commission per share paid by the Trust to brokers other than
SBS and its
affiliates, both expressed as cents per share.
(m) SBS shall maintain, for a period of six years, the
records necessary to
enable the persons described in paragraph (n) of this
section to determine
whether the conditions of this exemption have been met,
except that (1) a
prohibited transaction will not be considered to have
occurred if, due to
circumstances beyond the control of SBS and/or its
affiliates, the records are
lost or destroyed prior to the end of the six year period,
and (2) no party in
interest other than SBS shall be subject to the civil
penalty that may be
assessed under section 502(i) of the Act, or to the taxes
imposed by section
4975(a) and (b) of the Code, if the records are not
maintained, or are not
available for examination as required by paragraph (n)
below.
(n)(1) Except as provided in section (2) of this paragraph
and notwithstanding
any provisions of subsections (a)(2) and (b) of section 504
of the Act, the
records referred to in paragraph (m) of this section shall
be unconditionally
available at their customary location during normal business
hours by:
(A) Any duly authorized employee or representative of the
Department or the
Service;
(B) Any fiduciary of a participating Plan or any duly
authorized
representative of such fiduciary;
(C) Any contributing employer to any participating Plan or
any duly authorized
employee representative of such employer; and
(D) Any participant or beneficiary of any participating
Plan, or any duly
authorized representative of such participant or
beneficiary.
(2) None of the persons described above in subparagraphs
(B)-(D) of this
paragraph (n) shall be authorized to examine the trade
secrets of SBS or
commercial or financial information which is privileged or
confidential.
Section III. Definitions
For purposes of this exemption:
(a) An "affiliate" of SBS includes--
(1) Any person directly or indirectly through one or more
intermediaries,
controlling, controlled by, or under common control with
SBS. (For purposes of
this subsection, the term "control" means the power to
exercise a controlling
influence over the management or policies of a person other
than an
individual.)
(2) Any officer, director or partner in such person, and
(3) Any corporation or partnership of which such person is
an officer,
director or a 5 percent partner or owner.
(b) An "Independent Plan Fiduciary" is a Plan fiduciary
which is independent
of SBS and its affiliates and is either--
(1) A Plan administrator, sponsor, trustee or named
fiduciary, as the
recordholder of Trust shares of a section 404(c) Plan.
(2) A participant in a Keogh Plan.
(3) An individual covered under a self-directed IRA which
invests in Trust
shares, or
(4) A trustee, investment manager or named fiduciary
responsible for
investment decisions in the case of a Title I Plan that does
not permit
individual direction as contemplated by section 404(c) of
the Act.
Section IV. Effective Dates
This exemption will be effective as of July 31, 1993,
except for transactions
involving the GIC Fund. The exemption will be effective upon
its grant with
respect to the inclusion of the GIC Fund in the TRAK
Program.
The availability of this proposed exemption is subject to
the express
condition that the material facts and representations
contained in the
applications for exemption are true and complete and
accurately describe all
material terms of the transactions. In the case of
continuing transactions, if
any of the material facts or representations described in
the applications
change, the exemption will cease to apply as of the date of
such change. In the
event of any such change, an application for a new exemption
must be made to
the Department.
For a more complete statement of the facts and
representations supporting the
Department's decision to grant PTE 92-77, refer to the
proposed exemption and
grant notice which are cited above.
Signed at Washington, D.C. this 23rd day of March, 1994.
Ivan L. Strasfeld,
Director of Exemption Determinations, Pension and Welfare
Benefits
Administration, U.S. Department of Labor.
[FR Doc. 94-7271 Filed 3-28-94; 8:45 am]
B-16
<PAGE>
- ------------------------------------------------------------
- --------------------
[PROHIBITED TRANSACTION EXEMPTION 94-45; APPLICATION NOS. D-
9337 AND D-9415]
SMITH BARNEY, INC. (SBI) LOCATED IN NEW YORK, NY
AGENCY: Pension and Welfare Benefits Administration.
ACTION: Grant of individual exemption to modify and replace
prohibited
transaction exemption (PTE) 92-77 involving Shearson Lehman
Brothers, Inc.
(Shearson Lehman).
- ------------------------------------------------------------
- --------------------
SUMMARY: This document contains an individual exemption
which supersedes PTE
92-77 (57 FR 45833, October 5, 1992)./1/ This exemption
permits the replacement
of Shearson Lehman with an entity known as "Smith Barney
Inc."/2/ It also
allows SBI to adopt a daily-traded collective investment
fund (the GIC Fund)
for Plans investing in the Consulting Group Capital Markets
Funds (the Trust).
The exemption provides conditional relief that is identical
to that provided by
PTE 92-77 and it will affect participants and beneficiaries
of, and fiduciaries
with respect to, Plans participating in the Trust.
EFFECTIVE DATE: This exemption is effective July 31, 1993
for transactions that
are covered by PTE 92-77. With respect to transactions
involving the GIC Fund,
the exemption is effective March 29, 1994.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady, Office
of Exemption
Determinations, Pension and Welfare Benefits Administration,
U.S. Department of
Labor, telephone (202) 219-8881. (This is not a toll-free
number.)
SUPPLEMENTARY INFORMATION: On March 29, 1994, the Department
of Labor (the
Department) published a notice of proposed exemption (the
Notice) in the
FEDERAL REGISTER (59 FR 14680) that would replace PTE 92-77.
PTE 92-77 provides
an exemption from certain prohibited transaction
restrictions of section 406 of
the Employee Retirement Income Security Act of 1974 (the
Act) and from the
sanctions resulting from the application of section 4975 of
the Internal Revenue
Code of 1986 (the Code), as amended, by reason of section
4975(c)(1) of the
Code. The proposed exemption was requested in an application
filed by SBI
pursuant to section 408(a) of the Act and section 4975(c)(2)
of the Code, and in
accordance with the procedures (the Procedures) set forth in
29 CFR Part 2570,
Subpart B (55 FR 32836, August 10, 1990). Effective December
31, 1978, section
102 of Reorganization Plan No. 4 of 1978 (43 FR 47713,
October 17, 1978)
transferred the authority of the Secretary of the Treasury
to issue exemptions
of the type requested to the Secretary of Labor.
Accordingly, this replacement
exemption is being issued solely by the Department.
The Notice gave interested persons an opportunity to
comment on the proposed
exemption and to request a public hearing. The only written
comments submitted
to the Department during the comment period were made by
SBI. These comments
expressed SBI's substantive concerns about the Notice and
offered suggestions
for clarifying certain language of the Notice. Discussed
below are SBI's
comments and the Department's responses thereto. Also
discussed is a comment
made by the Department.
SBI's Comments
SBI notes that there is an ambiguity regarding the
effective date of the GIC
Fund. SBI represents that the Notice provides in the last
paragraph under the
heading "Supplementary Information," that with respect to
transactions
involving the GIC Fund, the exemption "would become
effective as of the date of
the grant of the notice of pendency." However, under the
captions EFFECTIVE
DATES and DATES, SBI explains that the Notice states that
the exemption will be
effective "upon its grant," or "as of the date the grant
notice is published."
Because it was the intention of the parties that the
effective date for
transactions involving the GIC Fund would be March 29, 1994,
the date of
publication of the Notice in the FEDERAL REGISTER, SBI
requests that the
Department make the exemption retroactive to this date for
the GIC Fund.
The Department has considered SBI's comment and has made
the requested
modification.
SBI wishes to modify the exemption in order that it may
offer the GIC Fund to
both fiduciary-directed Plans as well as Plans providing for
participant-
directed investments (the Section 404(c) Plans). The
Department believes this
comment has merit and that it would be potentially
beneficial to participants
and beneficiaries since it provides different types of Plans
participating in
the TRAK Program with the opportunity to invest in the GIC
Fund.
SBI explains that in the preamble to the Notice there is a
statement to the
effect that it will "describe the GIC Fund in a prospectus
(the Prospectus) and
promotional materials that will be furnished to Section
404(c) Plan
participants." SBI represents that interests in the GIC Fund
are not subject to
the registration and Prospectus delivery requirements of the
Securities Act of
1933. Also, SBI points out that the conditions of PTE 92-77
require it to
deliver copies of the Trust Prospectus only to the Plan
administrator and not
to the individual participants. Because it has no practical
means of delivering
Prospectuses or other disclosures to participants, SBI
indicates that the
responsibility for providing these materials to participants
rests with the
Plan administrator. In this regard, SBI represents that the
disclosure
information it will make available to all Plans proposing to
invest in the GIC
Fund will include copies of the Trust Prospectus and a
separate description of
the GIC Fund's investment objectives, policies and
processes. SBI explains that
its description of the GIC Fund will be designed to provide
a participant with
sufficient information in order that the participant can
make an informed
investment decision.
The Department concurs with these comments.
In addition to principal comments discussed above, SBI has
made certain
technical clarifications and updates to the Notice in the
following areas:
(1) General.
a. Redesignations. SBI explains that effective December 31,
1993, Primerica
Corporation changed its name to "The Travelers Inc." and
that effective May 9,
1994, the "Trust for TRAK Investments" was renamed
"Consulting Group Capital
Markets Funds." Also effective June 1, 1994, "Smith Barney
Shearson Inc." was
renamed "Smith Barney Inc."
(2) Supplementary Information.
a. Asset Sale Transaction. SBI explains that the
transaction by which Smith
Barney Harris Upham & Company, Inc. (Smith Barney) acquired
Shearson Lehman and
its Asset Management Divisions was an asset sale and not a
merger. Accordingly,
SBI suggests that the fourth sentence of the third paragraph
under the heading
"Supplementary Information," read as follows: "As a result
of the transaction,
most of the assets and business of the Shearson divisions
were transferred to
- -------
/1/ PTE 92-77 provides exemptive relief from section 406(a)
of the Act and the
sanctions resulting from the application of section 4975 of
the Code, by reason
of section 4975(c)(1) (A) through (D) of the Code, with
respect to the purchase
or redemption of shares in the Trust for TRAK Investments
(which has been
redesignated as the "Consulting Group Capital Markets Funds"
and is referred to
herein as the Trust) by Plans investing therein. In
addition, PTE 92-77
provides exemptive relief from the restrictions of section
406(b)(1) and (b)(2)
of the Act and the sanctions resulting from the application
of section 4975 of
the Code, by reason of section 4975(c)(1)(E) of the Code,
with respect to the
provision, by the Consulting Group of Shearson Lehman, of
investment advisory
services to an Independent Plan Fiduciary of a Plan
participating in the TRAK
Personalized Investment Advisory Service (the TRAK Program)
which may result in
such fiduciary's selection of a Portfolio in the TRAK
Program for the
investment of Plan assets.
/2/ Effective June 1, 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."
B-17
<PAGE>
Smith Barney, which was renamed "Smith Barney Shearson Inc.'
"
b. Fees Paid to Transfer Agent. SBI represents that in the
seventh paragraph
under the heading "Supplementary Information," the Notice
states that The
Shareholder Services Group (TSSG), as transfer agent, will
charge a fee of
$8.50 to $9.50 per plan for its transfer agency services.
While these are the
current expected fee levels, SBI notes that such fees may
increase or decrease
in the future. Because TSSG is no longer an affiliate, SBI
requests that the
paragraph be amended to provide that TSSG as transfer agent
will receive a
reasonable fee for its services rather than specifying a
precise dollar amount.
(3) General Conditions.
a. Written Disclosures. Section II(k)(1)(F) of the General
Conditions of the
Notice states that SBI will provide copies of PTE 92-77 and
documents
pertaining to the proposed replacement exemption to each
Plan participating in
the TRAK Program. SBI wishes to clarify that the "documents
pertaining to the
proposed replacement exemption" refer to copies of the
Notice and, when issued,
the final exemption.
The Department concurs with the above supplemental
clarifications to the
Notice that have been made by SBI and hereby incorporates
these changes, as
well as the substantive changes also described above, by
reference into the
Notice and, where applicable, into this final exemption.
Department's Comment
Section III of the Notice, which is captioned
"Definitions," provides several
meanings of the term "Independent Plan Fiduciary" in
subparagraph (b). For
purposes of the exemption, the term "Independent Plan
Fiduciary" may include a
Plan administrator, a participant in a Keogh Plan, an
individual covered under
a self-directed IRA or a trustee of a Title I Plan that does
not permit
participant-directed investments as contemplated under
section 404(c) of the
Act. However, due to an oversight, the definition does not
extend to a
participant in a Section 404(c) Plan. Because the TRAK
Program is being
marketed as an investment alternative to Section 404(c)
Plans and the
individual participant of such Plan makes the decision on
whether to invest
therein, the Department has amended the definition of the
term "Independent
Plan Fiduciary" by providing a new subparagraph (b)(5) which
includes a Section
404(c) Plan participant.
Accordingly, after consideration of the entire exemption
record, including the
written comments, the Department has determined to grant the
replacement
exemption as modified herein.
GENERAL INFORMATION
The attention of interested persons is directed to the
following:
(1) The fact that a transaction is the subject of an
exemption under section
408(a) of the Act and section 4975(c)(2) of the Code does
not relieve a
fiduciary or other party in interest or disqualified person
from certain other
provisions of the Act and the Code, including any prohibited
transaction
provisions to which the exemption does not apply and the
general fiduciary
responsibility provisions of section 404 of the Act, which
require, among other
things, a fiduciary to discharge his or her duties
respecting the plan solely
in the interest of the participants and beneficiaries of the
plan and in a
prudent fashion in accordance with section 404(a)(1)(B) of
the Act; nor does it
affect the requirements of section 401(a) of the Code that
the plan operate for
the exclusive benefit of the employees of the employer
maintaining the plan and
their beneficiaries;
(2) In accordance with section 408(a) of the Act and
section 4975(c)(2) of the
Code, the Department has found that the exemption is
administratively feasible,
in the interest of the Plans and their participants and
beneficiaries and
protective of the rights of participants and beneficiaries
of the Plans; and
(3) The exemption is supplemental to, and not in derogation
of, any other
provisions of the Act and the Code, including statutory or
administrative
exemptions. Furthermore, the fact that a transaction is
subject to an
administrative or statutory exemption is not dispositive of
whether the
transaction is in fact a prohibited transaction.
(4) In addition to transactions involving the GIC Fund, the
exemption is
applicable to the transactions previously described in PTE
92-77 only if the
conditions specified therein are met.
EXEMPTION
Under the authority of section 408(a) of the Act and
section 4975(c)(2) of the
Code and in accordance with the Procedures cited above, the
Department hereby
replaces PTE 92-77 as follows:
Section I. Covered Transactions
(a) The restrictions of section 406(a) of the Act and the
sanctions resulting
from the application of section 4975 of the Code, by reason
of section
4975(c)(1)(A) through (D) of the Code, shall not apply to
the purchase or
redemption of shares by Plans in the SBI-established Trust
in connection with
such Plans' participation in the TRAK Personalized
Investment Advisory Service.
(b) The restrictions of section 406(b) of the Act and the
sanctions resulting
from the application of section 4975 of the Code by reason
of section
4975(c)(1)(E) and (F) of the Code, shall not apply to the
provision, by the
Consulting Group, of investment advisory services to an
Independent Plan
Fiduciary of a participating Plan which may result in such
fiduciary's
selection of a Portfolio in the TRAK Program for the
investment of Plan assets.
The exemption is subject to the following conditions that
are set forth in
Section II.
Section II. General Conditions
(a) The participation of Plans in the TRAK Program will be
approved by an
Independent Plan Fiduciary. For purposes of this
requirement, an employee,
officer or director of SBI and/or its affiliates covered by
an IRA not subject
to Title I of the Act will be considered an Independent Plan
Fiduciary with
respect to such IRA.
(b) The total fees paid to the Consulting Group and its
affiliates will
constitute no more than reasonable compensation.
(c) No Plan will pay a fee or commission by reason of the
acquisition or
redemption of shares in the Trust.
(d) The terms of each purchase or redemption of Trust
shares remain at least
as favorable to an investing Plan as those obtainable in an
arm's length
transaction with an unrelated party.
(e) The Consulting Group will provide written documentation
to an Independent
Plan Fiduciary of its recommendations or evaluations based
upon objective
criteria.
(f) Any recommendation or evaluation made by the Consulting
Group to an
Independent Plan Fiduciary will be implemented only at the
express direction of
such independent fiduciary.
(g) The Consulting Group will generally give investment
advice in writing to
an Independent Plan Fiduciary with respect to all available
Portfolios.
However, in the case of a Section 404(c) Plan, the
Consulting Group will
provide investment advice that is limited to the Portfolios
made available
under the Plan.
(h) Any Sub-Adviser that acts for the Trust to exercise
investment discretion
over a Portfolio will be independent of SBI and its
affiliates.
(i) immediately following the acquisition by a Portfolio of
any securities
that are issued by SBI and/or its affiliates, the percentage
of that
Portfolio's net assets invested in such securities will not
exceed one percent.
(j) The quarterly investment advisory fee that is paid by a
Plan to the
Consulting Group for investment advisory services rendered
to
B-18
<PAGE>
such Plan will be offset by such amount as is necessary to
assure that the
Consulting Group retains no more than 20 basis points from
any Portfolio (with
the exception of the Government Money Investments Portfolio
and the GIC Fund
Portfolio for which the Consulting Group and SBI Trust will
retain no
investment management fee) which contains investments
attributable to the Plan
investor.
(k) With respect to its participation in the TRAK Program
prior to purchasing
Trust shares.
(1) Each Plan will receive the following written or oral
disclosures from the
Consulting Group:
(A) A copy of the Prospectus for the Trust discussing the
investment
objectives of the Portfolios comprising the Trust, the
policies employed to
achieve these objectives, the corporate affiliation existing
between the
Consulting Group, SBI and its subsidiaries and the
compensation paid to such
entities./3/
(B) Upon written or oral request to SBI, a Statement of
Additional Information
supplementing the Prospectus which describes the types of
securities and other
instruments in which the Portfolios may invest, the
investment policies and
strategies that the Portfolios may utilize and certain risks
attendant to those
investments, policies and strategies.
(C) A copy of the investment advisory agreement between the
Consulting Group
and such Plan relating to participation in the TRAK Program.
(D) Upon written request of SBI, a copy of the respective
investment advisory
agreement between the Consulting Group and the Sub-Advisers.
(E) In the case of a Section 404(c) Plan, if required by
the arrangement
negotiated between the Consulting Group and the Plan, an
explanation by an SBI
Financial Consultant (the Financial Consultant) to eligible
participants in
such Plan, of the services offered under the TRAK Program
and the operation and
objectives of the Portfolios.
(F) Copies of PTE 92-77 and documents pertaining to the
replacement exemption.
(2) If accepted as an investor in the TRAK Program, an
Independent Plan
Fiduciary of an IRA or Keogh Plan, is required to
acknowledge, in writing, prior
to purchasing Trust shares that such fiduciary has received
copies of the
documents described above in subparagraph (k)(1) of this
Section.
(3) With respect to a Section 404(c) Plan, written
acknowledgement of the
receipt of such documents will be provided by the
Independent Plan Fiduciary
(i.e., the Plan administrator, trustee or named fiduciary,
as the recordholder
of Trust shares). Such Independent Plan Fiduciary will be
required to represent
in writing to SBI that such fiduciary is (a) independent of
SBI and its
affiliates and (b) knowledgeable with respect to the Plan in
administrative
matters and funding matters related thereto, and able to
make an informed
decision concerning participation in the TRAK Program.
(4) With respect to a Plan that is covered under Title I of
the Act, where
investment decisions are made by a trustee, investment
manager or a named
fiduciary, such Independent Plan Fiduciary is required to
acknowledge, in
writing, receipt of such documents and represent to SBI that
such fiduciary is
(a) independent of SBI and its affiliates, (b) capable of
making an independent
decision regarding the investment of Plan assets and (c)
knowledgeable with
respect to the Plan in administrative matters and funding
matters related
thereto, and able to make an informed decision concerning
participation in the
TRAK Program.
(l) Subsequent to its participation in the TRAK Program,
each Plan receives
the following written or oral disclosures with respect to
its ongoing
participation in the TRAK Program:
(1) The Trust's semi-annual and annual report which will
include financial
statement for the Trust and investment management fees paid
by each Portfolio.
(2) A written quarterly monitoring statement containing an
analysis and an
evaluation of a Plan investor's account to ascertain whether
the Plan's
investment objectives have been met and recommending, if
required, changes in
Portfolio allocations.
(3) If required by the arrangement negotiated between the
Consulting Group and
a Section 404(c) Plan, a quarterly, detailed investment
performance monitoring
report, in writing, provided to an Independent Plan
Fiduciary of such Plan
showing, Plan level asset allocations, Plan cash flow
analysis and annualized
risk adjusted rates of return for Plan investments. In
addition, if required by
such arrangement, Financial Consultants will meet
periodically with Independent
Plan Fiduciaries of Section 404(c) Plans to discuss the
report as well as with
eligible participants to review their accounts' performance.
(4) If required by the arrangement negotiated between the
Consulting Group and
a Section 404(c) Plan, a quarterly participant performance
monitoring report
provided to a Plan participant which accompanies the
participant's benefit
statement and describes the investment performance of the
Portfolios, the
investment performance of the participant's individual
investment in the TRAK
Program, and gives market commentary and toll-free numbers
that will enable the
participant to obtain more information about the TRAK
Program or to amend his
or her investment allocations.
(5) On a quarterly and annual basis, written disclosures to
all Plans of the
(a) percentage of each Portfolio's brokerage commissions
that are paid to SBI
and its affiliates and (b) the average brokerage commission
per share paid by
each Portfolio to SBI and its affiliates, as compared to the
average brokerage
commission per share paid by the Trust to brokers other than
SBI and its
affiliates, both expressed as cents per share.
(m) SBI shall maintain, for a period of six years, the
records necessary to
enable the persons described in paragraph (n) of this
Section to determine
whether the conditions of this exemption have been met,
except that (1) a
prohibited transaction will not be considered to have
occurred if, due to
circumstances beyond the control of SBI and/or its
affiliates, the records are
lost or destroyed prior to the end of the six year period,
and (2) no party in
interest other than SBI shall be subject to the civil
penalty that may be
assessed under section 502(i) of the Act, or to the taxes
imposed by section
4975(a) and (b) of the Code, if the records are not
maintained, or are not
available for examination as required by paragraph (n)
below.
(n)(1) Except as provided in section (2) of this paragraph
and notwithstanding
any provisions of subsections (a)(2) and (b) of section 504
of the Act, the
records referred to in paragraph (m) of this Section shall
be unconditionally
available at their customary location during normal business
hours by:
(A) Any duly authorized employee or representative of the
Department or the
Internal Revenue Service;
(B) Any fiduciary of a participating Plan or any duly
authorized
representative of such fiduciary;
(C) Any contributing employer to any participating Plan or
any duly authorized
employee representative of such employer; and
(D) Any participant or beneficiary of any participating
Plan, or any duly
authorized representative of such participant or
beneficiary.
- -------
/3/ The fact that certain transactions and fee arrangements
are the subject of
an administrative exemption does not relieve the Independent
Plan Fiduciary
from the general fiduciary responsibility provisions of
section 404 of the Act.
In this regard, the Department expects the Independent Plan
Fiduciary to
consider carefully the totality of fees and expenses to be
paid by the Plan
including the fees paid directly to SBI or to other third
parties and paid
directly through the Trust to SBI.
B-19
<PAGE>
(2) None of the persons described above in subparagraphs
(B)-(D) of this
paragraph (n) shall be authorized to examine the trade
secrets of SBI or
commercial or financial information which is privileged or
confidential.
Section III. Definitions
For purposes of this exemption:
(a) An "affiliate" of SBI includes--
(1) Any person directly or indirectly through one or more
intermediaries,
controlling, controlled by, or under common control with
SBI. (For purposes of
this subsection, the term "control" means the power to
exercise a controlling
influence over the management or policies of a person other
than an
individual.)
(2) Any officer, director or partner in such person, and
(3) Any corporation or partnership of which such person is
an officer,
director or a 5 percent partner or owner.
(b) An "Independent Plan Fiduciary" is a Plan fiduciary
which is independent
of SBI and its affiliates and is either
(1) A Plan administrator, sponsor, trustee or named
fiduciary, as the
recordholder of Trust shares of a Section 404(c) Plan,
(2) A participant in a Keogh Plan,
(3) An individual covered under a self-directed IRA which
invests in Trust
shares,
(4) A trustee, investment manager or named fiduciary
responsible for
investment decisions in the case of a Title I Plan that does
not permit
individual direction as contemplated by Section 404(c) of
the Act, or
(5) A participant in a Section 404(c) Plan.
Section IV. Effective Dates
This exemption will be effective as of July 31, 1993,
except for transactions
involving the GIC Fund. The exemption will be effective
March 29, 1994 with
respect to the inclusion of the GIC Fund in the TRAK
Program.
The availability of this exemption is subject to the
express condition that
the material facts and representations contained in the
applications for
exemption are true and complete and accurately describe all
material terms of
the transactions. In the case of continuing transactions, if
any of the
material facts or representations described in the
applications change, the
exemption will cease to apply as of the date of such change.
In the event of
any such change, an application for a new exemption must be
made to the
Department.
For a more complete statement of the facts and
representations supporting the
Department's decision to grant PTE 92-77, refer to the
proposed exemption and
grant notice which are cited above.
Signed at Washington, DC, this 16th day of June 1994.
Ivan L. Strasfeld,
Director of Exemption Determinations, Pension and Welfare
Benefits
Administration, U.S. Department of Labor.
[FR Doc. 94-15006 Filed 6-20-94; 8:45 am]
BILLING CODE 4510-28-P
B-20
<PAGE>
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 December
31, 1995, the
Consulting Group and the Consulting Services Division
provided services with
respect to over $85 billion in client assets representing
more than 215,000
separate accounts under a variety of programs designed for
individual and
institutional investors.
GETTING STARTED
Getting started is easy. Prospective clients should make
an appointment to
speak with a Financial Consultant. The Financial Consultant
will assist in the
preparation of a Request. After the prospective client
completes the Request,
the Financial Consultant will forward this document for
evaluation and
processing by the Consulting Group. When the Consulting
Group completes its
review, the Financial Consultant will review the
Recommendation with the
client and provide the client with a copy of this
description of TRAK together
with the accompanying Prospectus of the Trust and a copy of
the form of
investment advisory agreement between the Consulting Group
and the client
relating to participation in TRAK, as well as a copy of that
agreement for the
client's records. Upon the client's execution of the
investment advisory
agreement and its acceptance by Smith Barney, the Financial
Consultant will
implement the client's investment decisions. The client will
be sent a
confirmation of his or her investments, which will be
accompanied by a copy of
a brochure required by federal law that contains more
detailed information
about the Consulting Group and TRAK.
PARTICIPATION
The annual fee for participation in TRAK is payable
quarterly, partially in
advance, and varies based upon the value of the client's
Portfolio shares at
the initiation of the advisory relationship and on a
continuing basis at the
last day of the preceding calendar quarter as follows: 1.50%
of the value of
TRAK assets up to $500,000, 1.20% of the value in excess of
$500,000 up to
$1,000,000 and 1.00% of the account value in excess of
$1,000,000. The annual
participation fee on TRAK assets and minimum initial
investment may be subject
to negotiation. The minimum initial TRAK investment is
$10,000 and there is no
minimum subsequent investment. As a shareholder in the
Portfolios, the client
will also bear a proportionate share of the Portfolios' fees
and expenses,
which are described in detail in the accompanying
Prospectus. The TRAK fee in
respect of an initial investment will begin to accrue on the
business day
following the initial investment in the Portfolios (the
"Opening Date"), will
be based on the proportion of the current quarter then
remaining and will be
payable on the fifth business day after the initial
investment is made.
Notwithstanding the foregoing, if the initial investment is
made within five
business days of the end of any quarter, the initial fee
payment will cover
the period from the Opening Date through the last day of the
following
quarter, and the fee will be pro-rated accordingly. Each
time that additional
funds aggregating $5,000 or more are invested in Portfolios
during any one
quarter, the applicable fee, pro-rated for the number of
days then remaining
in the quarter and covering the amount of such additional
funds, shall be
charged and shall become due two business days later. Each
time that Portfolio
shares aggregating $5,000 or more are redeemed during any
one quarter, the
client will receive a credit to the Account in which the
Portfolio shares were
held, for the TRAK fee applicable to the Portfolio shares
redeemed, based on
the proportion of the quarter remaining after the redemption
is effected. Such
credit shall be applied on the day that the quarterly fee is
due for the
quarter in which the Portfolio shares are redeemed, or two
business days after
the Portfolio shares are redeemed, whichever is later. For
purposes of
calculating additional fees or credits during a quarter,
additional
investments and redemptions are netted, and accordingly may
offset each other.
iii
<PAGE>
In the case of individual retirement accounts, retirement
plans for self-
employed individuals and employee benefit plans subject to
the Employee
Retirement Income Security Act of 1974, as amended
(collectively, "Plans"),
the minimum initial TRAK investment is $10,000 and the fee
for participation
in TRAK by a Plan will be reduced by an amount equal to, for
all Portfolios in
which Plan assets are invested, (A) the value of Plan assets
invested in a
Portfolio on the last calendar day of the previous calendar
quarter (or on the
day an initial investment is made during the calendar
quarter), multiplied by
(B) the reduction factor specified below, multiplied by (C)
a fraction, the
numerator of which is the number of days in the period for
which the TRAK fee
is being assessed and the denominator of which is the actual
number of days in
the calendar year of which that period is a part. The
reduction factor for
Portfolios (1) through (4) on page (ii) above shall be 0%;
for Portfolios (5)
and (12) shall be 0.05%; and for Portfolios (6) through (11)
and (13) shall be
0.10%.
For subsequent investments or redemptions aggregating to
$5,000 or more, the
pro-rated fee or credit for the balance of the quarter will
be calculated on
the basis of the net percentage TRAK fee paid for the
quarter during which the
subsequent investment or redemption was made.
TRAK participants should note that, although the
Consulting Group as the
Trust's Manager receives a fee in respect of Government
Money Investments, the
entire amount of that fee is paid by the Manager to that
Portfolio's Advisor.
Thus, the Manager retains no management fee in respect of
that Portfolio.
Once a TRAK program is active, Reviews covering all
settled TRAK activity
for the preceding quarter (except as provided below) 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. Clients may
select to receive a
Review on a semi-annual basis, rather than on a quarterly
basis. Clients that
select this option nevertheless will be responsible for
paying their annual
TRAK fee on a quarterly basis. The quarterly fee will be
payable on the tenth
business day of the second month of each quarter. If the
client pays this fee
by check, these funds will be deposited in the client's
Smith Barney brokerage
Account and may be invested in shares of a Smith Barney
money market fund
designated by the client until the specified payment date.
To relieve the
client of the burden of making separate payment, however,
each client's
investment advisory agreement provides that fees charged by
the Consulting
Group pursuant to the agreement may be paid through
automatic redemption, on
the specified payment date, of a portion of the Portfolio
shares held in the
client's Account. Unless otherwise specified by the client,
automatic payments
will be made first from redemptions of shares of Government
Money Investments;
next from free credit balances held in the client's Smith
Barney brokerage
Account; next from redemptions of shares of any money market
fund held in that
brokerage Account in which free credit balances are
routinely and
automatically invested; and next from redemptions of shares
of the other
Portfolios successively in the order listed on page (ii)
above until the
payment obligation is satisfied. Clients may terminate their
participation in
TRAK at any time by giving five days' notice to Smith
Barney. If a termination
is effected within five business days of receipt of the
confirmation and
brochure described above, any TRAK fee paid will be credited
to the client's
Account or paid by check mailed to the client if the client
so instructs. The
Consulting Group reserves the right to reject any investor's
participation in
TRAK. Termination of a TRAK program by a client must be
effected by a
redemption order for all Portfolio shares held in the
Account.
The Consulting Group serves as investment advisor to each
client in TRAK,
for which it receives a fee from the client that does not
vary based on the
Portfolios recommended for the client's investments. At the
same time, the
Consulting Group serves as the Trust's Manager with
responsibility for
identifying, retaining, supervising and compensating each
Portfolio's
Advisor(s) and receives a fee from each Portfolio, a varying
portion of which
is retained by the Manager based on the Portfolio involved.
Consequently, the
Consulting Group, when making asset allocation
recommendations for TRAK
clients, may be presented with a conflict of interest as to
the specific
Portfolios recommended for investment. The fee structure for
Plan TRAK
programs is intended to minimize any such conflict of
interest. The Consulting
Group is subject to and intends to comply fully with
standards of fiduciary
duty that require that it act solely in the best interest of
the client when
making investment recommendations.
CERTAIN QUALIFIED EMPLOYEE BENEFIT PLANS MAY INVEST IN THE
TRAK PROGRAM ON
TERMS WHICH DIFFER FROM THOSE OUTLINED ABOVE. TO FIND OUT
MORE ABOUT THIS,
PLEASE CONTACT YOUR FINANCIAL CONSULTANT.
iv
<PAGE>
SMITH BARNEY PROVIDES A BROAD RANGE OF INVESTMENT
SERVICES
TO INDIVIDUALS, FINANCIAL INSTITUTIONS, GOVERNMENTS
AND
CORPORATIONS IN THE UNITED STATES AND AROUND THE
WORLD. THE
FIRM IS A MEMBER OF TRAVELERS GROUP INC., A
LEADING
DIVERSIFIED FINANCIAL SERVICE COMPANY LISTED ON THE NEW
YORK
STOCK EXCHANGE, INC. UNDER THE SYMBOL TRV.
(C)1996 SMITH BARNEY INC.
TK2088 8/96
29XXX C5
PART B
STATEMENT OF ADDITIONAL INFORMATION
CONSULTING GROUP CAPITAL MARKETS FUNDS
August 13, 1996
222 Delaware Avenue ~ Wilmington, Delaware 19801 ~
(212) 816-TRAK
This Statement of Additional Information supplements
the information
contained in the current Prospectus (the "Prospectus") of
Consulting Group Capital
Markets Funds (the "Trust"), dated August 5, 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
Objectives and Policies of the Portfolios
1
Management of the Trust
16
Purchase of Shares
23
Redemption of Shares
24
Net Asset Value
24
Determination of Performance (See in the
Prospectus "Performance of the
Portfolios")
26
Taxes (See in the Prospectus "Dividends,
Distributions and Taxes")
30
Custodian and Transfer Agent
33
For ease of reference, the section headings used in this
Statement of Additional
Information are identical to those used in the Prospectus
except where noted.
Capitalized terms used but not defined in this Statement of
Additional Information
have the meanings accorded to them in the Prospectus.
OBJECTIVES AND POLICIES OF THE PORTFOLIOS
The Prospectus discusses the investment objectives of
the investment
portfolios (the "Portfolios") comprising the Trust and the
policies to be employed to
achieve those objectives. Supplemental information is set
out below concerning the
types of securities and other instruments in which the
Portfolios may invest, the
investment policies and strategies that the Portfolios may
utilize and certain risks
attendant to those investments, policies and strategies.
Ratings as Investment Criteria
In general, the ratings of Moody's Investors Service,
Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P") represent the opinions
of those agencies as
to the quality of debt obligations that they rate. It should
be emphasized, however,
that these ratings are relative and subjective, are not
absolute standards of quality
and do not evaluate the market risk of securities. These
ratings will be used by the
Portfolios as initial criteria for the selection of
portfolio securities, but the Portfolios
also will rely upon the independent advice of their
respective investment advisors
(collectively, the "Advisors") to evaluate potential
investments. Among the factors
that will be considered are the long term ability of the
issuer to pay principal and
interest and general economic trends. The Appendix to this
Statement of Additional
Information contains further information concerning the
ratings of Moody's and S&P
and their significance.
Subsequent to its purchase by a Portfolio, an issue of
debt obligations may
cease to be rated or its rating may be reduced below the
minimum required for
purchase by the Portfolio. Neither event will require the
sale of the debt obligation
by the Portfolio, but the Portfolio's Advisor will consider
the event in its
determination of whether the Portfolio should continue to
hold the obligation. In
addition, to the extent that the ratings change as a result
of changes in rating
organizations or their rating systems or owing to a
corporate restructuring of
Moody's or S&P, the Portfolio will attempt to use comparable
ratings as standards
for its investments in accordance with its investment
objectives and policies.
U.S. Government Securities
Securities issued or guaranteed by the U.S. government
or one of its
agencies, authorities or instrumentalities ("U.S. Government
Securities") in which
the Portfolios may invest include debt obligations of
varying maturities issued by the
U.S. Treasury or issued or guaranteed by an agency or
instrumentality of the U.S.
government, including the Federal Housing Administration,
Federal Financing Bank,
Farmers Home Administration, Export-Import Bank of the U.S.,
Small Business
Administration, Government National Mortgage Association
("GNMA"), General
Services Administration, Central Bank for Cooperatives,
Federal Farm Credit Banks,
Federal Home Loan Banks, Federal Home Loan Mortgage
Corporation ("FHLMC"),
Federal National Mortgage Association ("FNMA"), Maritime
Administration,
Tennessee Valley Authority, District of Columbia Armory
Board, Student Loan
Marketing Association, Resolution Trust Corporation and
various institutions that
previously were or currently are part of the Farm Credit
System (which has been
undergoing reorganization since 1987). Direct obligations of
the U.S. Treasury
include a variety of securities that differ in their
interest rates, maturities and dates
of issuance. Because the U.S. government is not obligated by
law to provide
support to an instrumentality that it sponsors, a Portfolio
will invest in obligations
issued by an instrumentality of the U.S. government only if
the Advisor determines
that the instrumentality's credit risk does not make its
securities unsuitable for
investment by the Portfolio.
Emerging Markets Countries
John Govett & Co. Limited ("Govett") believes the
performance of
emerging markets mutual funds is largely determined by
country allocation.
Empirical studies suggest that between 70% and 90% of
emerging market fund
investment performance is explained by country allocation.
Govett 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, in its asset allocation procedure, will
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.
(6) Differences in the value of the U.S. dollar
and the currencies
of other countries. To the extent the Portfolio invests in
securities denominated in
the currencies of countries other than the United States, a
change in the value of
any of those currencies relative to the dollar will result
in a corresponding change in
the dollar value of the Portfolio's investments denominated
in the currency. In
addition, although some of the Portfolio's income may be
received in the currency of
a country other than the United States, the Portfolio will
measure distributions,
including those made in connection with the redemption of
shares, from its income
in U.S. dollars. Therefore, if the value of a particular
currency falls relative to the
U.S. dollar between accrual of the income and the making of
a distribution, the
amount of the currency to be converted into U.S. dollars by
the Portfolio to pay the
distribution will increase and the Portfolio could be
required to liquidate portfolio
investments to make the distribution.
Exchange Rate-Related U.S. Government Securities
Each Portfolio, except Government Money Investments,
may invest up to 5%
of its net assets in U.S. Government Securities for which
the principal repayment at
maturity, while paid in U.S. dollars, is determined by
reference to the exchange rate
between the U.S. dollar and the currency of one or more
foreign countries
("Exchange Rate-Related Securities"). The interest payable
on these securities is
denominated in U.S. dollars and is not subject to foreign
currency risk and, in most
cases, is paid at rates higher than most other U.S.
Government Securities in
recognition of the foreign currency risk component of
Exchange Rate-Related
Securities.
Exchange Rate-Related Securities are issued in a
variety of forms, depending
on the structure of the principal repayment formula. The
principal repayment formula
may be structured so that the security holder will benefit
if a particular foreign
currency to which the security is linked is stable or
appreciates against the U.S.
dollar. In the alternative, the principal repayment formula
may be structured so that
the securityholder benefits if the U.S. dollar is stable or
appreciates against the
linked foreign currency. Finally, the principal repayment
formula can be a function of
more than one currency and, therefore, be designed as a
combination of those
forms.
Investments in Exchange Rate-Related Securities entail
special risks. There is
the possibility of significant changes in rates of exchange
between the U.S. dollar
and any foreign currency to which an Exchange Rate-Related
Security is linked. If
currency exchange rates do not move in the direction or to
the extent anticipated by
the Advisor at the time of purchase of the security, the
amount of principal repaid at
maturity might be significantly below the par value of the
security, which might not
be offset by the interest earned by the Portfolios over the
term of the security. The
rate of exchange between the U.S. dollar and other
currencies is determined by the
forces of supply and demand in the foreign exchange markets.
These forces are
affected by the international balance of payments and other
economic and financial
conditions, government intervention, speculation and other
factors. The imposition
or modification of foreign exchange controls by the U.S. or
foreign governments or
intervention by central banks could also affect exchange
rates. Finally, there is no
assurance that sufficient trading interest to create a
liquid secondary market will
exist for a particular Exchange Rate-Related Security due to
conditions in the debt
and foreign currency markets. Illiquidity in the forward
foreign exchange market and
the high volatility of the foreign exchange market may from
time to time combine to
make it difficult to sell an Exchange Rate-Related Security
prior to maturity without
incurring a significant price loss.
Mortgage Backed Securities
The average maturity of pass-through pools of mortgage
backed securities varies
with the maturities of the underlying mortgage instruments.
In addition, a pool's
stated maturity may be shortened by unscheduled payments on
the underlying
mortgages. Factors affecting mortgage prepayments include
the level of interest
rates, general economic and social conditions, the location
of the mortgaged
property and age of the mortgage. Because prepayment rates
of individual pools
vary widely, it is not possible to accurately predict the
average life of a particular
pool. Common practice is to assume that prepayments will
result in an average life
ranging from two to ten years for pools of fixed rate 30-
year mortgages. Pools of
mortgages with other maturities of different characteristics
will have varying
average life assumptions.
Mortgage backed securities may be classified as
private, governmental or
government related, depending on the issuer or guarantor.
Private mortgage backed
securities represent pass-through pools consisting
principally of conventional
residential mortgage loans created by non-governmental
issuers, such as commercial
banks, savings and loan associations and private mortgage
insurance companies.
Governmental mortgage backed securities are backed by the
full faith and credit of
the United States. GNMA, the principal U.S. guarantor of
such securities, is a
wholly owned U.S. Governmental Corporation within the
Department of Housing
and Urban Development. Government related mortgage backed
securities are not
backed by the full faith and credit of the United States.
Issuers of these securities
include FNMA and FHLMC. FNMA is a government sponsored
corporation owned
entirely by private stockholders that is subject to general
regulation by the Secretary
of Housing and Urban Development. Pass-through securities
issued by FNMA are
guaranteed as to timely payment of principal and interest
by FNMA. FHLMC is a
corporate instrumentality of the United States, the stock of
which is owned by the
Federal Home Loan Banks. Participation certificates
representing interests in
mortgages from FHLMC's national portfolio are guaranteed as
to the timely payment
of interest and ultimate collection of principal by FHLMC.
The Trust expects that private and governmental
entities may create
mortgage loan pools offering pass-through investments in
addition to those
described above. The mortgages underlying these securities
may be alternative
mortgage instruments, that is, mortgage instruments whose
principal or interest
payments may vary or whose terms to maturity may be shorter
than previously
customary. As new types of mortgage backed securities are
developed and offered
to investors, the Trust, consistent with the Portfolio's
investment objectives and
policies, will consider making investments in those new
types of securities on behalf
of that Portfolio.
The Portfolios also may invest in pass-through
securities backed by
adjustable rate mortgages that have been introduced by GNMA,
FNMA and FHLMC.
These securities bear interest at a rate that is adjusted
monthly, quarterly or
annually. The prepayment experience of the mortgages
underlying these securities
may vary from that for fixed rate mortgages. The Portfolio
will only purchase
mortgage related securities issued by persons that are
governmental agencies or
instrumentalities or fall outside, or are excluded from, the
definition of investment
company under the Investment Company Act of 1940, as amended
(the "1940
Act").
Forward Currency Contracts
Forward currency contracts (i) are traded in an
interbank market conducted
directly between currency traders (typically commercial
banks or other financial
institutions) and their customers, (ii) generally have no
deposit requirements and (iii)
are typically consummated without payment of any
commissions. Certain Portfolios,
however, may enter into forward currency contracts
containing either or both
deposit requirements and commissions.
The cost to a Portfolio of engaging in forward currency
transactions varies
with factors such as the currency involved, the length of
the contract period and
market conditions then prevailing. Because transactions in
currency exchange
contracts are usually conducted on a principal basis, no
fees or commissions are
involved. Hedging transactions may be made from any foreign
currency into U.S.
dollars or into other appropriate currencies. As noted in
the Prospectus, if a
Portfolio enters into a position hedging transaction, cash
or liquid high grade debt
securities will be placed in a segregated account with the
Portfolio's custodian in an
amount equal to the value of the Portfolio's total assets
committed to the
consummation of the forward currency contract. If the value
of the securities placed
in the segregated account declines, additional cash or
securities will be placed in the
account so that the value of the account will equal the
amount of the Portfolio's
commitment with respect to the contract.
At or before the maturity of a forward currency
contract, a Portfolio may
either sell a portfolio security and make delivery of the
currency, or retain the
security and offset its contractual obligation to deliver
the currency by purchasing a
second contract pursuant to which the Portfolio will obtain,
on the same maturity
date, the same amount of the currency that it is obligated
to deliver. If the Portfolio
retains the portfolio security and engages in an offsetting
transaction, the Portfolio,
at the time of execution of the offsetting transaction, will
incur a gain or a loss to
the extent that movement has occurred in forward currency
contract prices. Should
forward prices decline during the period between the
Portfolio's entering into a
forward currency contract for the sale of a currency and the
date it enters into an
offsetting contract for the purchase of the currency, the
Portfolio will realize a gain
to the extent the price of the currency it has agreed to
sell exceeds the price of the
currency it has agreed to purchase. Should forward prices
increase, the Portfolio will
suffer a loss to the extent the price of the currency it has
agreed to purchase
exceeds the price of the currency it has agreed to sell.
The use of forward currency contracts does not
eliminate fluctuations in the
underlying prices of the securities, but it does establish a
rate of exchange that can
be achieved in the future. In addition, although forward
currency contracts limit the
risk of loss owing to a decline in the value of the hedged
currency, at the same
time, they limit any potential gain that might result should
the value of the currency
increase. If a devaluation is generally anticipated, the
Portfolio may not be able to
contract to sell currency at a price above the devaluation
level it anticipates. The
successful use of forward currency contracts as a hedging
technique draws upon
special skills and experience with respect to these
instruments and usually depends
on the ability of the Portfolio's Advisor to forecast
interest rate and currency
exchange rate movements correctly. Should interest or
exchange rates move in an
unexpected manner, the Portfolio may not achieve the
anticipated benefits of
forward currency contracts or may realize losses and thus be
in a worse position
than if those strategies had not been used. Many forward
currency contracts are
subject to no daily price fluctuation limits so that adverse
market movements could
continue with respect to those contracts to an unlimited
extent over a period of
time.
Futures Contracts and Related Options
Futures contracts and options thereon may be undertaken
for hedging and
other risk management purposes in an effort to reduce the
impact of several kinds
of anticipated price fluctuation risks on the securities
held by a Portfolio. For
example, futures contracts for the sale of foreign currency
might be entered into to
protect against declines in the value of currencies in which
portfolio securities are
denominated; and put options on interest rate futures might
be purchased to protect
against declines in the market values of debt securities
occasioned by higher
interest rates. If these transactions are successful, the
futures or options positions
taken by the Portfolio will rise in value by an amount which
approximately offsets
the decline in value of the portion of the securities held
by a Portfolio that is being
hedged.
On other occasions, a Portfolio may enter into
contracts to purchase the
underlying instrument. For example, futures contracts for
the purchase of debt
securities might be entered into to protect against an
anticipated increase in the
price of debt securities to be purchased in the future
resulting from decreased
interest rates.
A Portfolio will incur brokerage costs whether or not
its hedging is successful
and will be required to post and maintain "margin" as a good-
faith deposit against
performance of its obligations under futures contracts and
under options written by
the Portfolio. Futures and options positions are marked to
the market daily and the
Portfolio may be required to make subsequent "variation"
margin payments
depending upon whether its positions increase or decrease in
value. In this context
margin payments involve no borrowing on the part of the
Portfolio.
Lending Portfolio Securities
Each Portfolio other than Municipal Bond Investments
may lend portfolio
securities to brokers, dealers and other financial
organizations. These loans, if and
when made, may not exceed 30% of the value of a Portfolio's
total assets. A
Portfolio will not lend securities to Smith Barney, the
Trust's distributor, unless the
Portfolio has applied for and received specific authority to
do so from the Securities
and Exchange Commission (the "SEC"). A Portfolio's loans of
securities will be
collateralized by cash, letters of credit or U.S. Government
Securities. The cash or
instruments collateralizing a Portfolio's loans of
securities will be maintained at all
times in a segregated account with the Portfolio's custodian
or with a designated
sub-custodian in an amount at least equal to the current
market value of the loaned
securities. From time to time, a Portfolio may pay a part of
the interest earned from
the investment of collateral received for securities loaned
to the borrower and/or a
third party that is unaffiliated with the Portfolio and is
acting as a "finder." A
Portfolio will comply with the following conditions whenever
it loans securities: (i)
the Portfolio must receive at least 100% cash collateral or
equivalent securities from
the borrower; (ii) the borrower must increase the collateral
whenever the market
value of the securities loaned rises above the level of the
collateral; (iii) the Portfolio
must be able to terminate the loan at any time; (iv) the
Portfolio must receive
reasonable interest on the loan, as well as any dividends,
interest or other
distributions on the loaned securities and any increase in
market value; (v) the
Portfolio may pay only reasonable custodian fees in
connection with the loan; and
(vi) voting rights on the loaned securities may pass to the
borrower except that, if a
material event adversely affecting the investment in the
loaned securities occurs,
the Trust's Board of Trustees must terminate the loan and
regain the right to vote
the securities.
When-Issued and Delayed-Delivery Securities
When a Portfolio engages in when-issued or delayed-
delivery securities
transactions, it relies on the other party to consummate the
trade. Failure of the
seller to do so may result in the Portfolio's incurring a
loss or missing an opportunity
to obtain a price considered to be advantageous.
Rule 144A Securities
A Portfolio may purchase securities that are not
registered under the
Securities Act of 1933, as amended (the "1933 Act"), but
that can be sold to
"qualified institutional buyers" in accordance with Rule
144A under the 1933 Act
("Rule 144A Securities"). Particular Rule 144A Securities
will be considered illiquid
and therefore subject to the Portfolio's 10% limitation on
the purchase of illiquid
securities, unless the Trust's Board of Trustees determines
on an ongoing basis that
an adequate trading market exists for the Rule 144A
Securities. This investment
practice could have the effect of increasing the level of
illiquidity in a Portfolio to the
extent that qualified institutional buyers become
uninterested for a time in
purchasing Rule 144A Securities. The Board of Trustees has
instructed the
Portfolios' Advisors to determine and monitor on a daily
basis the liquidity of Rule
144A Securities, although the Board of Trustees will retain
responsibility for any
determination regarding liquidity.
American Depository Receipts
A Portfolio may purchase American Depository Receipts
("ADRs"), which are
dollar denominated receipts issued generally by domestic
banks and represent the
deposit with the bank of a security of a foreign issuer.
ADRs are publicly traded on
exchanges or over-the-counter in the United States.
Investment Restrictions
The investment restrictions numbered 1 through 12 below
have been
adopted by the Trust as fundamental policies of the
Portfolios. Under the 1940 Act,
a fundamental policy may not be changed without the vote of
a majority of the
outstanding voting securities of a Portfolio, which is
defined in the 1940 Act as the
lesser of (i) 67% or more of the shares present at a
Portfolio meeting, if the holders
of more than 50% of the outstanding shares of the Portfolio
are present or
represented by proxy, or (ii) more than 50% of the
outstanding shares of the
Portfolio. Investment restrictions 13 through 17 may be
changed by a vote of a
majority of the Board of Trustees at any time.
Under the investment restrictions adopted by the Portfolios:
1. A Portfolio, other than International Fixed Income
Investments, will not
purchase securities (other than U.S. Government Securities)
of any issuer if,
as a result of the purchase, more than 5% of the value of
the Portfolio's total
assets would be invested in the securities of the issuer,
except that up to
25% of the value of the Portfolio's total assets may be
invested without
regard to this 5% limitation.
2. A Portfolio, other than International Fixed Income
Investments, will not
purchase more than 10% of the voting securities of any one
issuer, or more
than 10% of the securities of any class of any one issuer,
except that this
limitation is not applicable to the Portfolio's investments
in U.S. Government
Securities, and up to 25% of the Portfolio's assets may be
invested without
regard to these 10% limitations.
3. A Portfolio, other than Municipal Bond Investments,
will invest no more
than 25% of the value of its total assets in securities of
issuers in any one
industry, the term industry being deemed to include the
government of a
particular country other than the United States. This
limitation is not
applicable to a Portfolio's investments in U.S. Government
Securities.
4. A Portfolio will not borrow money, except that a
Portfolio may borrow
from banks for temporary or emergency (not leveraging)
purposes, including
the meeting of redemption requests that might otherwise
require the untimely
disposition of securities, in an amount not to exceed one-
third of the value of
the Portfolio's total assets (including the amount borrowed)
valued at market
less liabilities (not including the amount borrowed) at the
time the borrowing
is made, except that Mortgage Backed Investments may engage
in forward
roll transactions and Emerging Markets Equity Investments
may engage in
reverse repurchase transactions. Whenever a Portfolio's
borrowings exceed
5% of the value of its total assets, the Portfolio, other
than Mortgage Backed
Investments and Emerging Markets Equity Investments, will
not make any
additional investments.
5. A Portfolio will not pledge, hypothecate, mortgage
or otherwise encumber
its assets, except to secure permitted borrowings.
6. A Portfolio will not lend any funds or other assets,
except through
purchasing debt obligations, lending portfolio securities
and entering into
repurchase agreements consistent with the Portfolio's
investment objective
and policies.
7. A Portfolio will not purchase securities on margin,
except that the Portfolio
may obtain any short-term credits necessary for the
clearance of purchases
and sales of securities. For purposes of this restriction,
the deposit or
payment of initial or variation margin in connection with
futures contracts or
options on futures contracts will not be deemed to be a
purchase of
securities on margin.
8. A Portfolio will not make short sales of securities
or maintain a short
position, unless at all times when a short position is open
it owns an equal
amount of the securities or securities convertible into or
exchangeable for,
without payment of any further consideration, securities of
the same issue
as, and equal in amount to, the securities sold short
("short sales against the
box"), and unless not more than 10% of the Portfolio's net
assets (taken at
market value) is held as collateral for such sales at any
one time. It is the
Portfolios' present intention to make short sales against
the box only for the
purpose of deferring realization of gain or loss for federal
income tax
purposes.
9. A Portfolio will not purchase or sell real estate or
real estate limited
partnership interests, except that it may purchase and sell
mortgage related
securities and securities of companies that deal in real
estate or interests
therein.
10. A Portfolio will not purchase or sell commodities
or commodity contracts
(except currencies, forward currency contracts, stock index
and interest rate
futures contracts and related options and other similar
contracts).
11. A Portfolio will not act as an underwriter of
securities, except that the
Portfolio may acquire restricted securities under
circumstances in which, if
the securities were sold, the Portfolio might be deemed to
be an underwriter
for purposes of the 1933 Act.
12. A Portfolio will not invest in oil, gas or other
mineral leases or exploration
or development programs.
13. A Portfolio will not make investments for the
purpose of exercising
control of management.
14. A Portfolio will not purchase any security if as a
result (unless the
security is acquired pursuant to a plan of reorganization or
an offer of
exchange) the Portfolio would own any securities of a
registered open-end
investment company or more than 3% of the total outstanding
voting stock
of any registered closed-end investment company or more than
5% of the
value of the Portfolio's total assets would be invested in
securities of any
one or more registered closed-end investment companies.
15. A Portfolio will not purchase any security if as a
result the Portfolio
would then have more than 5% of its total assets invested in
securities of
companies (including predecessors) that have been in
continuous operation
for fewer than three years.
16. A Portfolio will not purchase or retain securities
of any company if, to
the knowledge of the Trust, any of the Trust's officers or
Trustees, or any
officer or director of the Consulting Group (the "Manager"
or the "Consulting
Group") or the Advisor(s) individually owns more than 1/2 of
1% of the
outstanding securities of the company and together they own
beneficially
more than 5% of the securities.
17. A Portfolio will not invest in excess of 5% of the
value of its net assets
in warrants, valued at the lower of cost or market value.
Included within this
amount, but not to exceed 2% of the value of the Portfolio's
net assets, may
be warrants that are not listed on the New York or American
Stock
Exchanges. Warrants acquired by the Portfolio in units or
attached to
securities may be deemed to be without value.
The Trust may make commitments more restrictive than the
restrictions listed above
so as to permit the sale of shares of a Portfolio in certain
states. Should the Trust
determine that a commitment is no longer in the best
interests of the Portfolio and
its shareholders, the Trust will revoke the commitment by
terminating the sale of
shares of the Portfolio in the state involved. The
percentage limitations contained in
the restrictions listed above apply at the time of purchase
of securities. For
purposes of item 9, publicly traded Real Estate Investment
Trusts ("REITS") will be
considered to be "companies that deal in real estate."
Portfolio Transactions
Decisions to buy and sell securities for a Portfolio
are made by the
Advisor(s), subject to the overall review of the Manager and
the Board of Trustees.
Although investment decisions for the Portfolios are made
independently from those
of the other accounts managed by an Advisor, investments of
the type that the
Portfolios may make also may be made by those other
accounts. When a Portfolio
and one or more other accounts managed by an Advisor are
prepared to invest in, or
desire to dispose of, the same security, available
investments or opportunities for
sales will be allocated in a manner believed by the Advisor
to be equitable to each.
In some cases, this procedure may adversely affect the price
paid or received by a
Portfolio or the size of the position obtained or disposed
of by a Portfolio.
Transactions on U.S. stock exchanges and some foreign
stock exchanges
involve the payment of negotiated brokerage commissions. On
exchanges on which
commissions are negotiated, the cost of transactions may
vary among different
brokers. On most foreign exchanges, commissions are
generally fixed. No stated
commission is generally applicable to securities traded in
U.S. over-the-counter
markets, but the underwriters include an underwriting
commission or concession
and the prices at which securities are purchased from and
sold to dealers include a
dealer's mark-up or mark-down. U.S. Government Securities
generally are purchased
from underwriters or dealers, although certain newly issued
U.S. Government
Securities may be purchased directly from the U.S. Treasury
or from the issuing
agency or instrumentality.
In selecting brokers or dealers to execute securities
transactions on behalf of
a Portfolio, its Advisor seeks the best overall terms
available. In assessing the best
overall terms available for any transaction, the Advisor
will consider the factors it
deems relevant, including the breadth of the market in the
security, the price of the
security, the financial condition and execution capability
of the broker or dealer and
the reasonableness of the commission, if any, for the
specific transaction and on a
continuing basis. In addition, each Advisory Agreement
between the Trust and the
Advisor authorizes the Advisor, in selecting brokers or
dealers to execute a
particular transaction, and in evaluating the best overall
terms available, to consider
the brokerage and research services (as those terms are
defined in Section 28(e) of
the Securities Exchange Act of 1934) provided to the
Portfolio and/or other
accounts over which the Advisor or its affiliates exercise
investment discretion. The
fees under the Management Agreement and the Advisory
Agreements, respectively,
are not reduced by reason of a Portfolio's Advisor receiving
brokerage and research
services. The Board of Trustees of the Trust will
periodically review the
commissions paid by a Portfolio to determine if the
commissions paid over
representative periods of time were reasonable in relation
to the benefits inuring to
the Portfolio. Over-the-counter purchases and sales by a
Portfolio are transacted
directly with principal market makers except in those cases
in which better prices
and executions may be obtained elsewhere.
To the extent consistent with applicable provisions of
the 1940 Act and the
rules and exemptions adopted by the SEC under the 1940 Act,
the Board of
Trustees has determined that transactions for a Portfolio
may be executed through
Smith Barney and other affiliated broker-dealers if, in the
judgment of the Advisor,
the use of an affiliated broker-dealer is likely to result
in price and execution at least
as favorable as those of other qualified broker-dealers, and
if, in the transaction, the
affiliated broker-dealer charges the Portfolio a fair and
reasonable rate.
The Portfolios will not purchase any security,
including U.S. Government
Securities or Municipal Obligations, during the existence of
any underwriting or
selling group relating thereto of which Smith Barney is a
member, except to the
extent permitted by the SEC.
The Portfolios may use Smith Barney and other
affiliated broker-dealers as a
commodities broker in connection with entering into futures
contracts and options
on futures contracts if, in the judgment of the Advisor, the
use of an affiliated
broker-dealer is likely to result in price and execution at
least as favorable as those
of other qualified broker-dealers, and if, in the
transaction, the affiliated broker-
dealer charges the Portfolio a fair and reasonable rate.
Smith Barney has agreed to
charge the Portfolios commodity commissions at rates
comparable to those charged
by Smith Barney to its most favored clients for comparable
trades in comparable
accounts.
The following table sets forth certain information
regarding each
Portfolio's payment of brokerage commissions for the year
ended August 31, 1995:
BROKERAGE COMMISSIONS PAID TO SMITH BARNEY
Portfolio
Total Brokerage
Commissions
Commissions
paid to Smith
Barney
% of Total
Brokerage
Commissions
paid to Smith
Barney
% of Total
Transactions
involving
Commission
Paid to Smith
Barney
Balanced Investments
$36,073
N/A
N/A
N/A
Large Capitalization Value
Investments
$819,528
$35,134
4.29%
.25%
Large Capitalization Growth
Investments
$743,269
$2,448
.33%
.02%
Small Capitalization Value
Investments
$1,272,329
$23,322
1.83%
.12%
Small Capitalization Growth
Investments
$519,901
$7,587
1.46%
.10%
Emerging Markets Equity
Investments
$391,066
N/A
N/A
N/A
International Equity
Investments
$330,684
N/A
N/A
N/A
Government Money Investments, Intermediate Fixed Income
Investments, Long-
Term Bond Income Investments, Municipal Bond Investments,
Mortgage Backed
Investments and International Fixed Income Investments did
not pay brokerage
commissions during the year ended August 31, 1995.
The following table sets forth certain information regarding
each Portfolio's payment
of brokerage commissions for the year ended August 31, 1994:
Portfolio
Total Brokerage
Commissions
Commissions
paid to Smith
Barney
% of Total
Brokerage
Commissions
paid to Smith
Barney
% of Total
Transactions
involving
Commission
Paid to Smith
Barney
Balanced Investments
$19,844
N/A
N/A
N/A
Large Capitalization Value
Investments
$2,649,739
$184,620
6.97%
8.65%
Large Capitalization Growth
Investments
$986,852
$1,698
0.17%
0.10%
Small Capitalization Value
Investments
$1,024,781
$15,659
1.53%
1.21%
Small Capitalization Growth
Investments
$135,420
N/A
N/A
N/A
Emerging Markets Equity
Investments
$1,336,121
$722
0.06%
0.10%
International Equity
Investments
$156,570
N/A
N/A
N/A
Government Money Investments, Intermediate Fixed Income
Investments, Long-
Term Bond Income Investments, Municipal Bond Investments,
Mortgage Backed
Investments and International Fixed Income Investments did
not pay brokerage
commissions during the year ended August 31, 1994.
The following table sets forth certain information regarding
each Portfolio's payment
of brokerage commissions for the year ended August 31, 1993:
Portfolio
Total Brokerage
Commissions
Commissions
paid to Smith
Barney
% of Total
Brokerage
Commissions
paid to Smith
Barney
% of Total
Transactions
involving
Commission
Paid to Smith
Barney
Balanced Investments
$6,568
$156
2.4%
0.1%
Large Capitalization Value
Investments
$872,806
$412,000
47.2%
56.5%
Large Capitalization Growth
Investments
$255,077
$11,694
4.6%
3.9%
Small Capitalization Value
Investments
$519,311
N/A
N/A
N/A
Small Capitalization Growth
Investments
$76,998
$13,782
17.9%
17.8%
International Equity
Investments
$799,713
$13,436
1.7%
1.8%
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, 1993.
Portfolio Turnover
Government Money Investments may attempt to increase
yields by trading to
take advantage of short-term market variations, which
results in high portfolio
turnover. Because purchases and sales of money market
instruments are usually
effected as principal transactions, this policy does not
result in high brokerage
commissions to the Portfolio. The other Portfolios do not
intend to seek profits
through short-term trading. Nevertheless, the Portfolios
will not consider portfolio
turnover rate a limiting factor in making investment
decisions.
A Portfolio's turnover rate is calculated by dividing
the lesser of purchases or
sales of its portfolio securities for the year by the
monthly average value of the
portfolio securities. Securities or options with remaining
maturities of one year or
less on the date of acquisition are excluded from the
calculation. Under certain
market conditions, a Portfolio authorized to engage in
transactions in options may
experience increased portfolio turnover as a result of its
investment strategies. For
instance, the exercise of a substantial number of options
written by a Portfolio (due
to appreciation of the underlying security in the case of
call options or depreciation
of the underlying security in the case of put options) could
result in a turnover rate
in excess of 100%. A portfolio turnover rate of 100% would
occur if all of a
Portfolio's securities that are included in the computation
of turnover were replaced
once during a period of one year.
The Portfolios' portfolio turnover rates were as follows:
Portfolio
Year Ended
August 31,
1995
Year Ended
August 31,
1994
Government Money Investments
N/A
N/A
Intermediate Fixed Income Investments
98%
86%
Long-Term Bond Investments
62%
43%
Municipal Bond Investments
49%
132%
Mortgage Backed Investments
30%
53%
Balanced Investments*
47%
43%
Large Capitalization Value Equity Investments
21%
108%
Large Capitalization Growth Investments
38%
104%
Small Capitalization Value Equity Investments
115%
65%
Small Capitalization Growth Investments
174%
94%
International Equity Investments
28%
33%
International Fixed Income Investments
307%
358%
Emerging Markets Equity Investments+
89%
16%
__________________________
* The period from commencement of operations on February 16,
1993 through August 31, 1993 for
Balanced Investments.
+ The period from commencement of operations on April 21,
1994 through August 31, 1994 for
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 75). 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 75). 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
HMK Associates, 30
Columbia Turnpike, Florham Park, N.J. 07932.
Stephen E. Kaufman, Trustee (Age 64). Attorney.
His address is
277 Park Avenue, New York, New York 10017.
Armon E. Kamesar, Trustee (Age 69). Chairman of the
Board of TEC,
an international organization of Chief Executive
Officers; Trustee, U.S.
Bankruptcy Court. His address is 7328 Country Club Drive, La
Jolla, CA 92037.
*Heath B. McLendon, Trustee and Chairman (Age 63).
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. Mr. McLendon serves on the Board of 42 Smith
Barney mutual funds.
His address is 388 Greenwich Street, New York, New York
10013.
Madelon DeVoe Talley, Trustee (Age 64).
Author. Governor-at-
large of the National Association of Securities Dealers,
Inc. Her address is 876 Park
Avenue, New York, New York 10021.
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 Smith Barney Mutual Funds
Management Inc. ("SBMFM").
Mr. Daidone serves as Treasurer of 42 Smith Barney mutual
funds. His
address is 388 Greenwich Street, New York, New York 10013.
Sandip A. Bhagat, Investment Officer (Age 36),
President of TIMCO; prior to
1995, Senior Portfolio Manager for TIMCO's quantitative
active equity strategies.
His address is One Tower Square, Hartford, Connecticut 06183-
2030.
Frank L. Campanale, Investment Officer (Age 44).
President and Chief
Executive Officer of Smith Barney's Consulting Group. Prior
to 1996, National Sales
Director for Consulting Group. His address is 222 Delaware
Avenue, Wilmington,
Delaware, 19801.
LeRoy T. Pease, CFA, Investment Officer (Age 37). Vice
President of Smith
Barney Consulting Group. Prior to 1996, Chief Investment
Officer of EMT Group and
Manager for Investment Strategy for Bell Atlantic,
Philadelphia, Pennsylvania. His
address is 222 Delaware Avenue, Wilmington, Delaware, 19801.
Christina T. Sydor, Secretary (Age 45)
Managing Director of
Smith Barney; General Counsel and Secretary of SBMFM. Ms.
Sydor serves as
Secretary of 42 Smith Barney mutual funds. Her address is
388 Greenwich Street,
New York New York 10013.
As of July 26, 1996, the Trustees and officers as a
group owned less
than 1% of the outstanding common stock. As of July 26,
1996, to the knowledge
of the Fund and the Board, no single shareholder or "group"
(as that term is used in
Section 13(d) of the Securities Act of 1934) beneficially
owned more than 5% of
the outstanding shares of the Fund.
Remuneration
No director, officer or employee of Smith Barney, the
Manager, SBMFM, or
any of their affiliates will receive any compensation from
the Trust for serving as an
officer or Trustee of the Trust. The Trust paid each Trustee
who is not a director,
officer or employee of Smith Barney, the Managers, any
Advisor, SBMFM, or any of
their affiliates a fee of $10,000 per annum plus $500 per
meeting attended.
Effective December 14, 1994 the Fund pays each Trustee
who is not a
director, officer or employee of Smith Barney, the Manager,
any advisor, SBMFM or
any of their affiliates a fee of $22,000 per annum plus
$1,000 per meeting
attended. The Fund reimburses the Trustees for travel and
out-of-pocket expenses
to attend meetings of the Board. For the fiscal year ended
August 31, 1995, such
fees and expenses totaled $45,640.
For the calendar year ended August 31, 1995, the Trustees of
the Trust were paid
the following compensation:
TRUSTEE
AGGREGATE
COMPENSATION FROM THE
TRUST
AGGREGATE COMPENSATION FROM
THE SMITH BARNEY COMPLEX/ NUMBER
OF PORTFOLIOS FOR WHICH TRUSTEE
SERVES WITHIN SMITH BARNEY
COMPLEX*
Walter E. Auch
$19,500
$19,500/2
Martin Brody
$19,500
$103,625/19
Stephen E. Kaufman
$18,500
$83,600/13
Armon E. Kamesar
$19,500
$19,500/2
Madelon DeVoe Talley
$19,500
$63,500/11
Heath B. McLendon
$0
$0
__________________
* Aggregate Compensation for Smith Barney Complex reflects
all compensation received during the
1995 calendar year.
Manager; Advisors; Administrator
The Manager serves as investment manager to the Trust
pursuant to an
investment management agreement ("Management Agreement").
Each Advisor
serves as investment advisor to a Portfolio pursuant to
separate written agreements
with each Portfolio ("Advisory Agreements"), SBMFM serves as
administrator to
each Portfolio pursuant to a written agreement
("Administration Agreement") Prior
to May 4, 1994, The Boston Company Advisors, Inc.
("Boston Advisors")
served as administrator for each Portfolio. Subsequently,
until August 31, 1995,
Boston Advisors provided sub-administration services through
SBMFM. The
Management Agreement was most recently approved by the Board
of Trustees,
including a majority of the Trustees who are not "interested
persons" of the Trust,
the Manager, the Advisors, on September 21, 1995 and by the
shareholders of the
Trust on June 1, 1993. The Administration Agreement was most
recently approved
by The Trust's Board of Trustees, including a majority of
the disinterested Trustees,
on September 21, 1995. Certain of the services provided and
the fees paid by the
Trust under the Management Agreement, the Advisory
Agreements and the
Administration Agreement are described in the Prospectus. In
addition to the
services described in the Prospectus, as administrator,
SBMFM furnishes the Trust
with statistical and research data, clerical help,
accounting, data processing,
bookkeeping, internal auditing and legal services and
certain other services required
by the Trust, prepares reports to the Trust's shareholders
and prepares tax returns,
reports to and filings with the SEC and state blue sky
authorities.
For the year ended August 31, 1993 (the period from
commencement of operations
on February 16, 1993 through August 31, 1993 for Balanced
Investments), the
Portfolios accrued investment management and administration
fees as follows:
Portfolio
Advisory Fee
Management Fee
Administration Fee
Government Money Investments
$81,187
$0
$108,250
Intermediate Fixed Income Investments
191,413
191,413
191,413
Long-Term Bond Investments
100,197
100,197
100,197
Municipal Bond Investments
67,430
67,430
67,430
Mortgage Backed Investments
159,082
159,082
127,265
Balanced Investments
5,250
5,250
3,500
Large Capitalization Value Equity Investments
1,063,789
1,063,789
709,193
Large Capitalization Growth Investments
458,139
458,139
305,426
Small Capitalization Value Equity Investments
430,533
430,533
287,022
Small Capitalization Growth Investments
139,760
139,760
93,173
International Equity Investments
673,384
505,036
336,692
International Fixed Income Investments
161,372
161,372
129,098
For the year ended August 31, 1993, 100% of the
Manager's and Boston
Advisors' fees were waived for Government Money Investments.
For the period
from commencement of operations on February 16, 1993 through
August 31,
1993, 100% of the Manager's and Boston Advisors' fees were
waived by the
Manager and Boston Advisors for Balanced Investments.
Additionally, the Portfolio
was reimbursed by the Manager and Boston Advisors in the
amounts of $106,617
and $142,156, respectively for Government Money Investments
and $25,580 and
$8,527, respectively, for Balanced Investments.
Of the fees incurred by the following Portfolios, the
Manager and Boston
Advisors waived fees as follows: Intermediate Fixed Income
Investments - $48,030
and $24,016; Small Capitalization Growth Investments -
$77,072 and $25,691;
Long-Term Bond Investments - $90,890 and $45,445 and
International Fixed
Income Investments - $108,626 and $43,450; Municipal
Bond Investments-
$46,592 and $23,296; Mortgage Backed Investments-$138,688
and $55,476.
For the year ended August 31, 1994 (the period from
commencement of
operation on April 21, 1994 through August 31, 1994 for
Emerging Markets Equity
Investments), the Portfolios accrued investment management
and administration
fees as follows:
Portfolio
Advisory Fee
Management
Fee
Administratio
n Fee
Government Money Investments
$233,770
$0
$311,693
Intermediate Fixed Income Investments
$385,855
$385,855
$385,855
Long-Term Bond Investments
$173,719
$173,719
$173,718
Municipal Bond Investments
$118,593
$118,593
$118,592
Mortgage Backed Investments
$280,108
$280,108
$224,086
Balanced Investments
$36,835
$36,835
$24,557
Large Capitalization Value Equity Investments
$1,836,351
$2,411,963
$1,416,105
Large Capitalization Growth Investments
$932,049
$1,182,386
$704,811
Small Capitalization Value Equity Investments
$772,382
$772,382
$514,919
Small Capitalization Growth Investments
$388,852
$388,852
$259,235
International Equity Investments
$1,283,535
$1,711,363
$861,250
International Fixed Income Investments
$302,931
$302,931
$242,345
Emerging Markets Equity Investments
$42,615
$21,308
$14,205
For the year ended August 31, 1994, 100% of the
management fees and the
Advisory fees were waived for Balanced Investments.
Additionally, the Portfolio was
reimbursed by the Manager in the amount of $7,747 and by the
Administrator and
Sub-Administrator in the amount of $2,582.
Of the fees incurred by the following Portfolios,
management,
administration and custody fees, in the aggregate, were
waived as follows:
Government Money Investments - $455,786; Long-Term Bond
Investments -
$130,363; Municipal Bond Investments - $78,258; Mortgage
Backed Investments -
$292,235; Large Capitalization Value Equity Investments -
$287,806; Large
Capitalization Growth Investments - $125,168; International
Fixed Income
Investments - $159,363; and Emerging Markets Equity
Investments - $59,781.
Effective March 21, 1994, the Manager has agreed to
waive a portion of the
fees otherwise payable to it by each of Large Capitalization
Value Equity
Investments and Large Capitalization Growth Investments so
that the Manager
would retain, as its annual management fee, no more than
0.30% of each such
Portfolio's average daily net assets. Absent such waivers,
the Manager would
retain, as its annual management fee, between 0.40% and
0.45% of the assets of
Large Capitalization Value Equity Investments and Large
Capitalization Growth
Investments managed by Parametric Portfolio Associates, Inc.
and BSA,
respectively.
For the year ended August 31, 1995, the Portfolios
accrued investment
management and administration fees as follows:
Portfolio
Management
Fee
Administration
Fee
Government Money Investments
$332,386
$444,181
Intermediate Fixed Income Investments
$881,208
$440,604
Long-Term Bond Investments
$525,476
$262,738
Municipal Bond Investments
$189,270
$94,635
Mortgage Backed Investments
$526,392
$210,557
Balanced Investments
$114,764
$38,254
Large Capitalization Value Equity Investments
$5,293,946
$1,764,649
Large Capitalization Growth Investments
$3,720,760
$1,240,253
Small Capitalization Value Equity Investments
$1,754,756
$584,919
Small Capitalization Growth Investments
$1,405,674
$468,558
International Equity Investments
$4,163,115
$1,189,461
International Fixed Income Investments
$536,934
$214,773
Emerging Markets Equity Investments
$445,779
$99,062
Although the Manager does not serve as an investment
manager for any
other registered investment company, the Manager and its
related office, the
Consulting Group, a division of Smith Barney, have extensive
experience in
providing investment advisor selection services. The
Consulting Group, 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, have many
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 December 31,
1995, the Manager and the Consulting Services Division
provided services with
respect to over $85 billion in client assets representing
more than 215,000 separate
accounts under a variety of programs designed for individual
and institutional
investors.
The Manager, SBMFM, and the Advisors each pays the
salaries of all
officers and employees who are employed by it and the Trust,
and SBMFM
maintains office facilities for the Trust. The Manager,
SBMFM, and the Advisors
bear all expenses in connection with the performance of
their respective services
under the Management Agreement, the Advisory Agreements, and
the
Administration Agreement.
As noted in the Prospectus, subject to the supervision
and direction of the
Manager and, ultimately, the Board of Trustees, each Advisor
manages the
securities held by the Portfolio it serves in accordance
with the Portfolio's stated
investment objectives and policies, makes investment
decisions for the Portfolio and
places orders to purchase and sell securities on behalf of
the Portfolio. Each Advisor
has agreed that neither it nor any of its affiliated persons
(as defined in the 1940
Act) shall accept retention as investment advisor,
investment manager or similar
service provider during the pendency of its Advisory
Agreement, and for the period
of one year after the termination of the Advisory Agreement,
with or for the benefit
of any investment company registered under the 1940 Act that
seeks as a primary
market for its shares asset allocation programs similar in
nature or market to TRAK.
This limitation does not apply to the continuation of any
contractual relationship to
which the Advisor was a party that was in effect on the date
of its Advisory
Agreement.
Each of the Manager and SBMFM has agreed that if in any
fiscal year the
aggregate expenses of the Portfolios (including fees payable
pursuant to the
Management Agreement, but excluding interest, taxes,
brokerage fees and, if
permitted by the relevant state securities commissions,
extraordinary expenses)
exceed the expense limitation of any state having
jurisdiction over the Portfolios, the
Manager and SBMFM will reduce their fees by the amount of
the excess expenses,
the amount to be allocated between them in the proportion
their respective fees
bear to the aggregate of the fees paid to them by the
Portfolios. A fee reduction, if
any, will be reconciled monthly. As of the date of this
Statement of Additional
Information, the most restrictive state expense limitation
applicable to the Portfolios
is 2.5% of the first $30 million of each Portfolio's average
daily net assets, 2% of
the next $70 million of each Portfolio's average daily net
assets and 1.5% of each
Portfolio's remaining average daily net assets. No such fee
reduction was required
for the years ended August 31, 1995 and 1994.
Counsel and Auditors
Willkie Farr & Gallagher serves as counsel to the
Trust. Stroock & Stroock &
Lavan serves as counsel to the Trustees who are not
interested persons of the
Trust.
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New
York 10154,
currently serve as the independent auditors of the Trust and
rendered an opinion on
the Trust's most recent financial statements and financial
highlights.
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 Bank, N.A., 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
Purchases of shares of a Portfolio through an Advisory
Service 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. 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 Advisory
Services and are generally 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.
Advisory Services generally provide investment advice in
connection with
investments among the Portfolios by identifying the
investor's risk tolerances and
investment objectives through evaluation of an investment
questionnaire; identifying
and recommending in writing an appropriate allocation of
assets among the
Portfolios that conform to those tolerances and objectives
in a written
recommendation; and providing on a periodic basis, a written
monitoring report to
the investor containing an analysis and evaluation of an
investor's account and
recommending any appropriate changes in the allocation of
assets among the
Portfolios. Usually under an Advisory Service, all
investment decisions ultimately
rest with the investor and investment discretion is not
given to the investment
adviser.
The TRAK( Personalized Investment Advisory Service
("TRAK") sponsored
by Smith Barney Inc. is one such advisory service pursuant.
Under the TRAK
program the Consulting Group in its capacity as investment
adviser 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 objective and risk tolerances. Shares
of the Portfolios are
offered for purchase and redemption at their respective net
asset value next
determined, without imposition of any initial or contingent
deferred sales charge
except that the Consulting Group is paid directly by the
Investors purchasing
Portfolio shares based on the recommendation 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 upon with their investment
advisers.
REDEMPTION OF SHARES
Detailed information on how to redeem shares of a
Portfolio is included in the
Prospectus. The right of redemption of shares of a Portfolio
may be suspended or
the date of payment postponed (i) for any periods during
which the New York Stock
Exchange, Inc. (the "NYSE") is closed (other than for
customary weekend and
holiday closings), (ii) when trading in the markets the
Portfolio normally utilizes is
restricted, or an emergency, as defined by the rules and
regulations of the SEC,
exists making disposal of the Portfolio's investments or
determination of its net
asset value not reasonably practicable or (iii) for such
other periods as the SEC by
order may permit for the protection of the Portfolio's
shareholders.
Redemptions in Kind
If the Board of Trustees determines that it would be
detrimental to the best
interests of a Portfolio's shareholders to make a redemption
payment wholly in cash,
the Portfolio may pay, in accordance with rules adopted by
the SEC, any portion of
a redemption in excess of the lesser of $250,000 or 1% of
the Portfolio's net
assets by a distribution in kind of readily marketable
portfolio securities in lieu of
cash. Redemptions failing to meet this threshold must be
made in cash.
Shareholders receiving distributions in kind of portfolio
securities may incur
brokerage commissions when subsequently disposing of those
securities.
NET ASSET VALUE
As noted in the Prospectus, the Trust will not
calculate the net asset value of
the Portfolios on certain holidays. On those days,
securities held by a Portfolio may
nevertheless be actively traded and the value of the
Portfolio's shares could be
significantly affected.
Certain of the Portfolios may invest in foreign
securities. As a result, the
calculation of a Portfolio's net asset value may not take
place contemporaneously
with the determination of the prices of certain of the
portfolio securities used in the
calculation. A security that is listed or traded on more
than one exchange is valued
for purposes of calculating the Portfolio's net asset value
at the quotation on the
exchange determined to be the primary market for the
security.
In carrying out the Board's valuation policies, SBMFM,
as administrator, may
consult with an independent pricing service (the "Pricing
Service") retained by the
Trust. Debt securities of U.S. issuers (other than U.S.
Government Securities and
short-term investments) are valued by SBMFM after
consultation with the Pricing
Service. When in the judgment of the Pricing Service quoted
bid prices for
investments are readily available and are representative of
the bid side of the
market, these investments are valued at the mean between the
quoted bid prices
and asked prices. Investments for which no readily
obtainable market quotations are
available, in the judgment of the Pricing Service, are
carried at fair value as
determined by the Pricing Service. The procedures of the
Pricing Service are
reviewed periodically by the officers of the Trust under the
general supervision and
responsibility of the Board of Trustees.
The valuation of the securities held by Government
Money Investments and
U.S. dollar-denominated securities with less than 60 days to
maturity held by the
other Portfolios is based upon their amortized cost, which
does not take into
account unrealized capital gains or losses. Amortized cost
valuation involves initially
valuing an instrument at its cost and, thereafter, assuming
a constant amortization
to maturity of any discount or premium, regardless of the
impact of fluctuating
interest rates on the market value of the instrument. While
this method provides
certainty in valuation, it may result in periods during
which value, as determined by
amortized cost, is higher or lower than the price that the
Portfolio would receive if it
sold the instrument.
Government Money Investments' use of the amortized cost
method of
valuing its portfolio securities is permitted by a rule
adopted by the SEC. Under this
rule, the Portfolio must maintain a dollar-weighted average
portfolio maturity of 90
days or less, purchase only instruments having remaining
maturities of 397 days or
less, and invest only in securities determined by the
Advisor, under the supervision
of the Board of Trustees of the Trust, to be of high quality
with minimal credit risks.
Pursuant to the rule, the Board of Trustees also has
established procedures
designed to stabilize, to the extent reasonably possible,
Government Money
Investments' price per share as computed for the purpose of
sales and redemptions
at $1.00. These procedures include review of the Portfolios'
holdings by the Board
of Trustees, at such intervals as it may deem appropriate,
to determine whether the
Portfolio's net asset value calculated by using available
market quotations or market
equivalents deviates from $1.00 per share based on amortized
cost.
The rule also provides that the extent of any deviation
between Government
Money Investments' net asset value based on available market
quotations or market
equivalents and the $1.00 per share net asset value based on
amortized cost must
be examined by the Board of Trustees. In the event that the
Board of Trustees
determines that a deviation exists that may result in
material dilution or other unfair
results to investors or existing shareholders, pursuant to
the rule the Board of
Trustees must cause the Portfolio to take any corrective
action the Board of
Trustees regards as necessary and appropriate, including:
selling portfolio
instruments prior to maturity to realize capital gains or
losses or to shorten average
portfolio maturity; withholding dividends or paying
distributions from capital or
capital gains; redeeming shares in kind; or establishing a
net asset value per share
by using available market quotations.
DETERMINATION OF PERFORMANCE
From time to time, the Trust may quote a Portfolio's
yield or total return in
advertisements or in reports and other communications to
shareholders.
Yield and Equivalent Taxable Yield
For a Portfolio other than Government Money
Investments, the 30-day yield
figure described in the Prospectus is calculated according
to a formula prescribed by
the SEC, expressed as follows:
YIELD = 2 [ (a-b\1)( -1]
cd
Where:
a = dividends and interest earned during the period.
b= expenses accrued for the period (net of
reimbursement), including a
ratable portion of the maximum annual fee for participation
in TRAK.
c= the average daily number of shares outstanding
during the period that
were entitled to receive dividends.
d= the maximum offering price per share on the last day
of the period.
For the purpose of determining the interest earned
(variable "a" in the
formula) on debt obligations that were purchased by the
Portfolio at a discount or
premium, the formula generally calls for amortization of the
discount or premium;
the amortization schedule will be adjusted monthly to
reflect changes in the market
values of the debt obligations.
A Portfolio's equivalent taxable 30-day yield is
computed by dividing that
portion of the Portfolio's 30-day yield that is tax exempt
by one minus a stated
income tax rate and adding the product to any portion of the
Portfolio's yield that is
not tax exempt.
The yield for Government Money Investments is computed by:
(a) determining the
net change, exclusive of capital changes, in the value of a
hypothetical pre-existing
account in the Portfolio having a balance of one share at
the beginning of a seven
day period for which yield is to be quoted; (b) subtracting
a hypothetical charge
reflecting deductions from shareholder accounts; (c)
dividing the difference by the
value of the account at the beginning of the period to
obtain the base period return;
and (d) annualizing the results (i.e., multiplying the base
period return by 365/7).
The net change in the value of the account reflects the
value of additional shares
purchased with dividends declared on the original share and
any such additional
shares, but does not include realized gains and losses or
unrealized appreciation and
depreciation. In addition, the Portfolio may calculate a
compound effective
annualized yield by adding one to the base period return
(calculated as described
above), raising the sum to a power equal to 365/7 and
subtracting one.
Investors should recognize that in periods of declining
interest rates, a
Portfolio's yield will tend to be somewhat higher than
prevailing market rates, and in
periods of rising interest rates will tend to be somewhat
lower. In addition, when
interest rates are falling, the inflow of net new money to a
Portfolio from the
continuous sale of its shares will likely be invested in
instruments producing lower
yields than the balance of its portfolio of securities,
thereby reducing the current
yield of the Portfolio. In periods of rising interest rates
the opposite can be
expected to occur.
Average Annual Total Return
A Portfolio's average annual total return figures
described in the Prospectus
are computed according to a formula prescribed by the SEC,
expressed as follows:
P(1+T)n = ERV
Where:
P= a hypothetical initial payment of $1,000
T= average annual total return, including the effect of
the maximum annual
fee for participation in TRAK.
n= number of years
ERV= Ending Redeemable Value of a hypothetical $1,000
investment made
at the beginning of a 1-, 5- or 10-year period at the end of
a 1-, 5- or 10-year
period (or fractional portion thereof), assuming
reinvestment of all dividends
and distributions and the effect of the maximum annual fee
for participation
in TRAK.
The ERV assumes complete redemption of the hypothetical
investment at the
end of the measuring period. A Portfolio's net investment
income changes in
response to fluctuations in interest rates and the expenses
of the Portfolio.
The Portfolios' average annual total returns without
the effect of the
maximum annual fee for participation in TRAK and with the
effect of fee waivers
were as follows:
Portfolio
From September
1, 1994 through
August 31, 1995
From
Inception***
through August
31, 1995
Intermediate Fixed Income Investments
8.70%
6.70%
Long-Term Bond Investments
10.71%
6.49%
Municipal Bond Investments
7.86%
6.18%
Mortgage Backed Investments
9.96%
6.28%
Balanced Investments*
12.76%
9.31%
Large Capitalization Value Equity Investments
16.14%
9.71%
Large Capitalization Growth Investments
22.30%
11.90%
Small Capitalization Value Equity Investments
12.50%
8.60%
Small Capitalization Growth Investments
38.25%
23.06%
International Equity Investments
(0.18)%
9.27%
International Fixed Income Investments
17.66%
10.75%
Emerging Markets Equity Investments**
(15.13)%
0.50%
_________________
* Balanced Investments commenced operations on February
16, 1993.
** Aggregate from April 21, (commencement of operations of
Emerging Market Equity
Investments) 1994 through August 31, 1994.
*** The remaining Portfolios commenced operations on
November 18, 1991.
The Portfolios' average annual total returns with the
effect of the maximum
annual fee for participation in TRAK and with the effect of
fee waivers were as
follows:
Portfolio
From September 1,
1994 through August
31, 1995
From Inception***
through August 31,
1995
Intermediate Fixed Income Investments
7.08%
5.10%
Long-Term Bond Investments
9.07%
4.90%
Municipal Bond Investments
6.25%
4.60%
Mortgage Backed Investments
8.33%
4.54%
Balanced Investments*
11.09%
7.69%
Large Capitalization Value Equity Investments
14.41%
8.07%
Large Capitalization Growth Investments
20.48%
10.22%
Small Capitalization Value Equity Investments
10.83%
6.98%
Small Capitalization Growth Investments
36.19%
21.22%
International Equity Investments
(1.66)%
7.64%
International Fixed Income Investments
15.92%
9.09%
Emerging Markets Equity Investments**
(16.39)%
(1.00)%
___________________
* Balanced Investments commenced operations on February
16, 1993.
** Aggregate from April 21, 1994 (commencement of
operations of Emerging Markets Equity
Investments) through August 31, 1994.
*** The remaining Portfolios commenced operations on
November 18, 1991.
Aggregate Total Return
A Portfolio's aggregate total return figures described
in the Prospectus
represent the cumulative change in the value of an
investment in the Portfolio for
the specified period and are computed by the following
formula:
ERV - P
P
Where: P= a hypothetical initial payment of $1,000.
ERV= Ending Redeemable Value of a hypothetical $1,000
investment made
at the beginning of the 1-, 5- or 10-year period at the end
of the 1-, 5- or 10-
year period (or fractional portion thereof), assuming
reinvestment of all
dividends and distributions and the effect of the maximum
annual fee for
participation in TRAK.
The ERV assumes complete redemption of the hypothetical
investment at the end of
the measuring period.
The Portfolios' aggregate total returns without the
effect of the maximum
annual fee for participation in TRAK and with the effect of
fee waivers were as
follows:
Portfolio
From September 1,
1994 through August
31, 1995
From Inception***
through August 31,
1995
Intermediate Fixed Income Investments
8.70%
27.81%
Long-Term Bond Investments
10.71%
26.84%
Municipal Bond Investments
7.86%
25.48%
Mortgage Backed Investments
9.96%
25.93%
Balanced Investments*
12.76%
25.32%
Large Capitalization Value Equity Investments
16.14%
42.00%
Large Capitalization Growth Investments
22.30%
53.00%
Small Capitalization Value Equity Investments
12.50%
36.61%
Small Capitalization Growth Investments
38.25%
119.26%
International Equity Investments
(0.18)%
39.87%
International Fixed Income Investments
17.66%
47.13%
Emerging Markets Equity Investments**
(15.13)%
(15.13%)
The Portfolios' aggregate total returns with the effect
of the maximum
annual fee for participation in TRAK and with the effect of
fee waivers were as
follows:
Portfolio
From September 1,
1994 through August
31, 1995
From Inception***
through August 31,
1995
Intermediate Fixed Income Investments
7.08%
20.87%
Long-Term Bond Investments
9.07%
19.86%
Municipal Bond Investments
6.25%
18.57%
Mortgage Backed Investments
8.33%
19.00%
Balanced Investments*
11.09%
20.64%
Large Capitalization Value Equity Investments
14.41%
34.16%
Large Capitalization Growth Investments
20.48%
44.54%
Small Capitalization Value Equity Investments
10.83%
29.07%
Small Capitalization Growth Investments
36.19%
107.14%
International Equity Investments
(1.66)%
32.14%
International Fixed Income Investments
15.92%
39.04%
Emerging Markets Equity Investments**
(16.39)%
(1.37)%
__________________________
* Balanced Investments commenced operations on February
16, 1993.
** Emerging Markets Equity Investments commenced
operations on April 21, 1994.
*** The remaining Portfolios commenced operations on
November 18, 1991.
A Portfolio's net investment income changes in response
to fluctuations in
interest rates and the expenses of the Portfolio.
Consequently, the given
performance quotations should not be considered as
representative of the Portfolio's
performance for any specified period in the future.
A Portfolio's performance will vary from time to time
depending upon market
conditions, the composition of its portfolio and its
operating expenses.
Consequently, any given performance quotation should not be
considered
representative of a Portfolio's performance for any
specified period in the future. In
addition, because performance will fluctuate, it may not
provide a basis for
comparing an investment in the Portfolio with certain bank
deposits or other
investments that pay a fixed yield for a stated period of
time. Investors comparing a
Portfolio's performance with that of other mutual funds
should give consideration to
the quality and maturity of the respective investment
companies' portfolio
securities.
Comparative performance information may be used from
time to time in
advertising the Portfolios' shares, including data from
Lipper Analytical Services,
Inc., Standard & Poor's 500 Composite Stock Price Index, the
Dow Jones Industrial
Average and other industry
publications.
TAXES
Each Portfolio intends to continue to qualify in each
year as a "regulated
investment company" under the Internal Revenue Code of 1986,
as amended (the
"Code"). Provided that a Portfolio (i) is a regulated
investment company and (ii)
distributes to its shareholders at least 90% of its taxable
net investment income
(including, for this purpose, its net realized short-term
capital gains) and 90% of its
tax exempt interest income (reduced by certain expenses), it
will not be liable for
federal income taxes to the extent its taxable net
investment income and its net
realized long-term and short-term capital gains, if any, are
distributed to its
shareholders.
Interest on indebtedness incurred by a shareholder to
purchase or carry
shares of Municipal Bond Investments will not be deductible
for federal income tax
purposes. If a shareholder receives exempt-interest
dividends with respect to any
share of Municipal Bond Investments and if the share is held
by the shareholder for
six months or less, then any loss on the sale or exchange of
the share may, to the
extent of the exempt-interest dividends, be disallowed. In
addition, the Code may
require a shareholder that receives exempt-interest
dividends to treat as taxable
income a portion of certain otherwise non-taxable social
security and railroad
retirement benefit payments. Furthermore, that portion of
any exempt-interest
dividend paid by Municipal Bond Investments that represents
income derived from
certain revenue or AMT-Subject Bonds held by the Portfolio
may not retain its tax
exempt status in the hands of a shareholder who is a
"substantial user" of a facility
financed by such bonds, or a "related person" thereof.
Moreover, as noted in the
Prospectus, (i) some or all of Municipal Bond Investments'
exempt-interest dividends
may be a specific preference item, or a component of an
adjustment item, for
purposes of the federal individual and corporate alternative
minimum taxes and (ii)
the receipt of Municipal Bond Investments' dividends and
distributions may affect a
corporate shareholder's federal "environmental" tax
liability. In addition, the receipt
of Municipal Bond Investments' dividends and distributions
may affect a foreign
corporate shareholder's federal "branch profits" tax
liability and federal "excess net
passive income" tax liability of a shareholder of a
Subchapter S corporation.
Shareholders should consult their own tax advisors as to
whether they are (i)
"substantial users" with respect to a facility or "related"
to such users within the
meaning of the Code or (ii) subject to a federal alternative
minimum tax, the federal
"environmental" tax, the federal "branch profits" tax, or
the federal "excess net
passive income" tax.
As described above and in the Prospectus, each
Portfolio other than
Government Money Investments, Municipal Bond Investments and
Balanced
Investments may invest in certain types of warrants, foreign
currencies, forward
contracts, options and futures contracts. These Portfolios
anticipate that these
investment activities will not prevent them from qualifying
as regulated investment
companies.
A Portfolio's transactions in foreign currencies,
forward contracts, options
and futures contracts (including options and futures
contracts on foreign currencies)
will be subject to special provisions of the Code that,
among other things, may
affect the character of gains and losses realized by the
Portfolio (i.e., may affect
whether gains or losses are ordinary or capital), accelerate
recognition of income to
the Portfolio and defer Portfolio losses. These rules could
therefore affect the
character, amount and timing of distributions to
shareholders. These provisions also
(i) will require a Portfolio to mark-to-market certain types
of the positions in its
portfolio (i.e., treat them as if they were closed out), and
(ii) may cause a Portfolio
to recognize income without receiving cash with which to pay
dividends or make
distributions in amounts necessary to satisfy the
distribution requirements for
avoiding income and excise taxes that are described above
and in the Prospectus.
Each of the Portfolios will monitor its transactions, will
make the appropriate tax
elections and will make the appropriate entries in its books
and records when it
acquires any foreign currency, forward contract, option,
futures contract or hedged
investment in order to mitigate the effect of these rules
and prevent disqualification
of the Portfolio as a regulated investment company.
As a general rule, a Portfolio's gain or loss on a sale
or exchange of an
investment will be a long-term capital gain or loss if the
Portfolio has held the
investment for more than one year and will be a short-term
capital gain or loss if it
has held the investment for one year or less. Furthermore,
as a general rule, a
shareholder's gain or loss on a sale or redemption of
Portfolio shares will be a long-
term capital gain or loss if the shareholder has held his or
her Portfolio shares for
more than one year and will be a short-term capital gain or
loss if he or she has held
his or her Portfolio shares for one year or less.
The Portfolios other than Government Money Investments,
Intermediate
Fixed Income Investments, Municipal Bond Investments and
Mortgage Backed
Investments expect to realize a significant amount of net
long-term capital gains
that will be distributed as described in the Prospectus.
Distributions of net realized
long-term capital gains ("capital gain dividends") will be
taxable to shareholders as
long-term capital gains, regardless of how long a
shareholder has held Portfolio
shares, and will be designated as capital gain dividends in
a written notice mailed to
the shareholders after the close of the Portfolio's prior
taxable year. If a shareholder
receives a capital gain dividend with respect to any share
held for six months or
less, then any loss (to the extent not disallowed pursuant
to the other six-month
rule described above with respect to Municipal Bond
Investments) on the sale or
exchange of the share, to the extent of the capital gain
dividend, shall be treated as
a long-term capital loss.
Each shareholder will receive after the close of the
calendar year an annual
statement as to the federal income tax status of his or her
dividends and
distributions for the prior calendar year. These statements
will also designate the
amount of exempt-interest dividends that is a specific
preference item for purposes
of the federal individual and corporate alternative minimum
taxes. Each shareholder
will also receive, if appropriate, various written notices
after the close of a
Portfolio's prior taxable year as to the federal income tax
status of his or her
Portfolio during the Portfolio's prior taxable year.
Shareholders should consult their
tax advisors as to any state and local taxes that may apply
to these dividends and
distributions. The dollar amount of dividends paid by
Municipal Bond Investments
that are excluded from federal income taxation and the
dollar amount of dividends
paid by Municipal Bond Investments that are subject to
federal income taxation, if
any, will vary for each shareholder depending upon the size
and duration of each
shareholder's investment in a Portfolio. To the extent that
Municipal Bond
Investments earns taxable net investment income, it intends
to designate as taxable
dividends the same percentage of each day's dividend as its
taxable net investment
income bears to its total net investment income earned on
that day. Therefore, the
percentage of each day's dividend designated as taxable, if
any, may vary from day
to day.
If a Portfolio is the holder of record of any stock on
the record date for any
dividends payable with respect to the stock, these dividends
shall be included in the
Portfolio's gross income as of the later of (i) the date the
stock became ex-dividend
with respect to the dividends (i.e., the date on which a
buyer of the stock would not
be entitled to receive the declared, but unpaid, dividends)
or (ii) the date the
Portfolio acquired the stock. Accordingly, in order to
satisfy its income distribution
requirements, a Portfolio may be required to pay dividends
based on anticipated
earnings, and shareholders may receive dividends in an
earlier year than would
otherwise be the case.
Investors considering buying shares of a Portfolio on
or just prior to the
record date for a taxable dividend or capital gain
distribution should be aware that
the amount of the forthcoming dividend or distribution
payment will be a taxable
dividend or distribution payment.
If a shareholder fails to furnish a correct taxpayer
identification number, fails
to report fully dividend or interest income, or fails to
certify that he or she has
provided a correct taxpayer identification number and that
he or she is not subject
to "backup withholding," then the shareholder may be subject
to a 31% "backup
withholding" tax with respect to (i) taxable dividends and
distributions and (ii) the
proceeds of any redemptions of Portfolio shares. An
individual's taxpayer
identification number is his or her social security number.
The 31% "backup
withholding" tax is not an additional tax and may be
credited against a taxpayer's
regular federal income tax liability.
The foregoing is only a summary of certain tax
considerations generally
affecting a Portfolio and its shareholders, and is not
intended as a substitute for
careful tax planning. Shareholders are urged to consult
their tax advisors with
specific reference to their own tax situations, including
their state and
local tax liabilities.
CUSTODIAN AND TRANSFER AGENT
PNC Bank National Association ("PNC") and Bank of
New York
("BONY") serve as the custodians for the Trust . The
assets of the Trust are
held under bank custodianship in accordance with the 1940
Act. Under its custody
agreement with the Trust, PNC and BONY 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
BONY, respectively, receives monthly fees charged to a
Portfolio based upon the
month-end, aggregate net asset value of the Portfolio plus
certain charges for
securities transactions. PNC and BONY are also reimbursed by
the Portfolios for out-
of-pocket expenses including the costs of any foreign and
domestic sub-custodians.
First Data Investors Services Group Inc., formerly The
Shareholder Services
Group, Inc. ("First Data"), a subsidiary of First Data
Corporation, serves as the
Trust's transfer agent. For its services as transfer agent,
First Data receives fees
charged to a Portfolio at an annual rate based upon the
number of shareholder
accounts maintained during the year. First Data is also
reimbursed by the Portfolios
for out-of-pocket expenses.
FINANCIAL STATEMENTS
The Trust's Annual Report for the year ended August 31,
1995, was
previously sent to all shareholders and is incorporated into
this Statement of
Additional Information by reference.
CONSULTING GROUP CAPITAL MARKETS FUNDS
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Financial Highlights
Included in Part B:
The Registrant's Annual Report for the fiscal year
ended
August 31, 1995 and the report of the Independent
Accountants dated August
31, 1995 are incorporated by reference to the definitive
30b2-1 filed via EDGAR
on November 2, 1995 as Accession No. 91155-95-406.
Included in Part C:
(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, 1993
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. is filed
herewith
5(u) Investment Advisory Agreement date March 15, 1996
between
Smith Barney Mutual Funds Management Inc. and National Asset
Management Inc. relating to Long-Term Bonds Investments is
incorporated
by reference to Post-Effective Amendment No. 14 to the
Registration
Statement on Form N-1A filed on June 3, 1996.
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
3, 1995 and August 24, 1995, respectively, are incoroprated
by reference to
Post-Effective Amendment No. 13 to the Registration
Statement
on Form N-1A as filed on November 2, 1995.
9 Transfer Agency and Registrar Agreement between the
Registrant and The Shareholder Services Group, Inc., dated
September 26, 1993,
is incorporated by reference to Post-Effective Amendment No.
4 to the
Registration Statement on Form N-1A, as filed on
December 30, 1993.
10 Opinion of Willkie Farr & Gallagher, including Consent,
is incorporated by reference to Post-Effective Amendment
No. 13 to the Registration Statement on Form N-1A filed
on November 2, 1995.
11 Not Applicable.
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.
to the Registration Statement on Form N-1A filed on March
30, 1992 ("Post-Effective Amendment No. 1").
17 Financial Data Schedules is incorporated by
reference to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A, as filed
with the Commission on November 2, 1995.
18 Not Applicable.
19 Powers of Attorney are incorporated by reference to
Post-Effective Amendment No. 3.
Item 25. Persons Controlled by or Under Common Control with
Registrant
None.
Item 26. Number of Holders of Securities
(1) (2)
Number of Record Holders
Title of Class as of May 29, 1996
Shares of beneficial interest, par value $.001 per share
Government Money Investments 65,157
Intermediate Fixed-Income Investments 19,612
Long-Term Fixed Income Investments 20,876
Municipal Bond Investments 2,965
Mortgage Backed Investments 21,214
Balanced Investments 412
Large Capitalization Value Equity Investments 76,588
Large Capitalization Growth Investments 77,009
Small Capitalization Value Equity Investments 70,851
Small Capitalization Growth Investments 64,463
International Equity Investments 73,352
International Fixed Income Investments 22,569
Emerging Markets Equity Investments 18,266
Item 27. Indemnification
Incorporated by reference to Pre-Effective Amendment
No. 2 to the Registration Statement on Form N-1A as filed on
January 7, 1993.
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 - National Asset Management , Inc.
National Asset Management , Inc. ("National Asset")
serves as
investment advisor to Long-Term Bond Investments. National
Asset has
been registered as an investment advisor under the Advisers
Act since 1979
and provides investment advisory services to individuals and
institutions. National Asset principal executive offices
are located at 101 South Fifth
Street, 6th Floor, Louisville, Ky 40202.
The list required by this Item 28 of officers and
directors of National Asset together with information as to
any other business,
profession, vocation or employment of a substantial nature
engaged in by such
officers and directors is incorporated by reference to
Schedules A and D of Form ADV filed by National Asset.
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 - 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, Inc.
Pilgrim Baxter & Associates, Inc. ("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
incorporated 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 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 Natural
Resources 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 Funds, Inc., Smith Barney Muni Funds,
Smith Barney World Funds, Inc., Smith Barney Money Funds,
Inc., Smith Barney
Tax Free Money Fund, Inc., Smith Barney Variable Account
Funds, Smith Barney U.S.
Dollar Reserve Fund (Cayman), Worldwide Special Fund, N.V.,
Worldwide
Securities Limited, (Bermuda), and various series of unit
investment trusts.
Smith Barney is a wholly owned subsidiary of Smith Barney
Holdings Inc., which in turn is a wholly owned subsidiary of
Travelers
Group Inc. (formerly Primerica Corporation). The
information required by this
Item 29 with respect to each director, officer and partner
of Smith
Barney is incorporated by reference to Schedule A of FORM BD
filed by
Smith Barney pursuant to the Securities Exchange Act of 1934
(SEC File
No. 812-8510).
Item 30. Location of Accounts and Records
Consulting Group Capital Markets Funds
222 Delaware Avenue
Wilmington, Delaware 19801
PNC Bank
17th and Chestnuts Streets
Philadelphia, Pennsylvania
Morgan Guaranty and Trust Company
60 Wall Street
New York, New York
Smith Barney Inc.
388 Greenwich Street, 22nd Floor
New York, New York 10013
First Data Investor Services Group Inc.
(Formerly The Shareholder Services Group)
Exchange Place
Boston, MA 02109
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
Not Applicable.
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. 16 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 as of the 13th day of August,
1996.
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 August 13, 1996
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone
Senior Vice President and Treasurer August 13,
1996
Lewis E. Daidone (Chief Financial and Accounting
Officer)
/s/ Walter E. Auch, Sr.*
Walter E. Auch, Sr., Trustee August 13,
1996
/s/ Armon E. Kamesar, Trustee, August 13,
1996
Armon E. Kamesar
/s/ Martin Brody*
Martin Brody, Trustee, August 13,
1996
/s/ Stephen E. Kaufman*
Stephen E. Kaufman, Trustee, August 13,
1996
/s/ Madelon DeVoe Talley*
Madelon DeVoe Talley, Trustee August 13,
1996
* 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 August 13, 1996
