As filed with the Securities and Exchange Commission on
May 30, 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. 14 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940
Amendment No. 15 X
CONSULTING GROUP CAPITAL MARKETS FUNDS
(Exact name of Registrant as Specified in Charter)
222 Delaware Avenue, Wilmington, Delaware 19801
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(302) 888-4104
Christina T. Sydor
Consulting Group Capital Markets Funds
388 Greenwich Street, 22nd Floor
New York, New York 10013
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
As soon as possible after this Post-Effective Amendment
becomes effective
It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule 485(b)
on January 2, 1995 pursuant to Rule 485(b)
X 60 days after filing pursuant to Rule 485(a)
on _________________ pursuant to Rule 485(a)
___________________________________
The Registrant has previously filed a declaration of
indefinite
registration of its shares pursuant to Rule 24f-2 under the
Investment
Company Act of 1940. Registrant's Rule 24f-2 Notice for the
fiscal year
ended August 31, 1995 was filed on October 31, 1995.
CONSULTING GROUP CAPITAL MARKETS FUNDS
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
Part A.
Item No. Prospectus Heading
1. Cover Page Cover Page
2. Synopsis Summary
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Cover Page; Summary;
Objectives
and Policies of the Portfolios; Additional Information
5. Management of the Fund Summary; TRAK Fees; Portfolio
Expenses;
Management of the Trust; Custodian and Transfer Agent
6. Capital Stock and Other Securities Cover Page;
Dividends,
Distributions and Taxes; Additional Information
7. Purchase of Securities Being Offered Summary;
Purchase of
Shares; Net Asset Value; Exchange Privilege
8. Redemption or Repurchase Redemption of Shares; Exchange
Privilege
9. Pending Legal Proceedings Not Applicable
Part B Heading in Statement of
Item No. Additional Information
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and History Management of the
Trust; See
Prospectus -- "Additional Information"
13. Investment Objectives and Policies Objectives and
Policies of the
Portfolios
14. Management of the Fund Management of the Trust;
Custodian and
Transfer Agent
15. Control Persons and Principal Holders of Securities
Management of
the Trust
16. Investment Advisory and Other Services Purchase of
Shares;
Management of the Trust; Custodian and Transfer Agent; See
Prospectus --
"TRAK Fees; Portfolio Expenses"; "Custodian and Transfer
Agent" and
"Management of the Trust"
17. Brokerage Allocation and Other Practices Objectives
and Policies of
the Portfolios
18. Capital Stock and Other Securities See Prospectus --
"Dividends,
Distributions and Taxes" and "Additional Information"
19. Purchase, Redemption and Pricing of Purchase of
Shares; Net Asset
Value;
Securities Being Offered See Prospectus -- "Exchange
Privilege"
20. Tax Status Taxes; See Prospectus -- "Dividends,
Distributions and
Taxes"
21. Underwriters Objectives and Policies of the
Portfolios; Purchase
of Shares; See Prospectus -- "Purchase of Shares"
22. Calculation of Performance Data Determination of
Performance; See
Prospectus - "Performance of the Portfolios"
23. Financial Statements Report of Independent
Accountants; Statement
of Assets and Liabilities
CONSLUTING GROUP CAPITAL MARKETS FUNDS
PART A
<PAGE>
CONSULTING GROUP
CAPITAL MARKETS FUNDS
SmithBarney
-----------
A Member of TravelersGroup [ART]
<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
.Intermediate Fixed Income Investments
Investments .Large Capitalization Growth Investments
.Long-Term Bond Investments .Small Capitalization Value Equity
.Municipal Bond Investments Investments
.Mortgage Backed Investments .Small Capitalization Growth Investments
.Balanced Investments .International Equity Investments
.International Fixed Income Investments
.Emerging Markets Equity Investments
Each of the Portfolios is a diversified Portfolio of the Trust, except
International Fixed Income Investments, which is a non-diversified Portfolio.
Shares of Government Money Investments are not guaranteed or insured by the
U.S. government and, although Government Money Investments attempts to
maintain a constant net asset value of $1.00 per share, there can be no
assurance that it will be able to do so at all times.
Shares of the Portfolios are offered 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.
July , 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary............................. 1
Advisory Service Fees; Portfolio
Expenses........................... 4
Financial Highlights................ 12
Objectives and Policies of the Port-
folios............................. 13
Management of the Trust............. 30
Purchase of Shares.................. 36
Redemption of Shares................ 38
Net Asset Value..................... 39
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Exchange Privilege.................................................... 39
Dividends, Distributions and Taxes.................................... 40
Custodian and Transfer Agent.......................................... 42
Performance of the Portfolios......................................... 42
Additional Information................................................ 44
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's") 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
<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."
2
<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
Morgan Guaranty and Trust Company ("Morgan") serve as the custodians of the
Trust's assets and may employ sub-custodians outside the United States approved
by the Trustees of the Trust in accordance with regulations of the Securities
and Exchange Commission (the "SEC"). PNC provides services for Portfolios
predominately comprised of domestic securities, whereas Morgan provides
services for international Portfolios. First Data Investor Services Group,
Inc., (the "Transfer Agent"), a subsidiary of First Data Corporation, serves as
the transfer agent for the Portfolios' shares. See "Custodian and Transfer
Agent."
3
<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
TRANSACTIONS TRAK OF FEE (RULE 12b-1) OTHER OPERATING
EXPENSES FEE* WAIVERS) EXPENSES EXPENSES EXPENSES
------------ ------- ---------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Government Money
Investments............ None 1.50% 0.08% None 0.52% 0.60%
Intermediate Fixed
Income Investments..... None 1.50% 0.60% None 0.20% 0.80%
Long-Term Bond
Investments**.......... None 1.50% 0.46% None 0.34% 0.80%
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% 0.83%
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>
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 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.
- --------
+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 Managements Inc.
4
<PAGE>
Based on the Portfolio expenses set forth above, including an Advisory
Service fee of 1.5%, 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%.
5
<PAGE>
FINANCIAL HIGHLIGHTS
The following information for the fiscal year ended August 31, 1995 has been
audited by KPMG Peat Marwick LLP, independent auditors, whose report thereon
appears in the Trust's Annual Report dated August 31, 1995. This information
should be read in conjunction with the financial statements and related notes
that appear in the Trust's Annual Report dated August 31, 1995, which is
available upon request and incorporated by reference into the Statement of
Additional Information. The following information for the fiscal year ended
August 31, 1992 through August 31, 1994 has been audited by Coopers & Lybrand
L.L.P.
GOVERNMENT MONEY INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING
THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995 1994 1993 1992
- --------------------- -------- -------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year. $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------- -------
Net investment income#............. 0.05 0.03 0.03 0.03
Dividends from net investment in-
come.............................. (0.05) (0.03) (0.03) (0.03)
-------- -------- ------- -------
NET ASSET VALUE, end of year....... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======= =======
Total return++..................... 5.24 % 3.10 % 2.76 % 2.72 %
======== ======== ======= =======
Ratios to average net
assets/Supplemental Data:
NET ASSETS, end of year (in 000's). $241,590 $184,656 $84,034 $30,353
Ratio of operating expenses to av-
erage net assets+................. 0.60 % 0.55 % 0.50 % 0.49 %**
Ratio of net investment income to
average net assets................ 5.14 % 3.16 % 2.71 % 3.37 %**
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived and/or expenses
reimbursed by the 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 YEAR.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995 1994 1993 1992
- --------------------- -------- -------- -------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of
year............................. $ 7.92 $ 8.58 $ 8.25 $ 8.00
-------- -------- -------- -------
Income from investment operations:
Net investment income#............ 0.50 0.47 0.51 0.34
Net realized and unrealized
gain/(loss) on investments....... 0.16 (0.56) 0.33 0.25
-------- -------- -------- -------
Total from investment operations.. 0.66 (0.09) 0.84 0.59
Less Distributions:
Distributions from net investment
income........................... (0.48) (0.50) (0.48) (0.34)
Distributions from net realized
capital gains.................... -- (0.05) (0.03) --
Distributions in excess of net re-
alized gains..................... -- (0.01) -- --
Distributions from capital........ -- (0.01) -- --
-------- -------- -------- -------
Total Distributions............... (0.48) (0.57) (0.51) (0.34)
-------- -------- -------- -------
NET ASSET VALUE; end of year...... $ 8.10 $ 7.92 $ 8.58 $ 8.25
======== ======== ======== =======
Total return++.................... 8.70 % (1.13)% 10.59 % 7.53 %
======== ======== ======== =======
Ratios to average net
assets/Supplemental Data:
NET ASSETS, end of year (in
000's)........................... $246,323 $223,548 $140,580 $58,545
Ratio of operating expenses to av-
erage net assets+................ 0.80 % 0.80 % 0.80 % 0.79 %**
Ratio of net investment income to
average net assets............... 6.40 % 5.77 % 5.94 % 6.00 %**
Portfolio turnover rate........... 98 % 86 % 92 % 169 %
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized
+ Annualized operating expense ratios before fees waived 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.
6
<PAGE>
FINANCIAL HIGHLIGHTS
LONG-TERM BOND INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING
THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995 1994 1993 1992
- --------------------- -------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year. $ 7.86 $ 8.70 $ 8.26 $ 8.00
-------- ------- ------- -------
Income from investment operations:
Net investment income#............. 0.45 0.38 0.47 0.31
Net realized and unrealized
gain/(loss) on investments........ 0.36 (0.75) 0.42 0.26
-------- ------- ------- -------
Total from investment operations... (0.81) (0.37) 0.89 0.57
Less Distributions:
Distribution from net investment
income............................ (0.44) (0.41) (0.45) (0.31)
Distribution from net realized cap-
ital gains........................ -- (0.01) -- --
Distribution in excess of net real-
ized gains........................ -- (0.05) -- --
Distribution from capital.......... -- (0.00)@ -- --
-------- ------- ------- -------
Total Distributions................ (0.44) (0.47) (0.45) (0.31)
-------- ------- ------- -------
NET ASSET VALUE, end of year....... $ 8.23 $ 7.86 $ 8.70 $ 8.26
======== ======= ======= =======
Total return++..................... 10.71 % (3.93) % 11.08 % 7.37 %
======== ======= ======= =======
Ratios to average net
assets/Supplemental Data:
NET ASSETS, end of year (in 000's). $137,545 $94,628 $64,734 $34,986
Ratio of operating expenses to av-
erage net assets+................. 0.80 % 0.80 % 0.80 % 0.79 %**
Ratio of net investment income to
average net assets................ 5.80 % 5.34 % 5.40 % 5.69 %**
Portfolio turnover rate............ 62 % 43 % 35 % 4 %
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived and/or expenses
reimbursed by the 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 $0.01 per portfolio share.
MUNICIPAL BOND INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING
THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995 1994 1993 1992
- --------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year.. $ 8.06 $ 8.85 $ 8.25 $ 8.00
------- ------- ------- -------
Income from investment operations: --
Net investment income#.............. 0.61 0.40 0.41 0.30
Net realized and unrealized
gain/(loss) on investments......... 0.21 (0.71) 0.62 0.25
------- ------- ------- -------
Total from investment operations.... (0.31) 1.03 0.55
Less Distributions:
Distributions from net investment
income............................. (0.40) (0.40) (0.41) (0.30)
Distributions in excess of net in-
vestment income.................... (0.00)@ -- -- --
Distributions from net realized cap-
ital gains......................... -- (0.05) (0.02) --
Distributions in excess of net real-
ized capital gains................. -- (0.03) -- --
------- ------- ------- -------
Total Distributions................. (0.40) (0.48) (0.43) (0.30)
------- ------- ------- -------
NET ASSET VALUE, end of year........ $ 8.27 $ 8.06 $ 8.85 $ 8.25
======= ======= ======= =======
Total return++...................... 7.86 % (3.78) % 12.94 % 7.06 %
======= ======= ======= =======
Ratios to average net
assets/Supplemental Data:
NET ASSETS, end of year (in 000's).. $45,356 $56,625 $47,811 $21,795
Ratio of operating expenses to aver-
age net assets+.................... 0.80 % 0.80 % 0.80 % 0.79 %**
Ratio of net investment income to
average net assets................. 4.99 % 4.59 % 4.76 % 4.71 %**
Portfolio turnover rate............. 49 % 132 % 15 % 76 %
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived and/or expenses
reimbursed by the 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.
7
<PAGE>
FINANCIAL HIGHLIGHTS
MORTGAGE BACKED INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING
THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995 1994 1993 1992
- --------------------- ------- -------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year.. $ 7.69 $ 8.21 $ 8.19 $ 8.00
------- -------- ------- -------
Income from investment operations:
Net investment income#.............. 0.51 0.41 0.53 0.40
Net realized and unrealized
gain/(loss) on investments......... 0.22 (0.41) 0.00@ 0.19
------- -------- ------- -------
Total from investment operations.... 0.73 0.00 0.53 0.59
Less distributions:
Distributions from net investment
income............................. (0.49) (0.41) (0.42) (0.40)
Distributions from net realized cap-
ital gains......................... -- (0.01) -- --
Distributions in excess of net real-
ized capital gains................. -- -- (0.04) --
Distributions from capital.......... (0.02) (0.10) (0.05) --
------- -------- ------- -------
Total Distributions................. (0.51) (0.52) (0.51) (0.40)
------- -------- ------- -------
NET ASSET VALUE, end of year........ $ 7.91 $ 7.69 $ 8.21 $ 8.19
======= ======== ======= =======
Total return++...................... 9.96% (0.20)% 6.68 % 7.56 %
======= ======== ======= =======
Ratios to average net assets/ Sup-
plemental Data:
NET ASSETS, end of year (in 000's).. 104,789 $120,427 $94,421 $35,694
Ratio of operating expenses to aver-
age net assets+.................... 0.80% 0.80 % 0.80 % 0.79 %**
Ratio of net investment income to
average net assets................. 6.85% 6.38 % 6.53 % 6.55 %**
Portfolio turnover rate............. 30 % 53 % 93 % 35 %
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived and/or expenses
reimbursed by the 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 YEAR.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995 1994 1993
- --------------------- ------- ------- ------
<S> <C> <C> <C>
NET ASSET VALUE, beginning of year............... $ 8.63 $ 8.41 $ 8.00
------- ------- ------
Income from investment operations:
Net investment income#........................... 0.26 0.21 0.09
Net realized and unrealized gain on investments.. 0.81 0.16 0.42
------- ------- ------
Total from investment operations................. 1.07 0.37 0.51
Less distributions:
Distributions from net investment income......... (0.29) (0.15) (0.10)
Distribution from net realized capital gains..... (0.04) -- --
Distributions from capital....................... -- -- (0.00)@
------- ------- ------
Total Distributions.............................. (0.33) (0.15) (0.10)
------- ------- ------
NET ASSET VALUE, end of year..................... $ 9.33 $ 8.63 $ 8.41
======= ======= ======
Total return++................................... 12.76% 4.62 % 6.35 %
======= ======= ======
Ratios to average net assets/ Supplemental Data:
NET ASSETS, end of year (in 000's)............... $30,268 $14,940 $5,258
Ratio of operating expenses to average net as-
sets+........................................... 1.00% 1.00 % 1.00 %**
Ratio of net investment income to average net as-
sets............................................ 3.28% 2.66 % 2.67 %**
Portfolio turnover rate.......................... 47% 43 % 10 %
</TABLE>
- --------
* The Portfolio commenced operations on February 16, 1993.
** Annualized.
+ Annualized operating expense ratio before fees waived and/or expenses
reimbursed by the 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.
8
<PAGE>
FINANCIAL HIGHLIGHTS
LARGE CAPITALIZATION VALUE EQUITY
INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING
THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995 1994 1993 1992
- --------------------- ---------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of
year........................... $ 9.39 $ 9.35 $ 8.77 $ 8.00
---------- -------- -------- --------
Income from investment
operations:
Net investment income#.......... 0.27 0.17 0.25 0.09
Net realized and unrealized gain
on investments................. 1.16 0.02 0.54 0.68
---------- -------- -------- --------
Total from investment
operations..................... 1.43 0.19 0.79 0.77
Less Distributions:
Distributions from net
investment income.............. (0.24) (0.15) (0.14) --
Distributions from net realized
capital gains.................. (0.16) 0.00@ (0.07) --
---------- -------- -------- --------
Total Distributions............. (0.40) (0.15) (0.21) --
---------- -------- -------- --------
NET ASSET VALUE, end of year.... $ 10.42 $ 9.39 $ 9.35 $ 8.77
========== ======== ======== ========
Total return+................... 16.14 % 2.09 % 9.25 % 9.63%
========== ======== ======== ========
Ratios to average net
assets/Supplemental Data:
NET ASSETS, end of year (in
000's)......................... $1,070,037 $832,138 $562,507 $197,695
Ratio of operating expenses to
average net assets+++.......... 0.83 % 0.88 % 0.95 % 1.24%**
Ratio of net investment income
to average net assets.......... 2.93 % 2.57 % 2.88 % 3.24%**
Portfolio turnover rate......... 21 % 108 % 47 % 12%
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Total return represents aggregate total return for the period indicated.
++ Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the period
since the use of the undistributed net investment income method does not
accord with results of operations.
+++ Annualized operating expense ratio before fee waivers by the 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 YEAR.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995 1994 1993 1992
- --------------------- -------- -------- -------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year.. $ 10.00 $ 9.76 $ 8.88 $ 8.00
-------- -------- -------- -------
Income from investment operations:
Net investment income#.............. 0.09 0.03 0.00@ 0.01
Net realized and unrealized gain on
investments........................ 2.13 0.21 0.89 0.87
-------- -------- -------- -------
Total from investment operations.... 2.22 0.24 0.89 0.88
Less Distributions:
Distributions from net investment
income............................. (0.08) -- (0.00)@ --
Distributions in excess of net in-
vestment income.................... -- -- (0.01) --
Distributions from net realized cap-
ital gains......................... (0.01) -- -- --
Distributions from capital.......... -- -- (0.00)@ --
-------- -------- -------- -------
Total Distributions................. (0.09) -- (0.01) --
-------- -------- -------- -------
NET ASSET VALUE, end of year ....... $ 12.14 $ 10.00 $ 9.76 $ 8.88
======== ======== ======== =======
Total return++...................... 22.30 % 2.46% 10.00 % 11.00%
======== ======== ======== =======
Ratios to average net
assets/Supplemental Data:
NET ASSETS, end of year (in 000's) . $782,394 $457,588 $238,256 $85,401
Ratio of operating expenses to aver-
age net assets+.................... 0.88 % 0.98% 1.12 % 1.24%**
Ratio of net investment
income/(loss) to average net as-
sets............................... 0.98 % 0.39% (0.04)% 0.31%**
Portfolio turnover rate............. 38 % 104% 47 % 19%
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratio before fees waived by the 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.
9
<PAGE>
FINANCIAL HIGHLIGHTS
SMALL CAPITALIZATION VALUE EQUITY
INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING
THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995 1994 1993 1992
- --------------------- -------- -------- -------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year. $ 9.03 $ 9.94 $ 8.68 $ 8.00
-------- -------- -------- -------
Income from investment operations:
Net investment income#............. 0.15 0.08 0.06 0.03
Net realized and unrealized
gain/(loss) on investments........ 0.95 (0.40) 1.31 0.65
-------- -------- -------- -------
Total from investment operations... 1.10 (0.32) 1.37 0.68
Less distributions:
Distributions from net investment
income............................ (0.12) (0.07) (0.03) --
Distributions from net realized
capital gains..................... (0.00)@ (0.51) (0.08) --
Distributions in excess of net
realized capital gains............ -- (0.01) -- --
-------- -------- -------- -------
Total Distributions................ (0.12) (0.59) (0.11) --
-------- -------- -------- -------
NET ASSET VALUE, end of year....... $ 10.01 $ 9.03 $ 9.94 $ 8.68
======== ======== ======== =======
Total return++..................... 12.50 % (3.30)% 15.74 % 8.50%
======== ======== ======== =======
Ratios to average net
assets/Supplemental Data:
NET ASSETS, end of year (in 000's). $340,306 $342,388 $183,051 $93,458
Ratio of operating expenses to
average net assets................ 1.11 % 1.06 % 1.11 % 1.24%**
Ratio of net investment income to
average net assets................ 1.54 % 1.12 % 0.82 % 0.99%**
Portfolio turnover rate............ 115 % 65 % 70 % 20%
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratio before fees waived by the 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 YEAR.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995 1994 1993 1992
- --------------------- -------- -------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year. $ 12.50 $ 11.21 $ 7.99 $ 8.00
-------- -------- ------- -------
Income from investment operations:
Net investment loss#............... (0.05) (0.09) (0.07) (0.01)
Net realized and unrealized gain on
investments....................... 4.81 1.56 3.29 --
-------- -------- ------- -------
Total from investment operations... 4.76 1.47 3.22 (0.01)
Less distributions:
Distributions from net realized
capital gains..................... (0.07) (0.04) -- --
Distributions in excess of net
realized capital gains............ -- (0.10) -- --
Distributions from capital......... -- (0.04) -- --
-------- -------- ------- -------
Total Distributions................ (0.07) (0.18) -- --
-------- -------- ------- -------
NET ASSET VALUE, end of year....... $ 17.19 $ 12.50 $ 11.21 $ 7.99
======== ======== ======= =======
Total return++..................... 38.25 % 13.18 % 40.30 % (0.13)%
======== ======== ======= =======
Ratios to average net
assets/Supplemental Data:
NET ASSETS, end of year (in 000's). $315,033 $180,175 $75,498 $22,145
Ratio of operating expenses to
average net assets+............... 1.14 % 1.20 % 1.25 % 1.24 %**
Ratio of net investment loss to
average net assets................ (0.35)% (0.78)% (0.72)% (0.25)%**
Portfolio turnover rate............ 174 % 94 % 97 % 35 %
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived and/or expenses
reimbursed by the 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.
10
<PAGE>
FINANCIAL HIGHLIGHTS
INTERNATIONAL EQUITY INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING
THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995 1994 1993 1992
- --------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of
year............................ $ 10.86 $ 9.57 $ 7.76 $ 8.00
Income from investment opera-
tions:
Net investment income#........... 0.05 0.02 0.05 0.03
Net realized and unrealized
gain/(loss) on investments...... (0.09) 1.54 1.79 (0.27)
-------- -------- -------- --------
Total from investment operations. (0.04) 1.56 1.84 (0.24)
Less distributions:
Distributions from net investment
income.......................... -- (0.03) (0.03) --
Distributions from net realized
capital gains................... (0.32) (0.24) -- --
-------- -------- -------- --------
Total Distributions.............. (0.32) (0.27) (0.03) --
-------- -------- -------- --------
NET ASSET VALUE, end of year (in
000's).......................... $ 10.50 $ 10.86 $ 9.57 $ 7.76
======== ======== ======== ========
Total return++................... (0.18)% 16.74 % 23.73 % (3.00)%
======== ======== ======== ========
Ratios to average net
assets/Supplemental Data:
NET ASSETS, end of year (in
000's).......................... $663,130 $594,965 $270,302 $115,779
Ratio of operating expenses to
average net assets+............. 1.19 % 1.19 % 1.32 % 1.50 %**
Ratio of net investment income to
average net assets.............. 0.43 % 0.23 % 0.61 % 1.08 %**
Portfolio turnover rate.......... 28 % 33 % 46 % 10 %
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
**Annualized.
+ Annualized operating expense ratio before fees waived by the 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 YEAR.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995 1994 1993 1992
- --------------------- -------- -------- -------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of
year............................. $ 8.17 $ 8.86 $ 8.71 $ 8.00
-------- -------- -------- -------
Income from investment operations:
Net investment income#............ 0.56 0.40 0.51 0.39
Net realized and unrealized
gain/(loss) on investments....... 0.84 (0.32) 0.20 0.69
-------- -------- -------- -------
Total from investment operations.. 1.40 0.08 0.71 1.08
Less Distributions:
Distributions from net investment
income........................... (0.56) (0.65) (0.55) (0.37)
Distributions from net realized
capital gains.................... -- (0.07) (0.01) --
Distributions in excess of net re-
alized capital gains............. -- (0.05) -- --
Distributions from capital........ -- (0.00)@ -- --
-------- -------- -------- -------
Total Distributions............... (0.56) (0.77) (0.56) (0.37)
-------- -------- -------- -------
NET ASSET VALUE, end of year...... $ 9.01 $ 8.17 $ 8.86 $ 8.71
======== ======== ======== =======
Total return++.................... 17.66 % 1.00 % 8.67 % 13.93 %
======== ======== ======== =======
Ratios to average net
assets/Supplemental Data:
NET ASSETS, end of year (in
000's)........................... $105,884 $116,929 $100,362 $39,182
Ratio of operating expenses to av-
erage net assets+................ 0.95 % 0.95 % 0.95 % 0.95 %**
Ratio of net investment income to
average net assets............... 6.50 % 5.54 % 6.03 % 6.34 %**
Portfolio turnover rate........... 307 % 358 % 251 % 106 %
</TABLE>
- --------
* The Portfolio commenced operations on November 18, 1991.
** Annualized.
+ Annualized operating expense ratios before fees waived and/or expenses
reimbursed by the 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.
11
<PAGE>
FINANCIAL HIGHLIGHTS
EMERGING MARKETS EQUITY INVESTMENTS
FOR A PORTFOLIO SHARE OUTSTANDING
THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995 1994
- --------------------- ------ -------
<S> <C> <C>
NET ASSET VALUE, begin-
ning of year........... $ 9.49 $ 8.00
Income from investment
operations:
Net investment
gain/(loss)#........... 0.01 (0.02)
Net realized and
unrealized gain on in-
vestments.............. (1.45) 1.51
------ -------
Total from investment
operations............. (1.44) 1.49
------ -------
Total Distribution...... (0.20)
------ -------
NET ASSET VALUE, end of
year................... $ 7.85 $ 9.49
====== =======
Total return++.......... (15.13)% 18.63 %
====== =======
Ratios to average net
assets/Supplemental Da-
ta:
NET ASSETS, end of year
(in 000's)............. 59,333 $36,365
Ratio of operating ex-
penses to average net
assets+................ 1.75 % 1.72 %**
Ratio of net investment
gain/(loss) to average
net assets............. 0.15 % (0.42)%**
Portfolio turnover rate. 89 % 16 %
</TABLE>
- --------
* The Portfolio commenced operations on April 21, 1994.
** Annualized.
+ Annualized operating expense ratios before fees waived by the 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.
# 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.
12
<PAGE>
OBJECTIVES AND POLICIES OF THE PORTFOLIOS
Set forth below is a description of the investment objectives and policies of
each Portfolio. There can be no assurance that any Portfolio will achieve its
investment objectives. Further information about the investment policies of
each Portfolio, including a list of those restrictions on its investment
activities that cannot be changed without shareholder approval, appears in the
Statement of Additional Information.
GOVERNMENT MONEY INVESTMENTS
Government Money Investments 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
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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
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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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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's 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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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 Group 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, the 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. The
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 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, Mellon seeks to track the performance of the Russell
2000 Growth Index. The Portfolio seeks, as its investment objective, maximum
capital appreciation. The portion of the Portfolio allocated to Mellon seeks to
track the performance of the Russell 2000 Growth Index. With respect to the
remainder of the Portfolio, the Pilgrim 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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capitalization companies that it believes are undervalued in the marketplace,
or have earnings that may be expected to grow faster than the U.S. economy in
general. These companies typically possess a relatively high rate of return on
invested capital so that future growth can be financed from internal sources.
The Pilgrim may also invest in companies that offer the possibility of
accelerating earnings growth because of management changes, new products or
structural changes in the economy. Companies in which the Pilgrim 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 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%.
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, the 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, the 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 Investment
Management. The Portfolio seeks as its investment objective, to maximize
current income consistent with protection of principal by
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investing primarily in a managed portfolio of non-U.S. dollar debt securities
issued by foreign governments and supranational entities. Under normal market
conditions, at least 65% of the Portfolio's assets will be invested in fixed
income securities of issuers domiciled in at least three foreign countries. The
Portfolio will not invest more than 25% of its assets in the securities of
governments in any one country. The Portfolio limits its purchases of debt
securities to those that are rated within the four highest categories
established by S&P or Moody's or, if unrated, are deemed by the 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 John Govett & Co. Limited.
The Portfolio seeks to achieve long-term capital appreciation through
investment primarily in a diversified portfolio of equity securities of issuers
in countries having "emerging markets." For this purpose, a country with an
emerging market is generally one in which the per capita income is in the low
to middle ranges, as determined by the International Bank for Reconstruction
and Development (World Bank). The Portfolio currently expects to invest in the
following emerging markets countries: Argentina, Austria (as a "gateway" into
Czech Republic and Hungary), Brazil, Chile, China, Colombia, Greece, Hong Kong
(as a "gateway" into China), India, Indonesia, Israel, South Korea, Malaysia,
Mexico, Pakistan, Philippines, Portugal, Singapore, Sri Lanka, Taiwan,
Thailand, Turkey and Venezuela. The Portfolio may from time to time discontinue
investments in any of the above-mentioned countries and/or begin investing in
other countries with emerging markets.
The Portfolio anticipates normally investing at least 65% of its total assets
in securities of issuers located in at least three different countries, other
than the United States. At least 65% of the Portfolio's total assets typically
will be invested in equity securities 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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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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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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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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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 Division of Smith Barney, have over 20 years of experience
in evaluating investment advisers for individuals and institutional investors.
As of January 31, 1996, the Manager rendered advisory services with respect to
assets with a value in excess of $70 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 Investment, 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's, 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 Investments, with respect to the portion of the portfolio
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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 Parametric, 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's, 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 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 Parametric, 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
Management 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
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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 December 31, 1995, Standish, Ayer had assets under management
of approximately $28.8 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
December 31, 1995, National Asset Mgmt. had assets under management of $5.9
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 December 31, 1995,
Smith Affiliated had assets under management of approximately $1.4 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 December 31,
1995, Atlantic Analytics had assets under management of approximately $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 Mortgaged Backed Investments whose
direct oversight is closely monitored by a Risk Management Committee
consisting of the Chief Financial Officer, Chief Executive Officer, and
Director of Valuation Technology.
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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 December 31, 1995, Palley-
Needelman had assets under management of approximately $3.2 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's 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 December 31, 1995, Newbold's had assets under
management of approximately $6.8 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's 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's 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 December 31,
1995 had assets under management of $1.52 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 December 31,
1995, Provident had assets under management of approximately $17.9 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 December 31, 1995, PanAgora Boston had
$14.9 billion in assets under management. The principal offices of both BSA and
PanAgora Boston are located at 260 Franklin Street, Boston, Massachusetts
02110. Paul Samuelson is primarily responsible for the day-to-day management of
those assets of the Portfolio allocated to BSA for management. Mr. Samuelson
has been Director of Fixed
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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 December 31,
1995, it had assets under management of approximately $1.3 billion. NFJ's
principal executive offices are located at 2121 San Jacinto Street, Suite 1440,
Dallas, Texas 75201. Benno Fischer has been a Managing Director and Portfolio
Manager of NFJ or its predecessors since January, 1989 and has been responsible
for the day-to-day management of those assets of the Portfolio allocated to NFJ
or its predecessor for management since August 1, 1993, the date on which NFJ's
predecessor began serving as an Advisor to the Portfolio.
BZW also serves as an Adviser to Small Capitalization Value Equity
Investments. BZW is a wholly-owned subsidiary of Barclays Bank PLC. As of
December 31, 1995, BZW was responsible for managing or providing investment
advice for assets of approximately $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 December 31, 1995,
had assets under management of approximately $4.1 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
September 30, 1995, Mellon had assets under management of approximately $40.2
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 December 31, 1995, Oechsle had assets under management of approximately
$6.5 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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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 December 31, 1995, 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
December 31, 1995, Julius Baer had assets under management of approximately
$3.1 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, John Govett is a wholly-owned subsidiary of Allied
Irish Bank PLC, a financial services company. John 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 January 31,
1995, Govett had approximately $4.2 billion in assets under management. Rachael
Maunder is primarily responsible for the day-to-day management of the
Portfolio's assets. Ms. Maunder has been a Manager of emerging markets funds of
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.
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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.
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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.
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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.
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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.
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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
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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.
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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.
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The table below shows individual taxpayers how to translate the tax savings
from investments such as the Portfolio into an equivalent return from a taxable
investment. The yields used below are for illustration only and are not
intended to represent current or future yields for the Portfolio, which may be
higher or lower than those shown.
<TABLE>
<CAPTION>
SAMPLE FEDERAL
TAXABLE MARGINAL TAX-EXEMPT YIELDS
INCOME RATE* 4.00% 5.00% 6.00% 7.00% 8.00% 9.00%
- -------------------------------------------------------------------------
EQUIVALENT TAXABLE YIELD
SINGLE JOINT RETURN -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 23,500 $ 39,000 15 4.71 5.88 7.06 8.24 9.41 10.59
56,550 94,250 28 5.56 6.94 8.33 9.72 11.11 12.50
117,950 143,600 31 5.80 7.25 8.70 10.14 11.59 13.04
256,500 256,500 36 6.25 7.81 9.38 10.94 12.50 14.06
over $256,500 over $256,500 39.60 6.62 8.28 9.93 11.59 13.25 14.90
</TABLE>
- --------
* The federal tax rates shown are those currently in effect for 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.
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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.
44
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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
July , 1996
-----------------
Smith Barney Inc.
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<PAGE>
SMITH BARNEY PROVIDES A BROAD RANGE OF INVESTMENT
SERVICES TO INDIVIDUALS, FINANCIAL INSTITUTIONS,
GOVERNMENT AND CORPORATIONS IN THE UNITED STATES AND
AROUND THE WORLD. THE FIRM IS A MEMBER OF TRAVELERS
GROUP, A LEADING DIVERSIFIED FINANCIAL SERVICE COMPANY
LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL
TRV.
(C)1996 SMITH BARNEY INC.
TK2088 1/96
29XXX C5
CONSULTING GROUP CAPITAL MARKETS FUNDS
PART B
PART B
July 30, 1996
STATEMENT OF ADDITIONAL INFORMATION
CONSULTING GROUP CAPITAL MARKETS
FUNDS
222 Delaware Avenue ~ Wilmington, Delaware 19801 ~ (212)
816-TRAK
This Statement of Additional Information supplements the
information
contained in the current Prospectus (the "Prospectus") of
Consulting
Group Capital Markets Funds (the "Trust"), dated January 1,
1996, and
should be read in conjunction with the Prospectus. The
Prospectus may be
obtained by contacting any Financial Consultant of Smith
Barney Inc.
("Smith Barney"), or by writing or calling the Trust at the
address or
telephone number listed above. This Statement of Additional
Information,
although not in itself a prospectus, is incorporated by
reference into
the Prospectus in its entirety.
____________________________________________________________
____________
CONTENTS
Financial Statements
Appendix-Description of S&P and Moody's Ratings. A-1
Objectives and Policies of the Portfolios 2
Management of the Trust 12
Purchase of Shares 18
Redemption of Shares 20
Net Asset Value 20
Determination of Performance (See in the Prospectus
"Performance of the Portfolios"). 21
Taxes (See in the Prospectus
"Dividends, Distributions and Taxes") 26
Custodian and Transfer Agent 28
For ease of reference, the section headings used in this
Statement of
Additional Information are identical to those used in the
Prospectus
except where noted. Capitalized terms used but not defined
in this
Statement of Additional Information have the meanings
accorded to them
in the Prospectus.
OBJECTIVES AND POLICIES OF THE PORTFOLIOS
The Prospectus discusses the investment objectives of
the
investment portfolios (the "Portfolios") comprising the
Trust and the
policies to be employed to achieve those objectives.
Supplemental
information is set out below concerning the types of
securities and
other instruments in which the Portfolios may invest, the
investment
policies and strategies that the Portfolios may utilize and
certain
risks attendant to those investments, policies and
strategies.
Ratings as Investment Criteria
In general, the ratings of Moody's Investors Service,
Inc.
("Moody's") and Standard & Poor's Corporation ("S&P")
represent the
opinions of those agencies as to the quality of debt
obligations that
they rate. It should be emphasized, however, that these
ratings are
relative and subjective, are not absolute standards of
quality and do
not evaluate the market risk of securities. These ratings
will be used
by the Portfolios as initial criteria for the selection of
portfolio
securities, but the Portfolios also will rely upon the
independent
advice of their respective investment advisors
(collectively, the
"Advisors") to evaluate potential investments. Among the
factors that
will be considered are the long term ability of the issuer
to pay
principal and interest and general economic trends. The
Appendix to this
Statement of Additional Information contains further
information
concerning the ratings of Moody's and S&P and their
significance.
Subsequent to its purchase by a Portfolio, an issue of
debt
obligations may cease to be rated or its rating may be
reduced below the
minimum required for purchase by the Portfolio. Neither
event will
require the sale of the debt obligation by the Portfolio,
but the
Portfolio's Advisor will consider the event in its
determination of
whether the Portfolio should continue to hold the
obligation. In
addition, to the extent that the ratings change as a result
of changes
in rating organizations or their rating systems or owing to
a corporate
restructuring of Moody's or S&P, the Portfolio will attempt
to use
comparable ratings as standards for its investments in
accordance with
its investment objectives and policies.
U.S. Government Securities
Securities issued or guaranteed by the U.S. government
or one of
its agencies, authorities or instrumentalities ("U.S.
Government
Securities") in which the Portfolios may invest include debt
obligations
of varying maturities issued by the U.S. Treasury or issued
or
guaranteed by an agency or instrumentality of the U.S.
government,
including the Federal Housing Administration, Federal
Financing Bank,
Farmers Home Administration, Export-Import Bank of the U.S.,
Small
Business Administration, Government National Mortgage
Association
("GNMA"), General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Home Loan
Banks,
Federal Home Loan Mortgage Corporation ("FHLMC"), Federal
National
Mortgage Association ("FNMA"), Maritime Administration,
Tennessee Valley
Authority, District of Columbia Armory Board, Student Loan
Marketing
Association, Resolution Trust Corporation and various
institutions that
previously were or currently are part of the Farm Credit
System (which
has been undergoing reorganization since 1987). Direct
obligations of
the U.S. Treasury include a variety of securities that
differ in their
interest rates, maturities and dates of issuance. Because
the U.S.
government is not obligated by law to provide support to an
instrumentality that it sponsors, a Portfolio will invest in
obligations
issued by an instrumentality of the U.S. government only if
the Advisor
determines that the instrumentality's credit risk does not
make its
securities unsuitable for investment by the Portfolio.
Emerging Markets Countries
John Govett & Co. Limited ("JGC") believes the bulk of
performance
is determined by country allocation. Empirical studies
suggest that
between 70 and 90 percent of emerging market fund investment
performance
is explained by country allocation. JGC is firmly committed
to the
notion that diversification is essential to coping with an
array of
volatile markets and it follows a rigorous country
allocation scheme
which prevents excessive exposure to any single country.
Once this "top-
down" country allocation is complete, Govett follows a
fundamentally-
grounded security selection process.
Emerging Markets Equity Investments may invest in the
securities
of companies domiciled in, and in markets of, so-called
"emerging
markets countries." These investments may be subject to
potentially
higher risks than investments in developed countries. These
risks
include:
(1) unfavorable and unstable political and economic
conditions.
The economies of countries in which the Portfolio may invest
may differ
favorably or unfavorably from the U.S. economy in such
respects as the
rate of growth of gross domestic product, the rate of
inflation, capital
reinvestment, resource self-sufficiency and balance of
payments
position. Some of the countries in which the Portfolio may
invest have
experienced over the past decade, and may continue to
experience,
significant economic problems. The areas of concern may
include budget
deficits; high, and in some cases unmanageable, interest
payments on
foreign debt; lack of investment in plant and machinery;
hyper-inflation
due to rapid expansion of the local money supply; and
political
instability, which may result in the failure to adopt
economic
adjustment policies;
(2) the small size and volatility of the markets and
the low
volume of trading in such markets. The securities and debt
markets of
some of the countries in which the Portfolio may invest are
substantially smaller and less liquid than the major
securities and debt
markets in the United States and as a result, in periods of
rising
market prices, the Portfolio may be unable to participate in
price
increases fully to the extent that it is unable to acquire
desired
securities positions quickly; the Portfolio's inability to
dispose fully
and promptly of positions in declining markets may
conversely cause its
net asset value to decline as the value of unsold positions
is marked to
lower prices. A high proportion of the shares of many
companies traded
in emerging market countries may be held by a small number
of persons,
which may restrict the number of shares available for
investment by the
Portfolio;
(3) the existence of national policies which may
restrict the
Portfolio's investment opportunities. Foreign investment in
some
countries in which the Portfolio may invest is restricted or
controlled
to varying degrees. Although the Portfolio's manager will in
its asset
allocation procedure seek to identify countries that exhibit
certain
improved credentials, these restrictions or controls may at
times limit
or preclude foreign investment in certain issuers and
increase the costs
and expenses of the Portfolio.
(4) governmental regulation of the relevant securities
markets.
The governments of some emerging markets countries have
exercised and
continue to exercise substantial influence over many aspects
of the
private sector, including, for example, imposing wage and
price controls
to control inflation. In some cases, the government owns or
controls
many companies, including some of the largest in the
country.
Governments of some countries have in the past participated,
and may
continue in the future to participate, directly in the
securities
markets of their countries, which participation may affect
the
availability, prices and liquidity of securities traded in
those
markets. Similar government actions in the future could have
an effect
on economic conditions in such countries, and in turn affect
private
sector companies, market conditions, prices and yields of
securities
held by the Portfolio. The extent of government supervision
and
regulations of securities exchanges, underwriters, brokers,
dealers and
issuers in emerging markets countries, however, may be less
than in
other countries;
(5) the lack of adequate financial and other reporting
standards
and the absence of information regarding issuers in emerging
markets
countries. Accounting, auditing, financial and other
reporting standards
in countries in which the Portfolio may invest may differ,
in some cases
significantly, from standards in other countries, including
the United
States. In particular, the assets and profits appearing on
the financial
statements of an issuer in certain emerging markets
countries may not
reflect its financial position or results of operations in
the manner in
which such information would have been reflected in
financial statements
prepared in accordance with U.S. generally accepted
accounting
principles. In addition, companies in certain emerging
markets countries
must restate certain assets and liabilities on their
financial
statements to reflect the effect of inflation on those
assets. As a
result, financial statements and reported earnings may
differ from those
of companies in other countries, such as the United States.
Although a
principal objective of the securities laws of the countries
in which the
Portfolio may invest is to promote full and fair disclosure
of all
material corporate information, substantially less
information may be
publicly available about the issuers of securities in the
markets of
those countries than is regularly published by issuers in
other
countries, and disclosure of certain material information
may not be
made. Moreover, even when public information about such
companies and
governments is available, it may be less reliable than
information
concerning the U.S. government and U.S. companies. In
addition, the
extent of government supervision and regulation of
securities exchanges,
underwriters, brokers, dealers and issuers may be less in
countries in
which the Portfolio may invest than in other countries; and
(6) differences in the value of the U.S. dollar and the
currencies
of other countries. To the extent the Portfolio invests in
securities
denominated in the currencies of countries other than the
United States,
a change in the value of any of those currencies relative to
the dollar
will result in a corresponding change in the dollar value of
the
Portfolio's investments denominated in the currency. In
addition,
although some of the Portfolio's income may be received in
the currency
of a country other than the United States, the Portfolio
will measure
distributions, including those made in connection with the
redemption of
shares, from its income in U.S. dollars. Therefore, if the
value of a
particular currency falls relative to the U.S. dollar
between accrual of
the income and the making of a distribution, the amount of
the currency
to be converted into U.S. dollars by the Portfolio to pay
the
distribution will increase and the Portfolio could be
required to
liquidate portfolio investments to make the distribution.
Exchange Rate-Related U.S. Government Securities
Each Portfolio, except Government Money Investments,
may invest up
to 5% of its net assets in U.S. Government Securities for
which the
principal repayment at maturity, while paid in U.S. dollars,
is
determined by reference to the exchange rate between the
U.S. dollar and
the currency of one or more foreign countries ("Exchange
Rate-Related
Securities"). The interest payable on these securities is
denominated in
U.S. dollars and is not subject to foreign currency risk
and, in most
cases, is paid at rates higher than most other U.S.
Government
Securities in recognition of the foreign currency risk
component of
Exchange Rate-Related Securities.
Exchange Rate-Related Securities are issued in a
variety of forms,
depending on the structure of the principal repayment
formula. The
principal repayment formula may be structured so that the
security
holder will benefit if a particular foreign currency to
which the
security is linked is stable or appreciates against the U.S.
dollar. In
the alternative, the principal repayment formula may be
structured so
that the securityholder benefits if the U.S. dollar is
stable or
appreciates against the linked foreign currency. Finally,
the principal
repayment formula can be a function of more than one
currency and,
therefore, be designed as a combination of those forms.
Investments in Exchange Rate-Related Securities entail
special
risks. There is the possibility of significant changes in
rates of
exchange between the U.S. dollar and any foreign currency to
which an
Exchange Rate-Related Security is linked. If currency
exchange rates do
not move in the direction or to the extent anticipated by
the Advisor at
the time of purchase of the security, the amount of
principal repaid at
maturity might be significantly below the par value of the
security,
which might not be offset by the interest earned by the
Portfolios over
the term of the security. The rate of exchange between the
U.S. dollar
and other currencies is determined by the forces of supply
and demand in
the foreign exchange markets. These forces are affected by
the
international balance of payments and other economic and
financial
conditions, government intervention, speculation and other
factors. The
imposition or modification of foreign exchange controls by
the U.S. or
foreign governments or intervention by central banks could
also affect
exchange rates. Finally, there is no assurance that
sufficient trading
interest to create a liquid secondary market will exist for
a particular
Exchange Rate-Related Security due to conditions in the debt
and foreign
currency markets. Illiquidity in the forward foreign
exchange market and
the high volatility of the foreign exchange market may from
time to time
combine to make it difficult to sell an Exchange Rate-
Related Security
prior to maturity without incurring a significant price
loss.
Mortgage Backed Securities
The average maturity of pass-through pools of mortgage
backed securities
varies with the maturities of the underlying mortgage
instruments. In
addition, a pool's stated maturity may be shortened by
unscheduled
payments on the underlying mortgages. Factors affecting
mortgage
prepayments include the level of interest rates, general
economic and
social conditions, the location of the mortgaged property
and age of the
mortgage. Because prepayment rates of individual pools vary
widely, it
is not possible to accurately predict the average life of a
particular
pool. Common practice is to assume that prepayments will
result in an
average life ranging from two to ten years for pools of
fixed rate 30-
year mortgages. Pools of mortgages with other maturities of
different
characteristics will have varying average life assumptions.
Mortgage backed securities may be classified as
private,
governmental or government related, depending on the issuer
or
guarantor. Private mortgage backed securities represent
pass-through
pools consisting principally of conventional residential
mortgage loans
created by non-governmental issuers, such as commercial
banks, savings
and loan associations and private mortgage insurance
companies.
Governmental mortgage backed securities are backed by the
full faith and
credit of the United States. GNMA, the principal U.S.
guarantor of such
securities, is a wholly owned U.S. Governmental Corporation
within the
Department of Housing and Urban Development. Government
related mortgage
backed securities are not backed by the full faith and
credit of the
United States. Issuers of these securities include FNMA and
FHLMC. FNMA
is a government sponsored corporation owned entirely by
private
stockholders that is subject to general regulation by the
Secretary of
Housing and Urban Development. Pass-through securities
issued by FNMA
are guaranteed as to timely payment of principal and
interest by FNMA.
FHLMC is a corporate instrumentality of the United States,
the stock of
which is owned by the Federal Home Loan Banks. Participation
certificates representing interests in mortgages from
FHLMC's national
portfolio are guaranteed as to the timely payment of
interest and
ultimate collection of principal by FHLMC.
The Trust expects that private and governmental
entities may
create mortgage loan pools offering pass-through investments
in addition
to those described above. The mortgages underlying these
securities may
be alternative mortgage instruments, that is, mortgage
instruments whose
principal or interest payments may vary or whose terms to
maturity may
be shorter than previously customary. As new types of
mortgage backed
securities are developed and offered to investors, the
Trust, consistent
with the Portfolio's investment objectives and policies,
will consider
making investments in those new types of securities on
behalf of that
Portfolio.
The Portfolios also may invest in pass-through
securities backed
by adjustable rate mortgages that have been introduced by
GNMA, FNMA and
FHLMC. These securities bear interest at a rate that is
adjusted
monthly, quarterly or annually. The prepayment experience of
the
mortgages underlying these securities may vary from that for
fixed rate
mortgages. The Portfolio will only purchase mortgage related
securities
issued by persons that are governmental agencies or
instrumentalities or
fall outside, or are excluded from, the definition of
investment company
under the Investment Company Act of 1940, as amended (the
"1940 Act").
Forward Currency Contracts
Forward currency contracts (i) are traded in an
interbank market
conducted directly between currency traders (typically
commercial banks
or other financial institutions) and their customers, (ii)
generally
have no deposit requirements and (iii) are typically
consummated without
payment of any commissions. Certain Portfolios, however, may
enter into
forward currency contracts containing either or both deposit
requirements and commissions.
The cost to a Portfolio of engaging in forward currency
transactions varies with factors such as the currency
involved, the
length of the contract period and market conditions then
prevailing.
Because transactions in currency exchange contracts are
usually
conducted on a principal basis, no fees or commissions are
involved.
Hedging transactions may be made from any foreign currency
into U.S.
dollars or into other appropriate currencies. As noted in
the
Prospectus, if a Portfolio enters into a position hedging
transaction,
cash or liquid high grade debt securities will be placed in
a segregated
account with the Portfolio's custodian in an amount equal to
the value
of the Portfolio's total assets committed to the
consummation of the
forward currency contract. If the value of the securities
placed in the
segregated account declines, additional cash or securities
will be
placed in the account so that the value of the account will
equal the
amount of the Portfolio's commitment with respect to the
contract.
At or before the maturity of a forward currency
contract, a
Portfolio may either sell a portfolio security and make
delivery of the
currency, or retain the security and offset its contractual
obligation
to deliver the currency by purchasing a second contract
pursuant to
which the Portfolio will obtain, on the same maturity date,
the same
amount of the currency that it is obligated to deliver. If
the Portfolio
retains the portfolio security and engages in an offsetting
transaction,
the Portfolio, at the time of execution of the offsetting
transaction,
will incur a gain or a loss to the extent that movement has
occurred in
forward currency contract prices. Should forward prices
decline during
the period between the Portfolio's entering into a forward
currency
contract for the sale of a currency and the date it enters
into an
offsetting contract for the purchase of the currency, the
Portfolio will
realize a gain to the extent the price of the currency it
has agreed to
sell exceeds the price of the currency it has agreed to
purchase. Should
forward prices increase, the Portfolio will suffer a loss to
the extent
the price of the currency it has agreed to purchase exceeds
the price of
the currency it has agreed to sell.
The use of forward currency contracts does not
eliminate
fluctuations in the underlying prices of the securities, but
it does
establish a rate of exchange that can be achieved in the
future. In
addition, although forward currency contracts limit the risk
of loss
owing to a decline in the value of the hedged currency, at
the same
time, they limit any potential gain that might result should
the value
of the currency increase. If a devaluation is generally
anticipated, the
Portfolio may not be able to contract to sell currency at a
price above
the devaluation level it anticipates. The successful use of
forward
currency contracts as a hedging technique draws upon special
skills and
experience with respect to these instruments and usually
depends on the
ability of the Portfolio's Advisor to forecast interest rate
and
currency exchange rate movements correctly. Should interest
or exchange
rates move in an unexpected manner, the Portfolio may not
achieve the
anticipated benefits of forward currency contracts or may
realize losses
and thus be in a worse position than if those strategies had
not been
used. Many forward currency contracts are subject to no
daily price
fluctuation limits so that adverse market movements could
continue with
respect to those contracts to an unlimited extent over a
period of time.
Futures Contracts and Related Options
Futures contracts and options thereon may be undertaken
for
hedging and other risk management purposes in an effort to
reduce the
impact of several kinds of anticipated price fluctuation
risks on the
securities held by a Portfolio. For example, futures
contracts for the
sale of foreign currency might be entered into to protect
against
declines in the value of currencies in which portfolio
securities are
denominated; and put options on interest rate futures might
be purchased
to protect against declines in the market values of debt
securities
occasioned by higher interest rates. If these transactions
are
successful, the futures or options positions taken by the
Portfolio will
rise in value by an amount which approximately offsets the
decline in
value of the portion of the securities held by a Portfolio
that is being
hedged.
On other occasions, a Portfolio may enter into
contracts to
purchase the underlying instrument. For example, futures
contracts for
the purchase of debt securities might be entered into to
protect against
an anticipated increase in the price of debt securities to
be purchased
in the future resulting from decreased interest rates.
A Portfolio will incur brokerage costs whether or not
its hedging
is successful and will be required to post and maintain
"margin" as a
good-faith deposit against performance of its obligations
under futures
contracts and under options written by the Portfolio.
Futures and
options positions are marked to the market daily and the
Portfolio may
be required to make subsequent "variation" margin payments
depending
upon whether its positions increase or decrease in value. In
this
context margin payments involve no borrowing on the part of
the
Portfolio.
Lending Portfolio Securities
Each Portfolio other than Municipal Bond Investments
may lend
portfolio securities to brokers, dealers and other financial
organizations. These loans, if and when made, may not exceed
30% of the
value of a Portfolio's total assets. A Portfolio will not
lend
securities to Smith Barney, the Trust's distributor, unless
the
Portfolio has applied for and received specific authority to
do so from
the Securities and Exchange Commission (the "SEC"). A
Portfolio's loans
of securities will be collateralized by cash, letters of
credit or U.S.
Government Securities. The cash or instruments
collateralizing a
Portfolio's loans of securities will be maintained at all
times in a
segregated account with the Portfolio's custodian or with a
designated
sub-custodian in an amount at least equal to the current
market value of
the loaned securities. From time to time, a Portfolio may
pay a part of
the interest earned from the investment of collateral
received for
securities loaned to the borrower and/or a third party that
is
unaffiliated with the Portfolio and is acting as a "finder."
A Portfolio
will comply with the following conditions whenever it loans
securities:
(i) the Portfolio must receive at least 100% cash collateral
or
equivalent securities from the borrower; (ii) the borrower
must increase
the collateral whenever the market value of the securities
loaned rises
above the level of the collateral; (iii) the Portfolio must
be able to
terminate the loan at any time; (iv) the Portfolio must
receive
reasonable interest on the loan, as well as any dividends,
interest or
other distributions on the loaned securities and any
increase in market
value; (v) the Portfolio may pay only reasonable custodian
fees in
connection with the loan; and (vi) voting rights on the
loaned
securities may pass to the borrower except that, if a
material event
adversely affecting the investment in the loaned securities
occurs, the
Trust's Board of Trustees must terminate the loan and regain
the right
to vote the securities.
When-Issued and Delayed-Delivery Securities
When a Portfolio engages in when-issued or delayed-
delivery
securities transactions, it relies on the other party to
consummate the
trade. Failure of the seller to do so may result in the
Portfolio's
incurring a loss or missing an opportunity to obtain a price
considered
to be advantageous.
Rule 144A Securities
A Portfolio may purchase securities that are not
registered under
the Securities Act of 1933, as amended (the "1933 Act"), but
that can be
sold to "qualified institutional buyers" in accordance with
Rule 144A
under the 1933 Act ("Rule 144A Securities"). Particular Rule
144A
Securities will be considered illiquid and therefore subject
to the
Portfolio's 10% limitation on the purchase of illiquid
securities,
unless the Trust's Board of Trustees determines on an
ongoing basis that
an adequate trading market exists for the Rule 144A
Securities. This
investment practice could have the effect of increasing the
level of
illiquidity in a Portfolio to the extent that qualified
institutional
buyers become uninterested for a time in purchasing Rule
144A
Securities. The Board of Trustees has instructed the
Portfolios'
Advisors to determine and monitor on a daily basis the
liquidity of Rule
144A Securities, although the Board of Trustees will retain
ultimate
responsibility for any determination regarding liquidity.
American Depository Receipts
A Portfolio may purchase American Depository Receipts
("ADRs"),
which are dollar denominated receipts issued generally by
domestic banks
and represent the deposit with the bank of a security of a
foreign
issuer. ADRs are publicly traded on exchanges or over-the-
counter in the
United States.
Investment Restrictions
The investment restrictions numbered 1 through 12 below
have been
adopted by the Trust as fundamental policies of the
Portfolios. Under
the 1940 Act, a fundamental policy may not be changed
without the vote
of a majority of the outstanding voting securities of a
Portfolio, which
is defined in the 1940 Act as the lesser of (i) 67% or more
of the
shares present at a Portfolio meeting, if the holders of
more than 50%
of the outstanding shares of the Portfolio are present or
represented by
proxy, or (ii) more than 50% of the outstanding shares of
the Portfolio.
Investment restrictions 13 through 17 may be changed by a
vote of a
majority of the Board of Trustees at any time.
Under the investment restrictions adopted by the Portfolios:
1. A Portfolio, other than International Fixed Income
Investments,
will not purchase securities (other than U.S. Government
Securities) of
any issuer if, as a result of the purchase, more than 5% of
the value of
the Portfolio's total assets would be invested in the
securities of the
issuer, except that up to 25% of the value of the
Portfolio's total
assets may be invested without regard to this 5% limitation.
2. A Portfolio, other than International Fixed Income
Investments,
will not purchase more than 10% of the voting securities of
any one
issuer, or more than 10% of the securities of any class of
any one
issuer, except that this limitation is not applicable to the
Portfolio's
investments in U.S. Government Securities, and up to 25% of
the
Portfolio's assets may be invested without regard to these
10%
limitations.
3. A Portfolio, other than Municipal Bond Investments,
will invest
no more than 25% of the value of its total assets in
securities of
issuers in any one industry, the term industry being deemed
to include
the government of a particular country other than the United
States.
This limitation is not applicable to a Portfolio's
investments in U.S.
Government Securities.
4. A Portfolio will not borrow money, except that a
Portfolio may
borrow from banks for temporary or emergency (not
leveraging) purposes,
including the meeting of redemption requests that might
otherwise
require the untimely disposition of securities, in an amount
not to
exceed one-third of the value of the Portfolio's total
assets (including
the amount borrowed) valued at market less liabilities (not
including
the amount borrowed) at the time the borrowing is made,
except that
Mortgage Backed Investments may engage in forward roll
transactions and
Emerging Markets Equity Investments may engage in reverse
repurchase
transactions. Whenever a Portfolio's borrowings exceed 5% of
the value
of its total assets, the Portfolio, other than Mortgage
Backed
Investments and Emerging Markets Equity Investments, will
not make any
additional investments.
5. A Portfolio will not pledge, hypothecate, mortgage
or otherwise
encumber its assets, except to secure permitted borrowings.
6. A Portfolio will not lend any funds or other assets,
except
through purchasing debt obligations, lending portfolio
securities and
entering into repurchase agreements consistent with the
Portfolio's
investment objective and policies.
7. A Portfolio will not purchase securities on margin,
except that
the Portfolio may obtain any short-term credits necessary
for the
clearance of purchases and sales of securities. For purposes
of this
restriction, the deposit or payment of initial or variation
margin in
connection with futures contracts or options on futures
contracts will
not be deemed to be a purchase of securities on margin.
8. A Portfolio will not make short sales of securities
or maintain
a short position, unless at all times when a short position
is open it
owns an equal amount of the securities or securities
convertible into or
exchangeable for, without payment of any further
consideration,
securities of the same issue as, and equal in amount to, the
securities
sold short ("short sales against the box"), and unless not
more than 10%
of the Portfolio's net assets (taken at market value) is
held as
collateral for such sales at any one time. It is the
Portfolios' present
intention to make short sales against the box only for the
purpose of
deferring realization of gain or loss for federal income tax
purposes.
9. A Portfolio will not purchase or sell real estate or
real
estate limited partnership interests, except that it may
purchase and
sell mortgage related securities and securities of companies
that deal
in real estate or interests therein.
10. A Portfolio will not purchase or sell commodities
or commodity
contracts (except currencies, forward currency contracts,
stock index
and interest rate futures contracts and related options and
other
similar contracts).
11. A Portfolio will not act as an underwriter of
securities,
except that the Portfolio may acquire restricted securities
under
circumstances in which, if the securities were sold, the
Portfolio might
be deemed to be an underwriter for purposes of the 1933 Act.
12. A Portfolio will not invest in oil, gas or other
mineral
leases or exploration or development programs.
13. A Portfolio will not make investments for the
purpose of
exercising control of management.
14. A Portfolio will not purchase any security if as a
result
(unless the security is acquired pursuant to a plan of
reorganization or
an offer of exchange) the Portfolio would own any securities
of a
registered open-end investment company or more than 3% of
the total
outstanding voting stock of any registered closed-end
investment company
or more than 5% of the value of the Portfolio's total assets
would be
invested in securities of any one or more registered closed-
end
investment companies.
15. A Portfolio will not purchase any security if as a
result the
Portfolio would then have more than 5% of its total assets
invested in
securities of companies (including predecessors) that have
been in
continuous operation for fewer than three years.
16. A Portfolio will not purchase or retain securities
of any
company if, to the knowledge of the Trust, any of the
Trust's officers
or Trustees, or any officer or director of the Consulting
Group (the
"Manager" or the "Consulting Group") or the Advisor(s)
individually owns
more than 1/2 of 1% of the outstanding securities of the
company and
together they own beneficially more than 5% of the
securities.
17. A Portfolio will not invest in excess of 5% of the
value of
its net assets in warrants, valued at the lower of cost or
market value.
Included within this amount, but not to exceed 2% of the
value of the
Portfolio's net assets, may be warrants that are not listed
on the New
York or American Stock Exchanges. Warrants acquired by the
Portfolio in
units or attached to securities may be deemed to be without
value.
The Trust may make commitments more restrictive than the
restrictions
listed above so as to permit the sale of shares of a
Portfolio in
certain states. Should the Trust determine that a commitment
is no
longer in the best interests of the Portfolio and its
shareholders, the
Trust will revoke the commitment by terminating the sale of
shares of
the Portfolio in the state involved. The percentage
limitations
contained in the restrictions listed above apply at the time
of purchase
of securities. For purposes of item 9, publicly traded
Real Estate
Investment Trusts ("REITS") will be considered to be
"companies that
deal in real estate".
Portfolio Transactions
Decisions to buy and sell securities for a Portfolio
are made by
the Advisor(s), subject to the overall review of the Manager
and the
Board of Trustees. Although investment decisions for the
Portfolios are
made independently from those of the other accounts managed
by an
Advisor, investments of the type that the Portfolios may
make also may
be made by those other accounts. When a Portfolio and one or
more other
accounts managed by an Advisor are prepared to invest in, or
desire to
dispose of, the same security, available investments or
opportunities
for sales will be allocated in a manner believed by the
Advisor to be
equitable to each. In some cases, this procedure may
adversely affect
the price paid or received by a Portfolio or the size of the
position
obtained or disposed of by a Portfolio.
Transactions on U.S. stock exchanges and some foreign
stock
exchanges involve the payment of negotiated brokerage
commissions. On
exchanges on which commissions are negotiated, the cost of
transactions
may vary among different brokers. On most foreign exchanges,
commissions
are generally fixed. No stated commission is generally
applicable to
securities traded in U.S. over-the-counter markets, but the
underwriters
include an underwriting commission or concession and the
prices at which
securities are purchased from and sold to dealers include a
dealer's
mark-up or mark-down. U.S. Government Securities generally
are purchased
from underwriters or dealers, although certain newly issued
U.S.
Government Securities may be purchased directly from the
U.S. Treasury
or from the issuing agency or instrumentality.
In selecting brokers or dealers to execute securities
transactions
on behalf of a Portfolio, its Advisor seeks the best overall
terms
available. In assessing the best overall terms available for
any
transaction, the Advisor will consider the factors it deems
relevant,
including the breadth of the market in the security, the
price of the
security, the financial condition and execution capability
of the broker
or dealer and the reasonableness of the commission, if any,
for the
specific transaction and on a continuing basis. In addition,
each
Advisory Agreement between the Trust and the Advisor
authorizes the
Advisor, in selecting brokers or dealers to execute a
particular
transaction, and in evaluating the best overall terms
available, to
consider the brokerage and research services (as those terms
are defined
in Section 28(e) of the Securities Exchange Act of 1934)
provided to the
Portfolio and/or other accounts over which the Advisor or
its affiliates
exercise investment discretion. The fees under the
Management Agreement
and the Advisory Agreements, respectively, are not reduced
by reason of
a Portfolio's Advisor receiving brokerage and research
services. The
Board of Trustees of the Trust will periodically review the
commissions
paid by a Portfolio to determine if the commissions paid
over
representative periods of time were reasonable in relation
to the
benefits inuring to the Portfolio. Over-the-counter
purchases and sales
by a Portfolio are transacted directly with principal market
makers
except in those cases in which better prices and executions
may be
obtained elsewhere.
To the extent consistent with applicable provisions of
the 1940
Act and the rules and exemptions adopted by the SEC under
the 1940 Act,
the Board of Trustees has determined that transactions for a
Portfolio
may be executed through Smith Barney and other affiliated
broker-dealers
if, in the judgment of the Advisor, the use of an affiliated
broker-
dealer is likely to result in price and execution at least
as favorable
as those of other qualified broker-dealers, and if, in the
transaction,
the affiliated broker-dealer charges the Portfolio a fair
and reasonable
rate.
The Portfolios will not purchase any security,
including U.S.
Government Securities or Municipal Obligations, during the
existence of
any underwriting or selling group relating thereto of which
Smith Barney
is a member, except to the extent permitted by the SEC.
The Portfolios may use Smith Barney and other
affiliated broker-
dealers as a commodities broker in connection with entering
into futures
contracts and options on futures contracts if, in the
judgment of the
Advisor, the use of an affiliated broker-dealer is likely to
result in
price and execution at least as favorable as those of other
qualified
broker-dealers, and if, in the transaction, the affiliated
broker-dealer
charges the Portfolio a fair and reasonable rate. Smith
Barney has
agreed to charge the Portfolios commodity commissions at
rates
comparable to those charged by Smith Barney to its most
favored clients
for comparable trades in comparable accounts.
The following table sets forth certain information
regarding each
Portfolio's payment of brokerage commissions for the year
ended August
31, 1995:
BROKERAGE COMMISSIONS PAID TO
SMITH BARNEY
Total Paid to % of
% of
Amount Smith Barney Commis-
Trans-
sions
actions
Balanced Investments $36,073 N/A N/A
N/A
Large Capitalization
Value Investments $819,528 $35,134 4.29%
.25%
Large Capitalization
Growth Investments $743,269 $2,448 0.33%
.02%
Small Capitalization
Value Investments $1,272,329 $23,322 1.83%
.12%
Small Capitalization
Growth Investments $519,901 $7,587 1.46%
.10%
Emerging Markets
Equity Investments $391,066 N/A N/A
N/A
International Equity
Investments $330,684 N/A N/A
N/A
Government Money Investments, Intermediate Fixed Income
Investments,
Long-Term Bond Income Investments, Municipal Bond
Investments, Mortgage
Backed Investments and International Fixed Income
Investments did not
pay brokerage commissions during the year ended August 31,
1995.
Portfolio Turnover
Government Money Investments may attempt to increase
yields by
trading to take advantage of short-term market variations,
which results
in high portfolio turnover. Because purchases and sales of
money market
instruments are usually effected as principal transactions,
this policy
does not result in high brokerage commissions to the
Portfolio. The
other Portfolios do not intend to seek profits through
short-term
trading. Nevertheless, the Portfolios will not consider
portfolio
turnover rate a limiting factor in making investment
decisions.
A Portfolio's turnover rate is calculated by dividing
the lesser
of purchases or sales of its portfolio securities for the
year by the
monthly average value of the portfolio securities.
Securities or options
with remaining maturities of one year or less on the date of
acquisition
are excluded from the calculation. Under certain market
conditions, a
Portfolio authorized to engage in transactions in options
may experience
increased portfolio turnover as a result of its investment
strategies.
For instance, the exercise of a substantial number of
options written by
a Portfolio (due to appreciation of the underlying security
in the case
of call options or depreciation of the underlying security
in the case
of put options) could result in a turnover rate in excess of
100%. A
portfolio turnover rate of 100% would occur if all of a
Portfolio's
securities that are included in the computation of turnover
were
replaced once during a period of one year.
The Portfolios' portfolio turnover rates were as follows:
Portfolio Year Ended Year Ended
Year Ended
August 31, August 31,
August 31,
1995 1994
1993
Government Money Investments N/A N/A
N/A
Intermediate Fixed Income
Investments 98% 86%
92%
Long-Term Bond Investments 62% 43%
35%
Municipal Bond Investments 49% 132%
15%
Mortgage Backed Investments 30% 53%
93%
Balanced Investments( 47% 43%
10%
Large Capitalization Value
Equity Investments 21% 108%
47%
Large Capitalization Growth
Investments 38% 104%
47%
Small Capitalization Value
Equity Investments 115% 65%
70%
Small Capitalization Growth
Investments 174% 94%
97%
International Equity
Investments 28% 33%
46%
International Fixed Income
Investments 307% 358%
251%
Emerging Markets Equity
Investments( 89% 16%
N/A
Certain practices that may be employed by a Portfolio
could result
in high portfolio turnover. For example, portfolio
securities may be
sold in anticipation of a rise in interest rates (market
decline) or
purchased in anticipation of a decline in interest rates
(market rise)
and later sold. In addition, a security may be sold and
another of
comparable quality purchased at approximately the same time
to take
advantage of what an Adviser believes to be a temporary
disparity in the
normal yield relationship between the two securities. These
yield
disparities may occur for reasons not directly related to
the investment
quality of particular issues or the general movement of
interest rates,
such as changes in the overall demand for, or supply of,
various types
of securities. Portfolio turnover rates may vary greatly
from year to
year as well as within a particular year and may be affected
by cash
requirements for redemptions of a Portfolio's shares as well
as by
requirements that enable the Portfolio to receive favorable
tax
treatment.
MANAGEMENT OF THE TRUST
Trustees and Officers of the Trust
The Trustees and executive officers of the Trust,
together with
information as to their principal business occupations, are
set forth
below. The executive officers of the Trust are employees of
organizations that provide services to the Portfolios. Each
Trustee who
is an "interested person" of the Trust, as defined in the
1940 Act, is
indicated by an asterisk. As of the date of this Statement
of Additional
Information and the Prospectus, the Trustees and officers of
the Trust
as a group did not own any of the outstanding shares of the
Portfolios.
*Walter E. Auch, Trustee (Age 73). Consultant to
companies in the
financial services industry; Director of Pimco Advisers L.P.
His address
is 6001 N. 62nd Place, Paradise Valley, Arizona 85253.
Martin Brody, Trustee (Age 73). Vice Chairman of the
Board of
Restaurant Associates Industries, Inc.; prior to April 1990,
Chairman of
the Board of Restaurant Associates Industries, Inc. His
address is c/o
HNK Associates, Three ADP Boulevard, Roseland, New Jersey
07068.
Stephen E. Kaufman, Trustee (Age 63). Attorney. His
address is 277
Park Avenue, New York, New York 10017.
Armon E. Kamesar, Trustee (Age 67). Chairman TEC, an
international
organization of Chief Executive Officers; Trustee, U.S.
Bankruptcy
Court. His address is 7328 Country Club Drive, LaJolla, CA
92037.
*Heath B. McLendon, Trustee and Chairman (Age 61).
Executive Vice
President, Smith Barney; prior to July 1993, Senior
Executive Vice
President of Shearson Lehman Brothers; Vice Chairman of
Shearson Asset
Management, a member of the Asset Management Group of
Shearson Lehman
Brothers; and a Director of PanAgora Asset Management, Inc.
and PanAgora
Asset Management Limited. His address is 388 Greenwich
Street, New York,
New York 10013.
Madelon DeVoe Talley, Trustee (Age 62). Author.
Governor-at-large
of the National Association of Securities Dealers, Inc. Her
address is
876 Park Avenue, New York, New York 10021.
W. Thomas Matthews, Executive Vice President and
Investment
Officer (Age 46) Prior to joining the Consulting Services
in 1995 he
worked as National Sales Director for Smith Barney. His
address is 388
Greenwhich Street, New York, New York 10013
Lewis E. Daidone, Senior Vice President and Treasurer
(Age 37).
Managing Director and Chief Financial Officer of Smith
Barney; Director
and Senior Vice President of SBMFM. His address is 388
Greenwich Street,
New York, New York 10013.
Donald T. Marchesiello, Vice President and Investment
Officer (Age
36). Prior to joining the Consulting Service in 1992 he
worked as a
Senior Investment Analyst for the New York City
Comptroller's Office
Bureau of Asset Management. His address is 222 Delaware
Avenue,
Wilmington, Delaware 19801.
Christina T. Sydor, Secretary (Age 44). Managing
Director of Smith
Barney; General Counsel and Secretary of SBMFM. Her address
is 388
Greenwich Street, New York New York 10013.
Remuneration
No director, officer or employee of Smith Barney, the
Manager,
SBMFM, or any of their affiliates will receive any
compensation from the
Trust for serving as an officer or Trustee of the Trust. The
Trust pays
each Trustee who is not a director, officer or employee of
Smith Barney,
the Managers, any Advisor, SBMFM, or any of their affiliates
a fee of
$10,000 per annum plus $500 per meeting attended and
reimburses them for
travel and out-of-pocket expenses. For the fiscal year
ended August 31,
1995, such fees and expenses totaled $45,640.
For the calendar year ended August 31, 1995, the Trustees of
the Trust
were paid the following compensation:
TRUSTEE AGGREGATE COMPENSATION AGGREGATE
COMPENSATION
FROM THE TRUST (as of FROM THE SMITH
BARNEY
September 21, 1995) COMPLEX/ NUMBER
OF
PORTFOLIOS FOR
WHICH
DIRECTOR SERVES
WITHIN
SMITH BARNEY
COMPLEX*
Walter E. Auch $19,500 $19,500/1
Martin Brody $19,500 $103,625/15
Stephen E. Kaufman $18,500 $83,600/10
Armon E. Kamesar $19,500 $19,500/1
Madelon DeVoe Talley $19,500 $63,500/3
Heath B. McLendon $ 0 $ 0/41
* Aggregate Compensation for Smith Barney Complex reflects
all
compensation received during the 1994 calendar year.
Manager; Advisors; Administrator
The Manager serves as investment manager to the Trust
pursuant to
an investment management agreement ("Management Agreement").
Each
Advisor serves as investment advisor to a Portfolio pursuant
to separate
written agreements with each Portfolio ("Advisory
Agreements"), SBMFM
serves as administrator to each Portfolio pursuant to a
written
agreement ("Administration Agreement") Prior to May 4,
1994, Boston
Advisors served as administrator for each Portfolio.
Subsequently,
until August 31, 1995, Boston Advisors provided sub-
administration
services through SBMFM. The Management Agreement was most
recently
approved by the Board of Trustees, including a majority of
the Trustees
who are not "interested persons" of the Trust, the Manager,
the
Advisors, on September 21, 1995 and by the shareholders of
the Trust on
June 1, 1993. The Administration Agreement was most recently
approved by
The Trust's Board of Trustees, including a majority of the
disinterested
Trustees, on September 21, 1995. Certain of the services
provided and
the fees paid by the Trust under the Management Agreement,
the Advisory
Agreements and the Administration Agreement are described in
the
Prospectus. In addition to the services described in the
Prospectus, as
administrator, SBMFM furnishes the Trust with statistical
and research
data, clerical help, accounting, data processing,
bookkeeping, internal
auditing and legal services and certain other services
required by the
Trust, prepares reports to the Trust's shareholders and
prepares tax
returns, reports to and filings with the SEC and state blue
sky
authorities.
For the year ended August 31, 1993 (the period from
commencement of
operations on February 16, 1993 through August 31, 1993 for
Balanced
Investments), the Portfolios accrued investment management
and
administration fees as follows:
Porfolio Advisory Fee Net Management
Administration
Fee
Fee
Government Money
Investments $81,187 $0
$108,250
Intermediate Fixed
Income Investments 191,413 191,413
191,413
Long-Term Bond
Investments 100,197 100,197
100,197
Municipal Bond
Investments 67,430 67,430
67,430
Mortgage Backed
Investments 159,082 159,082
127,265
Balanced Investments 5,250 5,250
3,500
Large Capitalization Value
Equity Investments 1,063,789 1,063,789
709,193
Large Capitalization
Growth Investments 458,139 458,139
305,426
Small Capitalization Value
Equity Investments 430,533 430,533
287,022
Small Capitalization
Growth Investments 139,760 139,760
93,173
International Equity
Investments 673,384 505,036
336,692
International Fixed
Income Investments 161,372 161,372
129,098
For the year ended August 31, 1993, 100% of the
Manager's fees and
Boston Advisors' fees were waived by the Manager and Boston
Advisors for
Government Money Investments. For the period from
commencement of
operations on February 16, 1993 through August 31, 1993,
100% of the
Manager's and Boston Advisors' fees were waived by the
Manager and
Boston Advisors for Balanced Investments. Additionally, the
Portfolio
was reimbursed by the Manager and Boston Advisors in the
amounts of
$106,617 and $142,156, respectively for Government Money
Investments and
$25,580 and $8,527, respectively, for Balanced Investments.
Of the fees incurred by the following Portfolios, the
Manager and
Boston Advisors waived fees as follows: Intermediate Fixed
Income
Investments-$48,030 and $24,016; Small Capitalization Growth
Investments-$77,072 and $25,691; Long-Term Bond Investments-
$90,890 and
$45,445 and international Fixed Income Investments-$108,626
and $43,450;
Municipal Bond Investments-$46,592 and $23,296; Mortgage
Backed
Investments-$138,688 and $55,476.
For the year ended August 31, 1994 (the period from
commencement
of operation on April 21, 1994 through August 31, 1994 for
Emerging
Markets Equity Investments), the Portfolios accrued
investment
management and administration fees as follows:
Porfolio Advisory Fee Net Management
Administration
Fee
Fee
Government Money
Investments $233,770 $0
$311,693
Intermediate Fixed
Income Investments 385,855 385,855
385,855
Long-Term Bond
Investments 173,719 173,917
173,719
Municipal Bond
Investments 118,593 118,593
118,593
Mortgage Backed
Investments 280,108 280,108
224,086
Balanced Investments 36,835 36,835
24,557
Large Capitalization Value
Equity Investments 1,836,351 2,411,963
1,416,105
Large Capitalization
Growth Investments 932,049 1,182,386
704,811
Small Capitalization Value
Equity Investments 772,382 772,382
514,919
Small Capitalization
Growth Investments 388,852 388,852
259,235
International Equity
Investments 1,283,535 1,711,363
861,250
International Fixed
Income Investments 302,931 302,931
242,345
Emerging Markets
Investments 42,615 21,308
14,205
For the year ended August 31, 1994, 100% of the
Management fees
and the Advisory fees were waived for Balanced Investments.
Additionally, the Portfolio was reimbursed by the Manager in
the amount
of $7,747 and by the Administrator and Sub-Administrator in
the amount
of $2,582.
Of the fees incurred by the following Portfolios,
Management,
Administration and Custody fees, in the aggregate, were
waived as
follows: Government Money Investments-$455,786, Long-Term
Bond
Investments-$130,363, Municipal Bond Investments-$78,258,
Mortgage
Backed Investments-$292,235, Large Capitalization Value
Equity
Investments-$287,806, Large Capitalization Growth
Investments-$125,168,
International Fixed Income Investments-$159,363, and
Emerging Markets
Equity Investments-$59,781.
Effective March 21, 1994, the Manager has agreed to
waive a
portion of the fees otherwise payable to it by each of Large
Capitalization Value Equity Investments and Large
Capitalization Growth
Investments so that the Manager would retain, as its annual
management
fee, no more than 0.30% of each such Portfolio's average
daily net
assets. Absent such waivers, the Manager would retain, as
its annual
management fee, between 0.40% and 0.45% of the assets of
Large
Capitalization Value Equity Investments and Large
Capitalization Growth
Investments managed by Parametric Portfolio Associates, Inc.
and Boston
Structured Advisors, respectively.
For the year ended August 31, 1995, the Portfolios
accrued
investment management and administration fees as follows:
Porfolio Management Administration
Fee
Fee
Government Money
Investments $332,386 $444,181
Intermediate Fixed
Income Investments 881,208 440,604
Long-Term Bond
Investments 525,476 262,738
Municipal Bond
Investments 189,270 94,635
Mortgage Backed
Investments 526,392 210,557
Balanced Investments 114,764 38,254
Large Capitalization Value
Equity Investments 5,293,946 1,764,649
Large Capitalization
Growth Investments 3,720,760 1,240,253
Small Capitalization Value
Equity Investments 1,754,756 584,919
Small Capitalization
Growth Investments 1,405,674 468,558
International Equity
Investments 4,163,115 1,189,461
International Fixed
Income Investments 536,934 214,773
Emerging Markets
Investments 445,779 99,062
Although the Manager does not serve as an investment
manager for
any other registered investment company, the Manager and its
related
office, the Consulting Services Division of Smith Barney,
have extensive
experience in providing investment advisor selection
services. The
Consulting Services Division, through its predecessor, was
established
in 1973 with the primary objective of matching the
investment needs of
institutional and individual clients with appropriate and
qualified
money management organizations throughout the nation. In
1989, the
Consulting Services Division was restructured and its
research and
investment advisory evaluation services functions were
segregated and
named the Consulting Group. The Manager's analysts have, in
the
aggregate, over 18 years of experience performing asset
manager searches
for institutional and individual clients. These analysts
rely on the
Manager's comprehensive database of money management firms,
through
which the Manager tracks the historic and ongoing
performance of over
800 of the more than 16,000 registered investment advisors,
and over 300
on-sight evaluation visits annually to advisors. As of
November 30,
1994, the Manager and the Consulting Services Division
provided services
with respect to over $67 billion in client assets
representing more than
199,000 separate accounts under a variety of programs
designed for
individual and institutional investors.
The Manager, SBMFM, and the Advisors each pays the
salaries of
all officers and employees who are employed by it and the
Trust, and
SBMFM maintains office facilities for the Trust. The
Manager, SBMFM,
and the Advisors bear all expenses in connection with the
performance of
their respective services under the Management Agreement,
the Advisory
Agreements, and the Administration Agreement.
As noted in the Prospectus, subject to the supervision
and
direction of the Manager and, ultimately, the Board of
Trustees, each
Advisor manages the securities held by the Portfolio it
serves in
accordance with the Portfolio's stated investment objectives
and
policies, makes investment decisions for the Portfolio and
places orders
to purchase and sell securities on behalf of the Portfolio.
Each Advisor
has agreed that neither it nor any of its affiliated persons
(as defined
in the 1940 Act) shall accept retention as investment
advisor,
investment manager or similar service provider during the
pendency of
its Advisory Agreement, and for the period of one year after
the
termination of the Advisory Agreement, with or for the
benefit of any
investment company registered under the 1940 Act that seeks
as a primary
market for its shares asset allocation programs similar in
nature or
market to TRAK. This limitation does not apply to the
continuation of
any contractual relationship to which the Advisor was a
party that was
in effect on the date of its Advisory Agreement.
Each of the Manager and SBMFM has agreed that if in any
fiscal
year the aggregate expenses of the Portfolios (including
fees payable
pursuant to the Management Agreement, but excluding
interest, taxes,
brokerage fees and, if permitted by the relevant state
securities
commissions, extraordinary expenses) exceed the expense
limitation of
any state having jurisdiction over the Portfolios, the
Manager and
Boston Advisors will reduce their fees by the amount of the
excess
expenses, the amount to be allocated among them in the
proportion their
respective fees bear to the aggregate of the fees paid to
them by the
Portfolios. A fee reduction, if any, will be reconciled
monthly. As of
the date of this Statement of Additional Information, the
most
restrictive state expense limitation applicable to the
Portfolios is
2.5% of the first $30 million of each Portfolio's average
daily net
assets, 2% of the next $70 million of each Portfolio's
average daily net
assets and 1.5% of each Portfolio's remaining average daily
net assets.
No such fee reduction was required for the years ended
August 31, 1995
and 1994.
Counsel and Auditors
Willkie Farr & Gallagher serves as counsel to the
Trust. Stroock &
Stroock & Lavan serves as counsel to the Trustees who are
not interested
persons of the Trust.
KPMG Peat Marwick LLP, independent auditors, Park
Avenue, New
York, New York 10154, currently serve as auditors of the
Trust and
rendered an opinion on the Trust's most recent financial
statements.
Organization of the Trust
The Trust has been organized as an unincorporated
business trust
under the laws of The Commonwealth of Massachusetts pursuant
to a Master
Trust Agreement dated April 12, 1991, as amended from time
to time (the
"Trust Agreement").
In the interest of economy and convenience,
certificates
representing shares in the Trust are not physically issued.
PNC, the
Trust's custodian, maintains a record of each shareholder's
ownership of
Trust shares. Shares do not have cumulative voting rights,
which means
that holders of more than 50% of the shares voting for the
election of
Trustees can elect all Trustees. Shares are transferable,
but have no
preemptive, conversion or subscription rights. Shareholders
generally
vote on a Trust-wide basis, except with respect to
continuation of the
Advisory Agreements, in which case shareholders vote by
Portfolio.
Massachusetts law provides that shareholders could,
under certain
circumstances, be held personally liable for the obligations
of the
Trust. The Trust Agreement disclaims shareholder liability
for acts or
obligations of the Trust, however, and requires that notice
of the
disclaimer be given in each agreement, obligation or
instrument entered
into or executed by the Trust or a Trustee. The Trust
Agreement provides
for indemnification from the Trust's property for all losses
and
expenses of any shareholder held personally liable for the
obligations
of the Trust. Thus, the risk of a shareholder's incurring
financial loss
on account of shareholder liability is limited to
circumstances in which
the Trust would be unable to meet its obligations, a
possibility that
the Trust's management believes is remote. Upon payment of
any liability
incurred by the Trust, the shareholder paying the liability
will be
entitled to reimbursement from the general assets of the
Trust. The
Trustees intend to conduct the operations of the Trust in a
manner so as
to avoid, as far as possible, ultimate liability of the
shareholders for
liabilities of the Trust.
PURCHASE OF SHARES
TRAK Personalized Investment Advisory Service
As described in the Prospectus, shares of the Trust are
available
to participants in TRAK Personalized Investment Advisory
Service
("TRAK").
TRAK is an investment advisory service offered by the
Consulting
Group designed to assist a client in devising and
implementing a
reasoned, systematic, long-term investment strategy tailored
to the
client's financial circumstances. TRAK links the Consulting
Group's
experience in evaluating an investor's investment objectives
and risk
tolerances and the abilities of investment advisers to meet
those
objectives and risk tolerances and the historic performance
of various
asset classes, with the convenience and cost effectiveness
of a broad
array of investment portfolios. TRAK and the Trust offer to
individual
investors access to investment decision making services
routinely
utilized by institutional investors. Prior to the inception
of TRAK,
account sizes for the Consulting Group's services ranged
from $100,000
for individuals to more than $1 billion for institutions.
TRAK is
available for a quarterly fee at the maximum annual rate
specified in
the Prospectus under the caption "Purchase of Shares-
General." In
accordance with applicable law, each client will receive, in
connection
with participation in TRAK, a brochure containing the
information
included in Part II of Smith Barney's Form ADV relating to
participation
in TRAK. Smith Barney, the distributor of the Trust, has
received an
exemption from the Department of Labor from certain
provisions of the
Employee Retirement Income Security Act of 1974 relating to
the purchase
of Trust Shares, and participation in TRAK, by certain
retirement plans.
TRAK consists of the following elements for programs other
than
participant directed employee benefit plans:
The Request. The core of TRAK is the Consulting Group's
evaluation
of the client's financial goals and risk tolerances based on
the
Request, a confidential client questionnaire that the client
completes
with the assistance of his or her Financial Consultant. In
reviewing and
processing a client's Request, the Consulting Group
considers the
client's specific investment goals-a secure retirement, the
education of
children, the preservation and growth of an inheritance or
savings or
the accumulation of capital for the formation of a business-
in terms of
the client's time horizon for achievement of those goals,
immediate and
projected financial means and needs and overall tolerances
for
investment risk.
The Recommendation. Based on its evaluation of the
client's
financial goals and circumstances, the Consulting Group
prepares and
issues a Recommendation. In the Recommendation, the
Consulting Group
provides advice as to an appropriate mix of investment types
designed to
balance the client's financial goals against his or her
means and risk
tolerances as part of a long term investment strategy.
Numerous
financial studies, including a study in the Financial
Analysis Journal,
a major publication forum for investment research, have
concluded that
the single most important component determining the
performance of an investment portfolio is how that portfolio
is
allocated among different types of investments. The
Recommendation draws
on Smith Barney's experience in analyzing macroeconomic
events worldwide
and designing asset allocation strategies as well as the
Consulting
Group's experience in
monitoring and evaluating the performance of various market
segments
over substantial periods of time and correlating that
information with
the client's financial characteristics. The Recommendation
provides
specific advice about implementing investment decisions
through the
Trust. The Recommendation employs an asset allocation theory
based on a
framework discussed in "Portfolio Selection," a paper
published in the
Journal of Finance that earned its author a Nobel Prize. The
Recommendation specifies a combination of investments in the
Portfolios
considered suitable for the client. The Financial Consultant
assists the
client in evaluating the advice contained in the
Recommendation, offers
interpretations in light of personal knowledge of the
client's
circumstances and implements the client's investment
decisions, but has
no investment discretion over the client's account. All
decisions on
investing among the Portfolios remain with the client. The
client has
the option of accepting the Recommendation or selecting an
alternative
combination of investments in the Portfolios.
The Review. TRAK is a continuing investment advisory
service.
Once a TRAK program is active, the client receives, at least
quarterly,
a Review highlighting all account activity for the preceding
quarter.
The Review is a monitoring report containing an analysis and
evaluation
of the client's TRAK assets to ascertain whether the
client's objectives
for the TRAK assets are being met and recommending, when
appropriate,
changes in the allocation of assets among the Portfolios.
Information
presented within the Review includes a market commentary, a
record of
the client's asset performance and rates of return as
compared to
several appropriate market indices (illustrated in a manner
including
any fees for participation in TRAK actually incurred during
the period),
the client's actual portfolio showing the breakdown of
investments made
in each Portfolio, year-to-date and cumulative realized
gains and losses
in and income received from each Portfolio, all purchase,
sale and
exchange activity and dividends and interest received and/or
reinvested.
The information in the Review is especially useful for tax
preparation
purposes.
Financial Consultant Support. Integral to TRAK is the
personal and
confidential relationship between the client and his or her
Financial
Consultant. With a Financial Consultant a client at all
times has
available a registered investment professional backed by the
full
resources of the Consulting Group to discuss his or her
financial
circumstances and strategy. The Financial Consultant serves
the client
by assisting the client in identifying his or her financial
characteristics, completing and transmitting the Request,
reviewing with
the client the Recommendation and Reviews, responding to
identified
changes in the client's financial circumstances and
implementing
investment decisions. When financial circumstances change,
the Financial
Consultant can be consulted and a new evaluation
commissioned at no
additional charge. The Financial Consultant is not
compensated on the
basis of the Portfolios selected for investment and the
decision about
which Portfolios to purchase and in what proportions at all
times rests
with the client alone. Financial Consultants will be
appropriately
registered and/or qualified under
any state laws applicable to investment advisors and
advisory
representatives.
Where the client is a qualified employee benefit plan,
the
Consulting Group may provide different services than those
described
above, for different fees.
REDEMPTION OF SHARES
Detailed information on how to redeem shares of a
Portfolio is
included in the Prospectus. The right of redemption of
shares of a
Portfolio may be suspended or the date of payment postponed
(i) for any
periods during which the New York Stock Exchange, Inc. (the
"NYSE") is
closed (other than for customary weekend and holiday
closings), (ii)
when trading in the markets the Portfolio normally utilizes
is
restricted, or an emergency, as defined by the rules and
regulations of
the SEC, exists making disposal of the Portfolio's
investments or
determination of its net asset value not reasonably
practicable or (iii)
for such other periods as the SEC by order may permit for
the protection
of the Portfolio's shareholders.
Redemptions in Kind
If the Board of Trustees determines that it would be
detrimental
to the best interests of a Portfolio's shareholders to make
a redemption
payment wholly in cash, the Portfolio may pay, in accordance
with rules
adopted by the SEC, any portion of a redemption in excess of
the lesser
of $250,000 or 1% of the Portfolio's net assets by a
distribution in
kind of readily marketable portfolio securities in lieu of
cash.
Redemptions failing to meet this threshold must be made in
cash.
Shareholders receiving distributions in kind of portfolio
securities may
incur brokerage commissions when subsequently disposing of
those
securities.
NET ASSET VALUE
As noted in the Prospectus, the Trust will not
calculate the net
asset value of the Portfolios on certain holidays. On those
days,
securities held by a Portfolio may nevertheless be actively
traded and
the value of the Portfolio's shares could be significantly
affected.
Certain of the Portfolios may invest in foreign
securities. As a
result, the calculation of a Portfolio's net asset value may
not take
place contemporaneously with the determination of the prices
of certain
of the portfolio securities used in the calculation. A
security that is
listed or traded on more than one exchange is valued for
purposes of
calculating the Portfolio's net asset value at the quotation
on the
exchange determined to be the primary market for the
security.
In carrying out the Board's valuation policies, SBMFM,
as
administrator, may consult with an independent pricing
service (the
"Pricing Service") retained by the Trust. Debt securities of
U.S.
issuers (other than U.S. Government Securities and short-
term
investments) are valued by SBMFM after consultation with the
Pricing
Service. When in the judgment of the Pricing Service quoted
bid prices
for investments are readily available and are representative
of the bid
side of the market, these investments are valued at the mean
between the
quoted bid prices and asked prices. Investments for which no
readily
obtainable market quotations are available, in the judgment
of the
Pricing Service, are carried at fair value as determined by
the Pricing
Service. The procedures of the Pricing Service are reviewed
periodically
by the officers of the Trust under the general supervision
and
responsibility of the Board of Trustees.
The valuation of the securities held by Government
Money
Investments and U.S. dollar-denominated securities with less
than 60
days to maturity held by the other Portfolios is based upon
their
amortized cost, which does not take into account unrealized
capital
gains or losses. Amortized cost valuation involves initially
valuing an
instrument at its cost and, thereafter, assuming a constant
amortization
to maturity of any discount or premium, regardless of the
impact of
fluctuating interest rates on the market value of the
instrument. While
this method provides certainty in valuation, it may result
in periods
during which value, as determined by amortized cost, is
higher or lower
than the price that the Portfolio would receive if it sold
the
instrument.
Government Money Investments' use of the amortized cost
method of
valuing its portfolio securities is permitted by a rule
adopted by the
SEC. Under this rule, the Portfolio must maintain a dollar-
weighted
average portfolio maturity of 90 days or less, purchase only
instruments
having remaining maturities of 397 days or less, and invest
only in
securities determined by the Advisor, under the supervision
of the Board
of Trustees of the Trust, to be of high quality with minimal
credit
risks.
Pursuant to the rule, the Board of Trustees also has
established
procedures designed to stabilize, to the extent reasonably
possible,
Government Money Investments' price per share as computed
for the
purpose of sales and redemptions at $1.00. These procedures
include
review of the Portfolios'
holdings by the Board of Trustees, at such intervals as it
may deem
appropriate, to determine whether the Portfolio's net asset
value
calculated by using available market quotations or market
equivalents
deviates from $1.00 per share based on amortized cost.
The rule also provides that the extent of any deviation
between
Government Money Investments' net asset value based on
available market
quotations or market equivalents and the $1.00 per share net
asset value
based on amortized cost must be examined by the Board of
Trustees. In
the event that the Board of Trustees determines that a
deviation exists
that may result in material dilution or other unfair results
to
investors or existing shareholders, pursuant to the rule the
Board of
Trustees must cause the Portfolio to take any corrective
action the
Board of Trustees regards as necessary and appropriate,
including:
selling portfolio instruments prior to maturity to realize
capital gains
or losses or to shorten average portfolio maturity;
withholding
dividends or paying distributions from capital or capital
gains;
redeeming shares in kind; or establishing a net asset value
per share by
using available market quotations.
DETERMINATION OF PERFORMANCE
From time to time, the Trust may quote a Portfolio's
yield or
total return in advertisements or in reports and other
communications to
shareholders.
Yield and Equivalent Taxable Yield
For a Portfolio other than Government Money
Investments, the 30-
day yield figure described in the Prospectus is calculated
according to
a formula prescribed by the SEC, expressed as follows:
YIELD = 2 [ (a-b\1)( -1]
cd
Where:
a = dividends and interest earned during the period.
b= expenses accrued for the period (net of reimbursement),
including a
ratable portion of the maximum annual fee for
participation in
TRAK.
c= the average daily number of shares outstanding during the
period that
were entitled to receive dividends.
d= the maximum offering price per share on the last day of
the period.
For the purpose of determining the interest earned
(variable "a"
in the formula) on debt obligations that were purchased by
the Portfolio
at a discount or premium, the formula generally calls for
amortization
of the discount or premium; the amortization schedule will
be adjusted
monthly to reflect changes in the market values of the debt
obligations.
A Portfolio's equivalent taxable 30-day yield is
computed by
dividing that portion of the Portfolio's 30-day yield that
is tax exempt
by one minus a stated income tax rate and adding the product
to any
portion of the Portfolio's yield that is not tax exempt.
The yield for Government Money Investments is computed
by (a)
determining the net change, exclusive of capital changes, in
the value
of a hypothetical pre-existing account in the Portfolio
having a balance
of one share at the beginning of a seven day period for
which yield is
to be quoted; (b) subtracting a hypothetical charge
reflecting
deductions from shareholder accounts; (c) dividing the
difference by the
value of the account at the beginning of the period to
obtain the base
period return; and (d) annualizing the results (i.e.,
multiplying the
base period return by 365/7). The net change in the value of
the account
reflects the value of additional shares purchased with
dividends
declared on the original share and any such additional
shares, but does
not include realized gains and losses or unrealized
appreciation and
depreciation. In addition, the Portfolio may calculate a
compound
effective annualized yield by adding one to the base period
return
(calculated as described above), raising the sum to a power
equal to
365/7 and subtracting one.
Investors should recognize that in periods of declining
interest
rates, a Portfolio's yield will tend to be somewhat higher
than
prevailing market rates, and in periods of rising interest
rates will
tend to be somewhat lower. In addition, when interest rates
are falling,
the inflow of net new money to a Portfolio from the
continuous sale of
its shares will likely be invested in instruments producing
lower yields
than the balance of its portfolio of securities, thereby
reducing the
current yield of the Portfolio. In periods of rising
interest rates the
opposite can be expected to occur.
Average Annual Total Return
A Portfolio's average annual total return figures
described in the
Prospectus are computed according to a formula prescribed by
the SEC,
expressed as follows:
P(1+T)n = ERV
Where:
P= a hypothetical initial payment of $1,000
T= average annual total return, including the effect of the
maximum
annual fee for participation in TRAK.
n= number of years
ERV= Ending Redeemable Value of a hypothetical $1,000
investment made at
the beginning of a 1-, 5- or 10-year period at the end of
a 1-, 5- or
10-year period (or fractional portion thereof), assuming
reinvestment
of all dividends and distributions and the effect of the
maximum
annual fee for participation in TRAK.
The ERV assumes complete redemption of the hypothetical
investment
at the end of the measuring period. A Portfolio's net
investment income
changes in response to fluctuations in interest rates and
the expenses
of the Portfolio.
The Portfolios' average annual total returns without
the effect of
the maximum annual fee for participation in TRAK and with
the effect of
fee waivers were as follows:
Portfolio 12 Months ended From
Inception to
August 31, 1995 August 31,
1995***
Intermediate Fixed
Income Investments 8.70% 6.70%
Long-Term Bond Investments 10.71% 6.49%
Municipal Bond Investments 7.86% 6.18%
Mortgage Backed Investments 9.96% 6.28%
Balanced Investments* 12.76% 9.31%
Large Capitalization
Value Equity Investments 16.14% 9.71%
Large Capitalization
Growth Investments 22.30% 11.90%
Small Capitalization
Value Equity Investments 12.50% 8.60%
Small Capitalization
Growth Investments 38.25% 23.06%
International Equity
Investments (0.18)% 9.27%
International Fixed
Income Investments 17.66% 10.75%
Emerging Markets
Equity Investments** (15.13)% 0.50%
- ------
* Balanced Investments commenced operations on February
16, 1993.
** Aggregate from April 21, 1994 through August 31, 1994.
Since
Emerging Markets
Equity Investments commenced operations on April 21,
1994.
*** The remaining Portfolios commenced operations on
November 18, 1991.
The Portfolios' average annual total returns with the
effect of
the maximum annual fee for participation in TRAK and with
the effect of
fee waivers were as follows:
Portfolio 12 Months ended From
Inception to
August 31, 1995 August 31,
1995***
Intermediate Fixed
Income Investments 7.08% 5.10%
Long-Term Bond Investments 9.07% 4.90%
Municipal Bond Investments 6.25% 4.60%
Mortgage Backed Investments 8.33% . %
Balanced Investments* 11.09% 7.69%
Large Capitalization
Value Equity Investments 14.41% 8.07%
Large Capitalization
Growth Investments 20.48% 10.22%
Small Capitalization
Value Equity Investments 10.83% 6.98%
Small Capitalization
Growth Investments 36.19% 21.22%
International Equity
Investments (1.66)% 7.64%
International Fixed
Income Investments 15.92% 9.09%
Emerging Markets
Equity Investments** (16.39)% (1.00)%
- ------
* Balanced Investments commenced operations on February
16, 1993.
** Aggregate from April 21, 1994 through August 31, 1994.
Since
Emerging Markets
Equity Investments commenced operations on April 21,
1994.
*** The remaining Portfolios commenced operations on
November 18, 1991.
Aggregate Total Return
A Portfolio's aggregate total return figures described
in the
Prospectus represent the cumulative change in the value of
an investment
in the Portfolio for the specified period and are computed
by the
following formula:
ERV - P
P
Where:
P= a hypothetical initial payment of $1,000.
ERV= Ending Redeemable Value of a hypothetical $1,000
investment made at
the beginning of the 1-, 5- or 10-year period at the end
of the 1-, 5-
or 10-year period (or fractional portion thereof),
assuming
reinvestment of all dividends and distributions and the
effect of the
maximum annual fee for participation in TRAK.
The ERV assumes complete redemption of the hypothetical
investment at
the end of the measuring period.
The Portfolios' aggregate total returns without the
effect of the
maximum annual fee for participation in TRAK and with the
effect of fee
waivers were as follows:
Portfolio 12 Months ended From
Inception to
August 31, 1995 August 31,
1995***
Intermediate Fixed
Income Investments 8.70% 27.81%
Long-Term Bond Investments 10.71% 26.84%
Municipal Bond Investments 7.86% 25.48%
Mortgage Backed Investments 9.96% 25.93%
Balanced Investments* 12.76% 25.32%
Large Capitalization
Value Equity Investments 16.14% 42.00%
Large Capitalization
Growth Investments 22.30% 53.00%
Small Capitalization
Value Equity Investments 12.50% 36.61%
Small Capitalization
Growth Investments 38.25% 119.26%
International Equity
Investments (0.18)% 39.87%
International Fixed
Income Investments 17.66% 47.13%
Emerging Markets
Equity Investments** (15.13)% 0.68%
The Portfolios' aggregate total returns with the effect
of the
maximum annual fee for participation in TRAK and with the
effect of fee
waivers were as follows:
From September 1, 1994
through August 31, 1995 From Inception*** through August
31, 1995
Intermediate Fixed Income Investments 7.08% 20.87%
Long-Term Bond Investments 9.07% 19.86%
Municipal Bond Investments 6.25% 18.57%
Mortgage Backed Investments 8.33% 19.00%
Balanced Investments* 11.09% 20.64%
Large Capitalization Value Equity Investments 14.41%
34.16%
Large Capitalization Growth Investments 20.48% 44.54%
Small Capitalization Value Equity Investments 10.83%
29.07%
Small Capitalization Growth Investments 36.19% 107.14%
International Equity Investments (1.66)% 32.14%
International Fixed Income Investments 15.92% 39.04%
Emerging Markets Equity Investments** (16.39)% (1.37)%
- ------
* Balanced Investments commenced operations on February
16, 1993.
** Emerging Markets Equity Investments commenced operations
on April
21, 1994.
*** The remaining Portfolios commenced operations on
November 18, 1991.
A Portfolio's net investment income changes in response
to
fluctuations in interest rates and the expenses of the
Portfolio.
Consequently, the given performance quotations should not be
considered
as representative of the Portfolio's performance for any
specified
period in the future.
A Portfolio's performance will vary from time to time
depending
upon market conditions, the composition of its portfolio and
its
operating expenses. Consequently, any given performance
quotation should
not be considered representative of a Portfolio's
performance for any
specified period in the future. In addition, because
performance will
fluctuate, it may not provide a basis for comparing an
investment in the
Portfolio with certain bank deposits or other investments
that pay a
fixed yield for a stated period of time. Investors comparing
a
Portfolio's performance with that of other mutual funds
should give
consideration to the quality and maturity of the respective
investment
companies' portfolio securities.
Comparative performance information may be used from
time to time
in advertising the Portfolios' shares, including data from
Lipper
Analytical Services, Inc., Standard & Poor's 500 Composite
Stock Price
Index, the Dow Jones Industrial Average and other industry
publications.
TAXES
Each Portfolio intends to continue to qualify in each
year as a
"regulated investment company" under the Internal Revenue
Code of 1986,
as amended (the "Code"). Provided that a Portfolio (i) is a
regulated
investment company and (ii) distributes to its shareholders
at least 90%
of its taxable net investment income (including, for this
purpose, its
net realized short-term capital gains) and 90% of its tax
exempt
interest income (reduced by certain expenses), it will not
be liable for
federal income taxes to the extent its taxable net
investment income and
its net realized long-term and short-term capital gains,
if any, are distributed to its shareholders.
Interest on indebtedness incurred by a shareholder to
purchase or
carry shares of Municipal Bond Investments will not be
deductible for
federal income tax purposes. If a shareholder receives
exempt-interest
dividends with respect to any share of Municipal Bond
Investments and if
the share is held by the
shareholder for six months or less, then any loss on the
sale or
exchange of the share may, to the extent of the exempt-
interest
dividends, be disallowed. In addition, the Code may require
a
shareholder that receives exempt-interest dividends to treat
as taxable
income a portion of certain otherwise non-taxable
social security and railroad retirement benefit payments.
Furthermore,
that portion of any exempt-interest dividend paid by
Municipal Bond
Investments that represents income derived from certain
revenue or AMT-
Subject Bonds held by the Portfolio may not retain its tax
exempt status
in the hands of a shareholder who is a "substantial user" of
a facility
financed by such bonds, or a "related person" thereof.
Moreover, as
noted in the Prospectus, (i) some or all of Municipal Bond
Investments'
exempt-interest dividends may be a specific preference item,
or a
component of an adjustment item, for purposes of the federal
individual
and corporate alternative minimum taxes and (ii) the receipt
of
Municipal Bond Investments' dividends and distributions may
affect a
corporate shareholder's federal "environmental" tax
liability. In
addition, the receipt of Municipal Bond Investments'
dividends and
distributions may affect a foreign corporate shareholder's
federal
"branch profits" tax liability and federal "excess net
passive income"
tax liability of a shareholder of a Subchapter S
corporation.
Shareholders should consult their own tax advisors as to
whether they
are (i) "substantial users" with respect to a facility or
"related" to
such users within the meaning of the Code or (ii) subject to
a federal
alternative minimum tax, the federal "environmental" tax,
the federal
"branch profits" tax, or the federal "excess net passive
income" tax.
As described above and in the Prospectus, each
Portfolio other
than Government Money Investments, Municipal Bond
Investments and
Balanced Investments may invest in certain types of
warrants, foreign
currencies, forward contracts, options and futures
contracts. These
Portfolios anticipate that these investment activities will
not prevent
them from qualifying as regulated investment companies.
A Portfolio's transactions in foreign currencies,
forward
contracts, options and futures contracts (including options
and futures
contracts on foreign currencies) will be subject to special
provisions
of the Code that, among other things, may affect the
character of gains
and losses realized by the Portfolio (i.e., may affect
whether gains or
losses are ordinary or capital), accelerate recognition of
income to the
Portfolio and defer Portfolio losses. These rules could
therefore affect
the character, amount and timing of distributions to
shareholders. These
provisions also (i) will require a Portfolio to mark-to-
market certain
types of the positions in its portfolio (i.e., treat them as
if they
were closed out), and (ii) may cause a Portfolio to
recognize income
without receiving cash with which to pay dividends or make
distributions
in amounts necessary to satisfy the distribution
requirements for
avoiding income and excise taxes that are described above
and in the
Prospectus. Each of the Portfolios will monitor its
transactions, will
make the appropriate tax elections and will make the
appropriate entries
in its books and records when it acquires any foreign
currency, forward
contract, option, futures contract or hedged investment in
order to
mitigate the effect of these rules and prevent
disqualification of the
Portfolio as a regulated investment company.
As a general rule, a Portfolio's gain or loss on a sale
or
exchange of an investment will be a long-term capital gain
or loss if
the Portfolio has held the investment for more than one year
and will be
a short-term capital gain or loss if it has held the
investment for one
year or less. Furthermore, as a general rule, a
shareholder's gain or
loss on a sale or redemption of Portfolio shares will be a
long-term
capital gain or loss if the shareholder has held his or her
Portfolio
shares for more than one year and will be a short-term
capital gain or
loss if he or she has held his or her Portfolio shares for
one year or
less.
The Portfolios other than Government Money Investments,
Intermediate Fixed Income Investments, Municipal Bond
Investments and
Mortgage Backed Investments expect to realize a significant
amount of
net long-term capital gains that will be distributed as
described in the
Prospectus. Distributions of net realized long-term capital
gains
("capital gain dividends") will be taxable to shareholders
as long-term
capital gains, regardless of how long a shareholder has held
Portfolio
shares, and will be designated as capital gain dividends in
a written
notice mailed to the shareholders after the close of the
Portfolio's
prior taxable year. If a shareholder receives a capital gain
dividend
with respect to any share held for six months or less, then
any loss (to
the extent not disallowed pursuant to the other six-month
rule described
above with respect to Municipal Bond Investments) on the
sale or
exchange of the share, to the extent of the capital gain
dividend, shall
be treated as a long-term capital loss.
Each shareholder will receive after the close of the
calendar year
an annual statement as to the federal income tax status of
his or her
dividends and distributions for the prior calendar year.
These
statements will also designate the amount of exempt-interest
dividends
that is a specific preference item for purposes of the
federal
individual and corporate alternative minimum taxes. Each
shareholder
will also receive, if appropriate, various written notices
after the
close of a Portfolio's prior taxable year as to the federal
income tax
status of his or her Portfolio during the Portfolio's prior
taxable
year. Shareholders should consult their tax advisors as to
any state and
local taxes that may apply to these dividends and
distributions. The
dollar amount of dividends paid by Municipal Bond
Investments that are
excluded from federal income taxation and the dollar amount
of dividends
paid by Municipal Bond Investments that are subject to
federal income
taxation, if any, will vary for each shareholder depending
upon the size
and duration of each shareholder's investment in a
Portfolio. To the
extent that Municipal Bond Investments earns taxable net
investment
income, it intends to designate as taxable dividends the
same percentage
of each day's dividend as its taxable net investment income
bears to its
total net investment income earned on that day. Therefore,
the
percentage of each day's dividend designated as taxable, if
any, may
vary from day to day.
If a Portfolio is the holder of record of any stock on
the record
date for any dividends payable with respect to the stock,
these
dividends shall be included in the Portfolio's gross income
as of the
later of (i) the date the stock became ex-dividend with
respect to the
dividends (i.e., the date on which a buyer of the stock
would not be
entitled to receive the declared, but unpaid, dividends) or
(ii) the
date the Portfolio acquired the stock. Accordingly, in order
to satisfy
its income distribution requirements, a Portfolio may be
required to pay
dividends based on anticipated earnings, and shareholders
may receive
dividends in an earlier year than would otherwise be the
case.
Investors considering buying shares of a Portfolio on
or just
prior to the record date for a taxable dividend or capital
gain
distribution should be aware that the amount of the
forthcoming dividend
or distribution payment will be a taxable dividend or
distribution
payment.
If a shareholder fails to furnish a correct taxpayer
identification number, fails to report fully dividend or
interest
income, or fails to certify that he or she has provided a
correct
taxpayer identification number and that he or she is not
subject to
"backup withholding," then the shareholder may be subject to
a 31% "backup withholding" tax with respect to (i) taxable
dividends and
distributions and (ii) the proceeds of any redemptions of
Portfolio
shares. An individual's taxpayer identification number is
his or her
social security number. The 31% "backup withholding" tax is
not an
additional tax and may be
credited against a taxpayer's regular federal income tax
liability.
The foregoing is only a summary of certain tax
considerations
generally affecting a Portfolio and its shareholders, and is
not
intended as a substitute for careful tax planning.
Shareholders are
urged to consult their tax advisors with specific reference
to their own
tax situations, including their state and
local tax liabilities.
CUSTODIAN AND TRANSFER AGENT
PNC and Morgan serve as the custodians for the Trust.
The assets
of the Trust are held under bank custodianship in accordance
with the
1940 Act. Under its custody agreement with the Trust, PNC
and Morgan
authorized to establish separate accounts for foreign
securities owned
by the Portfolios to be held with foreign branches of U.S.
banks as well
as certain foreign banks and securities depositories as sub-
custodians
of assets owned by the Portfolios. For its custody services,
PNC and
Morgan, respectively, receives monthly fees charged to a
Portfolio
based upon the month-end, aggregate net asset value of the
Portfolio
plus certain charges for securities transactions. PNC and
Morgan are
also reimbursed by the Portfolios for out-of-pocket expenses
including
the costs of any foreign and domestic sub-custodians.
First Data Investors Services Group Inc., formerly
Shareholder
Services Group, Inc. ("FDIS"), a subsidiary of First Data
Corporation,
serves as the Trust's transfer agent. For its services as
transfer
agent, FDIS receives fees charged to a Portfolio at an
annual rate based
upon the number of shareholder accounts maintained during
the year. FDIS
is also reimbursed by the Portfolios for out-of-pocket
expenses.
FINANCIAL STATEMENTS
The Trust's Annual Report for the year ended August 31,
1995, was
previously sent to all shareholders and is incorporated into
this
Statement of Additional Information by reference.
CONSULTING GROUP CAPITAL MARKETS FUNDS
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Financial Highlights
Included in Part B:
Portfolio Highlights
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Financial Highlights
Portfolios of Investments
Notes to Financial Statements
Report of Independent Accountants
All of the above financial statements are incorporated
by reference to
the Trust's Annual Report dated August 31, 1995 filed via
EDGAR on
November 2, 1995 pursuant to Rule 30d-1 under the Investment
Company Act
of 1940 (Accession No. 91155-95-406).
Included in Part C:
None.
(b) Exhibits
1(a) Master Trust Agreement is incorporated by reference to
Registrant's
Registration Statement on Form N-1A as filed with the
Securities and
Exchange Commission (the "Commission") on May 24, 1991 (the
"Registration
Statement").
1(b) Amendment No. 1 to Master Trust Agreement is
incorporated by
reference to the Registration Statement.
1(c) Amendment No. 2 to Master Trust Agreement is
incorporated by
reference to Pre-Effective Amendment No. 1 to the
Registration Statement on
Form N-1A as filed with the Commission on July 22, 1991
("Pre-Effective
Amendment No. 1").
1(d) Amendment No. 3 to Master Trust Agreement is
incorporated by
reference to Post-Effective Amendment No. 6 ("Post-Effective
Amendment No.
6") to the Registration Statement on Form N-1A filed on
March 18, 1994.
2(a) By-Laws are incorporated by reference to the
Registration Statement.
2(b) Amended and Restated By-Laws are incorporated by
reference to Pre-
Effective Amendment No. 1.
3 Not Applicable.
4 Not Applicable.
5(a) Investment Management Agreement dated July 30, 1993
between the
Registrant and The Consulting Group, a division of Smith,
Barney Advisers,
Inc., is incorporated by reference to Post-Effective
Amendment No. 3
("Post-Effective Amendment No. 3") to the Registration
Statement on Form N-
1A filed with the Commission on October 29, 1993.
5(b) Investment Advisory Agreement dated July 30, 1993
between Smith,
Barney Advisers, Inc. and Pilgrim Baxter & Associates, Ltd.
relating to
Registrant's Small Capitalization Growth Investments
Portfolio is
incorporated by reference to Post-Effective Amendment No. 3.
5(c) Investment Advisory Agreement dated July 30, 1993
between Smith,
Barney Advisers, Inc. and Smith Affiliated Capital Corp.
relating to
Registrant's Municipal Bond Investments Portfolio is
incorporated by
reference to Post-Effective Amendment No. 3.
5(d) Investment Advisory Agreement dated July 30, 1993
between Smith,
Barney Advisers, Inc. and Atlantic Portfolio Analytics &
Management, Inc.
relating to Registrant's Mortgage Backed Investments
Portfolio is
incorporated by reference to Post-Effective Amendment No. 3.
5(e) Investment Advisory Agreement dated July 30, 1993
between Smith,
Barney Advisers, Inc. and Palley-Needelman Asset Management,
Inc. relating
to Registrant's Balanced Investments Portfolio is
incorporated by reference
to Post-Effective Amendment No. 3.
5(f) Investment Advisory Agreement dated July 30, 1993
between Smith,
Barney Advisers, Inc. and Standish, Ayer & Wood, Inc.
relating to
Registrant's Intermediate Fixed Income Investments Portfolio
is
incorporated by reference to Post-Effective Amendment No. 3.
5(g) Investment Advisory Agreement dated July 30, 1993
between Smith,
Barney Advisers, Inc. and Julius Baer Investment Management
Inc. relating
to Registrant's International Fixed Income Investments
Portfolio is
incorporated by reference to Post-Effective Amendment No. 3.
5(h) Investment Advisory Agreement dated January 13, 1993
between Shearson
Lehman Brothers Inc. and Thorsell, Parker Partners Inc.
relating to
Registrant's Small Capitalization Value Equity Investments
Portfolio is
incorporated by reference to Post-Effective Amendment No. 3.
5(i) Amendment dated April 1, 1993 to Investment Advisory
Agreement dated
January 13, 1993 between Shearson Lehman Brothers Inc. and
Thorsell, Parker
Partners Inc. relating to Registrant's Small Capitalization
Value Equity
Investments Portfolio is incorporated by reference to Post-
Effective
Amendment No. 3.
5(j) Investment Advisory Agreement dated April 1, 1993
between Smith,
Barney Advisers, Inc. and Thorsell, Parker Partners Inc.
relating to
Registrant's Small Capitalization Value Equity Investments
Portfolio is
incorporated by reference to Post-Effective Amendment No. 3.
5(k) Investment Advisory Agreement dated April 1, 1993
between Smith,
Barney Advisers, Inc. and NFJ Investment Group Inc. relating
to
Registrant's Small Capitalization Value Equity Investments
Portfolio is
incorporated by reference to Post-Effective Amendment No. 3.
5(l) Investment Advisory Agreement dated September 20, 19953
between Smith
Barney Mutual Funds Management Inc. and Wolf, Webb, Burk &
Campbell, Inc.
relating to Registrant's Long-Term Fixed Income Investments
Portfolio is
to be filed by amendment.
5(m) Amended and Restated Investment Advisory Agreement
dated March 3,
1994 between Smith, Barney Advisers, Inc. and Newbold's
Asset Management,
Inc. relating to Registrant's Large Capitalization Value
Equity Investments
Portfolio is incorporated by reference to Post-Effective
Amendment No.
6.
5(n) Investment Advisory Agreement dated March 3, 1994
between Smith,
Barney Advisers, Inc. and Parametric Portfolio Associates,
Inc. relating to
Registrant's Large Capitalization Value Equity Investments
Portfolio is
incorporated by reference to Post-Effective Amendment No. 6.
5(o) Amended and Restated Investment Advisory Agreement
dated March 3,
1994 between Smith, Barney Advisers, Inc. and Provident
Investment Counsel
relating to Registrant's Large Capitalization Growth
Investments Portfolio
is incorporated by reference to Post-Effective Amendment No.
6.
5(p) Investment Advisory Agreement dated March 3, 1994
between Smith
Barney Advisers, Inc. and Boston Structured Advisors, a
division of
PanAgora Asset Management, Inc. relating to Registrant's
Large
Capitalization Growth Investments Portfolio is incorporated
by reference to
Post-Effective Amendment No. 6.
5(q) Investment Advisory Agreement dated July 30, 1993
between Smith,
Barney Advisers, Inc. and Standish, Ayer & Wood, Inc.
relating to
Registrant's Government Money Investments Portfolio is
incorporated by
reference to Post-Effective Amendment No. 3.
5(r) Investment Advisory Agreement dated July 30, 1993
between Smith,
Barney Advisers, Inc. and Oechsle International Advisors
L.P. relating to
Registrant's International Equity Investments Portfolio is
incorporated by
reference to Post-Effective Amendment No. 3.
5(s) Investment Advisory Agreement dated March 3, 1994
between Smith,
Barney Advisers, Inc. and John Govett & Company, Ltd.
relating to
Registrant's Emerging Markets Equity Investments Portfolio
is incorporated
by reference to Post-Effective Amendment No. 6.
5(t) Administration Agreement dated June 2, 1994 between the
Registrant
and Smith, Barney Advisers, Inc. to be filed by amendment.
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 filed
herewith.
6 Distribution Agreement dated July 30, 1993 between the
Registrant and
Smith Barney Shearson Inc. is incorporated by reference to
Post-Effective
Amendment No. 3.
7 Not Applicable.
8 Custody Agreements between the Registrant and PNC
Bank and Morgan
Guaranty and Trust Company dated March ___, and August ___,
1995, is incoroprated by Reference to Post-Effective Amendement
No. 13 to the Registration Statement on Form N-1A, as filed
with the Commission on November 2, 1995.
9 Transfer Agency and Registrar Agreement between the
Registrant and
The Shareholder Services Group, Inc., dated September 1993,
is incorporated
by reference to Post-Effective Amendment No. 4 to the
Registration
Statement on Form N-1A, as filed with the Commission on
December 30, 1993.
10 Opinion of Willkie Farr & Gallagher, including Consent,
is incoroprated by Reference to Post-Effective Amendement
No. 13 to the Registration Statement on Form N-1A, as filed
with the Commission on November 2, 1995.
11 Consent of KPMG Peat Marwick is incoroprated
by Reference to Post-Effective Amendement
No. 13 to the Registration Statement on Form N-1A, as filed
with the Commission on November 2, 1995.
12 Not Applicable.
13 Purchase Agreement between the Registrant and Shearson
Lehman
Brothers Inc. is incorporated by reference to Post-Effective
Amendment No.
1.
14 Not Applicable.
15 Not Applicable.
16 Schedule for computation of performance data is
incorporated by
reference to Post-Effective Amendment No. 1.
17 Financial Data Schedules is incoroprated by
Reference to Post-Effective Amendement
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.
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 - Thorsell, Parker Partners Inc.
Thorsell, Parker Partners Inc. ("TPP") serves as co-
investment
advisor to Small Capitalization Value Equity Investments.
TPP has been
registered as an investment advisor under the Advisors Act
since 1992. The
sole investment company for which TPP provides services is
Small
Capitalization Value Equity Investments. TPP's principal
executive offices
are located at 215 Main Street, Westport, Connecticut 06880.
The list required by this Item 28 of officers and
directors of TPP,
together with information as to any other business,
profession, vocation or
employment of a substantial nature engaged in by such
officers and
directors during the past two years, is incorporated by
reference to
Schedules A and D of Form ADV filed by TPP pursuant to the
Advisers Act
(SEC File No. 801-42814).
Advisors - NFJ Investment Group, Inc.
NFJ Investment Group, Inc. ("NFJ") serves as co-
investment advisor to
Small Capitalization Value Equity Investments. NFJ has been
registered as
an investment advisor under the Advisors Act since 1989.
NFJ provides
investment advisory services to a number of individual and
institutional
clients. NFJ's principal executive offices are located at
2121 San Jacinto
Street, Suite 1440, Dallas, Texas 75201.
The list required by this Item 28 of officers and
directors of NFJ,
together with information as to any other business,
profession, vocation or
employment of a substantial nature engaged in by such
officers and
directors during the past two years, is incorporated by
reference to
Schedules A and D of Form ADV filed by NFJ pursuant to the
Advisers Act
(SEC File No. 801-42814).
Advisors - Pilgrim Baxter & Associates, Ltd.
Pilgrim Baxter & Associates, Ltd. ("PBA") serves as
investment
advisor to Small Capitalization Growth Investments. PBA has
been
registered as an investment advisor under the Advisers Act
since 1982. PBA
is the investment adviser of various institutional clients.
PBA's
principal executive offices are located at 1255 Drummers
Lane, Wayne,
Pennsylvania 19087.
The list required by this Item 28 of officers and
directors of PBA,
together with information as to any other business,
profession, vocation or
employment of a substantial nature engaged in by such
officers and
directors during the past two years, is incorporated by
reference to
Schedules A and D of Form ADV filed by PBA pursuant to the
Advisers Act
(SEC File No. 801-19165).
Advisors - Oechsle International Advisors, L.P.
Oechsle International Advisors, L.P. ("OIA") serves as
investment
advisor to International Equity Investments. OIA has been
registered as an
investment advisor under the Advisers Act since 1986. OIA
provides
investment advisory services to a number of individual and
institutional
clients. OIA's principal executive offices are located at
One
International Place, Boston, Massachusetts 02110.
The list required by this Item 28 of officers and
directors of OIA,
together with information as to any other business,
profession, vocation or
employment of a substantial nature engaged in by such
officers and
directors during the past two years, is incorporated by
reference to
Schedules A and D of Form ADV filed by OIA pursuant to the
Advisers Act
(SEC File No. 801-28111).
Advisors - Julius Baer Investment Management Inc.
Julius Baer Investment Management Inc. ("JBIM") serves
as investment
advisor to International Fixed Income Investments. JBIM has
been
registered as an investment advisor under the Advisers Act
since 1984.
Directly and through Julius Baer Securities Inc., JBIM
provides investment
advisory services to a wide variety of individual and
institutional
clients, including registered investment companies. JBIM's
principal
executive offices are located at 330 Madison Avenue, New
York, New York
10017.
The list required by this Item 28 of officers and
directors of JBIM
together with information as to any other business,
profession, vocation or
employment of a substantial nature engaged in by such
officers and
directors during the past two years, is incorporated by
reference to
Schedules A and D of Form ADV filed by JBIM pursuant to the
Advisers Act
(SEC File No. 801-18766).
Advisors - John Govett & Company, Ltd.
John Govett & Company, Ltd. ("JGC") will serve as
investment advisor
to Emerging Markets Equity Investments. JGC has been
registered as an
investment advisor under the Advisers Act since 1972. JGC
is the
investment adviser of various institutional clients. JGC's
principal
executive offices are located at Shackleton House, 4
Battlebridge Lane,
London, SE1-2HR.
The list required by this Item 28 of officers and
directors of JGC,
together with information as to any other business,
profession, vocation or
employment of a substantial nature engaged in by such
officers and
directors during the past two years, is incorproated by
reference to
Schedule A and D of Form ADV filed by JGC pursuant to the
Advisers Act (SEC
File No.801-34730).
Item 29. Principal Underwriters
Smith Barney Inc. ("Smith Barney") currently acts as
distributor for Smith
Barney Managed Municipals Fund Inc., Smith Barney New York
Municipals Fund
Inc., Smith Barney California Municipals Fund Inc., Smith
Barney
Massachusetts Municipals Fund, Smith Barney Aggressive
Growth Fund Inc., Smith
Barney Appreciation Fund Inc., Smith Barney Principal Return
Fund, Smith
Barney Municipal Money Market Fund Inc., Smith Barney
Managed Governments Fund
Inc., Smith Barney Income Funds, Smith Barney Equity Funds,
Smith Barney
Investment Funds Inc., Smith Barney Precious Metals and
Minerals Fund Inc.,
Smith Barney Telecommunications Trust, Smith Barney Arizona
Municipals Fund
Inc., Smith Barney New Jersey Municipals Fund Inc., The USA
High Yield Fund
N.V., Smith Barney Fundamental Value Fund Inc., Smith Barney
Series Fund,
Consulting Group Capital Markets Funds, Smith Barney
Investment Trust, Smith
Barney Adjustable Rate Government Income Fund, Smith Barney
Florida Municipals
Fund, Smith Barney Funds, Inc., Smith Barney Muni Funds,
Smith Barney World
Funds, Inc., Smith Barney Money Funds, Inc., Smith Barney
Tax Free Money Fund,
Inc., Smith Barney Variable Account Funds, Smith Barney U.S.
Dollar Reserve
Fund (Cayman), Worldwide Special Fund, N.V., Worldwide
Securities Limited,
(Bermuda), and various series of unit investment trusts.
Smith Barney is a wholly owned subsidiary of Smith Barney
Holdings Inc.,
which in turn is a wholly owned subsidiary of Travelers
Group Inc. (formerly
Primerica Corporation). The information required by this
Item 29 with
respect to each director, officer and partner of Smith
Barney is
incorporated by reference to Schedule A of FORM BD filed by
Smith Barney
pursuant to the Securities Exchange Act of 1934 (SEC File
No. 812-8510).
Item 30. Location of Accounts and Records
Consulting Group Capital Markets Funds
222 Delaware Avenue
Wilmington, Delaware 19801
PNC Bank
17th and Chestnuts Streets
Philadelphia, Pennsylvania
Morgan Guaranty and Trust Company
60 Wall Street
New York, New York
Smith Barney Inc.
388 Greenwich Street, 22nd Floor
New York, New York 10013
First Data Investor Services Group Inc.
Exchange Place
Boston, MA 02109
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
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.
12 to the Registration Statement to be signed on its behalf
by the
undersigned, thereunto duly authorized, all in the City of
New York, State of
New York on the 29th day of December, 1995.
CONSULTING GROUP CAPITAL MARKETS FUNDS
By: /s/ Heath B. McLendon
Chairman of the Board
WITNESS our hands on the date set forth below.
Pursuant to the requirements of the Securities Act of
1933, this
Amendment to the Registration Statement has been signed
below by the
following persons in the capacities and on the dates
indicated.
Signature Title Date
/s/ Heath B. McLendon, Trustee and Chairman of the Board
May 30, 1996
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone, Senior Vice President and Treasurer
May 30, 1996
Lewis E. Daidone (Chief Financial and Accounting
Officer)
/s/ Walter E. Auch, Sr.*
Walter E. Auch, Sr., Trustee
May 30, 1996
/s/
Armon E. Kamesar, Trustee
May 30, 1996
/s/ Martin Brody*
Martin Brody, Trustee
May 30, 1996
/s/ Stephen E. Kaufman*
Stepehn E. Kaufman, Trustee
May 30, 1996
/s/ Madelon DeVoe Talley*
Madelon DeVoe Talley, Trustee
May 30, 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
May 30, 1996
FORM OF
CONSULTING GROUP CAPITAL MARKETS FUNDS
INVESTMENT ADVISORY AGREEMENT
March 15, 1996
National Asset Management Corporation
101 South Fifth Street, 6th Floor
Louisville, Ky 40202
Dear Sirs:
Under an agreement (the "Management Agreement") between the Consulting Group
Capital Markets Funds, a Massachusetts business trust
(the "Trust"), and Smith Barney
Mutual Funds Management Inc. (the "Manager"), the Manager serves as the Trust's
investment manager and has the responsibility of evaluating, recommending,
supervising
and compensating investment advisers to each series of the Trust.
The Manager hereby confirms its agreement with National Asset Management
Corporation (the "Adviser") with respect to the Adviser's serving
as an investment Adviser
of Long-Term Bond Investments (the "Portfolio"), a series of the Trust,
as follows:
Section 1. Investment Description; Appointment
(a) The Trust desires to employ the Portfolio's capital by investing and
reinvesting in investments of the kind and in accordance
with the investment objectives,
policies and limitations specified in its
Master Trust Agreement dated April 12, 1991, as
amended from time to time (the "Trust Agreement"),
in the prospectus (the "Prospectus")
and in the statement of additional information (the "Statement
of Additional Information")
filed with the Securities and Exchange Commission (the "SEC")
as part of the Trust's
Registration Statement on Form N-1A, as amended
from time to time (the "Registration
Statement"), and in the manner and to the extent as
may from time to time be approved in
the manner set forth in the Trust Agreement.
Copies of the Trust's Prospectus, the
Statement of Additional Information and the
Trust Agreement have been or will be
submitted to the Adviser.
(b) The Manager, with the approval of the Trust,
hereby appoints the Adviser to
act as an investment Adviser to the Portfolio
for the periods and on the terms set forth in
this Agreement. The Adviser accepts such appointment
and agrees to furnish the services
herein set forth for the compensation herein provided.
Section 2. Portfolio Management Duties
(a) Subject to the supervision of the Manager and the
Trust's Board of Trustees,
the Adviser will (i) manage the portion of the
Portfolio's assets allocated to the Adviser
upon the recommendation of the Manager and the review
of the Board of Trustees
("Allocated Assets") in accordance with the
Portfolio's investment objectives, policies and
limitations as stated in the Trust's Prospectus
and Statement of Additional Information; (ii)
make investment decisions with respect to Allocated
Assets; and (iii) place orders to
purchase and sell securities and, where appropriate,
commodity futures contracts with
respect to Allocated Assets.
(b) The Adviser will keep the Trust and the Manager informed of developments
materially affecting the Portfolio and shall, on the
Adviser's own initiative, furnish to the
Trust and the Manager from time to time whatever
information the Adviser believes
appropriate for this purpose.
(c) The Adviser agrees that it will comply with the
Investment Company Act of
1940, as amended (the "Act"), and all rules and
regulations thereunder, all applicable
federal and state laws and regulations and
with any applicable procedures adopted by the
Trust's Board of Trustees.
Section 3. Brokerage
(a) The Adviser agrees that it will place orders pursuant to its investment
determinations with respect to Allocated Assets
either directly with the issuer or with
brokers or dealers selected by it in accordance with
the standards specified in paragraphs
(b) and (c) of this Section 3. The Adviser may place
orders with respect to Allocated
Assets with Smith Barney Mutual Funds Management Inc.
or its affiliates in accordance
with Section 11(a) of the Securities Exchange Act of 1934
and Rule 11a2-2(T) thereunder,
Section 17(e) of the Act and Rule 17e-1 thereunder and
other applicable laws and
regulations.
(b) In placing orders with brokers and dealers,
the Adviser will use its best
efforts to seek the best overall terms available.
In assessing the best overall terms
available for any portfolio transaction, the
Adviser will consider all factors it deems relevant
including, but not limited to, the breadth of the market in
the security, the price of the
security, the financial condition and execution
capability of the broker or dealer and the
reasonableness of any commission for the specific
transaction and on a continuing basis.
(c) In selecting brokers or dealers to execute a
particular transaction and in
evaluating the best overall terms available, the Adviser
may consider the brokerage and
research services (as those terms are defined in
Section 28(e) of the Securities Exchange
Act of 1934) provided to the Trust and/or other
accounts over which the Adviser or an
affiliate exercise investment discretion.
Section 4. Information Provided to the Manager and the Trust
(a) The Adviser agrees that it will make available
to the Manager and the Trust
promptly upon their request copies of all of
its investment records and ledgers with respect
to the Portfolio to assist the Manager and the
Trust in monitoring compliance with the Act
and the Investment Advisers Act of 1940, as
amended (the "Advisers Act"), as well as
other applicable laws. The Adviser will furnish
the Trust's Board of Trustees with respect
to the Portfolio such periodic and special reports as
the Manager and the Board of Trustees
may reasonably request.
(b) The Adviser agrees that it will immediately
notify the Manager and the Trust
in the event that the Adviser or any of its
affiliates: (i) becomes subject to a statutory
disqualification that prevents the Adviser from
serving as investment Adviser pursuant to
this Agreement; or (ii) is or expects to become
the subject of an administrative proceeding
or enforcement action by the SEC or other regulatory
authority. The Adviser has provided
the information about itself set forth in the
Registration Statement and has reviewed the
description of its operations, duties and
responsibilities as stated therein and acknowledges
that they are true and correct and contain no material
misstatement or omission, and it
further agrees to notify the Manager and the
Trust's Administrator immediately of any
material fact known to the Adviser respecting or
relating to the Adviser that is not
contained in the Prospectus or Statement of
Additional Information of the Trust, or any
amendment or supplement thereto, or any
statement contained therein that becomes
untrue in any material respect.
(c) The Adviser represents that it is an
investment adviser registered under the
Advisers Act and other applicable laws
and that the statements contained in the Adviser's
registration under the Advisers Act on
Form ADV, as of the date hereof, are true and
correct and do not omit to state any material
fact required to be stated therein or necessary
in order to make the statement therein not misleading.
The Adviser agrees to maintain the
completeness and accuracy of its registration on Form
ADV in accordance with all legal
requirements relating to that Form. The Adviser acknowledges
that it is an "investment
adviser" to the Portfolio within the meaning of the Act and
the Advisers Act.
Section 5. Books and Records
In compliance with the requirements of Rule 31a-3 under the Act,
the Adviser
hereby agrees that all records that it maintains for the Trust
are the property of the Trust
and further agrees to surrender promptly to the Trust copies of
any such records upon the
Trust's request. The Adviser further agrees to preserve for
the periods prescribed by Rule
31a-2 under the Act the records required to be maintained by Rule 31a-1
under the Act and
to preserve the records required by Rule 204-2 under
the Advisers Act for the period
specified in that Rule.
Section 6. Compensation
(a) In consideration of services rendered pursuant to this Agreement, the
Manager will pay the Adviser a fee that is computed daily
and paid monthly at the annual
rate of 0.20 of the Portfolio's average daily net assets
(the "Portfolio Advisory Fee"),
reduced in the same proportion as its fee bears to the
Managers' fees from the Portfolio to
the extent, in any fiscal year of the Portfolio, the aggregate
expense of the Portfolio
(including fees pursuant to this Agreement and the Trust's
Administration Agreement with
the Administrator, but excluding interest, taxes,
brokerage fees, and, if permitted by state
securities commissions, extraordinary expenses) exceed the expense
limitation of any state
having jurisdiction over the Portfolio.
(b) The Portfolio Advisory Fee for the period from the date of
this Agreement
becomes effective to the end of the month during which
this Agreement becomes effective
shall be prorated according to the proportion
that such period bears to the full monthly
period. Upon any termination of this Agreement before
the end of a month, the fee for
such part of that month shall be prorated according to the
proportion that such period
bears to the full monthly period and shall be payable upon
the date of termination of this
Agreement.
(c) For the purpose of determining fees payable to the Adviser,
the value of the
Portfolio's net assets shall be computed at the time
and in the manner specified in the
Trust's Prospectus and/or the Statement of Additional Information.
Section 7. Costs and Expenses
During the term of this Agreement, the Adviser will
pay all expenses incurred by it
and its staff in connection with the performance of its
services under this Agreement,
including the payment of salaries of all officers and employees
who are employed by it and
the Trust.
Section 8. Standard of Care
The Adviser shall exercise its best judgment in rendering
the services provided by it
under this Agreement. The Adviser shall not be liable
for any error of judgment or mistake
of law or for any loss suffered by the Manager or the
Trust in connection with the matter
to which this Agreement relates, provided that nothing
in this Agreement shall be deemed
to protect or purport to protect the Adviser against any
liability to the Manager or the Trust
or to holders of the Trust's shares representing
interests in the Portfolio to which the
Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or
by reason of the Adviser's
reckless disregard of its obligations and duties under this Agreement.
Section 9. Services to Other Companies or Accounts
(a) It is understood that the services of the Adviser are not exclusive, and
nothing in this Agreement shall prevent the Adviser
from providing similar services to other
investment companies (whether or not their investment
objectives and policies are similar
to those of the Trust) or from engaging in other activities.
(b) When the Adviser recommends the purchase or sale of a security for other
investment companies and other clients, and at the same time the
Adviser recommends the
purchase or sale of the same security for the Trust, it is
understood that in light of its
fiduciary duty to the Trust such transactions will be
executed on a basis that is fair and
equitable to the Trust.
(c) The Trust and the Manager understand and acknowledge that the persons
employed by the Adviser to assist in the performance
of its duties under this Agreement
will not devote their full time to that service; nothing
contained in this Agreement will be
deemed to limit or restrict the right of the Adviser or any
affiliate of the Adviser to engage
in and devote time and attention to other business or to render
services of whatever kinds
of nature.
Section 10. Duration and Termination
(a) This Agreement shall become effective on March 10, 1995, or, if a later
date, the date it is approved by shareholders of the Portfolio
and shall continue for two
years from that date, and thereafter shall continue
automatically for successive annual
periods, provided such continuance is specifically
approved at least annually by (i) the
Trust's Board of Trustees or (ii) a vote of a majority of the
Portfolio's outstanding voting
securities (as defined in the Act), provided that the continuance
is also approved by a
majority of the Trustees who are not "interested persons"
(as defined in the Act) of the
Trust, by vote cast in person at a meeting called for the
purpose of voting on such
approval.
(b) Notwithstanding the foregoing, this Agreement may be
terminated (i) by the
Manager at any time without penalty, upon notice to the
Adviser and the Trust, (ii) at any
time without penalty by the Trust, upon the vote of a
majority of the Trust's Trustees or by
vote of the majority of the Trust's outstanding voting securities,
upon notice to the
Manager and the Trust or (iii) by the Adviser at any
time without penalty, upon sixty (60)
days' written notice to the Manager and the Trust.
(c) This Agreement will terminate automatically in the event of
its assignment
(as defined in the Act and in rules adopted under the Act).
Section 11. Amendments
No provision of this Agreement may be changed, waived,
discharged or terminated
orally, but only by an instrument in writing signed by the
party against whom enforcement
of the change, waiver, discharge or termination is sought, and no
amendment of this
Agreement shall be effective until approved in accordance with
applicable law.
Section 12. Miscellaneous
(a) This Agreement shall be governed by the laws of the State of New York,
provided that nothing herein shall be construed in a manner
inconsistent with the Act, the
Advisers Act, or rules or orders of the SEC thereunder.
(b) The captions of this Agreement are included for
convenience only and in no
way define or limit any of the provisions thereof or otherwise affect
their construction or
effect.
(c) If any provision of this Agreement shall be held or made
invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected
thereby and, to this extent, the provisions of this Agreement
shall be deemed to be
severable.
(d) Nothing herein shall be construed as constituting the
Adviser as an agent of
the Trust or the Manager.
If the terms and conditions described above are in accordance
with your understanding,
kindly indicate your acceptance of this Agreement by signing and
returning to us the
enclosed copy of this Agreement.
SMITH BARNEY MUTUAL FUNDS
MANAGEMENT INC.
By: /s/ Heath B. McLendon
Name: Heath B. McLendon
Title: President
Accepted:
NATIONAL ASSET MANAGEMENT CORPORATION
By:/s/Michael Hyman
Name:Michael Hyman
Title:Principal
BZW BARCLAYS AGREEMENT
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