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. 27 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940
Amendment No. 27 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: Continuous
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
on (date) pursuant to paragraph (b) of Rule 485
XXX 60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Beneficial Interest, par value
$0.001 per share.
PART A
<PAGE>
Consulting Group
Capital Markets Funds
Government Money Investments
Intermediate Fixed Income Investments
Long-Term Bond Investments
Municipal Bond Investments
Mortgage Backed Investments
High Yield 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
Multi-Sector Fixed Income Investments
Prospectus
SalomonSmithBarney
December __, 1999 ---------------------------
A member of citigroup[LOGO]
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Investments, Risks and Performance 2
- -----------------------------------------------------------
Government Money Investments 3
- -----------------------------------------------------------
Intermediate Fixed Income Investments 5
- -----------------------------------------------------------
Long-Term Bond Investments 7
- -----------------------------------------------------------
Municipal Bond Investments 9
- -----------------------------------------------------------
Mortgage Backed Investments 11
- -----------------------------------------------------------
High Yield Investments 13
- -----------------------------------------------------------
Balanced Investments 15
- -----------------------------------------------------------
Large Capitalization Value Equity Investments 17
- -----------------------------------------------------------
Large Capitalization Growth Investments 19
- -----------------------------------------------------------
Small Capitalization Value Equity Investments 21
- -----------------------------------------------------------
Small Capitalization Growth Investments 23
- -----------------------------------------------------------
International Equity Investments 25
- -----------------------------------------------------------
International Fixed Income Investments 27
- -----------------------------------------------------------
Emerging Markets Equity Investments 29
- -----------------------------------------------------------
Multi-Sector Fixed Income Investments 31
- -----------------------------------------------------------
More on the Portfolios' Investments and Related Risks 34
- -----------------------------------------------------------
The Manager 38
- -----------------------------------------------------------
Year 2000 Issue 45
- -----------------------------------------------------------
Asset Allocation Programs 46
- -----------------------------------------------------------
Investment and Account Information 47
- -----------------------------------------------------------
Account Transactions 47
- -----------------------------------------------------------
Valuation of Shares 48
- -----------------------------------------------------------
Dividends and distributions 48
- -----------------------------------------------------------
Taxes 48
- -----------------------------------------------------------
Financial Highlights 50
- -----------------------------------------------------------
Appendix A A-1
- -----------------------------------------------------------
Appendix B B-1
- -----------------------------------------------------------
</TABLE>
An investment in a Portfolio is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
Consulting Group Capital Markets Funds
<PAGE>
Investments, Risks and Performance
About the portfolios
The manager selects and oversees professional money managers who are responsi-
ble for investing the assets of the portfolios comprising the Consulting Group
Capital Markets Funds (each a "Portfolio").
You should know:
. You could lose money on your investment in a Portfolio, or the Portfolio may
not perform as well as other investments
. An investment in any of the Portfolios is not a bank deposit and is not in-
sured or guaranteed by the FDIC or any other government agency
Principal risks of investing in fixed income securities and equity securities
The Portfolios invest in fixed income securities and equity securities. Risks
common to investments in fixed income securities and equity securities are set
forth below. Because each Portfolio has a different investment strategy, there
are also principal risks that are specific to an investment in a particular
Portfolio. These unique risks are described in the Portfolio summaries begin-
ning on the next page.
Fixed Income Securities:
. When interest rates go up, prices of fixed income securities go down
. An issuer of a security may default on its obligation to pay principal and/or
interest or have its credit rating downgraded
. An issuer of a security may prepay principal earlier than scheduled, which
would force an underlying fund to reinvest in lower yielding securities. This
is known as call or prepayment risk
. Slower than expected principal payments may extend a security's life. This
locks in a below-market interest rate, increases the security's duration and
reduces the value of the security. This is known as extension risk
Equity Securities:
. Stock prices may decline generally
. If an adverse event occurs, such as the issuance of an unfavorable earnings
report, the value of a particular issuer's security may be depressed
2
Consulting Group Capital Markets Funds
<PAGE>
Government Money Investments
Investment objective
To provide maximum current income to the extent consistent with the maintenance
of liquidity and the preservation of capital.
Principal investment strategies
The Portfolio invests exclusively in U.S. dollar denominated short-term debt
securities issued or guaranteed by the U.S. government, its agencies, or in-
strumentalities and in repurchase agreements with respect to these securities.
Credit quality. The Portfolio invests exclusively in U.S. treasury securities
and other U.S. government securities rated by a nationally recognized rating
organization in the two highest short-term rating categories or, if unrated, of
equivalent quality as determined by the subadvisor.
Maturity. Individual securities must have remaining maturities of 397 days or
less. The Portfolio maintains a dollar-weighted portfolio maturity of 90 days
or less.
How the subadvisor selects the Portfolio's investments
The Portfolio seeks to maintain a constant net asset value of $1 per share by
investing in securities which the subadvisor believes present minimal credit
risks. It focuses on improving the Portfolio's yield by:
. Actively managing sector allocations and the average maturity of the Portfo-
lio.
. Monitoring the spread relationships between U.S. Treasury and government
agency issues and purchasing agencies when they provide a yield advantage.
. Adjusting average portfolio maturity to reflect the subadvisor's outlook on
interest rates.
Principal risks of investing in the Portfolio
Your investment in the Portfolio is subject to the risks associated with in-
vesting in fixed income securities generally. These risks are described on page
2 above. Because the Portfolio invests exclusively in short-term, high-quality
debt securities, these risks are less significant than in the case of Portfo-
lios which invest in longer-term securities or in below investment grade secu-
rities.
Investment in short-term U.S. government securities is generally the most con-
servative investment approach of all the Portfolios. Over time, the Portfolio
is likely to underperform other investment options.
The Portfolio seeks to maintain a $1 share price. However, the maintenance of a
$1 share price is not guaranteed and you may lose money on your investment.
The bar chart and tables indicate the risks and returns of investing in the
Portfolio. The bar chart shows changes in the performance of the Portfolio from
year to year since its founding on November 18, 1991. The table to the right
shows how the Portfolio's average annual returns for different calendar periods
compare to the return on the 90-day Treasury bill. The Portfolio's past perfor-
mance does not necessarily indicate how the Portfolio will perform in the fu-
ture.
[THE FOLLOWING IS REPRESENTED BY A BAR CHART]
Percentage Total Returns for
Government Money Investments
5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
1992 1993 1994 1995 1996 1997 1998
20 15 10 5 0
Calendar years ended December 31
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
One Five Life of 7-day
year years Portfolio yield
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio (without advisory program fee)* xx.xx% xx.xx% xx.xx% xx.xx%
90-day T-bill xx.xx% xx.xx% xx.xx% xx.xx%
- --------------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in advisory pro-
grams. These programs charge an annual fee, which in the case of TRAK(R) Per-
sonalized Investment Advisory Service may be up 1.5%
The portfolio's 7-day yield as of was %.
3
Consulting Group Capital Markets Funds
<PAGE>
Government Money Investments, continued
PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
return Quarter/Year
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Best xx.xx% /199
Worst xx.xx% /199
- -------------------------------------------------------------------------------------------------
Year-to-date xx.xx% through 3rd/1999
- -------------------------------------------------------------------------------------------------
</TABLE>
BENCHMARK
The Portfolio's benchmark is the
rate of return of the 90 day
Treasury bill. Unlike the
Portfolio, the benchmark is
unmanaged and does not include
any expenses.
Fees and Expenses
This table describes the fees and expenses you may pay if you buy and hold
shares of the Portfolio and is based upon expenses for the Portfolio's latest
fiscal year.
<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)
Maximum annual TRAK(R) fee 1.50%
Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fees 0.15%
Other expenses 0.40%
-----
Total annual Portfolio operating
expenses 0.55%
=====
</TABLE>
Example
This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.
The example assumes:
. You invest $10,000 in the Portfolio for the time periods indicated;
. You reinvest all dividends and distributions;
. You redeem at the end of each period;
. Your investment has a 5% return each year; and
. The Portfolio's operating expenses remain the same.
Under these assumptions, your costs, including the maximum annual TRAK(R) fee,
would be:
<TABLE>
<CAPTION>
After 1 After 3 After 5 After 10
year years years years
<S> <C> <C> <C>
$ $ $ $
</TABLE>
4
Consulting Group Capital Markets Funds
<PAGE>
Intermediate Fixed Income Investments
Investment objective
Current income and reasonable stability of principal.
Principal investment strategies
The Portfolio invests primarily in fixed income securities and instruments is-
sued by governmental and corporate issuers. These securities include mortgage-
related and asset-backed securities, although the Portfolio will not invest
more than 5% of its assets at the time of purchase in asset-backed securities.
Credit quality. The Portfolio invests exclusively in securities rated invest-
ment grade by a nationally recognized rating organization, or, if unrated, of
equivalent quality as determined by the subadvisor.
Maturity. The Portfolio's average maturity ranges from three to ten years. Av-
erage maturity is a weighted average of the stated maturities of the debt secu-
rities the Portfolio owns. Individual investments may be of any maturity.
How the subadvisors select the Portfolio's investments
The manager has selected two subadvisors to manage the Portfolio. Each
subadvisor manages its portion of the Portfolio's assets using a different in-
vestment style:
. ""Top-Down"/"Bottom-Up"
. Credit Analysis/Sector Rotation
Each subadvisor's investment approach is described below.
"Top-Down"/"Bottom-Up" The subadvisor employs all top-down and bottom-up in-
vestment techniques. It implements the following "top-down" strategies: dura-
tion and volatility analyses, sector evaluation and yield curve shape analysis.
The subadvisor also employs the following "bottom-up" strategies: credit analy-
sis, quantitative research, issue selection and cost-effective trading.
Credit Analysis/Sector Rotation The subadvisor seeks to maximize current income
and minimize volatility by:
. Analyzing issuers and sectors on a yield spread basis, with an overlay of
fundamental company analysis.
. Identifying fixed income securities with the greatest potential for adding
value, such as those involving new issuers, the potential for credit up-
grades, unique structural characteristics or innovative features.
. Managing variables such as sector, maturity, duration, credit quality, yield
and potential capital appreciation.
Principal risks of investing in the Portfolio
Your investment in the Portfolio is subject to the risks associated with in-
vesting in fixed income securities generally. These are described on page 2
above.
Your investment is also subject to the following specific risks:
. Greater sensitivity to rising interest rates than Government Money Invest-
ments because of the Portfolio's longer average maturity
. Greater exposure to prepayment and extension risks because the Portfolio may
invest a portion of its assets in mortgage-related and asset-backed securi-
ties
. Increased volatility in share price to the extent the Portfolio holds mort-
gage derivative securities having imbedded leverage or unusual interest rate
reset terms
The bar chart and tables indicate the risks and returns of investing in the
Portfolio. The bar chart shows changes in the performance of the Portfolio from
year to year since its founding on November 18, 1991. The table to the right
shows how the Portfolio's average annual returns for different calendar periods
compare to those of the Portfolio's benchmark index and its Lipper Investor
Services peer group. The Portfolio's past performance does not necessarily in-
dicate how the Portfolio will perform in the future.
[THE FOLLOWING IS REPRESENTED BY A BAR CHART]
Percentage Total Returns for
Intermediate Fixed Income Investments
4.65% 4.45% 2.74% 7.44% 6.31% 6.29%
92 93 94 95 96 97
Calendar Years ended December 31
5
Consulting Group Capital Markets Funds
<PAGE>
Intermediate Fixed Income Investments, continued
AVERAGE ANNUAL TOTAL RETURNS
(for the period ended December 31, 1998)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
One Five Life of
year years Portfolio
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Portfolio (without advisory program fee)* xx.xx% xx.xx% xx.xx%
Lehman Brothers Intermediate Gov/Corp Bond Index xx.xx% xx.xx% xx.xx%
[Lipper Corporate Debt Funds A Rated Average] xx.xx% xx.xx% xx.xx%
- ------------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in an advisory
program. These programs charge an annual fee, which in the case of TRAK(R)
may be up to 1.5%.
PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
return Quarter/Year
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Best xx.xx% /199
Worst xx.xx% /199
- -------------------------------------------------------------------------------------------------
Year-to-date xx.xx% through 3rd/1999
- -------------------------------------------------------------------------------------------------
</TABLE>
BENCHMARK
The Portfolio's primary bench-
mark is the Lehman Brothers In-
termediate Government/Corporate
Bond Index. The index is com-
posed of debt securities of the
U.S. government and its agencies
and publicly issued, fixed rate,
non-convertible, investment-
grade domestic corporate debt
with at least one year remaining
to maturity. Unlike the Portfo-
lio, the benchmark is unmanaged
and does not include any ex-
penses.
Fees and Expenses
This table describes the fees and expenses you may pay if you buy and hold
shares of the Portfolio and is based upon expenses for the Portfolio's latest
fiscal year.
<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)
Maximum annual TRAK(R) fee 1.50%
Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fees 0.60%
Other expenses 0.13%
-----
Total annual Portfolio operating
expenses 0.73%
=====
</TABLE>
Example
This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.
The example assumes:
. You invest $10,000 in the Portfolio for the time periods indicated;
. You reinvest all dividends and distributions;
. You redeem at the end of each period;
. Your investment has a 5% return each year; and
. The Portfolio's operating expenses remain the same.
Under these assumptions, your costs, including the maximum annual TRAK(R) fee,
would be:
<TABLE>
<CAPTION>
After 1 After 3 After 5 After 10
year years years years
<S> <C> <C> <C>
$ $ $ $
</TABLE>
6
Consulting Group Capital Markets Funds
<PAGE>
Long-Term Bond Investments
Investment objective
Total return consisting of current income and appreciation of capital through
investments in fixed income securities without regard to remaining maturity.
Principal investment strategies
The Portfolio invests primarily in fixed income securities issued by U.S. gov-
ernmental and corporate issuers, U.S. dollar denominated fixed income securi-
ties of foreign issuers and mortgage-related and asset-backed securities. The
Portfolio will not invest more than 25% of its assets in privately issued mort-
gage-related securities.
Credit quality. The Portfolio invests exclusively in securities rated invest-
ment grade by a nationally recognized rating organization, or, if unrated, of
equivalent quality as determined by the subadvisor.
Maturity. The Portfolio's average maturity is at least 10 years. Average matu-
rity is a weighted average of the stated maturity of debt securities the Port-
folio owns. Individual investments may be of any maturity.
How the subadvisor selects the Portfolio's investments
The subadvisor emphasizes three key strategies to enhance the Portfolio's total
return:
. Adjusting the allocation of the Portfolio among the key sectors of the fixed-
income market--government, corporate and mortgage and asset-backed--depending
upon its forecast of relative values.
. Tracking the duration of the overall portfolio so that it falls within a nar-
row band relative to the benchmark index, with adjustment made to reflect the
subadvisor's long-term outlook for interest rates.
. Purchasing under-valued securities in each of the key sectors of the bond
market while keeping overall quality high.
Principal risks of investing in the Portfolio
Your investment in the Portfolio is subject to the risks associated with in-
vesting in fixed income securities generally. These risks are described on page
2 above.
Your investment is also subject to the following specific risks:
. Greater sensitivity to rising interest rates than Intermediate Fixed Income
Investments because of the Portfolio's longer average maturity
. Greater exposure to prepayment and extension risks because the Portfolio may
invest a portion of its assets in mortgage-related and asset-backed securi-
ties
The bar chart and tables indicate the risks and returns of investing in the
Portfolio. The bar chart shows changes in the performance of the Portfolio from
year to year since its founding on November 18, 1991. The table to the right
shows how the Portfolio's average annual returns for different calendar periods
compare to those of the Portfolio's benchmark index and its Lipper peer group.
The Portfolio's past performance does not necessarily indicate how the Portfo-
lio will perform in the future.
[THE FOLLOWING IS REPRESENTED BY A BAR CHART]
Percentage Total Returns for
Long-Term Bond Investments
4.65% 4.45% 2.74% 7.44% 6.31% 6.29%
92 93 94 95 96 97
Calendar years ended December 31
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
One Five Life of
year years Portfolio
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Portfolio (without advisory program fee)* xx.xx% xx.xx% xx.xx%
Lehman Brothers Gov/Corp Bond Index xx.xx% xx.xx% xx.xx%
[Lipper Avg.] xx.xx% xx.xx% xx.xx%
- ---------------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in an advisory
program. These programs charge an annual fee, which in the case of TRAK(R)
may be up to 1.5%.
PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
return Quarter/Year
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Best xx.xx% --
Worst xx.xx% --
- --------------------------------------------------------------------------------------------------
Year-to-date xx.xx% through 3rd/1999
- --------------------------------------------------------------------------------------------------
</TABLE>
7
Consulting Group Capital Markets Funds
<PAGE>
Long-Term Bond Investments, continued
BENCHMARK
The Portfolio's primary bench-
mark is the Lehman Brothers
Government/Corporate Bond Index.
The index is composed of debt
securities of the U.S. govern-
ment and its agencies and pub-
licly issued fixed rate, non-
convertible, investment-grade
corporate debt securities with
at least one year remaining to
maturity. Unlike the Portfolio,
the benchmark is unmanaged and
does not include any expenses.
Fees and Expenses
This table describes the fees and expenses you may pay if you buy and hold
shares of the Portfolio and is based upon expenses for the Portfolio's latest
fiscal year.
<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)
Maximum annual TRAK(R) fee 1.50%
Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fees 0.60%
Other expenses 0.18%
-----
Total annual Portfolio operating
expense 0.78%
=====
</TABLE>
Example
This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.
The example assumes:
. You invest $10,000 in the Portfolio for the time periods indicated;
. You reinvest all dividends and distributions;
. You redeem at the end of each period;
. Your investment has a 5% return each year; and
. The Portfolio's operating expenses remain the same.
Under these assumptions, your costs, including the maximum annual TRAK(R) fee,
would be:
<TABLE>
<CAPTION>
After 1 After 3 After 5 After 10
year years years years
<S> <C> <C> <C>
$ $ $ $
</TABLE>
8
Consulting Group Capital Markets Funds
<PAGE>
Municipal Bond Investments
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 preserva-
tion of capital.
Principal investment strategies
The Portfolio invests principally in tax exempt general obligation, revenue and
private activity bonds and notes, which are issued by or on behalf of states,
territories or possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities (including
Puerto Rico, the Virgin Islands and Guam). Tax exempt means that the bonds pay
interest that is excluded from gross income for federal income tax purposes.
The Portfolio's investments generally include municipal obligations with a full
range of maturities and broad issuer and geographic diversification.
Credit quality. The Portfolio limits its investments to municipal obligations
that are rated investment grade or higher by a nationally recognized rating or-
ganization, or, if unrated, of equivalent quality as determined by the
subadvisor.
How the subadvisor selects the Portfolio's investments
The subadvisor uses an active fixed-income management style that focuses first
on the appropriate maturity allocation for the Portfolio within a given market
environment. The maturity allocation is supplemented by a long-term market sec-
tor rotation. The subadvisor focuses primarily on:
. ""Vital service" revenue bonds (i.e., water, electric, power, sewer and se-
lect transportation authority) and secondarily on general obligation bonds of
high-quality issuers.
. Using portfolio credit analysis to evaluate the relative attractiveness of
various securities and sectors.
. Broad geographic and issuer diversification.
Maturity. The Portfolio is generally composed of a full range of maturities.
Individual investments may be of any maturity.
Principal risks of investing in the Portfolio
Because municipal obligations are a type of fixed income security, your invest-
ment in the Portfolio is subject to the risks associated with investing in
fixed income securities generally. These risks are described on page 2 above.
Your investment in the Portfolio is also subject to the following specific
risks:
. New federal or state legislation may adversely affect the tax-exempt status
of securities held by the Portfolio or the financial ability of the munici-
palities to repay these obligations
. The issuer of municipal obligations may not be able to make timely payments
because of general economic downturns or increased governmental costs
It is possible that some of the Portfolio's income distributions may be, and
distributions of the Portfolio's gains will be, subject to federal taxation.
The Portfolio may realize taxable gains on the sale of its securities or other
transactions, and some of the Portfolio's income distributions may be subject
to the federal alternative minimum tax. This may result in a lower tax-adjusted
return. In addition, distribution of the Portfolio's income and gains will be
subject to state taxation.
The bar chart and tables indicate the risks and returns of investing in the
Portfolio. The bar chart shows changes in the performance of the Portfolio from
year to year since its founding on November 18, 1991. The table to the right
shows how the Portfolio's average annual returns for different calendar periods
compare to those of the Portfolio's benchmark index and its Lipper peer group.
The Portfolio's past performance does not necessarily indicate how the Portfo-
lio will perform in the future.
[THE FOLLOWING IS REPRESENTED BY A BAR CHART]
Percentage Total Returns for
Municipal Bond Investments
4.65% 4.45% 2.74% 7.44% 6.31% 6.29%
92 93 94 95 96 97
Calendar years ended December 31
9
Consulting Group Capital Markets Funds
<PAGE>
Municipal Bond Investments, continued
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
One Five Life of
Year Years Portfolio
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Portfolio (without advisory program fee)* xx.xx% xx.xx% xx.xx%
Lehman Municipal Bond Index xx.xx% xx.xx% xx.xx%
Lipper General Municipal Bond Avg. xx.xx% xx.xx% xx.xx%
- ---------------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in an advisory
program. These programs charge an annual fee, which in the case of TRAK(R)
may be up to 1.5%.
PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
return Quarter/Year
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Best xx.xx% /199
Worst xx.xx% /199
- --------------------------------------------------------------------------------------------------
Year-to-date xx.xx% through 3rd/1999
- --------------------------------------------------------------------------------------------------
</TABLE>
BENCHMARK
The Portfolio's primary bench-
mark is the Lehman Brothers Mu-
nicipal Bond Index. The index is
a composite measure of the total
return performance of the munic-
ipal bond market. Unlike the
Portfolio, the benchmark is un-
managed and does not include any
expenses.
Fees and Expenses
This table describes the fees and expenses you may pay if you buy and hold
shares of the Portfolio and is based upon expenses of the Portfolio's latest
fiscal year.
<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)
Maximum annual TRAK(R) fee 1.50%
Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fees 0.37%
Other expenses 0.43%
----
Total annual Portfolio operating
expenses 0.80%
====
</TABLE>
Example
This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.
The example assumes:
. You invest $10,000 in the Portfolio for the time periods indicated;
. You reinvest all dividends and distributions;
. You redeem at the end of each period;
. Your investment has a 5% return each year; and
. The Portfolio's operating expenses remain the same.
Under these assumptions, your costs, including the maximum annual TRAK(R) fee,
would be:
<TABLE>
<CAPTION>
After 1 After 3 After 5 After 10
year years years years
<S> <C> <C> <C>
$ $ $ $
</TABLE>
10
Consulting Group Capital Markets Funds
<PAGE>
Mortgage Backed Investments
Investment objective
High current income and secondarily capital appreciation, each to the extent
consistent with the protection of capital.
Principal investment strategies
The Portfolio invests primarily in mortgage-related securities representing
pools of mortgage loans assembled for sale to investors by various U.S. govern-
mental agencies, and government-related organizations, and private issuers. The
Portfolio will not invest more than 25% of its assets in privately issued mort-
gage-related securities.
The Portfolio may also invest in mortgage-related derivative securities such as
government stripped mortgage-backed securities (SMBS) and collateralized mort-
gage obligations (CMOs). SMBS represent the right to receive either principal
or interest payments on U.S. government securities. Interests in CMOs entitle
the holder to specified cash flows from a pool of mortgages. In order to en-
hance current income, the Portfolio may enter into mortgage dollar roll trans-
actions with respect to mortgage-related securities issued by U.S. governmental
agencies or instrumentalities.
How the subadvisor selects the Portfolio's investments
The subadvisor uses a quantitative computer-modelled investment process to seek
to identify and capitalize on inefficiencies in the mortgage-backed securities
market.
The subadvisor generally maintains the portfolio's average duration within a
narrow band around the duration of the entire mortgage-backed securities mar-
ket. Duration is an approximate measure of the sensitivity of the market value
of the Portfolio's holdings to changes in interest rates. The subadvisor nor-
mally focuses the Portfolio's holdings on mortgage related securities issued by
U.S. government agency and government related organizations.
Credit quality. The Portfolio generally invests in securities rated no lower
than "A" at the time of purchase by a nationally recognized rating agency or,
if unrated, of equivalent quality as determined by the subadvisor. However, up
to 20% of the Portfolio's assets may be invested in securities rated as low as
"B" by a nationally recognized rating organization or, if unrated, of equiva-
lent quality as determined by the subadvisor, upon the concurrence of the man-
ager.
Principal risks of investing in the Portfolio
Because mortgage-related securities are a type of fixed income security, your
investment in the Portfolio is subject to the risks of investing in fixed in-
come securities generally. These risks are described on page 2 above.
Your investment is also subject to the specific risks of investing primarily in
mortgage related securities. Mortgage-related securities generally represent
direct or indirect interests in the principal and interest payments on individ-
ual pools of mortgage loans. The mortgage loans typically allow the mortgagor
(i.e., the homeowner) to prepay principal on their mortgages whenever they
choose. For this reason, your investment is also subject to:
. Increased prepayment and extension risk which increases price and yield vola-
tility
. Increased volatility in share price to the extent the Portfolio holds mort-
gage derivative securities having imbedded leverage or unusual interest rate
reset terms
. To the extent the Portfolio enters into mortgage dollar roll transactions,
the risk that the securities the Portfolio has agreed to purchase will be
worth less on the repurchase date than the repurchase price due to changes in
interest rates and market conditions
Payments of principal and interest on mortgage pools issued by government re-
lated organizations are not guaranteed by the U.S. government. Although mort-
gage pools issued by U.S. agencies are guaranteed with respect to payments of
principal and interest, such guarantee does not apply to losses resulting from
declines in the market value of such securities.
The bar chart and tables indicate the risks and returns of investing in the
Portfolio. The bar chart shows changes in the performance of the Portfolio from
year to year since its founding on November 18, 1991. The table to the right
shows how the Portfolio's average annual returns for different calendar periods
compare to those of the Portfolio's benchmark index and its Lipper peer group.
The Portfolio's past performance does not necessarily indicate how the Portfo-
lio will perform in the future.
11
Consulting Group Capital Markets Funds
<PAGE>
Mortgage Backed Investments, continued
[THE FOLLOWING IS REPRESENTED BY A BAR CHART]
Percentage Total Returns for
Mortgage Backed Investments
4.65% 4.45% 2.74% 7.44% 6.31% 6.29%
92 93 94 95 96 97
Calendar years ended December 31
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
One Five Life of
year years Portfolio
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Portfolio (without advisory program fee)* xx.xx% xx.xx% xx.xx%
Lehman Mortgage Backed Index xx.xx% xx.xx% xx.xx%
Lipper U.S. Mortgage Fund Average xx.xx% xx.xx% xx.xx%
- ---------------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in an advisory
program. These programs charge an annual fee, which in the case of TRAK(R)
may be up to 1.5%.
PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
return Quarter/Year
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Best xx.xx% /199
Worst xx.xx% /199
- -------------------------------------------------------------------------------------------------
Year-to-date xx.xx% through 3rd/1999
- -------------------------------------------------------------------------------------------------
</TABLE>
BENCHMARK
The Portfolio's primary
benchmark is Lehman Brothers
Mortgage Backed Securities
Index. The index contains most
fixed rate securities issued and
backed by mortgage pools of
federal agencies or government
related organizations. Unlike
the Portfolio, the benchmark is
unmanaged and does not include
any expenses.
Fees and Expenses
This table describes the fees and expenses you may pay if you buy and hold
shares of the Portfolio and is based upon expenses of the Portfolio's latest
fiscal year.
<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)
Maximum annual TRAK(R) fee 1.50%
Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fees 0.57%
Other expenses 0.23%
-----
Total annual Portfolio operating
expenses 0.80%
=====
</TABLE>
Example
This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.
The example assumes:
You invest $10,000 in the Portfolio for the time periods indicated;
. You reinvest all dividends and distribution;
. You redeem at the end of each period;
. Your investment has a 5% return each year; and
. The Portfolio's operating expenses remain the same.
Under these assumptions, your costs, including the maximum annual TRAK(R) fee,
would be:
<TABLE>
<CAPTION>
After 1 After 3 After 5 After 10
year years years years
<S> <C> <C> <C>
$ $ $ $
</TABLE>
12
Consulting Group Capital Markets Funds
<PAGE>
High Yield Investments
Investment objective
A high level of current income by investing primarily in below investment grade
debt securities.
Principal investment strategies
The Portfolio invests primarily in fixed income securities of corporate issuers
located in the United States. The Portfolio may invest a portion of its assets
in securities of issuers located in developed foreign countries. The Portfolio
may also invest up to 10% of its assets in equity and equity-related securi-
ties, including convertible securities, preferred stock, warrants and rights.
Credit quality. The Portfolio invests primarily in fixed-income securities
rated below investment grade by two or more nationally recognized rating orga-
nizations, or, if unrated, of equivalent quality as determined by the
subadvisor. Securities rated below investment grade are commonly known as "junk
bonds."
Duration. The Portfolio's average duration ranges from two to six years. Dura-
tion is an approximate measure of the sensitivity of the market value of the
Portfolio's holdings to changes in interest rates. Individual securities may be
of any maturity.
How the subadvisor selects the Portfolio's investments
The subadvisor employs a relative value investment process, looking for securi-
ties of companies with improving or stable credit quality trends. The Portfolio
focuses on investments in the "BB" and "B" quality spectrum. The investing
process includes:
. Extensive portfolio research of issuers and their business conditions
. Thorough analysis of issuers and their credit quality
. Emphasis on general economic and interest rate trends and forecasts
Principal risks of investing in the Portfolio
Your investment in the Portfolio is subject to the risks of investing in fixed
income securities generally. However, these risks, which are described on page
2 above, are significantly greater for the Portfolio because of its focus on
non-investment grade fixed income securities.
Investment in high yield securities involves substantial risk of loss. These
securities are considered speculative with respect to the issuer's ability to
pay interest and principal and are susceptible to default or decline in market
value due to adverse economic and business developments. The market values for
high yield securities tend to be very volatile, and these securities are less
liquid than investment grade debt securities. For these reasons, your invest-
ment in the Portfolio is subject to the following specific risks:
. Increased price sensitivity to changing interest rates
. Greater risk of loss due to default or declining credit quality
. Adverse company specific events are more likely to render the issuer unable
to make interest and/or principal payments
. A negative perception of the high yield market develops, depressing the price
and liquidity of high yield securities. This negative perception could last
for a significant period of time
The market value of foreign securities may go down because of unfavorable for-
eign government actions, political, economic or market instability or the ab-
sence of accurate information about foreign companies. Foreign securities are
sometimes less liquid and harder to value than securities of U.S. issuers.
The bar chart and tables indicate the risks and returns of investing in the
Portfolio. The bar chart shows changes in the performance of the Portfolio from
year to year since its inception in July 1998. The table to the right shows how
the Portfolio's average annual returns for different calendar periods compare
to those of the Portfolio's benchmark index and its Lipper peer group. The
Portfolio's past performance does not necessarily indicate how the Portfolio
will perform in the future.
Consulting Group Capital Markets Funds
13
<PAGE>
High Yield Investments, continued
[BAR GRAPH APPEARS HERE]
Percentage Total Returns for
High Yield Investments
1997 6.31%
Calendar year ended December 31
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
One Five Life of
Year Years Portfolio
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Portfolio (without advisory program fee)* xx.xx% xx.xx% xx.xx%
First Boston High Yield Index xx.xx% xx.xx% xx.xx%
Lipper [ ] Index xx.xx% xx.xx% xx.xx%
- ---------------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in an advisory
program. These programs charge an annual fee, which in the case of TRAK(R)
may be up to 1.5%.
PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
Return Quarter/Year
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Best xx.xx% /199
Worst xx.xx% /199
- -------------------------------------------------------------------------------------------------
Year-to-date xx.xx% through 3rd/1999
- -------------------------------------------------------------------------------------------------
</TABLE>
BENCHMARK
The Portfolio's primary
benchmark is the First Boston
High Yield Index. The Index is a
[ ]. Unlike the Portfolio, the
benchmark is unmanaged and does
not include any expenses.
Fees and Expenses
This table describes the fees and expenses you may pay if you buy and hold
shares of the Portfolio and is based upon expenses of the Portfolio's latest
fiscal year.
<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)
Maximum annual TRAK(R) fee 1.50%
Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fees 0.70%
Other expenses 0.50%
-----
Total annual Portfolio operating
expenses 1.20%
=====
</TABLE>
Example
This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.
The example assumes:
You invest $10,000 in the Portfolio for the time periods indicated;
. You redeem at the end of each period;
. You reinvest all dividends and distributions;
. Your investment has a 5% return each year; and
. The Portfolio's operating expenses remain the same.
Under these assumptions, your costs, including the maximum annual TRAK(R) fee,
would be:
<TABLE>
<CAPTION>
After After After After
1 year 3 years 5 years 10 years
<S> <C> <C> <C>
$ $ $ $
</TABLE>
14
Consulting Group Capital Markets Funds
<PAGE>
Balanced Investments
Investment objective
Total return through a combination of current income and capital appreciation.
Principal investment strategies
The Portfolio balances its investments across both common stocks and investment
grade fixed income securities issued by corporate and governmental issuers. The
Portfolio intends to maintain at least a quarter of its assets in fixed-income
senior securities, preferred stocks and convertible debt securities and con-
vertible preferred stocks to the extent their value is attributable to their
fixed income characteristics.
How the subadvisors select the Portfolio's investments
The manager has selected two subadvisors to manage the Portfolio, an equity
subadvisor and a fixed income subadvisor.
Equity In selecting stocks for investment, the subadvisor focuses on common
stocks of companies which it believes are undervalued and which exhibit improv-
ing earnings momentum, while maintaining sector weightings similar to the S&P
500 Index.
Fixed Income The subadvisor combines traditional research with proprietary
analysis that seeks to identify undervalued fixed-income securities such as
U.S. government securities and corporate bonds. It emphasizes those securities
that have a potential for income while maintaining a duration that is approxi-
mately equal to the Lehman Brothers Aggregate Bond Index.
Principal risks of investing in the Portfolio
Your investment in the Portfolio is subject to the risks of investing in equity
securities and of investing in fixed income securities generally. These risks
are described on page 2 above. The market prices of common stocks are generally
more volatile than fixed income investments. As a balanced investment, the
Portfolio's net asset value may be less volatile than other equity oriented
portfolios. However, since the Portfolio invests a significant portion of its
assets in fixed income securities, it has less potential for capital apprecia-
tion.
The market value of foreign securities may go down because of unfavorable for-
eign government actions, political, economic or market instability or the ab-
sence of accurate information about foreign companies. These risks may be more
severe for securities of issuers in emerging markets. Foreign securities are
sometimes less liquid and harder to value than securities of U.S. issuers.
The bar chart and tables indicate the risks and returns of investing in the
Portfolio. The bar chart shows changes in the performance of the Portfolio from
year to year since its founding on February 16, 1993. The table to the right
shows how the Portfolio's average annual returns for different calendar periods
compare to those of the Portfolio's benchmark indices and its Lipper peer
group. The Portfolio's past performance does not necessarily indicate how the
Portfolio will perform in the future.
[BAR GRAPH APPEARS HERE]
Percentage Total Returns for
Balanced Investments
1994 1995 1996 1997
5.00% 5.00% 5.00% 5.00%
Calendar years ended December 31
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
One Five Life of
year years Portfolio
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Portfolio (without advisory program fee)* xx.xx% xx.xx% xx.xx%
Lehman Gov/Corp Bond Index xx.xx% xx.xx% xx.xx%
S&P 500 xx.xx% xx.xx% xx.xx%
Lipper [ ] Avg. xx.xx% xx.xx% xx.xx%
- ---------------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in an advisory
program. These programs charge an annual fee, which in the case of TRAK(R)
may be up to 1.5%.
PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
return Quarter/Year
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Best xx.xx% /199
Worst xx.xx% /199
- -------------------------------------------------------------------------------------------------
Year-to-date xx.xx% through 3rd/1999
- -------------------------------------------------------------------------------------------------
</TABLE>
15
Consulting Group Capital Markets Funds
<PAGE>
Balanced Investments, continued
BENCHMARK
The Portfolio's benchmarks are
Standard & Poor's 500 Index and
the Lehman Brothers Government/
Corporate Bond Index. The S&P
500 is an index of 500 of the
largest stocks in the U.S. The
Lehman Index is a composite of
debt securities of the U.S.
government and its agencies and
publicly issued fixed income
investment grade, non-
convertible corporate debt
securities. Unlike the
Portfolio, the benchmarks are
unmanaged and do not include any
expenses.
The Consulting Group has de-
signed this Portfolio for in-
vestors who participate in the
TRAK(R) Advisory Service through
employee benefit plans which do
not make the full range of Capi-
tal Markets Funds offered
through this prospectus avail-
able to participants. The Con-
sulting Group will not recommend
this Portfolio to investors in
advisory programs which make all
of the Capital Markets Funds
available.
Fees and Expenses
This table describes the fees and expenses you may pay if you buy and hold
shares of the Portfolio and is based upon expenses of the Portfolio's latest
fiscal year.
<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)
Maximum annual TRAK(R) fee 1.50%
Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fees 0.78%
Other expenses 0.22%
-----
Total annual Portfolio operating
expenses 1.00%
=====
</TABLE>
Example
This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.
The example assumes:
You invest $10,000 in the Portfolio for the time periods indicated;
. You reinvest all dividends and distributions;
. You redeem at the end of each period;
. Your investment has a 5% return each year; and
. The Portfolio's operating expenses remain the same.
Under these assumptions, your costs, including the maximum annual TRAK(R) fee,
would be:
<TABLE>
<CAPTION>
After After After After
1 year 3 years 5 years 10 years
<S> <C> <C> <C>
$ $ $ $
</TABLE>
16
Consulting Group Capital Markets Funds
<PAGE>
Large Capitalization Value Equity Investments
Investment objective
Total return consisting of capital appreciation and dividend income.
Principal investment strategies
The Portfolio invests primarily in common stock of companies with total market
capitalizations of $1 billion or more at the time of purchase. The majority of
the Portfolio's investments are expected to pay regular dividends.
How the subadvisors select the Portfolio's investments
The manager has selected four subadvisors to manage the Portfolio. Each
subadvisor manages its portion of the Portfolio's assets using one of four dif-
ferent investment styles:
. Active--"Bottom-Up"
. Active--"Top-Down" and "Bottom-Up"
. Risk Controlled--Russell 1000 Value
. Passive--Russell 1000 Value
Each subadvisor's investment approach is described below.
Active "Bottom-Up" The subadvisor seeks total return by investing in portfolios
of highly liquid common stocks that in its opinion have above average apprecia-
tion potential. The subadvisor employs an active portfolio management style us-
ing a proprietary quantitative model to identify those companies which demon-
strate characteristics of both value and positive market momentum. Those stocks
ranking highest through quantitative analysis are then evaluated using qualita-
tive fundamental analysis to verify the quantitative scores and to make recom-
mendations for investment. The subadvisor assesses a company's value by looking
at traditional measures such as its price-to-earnings and price-to-book ratios,
as well as extensive balance sheet analysis, including the company's break-up
worth. The firm looks for momentum in a company's rising expectations about
earnings or sales, or through a return to financial health following management
changes or restructuring.
Active--"Top-Down" and "Bottom-Up" The subadvisor employs "top-down" and "bot-
tom-up" management techniques in managing its portion of the Portfolio's
assets. The initial phase of its investment process identifies stocks with div-
idend yields at a premium to the market and with a market capitalization of at
least $1 billion. The subadvisor then shifts its focus to identifying those
companies with evidence of a major catalyst for change. Stocks are evaluated
through such factors as management/board changes, the extent to which per-
formance incentives are in place, the degree of insider ownership, positive re-
structuring and acquisition opportunities.
Risk Controlled--Russell 1000 Value The subadvisor seeks to track the
performance of the Russell 1000 Value Index. The subadvisor uses a quantitative
process to identify stocks which the firm believes are underpriced relative to
their underlying value. The subadvisor then looks for companies from that list
with rising earnings expectations, reasonable valuations and positive market
momentum through an analysis of the company's fundamentals, including factors
such as revenues, cash flow, earnings and analyst ratings. The subadvisor
designs the portfolio to have a risk profile similar to that of the Russell
1000 Value Index.
Passive--Russell 1000 Value The subadvisor is a passive, index-based manager
which uses a quantitative investment approach to create a portfolio which fully
replicates the performance of the Russell 1000 Value Index.
Principal risks of investing in the Portfolio
Your investment in the Portfolio is subject to the risks associated with in-
vesting in equity securities generally. These risks are described on page 2
above. Your investment in the Portfolio is also subject to the following spe-
cific risks:
. Large cap or value stocks fall out of favor with investors
. The Portfolio can invest in issuers with a broad range of market capitaliza-
tions. To the extent that the Portfolio invests in companies at the lower end
of such range, the Portfolio's investments may be more volatile and less liq-
uid than other large cap funds
The bar chart and tables indicate the risks and returns of investing in the
Portfolio. The bar chart shows changes in the performance of the Portfolio from
year to year since its founding on November 18, 1991. The table to the right
shows how the Portfolio's average annual returns for different calendar periods
compare to those of the Portfolio's benchmark index and its Lipper peer group.
The Portfolio's past performance does not necessarily indicate how the Portfo-
lio will perform in the future.
17
Consulting Group Capital Markets Funds
<PAGE>
Large Capitalization Value Equity Investments, continued
[BAR GRAPH APPEARS HERE]
Percentage Total Returns for
Large Capitalization Value Equity Investments
1992 1993 1994 1995 1996 1997
4.65% 4.45% 2.74% 7.44% 6.31% 6.29%
Calendar years ended December 31
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
One Five Life of
year years Portfolio
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Portfolio (without advisory program fee)* xx.xx% xx.xx% xx.xx%
Russell 1000 Value Index xx.xx% xx.xx% xx.xx%
Lipper Growth and Income Average xx.xx% xx.xx% xx.xx%
- ---------------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in an advisory
program. These programs charge an annual fee, which in the case of TRAK(R)
may be up to 1.5%.
PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
return Quarter/Year
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Best xx.xx% /199
Worst x.xx% /199
- --------------------------------------------------------------------------------------------------
Year-to-date xx.xx% through 3rd/1999
- --------------------------------------------------------------------------------------------------
</TABLE>
BENCHMARK
The Portfolio's benchmark is the
Russell 1000 Value Index. The
index represents the stocks in
the Russell 1000 Index with less
than average growth orientation.
The Russell 1000 Index includes
the 1,000 largest U.S. companies
by market capitalization. Unlike
the Portfolio, the benchmark is
unmanaged and does not include
any expenses.
Fees and Expenses
This table describes the fees and expenses you may pay if you buy and hold
shares of the Portfolio and is based upon expenses of the Portfolio's latest
fiscal year.
<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)
Maximum annual TRAK(R) fee 1.50%
Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fees 0.70%
Other expenses 0.08%
-----
Total annual Portfolio operating
expenses 0.78%
=====
</TABLE>
Example
This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual cost may be
higher or lower.
The example assumes:
. You invest $10,000 in the Portfolio for the time periods indicated;
. You reinvest all dividends and distributions;
. You redeem at the end of each period;
. Your investment has a 5% return each year; and
. The Portfolio's operating expenses remain the same.
Under these assumptions, your costs, including the maximum annual TRAK(R) fee,
would be:
<TABLE>
<CAPTION>
After 1 After 3 After 5 After 10
year years years years
<S> <C> <C> <C>
$ $ $ $
</TABLE>
18
Consulting Group Capital Markets Funds
<PAGE>
Large Capitalization Growth Investments
Investment objective
Capital appreciation.
Principal investment strategies
The Portfolio invests primarily in the common stocks of companies with favora-
ble growth prospects and total market capitalizations of $1 billion or more at
the time of purchase.
How the subadvisors select the Portfolio's investments
The manager has selected two subadvisors to manage the Portfolio, an active
subadvisor and a passive subadvisor.
Passive The subadvisor is a passive, index-based manager which uses a quantita-
tive investment approach to create a portfolio which fully replicates the
performance of the Russell 1000 Growth Index.
Active The subadvisor employs an active management style and seeks to focus on
companies whose earnings are growing at a faster rate than the average rate of
earnings growth of companies comprising Standard & Poor's 500 Index. It identi-
fies possible investments based on sales and earnings growth, high return on
equity and profit margin. The subadvisor uses portfolio analysis to further
narrow this list by considering factors such as the quality of management, com-
pany goals and proprietary positioning of products. It generally sells a secu-
rity when its price or price to earnings ratio reaches set objectives or there
is a fundamental change in the company's earnings.
Principal risks of investing in the Portfolio
Your investment in the Portfolio is subject to the risks associated with in-
vesting in equity securities generally. These principal risks are described on
page 2 above. Your investment in the Portfolio is also subject to the following
specific risks:
. Large cap or growth stocks fall out of favor with investors
. A share price that is generally more volatile than that of Large Capitaliza-
tion Value Equity Investments because of the Portfolio's focus on growth
stocks
The bar chart and tables indicate the risks and returns of investing in the
Portfolio. The bar chart shows changes in the performance of the Portfolio from
year to year since its founding on November 18, 1991. The table to the right
shows how the Portfolio's average annual returns for different calendar periods
compare to those of the Portfolio's benchmark index and its Lipper peer group.
The Portfolio's past performance does not necessarily indicate how the Portfo-
lio will perform in the future.
[BAR GRAPH APPEARS HERE]
Percentage Total Returns for
Large Capitalization Growth Investments
1992 1993 1994 1995 1996 1997 1998
4.65% 4.45% 2.74% 7.44% 6.31% 6.29% 5.00%
Calendar years ended December 31
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
One Five Life of
year years Portfolio
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Portfolio (without advisory program fee)* xx.xx% xx.xx% xx.xx%
Russell 1000 Growth Index xx.xx% xx.xx% xx.xx%
Lipper Growth Average xx.xx% xx.xx% xx.xx%
- ---------------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in an advisory
program. These programs charge an annual fee, which in the case of TRAK(R)
may be up to 1.5%.
PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
return Quarter/Year
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Best xx.xx% /199
Worst xx.xx% /199
- --------------------------------------------------------------------------------------------------
Year-to-date xx.xx% through 3rd/1999
- --------------------------------------------------------------------------------------------------
</TABLE>
19
Consulting Group Capital Markets Funds
<PAGE>
Large Capitalization Growth Investments, continued
BENCHMARK
The Portfolio's benchmark is the
Russell 1000 Growth Index. The
index is comprised of those
Russell 1000 securities with
greater-than-average growth
orientation. The Russell 1000
Index is composed of the 1000
largest U.S. companies by market
capitalization. Unlike the
Portfolio, the benchmark is
unmanaged and does not include
any expenses.
Fees and Expenses
This table describes the fees and expenses you may pay if you buy and hold
shares of the Portfolio and is based upon expenses of the Portfolio's latest
fiscal year.
<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)
Maximum annual TRAK(R) fee 1.50%
Annual Portfolio operating expenses
(expenses that are deducted from
portfolio assets)
Management fees 0.62%
Other expenses 0.07%
-----
Total annual Portfolio operating
expenses 0.69%
=====
</TABLE>
Example
This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.
The example assumes:
. You invest $10,000 in the Portfolio for the time periods indicated;
. You reinvest all dividends and distributions;
. You redeem at the end of each period;
. Your investment has a 5% return each year; and
. The Portfolio's operating expenses remain the same.
Under these assumptions, your costs, including the maximum annual TRAK(R) fee,
would be:
<TABLE>
<CAPTION>
After 1 After 3 After 5 After 10
year years years years
<S> <C> <C> <C>
$ $ $ $
</TABLE>
20
Consulting Group Capital Markets Funds
<PAGE>
Small Capitalization Value Equity Investments
Investment objective
Above average capital appreciation.
Principal investment strategies
The Portfolio invests primarily in common stocks of small capitalization "val-
ue" companies. The active subadvisors primarily invest the Portfolio's assets
in the common stocks of companies with total market capitalizations that are
below the maximum market capitalization permitted for a stock in the Russell
2000 Value Index. As of , 1999, that maximum market capitalization was $
billion. The Portfolio may also invest a portion of its assets in common stocks
of companies with total market capitalization of $550 million or less at the
time of purchase.
How the subadvisors select the Portfolio's investments
The manager has selected three subadvisors to manage the Portfolio. Each
subadvisor manages its portion of the Portfolio's assets using one of three
different investment styles:
. Passive--Russell 2000 Value
. Active--Value "Deep Discount"
. Active--"Bottom-Up"
Each subadvisor's investment approach is described below.
Passive--Russell 2000 Value The subadvisor is a passive, index based manager
that seeks to replicate the performance of the Russell 2000 Value Index.
Active--Value "Deep Discount" The subadvisor uses an active management style
that invests in a diversified portfolio of small capitalization common stocks
that it believes are undervalued in the marketplace generally and within their
respective industries. These securities are characterized as having below aver-
age price-to-earning ratios and improving fundamentals. These securities are
often out of favor, and widespread securities analyst coverage is not common.
The subadvisor also considers valuation factors such as price-to-book, price-
to-cash flow, dividend policy and industry outlook in selecting stocks for in-
vestment.
Active--"Bottom-Up" The subadvisor uses an active management style and focuses
upon companies that are not widely followed in the investment community. It
seeks to identify those with superior, but neglected, investment opportunities.
The subadvisor looks for companies with favorable valuations relative to book
value, cash flow and sales, strong balance sheets and the potential for earn-
ings acceleration.
Principal risks of investing in the Portfolio
Your investment in the Portfolio is subject to the risks associated with in-
vesting in equity securities generally. These risks are described on page 2
above. Your investment in the Portfolio is also subject to the following spe-
cific risks:
. Value stocks or small capitalization stocks fall out of favor with investors
. Greater volatility of share price because of the focus on small cap compa-
nies. Compared to large companies, small cap companies or the market for
their equity securities are more likely to:
. Be more sensitive to changes in earnings results and investor expectations
. Have more limited product lines, capital resources and management depth
. Experience sharper swings in market values
. Be harder to sell at the times and prices the subadvisors believe appropri-
ate
. Offer greater potential for gain and loss
The bar chart and tables indicate the risks and returns of investing in the
Portfolio. The bar chart shows changes in the performance of the Portfolio from
year to year since its founding on November 18, 1991. The table to the right
also shows how the Portfolio's average annual returns for different calendar
periods compare to those of the Portfolio's benchmark index and its Lipper peer
group. The Portfolio's past performance does not necessarily indicate how the
Portfolio will perform in the future.
[BAR GRAPH APPEARS HERE]
Percentage Total Returns for
Small Capitalization Value Equity Investments
1992 1993 1994 1995 1996 1997 1998
4.65% 4.45% 2.74% 7.44% 6.31% 6.29% 5.00%
Calendar years ended December 31
21
Consulting Group Capital Markets Funds
<PAGE>
Small Capitalization Value Equity Investments, continued
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
One Five Life of
year years Portfolio
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Portfolio (without advisory program fee)* xx.xx% xx.xx% xx.xx%
Russell 2000 Value Index xx.xx% xx.xx% xx.xx%
Lipper Small Company Average xx.xx% xx.xx% xx.xx%
- ---------------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in an advisory
program. These programs charge an annual fee, which in the case of TRAK(R)
may be up to 1.5%.
PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
Year Return Quarter/Year
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Best xx.xx% /199
Worst xx.xx% /199
- --------------------------------------------------------------------------------------------------
Year-to-date xx.xx% through 3rd/1999
- --------------------------------------------------------------------------------------------------
</TABLE>
BENCHMARK
The Portfolio's benchmark is The
Russell 2000 Value Index. The
index represents stocks in the
Russell 2000 Index with less
than average growth orientation.
The Russell 2000 Index is
comprised of stocks of 2000 of
the smallest U.S. companies in
market capitalization. Unlike
the Portfolio, the benchmark is
unmanaged and does not include
any expenses.
Fees and Expenses
This table describes the fees and expenses you may pay if you buy and hold
shares of the Portfolio and is based upon expenses of the Portfolio's latest
fiscal year.
<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)
Maximum annual TRAK(R) fee 1.50%
Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fees 0.82%
Other expenses 0.18%
-----
Total annual Portfolio operating
expenses 1.00%
=====
</TABLE>
Example
This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.
The example assumes:
. You invest $10,000 in the Portfolio for the time periods indicated;
. You reinvest all dividends and distributions.
. You redeem at the end of each period;
. Your investment has a 5% return each year; and
. The Portfolio's operating expenses remain the same.
Under these assumptions, your costs, including the maximum annual TRAK(R) fee,
would be:
<TABLE>
<CAPTION>
After 1 After 3 After 5 After 10
year years years years
<S> <C> <C> <C>
$ $ $ $
</TABLE>
22
Consulting Group Capital Markets Funds
<PAGE>
Small Capitalization Growth Investments
Investment objective
Capital appreciation.
Principal investment strategies
The Portfolio invests primarily in common stock of small capitalization
"growth" companies. The Portfolio considers small cap companies to have total
market capitalizations at the time of purchase below the maximum market capi-
talization permitted for a stock in the Russell 2000 Growth Index. As of ,
1999, that maximum market capitalization was $ billion. A portion of the
Portfolio's assets will be invested in common stocks of companies with market
capitalizations at the lower range of the Russell 2000 Growth Index.
How the subadvisors select the Portfolio's investments
The manager has selected four subadvisors to manage the Portfolio. Each
subadvisor manages its portion of the Portfolio's assets using one of four dif-
ferent investment styles:
. Passive--Russell 2000 Growth
. Active--"Bottom-Up
. Active--Quantititative
. Active--Innovative
Each subadvisor's investment approach is described below.
Passive--Russell 2000 Growth The subadvisor is a passive, index-based manager
that seeks to replicate the performance of the Russell 2000 Growth Index.
Active--"Bottom-Up" The subadvisor is an active manager and follows a bottom-up
investment style. It looks for companies with superior earnings growth, strong
balance sheets, attractive valuations and potentially positive earning surpris-
es.
Active--Quantitative The subadvisor is an active manager and employs a value-
oriented and research-driven approach to identify reasonably priced growth
stocks that
are likely to have positive earning surprises and revisions. The firm uses a
value constraint to ensure that the growth stocks selected are reasonably
priced.
Active--Innovative The subadvisor's strategy is to focus its investments on the
most innovative sectors of the economy: technology, healthcare, consumer and
services. It uses a fundamentally driven, bottom-up investment style, beginning
with a screening of companies and then performing proprietary analysis on indi-
vidual securities.
Principal risks of investing in the Portfolio
Your investment in the Portfolio is subject to the risks associated with in-
vesting in equity securities generally. These principal risks are described on
page 2 above. Your investment in the Portfolio is also subject to the following
specific risks:
. Growth stocks or small capitalization stocks may fall out of favor with in-
vestors
. Recession or adverse economic trends may have a greater adverse affect on the
earnings or financial condition of smaller companies than on larger ones
. Greater volatility of share price because of the focus on small cap compa-
nies. Compared to large cap companies, small cap companies or the market for
their equity securities are more likely to:
. Be more sensitive to changes in earnings results and investor expectations
. Have more limited product lines, capital resources and management depth
. Experience sharper swings in market values
. Be harder to sell at the times and prices the subadvisor believes appropri-
ate
. Offer greater potential for gain and loss
The bar chart and tables indicate the risks and returns of investing in the
Portfolio. The bar chart shows changes in the performance of the Portfolio from
year to year since its founding on November 18, 1991. The table to the right
also shows how the Portfolio's average annual returns for different calendar
periods compare to those of the Portfolio's benchmark index and its Lipper peer
group. The Portfolio's past performance does not necessarily indicate how the
Portfolio will perform in the future.
23
Consulting Group Capital Markets Funds
<PAGE>
Small Capitalization Growth Investments, continued
[BAR GRAPH APPEARS HERE]
Percentage Total Returns for
Small Capitalization Growth Investments
92 93 94 95 96 97
--------------------------------------------------------
4.65% 4.45% 2.74% 7.44% 6.31% 6.29%
Calendar years ended December 31
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
One Five Life of
year years Portfolio
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Portfolio (without advisory program fee)* xx.xx% xx.xx% xx.xx%
Russell 2000 Growth Index xx.xx% xx.xx% xx.xx%
Lipper Small Company Fund Avg. xx.xx% xx.xx% xx.xx%
- ---------------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in an advisory
program. These programs charge an annual fee, which in the case of TRAK(R)
may be up to 1.5%.
PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
return Quarter/Year
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Best xx.xx% /199
Worst xx.xx% /199
- --------------------------------------------------------------------------------------------------
Year-to-date xx.xx% through 3rd/1999
- --------------------------------------------------------------------------------------------------
</TABLE>
BENCHMARK
The Portfolio's benchmark is The
Russell 2000 Growth Index. This
index represents stocks in the
Russell 2000 Index with better
than average growth orientation.
The Russell 2000 Index includes
2000 of the smallest U.S.
companies by market
capitalization. Unlike the
Portfolio, the benchmark is
unmanaged and does not include
any expenses.
Fees and Expenses
This table describes the fees and expenses you may pay if you buy and hold
shares of the Portfolio based upon the expenses of the Portfolio's latest fis-
cal year.
<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)
Maximum annual TRAK(R) fee 1.50%
Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fees 0.73%
Other expenses 0.20%
-----
Total annual Portfolio operating
expenses 0.93%
=====
</TABLE>
Example
This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.
The example assumes:
. You invest $10,000 in the Portfolio for the time periods indicated;
. You reinvest all dividends and distributions;
. You redeem at the end of each period;
. Your investment has a 5% return each year; and
The Portfolio's operating expenses remain the same.
Under these assumptions, your costs, including the maximum annual TRAK(R) fee,
would be:
<TABLE>
<CAPTION>
After 1 After 3 After 5 After 10
year years years years
<S> <C> <C> <C>
$ $ $ $
</TABLE>
24
Consulting Group Capital Markets Funds
<PAGE>
International Equity Investments
Investment objective
Capital appreciation.
Principal investment strategies
The Portfolio invests primarily in equity securities of companies located out-
side the U.S. The Portfolio focuses on companies located in developed markets,
but may also invest a portion of its assets in securities of companies located
in emerging markets. The Portfolio intends to diversify its assets by investing
primarily in securities of issuers located in at least three foreign countries.
The Portfolio generally attempts to hedge against unfavorable changes in cur-
rency exchange rates by engaging in forward currency transactions and trading
currency futures contracts and options on these futures. However, the Portfolio
may not always choose or be able to hedge its currency exposure.
How the subadvisors select the Portfolio's investments
The manager has selected three subadvisors to manage the Portfolio. Each
subadvisor manages its portion of the Portfolio's assets using one of three
different investment styles:
. Passive--MSCI-EAFE
. Active--"Top-Down"
. Active--"Top-Down" and "Bottom-Up"
Each subadvisor's investment approach is described below.
Passive--MSCI-EAFE The subadvisor uses a quantitative process to construct a
portfolio that fully replicates the performance of the Morgan Stanley Capital
International Europe Australia Far East (EAFE) Index. The EAFE Index consists
of securities of companies located in 20 countries outside of North America and
represents approximately 60% of the total market value of all publicly traded
stocks in these countries.
Active--"Top-Down" The subadvisor first seeks to identify the most attractive
foreign markets by ranking their expected returns through country and currency
analysis. It then selects investments within attractive markets through both a
top-down and bottom-up company analysis.
Active--"Top-Down" and "Bottom-Up" The subadvisor uses both a top-down and bot-
tom-up investment process, beginning with a quantitative screening process and
ending with fundamental security research. Its investment approach is broken
down into four components: evaluation of global financial conditions, country
and currency decisions, sector/industry evaluation and individual security se-
lection.
Principal risks of investing in the Portfolio
Your investment in the Portfolio is subject to the risks associated with in-
vesting in equity securities generally. The principal risks associated with in-
vesting in equity securities are described on page 2 above.
Your investment is also subject to the unique risks of investing in foreign is-
suers. These risks are more pronounced to the extent that the Portfolio invests
in countries with emerging markets or the Portfolio invests significantly in
any one foreign country. These risks include:
. Less information about foreign issuers or markets may be available due to
less rigorous accounting standards or regulatory practices
. Many foreign markets are smaller, less-liquid and more volatile than U.S.
markets. In a changing market, the subadvisors may not be able to sell the
Portfolio's securities in amounts and at prices they consider reasonable
. The U.S. dollar may appreciate against non-U.S. currencies
. Economic, political or social instability in foreign countries may signifi-
cantly disrupt the principal financial markets in which the Portfolio invests
The bar chart and tables shown above indicate the risks of investing in the
Portfolio. The bar chart shows changes in the performance of the Portfolio from
year to year since the Portfolio's inception on November 18, 1991. The table to
the right shows how the Portfolio's average annual returns for different calen-
dar periods compare to those of the Portfolio's benchmark index and its Lipper
peer group. The Portfolio's past performance does not necessarily indicate how
the Portfolio will perform in the future.
25
Consulting Group Capital Markets Funds
<PAGE>
International Equity Investments, continued
[BAR GRAPH APPEARS HERE]
Percentage Total Returns for
International Equity Investments
92 93 94 95 96 97
--------------------------------------------------------
5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Calendar years ended December 31
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
One Five Life of
year years Portfolio
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Portfolio (without advisory program fee)* xx.xx% xx.xx% xx.xx%
EAFE Index xx.xx% xx.xx% xx.xx%
Lipper [ ] Average xx.xx% xx.xx% xx.xx%
- ---------------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in an advisory
program. These programs charge an annual fee, which in the case of TRAK(R)
may be up to 1.5%.
PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
return Quarter/Year
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Best xx.xx% /199
Worst xx.xx% /198
- --------------------------------------------------------------------------------------------------
Year-to-date xx.xx% through 3rd/1999
- --------------------------------------------------------------------------------------------------
</TABLE>
BENCHMARK
The Portfolio's benchmark is the
Morgan Stanley Capital Interna-
tional EAFE--Capitalization
Weighted Index. The index is a
composite portfolio of equity
total returns for the countries
of Europe, Australia, New Zea-
land and the Far East. Unlike
the Portfolio, the benchmark is
unmanaged and does not include
any expenses.
Fees and Expenses
This table describes the fees and expenses you may pay if you buy and hold
shares of the Portfolio based upon expenses of the Portfolio's latest fiscal
year.
<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)
Maximum annual TRAK(R) fee 1.50%
Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fees 0.59%
Other expenses 0.43%
-----
Total annual Portfolio operating
expenses 1.02%
=====
</TABLE>
Example
This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds.
The example assumes:
. You invest $10,000 in the Portfolio for the time periods indicated;
. You reinvest all dividends and distributions;
. You redeem at the end of each period;
. Your investment has a 5% return each year; and
. The Portfolio's operating expenses remain the same.
Under these assumptions, your costs, including the maximum TRAK(R) fee, would
be:
<TABLE>
<CAPTION>
After 1 After 3 After 5 After 10
year years years years
<S> <C> <C> <C>
$ $ $ $
</TABLE>
26
Consulting Group Capital Markets Funds
<PAGE>
International Fixed Income Investments
Investment objective
Maximize current income consistent with the protection of principal.
Principal investment strategies
The Portfolio invests primarily in non-U.S. dollar denominated fixed income se-
curities issued by foreign governments and corporations and supranational enti-
ties. The Portfolio invests primarily in fixed income securities of issuers lo-
cated in at least three countries and will not invest more than 25% of its as-
sets in the securities of governments or corporations in any one country. The
Portfolio attempts to hedge against unfavorable changes in currency exchange
rates by engaging in forward currency transactions and trading currency futures
contracts and options on these futures.
Credit Quality: The Portfolio invests in securities rated investment grade by a
nationally recognized rating organization, or if unrated, of equivalent quality
as determined by the subadvisor. The Portfolio may invest up to 10% of its as-
sets in emerging market debt securities rated below investment grade, or if
unrated, of equivalent quality as determined by the subadvisor.
Duration: The Portfolio's average duration ranges from two to eight years. Du-
ration is an approximate measure of the sensitivity of the market value of the
Portfolio's holdings to changes in interest rates. The Portfolio may invest in
individual securities of any maturity.
How the subadvisor selects the Portfolio's investments
The subadvisor applies portfolio economic analysis to select a portfolio of
high-quality, well-diversified foreign bonds. From a universe of 20 developed
countries outside the U.S., the subadvisor forecasts which bond markets offer
the best opportunity to outperform the U.S. bond market, considering factors
such as currencies, local bond market conditions, issuers and instruments. It
pays particular attention to markets that offer attractive yields. The
subadvisor employs a proprietary computer model to analyze exchange rates to
assist in its forecasts and to help manage the risk of the Portfolio.
Principal risks of investing in the Portfolio
Your investment in the Portfolio is subject to the risks associated with in-
vesting in fixed income securities generally. These risks are described on page
2 above.
Your investment is also subject to the unique risks of investing in securities
of foreign issuers. These risks are more pronounced to the extent that the
Portfolio invests in countries with emerging markets or the Portfolio invests
significantly in any one foreign country. These risks include:
. Less information about foreign issuers or markets may be available due to
less rigorous accounting standards or regulatory practices
. Many foreign markets are smaller, less-liquid and more volatile than U.S.
markets. In a changing market, the subadvisor may not be able to sell the
Portfolio's securities in amounts and at prices the sub-adviser considers
reasonable
. The foreign governmental issuer may default on, declare a moratorium on, or
restructure its obligations
. The U.S. dollar may appreciate against non-U.S. currencies
. Economic, political or social instability in foreign countries may signifi-
cantly disrupt the principal financial markets in which the Portfolio invests
The bar chart and tables indicate the risks and returns of investing in the
Portfolio. The bar chart shows changes in the performance of the Portfolio from
year to year since the Portfolio's inception on November 18, 1991. The table to
the right shows how the Portfolio's average annual returns for different calen-
dar periods compare to those of the Portfolio's benchmark index and its Lipper
peer group. The Portfolio's past performance does not necessarily indicate how
the Portfolio will perform in the future.
[BAR GRAPH APPEARS HERE]
Percentage Total Returns for
International Fixed Income Investments
92 93 94 95 96 97
--------------------------------------------------------
5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Calendar years ended December 31
27
Consulting Group Capital Markets Funds
<PAGE>
International Fixed Income Investments, continued
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
One Five Life of
year years Portfolio
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Portfolio (without advisory program fee)* xx.xx% xx.xx% xx.xx%
Salomon Non-U.S. Gov. Bond Index xx.xx% xx.xx% xx.xx%
Lipper [ ] Average xx.xx% xx.xx% xx.xx%
- ----------------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in an advisory
program. These programs charge an annual fee, which in the case of TRAK(R)
may be up to 1.5%.
PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
return Quarter/Year
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Best xx.xx% /199
Worst xx.xx% /199
- -------------------------------------------------------------------------------------------------
Year-to-date xx.xx% through 3rd/1999
- -------------------------------------------------------------------------------------------------
</TABLE>
BENCHMARK
The Portfolio's primary bench-
mark is the Salomon Brothers
Non-U.S. Government Bond Index.
The index is a market capital-
ization-weighted index consist-
ing of government bond markets
in 13 developed countries, ex-
cluding the U.S. Unlike the
Portfolio, the benchmark is un-
managed and does not include any
expenses.
Fees and Expenses
This table describes the fees and expenses you may pay if you buy and hold
shares of the Portfolio based upon expenses of the Portfolio's latest fiscal
year.
<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)
Maximum annual TRAK(R) fee 1.50%
Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fees 0.50%
Other expenses 0.49%
-----
Total annual Portfolio operating
expenses 0.99%
=====
</TABLE>
Example
This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.
The example assumes:
. You invest $10,000 in the Portfolio for the time periods indicated;
. You reinvest all dividends and distributions;
. You redeem at the end of each period;
. Your investment has a 5% return each year; and
. The Portfolio's operating expenses remain the same.
Under these assumptions, your costs, including the maximum annual TRAK(R) fee,
would be:
<TABLE>
<CAPTION>
After 1 After 3 After 5 After 10
year years years years
<S> <C> <C> <C>
$ $ $ $
</TABLE>
The Portfolio is a "non-diversified portfolio," which means that it
is permitted to invest in a limited number of issuers. To the extent
that the Portfolio concentrates its investments in a limited number
of issuers or countries, it is subject, to a greater extent, to the
risks associated with those issuers or countries.
Consulting Group Capital Markets Funds
28
<PAGE>
Emerging Markets Equity Investments
Investment objective.
Long-term capital appreciation.
Principal investment strategies
The Portfolio invests primarily in equity securities of issuers located in
countries with emerging markets. The Portfolio considers an emerging market
country to be one having per capita income in the low to middle ranges, as de-
termined by the International Bank for Reconstruction and Development (The
World Bank). To diversify its investments, the Portfolio invests primarily in
securities of issuers located in at least three foreign countries. The Portfo-
lio may also invest a portion of its assets in closed-end investment companies
that invest in emerging markets. The Portfolio generally attempts to hedge
against unfavorable changes in currency exchange rates by engaging in forward
currency transactions and trading currency futures contracts and options on
these futures. However, the Portfolio may not always choose or be able to hedge
its currency exposure.
How the subadvisors select the Portfolio's investments
The manager has selected three subadvisors to manage the Portfolio. Each
subadvisor manages its portion of the Portfolio's assets using one of three
different investment styles:
. Active--"Top-Down"
. Active--Value
. Active--Growth
Each subadvisor's investment approach is described below.
Active--"Top-Down" The subadvisor employs a top-down approach to analyzing
stocks. The firm looks for under-valued securities with a bias towards relative
earnings momentum. The subadvisor believes that the greatest influences on in-
vestment return over the long-term are country asset allocation and superior
stock selection rather than short-term adjustments to portfolio weightings.
Active--Value The subadvisor uses quantitative analysis to identify countries
and stocks which are under-valued relative to their growth rates. It employs an
investment process that combines top-down country selection with bottom-up
stock selection to determine an optimal country and security mix.
Active--Growth The subadvisor looks for unrecognized "growth" stocks through an
investment process that combines top-down country allocation, bottom-up company
research and risk analysis to determine an optimal country and security mix.
This process is driven by qualitative screening and structured qualitative re-
search at both the country and company levels.
Principal risks of investing in the Portfolio
Because the Portfolio invests primarily in equity securities, your investment
in the Portfolio is subject to the risks associated with investing in equity
securities generally. These risks are described on page 2 above.
Your investment is also subject to the unique risks of investing in securities
of foreign issuers. These risks are more pronounced because the Portfolio in-
vests in countries with emerging markets. The market value for emerging market
equity securities historically has been very volatile and an investment in the
Portfolio involves a substantial degree of risk. These risks include:
. Less information about emerging market issuers or markets may be available
due to less rigorous disclosure or accounting standards or regulatory prac-
tices
. Most emerging markets are smaller, less liquid and more volatile than devel-
oped markets. In a changing market, the subadvisors may not be able to sell
portfolio securities in amounts and at prices they consider reasonable
. Economic, political or social instability in an emerging market country or
region may significantly disrupt the principal financial market
. The economies of emerging market countries may grow at slower rates than ex-
pected or suffer a downturn or recession
. Emerging market countries may experience rising interest rates, or, more sig-
nificantly, rapid inflation or hyperinflation
. The Portfolio could experience a loss from settlement and custody practices
in some emerging markets
. Withholding and other foreign taxes may decrease the Portfolio's return
The bar chart and tables indicate the risks of investing in the Portfolio. The
bar chart shows changes in the performance of the Portfolio from year to year
since the Portfolio's inception on April 21, 1994. The table to the right shows
how the Portfolio's average annual returns for different calendar periods com-
pare to those of the Portfo-
29
Consulting Group Capital Markets Funds
<PAGE>
Emerging Markets Equity Investments, continued
lio's benchmark index. The Portfolio's past performance does not necessarily
indicate how the Portfolio will perform in the future.
[BAR GRAPH APPEARS HERE]
Percentage Total Returns for
Emerging Markets Equity Investments
94 95 96 97
---------------------------------------
5.00% 5.00% 5.00% 5.00%
Calendar years ended December 31
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
One Five Life of
year years Portfolio
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Portfolio (without advisory program fee)* xx.xx% xx.xx% xx.xx%
Morgan Stanley Emerging Markets Free Index xx.xx% xx.xx% xx.xx%
Lipper [ ] Average xx.xx% xx.xx% xx.xx%
- ----------------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in an advisory
program. These programs charge an annual fee, which in the case of TRAK(R)
may be up to 1.5%.
PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
return Quarter/Year
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Best xx.xx% /199
Worst xx.xx% /198
- --------------------------------------------------------------------------------------------------
Year-to-date xx.xx% through 3rd/1999
- --------------------------------------------------------------------------------------------------
</TABLE>
BENCHMARK
The Portfolio's benchmark is the
Morgan Stanley Emerging Markets
Free Index. The index is com-
posed of equity total returns of
countries with low to middle per
capita incomes, as determined by
the World Bank. Unlike the Port-
folio, the benchmark is unman-
aged and does not include any
expenses.
Fees and Expenses
This table describes the fees and expenses you may pay if you buy and hold
shares of the Portfolio based upon expenses of the Portfolio's latest fiscal
year.
<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)
Maximum annual TRAK(R) fee 1.50%
Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fees 0.90%
Other expenses 0.70%
-----
Total annual Portfolio operating
expenses 1.60%
=====
</TABLE>
Example
This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.
The example assumes:
. You invest $10,000 in the Portfolio for the time periods indicated;
. You reinvest all dividends and distributions;
. You redeem at the end of each period;
. Your investment has a 5% return each year; and
. The Portfolio's operating expenses remain the same.
Under these assumptions, your costs, including the maximum annual TRAK fee,
would be:
<TABLE>
<CAPTION>
After 1 After 3 After 5 After 10
year years years years
<S> <C> <C> <C>
$ $ $ $
</TABLE>
30
Consulting Group Capital Markets Funds
<PAGE>
Multi-Sector Fixed Income Investments
Investment objective
Total return consisting of capital appreciation and income.
Principal investment strategies
The Portfolio invests primarily in fixed-income securities issued by U.S. gov-
ernmental and corporate issuers and mortgage-related and asset-backed securi-
ties.
How the subadvisors select the Portfolio's investments
The manager has selected four subadvisors to manage the Portfolio. Each
subadvisor focuses on one of the following different segments of the fixed in-
come marketplace:
. Intermediate maturity securities
. Long-term maturity securities
. Mortgage-related securities
. High yield securities
Each subadvisor's investment approach is described below.
Intermediate Maturity The subadvisor focuses on investment grade intermediate
maturity fixed income securities. The average maturity of securities ranges
from three to ten years. Average maturity is a weighted average of the stated
maturities of the debt securities the Portfolio owns. Individual investments
may be of any maturity. The subadvisor seeks to maximize current income and
minimize volatility by:
. Analyzing issuers and sectors on a yield spread basis, with an overlay of
fundamental company analysis
. Identifying fixed income securities with the greatest potential for adding
value, such as those involving new issuers, the potential for credit
upgrades, unique structural characteristics or innovative features
. Managing variables such as sector, maturity, duration, credit quality, yield
and potential capital appreciation.
Long-Term Maturity The subadvisor focuses on investment grade long-term fixed
income securities, including those issued by U.S. governmental and corporate
issuers, U.S. dollar denominated fixed income securities of foreign issuers and
mortgage-backed and asset-backed securities. It emphasizes three key strategies
to enhance the Portfolio's total return:
. Adjusting the allocation of the Portfolio among the key sectors of the fixed
income market-government, corporate and mortgage and asset-backed-depending
on its forecast of relative values
. Tracking the duration of the overall Portfolio so that it falls within a
narrow band relative to the benchmark index, with adjustment made to reflect
its long-term outlook for interest rates
. Purchasing under-valued securities in each of the key sectors of the bond
market while keeping overall quality high.
Mortgage-Related The subadvisor focuses on mortgage-related securities repre-
senting pools of mortgage loans assembled for sale to investors by various U.S.
government agencies, government-related organizations and private issuers. The
Portfolio may also invest in mortgage-related derivative securities such as
government stripped mortgage-backed securities ("SMBS") and collaterized mort-
gage obligations ("CMOs"). SMBS represent the right to receive either principal
or interest payments of U.S. government securities. Interests in CMOs entitle
the holder to specified cash flows from a pool of mortgages. In order to en-
hance current income, the Portfolio may enter into mortgage dollar roll trans-
actions with respect to mortgage-related securities issued by U.S. governmental
agencies or instrumentalities.
The subadvisor uses a quantitative computer-modelled investment process to seek
to identify and capitalize on inefficiencies in the mortgage-backed securities
market. The subadvisor generally maintains the Portfolio within a narrow band
around the duration of the entire mortgage-backed market and normally focuses
on mortgage-related securities issued by U.S. government agency and government
related organizations.
High Yield The subadvisor focuses on below investment grade fixed income secu-
rities, also known as "high yield" securities and commonly referred to as "junk
bonds." It invests primarily in fixed income securities of corporate issuers
located in the U.S., but may also invest in securities of issuers located in
developed foreign countries. It may also invest a portion of the Portfolio in
equity
31
Consulting Group Capital Markets Funds
<PAGE>
Multi-Sector Fixed Income Investments, continued
and equity-related securities, including convertible securities, preferred
stocks, warrants and rights.
The subadvisor invests primarily in fixed income securities whose average dura-
tion ranges from two to six years. Individual securities may be of any maturi-
ty.
The subadvisor employs a relative value investment process, looking for securi-
ties of companies with improving or stable credit quality trends. It focuses on
investments in the "BB" and "B" quality spectrum. The investing process
includes:
. Extensive research of issuers and their business conditions
. Thorough analysis of issuers and their credit quality
. Emphasis on general economic and interest rate trends and forecasts.
Credit Quality. The intermediate maturity, long-term maturity and mortgage-re-
lated portions of the Portfolio are invested primarily in securities rated in-
vestment grade by a nationally recognized statistical rating organization, or,
if unrated, of equivalent quality as determined by the subadvisor. The high
yield portion of the Portfolio will primarily be invested in fixed income secu-
rities rated below investment grade, or, if unrated, of equivalent quality as
determined by the subadvisor. Securities rated below investment grade are com-
monly known as "junk bonds."
Duration and Maturity. The Portfolio's average duration is normally within one
year of the duration of the Lehman Brothers Aggregate Bond Index. Duration is
an approximate measure of the sensitivity of the market value of the Portfo-
lio's holdings to changes in interest rates. Individual securities may be of
any maturity.
Principal risks of investing in the Portfolio
An investment in the Portfolio involves specific risks relating to the nature
of its investment strategies. You should invest in the Portfolio only if you
are capable of bearing the risks described below.
. You could lose money on your investment in the portfolio, or the portfolio
may not perform as well as other investments
. The manager's judgment about the attractiveness and risk adjusted return
potential of particular asset classes, investment styles or other issues may
prove to be wrong
. When interest rates go up, prices of fixed income securities decline
. An issuer of a security may prepay principal earlier than scheduled, which
would force the portfolio to reinvest in lower yielding securities. This is
known as call or prepayment risk
. An issuer of a security may default on its obligation to pay principal and/or
interest or the security's credit rating may be downgraded
. Slower than expected principal payments may extend a security's life. This
locks in a below-market interest rate, increases the security's duration and
reduces the value of the security. This is known as extension risk
. Greater sensitivity to rising interest rates because of the Portfolio's
longer average maturity and because the Portfolio invests a portion of its
assets in high yield securities
. Increased volatility in share price because the Portfolio invests a portion
of its assets in high yield securities and holds mortgage derivative securi-
ties with embedded leverage or unusual interest rate reset terms
. The Portfolio may not fully benefit from or may lose money on derivatives if
changes in their value do not correspond accurately to changes in the value
of the underlying securities
Performance
Because this Portfolio was added to the Consulting Group Capital Markets Funds
this year, the Portfolio does not yet have a sufficient operating history to
generate the performance information which other Smith Barney funds show in bar
and table form in this location of the prospectus.
32
Consulting Group Capital Markets Funds
<PAGE>
Multi-Sector Fixed Income Investments, continued
Fee table
This table describes the fees and expenses you may pay if you buy and hold
shares of the Portfolio and is based upon estimated expenses for the Portfo-
lio's current fiscal year.
<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)
Maximum annual TRAK(R) fee* 1.50%
Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fee** 0.85%
Other expenses 0.20%
-----
Total annual Portfolio operating
expenses** 1.05%
</TABLE>
* Fee payable under the TRAK(R) Personalized Investment Advisory Service for
asset allocation services. See "Asset Allocation Programs."
** The management fee rate shown above reflects the maximum fee paid to the
manager and a single subadvisor. However, the projected effective annual
management fee rate for the Portfolio is expected to be 0.45% or less due to
the allocation of assets among multiple subadvisors. The Portfolio is oper-
ating under an expense cap of 0.80% for the current fiscal year. The expense
cap will remain in effect until changed by the Board of Trustees.
Example
This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.
The example assumes:
. You invest $10,000 in the Portfolio for the time periods indicated;
. You reinvest all dividends and distributions;
. You redeem at the end of each period;
. Your investment has a 5% return each year; and
. The Portfolio's operating expenses remain the same.
Under these assumptions, your costs including the maximum annual TRAK(R) fee,
would be:
<TABLE>
<CAPTION>
After 1 After 3
year years
<S> <C>
$127 $675
</TABLE>
BENCHMARK
The Portfolio's primary benchmark
is Lehman Brothers Aggregate Bond
Index. The Index is composed of
the Lehman Intermediate
Government/Corporate Bond Index
and the Lehman Mortgage-Backed
Securities Index and also
includes treasury issues, agency
issues, corporate bond issues and
mortgage-backed securities.
Unlike the Portfolio, the
benchmark is unmanaged and does
not include any expenses.
33
Consulting Group Capital Markets Funds
<PAGE>
More on the Portfolios' Investments and Related Risks
The section entitled "Investments, Risks and Performance" describes the Portfo-
lios' investment objectives and their principal investment strategies and
risks. This section provides some additional information about the Portfolios'
investments and certain investment management techniques the Portfolios may
use. More information about the Portfolios' investments and portfolio manage-
ment techniques, some of which entail risk, is included in the Statement of Ad-
ditional Information (SAI). To find out how to obtain an SAI, please turn to
the back cover of this prospectus.
Percentage Limits
Some Portfolio policies in this
section are stated as a percent-
age of assets. These percentages
are applied at the time of pur-
chase of a security and subse-
quently may be exceeded because
of changes in the value of a
Portfolio's investments.
Equity Investments. The equity oriented Portfolios may invest in all types of
equity securities. Equity securities include exchange-traded and over-the-
counter common and preferred stocks, warrants, rights, convertible securities,
depositary receipts and shares, trust certificates, limited partnership inter-
ests, shares of other investment companies and real estate investment trusts
and equity participations.
Fixed Income Investments. The fixed income oriented Portfolios (except Govern-
ment Money Investments, Municipal Bond Investments and Balanced Investments,
which limit their investments to certain types of fixed income instruments) may
invest in all types of fixed income securities. The equity oriented Portfolios
may invest a portion of their assets in fixed income securities. Fixed income
investments include bonds, notes (including structured notes), mortgage-related
and asset-backed securities (Intermediate Fixed Income Investments, Long-Term
Bond Investments, Mortgage Backed Investments and Balanced Investments only),
convertible securities, eurodollar and yankee dollar instruments, preferred
stocks and money market instruments. Fixed income securities may be issued by
corporate and governmental issuers and may have all types of interest rate pay-
ment and reset terms, including fixed rate, adjustable rate, zero coupon, con-
tingent, deferred, payment-in-kind and auction rate features.
An individual security's maturity is the date upon which the issuer must pay
back the face amount of the security. A security may have an "effective" matu-
rity which is shorter or longer than its stated maturity depending on the de-
gree of prepayment, or extension risk associated with that security. Duration
is the measure of an individual security's price sensitivity to changing inter-
est rates. The longer a security's duration, the more sensitive that security's
price will be to changes in interest rates.
Mortgage-related securities may be issued by private companies or by agencies
of the U.S. government and represent direct or indirect participations in, or
are collateralized by and payable from, mortgage loans secured by real proper-
ty. Intermediate Fixed Income Investments, Long-Term Bond Investments and Mort-
gage Backed Investments may each invest up to 25% of their assets in privately
issued mortgage-related securities. Long-Term Bond Investments, Balanced In-
vestments and Intermediate Fixed Income Investments may each invest up to 5% of
their respective net assets in asset-backed securities, which represent partic-
ipations in, or are secured by and payable from, assets such as installment
sales or loan contracts, leases, credit card receivables and other categories
of receivables. A Portfolio's investments in asset-backed securities will be
rated in the highest rating category at the time of investment.
Certain debt instruments may pay principal only at maturity or may represent
only the right to receive payments of principal or payments of interest on un-
derlying pools of mortgages or government securities, but not both. The value
of these types of instruments may change more drastically than debt securities
that pay both principal and interest during periods of changing interest rates.
Principal only mortgage-backed securities are particularly subject to prepay-
ment risk. A Portfolio may obtain a below market yield or incur a loss on such
instruments during periods of declining interest rates. Interest only instru-
ments are particularly subject to extension risk. For mortgage derivatives and
structured securities that have imbedded leverage features, small changes in
interest or prepayment rates may cause large and sudden price movements. Mort-
gage derivatives can also become illiquid and hard to value in declining mar-
kets.
Foreign Securities. Investments in securities of foreign entities and securi-
ties quoted or denominated in foreign currencies involve special risks. These
include possible political and economic instability and the possible imposition
of exchange controls or other restrictions on investments. If a Portfolio in-
vests in securities denominated or quoted in currencies other than the U.S.
dollar, changes in foreign currency rates relative to the U.S. dollar will af-
fect the U.S. dollar value of the Portfolio's assets.
Emerging market investments offer the potential of significant gains but also
involve greater risks than investing
34
Consulting Group Capital Markets Funds
<PAGE>
More on the Portfolios' Investments and Related Risks, continued
in more developed countries. Political or economic instability, lack of market
liquidity and government actions such as currency controls or seizure of pri-
vate businesses or property may be more likely in emerging markets. The Con-
sulting Group generally considers all of the western European countries (except
Portugal), Canada, Australia, New Zealand, Hong Kong, Singapore and Japan to
have developed markets and economies and the rest of the countries in the world
to have emerging markets and economies.
Economic and monetary union (EMU) in Europe began to be implemented on January
1, 1999, when 11 European countries adopted a single currency--the euro. The
conversion to the euro is being phased in over a three year period, during
which time valuation, systems and other operational problems may occur in con-
nection with the fund's investments quoted in the euro. For participating coun-
tries, EMU means sharing a single currency and single official interest rate
and adhering to agreed upon limits on government borrowing. Budgetary decisions
will remain in the hands of each participating country, but will be subject to
each country's commitment to avoid "excessive deficits" and other more specific
budgetary criteria. A European Central Bank is responsible for setting the of-
ficial interest rate to maintain price stability within the euro zone. EMU is
driven by the expectation of a number of economic benefits, including lower
transaction costs, reduced exchange risk, greater competition, and a broadening
and deepening of European financial markets. However, there are a number of
significant risks associated with EMU. Monetary and economic union on this
scale has never been attempted before. There is a significant degree of uncer-
tainty as to whether participating countries will remain committed to EMU in
the face of changing economic conditions. This uncertainty may increase the
volatility of the international markets.
Each Portfolio which is not an international oriented Portfolio (International
Equity Investments, International Fixed Income Investments and Emerging Markets
Equity Investments), may invest up to 10% of its net assets in foreign securi-
ties, including emerging market securities.
Municipal Obligations. Municipal Bond Investments invests primarily in munici-
pal obligations, which are debt obligations issued by or on behalf of states,
cities, munici palities and other public authorities. The two principal classi-
fications of municipal obligations are "general obligation" securities and
"revenue" securities. General obligation securities are secured by the issuer's
pledge of its full faith, credit and taxing power for the payment of principal
and interest. Revenue securities are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source such as the
user of a facility being financed. Revenue securities may include private ac-
tivity bonds which may be issued by or on behalf of public authorities to fi-
nance various privately operated facilities and are not payable from the unre-
stricted revenues of the issuer. As a result, the credit quality of private ac-
tivity bonds is frequently related directly to the credit standing of private
corporations or other entities.
The secondary market for municipal obligations may be less liquid than for most
taxable fixed income securities which may limit the Portfolio's ability to buy
and sell these obligations at times and prices the manager believes would be
advantageous. There may be less information available about the financial con-
dition of an issuer of municipal obligations than about issuers of other pub-
licly traded securities. Also, state and federal bankruptcy laws could hinder
the Portfolio's ability to recover interest or principal in the event of a de-
fault by the issuer.
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 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 also will not invest more
than 25% of its total 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; tax-free
prefunded bonds that are secured or backed by the U.S. Treasury or other U.S.
government guaranteed securities; and pollution control bonds.
35
Consulting Group Capital Markets Funds
<PAGE>
More on the Portfolios' Investments and Related Risks, continued
Credit Quality
A Portfolio's rating criteria
are applied at the time of pur-
chase. If a security is subse-
quently downgraded, the
subadvisor may, but is not re-
quired to, sell the security. If
a security is rated differently
by two or more rating organiza-
tions, the subadvisor may use
the higher rating to determine
the security's rating category.
Securities are considered in-
vestment grade if they are:
. rated in one of the top four
long-term rating categories by
a nationally recognized sta-
tistical rating organization.
. unrated securities that the
subadvisor believes to be of
comparable quality.
Securities are considered below
investment grade if they are
rated below the top four long-
term ratings or are of equiva-
lent quality if unrated. Below
investment grade securities,
also known as "high yield secu-
rities," (commonly known as
"junk bonds") are subject to:
. the increased risk of an is-
suer's inability to meet prin-
cipal and interest obliga-
tions.
. greater price volatility be-
cause of a heightened sensi-
tivity to changing interest
rates.
. less liquidity.
Derivative contracts. Each Portfolio, except Government Money Investments, may,
but is not required to, use derivative contracts for any of the following pur-
poses:
. To hedge against adverse changes caused by changing interest rates, stock
market prices or currency exchange rates in the market value of securities
held by or to be bought for a Portfolio.
. As a substitute for purchasing or selling securities.
. To shorten or lengthen the effective maturity or duration of a Portfolio's
fixed income investments.
. To enhance a Portfolio's potential gain in non-hedging situations.
The Portfolios may use various types of derivative instruments, including op-
tions on securities and securities indices, futures and options on futures (ex-
cept Government Money Investments, Municipal Bond Investments and Balanced In-
vestments) and, for those Portfolios that invest directly in foreign securi-
ties, forward currency contracts, currency futures contracts and options on
currencies and currency futures. A derivative contract will obligate or entitle
a Portfolio to deliver or receive an asset or a cash payment based on the
change in value of one or more designated securities, currencies or indices.
Even a small investment in derivative contracts can have a big impact on a
Portfolio's interest rate, stock market and currency exposure. Therefore, using
derivatives can disproportionately increase Portfolio losses and reduce oppor-
tunities for gains when interest rates, stock prices or currency rates are
changing. A Portfolio may not fully benefit from or may lose money on deriva-
tives if changes in their value do not correspond accurately to changes in the
value of the Portfolio's holdings. The other party to certain derivative con-
tracts presents the same types of credit risk as issuers of fixed income secu-
rities. Derivatives can also make a Portfolio's assets less liquid and harder
to value, especially in declining markets.
Mortgage Dollar Rolls. Mortgage Backed Investments and Balanced Investments may
enter into mortgage dollar roll transactions to earn additional income. In
these transactions, a Portfolio sells a U.S. agency mortgage-backed security
and simultaneously agrees to repurchase at a future date another U.S. agency
mortgage-backed security with the same interest rate and maturity date, but
generally backed by a different pool of mortgages. The Portfolio loses the
right to receive interest and principal payments on the security it sold. How-
ever, the Portfolio benefits from the interest earned on investing the proceeds
of the sale and may receive a fee or a lower repurchase price. The benefits
from these transactions depend upon the subadvisor's ability to forecast mort-
gage prepayment patterns on different mortgage pools. The Portfolio may lose
money if, during the period between the time it agrees to the forward purchase
of the mortgage securities and the settlement date, these securities decline in
value because of market conditions or prepayments on the underlying mortgages.
High Yield Securities. High Yield Investments can invest in high yield securi-
ties. These are commonly known as "junk bonds" and involve a substantial risk
of loss. These securities are considered speculative with respect to the is-
suer's ability to pay interest and principal and are susceptible to default or
decline in market value be-cause of adverse economic and business developments.
The market values for high yield securities tend to be very volatile, and these
securities are less liquid than investment grade debt securities. The Portfolio
may experience increased price sensitivity to changing interest rates and
greater risk of loss because of default or declining credit quality. In addi-
tion, adverse company specific events are more likely to render the issuer un-
able to make interest and/or principal payments. A negative
36
Consulting Group Capital Markets Funds
<PAGE>
More on the Portfolios' Investments and Related Risks, continued
perception of the high yield market may develop, depressing the price and li-
quidity of high yield securities. This negative perception could last for a
significant period of time.
Swaps. Emerging Markets Equity Investments, with respect to 15% of the total
assets allocated to the active value subadvisor, may enter into index swaps. A
swap transaction is an agreement between the Portfolio and a counterparty to
act in accordance with the terms of the swap contract. Index swaps involve the
exchange by the Portfolio with another party of the respective amounts payable
with respect to a notional principal amount related to one or more indices. The
Portfolio may enter into these transactions to preserve a return or spread on a
particular investment or portion of its assets, as a duration management tech-
nique or to protect against any increase in the price of securities the Portfo-
lio anticipates purchasing at a later date. Swaps have risks associated with
them, including possible default by the counterparty to the transaction, illi-
quidity and, where swaps are used as hedges, the risk that the use of a swap
could result in losses greater than if the swap had not been employed.
Defensive investing. The Portfolios may depart from their principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short
term debt securities. The Portfolios' investments in these assets are managed
by SSB Citi Fund Management LLC.
Impact of high portfolio turnover. Each Portfolio may engage in active and fre-
quent trading to achieve its principal investment strategies. This may lead to
the realization and distribution to shareholders of higher capital gains, which
would increase their tax liability. Frequent trading also increases transaction
costs, which could detract from a Portfolio's performance.
Investment Policies. The Portfolios' non-fundamental investment policies gener-
ally may be changed by the Board of Trustees without shareholder approval.
More information about investment styles. If a subadvisor follows a passive
style, the subadvisor's principal objective is to mirror the return of a bench-
mark index. The subadvisor may seek to achieve that goal by investing in all of
the securities in the index or by selecting certain securities in the index
with respect to which the subadvisor believes there is a high correlation be-
tween changes in the value of the index and these securities. An active
subadvisor seeks to outperform the index by selecting securities which the
subadvisor believes will appreciate in value at a rate greater than the index.
However, if the subadvisor is incorrect in its estimate of a security's perfor-
mance, the Portfolio may underperform the index. A risk controlled subadvisor
uses an active management style but employs investment criteria that are in-
tended to limit the positive or negative variances from the index. A top down
investment approach places greater emphasis on selecting the industries or sec-
tors, or in the case of an international fund, country allocations, that the
subadvisor believes will outperform the market rather than on individual stock
selection. Consequently, these subadvisors place greater emphasis upon economic
and market trends. A subadvisor using a bottom up approach primarily emphasizes
the outlook for individual companies. Stock picking and not overall market
trends or industry or sector weightings is most important. If a subadvisor or
Portfolio focuses upon growth stocks, the emphasis is upon companies whose
earnings are expected to increase at a rate that exceeds the average of the
market as a whole. Value investing seeks to identify companies that have an un-
derlying value that is not currently reflected in the company's market price.
The subadvisor anticipates that over time the market will reflect the under-
lying value in the market price.
Potential Conversion. The High Yield Investments reserves the right, if ap-
proved by the Board of Trustees, to convert in the future to a "Master/Feeder"
fund that would invest all of its assets in a Master/Feeder fund having sub-
stantially the same investment objective, policies and restrictions. At least
30 days written notice of any action would be given to all shareholders if, and
when, such a proposal is approved.
37
Consulting Group Capital Markets Funds
<PAGE>
The Manager
The manager. The Consulting Group, a division of SSB Citi Fund Management LLC
("SSB Citi"), serves as the manager for the Portfolios. SSB Citi is a wholly-
owned subsidiary of Salomon Smith Barney Holdings Inc., which in turn is a
wholly-owned subsidiary of Citigroup Inc. Citigroup businesses produce a broad
range of financial services--asset management, banking and consumer finance,
credit and charge cards, insurance, investments, investment banking and trad-
ing--and use diverse channels to make them available to consumer and corporate
customers around the world. As manager, the Consulting Group selects and
oversees professional money managers who are responsible for investing the as-
sets of the Portfolios. The Consulting Group was established to match the in-
vestment needs of institutional investors and substantial individual investors
with appropriate and well-qualified investment advisers. Since 1973, the Con-
sulting Group has grown to become one of the nation's foremost organizations
providing portfolio evaluation, asset allocation, market analysis and invest-
ment adviser selection services.
The Portfolios are part of a series of portfolios which comprise the Consulting
Group Capital Markets Funds (the "Trust"). The Trust is a series company that
consists of the Portfolios and the following additional portfolios which are
offered in a separate prospectus, a copy of which can be obtained from any Sal-
omon Smith Barney Financial Consultant:
. Multi-Strategy Market Neutral Investments
. S&P 500 Index Investments
The Evaluation Process
The Consulting Group screens
more than 3,000 registered in-
vestment advisory firms, tracks
the performance of more than 700
firms on its comprehensive data-
base and evaluates the strength
and performance of advisory
firms in Consulting Group pro-
grams each year. Throughout the
evaluation, the Consulting Group
focuses on a number of key is-
sues:
. level of expertise
. relative performance and
consistency of performance
. strict adherence to investment
discipline or philosophy
. personnel, facility and finan-
cial strength
. quality of service and commu-
nication.
The subadvisors. The subadvisors are responsible for the day-to-day investment
operations of the Portfolios in accordance with each Portfolio's investment ob-
jectives and policies. The name and address of each subadvisor, and the name
and background of each portfolio manager, is included in the section entitled
"Investments, Risks and Performance".
The subadvisor selection process. Subject to the review and approval of the
Portfolios' Trustees, the Consulting Group is responsible for selecting, super-
vising and evaluating subadvisors who manage the Portfolios' assets. The Con-
sulting Group may adjust the allocation of a Portfolio's assets among the
subadvisors by up to 10%. Any adjustment affecting more than 10% of a Portfo-
lio's assets can only be made by the Board of Trustees. The Consulting Group
employs a rigorous evaluation process to select those subadvisors that have
distinguished themselves through consistent and superior performance. The Con-
sulting Group is also responsible for communicating performance expectations
and evaluations to the subadvisors and ultimately recommending to the Board of
Trustees whether a subadvisor's contract should be renewed. The Consulting
Group provides written reports to the Trustees regarding the results of its
evaluation and monitoring functions.
The Portfolios rely upon an exemptive order from the Securities and Exchange
Commission which permits the manager to select new subadvisors or replace ex-
isting subadvisors without first obtaining shareholder approval for the change.
The Trustees, including a majority of the "non-interested" Trustees, must ap-
prove each new subadvisory contract. This allows the manager to act more
quickly to change subadvisors when it determines that a change is beneficial to
shareholders by avoiding the delay of calling and holding shareholder meetings
to approve each change. In accordance with the exemptive order, the Portfolios
will provide investors with information about each new subadvisor and its
subadvisory contract within 90 days of the engagement of a new subadvisor.
38
Consulting Group Capital Markets Funds
<PAGE>
The Manager, continued
The subadvisors, portfolio managers and the percentage of Portfolio assets each
subadvisor manages are described below.
<TABLE>
<CAPTION>
Fund Subadvisor Percentage Portfolio Manager
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Government Money Investments Standish Ayer & Wood, Inc. 100% Jennifer Pline
One Financial Center Ms. Pline has been primarily
Boston, MA 02111 responsible for the day-to-day
management of the Portfolio
since its inception in 1991.
Ms. Pline is a Vice President
and joined Standish in 1987.
Intermediate Fixed Income Standish Ayer & Wood, Inc. 70% Richard Doll
Investments One Financial Center Mr. Doll has been primarily
Boston, MA 02111 responsible for the day-to-day
management of the Portfolio
since its inception in 1991. He
has been a Vice President of
Standish since 1984 and a
director since 1987.
Pacific Investment Management 30% William C. Powers
Company Mr. Powers is a Managing
840 Newport Center Drive, Director at Pimco and has been
Suite 300 with the firm for nine years.
Newport Beach, CA 92660 He has had 16 years of
investment experience.
Long-Term Bond Western Asset Management 100% Western utilizes a team
Investments Company management approach.
117 East Colorado Boulevard
Pasadena, CA 91105
Municipal Bond Smith Affiliated Capital 100% Smith utilizes a team
Investments Corporation management approach.
880 Third Avenue
New York, NY 10022
Mortgage Backed APAM Core Fixed Income LLC 100% John L. Cassady, III
Investments 201 East Pine Street, Mr. Cassady has been primarily
Suite 600 responsible for the day-to-day
Orlando, FL 32801 management of the Portfolio
since 1997. He has been with
the firm since [ ] and has 11
years of investment experience.
High Yield Investments Alliance Capital Management 100% Nelson R. Jantzen
L.P. 1345 Avenue of the Sheryl A. Rothman
Americas Mr. Jantzen is a senior vice
New York, NY 10105 president and co-head of the
High Yield Group and has had 25
years of investment experience.
Ms. Rothman is a senior vice
president and portfolio manager
and has 15 years of investment
experience.
</TABLE>
39
Consulting Group Capital Markets Funds
<PAGE>
The Manager, continued
<TABLE>
<CAPTION>
Fund Subadvisor Percentage Portfolio Manager
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balanced Investments Laurel Capital Advisors, LLP 60% Bert Mullins
One Mellon Bank Center, Mr. Mullins is a senior vice
Suite 151-3925 resident and has been with the
Pittsburgh, PA 15258 firm for 8 years and has had 33
years of investment experience.
He has been primarily
responsible for the day-to-day
management of the Portfolio
since 1999.
Seix Investment Advisors 40% Christina Seix
300 Tice Boulevard Ms. Seix is Chairman and Chief
Woodcliff Lake, NJ 07675 Investment Officer of the firm.
She has been with the firm for
7 years and has had 26 years of
investment experience.
Large Capitalization Value The Boston Company Asset 10% Robert J. Eastman
Equity Investments Management L.L.C. Mr. Eastman has been
One Boston Place responsible for the day-to-day
Boston, MA 02108 management of the Portfolio
since 1996. He has been a vice
president of the firm since
1991.
Parametric Portfolio Associates 65% David Stein
7310 Columbia Center Tom Seto
701 Fifth Avenue Mr. Stein has been primarily
Seattle, WA 98164 responsible for the day-to-day
management of the Portfolio
since 1996. Mr. Stein, a
managing director of
Parametric, joined the firm in
[ ] and has had 12 years of
investment experience. Mr. Seto
is a portfolio manager and
joined Parametric in 1998 and
has 7 years of investment
experience.
Barclays Global Fund Advisors 10% Barclays uses a team management
45 Fremont Street approach to manage indexed
San Francisco, CA 94105 portfolios.
Chartwell Investment Partners 15% Bernard Schaffer
1235 Westlakes Drive, Suite 330 Mr. Schaffer has been primarily
Berwyn, PA 19312 responsible for the day-to-day
management of the Portfolio
since 1999. He has been with
Chartwell since 1997 and has
had 28 years of investment
experience.
</TABLE>
40
Consulting Group Capital Markets Funds
<PAGE>
The Manager, continued
<TABLE>
<CAPTION>
Fund Subadvisor Percentage Portfolio Manager
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Large Capitalization Barclays Global Fund 20% Barclays uses a team management
Growth Investments Advisors 45 Fremont Street approach to manage indexed
San Francisco, CA 94105 portfolios.
Provident Investment Counsel 80% Harlan Thompson
Mr. Thompson, CFA, is a senior
vice president of Provident and
has been responsible for the
day-to-day management of the
Portfolio since 1992. He has
been with Provident for [ ]
years.
Small Capitalization Value Mellon Capital 50% Mellon uses a team management
Equity Investments Management Corporation approach to manage indexed
595 Market Street, Suite 3000 portfolios.
San Francisco, CA 94105
NFJ Investments Group 35% Benno Fischer
2121 San Jacinto Street, Paul Magnuson
Suite 1840 Messrs. Fischer and Magnuson
Dallas, TX 75201 have been responsible for the
day-to-day management of the
Portfolio since 1993. Mr.
Fischer is a managing director
and has been with NFJ since
1989. Mr. Magnuson is a
portfolio manager and has been
with NFJ since 1992.
David J. Babson & Co., Inc. 15% Dennis J. Scannel
One Memorial Drive Mr. Scannel has been primarily
Cambridge, MA 02142 responsible for the day-to-day
management of the Portfolio
since 1998. Mr. Scannel joined
Babson in 1993. Prior to
joining Babson he was a
management consultant at
Greenwich Associates.
Small Capitalization Mellon Capital 50% Mellon uses a team management
Growth Investments Management Corporation approach to manage indexed
595 Market Street, Suite 3000 portfolios.
San Francisco, CA 94105
Wall Street Associates 20% William Jeffery, III
1200 Prospect Street, Suite 100 Kenneth McCain
La Jolla, CA 92037 Messrs. Jeffery and McCain have
been primarily responsible for
the day-to-day management of
the Portfolio since 1997.
Messrs. Jeffery and McCain are
founding partners of the firm
and have over 25 years of
investment experience.
</TABLE>
41
Consulting Group Capital Markets Funds
<PAGE>
The Manager, continued
<TABLE>
<CAPTION>
Fund Subadvisor Percentage Portfolio Manager
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Small Capitalization Westpeak Investment Advisors, 20% Gerald Scriver
Growth Investments-- L.P. Mr. Scriver has been primarily
1011 Walnut Street, Suite 400 responsible for the day-to-day
Boulder, CO 80302 management of the Portfolio
since 1997. He has been
president, chief investment
officer and chief executive
officer of the firm since its
inception in 1991.
Kern Capital Management LLC 114 10% David G. Kern
West 47th Street, Suite 1926 Mr. Kern has been primarily
New York, NY 10036 responsible for the day-to-day
management of the Portfolio
since 1999. He has been with
Kern since 1997 and has had 12
years of investment experience.
International Equity State Street Global Advisors 50% Peter Leahy
Investments Two International Place Mr. Leahy has been primarily
Boston, MA 02110 responsible for the day-to-day
management of the Portfolio
since 1995. Mr. Leahy has been
with State Street since 1991.
Oechsle International Advisors, 30% Walter Oechsle
LLC Kathleen Harris
One International Place Mr. Oechsle has been primarily
Boston, MA 02110 responsible for the day-to-day
management of the Portfolio
since 1991. He has been a
managing general partner of
Oechsle since 1986. Ms. Harris
has shared management
responsibility since 1997. She
has been with Oechsle since
1997. Previously, Ms. Harris
was portfolio manager and
investment director for the
State of Wisconsin Investment
Board, where she managed the
fund's international equity
assets. Prior to that time, she
was a fund manager and equity
analyst for the Northern Trust
Company.
Marvin & Palmer Associates, 20% Marvin & Palmer uses a team
Inc. 1201 N. Market Street, management approach.
Suite 2300 Wilmington, DE 19801
</TABLE>
42
Consulting Group Capital Markets Funds
<PAGE>
The Manager, continued
<TABLE>
<CAPTION>
Fund Subadvisor Percentage Portfolio Manager
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
International Fixed Income Julius Baer Investment 100% Edward Dove
Investments Management Inc. Mr. Dove has been primarily
330 Madison Avenue responsible for the day-to-day
New York, NY 10017 management of the Portfolio
since 1992. He is a Director of
Fixed Income and Portfolio
Manager at Julius Baer and has
had 18 years of investment
experience.
Emerging Markets Equity State Street Global 30% State Street uses a team
Investments Advisors Two International Place management approach.
Boston, MA 02110
AIB Govett, Inc. 40% Rachel Maunder
250 Montgomery Street Ms. Maunder has been primarily
San Francisco, CA 94104 responsible for the day-to-day
management of the Portfolio
since inception. She has been a
manager of emerging markets
portfolios at Govett since 1991
and has had 13 years of
investment experience.
Baring Asset Management, Inc. 30% Kate Munday
125 High Street Matt Linsey
Boston, MA 02110 Ms. Munday and Mr. Linsey have
been primarily responsible for
the day-to-day management of
the Portfolio since [ ]. Ms.
Munday has been with Baring
since [ ] and has had [ ]
years of investment experience.
Mr. Linsey has been the deputy
head of global emerging markets
at Baring since 1997. Mr.
Linsey has been with Baring
since [ ] and has had 14 years
of investment experience.
Multi-Sector Fixed Income Standish Ayer & Wood, Inc. 50% Richard Doll
Investments One Financial Center Mr. Doll has been primarily
Boston, MA 02111 responsible for the day-to-day
management of the Portfolio
since its inception in 1999. He
has been a Vice President of
Standish since 1984 and a
director since 1987.
Western Asset Management 20% Western utilizes a team
Company management approach.
117 East Colorado Boulevard
Pasadena, CA 91105
</TABLE>
43
Consulting Group Capital Markets Funds
<PAGE>
The Manager, continued
<TABLE>
<CAPTION>
Fund Subadvisor Percentage Portfolio Manager
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Multi-Sector Fixed Income
Investments--(Continued)
APAM Core Fixed Income LLC 20% John L. Cassady, III
201 East Pine Street, Suite 600 Mr. Cassady has been primarily
Orlando, FL 32801 responsible for the day-to-day
management of the Portfolio
since 1997. He has been with
the firm since [ ] and has 11
years of investment experience.
Alliance Capital Management 10% Nelson R. Jantzen
L.P. 1345 Avenue of the Sheryl A. Rothman
Americas Mr. Jantzen is a senior vice
New York, NY 10105 president and co-head of the
High Yield Group and has had 25
years of investment experience.
Ms. Rothman is a senior vice
president and portfolio manager
and has 15 years of investment
experience.
</TABLE>
44
Consulting Group Capital Markets Funds
<PAGE>
The Manager, continued
Management Fees. The Consulting SSB Citi a fee at an annual rate
Group receives fees from each of 0.20% of its average daily net
Portfolio for its services. In assets for administration servic-
turn, the Consulting Group pays es. The chart below shows the
the subadvisors a portion of management fees paid by each
this fee for their services. In Portfolio.
addition, each Portfolio pays
<TABLE>
<CAPTION>
Actual
Management
Fee Paid
During
Most
Recent
Management Fiscal
Portfolio Fee Year
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Government Money Investments 0.15% xx%
Intermediate Fixed Income Investments 0.40% xx%
Long-Term Bond Investments 0.40% xx%
Municipal Bond Investments 0.40% xx%
Mortgage Backed Investments 0.50% xx%
High Yield Investments 0.70% xx%
Multi-Sector Fixed Income Investments 0.85% xx%
Balanced Investments 0.60% xx%
Large Capitalization Value Equity Investments 0.60% xx%
Large Capitalization Growth Investments 0.60% xx%
Small Capitalization Value Equity Investments 0.80% xx%
Small Capitalization Growth Investments 0.80% xx%
International Equity Investments 0.70% xx%
International Fixed Income Investments 0.50% xx%
Emerging Markets Equity Investments 0.90% xx%
</TABLE>
Possible Conflict of Interest. The advisory fee paid by each Portfolio in the
Trust to the manager and the portion of that advisory fee paid by the manager
to each subadvisor varies depending upon the Portfolio of the Trust selected.
For this reason, the manager could retain a larger portion of the advisory fee
by recommending to clients in its asset allocation program certain Portfolios
in the Trust over other Portfolios for asset allocation. You should consider
this possible conflict of interest when evaluating the manager's asset alloca-
tion recommendation. The manager intends to comply with standards of fiduciary
duty that require it to act solely in the best interest of a participant when
making investment recommendations.
Year 2000 Issue. Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on a Portfolio. The cost of addressing the Year 2000 issue, if
substantial, could adversely effect companies and governments that issue secu-
rities held by a Portfolio. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The Portfolios have been informed by
other service providers that they are taking similar measures. Although the
Portfolios do not expect the Year 2000 issue to adversely affect them, the
Portfolios cannot guarantee that the efforts of the Portfolios, which are lim-
ited to requesting and receiving reports from service providers, or the efforts
of service providers to correct the problem, will be successful.
45
Consulting Group Capital Markets Funds
<PAGE>
Asset Allocation Programs
Shares of the Trust's Portfolios are available to participants in advisory pro-
grams or asset based fee programs sponsored by Salomon Smith Barney Inc., in-
cluding the TRAK(R) Personalized Investment Advisory Service, or other quali-
fied investment advisors approved by the Consulting Group. The advisory serv-
ices provide investors with asset allocation recommendations, which are imple-
mented through the Portfolios.
Advisory services generally include:
. evaluating the investor's investment objectives and time horizon
. analyzing the investor's risk tolerance
. recommending an allocation of assets among the Portfolios in the Trust
. providing monitoring reports containing an analysis and evaluation of an in-
vestor's account and recommending any changes
While an advisory service makes a recommendation, the ultimate investment deci-
sion is up to the investor and not the provider of the advisory service.
Under an advisory service, an investor typically pays an advisory fee that may
vary based on a number of factors. The maximum fee for assets invested in the
Trust under a Salomon Smith Barney advisory service is 1.50% of average quar-
ter-end net assets. This fee may be reduced in certain circumstances. The fee
under a Salomon Smith Barney advisory program may be paid either by redemption
of shares of the Trust or by separate payment.
46
Consulting Group Capital Markets Funds
<PAGE>
Investment and Account Information
Account Transactions
Purchase of Shares. You may purchase shares of a Portfolio if you are a partic-
ipant in an advisory program or asset based fee program sponsored by Salomon
Smith Barney, including TRAK(R), or by qualified investment advisers not affil-
iated with Salomon Smith Barney. Purchases of shares of a Portfolio must be
made through a brokerage account maintained with Salomon Smith Barney or
through a broker that clears securities transactions through Salomon Smith Bar-
ney (an introducing broker). You may establish a brokerage account with Salomon
Smith Barney free of charge in order to purchase shares of a Portfolio.
. The minimum initial aggregate investment in the TRAK program is $10,000. The
minimum investment in a Portfolio is $100.
. There is no minimum on additional investments.
. The minimum initial aggregate investment in the TRAK program for employees of
Salomon Smith Barney and members of their immediate families, and retirement
accounts or plans for those persons, is $5,000.
. The Portfolios and the TRAK program may vary or waive the investment minimums
at any time.
. You may establish a Systematic Withdrawal/Investment Schedule. For more in-
formation, contact your Investment Professional or consult the SAI.
Shares of the Portfolios are sold at net asset value per share without imposi-
tion of a sales charge but will be subject to any applicable advisory program
fee. All orders to purchase accepted by Salomon Smith Barney or the introducing
broker before 4:00 p.m., Eastern time, will receive that day's share price. Or-
ders accepted after 4:00 p.m. will receive the next day's share price. All pur-
chase orders must be in good order to be accepted. This means you have provided
the following information:
. Name of the Portfolio
. Account Number
. Dollar amount or number of shares to be purchased
. Signatures of each owner exactly as the account is registered
Each Portfolio reserves the right to reject purchase orders or to stop offering
its shares without notice. No order will be accepted unless Salomon Smith Bar-
ney has received and accepted an advisory agreement signed by the investor par-
ticipating in the TRAK(R) program or other advisory program sponsored by Salo-
mon Smith Barney. With respect to investors participating in advisory programs
sponsored by entities other than Salomon Smith Barney, Salomon Smith Barney
must have received and accepted the appropriate documents before the order will
be accepted. Payment for shares must be received by Salomon Smith Barney or the
introducing broker within three business days after the order is placed in good
order.
Redemption of Shares. You may sell shares of a Portfolio at net asset value on
any day the New York Stock Exchange is open by contacting your broker. All re-
demption requests accepted by Salomon Smith Barney or an introducing broker be-
fore 4:00 p.m. Eastern time on any day will be executed at that day's share
price. Orders accepted after 4:00 p.m. will be executed at the next day's
price. All redemption orders must be in good form, which may require a signa-
ture guarantee (available from most banks, dealers, brokers, credit unions and
federal savings and loan associations, but not from a notary public) to assure
the safety of your account. If you discontinue your Salomon Smith Barney advi-
sory service, you must redeem your shares in the Portfolios.
Each Portfolio has the right to suspend redemptions of shares and to postpone
the transmission of redemption proceeds to a shareholder's account at Salomon
Smith Barney or at an introducing broker for up to seven days, as permitted by
law. Redemption proceeds held in an investor's brokerage account generally will
not earn any income and Salomon Smith Barney or the introducing broker may ben-
efit from the use of temporarily uninvested funds. A shareholder who pays for
shares of a Portfolio by personal check will be credited with the proceeds of a
redemption of those shares after the purchaser's check has cleared, which may
take up to 15 days.
Exchange of Shares. An investor that participates in an advisory program may
exchange shares in a Portfolio for shares in any other Portfolio in the Trust
at net asset value without payment of an exchange fee. Be sure to consider the
investment objectives and policies of any Portfolio into which you make an ex-
change. An exchange is a taxable transaction except for exchanges within a re-
tirement account.
The Consulting Group may limit additional exchanges and/or purchases by a
shareholder if it determines that the shareholder is pursuing a pattern of fre-
quent exchanges. Excessive exchange transactions can adversely affect a Portfo-
lio's performance, hurting the Portfolio's other shareholders. If the Consult-
ing Group discovers a pattern of frequent exchanges, it will provide notice in
writing or by telephone to the shareholder at least 15 days before suspending
his or her exchange privilege. During the 15-day period the shareholder will be
re-
47
Consulting Group Capital Markets Funds
<PAGE>
Investment and Account Information, continued
quired either to redeem his or her shares in the Portfolio or establish an al-
location which the shareholder expects to maintain for a significant period of
time.
Accounts with Low Balances. If your account falls below $7,500 as a result of
redemptions (and not because of performance or payment of the Salomon Smith
Barney Advisory Service fees), Salomon Smith Barney or the introducing broker
may ask you to increase the size of your account to $7,500 within thirty days.
If you do not increase the account to $7,500, Salomon Smith Barney may redeem
the shares in your account at net asset value and remit the proceeds to you.
The proceeds will be deposited in your brokerage account unless you instruct
otherwise.
Valuation of shares
Each Portfolio offers its shares at their net asset value per share. Each Port-
folio calculates net asset value once daily as of the close of regular trading
on the New York Stock Exchange (generally at 4:00 p.m., New York time) on each
day the exchange is open. The exchange is closed on certain holidays listed in
the SAI. If the exchange closes early, the Portfolio accelerates calculation of
net asset value and transaction deadlines to the actual closing time.
A Portfolio generally values its fund securities based on market prices or quo-
tations. A Portfolio's currency conversions, if any, are done when the London
stock exchange closes. When market prices are not available, or when the Con-
sulting Group believes they are unreliable or that the value of a security has
been materially affected by events occurring after the securities or currency
exchanges close, a Portfolio may price those securities at fair value. Fair
value is determined in accordance with procedures approved by the Portfolios'
Board of Trustees. A mutual fund that uses fair value to price securities may
value those securities higher or lower than another fund using market quota-
tions to price the same securities.
International markets may be open, and trading may take place, on days when
U.S. markets are closed. For this reason, the values of foreign securities
owned by a Portfolio could change on days when shares of the Portfolio cannot
be bought or sold.
Dividends and distributions
Each Portfolio intends to distribute all or substantially all of its net in-
vestment income and realized capital gains, if any, for each taxable year. Gov-
ernment Money Investments declares dividends, if any, from net investment in-
come daily and pays dividends monthly. Shareholders in Government Money Invest-
ments receive dividends from the day following purchase through the date of
redemption. The other fixed income oriented Portfolios and Balanced Investments
declare and pay dividends, if any, from net investment income monthly. The eq-
uity oriented Portfolios declare and pay dividends, if any, from net investment
income annually. All of the Portfolios declare and distribute realized net cap-
ital gains, if any, annually, typically in December. All dividends and capital
gains are reinvested in shares of the Portfolio that paid them unless the
shareholder elects to receive them in cash.
The equity oriented Portfolios expect distributions to be primarily from capi-
tal gains. Balanced Investments expects distributions to be from both capital
gains and income. The Fixed income oriented Portfolios expect distributions to
be primarily from income.
Taxes
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Transactions Federal Tax Status
- ------------------------------------------------------------------------------
<S> <C>
Sales or exchange of shares Usually capital gain
or loss (except no
gain or loss for
Government Money
Investments); long-
term only if shares
owned more than one
year
- ------------------------------------------------------------------------------
Distributions of long term Long-term capital
capital gain gain
- ------------------------------------------------------------------------------
Distributions of short term Ordinary income
capital gain
- ------------------------------------------------------------------------------
Dividends from net Ordinary income (for
investment income all Portfolios
except Municipal
Bond Investments)
- ------------------------------------------------------------------------------
Any of the above received by Not a taxable event
a retirement account
- ------------------------------------------------------------------------------
</TABLE>
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when a Portfolio is about to declare a capital gain distribution
or a taxable dividend, because it will be taxable to you even though it may ac-
tually be a return of a portion of your investment.
Dividends paid by Municipal Bond Investments that are derived from interest
earned on qualifying tax-exempt obligations are expected to be "exempt-inter-
est" dividends that shareholders may exclude from their gross incomes for fed-
eral income tax purposes if the Portfolio satisfies certain asset percentage
requirements.
Consulting Group Capital Markets Funds
48
<PAGE>
Investment and Account Information, continued
After the end of each year, you will receive a Form 1099 indicating your divi-
dends and distributions for the prior year, which are taxable as described
above even if reinvested, and your redemptions during that year. If you do not
provide the Portfolios with your correct taxpayer identification number and any
required certifications, you may be subject to backup withholding of 31% of a
Portfolio's distributions, dividends (other than exempt-interest dividends) and
redemption proceeds. Because each shareholder's circumstances are different and
special tax rules may apply, you should consult your tax adviser about your in-
vestment in a Portfolio.
As noted above, investors, out of their own assets, will pay an advisory serv-
ice fee. For most investors who are individuals, this fee will be treated as a
"miscellaneous itemized deduction" for federal income tax purposes. Under cur-
rent federal income tax law, an individual's miscellaneous itemized deductions
for any taxable year will be allowed as a deduction only to the extent the ag-
gregate of these deductions exceeds 2% of adjusted gross income. Such deduc-
tions are also subject to the general limitation on itemized deductions for in-
dividuals having, in 1999, adjusted gross income in excess of $126,600 ($63,300
for married individuals filing separately).
49
Consulting Group Capital Markets Funds
<PAGE>
Financial Highlights
The financial highlights tables are intended to help you understand the perfor-
mance of each portfolio for the past five years. The information in the follow-
ing tables was audited by KPMG LLP, independent accountants, whose report,
along with each portfolio's financial statements, are included in the annual
report (available upon request). Certain information reflects financial results
for a single share. Total return represents the rate that a shareholder would
have earned (or lost) on a share of a fund assuming reinvestment of all divi-
dends and distributions.
For a share of beneficial interest
outstanding throughout each year ended August
31:
Government Money Investments
-------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $1.00 $1.00 $1.00 $1.00 $1.00
-------------------------------------------------------------------
Net investment
income(1) 0.04 0.05 0.05 0.05 0.05
Dividends from net
investment income (0.04) (0.05) (0.05) (0.05) (0.05)
-------------------------------------------------------------------
Net Asset Value, End of
Year $1.00 $1.00 $1.00 $1.00 $1.00
-------------------------------------------------------------------
Total Return 4.53% 5.10% 4.98% 5.02% 5.24%
-------------------------------------------------------------------
Net Assets, End of Year
(000s) $303,160 $ 375,761 $388,713 $278,162 $241,590
-------------------------------------------------------------------
Ratios to Average Net
Assets:
Expenses(1) 0.60% 0.60% 0.60% 0.60% 0.60%
Net investment income 4.46 4.99 4.91 4.93 5.14
-------------------------------------------------------------------
High Yield Investments
-------------------------------------------------------------------
<CAPTION>
1999(2) 1998(3)
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $7.89 $8.00
-------------------------------------------------------------------
Income (Loss) From
Operations:
Net investment
income(1) 0.83 0.05
Net realized and
unrealized loss (0.54) (0.16)
-------------------------------------------------------------------
Total Income (Loss)
From Operations 0.29 (0.11)
-------------------------------------------------------------------
Less Distributions
From:
Net investment income (0.83)
Net realized gains (0.02) --
-------------------------------------------------------------------
Total Distributions (0.85) --
-------------------------------------------------------------------
Net Asset Value, End of
Year $7.33 $7.89
-------------------------------------------------------------------
Total Return 3.67% (1.38)%++
-------------------------------------------------------------------
Net Assets, End of Year
(000s) $155,057 $76,557
-------------------------------------------------------------------
Ratios to Average Net
Assets:
Expenses(1) 1.19% 1.20%+
Net investment income 10.62 7.37+
-------------------------------------------------------------------
Portfolio Turnover Rate 122% 13%
-------------------------------------------------------------------
</TABLE>
(1) Expense ratios and the per share decreases in net
investment income before fee waivers and/or expense
reimbursements were as follows:
<TABLE>
<CAPTION>
Net Investment Income Expense Ratios Without Waivers
Per Share Decrease and Reimbursements
Portfolio 1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Government Money
Investments $0.00* $0.00* $0.01 $0.01 $0.05 0.71% 0.66% 0.64% 0.72% 0.74%
High Yield Investments N/A 0.01 N/A N/A N/A N/A 2.42+ N/A N/A N/A
</TABLE>
(2) Per share amounts have been calculated using the monthly
average shares method.
(3) For the period from July 13, 1998 (commencement of
operations) to August 31, 1998.
* Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be
representative of the total return for the year.
+ Annualized.
50
Consulting Group Capital Markets Funds
<PAGE>
Financial Highlights, continued
Intermediate Fixed Income Investments
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $8.19 $8.06 $7.92 $8.10 $7.92
- --------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.44 0.48 0.50 0.50 0.50
Net realized and unrealized gain
(loss) (0.35) 0.15 0.14 (0.17) 0.16
- --------------------------------------------------------------------------------
Total Income From Operations 0.09 0.63 0.64 0.33 0.66
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.45) (0.50) (0.50) (0.51) (0.48)
- --------------------------------------------------------------------------------
Total Distributions (0.45) (0.50) (0.50) (0.51) (0.48)
- --------------------------------------------------------------------------------
Net Asset Value, End of Year $7.83 $8.19 $8.06 $7.92 $8.10
- --------------------------------------------------------------------------------
Total Return 1.07% 8.00% 8.23% 4.08% 8.70%
- --------------------------------------------------------------------------------
Net Assets, End of Year (000s) $594,666 $574,998 $384,094 $296,053 $246,323
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.61% 0.73% 0.73% 0.73% 0.80%
Net investment income 4.53 5.95 6.19 5.78 6.40
- --------------------------------------------------------------------------------
Portfolio Turnover Rate 207% 63% 118% 98% 98%
- --------------------------------------------------------------------------------
</TABLE>
51
Consulting Group Capital Markets Funds
<PAGE>
Financial Highlights (continued)
Financial Highlights, continued
Long-Term Bond Investments
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year $9.05 $8.26 $7.87 $8.23 $7.86
- -------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(1) 0.49 0.52 0.53 0.51 0.45
Net realized and unrealized gain
(loss) (1.00) 0.78 0.46 (0.41) 0.36
- -------------------------------------------------------------------------------
Total Income (Loss) From
Operations (0.51) 1.30 0.99 0.10 0.81
- -------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.50) (0.51) (0.59) (0.46) (0.44)
Net realized gains (0.34) -- -- -- --
Capital -- -- (0.01) -- --
- -------------------------------------------------------------------------------
Total Distributions (0.84) (0.51) (0.60) (0.46) (0.44)
- -------------------------------------------------------------------------------
Net Asset Value, End of Year $7.70 $9.05 $8.26 $7.87 $8.23
- -------------------------------------------------------------------------------
Total Return (6.19)% 16.22% 12.93% 1.11% 10.71%
- -------------------------------------------------------------------------------
Net Assets, End of Year (000s) $115,355 $157,612 $183,051 $155,910 $137,545
- -------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(1) 0.80% 0.82% 0.78% 0.80% 0.80%
Net investment income 5.81 5.96 6.54 6.18 5.80
- -------------------------------------------------------------------------------
Portfolio Turnover Rate 30% 63% 34% 125% 62%
- -------------------------------------------------------------------------------
Municipal Bond Investments
- -------------------------------------------------------------------------------
<CAPTION>
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year $8.92 $8.62 $8.26 $8.27 $8.06
- -------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(1) 0.35 0.36 0.38 0.38 0.40
Net realized and unrealized gain
(loss) (0.57) 0.32 0.34 -- 0.21
- -------------------------------------------------------------------------------
Total Income (Loss) From
Operations (0.22) 0.68 0.72 0.38 0.61
- -------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.35) (0.38) (0.36) (0.39) (0.40)
In excess of net investment
income -- (0.00)* -- -- --
Net realized gains (0.13) -- -- -- (0.00)*
- -------------------------------------------------------------------------------
Total Distributions (0.48) (0.38) (0.36) (0.39) (0.40)
- -------------------------------------------------------------------------------
Net Asset Value, End of Year $8.22 $8.92 $8.62 $8.26 $8.27
- -------------------------------------------------------------------------------
Total Return (2.60)% 8.09% 8.88% 4.62% 7.86%
- -------------------------------------------------------------------------------
Net Assets, End of Year (000s) $61,743 $72,511 $52,024 $46,485 $45,356
- -------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(1) 0.78% 0.80% 0.80% 0.80% 0.80%
Net investment income 4.03 4.20 4.50 4.59 4.99
- -------------------------------------------------------------------------------
Portfolio Turnover Rate 142% 160% 31% 29% 49%
- -------------------------------------------------------------------------------
</TABLE>
(1)Expense ratios and the per share decreases in net investment income before
fee waivers and/or expense reimbursements were as follows:
<TABLE>
<CAPTION>
Expense Ratios
Net Investment Income Without Waivers
Portfolio Per Share Decrease and/or Reimbursements
1997 1996 1995 1997 1996 1995
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Long-Term Bond Investments N/A N/A $ 0.01 N/A N/A 0.93%
Municipal Bond Investments $0.00* $0.02 0.02 0.83% 1.02% 1.04
</TABLE>
*Amount represents less than $0.01 per share.
52
Consulting Group Capital Markets Funds
<PAGE>
Financial Highlights (continued)
Mortgage Backed Investments
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996(1) 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year $8.13 $7.96 $7.74 $7.91 $7.69
- ------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(2) 0.45 0.46 0.48 0.48 0.51
Net realized and unrealized gain
(loss) (0.34) 0.19 0.25 (0.14) 0.22
- ------------------------------------------------------------------------------
Total Income From Operations 0.11 0.65 0.73 0.34 0.73
- ------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.45) (0.48) (0.51) (0.48) (0.49)
Net realized gains (0.05) -- -- -- --
Capital (0.01) -- -- (0.03) (0.02)
- ------------------------------------------------------------------------------
Total Distributions (0.51) (0.48) (0.51) (0.51) (0.51)
- ------------------------------------------------------------------------------
Net Asset Value, End of Year $7.73 $8.13 $7.96 $7.74 $7.91
- ------------------------------------------------------------------------------
Total Return 1.30% 8.37% 9.69% 4.37% 9.96%
- ------------------------------------------------------------------------------
Net Assets, End of Year (000s) $131,039 $156,043 $136,586 $120,945 $104,789
- ------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(2) 0.80% 0.80% 0.80% 0.80% 0.80%
Net investment income 5.67 5.69 6.08 6.09 6.85
- ------------------------------------------------------------------------------
Portfolio Turnover Rate 87% 214% 94% 23% 30%
- ------------------------------------------------------------------------------
Balanced Investments
- ------------------------------------------------------------------------------
<CAPTION>
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year $10.87 $12.01 $10.00 $9.37 $8.63
- ------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(2) 0.25 0.26 0.27 0.29 0.26
Net realized and unrealized gain
(loss) 1.74 (0.53) 2.27 0.95 0.81
- ------------------------------------------------------------------------------
Total Income (Loss) From
Operations 1.99 (0.27) 2.54 1.24 1.07
- ------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.29) (0.30) (0.27) (0.28) (0.29)
Net realized gains (1.16) (0.57) (0.26) (0.33) (0.04)
- ------------------------------------------------------------------------------
Total Distributions (1.45) (0.87) (0.53) (0.61) (0.33)
- ------------------------------------------------------------------------------
Net Asset Value, End of Year $11.41 $10.87 $12.01 $10.00 $9.37
- ------------------------------------------------------------------------------
Total Return 18.78% (2.85)% 26.05% 13.60% 12.76%
- ------------------------------------------------------------------------------
Net Assets, End of Year (000s) $74,866 $68,470 $89,789 $50,281 $30,268
- ------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(2) 0.85% 1.00% 1.00% 1.00% 1.00%
Net investment income 1.77 1.92 2.49 2.85 3.28
- ------------------------------------------------------------------------------
Portfolio Turnover Rate 332% 57% 67% 47% 47%
- ------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Expense ratios and the per share decreases in net investment income before
fee waivers and/or expense reimbursements were as follows:
<TABLE>
<CAPTION>
Net Investment Income Expense Ratios Without Waivers
Portfolio Per Share Decrease and/or Reimbursements
1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage Backed
Investments $0.01 $0.01 $0.01 $0.01 $0.02 0.91% 0.93% 0.93% 0.94% 1.09%
Balanced Investments N/A N/A 0.00* 0.03 0.06 N/A N/A 1.02 1.26 1.75
</TABLE>
* Amount represents less than $0.01 per share.
53
Consulting Group Capital Markets Funds
<PAGE>
Financial Highlights, continued
Large Capitalization Value Equity Investments
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995(1)
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.28 $14.91 $11.55 $10.42 $9.39
- -----------------------------------------------------------------------
Income From Operations:
Net investment income(2) 0.17 0.16 0.23 0.26 0.27
Net realized and unrealized gain 2.94 0.08 4.09 1.25 1.16
- -----------------------------------------------------------------------
Total Income From Operations 3.11 0.24 4.32 1.51 1.43
- -----------------------------------------------------------------------
Less Distributions From:
Net investment income (0.18) (0.11) (0.34) (0.24) (0.24)
Net realized gains (1.68) (2.76) (0.62) (0.14) (0.16)
- -----------------------------------------------------------------------
Total Distributions (1.86) (2.87) (0.96) (0.38) (0.40)
- -----------------------------------------------------------------------
Net Asset Value, End of Year $13.53 $12.28 $14.91 $11.55 $10.42
- -----------------------------------------------------------------------
Total Return 26.36% 0.03% 38.98% 14.75% 16.14%
- -----------------------------------------------------------------------
Net Assets, End of Year (millions) $1,946 $1,712 $1,935 $1,512 $1,070
- -----------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(2) 0.75% 0.80% 0.78% 0.80% 0.83%
Net investment income 1.10 1.18 1.70 2.31 2.93
- -----------------------------------------------------------------------
Portfolio Turnover Rate 54% 57% 70% 24% 21%
- -----------------------------------------------------------------------
Large Capitalization Growth Investments
- -----------------------------------------------------------------------
<CAPTION>
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $17.30 $17.27 $13.10 $12.13 $10.00
- -----------------------------------------------------------------------
Income From Operations:
Net investment income(2) 0.01 0.04 0.07 0.07 0.09
Net realized and unrealized gain 7.87 1.31 4.72 1.46 2.13
- -----------------------------------------------------------------------
Total Income From Operations 7.88 1.35 4.79 1.53 2.22
- -----------------------------------------------------------------------
Less Distributions From:
Net investment income (0.03) (0.08) (0.08) (0.06) (0.08)
Net realized gains (0.80) (1.24) (0.54) (0.50) (0.01)
- -----------------------------------------------------------------------
Total Distributions (0.83) (1.32) (0.62) (0.56) (0.09)
- -----------------------------------------------------------------------
Net Asset Value, End of Year $24.35 $17.30 $17.27 $13.10 $12.13
- -----------------------------------------------------------------------
Total Return 46.29% 7.81% 37.47% 12.89% 22.30%
- -----------------------------------------------------------------------
Net Assets, End of Year (millions) $2,326 $1,793 $1,845 $1,205 $782
- -----------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(2) 0.68% 0.76% 0.69% 0.83% 0.88%
Net investment income 0.06 0.16 0.50 0.63 0.98
- -----------------------------------------------------------------------
Portfolio Turnover Rate 34% 39% 65% 40% 38%
- -----------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Expense ratios and the per share decreases in net investment income before
fee waivers and/or expense reimbursements were as follows:
<TABLE>
<CAPTION>
Expense Ratios
Net Investment Without
Income Per Waivers and/or
Share Decrease Reimbursements
Portfolio 1995 1995
-----------------------------------------------------------------------------
<S> <C> <C>
Large Capitalization Value Equity Investments $0.01 0.93%
Large Capitalization Growth Investments 0.00* 0.98
</TABLE>
* Amount represents less than $0.01 per share.
54
Consulting Group Capital Markets Funds
<PAGE>
Financial Highlights, continued
Small Capitalization Value Equity Investments
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998(1) 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $11.11 $14.45 $11.11 $10.01 $ 9.03
- ------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(2) 0.19 0.17 0.19 0.16 0.15
Net realized and unrealized gain (loss) 1.28 (1.66) 4.22 1.08 0.95
- ------------------------------------------------------------------------------
Total Income (Loss) From Operations 1.47 (1.49) 4.41 1.24 1.10
- ------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.20) (0.13) (0.19) (0.14) (0.12)
Net realized gains (1.82) (1.72) (0.88) -- (0.00)*
- ------------------------------------------------------------------------------
Total Distributions (2.02) (1.85) (1.07) (0.14) (0.12)
- ------------------------------------------------------------------------------
Net Asset Value, End of Year $10.56 $11.11 $14.45 $11.11 $10.01
- ------------------------------------------------------------------------------
Total Return 13.61% (12.84)% 42.40% 12.48% 12.50%
- ------------------------------------------------------------------------------
Net Assets, End of Year (millions) $744 $740 $622 $479 $340
- ------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(2) 0.96% 0.94% 0.90% 0.95% 1.11%
Net investment income 1.70 1.45 1.62 1.52 1.54
- ------------------------------------------------------------------------------
Portfolio Turnover Rate 53% 59% 53% 39% 115%
- ------------------------------------------------------------------------------
</TABLE>
Small Capitalization Growth Investments
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995(1)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.83 $18.29 $17.79 $17.19 $12.50
- ------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss(2) (0.07) (0.07) (0.06) (0.08) (0.05)
Net realized and unrealized gain (loss) 5.68 (4.23) 2.87 3.36 4.81
- ------------------------------------------------------------------------------
Total Income (Loss) From Operations 5.61 (4.30) 2.81 3.28 4.76
- ------------------------------------------------------------------------------
Less Distributions From:
Net realized gains (0.51) (1.16) (2.31) (2.68) (0.07)
- ------------------------------------------------------------------------------
Total Distributions (0.51) (1.16) (2.31) (2.68) (0.07)
- ------------------------------------------------------------------------------
Net Asset Value, End of Year $17.93 $12.83 $18.29 $17.79 $17.19
- ------------------------------------------------------------------------------
Total Return 44.32% (25.10)% 17.53% 21.33% 38.25%
- ------------------------------------------------------------------------------
Net Assets, End of Year (millions) $1,109 $859 $777 $494 $315
- ------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(2) 0.93% 1.01% 0.90% 1.00% 1.14%
Net investment loss (0.39) (0.43) (0.39) (0.49) (0.35)
- ------------------------------------------------------------------------------
Portfolio Turnover Rate 108% 91% 81% 83% 174%
- ------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Expense ratios and the per share decreases in net investment income before
fee waivers and/or expense reimbursements were as follows:
<TABLE>
<CAPTION>
Expense Ratios
Net Investment Without
Income Per Waivers and/or
Share Decrease Reimbursements
Portfolio 1995 1995
-----------------------------------------------------------------------------
<S> <C> <C>
Small Capitalization Value Equity Investments $0.00* 1.13%
Small Capitalization Growth Investments 0.00* 1.16
</TABLE>
* Amount represents less than $0.01 per share.
55
Consulting Group Capital Market Funds
<PAGE>
Financial Highlights (continued)
International Equity Investments
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $10.69 $10.63 $10.49 $10.50 $10.86
- ----------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.09 0.14 0.09 -- 0.05
Net realized and unrealized gain (loss) 2.39 0.21 0.87 0.44 (0.09)
- ----------------------------------------------------------------------------
Total Income (Loss) From Operations 2.48 0.35 0.96 0.44 (0.04)
- ----------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.15) (0.17) (0.12) (0.17) --
Net realized gains (0.59) (0.12) (0.70) (0.28) (0.32)
- ----------------------------------------------------------------------------
Total Distributions (0.74) (0.29) (0.82) (0.45) (0.32)
- ----------------------------------------------------------------------------
Net Asset Value, End of Year $12.43 $10.69 $10.63 $10.49 $10.50
- ----------------------------------------------------------------------------
Total Return 24.06% 3.53% 9.53% 4.23% (0.18)%
- ----------------------------------------------------------------------------
Net Assets, End of Year (millions) $1,385 $1,331 $1,136 $844 $663
- ----------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(1) 0.82% 0.90% 0.97% 1.00% 1.19%
Net investment income (loss) 0.90 1.23 0.70 (0.12) 0.43
- ----------------------------------------------------------------------------
Portfolio Turnover Rate 45% 45% 32% 50% 28%
- ----------------------------------------------------------------------------
</TABLE>
(1) During the year ended August 31, 1996, the portfolio earned credits from
the custodian which reduced service fees incurred. If the credits are taken
into consideration, the ratio of expenses to average net assets for
International Equity Investments would be 1.00%; prior year numbers have
not been restated to reflect these numbers.
56
Consulting Group Capital Markets Funds
<PAGE>
Financial Highlights, continued
International Fixed Income Investments
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999(1) 1998 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year $8.34 $8.21 $9.11 $9.01 $8.17
- ------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(2) 0.42 0.51 0.51 0.55 0.56
Net realized and unrealized gain
(loss) (0.24) 0.31 (0.62) 0.49 0.84
- ------------------------------------------------------------------------------
Total Income (Loss) From
Operations 0.18 0.82 (0.11) 1.04 1.40
- ------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.42) (0.27) (0.55) (0.94) (0.56)
Net realized gains -- (0.34) (0.24) -- --
Capital (0.00)* (0.08) -- -- --
- ------------------------------------------------------------------------------
Total Distributions (0.42) (0.69) (0.79) (0.94) (0.56)
- ------------------------------------------------------------------------------
Net Asset Value, End of Year $8.10 $8.34 $8.21 $9.11 $9.01
- ------------------------------------------------------------------------------
Total Return 2.30% 10.45% (1.52)% 12.05% 17.66%
- ------------------------------------------------------------------------------
Net Assets, End of Year (000s) $236,254 $192,068 $125,610 $129,410 $105,884
- ------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(2)(3) 0.94% 0.97% 0.99% 1.02% 0.95%
Net investment income 4.85 5.39 5.87 6.34 6.50
- ------------------------------------------------------------------------------
Portfolio Turnover Rate 204% 211% 251% 211% 307%
- ------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) For the year ended August 31, 1995, expense ratios and the per share
decreases in net investment income before fee waivers and/or expense
reimbursements would have been 1.18% and $0.02, respectively.
(3) During the years ended August 31, 1997 and August 31, 1996, the portfolios
earned credits from the custodian which reduced service fees incurred. If
the credits are taken into consideration, the ratio of expenses to average
net assets for International Fixed Income Investments would be 0.97% and
0.97%, respectively; prior year numbers have not been restated to reflect
these numbers.
* Amount represents less than $0.00 per share.
57
Consulting Group Capital Markets Funds
<PAGE>
Financial Highlights, continued
Emerging Markets Equity Investments
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999(1) 1998 1997 1996 1995(1)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $4.37 $9.31 $8.50 $7.85 $9.49
- -------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(2) 0.05 0.06 0.04 0.03 0.01
Net realized and unrealized gain
(loss) 2.36 (4.44) 0.79 0.62 (1.45)
- -------------------------------------------------------------------------------
Total Income (Loss) From
Operations 2.41 (4.38) 0.83 0.65 (1.44)
- -------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.04) (0.10) (0.01) -- --
Net realized gains -- (0.46) (0.01) -- (0.20)
- -------------------------------------------------------------------------------
Total Distributions (0.04) (0.56) (0.02) -- (0.20)
- -------------------------------------------------------------------------------
Net Asset Value, End of Year $6.74 $4.37 $9.31 $8.50 $7.85
- -------------------------------------------------------------------------------
Total Return 55.37% (49.49)% 9.88% 8.28% (15.13)%
- -------------------------------------------------------------------------------
Net Assets, End of Year (000s) $317,626 $230,526 $226,280 $97,489 $ 59,333
- -------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(2)(3) 1.72% 1.69% 1.60% 1.84% 1.75%
Net investment income 0.84 0.80 0.39 0.26 0.15
- -------------------------------------------------------------------------------
Portfolio Turnover Rate 135% 139% 105% 106% 89%
- -------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Expense ratios and the per share decreases in net investment income before
fee waivers and/or expense reimbursements were as follows:
<TABLE>
<CAPTION>
Expense Ratios
Net Investment Without
Income Per Waivers and/or
Share Decrease Reimbursements
Portfolio 1996 1995 1996 1995
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Emerging Markets Equity Investments $ 0.01 $ 0.02 1.97% 1.96%
</TABLE>
(3) During the year ended August 31, 1996, the portfolio earned credits from
the custodian which reduced service fees incurred. If the credits are taken
into consideration, the ratio of expenses to average net assets for
Emerging Markets Equity Investments would be 1.80%; prior year numbers have
not been restated to reflect these numbers.
58
Consulting Group Capital Markets Funds
<PAGE>
APPENDIX A
Investment Indices
Following are definitions of indices that are utilized in the Client's Recom-
mendation and Review.
Lehman Brothers Government/Corporate Bond Index
Composed of publicly issued, fixed rate, non-convertible domestic debt in three
major classifications: industrial, utility, financial as well as the domestic
debt of the U.S. Government or any agency thereof. All issues have at least one
year to maturity, or an outstanding par value of at least $100 million for U.S.
Government issues and $50 million for corporate issues. All corporate issues
have a minimum rating of Baa by Moody's or BBB by Standard & Poor's.
Lehman Brothers Aggregate Bond Index
Composed of the Lehman Intermediate Government/ Corporate Bond Index and the
Mortgage-Backed Securities Index and also includes treasury issues, agency
issues, corporate bond issues and mortgage-backed securities.
Lehman Brothers Long Term Government/Corporate Bond Index
Includes all bonds covered by the Lehman Brothers Government/Corporate Bond
Index, with maturities of 10 years or longer. Total return includes income and
appreciation/depreciation as a percentage of original investment.
Lehman Brothers Intermediate Government/Corporate Bond Index
A subset of the Lehman Brothers Government/Corporate Bond Index covering issues
with maturities up to ten years.
Lehman Brothers Mortgage Backed Securities Bond Index
Contains all fixed securities issued and backed by mortgage pools of GNMA's,
FHLMC's, FNMA's, Graduated Payment Mortgage (GPM's), but not Graduated Equity
Mortgages (GEM).
Lehman Brothers Municipal Bond Index
A composite measure of the total return performance of the municipal bond
market, which includes more than two million different bond issues. For
simplicity, the market is divided into seven major sectors, with the
performance of each sector weighted according to issue volume (adjusted
annually).
Lipper Corporate Debt Funds A Rated Average
An average of the reinvested performance of funds that invest at least 65% of
their assets in corporate debt issues rated "A" or better or government issues.
Lipper Corporate Debt Funds A Rated Index
An equally weighted performance index, adjusted for capital gains distributions
and income dividends of the largest qualifying funds having this investment
objective.
Lipper General Municipal Funds Average
An average of the reinvested performance of funds that invest at least 65% of
their assets in municipal debt issues in the top four credit ratings.
Lipper General Municipal Funds Index
An equally weighted performance index, adjusted for capital gains distributions
and income dividends of the largest qualifying funds having this investment
objective.
Lipper General World Funds Average
An average of the reinvested performance of the following twelve Lipper
investment objectives: Gold Oriented, Global, Global Small Company,
International, International Small Company, European Region, Pacific Ex Japan,
Pacific Region, Emerging Markets, Japanese, Latin American and Ca nadian Funds.
Lipper Growth Funds Average
An average of the reinvested performance of funds that normally invest in
companies whose long-term earnings are expected to grow significantly faster
than the earnings of the stocks represented in the major unmanaged stock
indices.
Lipper Growth Funds Index
An equally weighted performance index, adjusted for capital gains distributions
and income dividends of the largest qualifying funds having this investment
objective.
Lipper International Funds Average
An average of the reinvested performance of funds that invest its assets in
securities whose primary trading markets are outside of the United States.
Lipper International Funds Index
An equally weighted performance index, adjusted for capital gains distributions
and income dividends of the largest qualifying funds having this investment
objective.
Lipper Small Company Growth Funds Average
An average of the reinvested performance of funds that by their prospectus or
portfolio practice, limit investments to companies on the basis of the size of
the company.
Lipper Small Company Growth Funds Index
An equally weighted performance index, adjusted for capital gains distributions
and income dividends of the largest qualifying funds having this investment
objective.
Lipper U.S. Government Money Market Funds Index
An equally weighted performance index, adjusted for capital gains distributions
and income dividends of the largest qualifying funds having this investment
objective.
Lipper U.S. Mortgage Funds Average
An average of the reinvested performance of funds that invest at least 65% of
their assets in mortgages/securities issued or guaranteed as to principal and
interest by the U.S. Government and certain federal agencies.
Morgan Stanley EAFE (Capitalization Weighted)
A composite portfolio of equity (stock market) total returns for the countries
of Europe, Australia, New Zealand and the Far East. The return for each country
is weighted on the basis of its market capitalization.
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<PAGE>
APPENDIX A
Investment Indices--(Continued)
Morgan Stanley Emerging Equity Markets Free Gross Dividend Index
A composite portfolio consisting of equity total returns for countries with low
to middle per capita income, as determined by the World Bank. Some of these
countries include: Argentina, Greece, India, Malaysia and Turkey. The return
for each country is weighted on the basis of its total market capitalization.
90-Day Treasury Bill Index
Unweighted average of weekly auction offering rates of 90-Day Treasury Bills.
Treasury Bills are backed by the full faith and credit of the U.S. Government.
Russell 1000 Index
The 1,000 largest U.S. companies by market capitalization, the smallest of
which has about $457 million in market capitalization. The average market
capitalization for a company in this index is $3.42 billion.
Russell 1000 Value Index
Contains those Russell 1000 securities with less-than-average growth
orientation. Companies in this index generally have low price-to-book and
earnings ratios and higher dividend yields than stocks in the Russell 1000
Growth Index.
Russell 1000 Growth Index
Contains those Russell 1000 securities with greater-than-average growth
orientation. Companies in this index tend to exhibit high price-to-book and
earnings ratios and lower dividend yields than stocks in the Russell 1000 Value
Index.
Russell 2000 Index
Composed of the 2,000 smallest U.S. securities as determined by total market
capitalization, representing about 7.1% of the U.S. equity market
capitalization. The average market capitalization for a company in this index
is $155 million, with the largest being $457 million.
Russell 2000 Value Index
Contains those Russell 2000 securities with less-than-average growth
orientation. Companies in this index generally have low price-to-book and
earnings ratios and higher dividend yields than stocks in the Russell 2000
Growth Index.
Russell 2000 Growth Index
Contains those Russell 2000 securities with greater-than-average growth
orientation. Companies in this index tend to exhibit high price-to-book and
earnings ratios and lower dividend yields than stocks in the Russell 2000 Value
Index.
Standard & Poor's 500 Index
Tracks the total return of 500 of the largest stocks (400 industrial, 40
utility, 20 transportation and 40 financial companies) in the United States,
which represent about 78% of the New York Stock Exchange's total market
capitalization. The return of each stock is weighted on the basis of the
stock's capitalization.
Salomon Brothers Non-U.S. Government Bond Index
A market capitalization-weighted index consisting of government bond markets of
Austria, France, Spain, Australia, Germany, Sweden, Belgium, Italy, United
Kingdom, Canada, Japan, Denmark and the Netherlands.
Wilshire Large Company Growth Equity Index
Focuses on the top 750 companies of the Wilshire 5000 in terms of market
capitalization. The smallest company's capitalization is $675 million. The
index excludes companies meeting one or more of the following criteria: less
than 5 years of operating history, high dividend payout companies, low price-
to-book companies or low return on equity.
Wilshire Large Company Value Equity Index
Focuses on the top 750 companies of the Wilshire 5000 in terms of market
capitalization. The smallest company's capitalization is $675 million. The
index excludes companies that do not rank favorably on a relative basis due to
their high P/E and price-to-book ratios, or low yield.
Wilshire Small Company Growth Equity Index
Focuses on companies that rank between 751-1,750 of the Wilshire 5000 in terms
of market capitalization. The smallest company's capitalization is $58 million.
The index excludes companies meeting one or more of the following criteria:
less than two years operating history, high yield, little or no earnings growth
or low beta.
Wilshire Small Company Value Equity Index
Focuses on companies that rank between 751-1,750 of the Wilshire 5000 in terms
of market capitalization. The smallest company's capitalization is $58 million.
The index excludes companies that do not rank favorably on a relative basis due
to their high price-to-earnings and price-to-book ratios, or low yield.
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APPENDIX B
The following are copies of the proposed and final exemptions from the Depart-
ment of Labor from certain provisions of the Employee Retirement Income Secu-
rity Act of 1974 relating to the purchase of shares and participation in TRAK
by certain retirement plans.
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[Application Nos. D-9337 and D-9415]
Smith Barney Shearson (SBS), Located in New York, NY
NEW AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Notice of proposed exemption to modify and replace prohibited
transaction exemption (PTE) 92-77 involving Shearson Lehman Brothers, Inc.
(Shearson Lehman).
- --------------------------------------------------------------------------------
SUMMARY: This document contains a notice of pendency before the Department of
Labor (the Department) of a proposed individual exemption which, if granted,
would replace PTE 92-77 (55 FR 45833, October 5, 1992). PTE 92-77 permits the
purchase or redemption of shares by an employee benefit plan, an individual
retirement account (the IRA) or a retirement plan for a self-employed
individual (the Keogh Plan; collectively the Plans) in the Trust for TRAK
Investments (the Trust) established by Shearson Lehman, in connection with such
loans' participation in the TRAK Personalized Investment Advisory Service (the
TRAK Program). In addition, PTE 92-77 permits the provision, by the Consulting
Group Division of Shearson Lehman (the Consulting Group), of investment
advisory services to an independent fiduciary of a participating Plan (the
Independent Plan Fiduciary) which may result in such fiduciary's selection of a
portfolio (the Portfolio) in the TRAK Program for the investment of Plan
assets. These transactions are described in a notice of pendency that was
published in the Federal Register on April 3, 1992 at 57 FR 11514. PTE 92-77 is
effective as of April 3, 1992.
If granted, the proposed exemption would replace PTE 92-77, which as discussed
below, expired by operation of the law. The new proposed exemption would permit
the replacement of Shearson Lehman with a newly-merged entity known as "Smith
Barney Shearson, Inc." It would also permit the adoption of a daily-traded
collective investment fund (the GIC Fund) for Plans providing for participant
directed investments (the Section 404(c) Plans). The proposed exemption would
provide conditional relief that is identical to that provided by PTE 92-77. In
addition, the proposed exemption would affect participants and beneficiaries
of, and fiduciaries with respect to, Plans participating in the TRAK Program.
DATES: Written comments and requests for a public hearing should be received by
the Department on or before the expiration of 60 days from the publication of
this proposed exemption in the Federal Register. If granted, the proposed
exemption will be effective July 31, 1993 for transactions that are covered by
PTE 92-77. With respect to transactions involving the GIC Fund, the proposed
exemption will be effective as of the date the grant notice is published in the
Federal Register.
ADDRESSES: All written comments and requests for a public hearing (preferably,
three copies) should be sent to the Office of Exemption Determinations, Pension
and Welfare Benefits Administration, Room N-5849, U.S. Department of Labor, 200
Constitution Avenue, NW., Washington, DC 20210. Attention: Application Nos. D-
9337 and D-9415. The applications pertaining to the proposed exemption and the
comments received will be available for public inspection in the Public
Documents Room of the Pension and Welfare Benefits Administration. U.S.
Department of Labor, Room N-3307, 200 Constitution Avenue, NW., Washington, DC
20210.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady, Office of Exemption
Determinations, Pension and Welfare Benefits Administration, U.S. Department of
Labor, telephone (202) 219-8881. (This is not a toll-free number.)
SUPPLEMENTARY INFORMATION: Notice is hereby given of the pendency before the
Department of a proposed exemption that would replace PTE 92-77. PTE 92-77
provides an exemption from certain prohibited transaction restrictions of
section 406 of the Employee Retirement Income Security Act of 1974 (the Act)
and from the sanctions resulting from the application of section 4975 of the
Internal Revenue Code of 1986 (the Code), as amended, by reason of section
4975(c)(1) of the Code. The proposed exemption was requested in an application
filed by SBS pursuant to section 408(a) of the Act and section 4975(c)(2) of
the Code, and in accordance with the procedures (the Procedures) set forth in
29 CFR Part 2570, Subpart 3 (55 FR 32836, August 10, 1990). Effective December
31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR 47713,
October 17, 1978) transferred the authority of the Secretary of the Treasury to
issue exemptions of the type requested to the Secretary of Labor. Accordingly,
this proposed replacement exemption is being issued solely by the Department.
As stated briefly above, PTE 92-77 allows Shearson Lehman to make the TRAK
Program available to Plans that acquire shares in the Trust subject to certain
conditions. Specifically, PTE 92-77 provides exemptive relief from section
406(a) of the Act and the sanctions resulting from the application of section
4975 of the Code, by reason of section 4975(c)(1) (A) through (D) of the Code,
with respect to the purchase or redemption of shares in the Trust by Plans
investing therein. In addition, PTE 92-77 provides exemptive relief from the
restrictions of section 408(b)(1) and (b)(2) of the Act and the sanctions
resulting from the application of section 4975 of the Code, by reason of
section 4975(c)(1)(E) of the Code, with respect to the provision, by the
Consulting Group of Shearson Lehman, of investment advisory services to an
Independent Plan Fiduciary of a Plan participating in the TRAK Program which
may result in such fiduciary's selection of a Portfolio in the TRAK Program for
the investment of Plan assets.
Subsequent to the granting of PTE 92-77, Shearson Lehman informed the
Department that it had signed an asset purchase agreement with Primerica
Corporation (Primerica) and Smith Barney Harris Upham & Company, Inc. (Smith
Barney), an indirect wholly owned subsidiary. The terms of the agreement
provided for the sale of substantially all of the assets of Shearson Lehman and
its Asset Management Divisions (collectively, the Shearson Divisions) to Smith
Barney./1/ The transaction was completed on July 31, 1993. As a result of the
transaction, most of the assets and business of the Shearson Divisions were
transferred to Smith Barney which, upon merger with Shearson Lehman, was
renamed "Smith Barney Shearson." (Smith Barney Shearson is denoted herein as
SBS.) Shearson Lehman received cash and an
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/1/ Shearson Lehman's other primary division, Lehman Brothers, which is
responsible for securities underwriting, financial advisory, investment and
merchant banking services and commodities trading as a principal and agent has
been retained by Shearson Lehman it has been renamed "Lehman Brothers Inc."
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<PAGE>
interest-bearing note from SBS. As further consideration for the asset sale,
SBS agreed to pay future contingent amounts based upon the combined performance
of SBS and certain other Shearson Divisions acquired from Shearson Lehman.
Shearson Lehman also assigned to the American Express Company (American
Express) the right to receive 2.5 million shares of certain convertible
preferred stock issued by Primerica and a warrant. As consideration for the
assignment, American Express agreed to pay Shearson Lehman for the stock and
the warrant based on their value as of March 12, 1993, the date of the Asset
Purchase Agreement. At present, SBS offers the TRAK Program to investors
through one or more of its subsidiaries or divisions.
Since PTE 92-77 was granted, SBS informed the Department that it wished to
modify the exemption in order to improve the TRAK Program and make it more
responsive to the needs of investors. Specifically, SBS proposes to add to the
Portfolios currently available under the TRAK Program, the GIC Fund, which is
designed to invest primarily in guaranteed investment contracts (the GIC's),
synthetic GIC products and/or units of other GIC collective funds. The GIC Fund
will not differ in any material respects from the Government Money Investments
Portfolio which generally permits daily redemptions of its shares. In addition,
the GIC Fund will operate in a manner that is consistent with the requirements
of PTE 92-77. SBS believes it is important to offer the GIC Fund to Section
404(c) Plans because these Plans may prefer to offer participants this type of
investment option instead of the Government Money Investments Portfolio
presently offered to such Plans under the TRAK Program. Therefore, SBS requests
exemptive relief in order that the GIC Fund may be added to the Portfolios that
are available under the Trust.
The proposed GIC Fund will be a collective trust fund established and
maintained by Smith Barney Shearson Trust Company (SBS Trust), a wholly owned
subsidiary of Primerica. The GIC Fund will invest primarily in a portfolio of
GICs with varying maturities issued by highly-rated insurance companies, and/or
units of other collective funds invested in GICs. The GIC Fund may also invest
in asset-backed investment products designed to offer risk and return
characteristics similar to those of GICs (i.e., synthetic GIC products). In
addition, the GIC Fund may hold short-term, low risk securities where the
investment of all fund assets in GICs and/or units of other GIC collective
funds is not feasible.
SBS Trust will serve as the trustee of the GIC Fund. SBS Trust will employ a
sub-adviser (the Sub-Adviser) which is independent of SBS and its affiliates to
make recommendations on purchases of GICs and/or units of other GIC collective
funds. Currently, SBS Trust employs Morley Capital Management (Morley Capital)
of Lake Oswego, Oregon as the Sub-Adviser of the GIC Fund. SBS Trust will also
employ Boston Company Investors Services Group (ISG), a business group of The
Boston Company to provide custody and valuation services and The Shareholder
Services Group, Inc. (TSSG), an entity which is indirectly owned by American
Express, as transfer agent. Both ISG and TSSG are not affiliated with SBS.
SBS represents that the GIC Fund will not pay a management or other similar
fee to it or SBS Trust. (SBS Trust's fees for general trust services provided
to a Section 404(c) Plan is included in such plan's investment advisory or
"outside" fee.) A management fee may be paid to Morley Capital or any other
Sub-Adviser which is independent of SBS and its affiliates. The GIC Fund will
pay ISG, as custodian and provider of fund valuation services, a fee for such
services, and TSSG, as transfer agent, a fee of $8.50 to $9.50 per Section
404(c) Plan, plus out-of-pocket expenses. With respect to the fees paid to SBS
and its affiliates, the GIC Fund will not differ materially from the Government
Money Investments Portfolio in that it will not pay a management or other
similar fee to SBS or SBS Trust.
SBS will describe the GIC Fund, in the prospectus (the Prospectus) and
promotional materials it furnishes to Section 404(c) Plan participants who are
interested in investing in the GIC Fund. Such disclosures will reflect, in all
material respects, the information discussed above.
Because of the foregoing material changes to the factual representations
supporting PTE 92-77, the Department has determined that the prior exemption
was no longer effective as of July 31, 1993, the date Shearson Lehman sold the
assets described above to SBS. Thus, the Department is of the view that PTE 92-
77 would be unavailable for use by SBS and its subsidiaries with respect to the
subject transactions.
Accordingly, the Department has decided to publish a new exemption which, if
granted, would replace PTE 92-77. Under the replacement exemption, all
references to Shearson Lehman would be replaced with references to SBS. In
addition, the replacement exemption would incorporate the new GIC Fund, SBS
Trust, ISG and TSSG. Further, the replacement exemption would have an effective
date of July 31, 1993 for transactions described in PTE 92-77. With respect to
transactions involving the GIC Fund, the replacement exemption would become
effective as of the date of the grant of the notices of pendency.
Notice to Interested Persons
Notice of the proposed exemption will be mailed by first class mail to each
Plan which invests in the TRAK Program. The notice will contain a copy of the
notice of proposed exemption as published in the Federal Register and an
explanation of the rights of interested persons to comment on and/or request
such a hearing with respect thereto. Such notice will be sent to the above-
named parties within 30 days of the publication of the proposed exemption in
the Federal Register. Written comments and hearing request are due within 60
days of the publication of the proposed exemption in the Federal Register.
General Information
The attention of interested persons is directed to the following:
(1) This fact that a transaction is the subject of an exemption under section
408(a) of the Act and section 4973(c)(2) of the Code does not relieve a
fiduciary or other party in interest or disqualified person from certain other
provisions of the Act and the Code, including any prohibited transaction
provisions to which the exemption does not apply and the general fiduciary
responsibility provisions of section 404 of the Act, which require, among other
things, a fiduciary to discharge his or her duties respecting the plan solely
in the interest of the participants and beneficiaries of the plan and in a
prudent fashion in accordance with section 404(a)(1)(B) of the Act; nor does it
affect the requirements of section 401(a) of the Code that the Plan operate for
the exclusive benefit of the employees of the employer maintaining the plan and
their beneficiaries;
(2) Before an exemption can be granted under section 408(a) of the Act and
section 4975(c)(2) of the Code, the Department must find that the exemption is
administratively feasible, in the interest of the plan and of its participants
and beneficiaries and protective of the rights of participants and
beneficiaries of the plan; and
(3) The proposed exemption, if granted, will be supplemental to, and not in
derogation of, any other provisions of the
B-2
<PAGE>
Act and the Code, including statutory or administrative exemptions.
Furthermore, the fact that a transaction is subject to an administrative or
statutory exemption is not dispositive of whether the transaction is in fact a
prohibited transaction.
(4) In addition to transactions involving the GIC Fund, the proposed
exemption, if granted, will be applicable to the transactions previously
described in PTE 92-77 only if the conditions specified therein are met.
Written Comments and Hearing Requests
All interested persons are invited to submit written comments or requests for
a hearing on the proposed replacement exemption to the address above, within
the time period set forth above. All comments will be made a part of the
record. Comments and requests for a hearing should state the reasons for the
writer's interest in the proposed exemption. Comments received will be
available for public inspection with the referenced applications at the address
set forth above.
Proposed Exemption
Under the authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the Procedures cited above, the Department proposes
to replace PTE 92-77 as follows:
Section 1. Covered Transactions
(a) The restrictions of section 406(a) of the Act and the sanctions resulting
from the application of section 4975 of the Code, by reason of section
4975(c)(1)(A) through (D) of the Code, shall not apply to the purchase or
redemption of shares by Plans in the SBS-established Trust in connection with
such Plans' participation in the TRAK Personalized Investment Advisory Service.
(b) The restrictions of action 406(b) of the Act and the sanctions resulting
from the application of section 4975 of the Code by reason of section
4975(c)(1)(E) and (F) of the Code, shall not apply to the provision, by the
Consulting Group, of investment advisory services to an Independent Plan
Fiduciary of a participating Plan which may result in such fiduciary's
selection of a Portfolio in the TRAK Program for the investment of Plan assets.
The proposed exemption is subject to the following conditions that are set
forth in Section II.
Section II. General Conditions
(a) The participation of Plans in the TRAK Program will be approved by an
Independent Plan Fiduciary. For purposes of this requirement, an employee,
officer or director of SBS and/or its affiliates covered by an IRA not subject
to Title I of the Act will be considered an Independent Plan Fiduciary with
respect to such IRA.
(b) The total fees paid to the Consulting Group and its affiliates will
constitute no more than reasonable compensation.
(c) No Plan will pay a fee or commission by reason of the acquisition or
redemption of shares in the Trust.
(d) The terms of each purchase or redemption of Trust shares shall remain at
least as favorable to an investing Plan as those obtainable in an arm's length
transaction with an unrelated party.
(e) The Consulting Group will provide written documentation to an Independent
Plan Fiduciary of its recommendations or evaluations based upon objective
criteria.
(f) Any recommendation or evaluation made by the Consulting Group to an
Independent Plan Fiduciary will be implemented only at the express direction of
such independent fiduciary.
(g) The Consulting Group will generally give investment advice in writing to
an Independent Plan Fiduciary with respect to all available Portfolios.
However, in the case of a Section 404(c) Plan, the Consulting Group will
provide investment advice that is limited to the Portfolios made available
under the Plan.
(h) Any Sub-Adviser that acts for the Trust to exercise investment discretion
over a Portfolio will be independent of SBS and its affiliates.
(i) Immediately following the acquisition by a Portfolio of any securities
that are issued by SBS and/or its affiliates, the percentage of that
Portfolio's net assets invested in such securities will not exceed one percent.
(j) The quarterly investment advisory fee that is paid by a Plan to the
Consulting Group for investment advisory services rendered to such Plan will be
offset by such amount as is necessary to assure that the Consulting Group
retains no more than 20 basis points from any Portfolio (with the exception of
the Government Money Investments Portfolio and the GIC Fund Portfolio for which
the Consulting Group and SBS Trust will retain no investment management fee)
which contains investments attributable to the Plan investor.
(k) With respect to its participation in the TRAK Program prior to purchasing
Trust shares.
(1) Each Plan will receive the following written or oral disclosures from the
Consulting Group:
(A) A copy of the Prospectus for the Trust discussing the investment
objectives of the Portfolios comprising the Trust, the policies employed to
achieve these objectives, the corporate affiliation existing between the
Consulting Group, SBS and its subsidiaries and the compensation paid to such
entities.
(B) Upon written or oral request to SBS, a Statement of Additional Information
supplementing the Prospectus which describes the types of securities and other
instruments in which the Portfolios may invest, the investment policies and
strategies that the Portfolios may utilize and certain risks attendant to those
investments, policies and strategies.
(C) A copy of the investment advisory agreement between the Consulting Group
and such Plan relating to participation in the TRAK Program.
(D) Upon written request of SBS, a copy of the respective investment advisory
agreement between the Consulting Group and the Sub-Advisers.
(E) In the case of a section 404(c) Plan, if required by the arrangement
negotiated between the Consulting Group and the Plan, an explanation by an SBS
Financial Consultant (the Financial Consultant) to eligible participants in
such Plan, of the services offered under the TRAK Program and the operation and
objectives of the Portfolios.
(F) Copies of PTE 92-77 and documents pertaining to the proposed replacement
exemption.
(2) If accepted as an investor in the TRAK Program, an Independent Plan
Fiduciary of an IRA or Keogh Plan, is required to acknowledge in writing, prior
to purchasing Trust shares that such fiduciary has received copies of the
documents described above in subparagraph (k)(1) of this section.
(3) With respect to a section 404(c) Plan, written acknowledgement of the
receipt of such documents will be provided by the Independent Plan Fiduciary
(i.e., the Plan administrator, trustee or named fiduciary, as the recordholder
of Trust shares). Such Independent Plan Fiduciary will be required to represent
in writing to SBS that such fiduciary is (a) independent of SBS and its
affiliates and (b) knowledgeable with respect to the Plan in administrative
matters and funding matters related thereto, and able to make an informed
decision concerning participation in the TRAK Program.
(4) With respect to a Plan that is covered under Title I of the Act, where
investment decisions are made by a trustee, investment
B-3
<PAGE>
manager or a named fiduciary, such Independent Plan Fiduciary is required to
acknowledge, in writing, receipt of such documents and represent to SBS that
such fiduciary is (a) independent of SBS and its affiliates, (b) capable of
making an independent decision regarding the investment of Plan assets and (c)
knowledgeable with respect to the Plan in administrative matters and funding
matters related thereto, and able to make an informed decision concerning
participation in the TRAK Program.
(l) Subsequent to its participation in the TRAK Program, each Plan receives
the following written or oral disclosures with respect to its ongoing
participation in the TRAK Program:
(1) The Trust's semi-annual and annual report which will include financial
statement for the Trust and investment management fees paid by each Portfolio.
(2) A written quarterly monitoring statement containing an analysis and an
evaluation of a Plan investor's account to ascertain whether the Plan's
investment objectives have been met and recommending, if required, changes in
Portfolio allocations.
(3) If required by the arrangement negotiated between the Consulting Group and
a section 404(c) Plan, a quarterly, detailed investment performance monitoring
report, in writing, provided to an Independent Plan Fiduciary of such Plan
showing, Plan level asset allocation, Plan cash flow analysis and annualized
risk adjusted rates of return for Plan investments. In addition, if required by
such arrangement, Financial Consultants will meet periodically with Independent
Plan Fiduciaries of section 404(c) Plans to discuss the report as well as with
eligible participants to review their accounts' performance.
(4) If required by the arrangement negotiated between the Consulting Group and
a section 404(c) Plan, a quarterly participant performance monitoring report
provided to a Plan participant which accompanies the participant's benefit
statement and describes the investment performance of the Portfolios, the
investment performance of the participant's individual investment in the TRAK
Program, and gives market commentary and toll-free numbers that will enable the
participant to obtain more information about the TRAK Program or to amend his
or her investment allocations.
(5) On a quarterly and annual basis, written disclosures to all Plans of the
(a) percentage of each Portfolio's brokerage commissions that are paid to SBS
and its affiliates and (b) the average brokerage commission per share paid by
each Portfolio to SBS and its affiliates; as compared to the average brokerage
commission per share paid by the Trust to brokers other than SBS and its
affiliates, both expressed as cents per share.
(m) SBS shall maintain, for a period of six years, the records necessary to
enable the persons described in paragraph (n) of this section to determine
whether the conditions of this exemption have been met, except that (1) a
prohibited transaction will not be considered to have occurred if, due to
circumstances beyond the control of SBS and/or its affiliates, the records are
lost or destroyed prior to the end of the six year period, and (2) no party in
interest other than SBS shall be subject to the civil penalty that may be
assessed under section 502(i) of the Act, or to the taxes imposed by section
4975(a) and (b) of the Code, if the records are not maintained, or are not
available for examination as required by paragraph (n) below.
(n)(1) Except as provided in section (2) of this paragraph and notwithstanding
any provisions of subsections (a)(2) and (b) of section 504 of the Act, the
records referred to in paragraph (m) of this section shall be unconditionally
available at their customary location during normal business hours by:
(A) Any duly authorized employee or representative of the Department or the
Service;
(B) Any fiduciary of a participating Plan or any duly authorized
representative of such fiduciary;
(C) Any contributing employer to any participating Plan or any duly authorized
employee representative of such employer; and
(D) Any participant or beneficiary of any participating Plan, or any duly
authorized representative of such participant or beneficiary.
(2) None of the persons described above in subparagraphs (B)-(D) of this
paragraph (n) shall be authorized to examine the trade secrets of SBS or
commercial or financial information which is privileged or confidential.
Section III. Definitions
For purposes of this exemption:
(a) An "affiliate" of SBS includes--
(1) Any person directly or indirectly through one or more intermediaries,
controlling, controlled by, or under common control with SBS. (For purposes of
this subsection, the term "control" means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.)
(2) Any officer, director or partner in such person, and
(3) Any corporation or partnership of which such person is an officer,
director or a 5 percent partner or owner.
(b) An "Independent Plan Fiduciary" is a Plan fiduciary which is independent
of SBS and its affiliates and is either--
(1) A Plan administrator, sponsor, trustee or named fiduciary, as the
recordholder of Trust shares of a section 404(c) Plan.
(2) A participant in a Keogh Plan.
(3) An individual covered under a self-directed IRA which invests in Trust
shares, or
(4) A trustee, investment manager or named fiduciary responsible for
investment decisions in the case of a Title I Plan that does not permit
individual direction as contemplated by section 404(c) of the Act.
Section IV. Effective Dates
This exemption will be effective as of July 31, 1993, except for transactions
involving the GIC Fund. The exemption will be effective upon its grant with
respect to the inclusion of the GIC Fund in the TRAK Program.
The availability of this proposed exemption is subject to the express
condition that the material facts and representations contained in the
applications for exemption are true and complete and accurately describe all
material terms of the transactions. In the case of continuing transactions, if
any of the material facts or representations described in the applications
change, the exemption will cease to apply as of the date of such change. In the
event of any such change, an application for a new exemption must be made to
the Department.
For a more complete statement of the facts and representations supporting the
Department's decision to grant PTE 92-77, refer to the proposed exemption and
grant notice which are cited above.
Signed at Washington, D.C. this 23rd day of March, 1994.
Ivan L. Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 94-7271 Filed 3-28-94; 8:45 am]
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[Prohibited Transaction Exemption 94-50; Application Nos. D-9337 and D-9415]
Smith Barney, Inc. (SBI) Located in New York, NY
AGENCY: Pension and Welfare Benefits Administration.
ACTION: Grant of individual exemption to modify and replace prohibited
transaction exemption (PTE) 92-77 involving Shearson Lehman Brothers, Inc.
(Shearson Lehman).
- --------------------------------------------------------------------------------
SUMMARY: This document contains an individual exemption which supersedes PTE
92-77 (57 FR 45833, October 5, 1992)./1/ This exemption permits the replacement
of Shearson Lehman with an entity known as "Smith Barney Inc."/2/ It also
allows SBI to adopt a daily-traded collective investment fund (the GIC Fund)
for Plans investing in the Consulting Group Capital Markets Funds (the Trust).
The exemption provides conditional relief that is identical to that provided by
PTE 92-77 and it will affect participants and beneficiaries of, and fiduciaries
with respect to, Plans participating in the Trust.
EFFECTIVE DATE: This exemption is effective July 31, 1993 for transactions that
are covered by PTE 92-77. With respect to transactions involving the GIC Fund,
the exemption is effective March 29, 1994.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady, Office of Exemption
Determinations, Pension and Welfare Benefits Administration, U.S. Department of
Labor, telephone (202) 219-8881. (This is not a toll-free number.)
SUPPLEMENTARY INFORMATION: On March 29, 1994, the Department of Labor (the
Department) published a notice of proposed exemption (the Notice) in the
Federal Register (59 FR 14680) that would replace PTE 92-77. PTE 92-77 provides
an exemption from certain prohibited transaction restrictions of section 406 of
the Employee Retirement Income Security Act of 1974 (the Act) and from the
sanctions resulting from the application of section 4975 of the Internal
Revenue Code of 1986 (the Code), as amended, by reason of section 4975(c)(1) of
the Code. The proposed exemption was requested in an application filed by SBI
pursuant to section 408(a) of the Act and section 4975(c)(2) of the Code, and
in accordance with the procedures (the Procedures) set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, August 10, 1990). Effective December 31, 1978,
section 102 of Reorganization Plan No. 4 of 1978 (43 FR 47713, October 17,
1978) transferred the authority of the Secretary of the Treasury to issue
exemptions of the type requested to the Secretary of Labor. Accordingly, this
replacement exemption is being issued solely by the Department.
The Notice gave interested persons an opportunity to comment on the proposed
exemption and to request a public hearing. The only written comments submitted
to the Department during the comment period were made by SBI. These comments
expressed SBI's substantive concerns about the Notice and offered suggestions
for clarifying certain language of the Notice. Discussed below are SBI's
comments and the Department's responses thereto. Also discussed is a comment
made by the Department.
SBI's Comments
SBI notes that there is an ambiguity regarding the effective date of the GIC
Fund. SBI represents that the Notice provides in the last paragraph under the
heading "Supplementary Information," that with respect to transactions
involving the GIC Fund, the exemption "would become effective as of the date of
the grant of the notice of pendency." However, under the captions EFFECTIVE
DATES and DATES, SBI explains that the Notice states that the exemption will be
effective "upon its grant," or "as of the date the grant notice is published."
Because it was the intention of the parties that the effective date for
transactions involving the GIC Fund would be March 29, 1994, the date of
publication of the Notice in the Federal Register, SBI requests that the
Department make the exemption retroactive to this date for the GIC Fund.
The Department has considered SBI's comment and has made the requested
modification.
SBI wishes to modify the exemption in order that it may offer the GIC Fund to
both fiduciary-directed Plans as well as Plans providing for participant-
directed investments (the Section 404(c) Plans). The Department believes this
comment has merit and that it would be potentially beneficial to participants
and beneficiaries since it provides different types of Plans participating in
the TRAK Program with the opportunity to invest in the GIC Fund.
SBI explains that in the preamble to the Notice there is a statement to the
effect that it will "describe the GIC Fund in a prospectus (the Prospectus) and
promotional materials that will be furnished to Section 404(c) Plan
participants." SBI represents that interests in the GIC Fund are not subject to
the registration and Prospectus delivery requirements of the Securities Act of
1933. Also, SBI points out that the conditions of PTE 92-77 require it to
deliver copies of the Trust Prospectus only to the Plan administrator and not
to the individual participants. Because it has no practical means of delivering
Prospectuses or other disclosures to participants, SBI indicates that the
responsibility for providing these materials to participants rests with the
Plan administrator. In this regard, SBI represents that the
disclosure information it will make available to all Plans proposing to invest
in the GIC Fund will include copies of the Trust Prospectus and a separate
description of the GIC Fund's investment objectives, policies and processes.
SBI explains that its description of the GIC Fund will be designed to provide a
participant with sufficient information in order that the participant can make
an informed investment decision.
The Department concurs with these comments.
In addition to principal comments discussed above, SBI has made certain
technical clarifications and updates to the Notice in the following areas:
(1) General.
a. Redesignations. SBI explains that effective December 31, 1993, Primerica
Corporation changed its name to "The Travelers Inc." and that effective May 9,
1994, the "Trust for TRAK Investments" was renamed "Consulting Group Capital
Markets Funds." Also effective June 1, 1994, "Smith Barney Shearson Inc." was
renamed "Smith Barney Inc."
(2) Supplementary Information.
a. Asset Sale Transaction. SBI explains that the transaction by which Smith
Barney Harris Upham & Company, Inc. (Smith Barney) acquired Shearson Lehman and
its Asset Management Divisions was an asset sale and not a merger. Accordingly,
SBI suggests that the fourth sentence of the third
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/1/ PTE 92-77 provides exemptive relief from section 406(a) of the Act and the
sanctions resulting from the application of section 4975 of the Code, by reason
of section 4975(c)(1) (A) through (D) of the Code, with respect to the purchase
or redemption of shares in the Trust for TRAK Investments (which has been
redesignated as the "Consulting Group Capital Markets Funds" and is referred to
herein as the Trust) by Plans investing therein. In addition, PTE 92-77
provides exemptive relief from the restrictions of section 406(b)(1) and (b)(2)
of the Act and the sanctions resulting from the application of section 4975 of
the Code, by reason of section 4975(c)(1)(E) of the Code, with respect to the
provision, by the Consulting Group of Shearson Lehman, of investment advisory
services to an Independent Plan Fiduciary of a Plan participating in the TRAK
Personalized Investment Advisory Service (the TRAK Program) which may result in
such fiduciary's selection of a Portfolio in the TRAK Program for the
investment of Plan assets.
/2/ Effective June 1, 1994, Smith Barney Shearson, Inc. (SBS) was renamed
"Smith Barney Inc." Hereinafter, SBS is referred to in this grant notice as
either "Smith Barney Inc." or "SBI."
B-5
<PAGE>
paragraph under the heading "Supplementary Information," read as follows: "As a
result of the transaction, most of the assets and business of the Shearson
divisions were transferred to Smith Barney, which was renamed "Smith Barney
Shearson Inc.' "
b. Fees Paid to Transfer Agent. SBI represents that in the seventh paragraph
under the heading "Supplementary Information," the Notice states that The
Shareholder Services Group (TSSG), as transfer agent, will charge a fee of
$8.50 to $9.50 per plan for its transfer agency services. While these are the
current expected fee levels, SBI notes that such fees may increase or decrease
in the future. Because TSSG is no longer an affiliate, SBI requests that the
paragraph be amended to provide that TSSG as transfer agent will receive a
reasonable fee for its services rather than specifying a precise dollar amount.
(3) General Conditions.
a. Written Disclosures. Section II(k)(1)(F) of the General Conditions of the
Notice states that SBI will provide copies of PTE 92-77 and documents
pertaining to the proposed replacement exemption to each Plan participating in
the TRAK Program. SBI wishes to clarify that the "documents pertaining to the
proposed replacement exemption" refer to copies of the Notice and, when issued,
the final exemption.
The Department concurs with the above supplemental clarifications to the
Notice that have been made by SBI and hereby incorporates these changes, as
well as the substantive changes also described above, by reference into the
Notice and, where applicable, into this final exemption.
Department's Comment
Section III of the Notice, which is captioned "Definitions," provides several
meanings of the term "Independent Plan Fiduciary" in subparagraph (b). For
purposes of the exemption, the term "Independent Plan Fiduciary" may include a
Plan administrator, a participant in a Keogh Plan, an individual covered under
a self-directed IRA or a trustee of a Title I Plan that does not permit
participant-directed investments as contemplated under section 404(c) of the
Act. However, due to an oversight, the definition does not extend to a
participant in a Section 404(c) Plan. Because the TRAK Program is being
marketed as an investment alternative to Section 404(c) Plans and the
individual participant of such Plan makes the decision on whether to invest
therein, the Department has amended the definition of the term "Independent
Plan Fiduciary" by providing a new subparagraph (b)(5) which includes a Section
404(c) Plan participant.
Accordingly, after consideration of the entire exemption record, including the
written comments, the Department has determined to grant the replacement
exemption as modified herein.
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption under section
408(a) of the Act and section 4975(c)(2) of the Code does not relieve a
fiduciary or other party in interest or disqualified person from certain other
provisions of the Act and the Code, including any prohibited transaction
provisions to which the exemption does not apply and the general fiduciary
responsibility provisions of section 404 of the Act, which require, among other
things, a fiduciary to discharge his or her duties respecting the plan solely
in the interest of the participants and beneficiaries of the plan and in a
prudent fashion in accordance with section 404(a)(1)(B) of the Act; nor does it
affect the requirements of section 401(a) of the Code that the plan operate for
the exclusive benefit of the employees of the employer maintaining the plan and
their beneficiaries;
(2) In accordance with section 408(a) of the Act and section 4975(c)(2) of the
Code, the Department has found that the exemption is administratively feasible,
in the interest of the Plans and their participants and beneficiaries and
protective of the rights of participants and beneficiaries of the Plans; and
(3) The exemption is supplemental to, and not in derogation of, any other
provisions of the Act and the Code, including statutory or administrative
exemptions. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction.
(4) In addition to transactions involving the GIC Fund, the exemption is
applicable to the transactions previously described in PTE 92-77 only if the
conditions specified therein are met.
Exemption
Under the authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the Procedures cited above, the Department hereby
replaces PTE 92-77 as follows:
Section I. Covered Transactions
(a) The restrictions of section 406(a) of the Act and the sanctions resulting
from the application of section 4975 of the Code, by reason of section
4975(c)(1)(A) through (D) of the Code, shall not apply to the purchase or
redemption of shares by Plans in the SBI-established Trust in connection with
such Plans' participation in the TRAK Personalized Investment Advisory Service.
(b) The restrictions of section 406(b) of the Act and the sanctions resulting
from the application of section 4975 of the Code by reason of section
4975(c)(1)(E) and (F) of the Code, shall not apply to the provision, by the
Consulting Group, of investment advisory services to an Independent Plan
Fiduciary of a participating Plan which may result in such fiduciary's
selection of a Portfolio in the TRAK Program for the investment of Plan assets.
The exemption is subject to the following conditions that are set forth in
Section II.
Section II. General Conditions
(a) The participation of Plans in the TRAK Program will be approved by an
Independent Plan Fiduciary. For purposes of this requirement, an employee,
officer or director of SBI and/or its affiliates covered by an IRA not subject
to Title I of the Act will be considered an Independent Plan Fiduciary with
respect to such IRA.
(b) The total fees paid to the Consulting Group and its affiliates will
constitute no more than reasonable compensation.
(c) No Plan will pay a fee or commission by reason of the acquisition or
redemption of shares in the Trust.
(d) The terms of each purchase or redemption of Trust shares remain at least
as favorable to an investing Plan as those obtainable in an arm's length
transaction with an unrelated party.
(e) The Consulting Group will provide written documentation to an Independent
Plan Fiduciary of its recommendations or evaluations based upon objective
criteria.
(f) Any recommendation or evaluation made by the Consulting Group to an
Independent Plan Fiduciary will be implemented only at the express direction of
such independent fiduciary.
(g) The Consulting Group will generally give investment advice in writing to
an Independent Plan Fiduciary with respect to all available Portfolios.
However, in the case of a Section 404(c) Plan, the Consulting Group will
provide investment advice that is limited to the Portfolios made available
under the Plan.
B-6
<PAGE>
(h) Any Sub-Adviser that acts for the Trust to exercise investment discretion
over a Portfolio will be independent of SBI and its affiliates.
(i) immediately following the acquisition by a Portfolio of any securities
that are issued by SBI and/or its affiliates, the percentage of that
Portfolio's net assets invested in such securities will not exceed one percent.
(j) The quarterly investment advisory fee that is paid by a Plan to the
Consulting Group for investment advisory services rendered to such Plan will be
offset by such amount as is necessary to assure that the Consulting Group
retains no more than 20 basis points from any Portfolio (with the exception of
the Government Money Investments Portfolio and the GIC Fund Portfolio for which
the Consulting Group and SBI Trust will retain no investment management fee)
which contains investments attributable to the Plan investor.
(k) With respect to its participation in the TRAK Program prior to purchasing
Trust shares.
(1) Each Plan will receive the following written or oral disclosures from the
Consulting Group:
(A) A copy of the Prospectus for the Trust discussing the investment
objectives of the Portfolios comprising the Trust, the policies employed to
achieve these objectives, the corporate affiliation existing between the
Consulting Group, SBI and its subsidiaries and the compensation paid to such
entities./3/
(B) Upon written or oral request to SBI, a Statement of Additional Information
supplementing the Prospectus which describes the types of securities and other
instruments in which the Portfolios may invest, the investment policies and
strategies that the Portfolios may utilize and certain risks attendant to those
investments, policies and strategies.
(C) A copy of the investment advisory agreement between the Consulting Group
and such Plan relating to participation in the TRAK Program.
(D) Upon written request of SBI, a copy of the respective investment advisory
agreement between the Consulting Group and the Sub-Advisers.
(E) In the case of a Section 404(c) Plan, if required by the arrangement
negotiated between the Consulting Group and the Plan, an explanation by an SBI
Financial Consultant (the Financial Consultant) to eligible participants in
such Plan, of the services offered under the TRAK Program and the operation and
objectives of the Portfolios.
(F) Copies of PTE 92-77 and documents pertaining to the replacement exemption.
(2) If accepted as an investor in the TRAK Program, an Independent Plan
Fiduciary of an IRA or Keogh Plan, is required to acknowledge, in writing,
prior to purchasing Trust shares that such fiduciary has received copies of the
documents described above in subparagraph (k)(1) of this Section.
(3) With respect to a Section 404(c) Plan, written acknowledgement of the
receipt of such documents will be provided by the Independent Plan Fiduciary
(i.e., the Plan administrator, trustee or named fiduciary, as the recordholder
of Trust shares). Such Independent Plan Fiduciary will be required to represent
in writing to SBI that such fiduciary is (a) independent of SBI and its
affiliates and (b) knowledgeable with respect to the Plan in administrative
matters and funding matters related thereto, and able to make an informed
decision concerning participation in the TRAK Program.
(4) With respect to a Plan that is covered under Title I of the Act, where
investment decisions are made by a trustee, investment manager or a named
fiduciary, such Independent Plan Fiduciary is required to acknowledge, in
writing, receipt of such documents and represent to SBI that such fiduciary is
(a) independent of SBI and its affiliates, (b) capable of making an independent
decision regarding the investment of Plan assets and (c) knowledgeable with
respect to the Plan in administrative matters and funding matters related
thereto, and able to make an informed decision concerning participation in the
TRAK Program.
(l) Subsequent to its participation in the TRAK Program, each Plan receives
the following written or oral disclosures with respect to its ongoing
participation in the TRAK Program:
(1) The Trust's semi-annual and annual report which will include financial
statement for the Trust and investment management fees paid by each Portfolio.
(2) A written quarterly monitoring statement containing an analysis and an
evaluation of a Plan investor's account to ascertain whether the Plan's
investment objectives have been met and recommending, if required, changes in
Portfolio allocations.
(3) If required by the arrangement negotiated between the Consulting Group and
a Section 404(c) Plan, a quarterly, detailed investment performance monitoring
report, in writing, provided to an Independent Plan Fiduciary of such Plan
showing, Plan level asset allocations, Plan cash flow analysis and annualized
risk adjusted rates of return for Plan investments. In addition, if required by
such arrangement, Financial Consultants will meet periodically with Independent
Plan Fiduciaries of Section 404(c) Plans to discuss the report as well as with
eligible participants to review their accounts' performance.
(4) If required by the arrangement negotiated between the Consulting Group and
a Section 404(c) Plan, a quarterly participant performance monitoring report
provided to a Plan participant which accompanies the participant's benefit
statement and describes the investment performance of the Portfolios, the
investment performance of the participant's individual investment in the TRAK
Program, and gives market commentary and toll-free numbers that will enable the
participant to obtain more information about the TRAK Program or to amend his
or her investment allocations.
(5) On a quarterly and annual basis, written disclosures to all Plans of the
(a) percentage of each Portfolio's brokerage commissions that are paid to SBI
and its affiliates and (b) the average brokerage commission per share paid by
each Portfolio to SBI and its affiliates, as compared to the average brokerage
commission per share paid by the Trust to brokers other than SBI and its
affiliates, both expressed as cents per share.
(m) SBI shall maintain, for a period of six years, the records necessary to
enable the persons described in paragraph (n) of this Section to determine
whether the conditions of this exemption have been met, except that (1) a
prohibited transaction will not be considered to have occurred if, due to
circumstances beyond the control of SBI and/or its affiliates, the records are
lost or destroyed prior to the end of the six year period, and (2) no party in
interest other than SBI shall be subject to the civil penalty that may be
assessed under section 502(i) of the Act, or to the taxes imposed by section
4975(a) and (b) of the Code, if the records are not maintained, or are not
available for
- -------
/3/ The fact that certain transactions and fee arrangements are the subject of
an administrative exemption does not relieve the Independent Plan Fiduciary
from the general fiduciary responsibility provisions of section 404 of the Act.
In this regard, the Department expects the Independent Plan Fiduciary to
consider carefully the totality of fees and expenses to be paid by the Plan
including the fees paid directly to SBI or to other third parties and paid
directly through the Trust to SBI.
B-7
<PAGE>
examination as required by paragraph (n) below.
(n)(1) Except as provided in section (2) of this paragraph and notwithstanding
any provisions of subsections (a)(2) and (b) of section 504 of the Act, the
records referred to in paragraph (m) of this Section shall be unconditionally
available at their customary location during normal business hours by:
(A) Any duly authorized employee or representative of the Department or the
Internal Revenue Service;
(B) Any fiduciary of a participating Plan or any duly authorized
representative of such fiduciary;
(C) Any contributing employer to any participating Plan or any duly authorized
employee representative of such employer; and
(D) Any participant or beneficiary of any participating Plan, or any duly
authorized representative of such participant or beneficiary.
(2) None of the persons described above in subparagraphs (B)-(D) of this
paragraph (n) shall be authorized to examine the trade secrets of SBI or
commercial or financial information which is privileged or confidential.
Section III. Definitions
For purposes of this exemption:
(a) An "affiliate" of SBI includes--
(1) Any person directly or indirectly through one or more intermediaries,
controlling, controlled by, or under common control with SBI. (For purposes of
this subsection, the term "control" means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.)
(2) Any officer, director or partner in such person, and
(3) Any corporation or partnership of which such person is an officer,
director or a 5 percent partner or owner.
(b) An "Independent Plan Fiduciary" is a Plan fiduciary which is independent
of SBI and its affiliates and is either
(1) A Plan administrator, sponsor, trustee or named fiduciary, as the
recordholder of Trust shares of a Section 404(c) Plan,
(2) A participant in a Keogh Plan,
(3) An individual covered under a self-directed IRA which invests in Trust
shares,
(4) A trustee, investment manager or named fiduciary responsible for
investment decisions in the case of a Title I Plan that does not permit
individual direction as contemplated by Section 404(c) of the Act, or
(5) A participant in a Section 404(c) Plan.
Section IV. Effective Dates
This exemption will be effective as of July 31, 1993, except for transactions
involving the GIC Fund. The exemption will be effective March 29, 1994 with
respect to the inclusion of the GIC Fund in the TRAK Program.
The availability of this exemption is subject to the express condition that
the material facts and representations contained in the applications for
exemption are true and complete and accurately describe all material terms of
the transactions. In the case of continuing transactions, if any of the
material facts or representations described in the applications change, the
exemption will cease to apply as of the date of such change. In the event of
any such change, an application for a new exemption must be made to the
Department.
For a more complete statement of the facts and representations supporting the
Department's decision to grant PTE 92-77, refer to the proposed exemption and
grant notice which are cited above.
Signed at Washington, DC, this 16th day of June 1994.
Ivan L. Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 94-15006 Filed 6-20-94; 8:45 am]
BILLING CODE 4510-28-P
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Federal Register: November 9, 1998 (Volume 63, Number 216)
Notices
Page 60391-60398
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
- --------------------------------------------------------------------------------
DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration [Application No. D-10574]
Notice of Proposed Individual Exemption to Amend Prohibited Transaction
Exemption (PTE) 94-50 Involving Salomon Smith, Barney Inc. (Salomon Smith
Barney) Located in New York, NY
AGENCY: Pension and Welfare Benefits Administration, U.S. Department of Labor.
ACTION: Notice of proposed individual exemption to modify PTE 94-50.
- --------------------------------------------------------------------------------
SUMMARY: This document contains a notice of pendency before the Department of
Labor (the Department) of a proposed individual exemption which, if granted,
would amend PTE 94-50 (59 FR 32024, June 21, 1994), an exemption granted to
Smith Barney, Inc. (Smith Barney), the predecessor of Salomon Smith Barney.
PTE 94-50 relates to the operation of the TRAK Personalized Investment Advisory
Service product (the TRAK Program) and the Trust for TRAK Investments
(subsequently renamed the Trust for Consulting Group Capital Markets Funds)
(the Trust). If granted, the proposed exemption would affect participants and
beneficiaries of and fiduciaries with respect to employee benefit plans (the
Plans) participating in the TRAK Program.
EFFECTIVE DATE: If granted, the proposed amendments will be effective as of
November 9, 1998.
DATES: Written comments and requests for a public hearing should be received by
the Department on or before December 24, 1998.
ADDRESSES: All written comments and requests for a public hearing (preferably,
three copies) should be sent to the Office of Exemption Determinations, Pension
and Welfare Benefits Administration, Room N-5649, U.S. Department of Labor, 200
Constitution Avenue, N.W., Washington, D.C. 20210, Attention: Application No.
D-10574. The application pertaining to the proposed exemption and the comments
received will be available for public inspection in the Public Documents Room
of the Pension and Welfare Benefits Administration, U.S. Department of Labor,
Room N-5507, 200 Constitution Avenue, N.W., Washington, D.C. 20210.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady, Office of Exemption
Determinations, Pension and Welfare Benefits Administration, U.S. Department of
Labor, telephone (202) 219-8881. (This is not a toll-free number.)
SUPPLEMENTARY INFORMATION: Notice is hereby given of the pendency before the
Department of a proposed exemption that would amend PTE 94-50. PTE 94-50
provides an exemption from certain prohibited transaction restrictions of
section 406 of the Employee Retirement Income Security Act of 1974 (the Act)
and from the sanctions resulting from the application of section 4975 of the
Internal Revenue Code of 1986 (the Code), as amended, by reason of section
4975(c)(1) of the Code. Specifically, PTE 94-50 provides exemptive relief from
the restrictions of section 406(a) of the Act and the sanctions resulting from
the application of section 4975 of the Code, by reason of section 4975(c)(1)(A)
through (D) of the Code, for the purchase or redemption of shares in the Trust
by an employee benefit plan, an individual retirement account (the IRA), or a
retirement plan for a self-employed individual (the Keogh Plan). PTE 94-50 also
provides exemptive relief from the restrictions of section 406(b) of the Act
and the sanctions resulting from the application of section 4975 of the Code,
by reason of section 4975(c)(1)(E) and (F) of the Code, with respect to the
provision, by the Consulting Group of Smith Barney (the Consulting Group), of
investment advisory services to independent fiduciaries of participating Plans
(the Independent Plan Fiduciaries) that might result in such fiduciary's
selection of an investment portfolio (the Portfolio) under the TRAK Program for
the investment of Plan assets.\/1/
[Page 60392]
Besides the transactions described above, PTE 94-50 permitted Smith Barney to
add a daily-traded collective investment fund (the GIC Fund) to the existing
Fund Portfolios and to describe the various entities operating the GIC Fund.
Further, PTE 94-50 replaced references to Shearson Lehman with references to
Smith Barney. PTE 94-50 is effective as of July 31, 1993 for the transactions
described in PTE 92-77 and effective as of March 29, 1994 with respect to
transactions involving the GIC Fund.
As of December 31, 1997, the TRAK Program held assets that were in excess of
$8.4 billion. Of those assets, approximately $1.7 billion were held in 540,
401(k) Plan accounts and approximately 57,100 employee benefit plan and
IRA/Keogh-type accounts. At present, the Trust consists of 13 Portfolios that
are managed by the Consulting Group and advised by one or more unaffiliated
sub-advisers selected by Salomon Smith Barney.
Salomon Smith Barney has informed the Department of certain changes, which are
discussed below, to the facts underlying PTE 94-50. These modifications include
(1) corporate mergers that have changed the names of the parties described in
PTE 94-50 and would permit broader distribution of TRAK-related products, (2)
the implementation of a recordkeeping reimbursement offset system (the
Recordkeeping Reimbursement Offset Procedure) under the TRAK Program, and (3)
the institution of an automated reallocation option (the Automatic Reallocation
Option) under the TRAK Program for which Salomon Smith Barney has requested
administrative exemptive relief from the Department.
The proposed exemption has been requested in an application filed on behalf of
Salomon Smith Barney pursuant to section 408(a) of the Act and section
4975(c)(2) of the Code, and in accordance with the procedures set forth in 29
CFR Part 2570, Subpart B (55 FR 32836, August 10, 1990). Effective December 31,
1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR 47713, October
17, 1978) transferred the authority of the Secretary of the Treasury to issue
exemptions of the type requested to the Secretary of Labor. Accordingly, the
- -------
/1/ On October 5, 1992, the Department granted PTE 92-77 at 55 FR 45833. PTE
92-77 permitted Shearson Lehman Brothers, Inc. (Shearson Lehman) to make the
TRAK Program available to Plans that acquired shares in the Trust. In this
regard, PTE 92-77 permitted Plans to purchase or redeem shares in the Trust and
allowed the Consulting Group to provide investment advisory services to an
Independent Fiduciary of a Plan which might result in such fiduciary's
selection of a Portfolio in the TRAK Program for the investment of Plan assets.
Subsequent to the granting of PTE 92-77, on July 31, 1993, Smith Barney
acquired certain assets of Shearson Lehman associated with its retail business,
including the TRAK Program, and applied for and received a new exemption (PTE
94-50) for the ongoing operation of the TRAK Program. Essentially, PTE 94-50
amended and replaced PTE 92-77. However, because of certain material factual
changes to the representations supporting PTE 92-77, the Department determined
that the exemption was no longer effective for use by Smith Barney and its
subsidiaries as of the date of the asset sale.
B-9
<PAGE>
proposed exemption is being issued solely by the Department.
1. The Corporate Mergers. Salomon Smith Barney states that in November 1997, a
subsidiary of the Travelers Group Inc. (the Travelers Group), the parent of
Smith Barney, acquired all of the shares of Salomon Brothers, Inc. (Salomon).
Subsequent to the acquisition, Salomon and Smith Barney were operated as
separately-registered broker-dealers and as sister corporations with a common
parent. On September 1, 1998, Salomon was merged with and into Smith Barney,
with Smith Barney remaining as the surviving corporation. As a result of the
merger, the corporate name of Smith Barney has been changed to "Salomon Smith
Barney Inc."
Salomon Smith Barney also states that in April 1998, the Travelers Group and
Citicorp Inc. (Citicorp) announced a stock merger whereby Citicorp would be
merged with and into a subsidiary of the Travelers Group. As a result of the
merger, the Travelers Group would become a bank holding company and change its
name to "Citigroup Inc." (Citigroup).
Salomon Smith Barney represents that the purpose of the merger is to create
more distribution channels for TRAK products. In this regard, registered
broker-dealers associated with Citigroup will be permitted to market the TRAK
Program under a different product name. However, Salomon Smith Barney explains
that the terms and conditions of PTE 94-50 and this amendment will be complied
with by the parties involved.
The merger, which occurred on October 8, 1998, required that the affected
parties obtain approval from the Federal Reserve Board under the Bank Holding
Company Act (the BHC Act). Under the BHC Act, the Federal Reserve Board does
not authorize bank holding companies, such as Citigroup, to be affiliated with
companies that organize, sponsor, control or distribute United States open-end
mutual funds. As a bank holding company, Citigroup is required to engage an
independent party to provide certain distribution services in connection with
the marketing of mutual fund shares) for all United States, publicly-traded
mutual funds for which any subsidiary of the Travelers Group/Citigroup acts as
a distributor. Salomon Smith Barney notes that although the Funds participating
in the TRAK Program will be affected by this change, no Plan will be required
to pay distribution fees to the independent distributors.
On October 15, 1998, Salomon Smith Barney was merged with and into Pendex Real
Estate Corp. (Pendex), a shell corporation domiciled in New York. Pendex, the
survivor of the merger, was then renamed "Salomon Smith Barney Inc." Upon
completion of this merger, Salomon Smith Barney became a New York corporation.
2. Recordkeeping Reimbursement Offset Procedure. Salomon Smith Barney states
that the Board of Trustees (the Board) of the Funds approved, but has not yet
implemented, a recordkeeping reimbursement offset procedure under which a Plan
participating in the TRAK Program would be permitted to reduce its investment
fees and expenses. The
reimbursement amount would be paid solely by the Funds as a means of being
competitive with other mutual funds offering similar reimbursements to
investors.
In May 1998, the Board approved a recordkeeping reimbursement amount of $12.50
for each investment position held by a participant. (In other words, a
participant holding positions in three different Funds would be eligible to
receive a total annual reimbursement of $37.50). In addition, the Board
resolved that after applying such reimbursement to recordkeeping expenses
charged by recordkeepers of the Plans, any excess reimbursement amount would be
applied to reduce other fees and expenses/2/ payable by participating Plans,
including, but not limited to, the Plan-level investment advisory fee payable
to the Consulting Group for asset allocation recommendations (the Outside Fee),
after the appropriate offset has been applied (the Net Outside Fee)./3/ If
implemented, Salomon Smith Barney explains that the Funds would pay the
appropriate reimbursement amount directly to the recordkeeper of the Plan. The
affected Plan would then be required to pay only the balance of the fee, which
is generally charged on a quarterly basis, after the excess reimbursement
amount has been deducted.
The Recordkeeping Reimbursement Offset Procedure would work as follows:
Assume that Plan A has $1 million in assets invested in the TRAK Program and
100 participants. Assume further that Plan A pays its recordkeeper $20 per
participant per year in Annual Fees totaling $2,000 per year or
[Page 60393]
$500 per quarter and $12 per participant per year in Other Fees, totaling
$1,200 per year or $300 per quarter. In addition, Plan A pays the Consulting
Group a total annual net investment advisory fee (i.e., the Net Outside Fee) of
$8,500.
At the end of each calendar quarter, Plan A's recordkeeper will determine the
actual number of Fund positions held by the Plan A participants and calculate
the resulting reimbursement amount. If Plan A had 300 participant positions at
the end of the quarter, the Plan's total recordkeeping reimbursement amount
would be 300 x $3.125 (the annual amount of $12.50
divided by 4) or $937.50. That amount would be credited as follows:
Application of Reimbursement to Recordkeeping Fees
<TABLE>
<S> <C>
Quarterly Portion of Annual Fees...................................... $ 500.00
Quarterly Portion of Other Fees....................................... 300.00
--------
Total Quarterly Recordkeeping Fees.................................... 800.00
Credit for Reimbursement.............................................. (937.50)
Excess Reimbursement.................................................. (137.50)
--------
</TABLE>
Because the reimbursement amount exceeds the recordkeeping fees due for the
quarter, the Plan does not owe any recordkeeping fee for that period.
Therefore, the recordkeeper will not bill the Plan.
Application of Excess Reimbursement to the Net Outside Fee
<TABLE>
<S> <C>
Quarterly Net Outside Fee............................................ $2,125.00
Excess Reimbursement................................................. (137.50)
---------
Total.............................................................. 1,987.50
---------
</TABLE>
The recordkeeper will advise the Consulting Group that it is entitled to bill
the Plan for the $1,987.50 balance of its investment advisory fee (i.e., the
Net Outside Fee).
Upon participation in the TRAK Program, an Independent Plan Fiduciary selects
a recordkeeper for the Plan, from a list of recordkeepers which maintain
computer links to the Funds under the TRAK Program. Salomon Smith Barney states
that of the 23 recordkeepers currently providing services to TRAK Program
investors, only one, Smith Barney Plan Services, is an
- -------
/2/ In addition to annual recordkeeping fees (the Annual Fees) payable by a
Plan participating in the TRAK Program, it is represented that a Plan might be
required to pay recordkeeping fees associated with certain particular services
(the Other Fees) such as initial plan set-up and conversion, preparation of
annual filings, enrollment, special statement preparation and audit.
/3/ Salomon Smith Barney is offsetting, quarterly, against the Outside Fee,
such amount as is necessary to assure that the Consulting Group retains not
more than 20 basis points (as an Inside Fee) from any Portfolio on investment
assets attributable to any Plan.
B-10
<PAGE>
affiliate. Because the reimbursement rate and the timing of the offset of the
excess reimbursement amount against fees will be the same regardless of the
identity of the recordkeeper and the Independent Plan Fiduciary is responsible
for the selection of this particular recordkeeper, Salomon Smith Barney
believes its affiliation with Smith Barney Plan Services does not appear to
present additional potential abuses under section 406(b)(1) or 406(b)(3) of the
Act in its capacity as an investment adviser in recommending investment in the
Funds to Independent Plan Fiduciaries.
Salomon Smith Barney notes that the reasoning in the Frost National Bank
Advisory Opinion (ERISA Advisory Opinion 97-15A, May 22, 1997) (the Frost
Opinion), is relevant to this situation. Therefore, it has not requested
administrative exemptive relief from the Department. Salomon Smith Barney
explains that in the Frost Opinion, the bank offered a comprehensive program of
administrative and investment services to Plan investors. Under this program,
the Department opined that section 406(b)(1) and 406(b)(3) of the Act would not
be violated if the bank received payments for services from mutual funds while
recommending mutual fund investments to plans provided such payments were fully
disclosed and then offset to reduce other plan expenses, with any excess
payments made to the plans. Salomon Smith Barney further explains that in the
Frost Opinion any benefit from payments made by the mutual funds benefitted the
plans and not the bank.
With respect to the TRAK Program, Salomon Smith Barney represents that the
reimbursement rates adopted by the Funds will be fully disclosed to Independent
Plan Fiduciaries and the offset of the excess reimbursement amount against a
Plan's expenses will be accomplished in a manner to ensure that the Plans
obtain the full benefit of the reimbursement to reduce their recordkeeping and
other Plan expenses. Salomon Smith Barney submits that the reasoning in the
Frost Opinion would apply equally to the proposed reimbursement of expenses
under the TRAK Program. Therefore, Salomon Smith Barney does not believe any
change in the scope of the exemption is necessary./4/
3. The Automatic Reallocation Option. Salomon Smith Barney wishes to modify
the TRAK Program to institute an automated reallocation feature whereby an
Independent Plan Fiduciary could elect to have his or her current asset
allocation adjusted automatically whenever the Consulting Group changes the
recommended asset allocation model (the Allocation Model) followed by such Plan
or participant./5/ Therefore, Salomon Smith Barney proposes to amend General
Condition II(f) of PTE 94-50 which requires that any recommendation or
evaluation offered by the Consulting Group be implemented only upon the express
direction of the Independent Plan Fiduciary. With the exception of the
requested changes to General Condition II(f) of PTE 94-50, all of the existing
conditions of PTE 94-50 will continue to apply to the TRAK Program.
As noted above, General Condition II(f) of PTE 94-50 provides that any
recommendation or evaluation by the Consulting Group to an Independent Plan
Fiduciary will be implemented only at the express direction of such fiduciary.
Accordingly, under the current exemption, whenever asset allocation advice is
modified by the Consulting Group, Salomon Smith Barney states that its
Financial Consultants are required to contact the Independent Plan Fiduciary of
each Plan who has chosen the Allocation Model, and obtain such fiduciary's
consent to modification of the asset allocation applied to the Plan's account.
Salomon Smith Barney notes that many TRAK Program investors have expressly
indicated that they expect reallocations to take place in the ordinary course
of the provision of investment advisory services offered by the Consulting
Group. However, these investors do not understand why they need to be contacted
in each instance
[Page 60394]
for this purpose. In addition, Salomon Smith Barney explains that the case-by-
case contact and reallocation involves delay in implementing the change at the
client's express direction, putting similarly-situated investors into the new
Allocation Models at different times.
To resolve these problems, Salomon Smith Barney proposes to offer TRAK Program
investors an Automatic Reallocation Option. Because Salomon Smith Barney
recognizes that the Automatic Reallocation Option is outside the scope of PTE
94-50, it requests a modification of the existing terms of PTE 94-50 to the
extent necessary to allow it to offer this alternative to investors. If the
exemptive relief is granted, Salomon Smith Barney represents that it will fully
disclose the nature of the Automatic Reallocation Option to the Independent
Plan Fiduciary of each existing client Plan in a written notice (the
Announcement) and permit the fiduciary to elect the Automatic Reallocation
Option by responding in writing. The Announcement will describe the intended
operation of the Automatic Reallocation Option and how future changes to the
Allocation Model selected on behalf of the Plan will be implemented. In order
to implement the Automatic Reallocation Option for new TRAK Program investors,
the Independent Plan Fiduciary will be required to check a box on the form of
Investment Advisory contract with Salomon Smith Barney (or on a separate
document designed for this purpose for those investors who have already
executed such an agreement with Salomon Smith Barney). By checking the box, the
Independent Plan Fiduciary will indicate its consent to and authorization of
actions to be taken by Salomon Smith Barney to reallocate automatically the
asset allocation in the Plan account whenever the Consulting Group modifies the
particular asset allocation recommendation which the Plan or participant has
chosen. Such election will continue in effect until revoked or terminated by
the Plan, in writing.
In operation, Salomon Smith Barney represents that the Automatic Reallocation
Option will work as follows:
(a) The Consulting Group will release a modified version of the Allocation
Model for the Plan account based upon its amended recommendation.
- -------
/4/ In this proposed exemption, the Department expresses no opinion on whether
the Frost Opinion is applicable to the recordkeeping reimbursement procedure
described above. In this regard, the Department notes that, under the facts
presented in the Frost Opinion, Frost would offset the fees received from the
mutual funds on a dollar-for-dollar basis against the trustee fees that the
plan was otherwise obligated to pay Frost.
- -------
/5/ Salomon Smith Barney notes that the Automatic Reallocation Option is to be
distinguished from "rebalancing" which occurs after the passage of time from
the original allocation decision and changes a participant's investment mix to
bring the actual allocation among investment alternatives back in line with the
participant's original allocation choices. For example, Salomon Smith Barney
states that a Plan participant receives a written quarterly review that sets
forth information concerning the participant's investments and includes a chart
comparing the original asset allocation recommendation and the actual
percentage distribution of investments held in the portfolio. Salomon Smith
Barney explains that under the chart is the following legend:
TRAK is a non-discretionary investment advisory service. All investment
decisions rest with you, the participant. Therefore, you are strongly urged to
adhere to the Consulting Group's asset allocation recommendations. Please call
your Financial Consultant should a change in allocation be warranted due to a
significant difference between the portfolio originally recommended by the
Consulting Group and your allocation or due to a change in your objectives.
Salomon Smith Barney further explains that the Financial Consultant is
expected to contact participants at least annually to encourage a comparison of
the holdings in the portfolio against the Consulting Group's original
recommendation. Barney proposes to amend General Condition II(f) of PTE 94-50
which requires that any recommendation or evaluation offered by the Consulting
Group be implemented only upon the express direction of the Independent Plan
Fiduciary. With the exception of the requested changes to General Condition
II(f) of PTE 94-50, all of the existing conditions of PTE 94-50 will continue
to apply to the TRAK Program.
B-11
<PAGE>
(b) On the day such modification is released, the Consulting Group will adjust
the Plan account to fit the new Allocation Model and to reflect current market
conditions./6/ Such adjustments will be effected through a series of purchases
and redemptions of Portfolio shares to increase or decrease the relative
investment in the various Portfolios by the Plan account.
(c) The reallocation of the Plan account will be effected on the same business
day as the release of the new Allocation Model by the Consulting Group, except
to the extent market conditions and orderly purchase and redemption procedures
may delay such processing. For purposes of calculating the percentage changes
in its asset allocation recommendation underlying the Automatic Reallocation
Option for a Plan investor's account, the Consulting Group will use the net
asset values at the close of business on the preceding trading day. However,
the execution of trades to give effect to the changed percentages will occur on
the next trading day at the then-current net asset values.
(d) Participants in the TRAK Program will receive trade confirmations of the
reallocation transactions. In this regard, for all Plan investors other than
Section 404(c) Plan accounts (i.e., 401(k) Plan accounts), Salomon Smith Barney
will mail trade confirmations the next business day after the reallocation
trades are executed. In the case of Section 404(c) Plan participants,
notification will depend upon the notification provisions agreed to by the Plan
recordkeeper./7/\ For example, if the recordkeeper notifies Section 404(c) Plan
participants (i.e., Independent Plan Fiduciaries) in writing after each trade,
such participants will be notified of reallocation transactions in this manner.
If, however, the recordkeeper notifies Section 404(c) Plan participants of
trading activity in a quarterly statement, the reallocation activity would be
included there.
In addition to the trade confirmations which Salomon Smith Barney will provide
to all Plan investors except Section 404(c) Plans, disclosure of the
reallocation transactions will appear in the next regular client statement.
Such transactions will be reflected as a series of purchase and redemption
transactions that will shift assets among the Portfolios in accordance with the
Allocation Model as modified by the Consulting Group.
(e) If, however, the reallocation to be made in response to the Consulting
Group's recommendation exceeds an increase or decrease of more than 10 percent
in the absolute percentage allocated to any one investment medium (e.g., a
suggested increase in a 15 percent allocation to greater than 25 percent or a
decrease of such 15 percent allocation to less than 5 percent), Salomon Smith
Barney will not automatically adjust a Plan account. Under such circumstances,
Salomon Smith Barney will send out a written notice (the Notice) to the
Independent Plan Fiduciary for each affected Plan, describing the proposed
reallocation and the date on which such allocation is to be instituted (the
Effective Date).
(f) The Notice will be mailed with the presumption of delivery within three
business days to permit timely notification and adequate response time for the
Independent Plan Fiduciary. The Notice will instruct the fiduciary that he or
she will need to do nothing if such fiduciary decides to have his or her Plan
account automatically reallocated on the Effective Date. If, on the other hand,
the Independent Plan Fiduciary does not wish to follow the Consulting Group's
revised asset allocation recommendation, the Notice will instruct the
Independent Plan Fiduciary to inform a Financial Consultant, in writing, at
least 30 calendar days prior to the proposed Effective Date that the fiduciary
wishes to "opt out" of the new Allocation Model.\/8/
(g) If the Independent Plan Fiduciary "opts out," his or her Plan account will
not be changed on the Effective Date.
[Page 60395]
Under such circumstances, the Allocation Model will remain at its current level
or at such other level as the Independent Plan Fiduciary designates. However,
the Automatic Reallocation Option, will remain in effect for future changes in
such participant's Allocation Model.
(h) The Independent Plan Fiduciary will always have the ability to elect,
terminate or reinstitute the Automatic Reallocation Option or to otherwise
adjust an Allocation Model, in any way, by providing reasonably prompt notice
to a Financial Consultant. Upon request by the Independent Plan Fiduciary, the
Financial Consultant will send the appropriate form.
Salomon Smith Barney states that it is not possible to predict the frequency
of reallocations because these changes are dictated by the Consulting Group's
analysis of market conditions. However, since November 1991, Salomon Smith
Barney represents that asset allocation changes of the type that would trigger
automatic reallocations have been instituted by the Consulting Group on ten
occasions. Eight of these changes were of a magnitude of 10 percentage points
or less. The other two changes were 15 percent changes and impacted only
approximately one percent and 3 percent, respectively, of the total number of
clients participating in the TRAK Program at the time.\/9/
Salomon Smith Barney also states that the reallocation called for under the
Automatic Reallocation Option will be effected by a dollar- for-dollar
liquidation and purchase of the required amounts in the respective Plan
accounts. Because of the billing of Plan accounts participating in the TRAK
Program is leveled with respect to the compensation received by Salomon Smith
Barney and by the Financial Consultant involved in an account, Salomon Smith
Barney states that the implementation of the Automatic Reallocation Option will
be revenue-neutral. In addition, Salomon Smith Barney represents that neither
the Plan nor the participants will pay any additional fees for electing to use
the Automatic Reallocation Option./10/
- -------
/6/ Salomon Smith Barney notes that there are 12 standard Allocation Models
and that two similarly-situated Plan participants who receive the same
recommendation from the Consulting Group will receive the same reallocation.
/7/ Under these circumstances, Salomon Smith Barney will advise the
recordkeeper of the proposed reallocation of the account of a Section 404(c)
Plan participant as soon as the Consulting Group has determined that a change
to an asset allocation recommendation is going to be made. The communication
may initially be made orally because the recordkeeper must then promptly modify
its system to effect the necessary changes to a participant's account on the
effective date of the new recommendation. The oral communication is customarily
followed by a full written description of the changes within two business days
of the verbal update.
As noted above, a Section 404(c) Plan participant who has elected the
Automatic Reallocation Option would receive a trade confirmation from the
recordkeeper of the resulting changes to the positions in his or her account,
if that is the notification procedure agreed to for the Plan. Also as noted
above, transactions occurring upon automatic reallocation and the underlying
recommendation changes will be disclosed in the "Participant Quarterly Review."
- -------
/8/ The Notice will be mailed with the presumption of delivery within three
business days so that the 30 day calendar period will not commence until the
third business day following the mailing. In addition, the Effective Date of
the Automatic Reallocation Option will occur no sooner than the business day
following the thirtieth calendar day. To avoid any misunderstandings or
miscalculations by the Independent Plan Fiduciary, Salomon Smith Barney
represents that it will conspicuously state, in the Notice, the last date for
its receipt of the Independent Plan Fiduciary's written response.
- -------
/9/ While there is no minimum percentage threshold that will trigger the
Automatic Reallocation Option, other than the historical ranges specified
above, Salomon Smith Barney notes that there may be future market circumstances
that may justify an asset allocation adjustment of a lesser amount. Because the
Consulting Group will only adjust asset allocation recommendations to reflect
current market conditions, Salomon Smith Barney anticipates that triggers for
the Automatic Reallocation Option will continue to be only market-related. As
is currently the situation, Salomon Smith Barney represents that a Plan
investor may, at any time and for any reason, contact a Financial Consultant to
request a modification of an existing Allocation Model.
/10/ General Condition II(c) of PTE 94-50 as well as this proposal states that
no Plan will pay a fee or commission by reason of the acquisition or redemption
of shares in the Trust. Since the fees paid to Salomon Smith Barney are based
upon net asset values of investments and not transactions, a change of
investment allocations and the net purchases and redemptions used to effect
such changes do not change the payable fees.
B-12
<PAGE>
Thus, on the basis of the foregoing, General Condition II(f) has been revised
to read as follows:
(f) Any recommendation or evaluation made by the Consulting Group to an
Independent Plan Fiduciary will be implemented only at the express direction of
such Independent Plan Fiduciary, provided, however, that--
(1) If such Independent Plan Fiduciary shall have elected in writing (the
Election), on a form designated by Salomon Smith Barney from time to time for
such purpose, to participate in the Automatic Reallocation Option under the
TRAK Program, the affected Plan or participant account will be automatically
reallocated whenever the Consulting Group modifies the particular asset
allocation recommendation which the Independent Plan Fiduciary has chosen. Such
Election shall continue in effect until revoked or terminated by the
Independent Plan Fiduciary, in writing.
(2) Except as set forth below in paragraph II(f)(3), at the time of a change
in the Consulting Group's asset allocation recommendation, each account based
upon the asset allocation model (the Allocation Model) affected by such change
would be adjusted on the business day of the release of the new Allocation
Model by the Consulting Group, except to the extent that market conditions, and
order purchase and redemption procedures may delay such processing through a
series of purchase and redemption transactions to shift assets among the
affected Portfolios.
(3) If the change in the Consulting Group's asset allocation recommendation
exceeds an increase or decrease of more than 10 percent in the absolute
percentage allocated to any one investment medium (e.g., a suggested increase
in a 15 percent allocation to greater than 25 percent, or a decrease of such 15
percent allocation to less than 5 percent), Salomon Smith Barney will send out
a written notice (the Notice) to all Independent Plan Fiduciaries whose current
investment allocation would be affected, describing the proposed reallocation
and the date on which such allocation is to be instituted (the Effective Date).
If the Independent Plan Fiduciary notifies Salomon Smith Barney, in writing, at
least 30 calendar days prior to the proposed Effective Date that such fiduciary
does not wish to follow such revised asset allocation recommendation, the
Allocation Model will remain at the current level, or at such other level as
the Independent Plan Fiduciary then expressly designates, in writing. If the
Independent Plan Fiduciary does not affirmatively "opt out" of the new
Consulting Group recommendation, in writing, prior to the proposed Effective
Date, such new recommendation will be automatically effected by a dollar-for-
dollar liquidation and purchase of the required amounts in the respective
account.
(4) An Independent Plan Fiduciary will receive a trade confirmation of each
reallocation transaction. In this regard, for all Plan investors other than
Section 404(c) Plan accounts (i.e., 401(k) Plan accounts), Salomon Smith Barney
will mail trade confirmations on the next business day after the reallocation
trades are executed. In the case of Section 404(c) Plan participants,
notification will depend upon the notification provisions agreed to by the Plan
recordkeeper.
Notice to Interested Persons
Notice of the proposed exemption will be mailed by first class mail to the
Independent Plan Fiduciary Plan of each Plan currently participating in the
TRAK Program, or, in the case of a Section 404(c) Plan, to the recordholder of
Trust shares. Such notice will be given within 15 days of the publication of
the notice of pendency in the Federal Register. The notice will contain a copy
of the notice of proposed exemption as published in the Federal Register and a
supplemental statement, as required pursuant to 29 CFR 2570.43(b)(2). The
supplemental statement will inform interested persons of their right to comment
on and/or to request a hearing with respect to the pending exemption. Written
comments and hearing requests are due within 45 days of the publication of the
proposed exemption in the Federal Register.
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption under section
408(a) of the Act and section 4975(c)(2) of the Code does not relieve a
fiduciary or other party in interest or disqualified person from certain other
provisions of the Act and the Code, including any prohibited transaction
provisions to which the exemption does not apply and the general fiduciary
responsibility provisions of section 404 of the Act, which require, among other
things, a fiduciary to discharge his or her duties respecting the plan solely
in the interest of the participants and beneficiaries of the plan and in a
prudent fashion in accordance with section 404(a)(1)(B) of the Act; nor does it
affect the requirements of section 401(a) of the Code that the plan operate for
the exclusive benefit of the employees of the employer maintaining the plan and
their beneficiaries;
(2) The proposed exemption, if granted, will not extend to transactions
prohibited under section 406(b)(3) of the
[Page 60396]
Act and section 4975(c)(1)(F) of the Code;
(3) Before an exemption can be granted under section 408(a) of the Act and
section 4975(c)(2) of the Code, the Department must find that the exemption is
administratively feasible, in the interest of the plan and of its participants
and beneficiaries and protective of the rights of participants and
beneficiaries of the plan;
(4) This proposed exemption, if granted, will be supplemental to, and not in
derogation of, any other provisions of the Act and the Code, including
statutory or administrative exemptions. Furthermore, the fact that a
transaction is subject to an administrative or statutory exemption is not
dispositive of whether the transaction is in fact a prohibited transaction; and
(5) This proposed exemption, if granted, is subject to the express condition
that the Summary of Facts and Representations set forth in the notice of
proposed exemption relating to PTE 92-77, as amended by PTE 94-50 and this
notice, accurately describe, where relevant, the material terms of the
transactions to be consummated pursuant to this exemption.
Written Comments and Hearing Requests
All interested persons are invited to submit written comments or requests for
a hearing on the pending exemption to the address above, within the time frame
set forth above, after the publication of this proposed exemption in the
Federal Register. All comments will be made a part of the record. Comments
received will be available for public inspection with the referenced
applications at the address set forth above.
Proposed Exemption
Based on the facts and representations set forth in the application, the
Department is considering granting the requested exemption under the authority
of section 408(a) of the Act and section 4975(c)(2) of the Code and in
accordance with the procedures set forth in 29 CFR Part 2570, Subpart B (55 FR
32836, August 10, 1990).
B-13
<PAGE>
Section I. Covered Transactions
A. If the exemption is granted, the restrictions of section 406(a) of the Act
and the sanctions resulting from the application of section 4975 of the Code,
by reason of section 4975(c)(1)(A) through (D) of the Code, shall not apply, to
the purchase or redemption of shares by an employee benefit plan, an individual
retirement account (the IRA), or a retirement plan for self-employed
individuals (the Keogh Plan)/11/ in the Trust for Consulting Group Capital
Market Funds (the Trust), established by Salomon Smith Barney, in connection
with such Plans' participation in the TRAK Personalized Investment Advisory
Service product (the TRAK Program).
B. If the exemption is granted, the restrictions of section 406(b) of the Act
and the sanctions resulting from the application of section 4975 of the Code,
by reason of section 4975(c)(1)(E) and (F) of the Code, shall not apply, to the
provision, by the Consulting Group, of (1) investment advisory services or (2)
an automatic reallocation option (the Automatic Reallocation Option) to an
independent fiduciary of a participating Plan (the Independent Plan Fiduciary),
which may result in such fiduciary's selection of a portfolio (the Portfolio)
in the TRAK Program for the investment of Plan assets.
This proposed exemption is subject to the following conditions that are set
forth below in Section II.
Section II. General Conditions
(a) The participation of Plans in the TRAK Program will be approved by an
Independent Plan Fiduciary. For purposes of this requirement, an employee,
officer or director of Salomon Smith Barney and/or its affiliates covered by an
IRA not subject to Title I of the Act will be considered an Independent Plan
Fiduciary with respect to such IRA.
(b) The total fees paid to the Consulting Group and its affiliates will
constitute no more than reasonable compensation.
(c) No Plan will pay a fee or commission by reason of the acquisition or
redemption of shares in the Trust.
(d) The terms of each purchase or redemption of Trust shares shall remain at
least as favorable to an investing Plan as those obtainable in an arm's length
transaction with an unrelated party.
(e) The Consulting Group will provide written documentation to an Independent
Plan Fiduciary of its recommendations or evaluations based upon objective
criteria.
(f) Any recommendation or evaluation made by the Consulting Group to an
Independent Plan Fiduciary will be implemented only at the express direction of
such Independent Plan Fiduciary, provided, however, that--
(1) If such Independent Plan Fiduciary shall have elected in writing (the
Election), on a form designated by Salomon Smith Barney from time to time for
such purpose, to participate in the Automatic Reallocation Option under the
TRAK Program, the affected Plan or participant account will be automatically
reallocated whenever the Consulting Group modifies the particular asset
allocation recommendation which the Independent Plan Fiduciary has chosen. Such
Election shall continue in effect until revoked or terminated by the
Independent Plan Fiduciary in writing.
(2) Except as set forth below in paragraph II(f)(3), at the time of a change
in the Consulting Group's asset allocation recommendation, each account based
upon the asset allocation model (the Allocation Model) affected by such change
would be adjusted on the business day of the release of the new Allocation
Model by the Consulting Group, except to the extent that market conditions, and
order purchase and redemption procedures may delay such processing through a
series of purchase and redemption transactions to shift assets among the
affected Portfolios.
(3) If the change in the Consulting Group's asset allocation recommendation
exceeds an increase or decrease of more than 10 percent in the absolute
percentage allocated to any one investment medium (e.g., a suggested increase
in a 15 percent allocation to greater than 25 percent, or a decrease of such 15
percent allocation to less than 5 percent), Salomon Smith Barney will send out
a written notice (the Notice) to all Independent Plan Fiduciaries whose current
investment allocation would be affected, describing the proposed reallocation
and the date on which such allocation is to be instituted (the Effective Date).
If the Independent Plan Fiduciary notifies Salomon Smith Barney, in writing, at
least 30 calendar days prior to the proposed Effective Date that such fiduciary
does not wish to follow such revised asset allocation recommendation, the
Allocation Model will remain at the current level, or at such other level as
the Independent Plan Fiduciary then expressly designates, in writing. If the
Independent Plan Fiduciary does not affirmatively "opt out" of the new
Consulting Group recommendation, in writing, prior to the proposed Effective
Date, such new recommendation will be automatically effected by a dollar-for-
dollar liquidation and purchase of the required amounts in the respective
account.
(4) An Independent Plan Fiduciary will receive a trade confirmation of each
reallocation transaction. In this regard, for all Plan investors other than
Section
[Page 60397]
404(c) Plan accounts (i.e., 401(k) Plan accounts), Salomon Smith Barney will
mail trade confirmations on the next business day after the reallocation trades
are executed. In the case of Section 404(c) Plan participants, notification
will depend upon the notification provisions agreed to by the Plan
recordkeeper.
(g) The Consulting Group will generally give investment advice in writing to
an Independent Plan Fiduciary with respect to all available Portfolios.
However, in the case of a Plan providing for participant-directed investments
(the Section 404(c) Plan), the Consulting Group will provide investment advice
that is limited to the Portfolios made available under the Plan.
(h) Any sub-adviser (the Sub-Adviser) that acts for the Trust to exercise
investment discretion over a Portfolio will be independent of Salomon Smith
Barney and its affiliates.
(i) Immediately following the acquisition by a Portfolio of any securities
that are issued by Salomon Smith Barney and/or its affiliates, the percentage
of that Portfolio's net assets invested in such securities will not exceed one
percent.
(j) The quarterly investment advisory fee that is paid by a Plan to the
Consulting Group for investment advisory services rendered to such Plan will be
offset by such amount as is necessary to assure that the Consulting Group
retains no more than 20 basis points from any Portfolio (with the exception of
the Government Money Investments Portfolio and the GIC Fund Portfolio for which
the Consulting Group and the Trust will retain no investment management fee)
which contains investments attributable to the Plan investor.
(k) With respect to its participation in the TRAK Program prior to purchasing
Trust shares,
- -------
/11/ The employee benefit plan, the IRA and the Keogh Plan are collectively
referred to herein as the Plans.
B-14
<PAGE>
(1) Each Plan will receive the following written or oral disclosures from the
Consulting Group:
(A) A copy of the Prospectus for the Trust discussing the investment
objectives of the Portfolios comprising the Trust, the policies employed to
achieve these objectives, the corporate affiliation existing between the
Consulting Group, Salomon Smith Barney and its subsidiaries and the
compensation paid to such entities./12/
(B) Upon written or oral request to Salomon Smith Barney, a Statement of
Additional Information supplementing the Prospectus which describes the types
of securities and other instruments in which the Portfolios may invest, the
investment policies and strategies that the Portfolios may utilize and certain
risks attendant to those investments, policies and strategies.
(C) A copy of the investment advisory agreement between the Consulting Group
and such Plan relating to participation in the TRAK Program and, if applicable,
informing Plan investors of the Automatic Reallocation Option.
(D) Upon written request of Salomon Smith Barney, a copy of the respective
investment advisory agreement between the Consulting Group and the Sub-
Advisers.
(E) In the case of a Section 404(c) Plan, if required by the arrangement
negotiated between the Consulting Group and the Plan, an explanation by a
Salomon Smith Barney Financial Consultant (the Financial Consultant) to
eligible participants in such Plan, of the services offered under the TRAK
Program and the operation and objectives of the Portfolios.
(F) A copy of PTE 94-50 as well as the proposed exemption and the final
exemption
pertaining to the exemptive relief described herein.
(2) If accepted as an investor in the TRAK Program, an Independent Plan
Fiduciary of an IRA or Keogh Plan, is required to acknowledge, in writing,
prior to purchasing Trust shares that such fiduciary has received copies of the
documents described above in subparagraph (k)(1) of this Section.
(3) With respect to a Section 404(c) Plan, written acknowledgement of the
receipt of such documents will be provided by the Independent Plan Fiduciary
(i.e., the Plan administrator, trustee or named fiduciary, as the recordholder
of Trust shares). Such Independent Plan Fiduciary will be required to represent
in writing to Salomon Smith Barney that such fiduciary is (a) independent of
Salomon Smith Barney and its affiliates and (b) knowledgeable with respect to
the Plan in administrative matters and funding matters related thereto, and
able to make an informed decision concerning participation in the TRAK Program.
(4) With respect to a Plan that is covered under Title I of the Act, where
investment decisions are made by a trustee, investment manager or a named
fiduciary, such Independent Plan Fiduciary is required to acknowledge, in
writing, receipt of such documents and represent to Salomon Smith Barney that
such fiduciary is (a) independent of Salomon Smith Barney and its affiliates,
(b) capable of making an independent decision regarding the investment of Plan
assets and (c) knowledgeable with respect to the Plan in administrative matters
and funding matters related thereto, and able to make an informed decision
concerning participation in the TRAK Program.
(l) Subsequent to its participation in the TRAK Program, each Plan receives
the following written or oral disclosures with respect to its ongoing
participation in the TRAK Program:
(1) The Trust's semi-annual and annual report which will include financial
statement for the Trust and investment management fees paid by each Portfolio.
(2) A written quarterly monitoring statement containing an analysis and an
evaluation of a Plan investor's account to ascertain whether the Plan's
investment objectives have been met and recommending, if required, changes in
Portfolio allocations.
(3) If required by the arrangement negotiated between the Consulting Group and
a Section 404(c) Plan, a quarterly, detailed investment performance monitoring
report, in writing, provided to an Independent Plan Fiduciary of such Plan
showing, Plan level asset allocations,
Plan cash flow analysis and annualized risk adjusted rates of return for Plan
investments. In addition, if required by such arrangement, Financial
Consultants will meet periodically with Independent Plan Fiduciaries of Section
404(c) Plans to discuss the report as well as with eligible participants to
review their accounts' performance.
(4) If required by the arrangement negotiated between the Consulting Group and
a Section 404(c) Plan, a quarterly participant performance monitoring report
provided to a Plan participant which accompanies the participant's benefit
statement and describes the investment performance of the Portfolios, the
investment performance of the participant's individual investment in the TRAK
Program, and gives market commentary and toll-free numbers that will enable the
participant to obtain more information about the TRAK Program or to amend his
or her investment allocations.
(5) On a quarterly and annual basis, written disclosures to all Plans of the
(a) percentage of each Portfolio's brokerage commissions that are paid to
Salomon Smith Barney and its affiliates and (b)
[Page 60398]
the average brokerage commission per share paid by each Portfolio to Salomon
Smith Barney and its affiliates, as compared to the average brokerage
commission per share paid by the Trust to brokers other than Salomon Smith
Barney and its affiliates, both expressed as cents per share.
(m) Salomon Smith Barney shall maintain, for a period of six years, the
records necessary to enable the persons described in paragraph (n) of this
Section to determine whether the conditions of this exemption have been met,
except that (1) a prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the control of Salomon Smith Barney
and/or its affiliates, the records are lost or destroyed prior to the end of
the six year period, and (2) no party in interest other than Salomon Smith
Barney shall be subject to the civil penalty that may be assessed under section
502(i) of the Act, or to the taxes imposed by section 4975(a) and (b) of the
Code, if the records are not maintained, or are not available for examination
as required by paragraph (n) below.
(n)(1) Except as provided in section (2) of this paragraph and notwithstanding
any provisions of subsections (a)(2) and (b) of section 504 of the Act, the
records referred to in paragraph (m) of this Section II shall be
unconditionally available at their customary location during normal business
hours by:
(A) Any duly authorized employee or representative of the Department or the
Service;
(B) Any fiduciary of a participating Plan or any duly authorized
representative of such fiduciary;
- -------
/12/ The fact that certain transactions and fee arrangements are the subject
of an administrative exemption does not relieve the Independent Plan Fiduciary
from the general fiduciary responsibility provisions of section 404 of the Act.
In this regard, the Department expects the Independent Plan Fiduciary to
consider carefully the totality of fees and expenses to be paid by the Plan,
including the fees paid directly to Salomon Smith Barney or to other third
parties and/or indirectly through the Trust to Smith Barney.
B-15
<PAGE>
(C) Any contributing employer to any participating Plan or any duly authorized
employee representative of such employer; and
(D) Any participant or beneficiary of any participating Plan, or any duly
authorized representative of such participant or beneficiary.
(2) None of the persons described above in subparagraphs (B)-(D) of this
paragraph (n) shall be authorized to examine the trade secrets of Salomon Smith
Barney or commercial or financial information which is privileged or
confidential.
Section III. Definitions
For purposes of this proposed exemption:
(a) The term "Salomon Smith Barney" means Salomon Smith Barney Inc. and any
affiliate of Salomon Smith Barney, as defined in paragraph (b) of this Section
III.
(b) An "affiliate" of Salomon Smith Barney includes--
(1) Any person directly or indirectly through one or more intermediaries,
controlling, controlled by, or under common control with Salomon Smith Barney.
(For purposes of this subsection, the term "control" means the power to
exercise a controlling influence over the management or policies of a person
other than an individual.)
(2) Any officer, director or partner in such person, and
(3) Any corporation or partnership of which such person is an officer,
director or a 5 percent partner or owner.
(c) An "Independent Plan Fiduciary" is a Plan fiduciary which is independent
of Salomon Smith Barney and its affiliates and is either--
(1) A Plan administrator, sponsor, trustee or named fiduciary, as the
recordholder of Trust shares under a Section 404(c) Plan;
(2) A participant in a Keogh Plan;
(3) An individual covered under a self-directed IRA which invests in Trust
shares;
(4) A trustee, investment manager or named fiduciary responsible for
investment decisions in the case of a Title I Plan that does not permit
individual direction as contemplated by Section 404(c) of the Act; or
(5) A participant in a Plan, such as a Section 404(c) Plan, who is permitted
under the terms of such Plan to direct, and who elects to direct the investment
of assets of his or her account in such Plan.
Section IV. Effective Dates
If granted, this proposed exemption will be effective as of June 21, 1994 with
respect to the transactions described in Section I.A. and B.(1). With respect
to Section I.B.(2) and Section II(f)(1)-(4) of the General Conditions, this
proposed exemption will be effective November 9, 1998.
The availability of this proposed exemption is subject to the express
condition that the material facts and representations contained in the
application for exemption are true and complete and accurately describe all
material terms of the transactions. In the case of continuing transactions, if
any of the material facts or representations described in the applications
change, the exemption will cease to apply as of the date of such change. In the
event of any such change, an application for a new exemption must be made to
the Department.
For a more complete statement of the facts and representations supporting the
Department's decision to grant PTEs 92-77 and PTE 94-50, refer to the proposed
exemptions and the grant notices which are cited above.
Signed at Washington, D.C., this 4th day of November, 1998.
Ivan L. Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 98-29964 Filed 11-6-98; 8:45 am]
BILLING CODE 4510-29-P
B-16
<PAGE>
Federal Register: April 5, 1999 (Volume 64, Number 64)
Notices
Page 16486-16493
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05ap99-118]
- --------------------------------------------------------------------------------
DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 99-15; Exemption Application No. D-10574]
Grant of Individual Exemption To Amend Prohibited Transaction
Exemption (PTE) 94-50 Involving Salomon Smith Barney Inc.
Salomon Smith Barney Located in New York, NY
AGENCY: Pension and Welfare Benefits Administration, U.S. Department of Labor.
ACTION: Grant of individual exemption to modify PTE 94-50.
- --------------------------------------------------------------------------------
SUMMARY: This document contains a final exemption before the Department of
Labor (the Department) which would amend PTE 94-50 (59 FR 32024, June 21,
1994), an exemption granted to Smith Barney, Inc. (Smith Barney), the
predecessor of Salomon Smith Barney. PTE 94-50 relates to the operation of the
TRAK Personalized Investment Advisory Service product (the TRAK Program) and
the Trust for TRAK Investments (subsequently renamed the Trust for Consulting
Group Capital Markets Funds) (the Trust). These transactions are described in a
notice of pendency that was published in the Federal Register on November 9,
1998 at 63 FR 60391.
EFFECTIVE DATE: This exemption is effective as of July 31, 1993 with respect to
the transactions described in Section I.A. and B.(1). of this grant notice. It
is also effective as of March 29, 1994 for transactions involving a daily-
traded collective investment fund (the GIC Fund) that was added to the TRAK
Program pursuant to PTE 94-50. With respect to Section I.B(2) and Section
II(f)(1)-(4) of the General Conditions of this grant notice, which set forth
the amendments to PTE 94-50, this exemption is effective as of November 9,
1998.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady, Office of Exemption
Determinations, Pension and Welfare Benefits Administration, U.S. Department of
Labor, telephone (202) 219-8881. (This is not a toll-free number.)
SUPPLEMENTARY INFORMATION: On November 9, 1998, the Department published, at 63
FR 60391, a notice of proposed exemption in the Federal Register that would
amend PTE 94-50. PTE 94-50 provides an exemption from certain prohibited
transaction restrictions of section 406 of the Employee Retirement Income
Security Act of 1974 (the Act) and from the sanctions resulting from the
application of section 4975 of the Internal Revenue Code of 1986 (the Code), as
amended, by reason of section 4975(c)(1) of the Code. Specifically, PTE 94-50
provides exemptive relief from the restrictions of section 406(a) of the Act
and the sanctions resulting from the application of section 4975 of the Code,
by reason of section 4975(c)(1)(A) through (D) of the Code, for the purchase or
redemption of shares in the Trust by an employee benefit plan, an individual
retirement account, or a retirement plan for a self-employed individual
(collectively, the Plans). PTE 94-50 also provides exemptive relief from the
restrictions of section 406(b) of the Act and the sanctions resulting from the
application of section 4975 of the Code, by reason of section 4975(c)(1)(E) and
(F) of the Code, with respect to the provision, by the Consulting Group of
Smith Barney (the Consulting Group), of investment advisory services to
independent fiduciaries of participating Plans (the Independent Plan
Fiduciaries) that might result in such fiduciary's selection of an investment
portfolio under the TRAK Program for the investment of Plan assets.
Besides the transactions described above, PTE 94-50 permitted Smith Barney to
add a daily-traded collective investment fund (i.e., the GIC Fund) to the
existing Fund Portfolios and to describe the various entities operating the GIC
Fund. Further, PTE 94-50 replaced references to Shearson Lehman with references
to Smith Barney. PTE 94-50 is effective as of July 31, 1993 for the
transactions described in PTE 92- 77 and effective as of March 29, 1994 with
respect to transactions involving the GIC Fund.
Salomon Smith Barney has informed the Department of certain changes to the
facts underlying PTE 94-50. These modifications include (1) Corporate mergers
that have changed the names of the parties described in PTE 94-50 and would
permit broader distribution of TRAK-related products, (2) the implementation of
a recordkeeping reimbursement offset system (the Recordkeeping Reimbursement
Offset Procedure) under the TRAK Program, and (3) the institution of an
automated reallocation option (the Automatic Reallocation Option) under the
TRAK Program for which Salomon Smith Barney has requested administrative
exemptive relief from the Department. The proposed exemption was requested in
an application filed on behalf of Salomon Smith Barney pursuant to section
408(a) of the Act and section 4975(c)(2) of the Code, and in accordance with
the procedures (the Procedures) set forth in 29 CFR Part 2570, Subpart B (55 FR
32836, August 10, 1990). Effective December 31, 1978, section 102 of
Reorganization Plan No. 4 of 1978 (43 FR 47713, October 17, 1978) transferred
the authority of the Secretary of the Treasury to issue exemptions of the type
requested to the Secretary of Labor. Accordingly, this exemption is being
issued solely by the Department.
The proposed exemption gave interested persons an opportunity to comment on
the notice of pendency and to request a public hearing. During the comment
period, the Department received three written comments and no requests for a
hearing in response to the notice. Two comments were submitted by Plan
participants investing in the TRAK Program. The third comment, which is
intended to clarify and
[[Page 16487]]
modify the proposed exemption, was submitted by Salomon Smith Barney.
Following is a discussion of the comments received, the responses provided by
Salomon Smith Barney, and the Department's determinations regarding the
comments.
Participant Comments
The first commenter objects to the proposed exemption because he is under the
impression that the new services that will be
- -------
/1/ On October 5, 1992, the Department granted PTE 92-77 at 55 FR 45833. PTE
92-77 permitted Shearson Lehman Brothers, Inc. (Shearson Lehman) to make the
TRAK Program available to Plans that acquired shares in the Trust. In this
regard, PTE 92-77 permitted Plans to purchase or redeem shares in the Trust and
allowed the Consulting Group to provide investment advisory services to an
Independent Fiduciary of a Plan which might result in such fiduciary's
selection of a Portfolio in the TRAK Program for the investment of Plan assets.
- -------
Subsequent to the granting of PTE 92-77, on July 31, 1993, Smith Barney
acquired certain assets of Shearson Lehman associated with its retail business,
including the TRAK Program, and applied for and received a new exemption (PTE
94-50) for the ongoing operation of the TRAK Program. Essentially, PTE 94-50
amended and replaced PTE 92-77. However, because of certain material factual
changes to the representations supporting PTE 92-77, the Department determined
that the exemption was no longer effective for use by Smith Barney and its
subsidiaries as of the date of the asset sale.
B-17
<PAGE>
offered to TRAK Program investors by Salomon Smith Barney will result in
increased fees paid to consultants and investment advisers by the Funds. The
commenter also does not believe that there will be a corresponding increase in
the growth of the Funds.
Salomon Smith Barney represents that although it is not clear which provisions
in the proposed exemption have elicted the comment, it points out that the
comment relates more or less to the underlying Fund portfolios rather than to
the TRAK Program.
As to the commenter's first area of concern, Salomon Smith Barney explains
that the proposed Automatic Reallocation Option is a service that is to be
provided at no additional cost to the investor and it does not affect the
calculation of the investment advisory fee. In addition, Salomon Smith Barney
represents that it does not have a basis to respond to the inclusion of
"consultants" in this comment. With respect to the commenter's concern about
growth prospects, Salomon Smith Barney states that no investment vehicle can
assure investors future performance.
The second commenter states that while he has no objection to Salomon Smith
Barney's implementation of the Automatic Reallocation Option, he would like to
see the requirement for clear explanations of the choices and the implications
of such choices. The commenter also suggests that Salomon Smith Barney provide
a clear path for revocation of the Automatic Reallocation Option, whereby a
Plan investor's choice would have to be reaffirmed periodically.
In response to this comment, Salomon Smith Barney states that the text of the
announcement referred to in the preamble (the Preamble) at 60394 provides
participants with the same information that the commenter requests. However, as
an alternative to the commenter's suggestion of a reaffirmation mechanism,
Salomon Smith Barney represents that it will include a footnote in the
"Participant Quarterly Review" indicating that the participant is currently
using the Automatic Reallocation Option and stating that such participant can
cancel this service at any time. Salomon Smith Barney proposes to place the
footnote after the legend quoted in Footnote 5 of the Preamble. The additional
language would read as follows:
You have elected to have your TRAK Portfolio automatically reallocated at such
time as the Consulting Group recommends a change to the Allocation Model you
are following. If, at any time, you choose to discontinue this service, please
contact your Financial Consultant for instructions.
Salomon Smith Barney believes the participant will then be consistently
reminded of his or her option to discontinue the Automatic Reallocation Option.
Salomon Smith Barney's Comments
1. Corporate Mergers
Salomon Smith Barney wishes to clarify that on page 60392 of the Preamble, in
the first sentence of the paragraph captioned "Corporate Mergers," the phrase
"Salomon Inc., the ultimate parent of" should be inserted after the phrase
"acquired all the shares of." Also, in this section, Salomon Smith Barney
wishes to modify the first sentence of the third paragraph to clarify that one
of the purposes of the merger, rather than the "sole" purpose of the merger,
was to create additional distribution channels for the TRAK Program.
In response to this comment, the Department concurs with the requested
modifications and has made the suggested changes.
2. Recordkeeping Reimbursement Offset Procedure
Salomon Smith Barney has informed the Department that although it has not yet
implemented the Recordkeeping Reimbursement Offset Procedure in a manner that
will reduce the net outside fee (the Net Outside Fee), at the present time, it
has in place a recordkeeping reimbursement program that reduces recordkeeping
expenses only, at an annual rate of $8.50 per participant position. Salomon
Smith Barney states that this annualized rate has been approved by the Funds'
Board of Trustees and that, of the $8.50 amount, $0.50 per participant position
represents a sub-transfer agency fee for the costs associated with the
application of the reimbursement process (the Processing Fee). Currently,
Salomon Smith Barney states that its affiliate, Smith Barney Corporate Trust
Company, is retaining this Processing Fee.
Salomon Smith Barney has provided an example showing the manner in which the
recordkeeping reimbursement amount is determined by the Funds at the $8.50
level using some of the numbers set forth in the example given in the Preamble
on pages 60392 and 60393. The example assumes that all positions are eligible
for reimbursement because positions in the Government Money Investments
Portfolio and the Stable Value (GIC) Fund Portfolio are not eligible for
recordkeeping reimbursement.
Assume that Plan A has $1 million in assets invested in the TRAK Program and
100 participants. Assume further that Plan A pays its recordkeeper $20 per
participant per year in Annual Fees totaling $2,000 per year or $500 per
quarter and $12 per participant per year in Other Fees, totaling $1,200 per
year or $300 per quarter. Assume also that the Plan pays the recordkeeper an
annual Processing Fee of $150.
At the end of each calendar quarter, Plan A's recordkeeper would determine the
actual number of Fund positions held by the Plan A participants and calculate
the resulting reimbursement amount that would be paid by the Funds. If Plan A
had 300 participant positions at the end of the quarter, the Plan's total
recordkeeping reimbursement amount to be paid by the Funds would be 300 x $2
(the annual amount of $8 divided by 4) or $600.
The Processing Fee paid by the Plan to the recordkeeper for the quarter would
be 300 x $0.125 (the annual amount of $0.50 divided by 4) or $37.50. This
Processing Fee would, in turn, also be credited back to the Plan by the Funds.
Application of Reimbursement to Recordkeeping Fees
<TABLE>
<S> <C>
Quarterly Portion of Annual Fees..................................... $ 500.00
Quarterly Portion of Other Fees/2................................./.. 300.00
Processing Fee....................................................... 37.50
--------
Total Quarterly Recordkeeping Fees................................... $ 837.50
Credit for Reimbursement............................................. $(600.00)
Credit for Processing Fee............................................ $ (37.50)
--------
Total Reimbursement............................................... $(637.50)
Net Amount of Recordkeeping Fees Payable by the Plan................. $ 200.00
Net Amount of Recordkeeping Fees Payable by the Funds................ 637.50
--------
Total Quarterly Recordkeeping Fees................................ $ 837.50
</TABLE>
Since the recordkeeping reimbursement program currently in place applies only
to the payment of expenses related to recordkeeping, there would never be an
"excess reimbursement" according to Salomon Smith Barney. Therefore, the Total
Reimbursement amount would reflect the lesser of the amount calculated as in
the example above, or the actual
[[Page 16488]]
costs billed. If the Total Reimbursement
- -------
/2/ Assumes "Other Fees" are paid by the Plan during the quarter.
B-18
<PAGE>
calculation had exceeded the Total Quarterly Recordkeeping Fees, Salomon Smith
Barney states that the maximum reimbursement amount would be limited to the
Total Quarterly Recordkeeping Fees.
On page 60392 of the Preamble, the second paragraph of the section describing
the Recordkeeping Reimbursement Offset Procedure states that in May 1998, the
Board of Trustees of the Funds approved a recordkeeping reimbursement amount of
$12.50 for each investment position held by a participant. Salomon Smith Barney
notes that the recordkeeping reimbursement amount may be changed by the Board
of Trustees of the Funds from time to time. Therefore, it requests that the
description of the TRAK Program define the reimbursement amount as "such annual
dollar amount per eligible position as shall be set by the Board of Trustees of
the Funds from time to time." Salomon Smith Barney has also informed the
Department that, of the $12.50 annual reimbursement amount approved by the
Board of Trustees of the Funds, $0.50 is being retained by Smith Barney
Corporate Trust Company as a Processing Fee.
The Department does not object to making the foregoing clarifications to the
description of the Recordkeeping Reimbursement Offset Procedure in the
Preamble. However, because Smith Barney Corporate Trust Company is retaining
$0.50 per participant position as a Processing Fee, the Department requested
that Salomon Smith Barney revise the calculations in the example appearing on
pages 60392 and 60393 of the Preamble. In addition to these changes, Salomon
Smith Barney suggested that the following disclaimer language preface the
example in order to avoid investor confusion:
Salomon Smith Barney has provided the following numbers solely for ease of
calculation and not as typical or representative of the operation of the TRAK
product in any particular client circumstance.
Moreover, Salomon Smith Barney notes that because a Plan participating in the
TRAK Program may be required to pay a recordkeeper "Other Fees" in addition to
annual recordkeeping fees, both of which may be billed on a quarterly basis, it
wishes to clarify that "Other Fees" may arise only at certain times of the year
and that it does not wish to imply by the example that "Other Fees" are
regularly billed quarterly in all instances.
In light of these changes, the revised example is set forth as follows:
Salomon Smith Barney has provided the following numbers solely for ease of
calculation and not as typical or representative of the operation of the TRAK
product in any particular client circumstance. Therefore, the Recordkeeping
Reimbursement Offset Procedure would work as follows:
Assume that Plan A has $1 million in assets invested in the TRAK Program and
100 participants. Assume further that Plan A pays its recordkeeper $20 per
participant per year in Annual Fees totaling $2,000 per year or $500 per
quarter and $12 per participant per year in Other Fees, totaling $1,200 per
year or $300 per quarter. Assume also that the Plan pays the recordkeeper an
annual Processing Fee of $150.
At the end of each calendar quarter, Plan A's recordkeeper would determine the
actual number of Fund positions held by the Plan A participants and calculate
the resulting reimbursement amount. If Plan A had 300 participant positions at
the end of the quarter, the Plan's total recordkeeping reimbursement amount
would be 300 x $3 (the annual amount of $12 divided by 4) or $900. In addition,
the Processing Fee paid to the recordkeeper for the quarter would be 300 x
$0.125 (the annual amount of $0.50 divided by 4) or $37.50.
At the end of each calendar quarter, Plan A's recordkeeper would determine the
actual number of Fund positions held by the Plan A participants and calculate
the resulting reimbursement amounts to be paid by the Funds. If Plan A had 300
participant positions at the end of the quarter, the Plan's total recordkeeping
reimbursement amount would be 300 x $3 (the annual amount of $12 divided by 4)
or $900. To this amount would be added the $37.50 Processing Fee paid to the
recordkeeper during the quarter. Such amounts would be credited as follows:
Application of Reimbursement to Recordkeeping Fees
<TABLE>
<S> <C>
Quarterly Portion of Annual Fees/3/ ................................. $ 500.00
Quarterly Portion of Other Fees...................................... 300.00
Processing Fee....................................................... 37.50
Total Quarterly Recordkeeping Fees................................... $ 837.50
Credit for Reimbursement............................................. $(900.00)
Credit for Processing Fee............................................ (37.50)
--------
Total Reimbursement............................................... $(937.50)
--------
Excess Reimbursement................................................. $(100.00)
</TABLE>
Because the Total Reimbursement amount exceeds the Total Quarterly
Recordkeeping Fees, the Plan does not owe any recordkeeping fees for that
period. Therefore, the recordkeeper would not bill the Plan. Instead, the Funds
would pay the recordkeeper the $837.50 amount due.
Application of Excess Reimbursement to the Net Outside Fee
<TABLE>
<S> <C>
Quarterly Net Outside Fee............................................ $2,125.00
Excess Reimbursement................................................. (100.00)
Net Outside Fee Paid by the Plan..................................... $2,025.00
Net Outside Fee Paid by the Funds.................................... 100.00
---------
Total Quarterly Net Outside Fee................................... $2,125.00
---------
</TABLE>
In the program as proposed, the Funds have agreed that any Excess
Reimbursement amount remaining after the payment of the Total Quarterly
Recordkeeping Fees would be paid by the Funds to reduce the Plan's investment
advisory fee obligations. Therefore, the $100 Excess Reimbursement amount would
be applied against the Plan's Quarterly Net Outside Fee. Under such
circumstances, the recordkeeper would advise the Consulting Group that it is
entitled to bill the Plan for the $2,025.00 balance of the Consulting Group's
Net Outside Fee. In turn, the Funds would pay the $100 amount attributable to
the Excess Reimbursement to the Consulting Group./4/
Also, on page 60392 of the Preamble, in the second paragraph of the section
describing the Recordkeeping Reimbursement Offset Procedure, it states that a
participant holding positions in three different Funds would be eligible to
receive a total annual reimbursement of $37.50. In light of the change to the
allocation of the $12.50 reimbursement amount (i.e., $12.00 per participant
position and $0.50 payable to Smith Barney Corporate Trust Company as a
Processing Fee), Salomon Smith Barney wishes to clarify that the participant
would receive a "total annual offset of $36.00" rather than a "total annual
reimbursement of $37.50."
Finally, on page 60392 of the Preamble, in the last sentence of the second
paragraph describing the Recordkeeping Reimbursement Offset Procedure, it
states that an affected Plan will be required to pay only the balance of the
[Net Outside] fee, which is generally charged on a quarterly
- -------
/3/ Assumes "Other Fees" are paid by the Plan during the quarter.
- -------
/4/ It should be noted that the existence or the amount of the excess will not
alter the amount of the recordkeeping or advisory fees. Instead, the
reimbursement calculations will determine the proportion of payment by the
Funds of the Plan's fee obligations.
B-19
<PAGE>
basis, after the excess reimbursement amount has been deducted. Salomon Smith
Barney wishes to point out that because some recordkeepers choose to bill the
initial quarterly installment of the recordkeeping fee in full and then apply
the recordkeeping reimbursement amount for each quarter to the next quarter's
[[Page 16489]]
fees, it suggests that the Department delete the clause stating "and the timing
of the offset of the excess reimbursement amount against the fees," appearing
on page 60393 of the Preamble in the second sentence of the first full
paragraph following the example. The Department concurs with the modifications
to the Preamble.
3. Footnote 3
On page 60392 of the Preamble, Footnote 3 states that Salomon Smith Barney is
offsetting, quarterly, against the Outside Fee, such amount as is necessary to
assure that the Consulting Group retains not more than 20 basis points (as an
Inside Fee) from any Portfolio on investment assets attributable to any Plan.
For purposes of clarification, Salomon Smith Barney requests that the
Department add the following parenthetical exception at the end of the footnote
after the word "Plan":
(except the Government Money Investments Portfolio and the Stable Value (GIC)
Fund Portfolio, as to which no investment management fee is retained).
In response, the Department concurs with this clarification. On page 60393 of
the Preamble, the second sentence of the first paragraph following the example
states that 23 recordkeepers currently provide services to TRAK Program
investors. Salomon Smith Barney explains that since a Plan designates its own
recordkeeper, the number "23" is subject to change. Therefore, Salomon Smith
Barney suggests the deletion of this number and the Department concurs with
this clarification.
4. Investor Contact/Superfluous Language
On page 60393 of the Preamble, Footnote 5 distinguishes the Automatic
Reallocation Option from rebalancing of a participant's account and it
instructs a TRAK Program participant to contact his or her Financial Consultant
should a change in an investment allocation be warranted. Footnote 5 also
states that a Financial Consultant is expected to initiate contact with Plan
participants at least annually to encourage a comparison of the holdings in the
Plan participant's portfolio against the Consulting Group's recommendation.
Salomon Smith Barney wishes to inform the Department that in the case of
retirement plans covering multiple participants, this contact typically may
take the form of regular written communications between the Financial
Consultant and the Plan investor.
Moreover, the Department has stricken the last two sentences of Footnote 5,
which due to a printing error, contain superfluous language also appearing on
page 60393 of the Preamble, in the second and third sentences of the first
paragraph under the description of the Automatic Reallocation Option.
5. Footnote 6
On page 60394 of the Preamble, Footnote 6 states, in pertinent part, that
there are 12 standard asset allocation models (the Allocation Models). Salomon
Smith Barney explains that because it is constantly in the process of refining
the basis for its asset allocation advice, the number of standard Allocation
Models is expected to change as a result of such product modifications. To
avoid an ongoing obligation to alter this number, Salomon Smith Barney suggests
that the reference to the number "12" be deleted. Therefore, the Department has
modified the Preamble, accordingly.
6. Condition (f)
On page 60395 of the Preamble and page 60396 of the operative language of the
proposed exemption, Section II(f)(3) of the General Conditions contains a
notice provision that requires an Independent Plan Fiduciary to give Salomon
Smith Barney at least 30 calendar days prior written notice of its intention to
"opt out" of a new asset allocation model. Salomon Smith Barney wishes to
clarify that an Independent Plan Fiduciary has a period of at least 30 calendar
days during which to provide Salomon Smith Barney with written notice.
Therefore, Salomon Smith Barney proposes that the notice period be described as
"at any time within the period of 30 calendar days" prior to the Effective
Date.
In response to this comment, the Department has made the change suggested by
Salomon Smith Barney.
7. Deletion of the Last Sentence of Paragraph (g)
On pages 60394 and 60395 of the Preamble, paragraph (g) states that if the
Independent Plan Fiduciary "opts out," his or her Plan account will not be
changed on the Effective Date. Paragraph (g) also states that, under such
circumstances, the Allocation Model will remain at its current level or at such
other level as the Independent Plan Fiduciary designates. However, the
Automatic Reallocation Option will remain in effect for future changes in such
participant's Allocation Model.
Salomon Smith Barney explains that once a participant has opted out of the
Automatic Reallocation Option, the participant's account is left at its current
"non-conforming" allocation levels and it no longer resembles a Consulting
Group Allocation Model. Because the Automatic Reallocation Option, in effect,
terminates upon a participant's "opting out," Salomon Smith Barney requests the
deletion of the last sentence of paragraph (g).
In response to this comment, the Department has made the requested deletion to
paragraph (g).
8. General Information
On page 60395 of the proposed exemption, in the section captioned "General
Information," paragraph (2) states that the proposed exemption, if granted,
will not extend to transactions prohibited under section 406(b)(3) of the Act
and section 4975(c)(1)(F) of the Code. The Department wishes to point out that
the exemption will extend to transactions that are prohibited under section
406(b) of the Act and section 4975(c)(1)(E) and (F) of the Code and it has
modified the final exemption, accordingly.
9. Scope of the Term "Employee Benefit Plans"
Salomon Smith Barney requests that the exemption cover transactions in the
TRAK Program that are entered into not only by qualified plans that meet the
requirements of section 401(k) of the Code, but also by any individual account
pension plan that may be subject to Title I of the Act and established under
section 403(b) of the Code (the Section 403(b) Plan). To the extent that
participants in Section 403(b) Plans invest their contributions in shares of
the Funds, Salomon Smith Barney and its affiliates would like to make the TRAK
Program available to them.
The Department concurs with this comment and, on page 60396 of the proposed
exemption, it has revised Section I.A. of the operative language by deleting
the word "or" preceding the phrase "a retirement plan for self-employed
individuals (the Keogh Plan)" and adding
B-20
<PAGE>
the phrase "or an individual account pension plan that is subject to the
provisions of Title I of the Act and established under section 403(b) of the
Code (the Section 403(b) Plan)." In addition, the Department has revised
Footnote 11 of the proposed exemption to include a reference to the term
"Section 403(b) Plan" after the term "Keogh Plan." Further, on page 60398 of
the proposed exemption, the Department has
[[Page 16490]]
revised Section III(c)(3) of the Definitions as follows:
(3) An individual covered under (i) a self-directed IRA or (ii) a Section
403(b) Plan, which invests in Trust shares.
For further information regarding the comments or other matters discussed
herein, interested persons are encouraged to obtain copies of the exemption
application file (Exemption Application No. D-10574) the Department is
maintaining in this case. The complete application file, as well as all
supplemental submissions received by the Department are made available for
public inspection in the Public Documents Room of the Pension and Welfare
Benefits Administration, Room N-5638, U.S. Department of Labor, 200
Constitution Avenue, N.W., Washington, D.C. 20210.
Accordingly, after giving full consideration to the entire record, including
the written comments received, the Department has decided to grant the
exemption subject to the modifications and clarifications described above.
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption under section
408(a) of the Act and section 4975(c)(2) of the Code does not relieve a
fiduciary or other party in interest or disqualified person from certain other
provisions of the Act and the Code, including any prohibited transaction
provisions to which the exemption does not apply and the general fiduciary
responsibility provisions of section 404 of the Act, which require, among other
things, a fiduciary to discharge his or her duties respecting the plan solely
in the interest of the participants and beneficiaries of the plan and in a
prudent fashion in accordance with section 404(a)(1)(B) of the Act; nor does it
affect the requirements of section 401(a) of the Code that the plan operate for
the exclusive benefit of the employees of the employer maintaining the plan and
their beneficiaries;
(2) The exemption will extend to transactions prohibited under section
406(b)(3) of the Act and section 4975(c)(1)(F) of the Code;
(3) In accordance with section 408(a) of the Act and section 4975(c)(2) of the
Code, and the Procedures cited above, and based upon the entire record, the
Department finds that the exemption is administratively feasible, in the
interest of the plan and of its participants and beneficiaries and protective
of the rights of participants and beneficiaries of the plan;
(4) The exemption will be supplemental to, and not in derogation of, any other
provisions of the Act and the Code, including statutory or administrative
exemptions. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(5) This is subject to the express condition that the Summary of Facts and
Representations set forth in the notice of proposed exemption relating to PTE
92-77, as amended by PTE 94-50 and this notice, accurately describe, where
relevant, the material terms of the transactions to be consummated pursuant to
this exemption.
Exemption
Under the authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the Procedures set forth above, the Department
hereby amends PTE 94-50 as follows:
Section I. Covered Transactions
A. The restrictions of section 406(a) of the Act and the sanctions resulting
from the application of section 4975 of the Code, by reason of section
4975(c)(1) (A) through (D) of the Code, shall not apply, to the purchase or
redemption of shares by an employee benefit plan, an individual retirement
account (the IRA), a retirement plan for self- employed individuals (the Keogh
Plan), or an individual account pension plan that is subject to the provisions
of Title I of the Act and established under section 403(b) of the Code (the
Section 403(b) Plan)/5/ in the Trust for Consulting Group Capital Market Funds
(the Trust), established by Salomon Smith Barney, in connection with such
Plans' participation in the TRAK Personalized Investment Advisory Service
product (the TRAK Program).
B. The restrictions of section 406(b) of the Act and the sanctions resulting
from the application of section 4975 of the Code, by reason of section
4975(c)(1) (E) and (F) of the Code, shall not apply, to the provision, by the
Consulting Group, of (1) investment advisory services or (2) an automatic
reallocation option (the Automatic Reallocation Option) to an independent
fiduciary of a participating Plan (the Independent Plan Fiduciary), which may
result in such fiduciary's selection of a portfolio (the Portfolio) in the TRAK
Program for the investment of Plan assets.
This exemption is subject to the following conditions that are set forth below
in Section II.
Section II. General Conditions
(a) The participation of Plans in the TRAK Program will be approved by an
Independent Plan Fiduciary. For purposes of this requirement, an employee,
officer or director of Salomon Smith Barney and/or its affiliates covered by an
IRA not subject to Title I of the Act will be considered an Independent Plan
Fiduciary with respect to such IRA.
(b) The total fees paid to the Consulting Group and its affiliates will
constitute no more than reasonable compensation.
(c) No Plan will pay a fee or commission by reason of the acquisition or
redemption of shares in the Trust.
(d) The terms of each purchase or redemption of Trust shares shall remain at
least as favorable to an investing Plan as those obtainable in an arm's length
transaction with an unrelated party.
(e) The Consulting Group will provide written documentation to an Independent
Plan Fiduciary of its recommendations or evaluations based upon objective
criteria.
(f) Any recommendation or evaluation made by the Consulting Group to an
Independent Plan Fiduciary will be implemented only at the express direction of
such Independent Plan Fiduciary, provided, however, that--
(1) If such Independent Plan Fiduciary shall have elected in writing (the
Election), on a form designated by Salomon Smith Barney from time to time for
such purpose, to participate in the Automatic Reallocation Option under the
TRAK Program, the affected Plan or participant account will be
- -------
/5/ The employee benefit plan, the IRA, the Keogh Plan and the Section 403(b)
Plan are collectively referred to herein as the Plans.
B-21
<PAGE>
automatically reallocated whenever the Consulting Group modifies the particular
asset allocation recommendation which the Independent Plan Fiduciary has
chosen. Such Election shall continue in effect until revoked or terminated by
the Independent Plan Fiduciary in writing.
(2) Except as set forth below in paragraph II(f)(3), at the time of a change
in the Consulting Group's asset allocation recommendation, each account based
upon the asset allocation model (the Allocation Model) affected by such change
would be adjusted on the business day of the release of the new Allocation
Model by the Consulting Group, except to the extent that market conditions, and
order purchase and
[[Page 16491]]
redemption procedures may delay such processing through a series of purchase
and redemption transactions to shift assets among the affected Portfolios.
(3) If the change in the Consulting Group's asset allocation recommendation
exceeds an increase or decrease of more than 10 percent in the absolute
percentage allocated to any one investment medium (e.g., a suggested increase
in a 15 percent allocation to greater than 25 percent, or a decrease of such 15
percent allocation to less than 5 percent), Salomon Smith Barney will send out
a written notice (the Notice) to all Independent Plan Fiduciaries whose current
investment allocation would be affected, describing the proposed reallocation
and the date on which such allocation is to be instituted (the Effective Date).
If the Independent Plan Fiduciary notifies Salomon Smith Barney, in writing, at
any time within the period of 30 calendar days prior to the proposed Effective
Date that such fiduciary does not wish to follow such revised asset allocation
recommendation, the Allocation Model will remain at the current level, or at
such other level as the Independent Plan Fiduciary then expressly designates,
in writing. If the Independent Plan Fiduciary does not affirmatively "opt out"
of the new Consulting Group recommendation, in writing, prior to the proposed
Effective Date, such new recommendation will be automatically effected by a
dollar-for-dollar liquidation and purchase of the required amounts in the
respective account.
(4) An Independent Plan Fiduciary will receive a trade confirmation of each
reallocation transaction. In this regard, for all Plan investors other than
Section 404(c) Plan accounts (i.e., 401(k) Plan accounts), Salomon Smith Barney
will mail trade confirmations on the next business day after the reallocation
trades are executed. In the case of Section 404(c) Plan participants,
notification will depend upon the notification provisions agreed to by the Plan
recordkeeper.
(g) The Consulting Group will generally give investment advice in writing to
an Independent Plan Fiduciary with respect to all available Portfolios.
However, in the case of a Plan providing for participant-directed investments
(the Section 404(c) Plan), the Consulting Group will provide investment advice
that is limited to the Portfolios made available under the Plan.
(h) Any sub-adviser (the Sub-Adviser) that acts for the Trust to exercise
investment discretion over a Portfolio will be independent of Salomon Smith
Barney and its affiliates.
(i) Immediately following the acquisition by a Portfolio of any securities
that are issued by Salomon Smith Barney and/or its affiliates, the percentage
of that Portfolio's net assets invested in such securities will not exceed one
percent.
(j) The quarterly investment advisory fee that is paid by a Plan to the
Consulting Group for investment advisory services rendered to such Plan will be
offset by such amount as is necessary to assure that the Consulting Group
retains no more than 20 basis points from any Portfolio (with the exception of
the Government Money Investments Portfolio and the GIC Fund Portfolio for which
the Consulting Group and the Trust will retain no investment management fee)
which contains investments attributable to the Plan investor.
(k) With respect to its participation in the TRAK Program prior to purchasing
Trust shares,
(1) Each Plan will receive the following written or oral disclosures from the
Consulting Group:
(A) A copy of the Prospectus for the Trust discussing the investment
objectives of the Portfolios comprising the Trust, the policies employed to
achieve these objectives, the corporate affiliation existing between the
Consulting Group, Salomon Smith Barney and its subsidiaries and the
compensation paid to such entities./6/
(B) Upon written or oral request to Salomon Smith Barney, a Statement of
Additional Information supplementing the Prospectus which describes the types
of securities and other instruments in which the Portfolios may invest, the
investment policies and strategies that the Portfolios may utilize and certain
risks attendant to those investments, policies and strategies.
(C) A copy of the investment advisory agreement between the Consulting Group
and such Plan relating to participation in the TRAK Program and, if applicable,
informing Plan investors of the Automatic Reallocation Option.
(D) Upon written request of Salomon Smith Barney, a copy of the respective
investment advisory agreement between the Consulting Group and the Sub-
Advisers.
(E) In the case of a Section 404(c) Plan, if required by the arrangement
negotiated between the Consulting Group and the Plan, an explanation by a
Salomon Smith Barney Financial Consultant (the Financial Consultant) to
eligible participants in such Plan, of the services offered under the TRAK
Program and the operation and objectives of the Portfolios.
(F) A copy of PTE 94-50 as well as the proposed exemption and the final
exemption pertaining to the exemptive relief described herein.
(2) If accepted as an investor in the TRAK Program, an Independent Plan
Fiduciary of an IRA or Keogh Plan, is required to acknowledge, in writing,
prior to purchasing Trust shares that
such fiduciary has received copies of the documents described above in
subparagraph (k)(1) of this Section.
(3) With respect to a Section 404(c) Plan, written acknowledgement of the
receipt of such documents will be provided by the Independent Plan Fiduciary
(i.e., the Plan administrator, trustee or named fiduciary, as the recordholder
of Trust shares). Such Independent Plan Fiduciary will be required to represent
in writing to Salomon Smith Barney that such fiduciary is (a) independent of
Salomon Smith Barney and its affiliates and (b) knowledgeable with respect to
the Plan in administrative matters and funding matters related thereto, and
able to make an informed decision concerning participation in the TRAK Program.
(4) With respect to a Plan that is covered under Title I of the Act, where
investment decisions are made by a trustee, investment manager or a named
fiduciary, such
- -------
/6/ The fact that certain transactions and fee arrangements are the subject of
an administrative exemption does not relieve the Independent Plan Fiduciary
from the general fiduciary responsibility provisions of section 404 of the Act.
In this regard, the Department expects the Independent Plan Fiduciary to
consider carefully the totality of fees and expenses to be paid by the Plan,
including the fees paid directly to Salomon Smith Barney or to other third
parties and/or indirectly through the Trust to Smith Barney.
B-22
<PAGE>
Independent Plan Fiduciary is required to acknowledge, in writing, receipt of
such documents and represent to Salomon Smith Barney that such fiduciary is (a)
independent of Salomon Smith Barney and its affiliates, (b) capable of making
an independent decision regarding the investment of Plan assets and (c)
knowledgeable with respect to the Plan in administrative matters and funding
matters related thereto, and able to make an informed decision concerning
participation in the TRAK Program.
(l) Subsequent to its participation in the TRAK Program, each Plan receives
the following written or oral disclosures with respect to its ongoing
participation in the TRAK Program:
(1) The Trust's semi-annual and annual report which will include financial
statement for the Trust and investment management fees paid by each Portfolio.
(2) A written quarterly monitoring statement containing an analysis and an
evaluation of a
[[Page 16492]]
Plan investor's account to ascertain whether the Plan's investment objectives
have been met and recommending, if required, changes in Portfolio allocations.
(3) If required by the arrangement negotiated between the Consulting Group and
a Section 404(c) Plan, a quarterly, detailed investment performance monitoring
report, in writing, provided to an Independent Plan Fiduciary of such Plan
showing, Plan level asset allocations, Plan cash flow analysis and annualized
risk adjusted rates of return for Plan investments. In addition, if required by
such arrangement, Financial Consultants will meet periodically with Independent
Plan Fiduciaries of Section 404(c) Plans to discuss the report as well as with
eligible participants to review their accounts' performance.
(4) If required by the arrangement negotiated between the Consulting Group and
a Section 404(c) Plan, a quarterly participant performance monitoring report
provided to a Plan participant which accompanies the participant's benefit
statement and describes the investment performance of the Portfolios, the
investment performance of the participant's individual investment in the TRAK
Program, and gives market commentary and toll-free numbers that will enable the
participant to obtain more information about the TRAK Program or to amend his
or her investment allocations.
(5) On a quarterly and annual basis, written disclosures to all Plans of the
(a) percentage of each Portfolio's brokerage commissions that are paid to
Salomon Smith Barney and its affiliates and (b) the average brokerage
commission per share paid by each Portfolio to Salomon Smith Barney and its
affiliates, as compared to the average brokerage commission per share paid by
the Trust to brokers other than Salomon Smith Barney and its affiliates, both
expressed as cents per share.
(m) Salomon Smith Barney shall maintain, for a period of six years, the
records necessary to enable the persons described in paragraph (n) of this
Section to determine whether the conditions of this exemption have been met,
except that (1) a prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the control of Salomon Smith Barney
and/or its affiliates, the records are lost or destroyed prior to the end of
the six year period, and (2) no party in interest other than Salomon Smith
Barney shall be subject to the civil penalty that may be assessed under section
502(i) of the Act, or to the taxes imposed by section 4975(a) and (b) of the
Code, if the records are not maintained, or are not available for examination
as required by paragraph (n) below.
(n)(1) Except as provided in section (2) of this paragraph and notwithstanding
any provisions of subsections (a)(2) and (b) of section 504 of the Act, the
records referred to in paragraph (m) of this Section II shall be
unconditionally available at their customary location during normal business
hours by:
(A) Any duly authorized employee or representative of the Department or the
Service;
(B) Any fiduciary of a participating Plan or any duly authorized
representative of such fiduciary;
(C) Any contributing employer to any participating Plan or any duly authorized
employee representative of such employer; and
(D) Any participant or beneficiary of any participating Plan, or any duly
authorized representative of such participant or beneficiary.
(2) None of the persons described above in subparagraphs (B)-(D) of this
paragraph (n) shall be authorized to examine the trade secrets of Salomon Smith
Barney or commercial or financial information which is privileged or
confidential.
Section III. Definitions
For purposes of this exemption,
(a) The term "Salomon Smith Barney" means Salomon Smith Barney Inc. and any
affiliate of Salomon Smith Barney, as defined in paragraph (b) of this Section
III.
(b) An "affiliate" of Salomon Smith Barney includes--
(1) Any person directly or indirectly through one or more intermediaries,
controlling, controlled by, or under common control with Salomon Smith Barney.
(For purposes of this subsection, the term "control" means the power to
exercise a controlling influence over the management or policies of a person
other than an individual.)
(2) Any officer, director or partner in such person, and
(3) Any corporation or partnership of which such person is an officer,
director or a 5 percent partner or owner.
(c) An "Independent Plan Fiduciary" is a Plan fiduciary which is independent
of Salomon Smith Barney and its affiliates and is either--
(1) A Plan administrator, sponsor, trustee or named fiduciary, as the
recordholder of Trust shares under a Section 404(c) Plan;
(2) A participant in a Keogh Plan;
(3) An individual covered under (A) a self-directed IRA, or (B) a Section
403(b) Plan which invests in Trust shares;
(4) A trustee, investment manager or named fiduciary responsible for
investment decisions in the case of a Title I Plan that does not permit
individual direction as contemplated by Section 404(c) of the Act; or
(5) A participant in a Plan, such as a Section 404(c) Plan, who is permitted
under the terms of such Plan to direct, and who elects to direct the investment
of assets of his or her account in such Plan.
Section IV. Effective Dates
This exemption is effective as of July 31, 1993 with respect to the
transactions described in Section I.A. and B.(1). of this grant notice. It is
also effective as of March 29, 1994 for transactions involving a daily-traded
collective investment fund that was added to the TRAK Program pursuant to PTE
94-50. With respect to Section I.B(2) and Section II(f)(1)-(4) of the General
Conditions of this grant notice, which set forth the amendments to PTE 94-50,
this exemption is effective as of November 9, 1998.
B-23
<PAGE>
The availability of this exemption is subject to the express condition that
the material facts and representations contained in the application for
exemption are true and complete and accurately describe all material terms of
the transactions. In the case of continuing transactions, if any of the
material facts or representations described in the application change, the
exemption will cease to apply as of the date of such change. In the event of
any such change, an application for a new exemption must be made to the
Department.
For a more complete statement of the facts and representations supporting the
Department's decision to grant the case of continuing transactions, if any of
the material facts or representations described in the application change, the
exemption will cease to apply as of the date of such change. In the event of
any such change, an application for a new exemption must be made to the
Department.
For a more complete statement of the facts and representations supporting the
Department's decision to grant this exemption, refer to the proposed exemption
and PTEs 92-77 and 94-50 which are cited above.
[[Page 16493]]
Signed at Washington, DC, this 30th day of March, 1999.
Ivan L. Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration,
Department of Labor.
[FR Doc. 99-8226 Filed 4-2-99; 8:45 am]
BILLING CODE 4510-29-P
B-24
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For More Information
If you want more information about the
Portfolios, the following resources are available upon request.
Annual and Semiannual Reports
Additional information about the Portfolios' investments will be available in
the Portfolios' annual and semiannual reports to shareholders. Each Portfolio's
annual report contains a discussion of the market conditions and investment
strategies that significantly affected the Portfolio's performance during its
last fiscal year.
Statement of Additional Information
The Statement of Additional Information provides more detailed information about
the Portfolios and is incorporated into this prospectus by reference.
Investment Professional
The investor's Financial Consultant is available to answer questions about the
Portfolios or the investor's overall asset allocation program.
Investors can get free copies of reports and SAIs, request other information and
discuss their questions about the Portfolios by contacting their Financial
Consultant, or the
Consulting Group at:
The Consulting Group
222 Delaware Avenue
Wilmington, Delaware 19801
Telephone: 1-212-816-8725
Investors can review and copy the Portfolios' reports and SAI at the Public
Reference Room of the Securities and Exchange Commission. Investors can get
text-only copies for free from the Commission's Internet website at:
http://www.sec.gov, or for a duplicating fee by calling or writing to:
Public Reference Section of the Commission
Washington, D.C. 20549-6009
Telephone: 1-800-SEC-0330
If someone makes a statement about the Portfolios that is not in this
prospectus, you should not rely upon that information. Neither the Portfolios
nor the distributor is offering to sell shares of the Portfolios to any person
to whom the Portfolios may not lawfully sell their shares.
Investment Company Act File No. 811-06318
SalomonSmithBarney
---------------------------
A member of citigroup[LOGO]
Salomon Smith Barney, Inc, is a wholly-owned subsidiary of Citigroup Inc.
Citigroup businesses produce a broad range of financial services--asset
management, banking and consumer finance, credit and charge cards, insurance,
investments and investment banking and trading--and use diverse channels to make
them available to consumer and corporate customers around the world.
(R)1999 Salomon Smith Barney Inc. TK 12/99
PART B
STATEMENT OF ADDITIONAL INFORMATION
CONSULTING GROUP CAPITAL MARKETS FUNDS
December ___, 1999
222 Delaware Avenue ~ Wilmington, Delaware 19801 ~
(212) 816-8725
This Statement of Additional Information supplements the information
contained in the current Prospectus (the "Prospectus") of Consulting Group
Capital Markets Funds (the "Trust"), dated December ___, 1999, and should
be read in conjunction with the Prospectus. The Trust is a series company
that consists of seventeen portfolios, fifteen of which are offered by the
Prospectus. These are Government Money Investments, Intermediate Fixed
Income Investments, Long-Term Bond Investments, Municipal Bond
Investments, Mortgage Backed Investments, High Yield 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 and Multi-Sector Fixed Income Investments. Two
additional portfolios, Multi-Strategy Market Neutral Investments and S & P
500 Index Investments, are offered in separate prospectuses. The
Prospectus may be obtained by contacting any Financial Consultant of
Salomon Smith Barney Inc. ("Salomon 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
Trustees and Executive Officers of the Trust
1
Investment Objectives, Management Policies and Risk Factors
of the Portfolios
3
Investment Restrictions
25
Portfolio Transactions
26
Portfolio Turnover
30
Investment Management and Other Services
31
Purchase of Shares
34
Redemption of Shares
35
Redemptions in Kind
35
Net Asset Value
36
Determination of Performance
37
Taxes
40
Distributor
45
Custodians and Transfer Agent
45
Appendix
46
Capitalized terms used but not defined in this Statement of Additional
Information have the meanings accorded to them in the Prospectus.
TRUSTEES AND EXECUTIVE 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 Portfolio.
Walter E. Auch, Trustee (Age 78). Consultant to companies in the financial
services industry; Director of Pimco Advisers L.P.; Brinson Partners;
Nicholas-Applegate (each a registered investment adviser); Legend
Properties, a real estate management company; Banyan Realty Trust; and
Banyan Land Fund II. Director or trustee of 2 investment companies
associated with Citigroup Inc. ("Citigroup"). His address is 6001 N. 62nd
Place, Paradise Valley, Arizona 85253.
Martin Brody, Trustee (Age 77). Private Investor; Director or trustee of
20 investment companies associated with Citigroup. His address is c/o HMK
Associates, 30 Columbia Turnpike, Florham Park, N.J. 07932.
H. John Ellis, Trustee (Age 72). Retired. Director or trustee of 2
investment companies associated with Citigroup. His address is 858 East
Crystal Downs Drive, Frankfort, Michigan 49635.
Armon E. Kamesar, Trustee (Age 72). Chairman of the Board of TEC, an
international organization of Chief Executive Officers; Trustee, U.S.
Bankruptcy Court. Director or trustee of 2 investment companies associated
with Citigroup. His address is 7328 Country Club Drive, La Jolla, CA
92037.
Stephen E. Kaufman, Trustee (Age 67). Attorney. Director or trustee of 13
investment companies associated with Citigroup. His address is 277 Park
Avenue, New York, New York 10172.
*Heath B. McLendon, Trustee and Chairman of the Board (Age 66). Managing
Director of Salomon Smith Barney and Chairman of the Board of Salomon
Smith Barney Strategy Advisers Inc. and Director and President of SSB Citi
Fund Management LLC ("SSB Citi") (formerly known as SSBC Fund Management
Inc.) and Travelers Investment Adviser, Inc. ("TIA"); Mr. McLendon serves
on the Board of 64 investment companies associated with Citigroup. His
address is 388 Greenwich Street, New York, New York 10013.
Lewis E. Daidone, Senior Vice President and Treasurer (Age 41). Managing
Director of Salomon Smith Barney; Direcor and Senior Vice President of
SSB Citi and TIA. Mr. Daidone serves as Senior Vice President and
Treasurer of 59 investment companies associated with Citigroup. His
address is 388 Greenwich Street, New York, New York 10013.
Frank L. Campanale, Investment Officer (Age 46). President and Chief
Executive Officer of Salomon Smith Barney's Consulting Group. Prior to
1996, National Sales Director for Consulting Group. His address is 222
Delaware Avenue, Wilmington, Delaware, 19801.
LeRoy T. Pease, CFA, Investment Officer (Age 40). First Vice President of
Salomon Smith Barney Consulting Group. Prior to 1996, Chief Investment
Officer of EMT Group and Manager for Investment Strategy for Bell
Atlantic, Philadelphia, Pennsylvania. His address is 222 Delaware Avenue,
Wilmington, Delaware, 19801.
Christina T. Sydor, Secretary (Age 48). Managing Director of Salomon Smith
Barney; General Counsel and Secretary of SSB Citi and TIA. Ms. Sydor
serves as Secretary of 59 investment companies associated with Citigroup.
Her address is 388 Greenwich Street, New York New York 10013.
Paul Brook, Controller (Age 45). Director of Salomon Smith Barney;
Controller or Assistant Treasurer of 43 investment companies associated
with Citigroup; from 1997-1998 Managing Director of AMT Capital Services
Inc.; prior to 1997 Partner with Ernst & Young LLP; His address is 388
Greenwich Street, New York, New York 10013.
Irving David, Controller (Age 38). Director of Salomon Smith Barney.
Controller or Assistant Treasurer of 43 investment companies associated
with Citigroup; Formerly Assistant Treasurer of First Investment
Management Company; His address is 388 Greenwich Street, New York, New
York 10013.
As of November 30, 1999, the Trustees and officers as a group owned less
than 1% of the outstanding common stock of the Trust.
Remuneration. No director, officer or employee of Salomon Smith Barney,
SSB Citi 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 Salomon Smith
Barney, the Manager, any advisor, SSB Citi or any of their affiliates a
fee of $32,000 per annum plus $1,000 per meeting attended. The Trust
reimburses the Trustees for travel and out-of-pocket expenses to attend
meetings of the Board. For the fiscal year ended August 31, 1999, such
fees and expenses totaled $[ ].
For the fiscal year ended August 31, 1999, the Trustees of the Trust were
paid the following compensation:
Pension or Total Total Number
Aggregate Retirement Benefits Compensation of Funds
Compensation Accrued as Expense From Served in
Name From Portfolios of Trust Fund Complex Complex
Heath B. McLendon* None None None 64
Walter Auch None None $ [ ] 2
Martin Brody None None [ ] 20
H. John Ellis None None 2
Armon E. Kamesar None None [ ] 2
Stephen E. Kaufman None None [ ] 13
* Designates "interested trustee".
INVESTMENT OBJECTIVES, MANAGEMENT POLICIES AND RISK FACTORS
Each of the Portfolios is a diversified, open-end management investment
company, except International Fixed Income Investments, which is a non-
diversified Portfolio. The Prospectus discusses the investment objectives
of the Portfolios, separate series of 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.
Equity Securities. The equity oriented Portfolios may invest in all types
of equity securities and High Yield Investments may invest up to 10% of
its assets in equity securities. Common stock is an interest in a company,
limited liability company, or similar entity that entitles the holder to a
share in the profits of the company, in the form of dividends, and the
proceeds from a sale or liquidation of the company. The interests of
common shareholders are the most junior in a corporate structure. This
means that in the event of the bankruptcy of the company its creditors and
any holders of a preferred class of equity securities are paid before the
common stockholders are entitled to receive anything. However, any assets
of the company in excess of the amount owed to creditors or preferred
shareholders are shared pro-rata among the common stockholders. Common
stockholders normally have voting control of the company and are entitled
to vote on the election of directors and certain fundamental corporate
actions.
Preferred stocks are equity securities, but they have many characteristics
of fixed income securities. Their similarities to fixed income securities
generally cause preferred stocks to trade more like debt instruments than
common stocks. Thus, the value of preferred stocks reflects the credit
risk of the company and the dividend yield on the preferred stocks
compared to prevailing interest rates. Preferred shares are entitled to
receive dividends before any dividend is paid to the holders of common
stock. The dividend may be at a fixed or variable dividend payment rate,
may be payable on fixed dates or at times determined by the company and
may be payable in cash, additional shares of preferred stock or other
securities. Many preferred stocks are redeemable at the option of the
company after a certain date. Holders of preferred stock are also
entitled to receive a payment upon the sale or liquidation of a company
before any payment is made to the company's common stockholders. However,
preferred stock is an equity security and, therefore, is junior in
priority of payment to the company's creditors in the event of a
bankruptcy, including holders of the company's debt securities. This
junior ranking to creditors makes preferred stock riskier in some respects
than fixed income securities.
Convertible securities are preferred stocks or fixed income securities
that are convertible at the option of the holder, or in some circumstances
at the option of the issuing company, at a stated exchange rate or formula
into the company's common stock or other equity securities. At the time a
company sells the convertible securities, the conversion price is normally
higher than the market price of the common stock. A holder of convertible
securities will generally receive interest or dividends at a rate lower
than comparable debt securities, but the holder has the potential for
additional gain if the market value of the common stock exceeds the
conversion price. When the market price of the common stock is below the
conversion price, convertible securities tend to trade like fixed income
securities. If the market price of the common stock is higher than the
conversion price, convertible securities tend to trade like the common
stock. Convertible securities rank senior to common stocks in an issuer's
capital structure and consequently may be of higher quality and entail
less risk than the issuer's common stock.
Warrants and stock purchase rights are securities permitting, but not
obligating, their holder to purchase other securities, normally the
issuer's common stock. Stock purchase rights are frequently issued as a
dividend to a company's stockholders and represent the right to purchase a
fixed number of shares at a fixed or formula price. The price may reflect
a discount to the market price. Warrants are generally sold by a company
or issuer together with fixed income securities and represent the right to
a fixed number of shares of common stock or other securities at a fixed or
formula price. The exercise price is normally higher than the market
price at the time the company sells the warrant.
Warrants and stock purchase rights do not carry with them the right to
receive dividends on or to vote the securities that they entitle their
holders to purchase. They also do not entitle the holder to share in the
assets of the company in a liquidation. The rights to purchase common
stock or other securities conferred by a warrant or stock purchase right
can only be exercised on specific dates or for a specific period. Trading
in these instruments is affected both by the relationship of the exercise
price to the current market price of the common stock or other securities
and also by the period remaining until the right or warrant expires. An
investment in warrants and stock purchase rights may be considered more
speculative than other types of equity investments. A warrant or stock
purchase right expires worthless if it is not exercised on or prior to its
expiration date.
Real Estate Investment Trusts ("REITs"). Each Portfolio may invest in
REITs. REITs are pooled investment vehicles which invest primarily in
income producing real estate or real estate related loans or interests.
REITs are generally classified as equity REITs, mortgage REITs or a
combination of equity and mortgage REITs. Equity REITs invest the majority
of their assets directly in real property and derive income primarily from
the collection of rents. Equity REITs can also realize capital gains by
selling properties that have appreciated in value. Mortgage REITs invest
the majority of their assets in real estate mortgages and derive income
from the collection of interest payments. REITs are not taxed on income
distributed to shareholders provided they comply with the applicable
requirements of the Internal Revenue Code of 1986, as amended (the
"Code"). Debt securities issued by REITs, for the most part, are general
and unsecured obligations and are subject to risks associated with REITs.
Investing in REITs involves certain unique risks in addition to those
risks associated with investing in the real estate industry in general. An
equity REIT may be affected by changes in the value of the underlying
properties owned by the REIT. A mortgage REIT may be affected by changes
in interest rates and the ability of the issuers of its portfolio
mortgages to repay their obligations. REITs are dependent upon the skills
of their managers and are not diversified. REITs are generally dependent
upon maintaining cash flows to repay borrowings and to make distributions
to shareholders and are subject to the risk of default by lessees or
borrowers. REITs whose underlying assets are concentrated in properties
used by a particular industry, such as health care, are also subject to
risks associated with such industry.
REITs (especially mortgage REITs) are also subject to interest rate risks.
When interest rates decline, the value of a REIT's investment in fixed
rate obligations can be expected to rise. Conversely, when interest rates
rise, the value of a REIT's investment in fixed rate obligations can be
expected to decline. If the REIT invests in adjustable rate mortgage loans
the interest rates on which are reset periodically, yields on a REIT's
investments in such loans will gradually align themselves to reflect
changes in market interest rates. This causes the value of such
investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
REITs may have limited financial resources, may trade less frequently and
in a limited volume and may be subject to more abrupt or erratic price
movements than larger company securities. Historically REITs have been
more volatile in price than the larger capitalization stocks included in
Standard & Poor's 500 Stock Index (the "S&P 500").
Other Investment Companies. The Portfolios may invest in the securities
of other investment companies to the extent such investments are
consistent with the Portfolios' investment objectives and policies and
permissible under the 1940 Act. Under the 1940 Act, a Portfolio may not
acquire the securities of other domestic or foreign investment companies
if, as a result, (i) more than 10% of the Portfolio's total assets would
be invested in securities of other investment companies, (ii) such
purchase would result in more than 3% of the total outstanding voting
securities of any one investment company being held by the Portfolio, or
(iii) more than 5% of the Portfolio's total assets would be invested in
any one investment company. These limitations do not apply to the purchase
of shares of any investment company in connection with a merger,
consolidation, reorganization or acquisition of substantially all the
assets of another investment company. A Portfolio will not invest in other
investment companies for which the subadvisors or any of their affiliates
act as an investment adviser or distributor.
A Portfolio, as a holder of the securities of other investment companies,
will bear its pro rata portion of the other investment companies'
expenses, including advisory fees. These expenses are in addition to the
direct expenses of the Portfolio's own operations.
Investing in Small and Medium Capitalization Companies. Investing in the
equity securities of small and medium capitalization companies involve
additional risks compared to investing in large capitalization companies.
Compared to large companies, these companies may have more limited product
lines and capital resources; have less established markets for their
products; have earnings that are more sensitive to changes in the economy,
competition and technology and be more dependent upon key members of
management.
The market value of the common stock of small and medium capitalization
companies may be more volatile, particularly in response to company
announcements or industry events; have less active trading markets and be
harder to sell at the time and prices that the investment manager
considers appropriate.
Fixed Income Securities. The market value of the obligations held by the
Portfolios can be expected to vary inversely to changes in prevailing
interest rates. Investors also should recognize that, in periods of
declining interest rates, the Portfolios' yield will tend to be somewhat
higher than prevailing market rates and, in periods of rising interest
rates, the Portfolios' yield will tend to be somewhat lower. Also, when
interest rates are falling, the inflow of net new money to the Portfolios
from the continuous sale of their shares will tend to be invested in
instruments producing lower yields than the balance of their portfolios,
thereby reducing the Portfolios' current yield. In periods of rising
interest rates, the opposite can be expected to occur. In addition,
securities in which the Portfolios 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.
The Portfolios invest in U.S. Government securities, corporate bonds,
debentures, non-convertible fixed income preferred stocks, mortgage
related securities, asset-backed securities ("ABS"), Eurodollar
certificates of deposit, Eurodollar bonds and Yankee bonds.
Debt Securities Rating Criteria. Investment grade debt securities are
those rated "BBB" or higher by Standard & Poor's Ratings Group ("S & P"),
the equivalent rating of other nationally recognized statistical rating
organizations ("NRSROs") or determined to be of equivalent credit quality
by the subadviser. Debt securities rated BBB are considered medium grade
obligations with speculative characteristics, and adverse economic
conditions or changing circumstances may weaken the issuer's ability to
pay interest and repay principal.
Below investment grade debt securities are those rated "BB" and below by S
& P or the equivalent rating of other NRSROs. Below investment grade debt
securities or comparable unrated securities are commonly referred to as
"junk bonds" and are considered predominantly speculative and may be
questionable as to principal and interest payments. Changes in economic
conditions are more likely to lead to a weakened capacity to make
principal payments and interest payments. The amount of junk bond
securities outstanding has proliferated as an increasing number of issuers
have used junk bonds for corporate financing. An economic downturn could
severely affect the ability of highly leveraged issuers to service their
debt obligations or to repay their obligations upon maturity. Factors
having an adverse impact on the market value of lower quality securities
will have an adverse effect on the Portfolio's net asset value to the
extent it invests in such securities. In addition, the Portfolios may
incur additional expenses to the extent they are required to seek recovery
upon a default in payment of principal or interest on their portfolio
holdings.
The secondary market for junk bond securities, which is concentrated in
relatively few market makers, may not be as liquid as the secondary market
for more highly rated securities, a factor which may have an adverse
effect on a Portfolio's ability to dispose of a particular security when
necessary to meet its liquidity needs. Under adverse market or economic
conditions, the secondary market for junk bond securities could contract
further, independent of any specific adverse changes in the condition of a
particular issuer. As a result, a Portfolio could find it more difficult
to sell these securities or may be able to sell the securities only at
prices lower than if such securities were widely traded. Prices realized
upon the sale of such lower rated or unrated securities, under these
circumstances, may be less than the prices used in calculating the
Portfolio's net asset value.
Since investors generally perceive that there are greater risks associated
with lower quality debt securities of the type in which a Portfolio may
invest a portion of its assets, the yields and prices of such securities
may tend to fluctuate more than those for higher rated securities. In the
lower quality segments of the debt securities market, changes in
perceptions of issuers' creditworthiness tend to occur more frequently and
in a more pronounced manner than do changes in higher quality segments of
the debt securities market, resulting in greater yield and price
volatility.
Lower rated and comparable unrated debt securities tend to offer higher
yields than higher rated securities with the same maturities because the
historical financial condition of the issuers of such securities may not
have been as strong as that of other issuers. However, lower rated
securities generally involve greater risks of loss of income and principal
than higher rated securities. The subadvisors will attempt to reduce
these risks through portfolio diversification and by analysis of each
issuer and its ability to make timely payments of income and principal, as
well as broad economic trends and corporate developments.
The definitions of the ratings of debt obligations may be found in the
Appendix following this Statement of Additional Information.
Ratings as Investment Criteria. In general, the ratings of an NRSRO such
as Moody's Investors Service, Inc. ("Moody's") and 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 "Subadvisors") 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.
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 that Portfolio. Neither event will require the
sale of the debt obligation by the Portfolio, but the Portfolio's
Subadvisors will consider the event in their 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 an NRSRO, a Portfolio will attempt to use comparable
ratings as standards for its investments in accordance with its investment
objectives and policies.
Municipal Obligations. Municipal Bond Investments invests in municipal
obligations. These are obligations 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
the interest on which, in the opinion of bond counsel to the issuer, is
exempt from federal income tax. Municipal obligations are issued to obtain
funds for various public purposes, including the construction of public
facilities such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets, water and sewer works, gas, and electric
utilities. They may also be issued to refund outstanding obligations, to
obtain funds for general operating expenses, to obtain funds to loan to
other public institutions and facilities or to obtain funds in
anticipation of the receipt of revenue or the issuance of other
obligations. Municipal obligations consist of municipal bonds, municipal
notes and municipal commercial paper as well as variable or floating rate
obligations and participation interests.
Municipal obligations are subject to the provisions of bankruptcy,
insolvency and other laws, such as the federal Bankruptcy Code, affecting
the rights and remedies of creditors. In addition, Congress or state
legislatures may enact laws extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations or upon the ability of municipalities to levy taxes. There is
also the possibility that, as a result of litigation or other conditions,
the power or ability of any issuer to pay when due, the principal of and
interest on its obligations may be materially affected.
The yields on municipal obligations are dependent on a variety of factors,
including general market conditions, supply and demand, general conditions
of the municipal market, size of a particular offering, the maturity of
the obligation and the rating of the issue.
For purposes of applying the Portfolio's diversification, concentration
and other restrictions, the identification of the issuer of municipal
obligations depends on the terms and conditions of the obligation. The
"issuer" of municipal obligations is generally deemed to be the person
expected to be the source of principal and interest payments on the
obligations and may be:
? the governmental agency, authority, instrumentality or other political
subdivision that issued the security;
? the non-governmental user of a revenue bond-financed facility, the
assets and revenues of which will be used to meet the payment
obligations on the municipal security; or
? the guarantor of payment obligations on the municipal obligations.
Municipal bonds, which generally have maturities of more than one year
when issued, are designed to meet longer-term capital needs. Municipal
bonds have two principal classifications: general obligation bonds and
revenue bonds. General obligation bonds are backed by the issuer's pledge
of its full faith and credit based on its ability to levy taxes for the
payment of principal and interest. These levies may be constitutionally
or statutorily limited as to rate or amount. Revenue bonds are not backed
by an issuer's taxing authority but are payable only from the revenue
derived from a particular facility or class of facilities. The issuer may
repay these bonds from the proceeds of a special excise tax or other
specific revenue source, but not the issuer's general taxing power.
Private activity bonds include certain types of industrial development
bonds ("IDBs") issued by public authorities to finance various privately-
operated facilities for business and manufacturing, housing, sports,
convention or trade show facilities, airport, mass transit, port and
parking facilities, air or water pollution control facilities, and certain
facilities for water supply, gas, electricity or sewage or solid waste
disposal. Private activity bonds are, in most cases, revenue bonds and
are generally secured by the revenues derived from payments by the private
user. The payment of the principal and interest on private activity bonds
is dependent solely on the ability of the user of the facilities financed
by the bonds to meet its financial obligations and the pledge, if any, of
real and personal property so financed as security for such payment.
Private activity bonds that are issued by or on behalf of public
authorities to finance privately operated facilities are considered to be
municipal obligations if the interest paid on them qualifies as excluded
from gross income (but not necessarily from alternative minimum taxable
income) for federal income tax purposes in the opinion of bond counsel to
the issuer. Dividends derived from interest income on municipal
obligations are a "current earnings" adjustment for purposes of the
federal corporate alternative minimum tax.
Interest income on certain types of private activity bonds issued after
August 7, 1986 to finance non-governmental activities is a specific tax
preference item for purposes of the federal individual and corporate
alternative minimum taxes. Individual and corporate shareholders may be
subject to a federal alternative minimum tax to the extent that the fund's
dividends are derived from interest on those bonds.
Municipal notes are short-term obligations of issuing municipalities or
agencies, generally having maturities of less than three years, such as
tax anticipation notes, revenue anticipation notes and bond anticipation
notes. These instruments are sold in anticipation of the collection of
taxes, receipt of other revenues or a bond sale. State and local
governments or governmental entities issue these notes to provide short-
term capital or to meet cash flow needs.
Mortgage Backed Securities. Mortgage Backed Investments, Intermediate
Fixed Income Investments, Long-Term Bond Investments, Balanced Investments
and Multi-Sector Fixed Income Investments may invest in mortgage related
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.
Government National Mortgage Association ("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
the Federal National Mortgage Association ("FNMA") and Federal Home Loan
Mortgage Corporation ("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 Portfolios' investment objectives and policies, will consider
making investments in those new types of securities on behalf of the
Portfolios. The Portfolios will not invest more than 25% of its assets in
privately issued mortgage related securities.
Mortgage Backed Investments, Intermediate Fixed Income Investments, Long-
Term Bond Investments and Balanced Investments may invest in government
stripped mortgage related securities, collateralized mortgage obligations
("CMOs") collateralized by mortgage loans or mortgage pass-through
certificates and zero coupon securities, which, due to changes in interest
rates, may be more speculative and subject to greater fluctuations in
value that securities that pay interest currently. 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.
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 Portfolios 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").
Asset-Backed Securities ("ABS"). Intermediate Fixed Income Investments,
Long-Term Bond Investments and Balanced Investments may each invest up to
5% of their assets and Multi-Sector Fixed Income Investments may invest up
to 10% of its assets in ABSs. ABSs may enhance a Portfolio's performance,
however their use involves certain risks that may not be found in other
mutual fund investments. The Portfolios will only invest in ABSs that
have received a AAA rating from both Moody's and S&P or an equivalent
rating from another nationally recognized statistical rating organization.
Mortgage Dollar Roll Transactions. In order to enhance current income,
Mortgage Backed Investments, Balanced Investments and Multi-Sector Fixed
Income Investments may enter into mortgage dollar rolls with respect to
mortgage related securities issued by GNMA, FNMA and FHLMC. In a mortgage
dollar roll transaction, a Portfolio sells a mortgage related security to
a financial institution, such as a bank or a 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, a 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 a Portfolio exceeding the yield on the securities
sold. Mortgage dollar roll transactions involve the risk that the market
value of the securities sold by a Portfolio may decline below the
repurchase price of those securities. At the time a Portfolio enters into
a mortgage dollar roll transaction, it will place in a segregated
custodial account liquid securities 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. Mortgage
dollar roll transactions are considered to be borrowings by a Portfolio.
High Yield Securities. High Yield Investments and Multi-Sector Fixed
Income Investments may invest in medium or lower rated securities and
unrated securities of comparable quality, sometimes referred to as "junk
bonds." Generally, medium or lower rated securities and unrated
securities of comparable quality 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 obligations.
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
generally are unsecured and frequently subordinated to the prior payment
of senior indebtedness. In light of these risks, the Board of Trustees has
instructed the Subadvisors, 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 securities are traded are more limited that
those in which higher rated securities are traded. The existence of
limited markets may make it more difficult for the Portfolio to obtain
accurate market quotations for purposes of valuing its securities and
calculating its net asset value. Moreover, the lack of a liquid trading
market may restrict the availability of securities for the Portfolio to
purchase and may also have the effect of limiting the ability of the
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, the
Portfolio may have to replace the security with a lower yielding security,
resulting in a decreased return for investors. Also, 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 the Portfolio
may decline proportionately more than a portfolio consisting of higher
rated securities. If the 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 because of
changes in interest rates than bonds that pay interest currently.
Subsequent to its purchase by the 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 Subadvisor will consider the event in
determining whether the Portfolio should continue to hold the security.
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 a Portfolio. 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 the diversification requirements of the tax code, may invest up to 25%
of its total assets in debt securities issued by supranational
organizations such as the International Bank for Reconstruction and
Development (commonly referred to as the World Bank), which was chartered
to finance development projects in developing member countries; the
European 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.
ADRs, EDRs and GDRs. The Portfolios may also purchase American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs") and Global
Depository Receipts ("GDRs") or other securities representing underlying
shares of foreign companies. ADRs are publicly traded on exchanges or
over-the-counter in the United States and are issued through "sponsored"
or "unsponsored" arrangements. In a sponsored ADR arrangement, the
foreign issuer assumes the obligation to pay some or all of the
depository's transaction fees, whereas under an unsponsored arrangement,
the foreign issuer assumes no obligation and the depository's transaction
fees are paid by the ADR holders. In addition, less information is
available in the United States about an unsponsored ADR than about a
sponsored ADR, and the financial information about a company may not be as
reliable for an unsponsored ADR as it is for a sponsored ADR. A Portfolio
may invest in ADRs through both sponsored and unsponsored arrangements.
Eurodollar Instruments and Yankee Bonds. Intermediate Fixed Income
Investments, Long-Term Bond Investments and Multi-Sector Fixed Income
Investments may invest in Eurodollar certificates of deposit ("ECDs"),
Eurodollar bonds and Yankee bonds. Eurodollar instruments are bonds of
corporate and government issuers that pay interest and principal in U.S.
dollars but are issued in markets outside the United States, primarily in
Europe. Yankee bonds are bonds of foreign governments and their agencies
and foreign banks and corporations that pay interest in U.S. dollars and
are typically issued in the U.S. ECDs are U.S. dollar-denominated
certificates of deposit issued by foreign branches of domestic banks.
Long-Term Bond Investments may invest up to 15% of its assets in Yankee
bonds.
Risks of Non-U.S. Investments. To the extent a Portfolio invests in the
securities of non-U.S. issuers, those investments involve considerations
and risks not typically associated with investing in the securities of
issuers in the U.S. These risks are heightened with respect to
investments in countries with emerging markets and economies. The risks
of investing in securities of non-U.S. issuers or issuers with significant
exposure to non-U.S. markets may be related, among other things, to (i)
differences in size, liquidity and volatility of, and the degree and
manner of regulation of, the securities markets of certain non-U.S.
markets compared to the securities markets in the U.S.; (ii) economic,
political and social factors; and (iii) foreign exchange matters, such as
restrictions on the repatriation of capital, fluctuations in exchange
rates between the U.S. dollar and the currencies in which a Portfolio's
portfolio securities are quoted or denominated, exchange control
regulations and costs associated with currency exchange. The political and
economic structures in certain non-U.S. countries, particularly emerging
markets, are expected to undergo significant evolution and rapid
development, and such countries may lack the social, political and
economic stability characteristic of more developed countries.
Unanticipated political or social developments may affect the values of a
Portfolio's investments in such countries. The economies and securities
and currency markets of many emerging markets have experienced significant
disruption and declines. There can be no assurances that these economic
and market disruptions will not continue.
Foreign Securities Markets and Regulations. There may be less publicly
available information about non-U.S. markets and issuers than is available
with respect to U.S. securities and issuers. Non-U.S. companies generally
are not subject to accounting, auditing and financial reporting standards,
practices and requirements comparable to those applicable to U.S.
companies. The trading markets for most non-U.S. securities are generally
less liquid and subject to greater price volatility than the markets for
comparable securities in the U.S. The markets for securities in certain
emerging markets are in the earliest stages of their development. Even the
markets for relatively widely traded securities in certain non-U.S.
markets, including emerging countries, may not be able to absorb, without
price disruptions, a significant increase in trading volume or trades of a
size customarily undertaken by institutional investors in the U.S.
Additionally, market making and arbitrage activities are generally less
extensive in such markets, which may contribute to increased volatility
and reduced liquidity. The less liquid a market, the more difficult it may
be for the a Portfolio to accurately price its portfolio securities or to
dispose of such securities at the times determined by the subadviser to be
appropriate. The risks associated with reduced liquidity may be
particularly acute in situations in which a Portfolio's operations require
cash, such as in order to meet redemptions and to pay its expenses.
Economic, Political and Social Factors. Certain non-U.S. countries,
including emerging markets, may be subject to a greater degree of
economic, political and social instability than is the case in the U.S.
and Western European countries. Such instability may result from, among
other things: (i) authoritarian governments or military involvement in
political and economic decision making; (ii) popular unrest associated
with demands for improved economic, political and social conditions;
(iii) internal insurgencies; (iv) hostile relations with neighboring
countries; and (v) ethnic, religious and racial disaffection and conflict.
Such economic, political and social instability could significantly
disrupt the financial markets in such countries and the ability of the
issuers in such countries to repay their obligations. Investing in
emerging countries also involves the risk of expropriation,
nationalization, confiscation of assets and property or the imposition of
restrictions on foreign investments and on repatriation of capital
invested. In the event of such expropriation, nationalization or other
confiscation in any emerging country, a Portfolio could lose its entire
investment in that country.
Certain emerging market countries restrict or control foreign investment
in their securities markets to varying degrees. These restrictions may
limit a Portfolio's investment in those markets and may increase the
expenses of the Portfolio. In addition, the repatriation of both
investment income and capital from certain markets in the region is
subject to restrictions such as the need for certain governmental
consents. Even where this is no outright restriction on repatriation of
capital, the mechanics of repatriation may affect certain aspects of a
Portfolio's operation.
Economies in individual non-U.S. countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross
domestic product, rates of inflation, currency valuation, capital
reinvestment, resource self-sufficiency and balance of payments positions.
Many non-U.S. countries have experienced substantial, and in some cases
extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had, and may continue to have, very
negative effects on the economies and securities markets of certain
emerging countries.
Economies in emerging countries generally are dependent heavily upon
international trade and, accordingly, have been and may continue to be
affected adversely by trade barriers, exchange controls, managed
adjustments in relative currency values and other protectionist measures
imposed or negotiated by the countries with which they trade. These
economies also have been, and may continue to be, affected adversely by
economic conditions in the countries with which they trade.
Currency Risks. The value of the securities quoted or denominated in
international currencies may be adversely affected by fluctuations in the
relative currency exchange rates and by exchange control regulations. A
Portfolio's investment performance may be negatively affected by a
devaluation of a currency in which the Portfolio's investments are quoted
or denominated. Further, a Portfolio's investment performance may be
significantly affected, either positively or negatively, by currency
exchange rates because the U.S. dollar value of securities quoted or
denominated in another currency will increase or decrease in response to
changes in the value of such currency in relation to the U.S. dollar.
Custodian Services and Related Investment Costs. Custodial services and
other costs relating to investment in international securities markets
generally are more expensive than in the U.S. Such markets have settlement
and clearance procedures that differ from those in the U.S. In certain
markets there have been times when settlements have been unable to keep
pace with the volume of securities transactions, making it difficult to
conduct such transactions. The inability of a Portfolio to make intended
securities purchases due to settlement problems could cause the Portfolio
to miss attractive investment opportunities. Inability to dispose of a
portfolio security caused by settlement problems could result either in
losses to the Portfolio due to a subsequent decline in value of the
portfolio security or could result in possible liability to the Portfolio.
In addition, security settlement and clearance procedures in some emerging
countries may not fully protect a Portfolio against loss or theft of its
assets.
Withholding and Other Taxes. The Portfolios will be subject to taxes,
including withholding taxes, on income (possibly including, in some cases,
capital gains) that are or may be imposed by certain non-U.S. countries
with respect to a Portfolio's investments in such countries. These taxes
will reduce the return achieved by a Portfolio. Treaties between the U.S.
and such countries may not be available to reduce the otherwise applicable
tax rates.
Economic Monetary Union ("EMU"). On January 1, 1999, 11 European
countries adopted a single currency - the Euro. The conversion to the
Euro is being phased in over a three-year period. For participating
countries, EMU will mean sharing a single currency and single official
interest rate and adhering to agreed upon limits on government borrowing.
Budgetary decisions will remain in the hands of each participating
country, but will be subject to each country's commitment to avoid
"excessive deficits" and other more specific budgetary criteria. A
European Central Bank is responsible for setting the official interest
rate to maintain price stability within the Euro zone.
EMU is driven by the expectation of a number of economic benefits,
including lower transaction costs, reduced exchange risk, greater
competition, and a broadening and deepening of European financial markets.
However, there are a number of significant risks associated with EMU.
Monetary and economic union on this scale has never been attempted before.
There is a significant degree of uncertainty as to whether participating
countries will remain committed to EMU in the face of changing economic
conditions. This uncertainty may increase the volatility of European
markets.
Currency Exchange Rates. A Portfolio's share value may change
significantly when the currencies, other than the U.S. dollar, in which
that Portfolio's investments are quoted or denominated, strengthen or
weaken against the U.S. dollar. Currency exchange rates generally are
determined by the forces of supply and demand in the foreign exchange
markets and the relative merits of investments in different countries as
seen from an international perspective. Currency exchange rates can also
be affected unpredictably by intervention by U.S. or foreign governments
or central banks or by currency controls or political developments in the
United States or abroad.
Forward Currency Contracts. The Portfolios may invest in securities
quoted or denominated in foreign currencies, 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 a Portfolio's
securities are or may be quoted or 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 a
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.
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. The Portfolios, however, may enter into forward
currency contracts containing either or both deposit requirements and
commissions.
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 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.
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 Subadvisor. 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 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 the Portfolio holds a
substantial quantity of securities and are unrelated to the qualitative
rating that may be assigned to any particular security. 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, a 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
subadvisor 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 adverse market movements
could continue with respect to those contracts to an unlimited extent over
a period of time.
Options on Securities and Securities Indices. Each Portfolio may purchase
put and call options on any security in which it may invest or options on
any securities index based on securities in which it may invest. A
Portfolio would also be able to enter into closing sale transactions in
order to realize gains or minimize losses on options it has purchased.
Writing Covered Call and Put Options on Securities. A call option written
by a Portfolio obligates the Portfolio to sell specified securities to the
holder of the option at a specified price if the option is exercised at
any time before the expiration date. Call options that are covered mean
that the Portfolio will own the securities subject to the options as long
as the options are outstanding, or the Portfolio will use the other
methods described below. A Portfolio's purpose in writing covered call
options is to realize greater income than would be realized on portfolio
securities transactions alone. However, the Portfolio may forego the
opportunity to profit from an increase in the market price of the
underlying security.
A covered put option written by a Portfolio would obligate the Portfolio
to purchase specified securities from the option holder at a specified
price if the option is exercised at any time before the expiration date.
Put options that are covered, means that the Portfolio would have
segregated assets with a value at least equal to the exercise price of the
put option. The purpose of writing such options is to generate additional
income for the Portfolio. However, in return for the option premium, the
Portfolio accepts the risk that it may be required to purchase the
underlying security at a price in excess of its market value at the time
of purchase.
Call and put options written by a Portfolio will also be considered to be
covered to the extent the Portfolio's liabilities under such options are
wholly or partially offset by its rights under call and put options
purchased by the Portfolio. In addition, a written call option or put may
be covered by entering into an offsetting forward contract and/or by
purchasing an offsetting option or any other option which, by virtue of
its exercise price or otherwise, reduces the Portfolio's net exposure on
its written option position.
Writing Covered Call and Put Options on Securities Indices. Each
Portfolio may also write (sell) covered call and put options on any
securities index composed of securities in which it may invest. Options on
securities indices are similar to options on securities, except that the
exercise of securities index options requires cash payments and does not
involve the actual purchase or sale of securities. In addition, securities
index options are designed to reflect price fluctuations in a group of
securities or segments of the securities market rather than price
fluctuations in a single security.
A Portfolio may cover call options on a securities index by owning
securities whose price changes are expected to be similar to those of the
underlying index, or by having an absolute and immediate right to acquire
such securities without additional cash consideration (or for additional
consideration if cash in such amount is segregated) upon conversion or
exchange of other securities in its portfolio. A Portfolio may cover call
and put options on a securities index by segregating assets with a value
equal to the exercise price.
[Writing Uncovered Call and Put Options on Securities and Securities
Indices. Each Portfolio may write options that are not covered by
portfolio securities. This is regarded as a speculative investment
technique that could expose a Portfolio to substantial losses. A
Portfolio will designate liquid securities in the amount of its potential
obligation under uncovered options, and increase or decrease the amount of
designated assets daily based on the amount of the then-current obligation
under the option. This designation of liquid assets will not eliminate
the risk of loss from writing the option but it will ensure that a
Portfolio can satisfy its obligations under the option.]???
Purchasing Call and Put Options. The Portfolios will normally purchase
call options in anticipation of an increase in the market value of
securities of the type in which it may invest. The purchase of a call
option will entitle a Portfolio, in return for the premium paid, to
purchase specified securities at a specified price during the option
period. A Portfolio will ordinarily realize a gain if, during the option
period, the value of such securities exceeded the sum of the exercise
price, the premium paid and transaction costs; otherwise the Portfolio
will realize either no gain or a loss on the purchase of the call option.
A Portfolio will normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio ("protective
puts") or in securities in which it may invest. The purchase of a put
option will entitle the Portfolio, in exchange for the premium paid, to
sell specified securities at a specified price during the option period.
The purchase of protective puts is designed to offset or hedge against a
decline in the market value of the Portfolio's securities. Put options may
also be purchased by a Portfolio for the purpose of affirmatively
benefiting from a decline in the price of securities which it does not
own. The Portfolio will ordinarily realize a gain if, during the option
period, the value of the underlying securities decreased below the
exercise price sufficiently to more than cover the premium and transaction
costs; otherwise the Portfolio will realize either no gain or a loss on
the purchase of the put option. Gains and losses on the purchase of
protective put options would tend to be offset by countervailing changes
in the value of the underlying portfolio securities.
Risks of Trading Options. There is no assurance that a liquid secondary
market on an options exchange will exist for any particular
exchange-traded option, or at any particular time. If a Portfolio is
unable to effect a closing purchase transaction with respect to covered
options it has written, the Portfolio will not be able to sell the
underlying securities or dispose of its segregated assets until the
options expire or are exercised. Similarly, if a Portfolio is unable to
effect a closing sale transaction with respect to options it has
purchased, it will have to exercise the options in order to realize any
profit and will incur transaction costs upon the purchase or sale of
underlying securities.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in
certain options; (ii) restrictions may be imposed by an exchange on
opening or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options; (iv) unusual or unforeseen circumstances may interrupt
normal operations on an exchange; (v) the facilities of an exchange or the
Options Clearing Corporation (the "OCC") may not at all times be adequate
to handle current trading volume; or (vi) one or more exchanges could, for
economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that exchange (or in that
class or series of options) would cease to exist, although outstanding
options on that exchange, if any, that had been issued by the OCC as a
result of trades on that exchange would continue to be exercisable in
accordance with their terms.
A Portfolio may terminate its obligations under an exchange-traded call or
put option by purchasing an option identical to the one it has written.
Obligations under over-the-counter options may be terminated only by
entering into an offsetting transaction with the counterparty to such
option. Such purchases are referred to as "closing purchase
transactions."
A Portfolio may purchase and sell both options that are traded on U.S. and
foreign exchanges and options traded over the counter with broker-dealers
who make markets in these options. The ability to terminate
over-the-counter options is more limited than with exchange-traded options
and may involve the risk that broker-dealers participating in such
transactions will not fulfill their obligations. Until such time as the
staff of the Securities and Exchange Commission (the "SEC") changes its
position, a Portfolio will treat purchased over-the-counter options and
all assets used to cover written over-the-counter options as illiquid
securities, except that with respect to options written with primary
dealers in U.S. Government securities pursuant to an agreement requiring a
closing purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to the formula.
Transactions by a Portfolio in options on securities and indices will be
subject to limitations established by each of the exchanges, boards of
trade or other trading facilities governing the maximum number of options
in each class which may be written or purchased by a single investor or
group of investors acting in concert. Thus, the number of options that a
Portfolio may write or purchase may be affected by options written or
purchased by other investment advisory clients. An exchange, board of
trade or other trading facility may order the liquidations of positions
found to be in excess of these limits, and it may impose certain other
sanctions.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. The successful use of
protective puts for hedging purposes depends in part on a subadvisor's
ability to predict future price fluctuations and the degree of correlation
between the options and securities markets.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent the options markets
close before the markets for the underlying securities, significant price
movements can take place in the underlying markets that cannot be
reflected in the options markets.
In addition to the risks of imperfect correlation between a Portfolio's
portfolio and the index underlying the option, the purchase of securities
index options involves the risk that the premium and transaction costs
paid by the Portfolio in purchasing an option will be lost. This could
occur as a result of unanticipated movements in the price of the
securities comprising the securities index on which the option is based.
Futures Contracts and Related Options. Each Portfolio other than
Government Money 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 a 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 that 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 a 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 a subadvisor'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 the Portfolio may not
be able to close a futures or options position without incurring a loss in
the event of adverse price movements.
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 a 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 a Portfolio.
Swaps. Emerging Markets Equity Investments, with respect to 15% of the
total assets allocated to the active value subadvisor, may enter into
index swaps. A swap transaction is an agreement between the Portfolio and
a counterparty to act in accordance with the terms of the swap contract.
Index swaps involve the exchange by the Portfolio with another party of
the respective amounts payable with respect to a notional principal amount
related to one or more indices. The Portfolio may enter into these
transactions to preserve a return or spread on a particular investment or
portion of its assets, as a duration management technique or to protect
against any increase in the price of securities the Portfolio anticipates
purchasing at a later date. The Portfolio may also use these transactions
for speculative purposes, such as to obtain the price performance of a
security without actually purchasing the security in circumstances where,
for example, the subject security is illiquid, is unavailable for direct
investment or available only on less attractive terms. Swaps have risks
associated with them, including possible default by the counterparty to
the transaction, illiquidity and, where swaps are used as hedges, the risk
that the use of a swap could result in losses greater that if the swap had
not been employed.
The Portfolio will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or
dates specified in the agreement, with the Portfolio receiving or paying,
as the case may be, only the net amount of the two payments. Swaps do not
involve the delivery of securities, other underlying assets or principal.
Accordingly, the risk of loss with respect to swaps is limited to the net
amount of payments that the Portfolio is contractually obligated to make.
If the counterparty to a swap defaults, the Portfolio's risk of loss
consists of the net amount of payments that the Portfolio is contractually
entitled to receive. Where swaps are entered into for good faith hedging
purposes, the Portfolio believes such obligations do not constitute senior
securities under the 1940 Act and, accordingly, will not treat them as
being subject to the Portfolio's borrowing restrictions. Where swaps are
entered into for other than hedging purposes, the Portfolio will segregate
an amount of cash or liquid securities having a value equal to the accrued
excess of its obligations over its entitlements with respect to each swap
on a daily basis.
U.S. Government Securities. The 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). 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.
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.
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 payments 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, if the trust or custodial
account in which the underlying security has been deposited is determined
to be an association taxable as a corporation, instead of a non-taxable
entity, the yield on the underlying security would be reduced in respect
of any taxes paid.
When-Issued and Delayed Delivery Securities. Each Portfolio may purchase
securities, including U.S. government securities, on a when-issued basis
or may purchase or sell securities for delayed delivery. In such
transactions, delivery of the securities occurs beyond the normal
settlement period, but no payment or delivery is made by a Portfolio prior
to the actual delivery or payment by the other party to the transaction.
The purchase of securities on a when-issued or delayed delivery basis
involves the risk that the value of the securities purchased will decline
prior to the settlement date. The sale of securities for delayed delivery
involves the risk that the prices available in the market on the delivery
date may be greater than those obtained in the sale transaction. When-
issued and delayed delivery transactions will be fully collateralized by
segregated liquid assets.
Repurchase Agreements. Each Portfolio may enter into repurchase
agreements. 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. A Portfolio's
Subadvisor, 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 that Portfolio, exceeds 10% of the Portfolio's total
assets (or 15% of the assets of Multi-Sector Fixed Income Investments ).
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.
Reverse Repurchase Agreements. 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, a Portfolio sells securities to a financial
institution and agrees 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 a 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 a 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 a Portfolio's shares will decrease faster
than otherwise would be the case.
Lending Portfolio Securities. Consistent with applicable regulatory
requirements, each Portfolio other than Municipal Bond Investments, may
lend portfolio securities to brokers, dealers and other financial
organizations. A Portfolio will not lend securities to Salomon Smith
Barney unless the Portfolio has applied for and received specific
authority to do so from the SEC. A Portfolio's loan of securities will be
collateralized by cash, letters of credit or U.S. Government Securities. A
Portfolio will maintain the collateral 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.
Short Sales "Against the Box". Each Portfolio may from time to time make
short sales against the box. In a short sale, a Portfolio borrows from a
broker or bank securities identical to those being sold and delivers the
borrowed securities to the buying party. The Portfolio is said to have a
short position in the securities sold until it replaces the borrowed
securities, at which time it receives the proceeds of the sale. A short
sale is ''against the box'' if the Portfolio owns or has the right to
acquire at no added cost securities identical to those sold short.
Illiquid Securities. Each Portfolio will not invest more than 10% of its
net assets (except that Multi-Sector Fixed Income Investments will not
invest more than 15% of its net assets) in illiquid and other securities
that are not readily marketable. Repurchase agreements maturing in more
than seven days will be included for purposes of the foregoing limit.
Securities subject to restrictions on resale under the Securities Act of
1933, as amended (the "1933 Act"), are considered illiquid unless they are
eligible for resale pursuant to Rule 144A or another exemption from the
registration requirements of the 1933 Act and are determined to be liquid
by the Subadvisor. The Subadvisors determine the liquidity of Rule 144A
and other restricted securities according to procedures adopted by the
Board of Trustees. The Board of Trustees monitors the Subadvisors'
application of these guidelines and procedures. The inability of a
Portfolio to dispose of illiquid investments readily or at reasonable
prices could impair the Portfolio's ability to raise cash for redemptions
or other purposes.
Temporary Investments. For temporary defensive purposes, during periods
when a Subadvisor of a Portfolio, in consultation with the manager,
believes that pursuing a Portfolio's basic investment strategy may be
inconsistent with the best interests of its shareholders, that 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. A Portfolio's U.S.
dollar-denominated temporary investments are managed by SSB Citi. A
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.
For the same purposes, 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 an NRSRO, or if unrated, are determined by
the Subadvisor to be of equivalent quality. Emerging Markets Equity
Investments may also invest in obligations of 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 the 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 Subadvisor.
INVESTMENT RESTRICTIONS
The investment restrictions numbered 1 through 8 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 9 through 12 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 deviate from the definition of a "diversified company" as defined
in the 1940 Act and rules thereunder.
2. A Portfolio, except Municipal Bond Investments, will not invest
more than 25% of its total assets in securities, the issuers of which
conduct their principal business activities in the same industry. For
purposes of this limitation, U.S. government securities and securities of
state or municipal governments and their political subdivisions are not
considered to be issued by members of any industry.
3. A Portfolio will not issue "senior securities" as defined in the
1940 Act, and the rules, regulations and orders thereunder, except as
permitted under the 1940 Act and the rules, regulations and orders
thereunder.
4. A Portfolio will not borrow money, except that (a) a Portfolio
may borrow from banks for temporary or emergency (not leveraging)
purposes, including the meeting of redemption requests which might
otherwise require the untimely disposition of securities, in an amount not
exceeding 33 1/3% of the value of the Portfolio's total assets (including
the amount borrowed) valued at the lesser of cost or market, less
liabilities (not including the amount borrowed) and (b) a Portfolio may,
to the extent consistent with its investment policies, enter into reverse
repurchase agreements, forward roll transactions and similar investment
strategies and techniques.
5. A Portfolio will not make loans. This restriction does not apply
to: (a) the purchase of debt obligations in which a Portfolio may invest
consistent with its investment objectives and policies (including
participation interests in such obligations); (b) repurchase agreements;
and (c) loans of its portfolio securities.
6. A Portfolio will not purchase or sell real estate, real estate
mortgages, commodities or commodity contracts, but this restriction shall
not prevent a Portfolio from (a) investing in and selling securities of
issuers engaged in the real estate business and securities which are
secured by real estate or interests therein; (b) holding or selling real
estate received in connection with securities it holds; (c) trading in
futures contracts and options on futures contracts or (d) investing in or
purchasing real estate investment trust securities.
7. A Portfolio will not engage in the business of underwriting
securities issued by other persons, except to the extent that a Portfolio
may technically be deemed to be an underwriter under the Securities Act of
1933, as amended, in disposing of portfolio securities.
8. A Portfolio will not purchase any securities on margin (except
for such short-term credits as are necessary for the clearance of
purchases and sales of portfolio securities). For purposes of this
restriction, the deposit or payment by a Portfolio of underlying
securities and other assets in escrow and collateral agreements with
respect to initial or maintenance margin in connection with futures
contracts and related options and options on securities, indexes or
similar items is not considered to be the purchase of a security on
margin.
9. A Portfolio will not invest in oil, gas or other mineral leases
or exploration or development programs.
10. A Portfolio will not make short sales of securities, unless it
owns or has the right to obtain securities equivalent in kind and amount
to the securities sold short and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
11. A Portfolio will not make investments for the purpose of
exercising control or management.
12. 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 more than 3% of any
registered investment company's outstanding voting stock; or more than 5%
of the value of the Portfolio's total assets would be invested in
securities of any one registered investment company or more than 10% of
the Portfolio's total assets would be invested in registered investment
companies in general.
The percentage limitations contained in the restrictions listed above
(other than with respect to Number 4 above) apply at the time of purchase
of securities.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for a Portfolio are made by the
Subadvisor(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 a Subadvisor,
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 a Subadvisor 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 Subadvisor 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 Subadvisor seeks the best overall terms
available. In assessing the best overall terms available for any
transaction, the Subadvisor 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 Subadvisor authorizes the Subadvisor,
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 Subadvisor 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
Subadvisor receiving brokerage and research services. The Board of
Trustees 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 Salomon Smith Barney and other affiliated broker-dealers
if, in the judgment of its Subadvisor, 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 Obligations, during the existence of any underwriting or
selling group relating thereto of which Salomon Smith Barney is a member,
except to the extent permitted by the SEC.
The Portfolios may use Salomon 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
Subadvisor, 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. Salomon Smith Barney has
agreed to charge the Portfolios commodity commissions at rates comparable
to those charged by Salomon Smith Barney to its most favored clients for
comparable trades in comparable accounts.
BROKERAGE COMMISSIONS PAID TO SALOMON SMITH BARNEY
The following table sets forth certain information regarding each
Portfolio's payment
of brokerage commissions for the fiscal year ended August 31, 1999:
Portfolio
Total
Brokerage
Commissions
Commissions
paid to
Salomon
Smith
Barney
% of Total
Brokerage
Commissions
paid to
Salomon
Smith
Barney
Balanced Investments
$________
_
$______
_____%
Large Capitalization
Value Equity
Investments
_________
_
______
_____%
Large Capitalization
Growth Investments
_________
______
_____%
Small Capitalization
Value Equity
Investments
_________
______
_____%
Small Capitalization
Growth Investments
_________
______
_____%
International Equity
Investments
________
______
_____%
Emerging Markets
Equity Investments
_________
______
_____%
Government Money Investments, Intermediate Fixed Income Investments, Long-
Term Bond Investments, Municipal Bond Investments, Mortgage Backed
Investments, International Fixed Income Investments and High Yield
Investments did not pay brokerage commissions during the year ended August
31, 1999.
The following table sets forth certain information regarding each
Portfolio's payment
of brokerage commissions for the fiscal year ended August 31, 1998:
Portfolio
Total
Brokerage
Commissions
Commissions
paid to
Salomon
Smith
Barney
% of Total
Brokerage
Commissions
paid to
Salomon
Smith
Barney
Balanced Investments
$108, 343
$27,565
25.44%
Large Capitalization
Value Equity
Investments
1,407,952
92,446
6.57Z%
Large Capitalization
Growth Investments
737,579
11,136
1.51%
Small Capitalization
Value Equity
Investments
1,470,232
24,868
1.69%
Small Capitalization
Growth Investments
1,550,679
6,218
0.40%
International Equity
Investments
2,986,896
131,728
4.41%
Emerging Markets
Equity Investments
2,550,496
0
0.00%
Government Money Investments, Intermediate Fixed Income Investments, Long-
Term Bond Investments, Municipal Bond Investments, Mortgage Backed
Investments, International Fixed Income Investments and High Yield
Investments did not pay brokerage commissions during the year ended August
31, 1998.
The following table sets forth certain information regarding each
Portfolio's payment of brokerage commissions for the fiscal year ended
August 31, 1997:
Portfolio
Total
Brokerage
Commissions
Commission
s paid to
Salomon
Smith
Barney
% of Total
Brokerage
Commissions
paid to
Salomon
Smith
Barney
Balanced Investments
$102,303
$16,253
15.89%
Large Capitalization
Value Equity
Investments
1,952,663
$132,015
4.47%
Large Capitalization
Growth Investments
1,401,805
4,770
0.34%
Small Capitalization
Value Equity
Investments
761,002
27,534
3.62%
Small Capitalization
Growth Investments
732,557
17,568
2.40%
International Equity
Investments
1,890,342
0
0
Emerging Markets
Equity Investments
1,973,521
0
0
Government Money Investments, Intermediate Fixed Income Investments,
Long-Term Bond Investments, Municipal Bond Investments, Mortgage Backed
Investments and International Fixed Income Investments did not pay
brokerage commissions during the year ended August 31, 1997.
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. Municipal
Bond Investments, Mortgage Backed Investments, International Fixed Income
and Emerging Markets Equity Investments 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. 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. Because the Portfolios are authorized to
engage in transactions in options, they may experience increased portfolio
turnover under certain market conditions as a result of their 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.
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 a
Subadvisor 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 a Portfolio
to receive favorable tax treatment.
The Portfolios' portfolio turnover rates for the last two fiscal years
were as follows:
Portfolio
Year
Ended
August
31,
1999
Year Ended
August 31,
1998
Government Money Investments
N/A
N/A
Intermediate Fixed Income
Investments
63%
Long-Term Bond Investments
63%
Municipal Bond Investments
160%
Mortgage Backed Investments
214%
High Yield Investments
13%
Balanced Investments
57%
Large Capitalization Value Equity
Investments
57%
Large Capitalization Growth
Investments
39%
Small Capitalization Value Equity
Investments
59%
Small Capitalization Growth
Investments
91%
International Equity Investments
45%
International Fixed Income
Investments
211%
Emerging Markets Equity Investments
139%
Multi-Sector Fixed Income
Investments
N/A
N/A
INVESTMENT MANAGEMENT AND OTHER SERVICES
Manager; Subadvisors; Administrator. The manager serves as investment
manager to the Trust pursuant to an investment management agreement
("Management Agreement"). Each Subadvisor serves as investment advisor to
a Portfolio pursuant to separate written agreements with the Portfolios
("Advisory Agreements"), SSB Citi serves as administrator to the Portfolio
pursuant to a written agreement ("Administration Agreement").
The Portfolios bear their own expenses, which generally include all costs
not specifically borne by the Manager, the Subadvisors, and SSB Citi.
Included among the Portfolios' expenses are costs incurred in connection
with a 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.
As administrator, SSB Citi generally oversees all aspects of the Trust's
administration and operations including furnishing 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 fiscal year ended August 31, 1999 the Portfolios accrued
investment management and administration fees as follows:
1999
1998
Portfolio
Mgmt Fee
Administrati
on Fee
Mgmt Fee
Administrati
on Fee
Government Money Investments
$
$
624,357
832,477
High Yield Investments
47,537
13,582
Intermediate Fixed Income
Investments
1,862,86
0
934,088
Long-Term Bond Investments
703,985
351,993
Municipal Bond Investments
255,992
127,996
Mortgage Backed Investments
766,937
306,775
Balanced Investments
506,736
168,912
Large Capitalization Value
Equity Investments
9,677,02
0
3,922,176
Large Capitalization Growth
Investments
8,517,28
6
3,867,159
Small Capitalization Value
Equity Investments
4,705,18
2
1,721,750
Small Capitalization Growth
Investments
6,308,01
6
2,167,276
International Equity
Investments
7,088,98
5
2,704,967
International Fixed Income
Investments
718,551
287,421
Emerging Markets Equity
Investments
2,430,73
5
540,163
Of the fees incurred by the following Portfolios, management,
administration and custody fees, in the aggregate, were waived as follows:
Government Money Investments $_________; Mortgage Backed Investments -
$__________; and High Yield Investments - $_____________.
The Manager has agreed to waive a portion of the fees otherwise payable to
it by certain of the Trust's Portfolios 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.
For the year ended August 31, 1997, the Portfolios accrued
investment management and administration fees as follows:
Portfolio
Management
Fee
Administrati
on Fee
Government Money Investments
$490,756
$654,342
High Yield Investments
N/A
N/A
Intermediate Fixed Income
Investments
1,325,387
662,693
Long-Term Bond Investments
672,437
336,219
Municipal Bond Investments
190,705
95,353
Mortgage Backed Investments
642,610
257,044
Balanced Investments
400,541
133,514
Large Capitalization Value Equity
Investments
8,514,670
3,452,366
Large Capitalization Growth
Investments
6,413,997
3,126,348
Small Capitalization Value Equity
Investments
2,721,377
1,039,277
Small Capitalization Growth
Investments
3,060,297
1,217,818
International Equity Investments
5,372,446
1,986,030
International Fixed Income
Investments
641,164
256,466
Emerging Markets Equity Investments
1,690,749
375,723
SSB Citi, through its predecessors, was incorporated on March 12, 1968
under the laws of Delaware and is a registered investment adviser. SSB
Citi renders investment advice to investment companies that had aggregate
assets under management as of August 31, 1999 in excess of $116 billion.
The Consulting Group, a division of SSB Citi, has extensive experience in
providing investment advisor selection services. The Consulting Group,
through its predecessors, 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 Consulting
Group's analysts, in the aggregate, have many years of experience
performing asset manager searches for institutional and individual
clients. These analysts rely on the Manager's comprehensive database of
money management firms, through which the Manager tracks the historic and
ongoing performance of over 800 of the more than 16,000 registered
investment advisors, and conducts over 300 on-sight evaluation visits
annually to advisors. As of August 31, 1999, the Consulting Group provided
services with respect to over $125 billion in client assets representing
more than 216,974 separate accounts under a variety of programs designed
for individual and institutional investors.
The Manager and the Subadvisors each pay the salaries of all officers and
employees who are employed by them and the Trust, and the Manager
maintains office facilities for the Trust. The Manager and the Subadvisors
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 Subadvisor
manages the securities held by the Portfolio it serves in accordance with
that 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.
Subject to the supervision and direction of the Board of Trustees, the
Manager provides to the Trust investment management evaluation services
principally by performing initial due diligence on prospective Subadvisors
for the Portfolios and thereafter monitoring each Subadvisor's performance
through quantitative and qualitative analysis as well as periodic in-
person, telephonic and written consultations with Subadvisors. In
evaluating prospective Subadvisors, the Manager considers, among other
factors, each Subadvisor'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,
financial strength and quality of service and client communications. The
Manager has responsibility for communicating performance expectations and
evaluations to Subadvisors and ultimately recommending to the Board of
Trustees whether Subadvisors' contracts should be renewed, modified or
terminated. The Manager provides written reports to the Board of Trustees
regarding the results of its evaluations and monitoring functions. The
Manager is also responsible for conducting all operations of the Trust
except those operations contracted to the Subadvisor, custodian, transfer
agent or administrator.
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 Subadvisors. However, the Manager's decisions, including the
identity of a Subadvisor and the specific amount of the Manager's
compensation to be paid to a Subadvisor, 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.
Investors should also 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 of the Trust 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 Subadvisor and receives a
fee from each Portfolio of the Trust. 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 of the
trust 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.
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 Subadvisors. The Exemption is based
on among other things: (1) the Manager will select, monitor, evaluate and
allocate assets to, the Subadvisors and ensure that the Subadvisors comply
with a Portfolio's investment objective, policies and restrictions; (2)
shares of a Portfolio 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
Subadvisor and its investment advisory contract within 90 days of the
engagement of new Subadvisor; (4) the Trust will disclose in its
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 Management Agreement between the Trust and the Manager still
require shareholder approval.
Auditors
KPMG LLP, 757 Third Avenue, New York, New York 10017, currently serves as
the independent auditors of the Trust and rendered an opinion on the
Trust's most recent financial statements and financial highlights.
Organization of the Trust. The Trust has been organized as an
unincorporated business trust under the laws of The Commonwealth of
Massachusetts pursuant to a Master Trust Agreement dated April 12, 1991,
as amended from time to time (the "Trust Agreement").
In the interest of economy and convenience, certificates representing
shares in the Trust are not physically issued. PNC Bank, N.A., the Trust's
custodian, maintains a record of each shareholder's ownership of Trust
shares. Shares do not have cumulative voting rights, which means that
holders of more than 50% of the shares voting for the election of Trustees
can elect all Trustees. Shares are transferable, but have no preemptive,
conversion or subscription rights. Shareholders generally vote on a Trust-
wide basis, except with respect to continuation of the Advisory
Agreements, in which case shareholders vote by Portfolio.
Massachusetts law provides that shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
The Trust Agreement disclaims shareholder liability for acts or
obligations of the Trust, however, and requires that notice of the
disclaimer be given in each agreement, obligation or instrument entered
into or executed by the Trust or a Trustee. The Trust Agreement provides
for indemnification from the Trust's property for all losses and expenses
of any shareholder held personally liable for the obligations of the
Trust. Thus, the risk of a shareholder's incurring financial loss on
account of shareholder liability is limited to circumstances in which the
Trust would be unable to meet its obligations, a possibility that the
Trust's management believes is remote. Upon payment of any liability
incurred by the Trust, the shareholder paying the liability will be
entitled to reimbursement from the general assets of the Trust. The
Trustees intend to conduct the operations of the Trust in a manner so as
to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Trust.
PURCHASE OF SHARES
Purchases of shares of a Portfolio through an Advisory Service must be
made through a brokerage account maintained with Salomon Smith Barney.
Payment for Portfolio shares must be made by check directly to Salomon
Smith Barney or to a broker that clears securities transactions through
Salomon Smith Barney. No brokerage account or inactivity fee is charged
in connection with a brokerage account through which an investor purchases
shares of a Portfolio.
Shares of the Portfolios are available exclusively to participants in
Advisory Services and certain asset based fee programs 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 Trust's Portfolios by identifying
the investor's risk tolerances and investment objectives through
evaluation of an investment questionnaire; identifying and recommending in
writing an appropriate allocation of assets among the Portfolios that
conform to those tolerances and objectives in a written recommendation;
and providing on a periodic basis, a written monitoring report to the
investor containing an analysis and evaluation of an investor's account
and recommending any appropriate changes in the allocation of assets among
the Portfolios. Usually under an Advisory Service, all investment
decisions ultimately rest with the investor and investment discretion is
not given to the investment adviser.
The TRAK(r) Personalized Investment Advisory Service ("TRAK") sponsored by
Salomon Smith Barney is one such advisory service. Under the TRAK program
the Consulting Group, in its capacity as investment adviser to
participants in TRAK, generally directly provides to investors asset
allocation recommendations and related services with respect to the
Portfolios based on an evaluation of an investor's investment objective
and risk tolerances. Shares of the Portfolios are offered for purchase
and redemption at their respective net asset value next determined,
without imposition of any initial or contingent deferred sales charge
except that the Consulting Group is paid directly by the investors
purchasing Portfolio shares based on the recommendation of investment
advisors other than the Consulting Group, or who contract with the
Consulting Group for services other than those described above, pay, in
lieu of TRAK charges, different fees for different levels of services as
agreed upon with their investment advisers.
REDEMPTION OF SHARES
Detailed information on how to redeem shares of a Portfolio is included in
the Prospectus. The right of redemption of shares of a Portfolio may be
suspended or the date of payment postponed (i) for any periods during
which the New York Stock Exchange, Inc. (the "NYSE") is closed (other than
for customary weekend and holiday closings), (ii) when trading in the
markets a Portfolio normally utilizes is restricted, or an emergency, as
defined by the rules and regulations of the SEC, exists making disposal of
a 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 a 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
Each Portfolio's net asset value per share is calculated by SSBC on each
day, Monday through Friday, except days on which the NYSE is closed. The
NYSE is currently scheduled to be closed on New Year's Day, Martin Luther
King Jr. 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. On those days, securities
held by a Portfolio may nevertheless be actively traded and the value of
that Portfolio's shares could be significantly affected.
Net asset value per share is determined 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. 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 as reported to a Portfolio or, if no sales occurred during the
day, these investments are quoted at the mean between the current bid and
ask prices. A security that is listed or traded on more than one exchange
is valued for purposes of calculating a Portfolio's net asset value at the
quotation on the exchange determined to be the primary market for the
security. Debt securities of U.S. issuers (other than U.S. Government
Securities and short-term investments) are valued by SSB Citi after
consultation with an independent pricing service. When, in the judgment of
the pricing service, quoted bid prices are available and are
representative of the bid side of the market, these investments are valued
at the mean between the quoted bid and ask 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. 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 purchased by a
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, SSB
Citi may consult with an independent pricing service retained by the
Trust.
The valuation of the securities held by a Portfolio in U.S. dollar-
denominated securities with less than 60 days to maturity are 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 the Portfolio would receive if it sold the instrument.
DETERMINATION OF PERFORMANCE
From time to time, the Trust may quote a Portfolio's yield or total return
in advertisements or in reports and other communications to shareholders.
Yield and Equivalent Taxable Yield
For a Portfolio other than Government Money Investments, the 30-day yield
figure described in the Prospectus is calculated according to a formula
prescribed by the SEC, expressed as follows:
YIELD = 2[(a - b + 1)6 - 1]
cd
Where:
a = dividends and interest earned during the period.
b= expenses accrued for the period (net of reimbursement), including
a ratable portion of the maximum annual fee for participation in TRAK.
c= the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d= the maximum offering price per share on the last day of the
period.
For the purpose of determining the interest earned (variable "a" in
the formula) on debt obligations that were purchased by a 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 the
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.
For the seven-day period ended August 31, 1999, the yield for the
Government Money Investments portfolio was ___% (the effective yield was
___%) with an average dollar-weighted portfolio maturity of ___ days.
Average Annual Total Return
From time to time, the Trust may advertise a Portfolio's "average annual
total return" over various periods of time. This total return figure
shows the average percentage change in value of an investment in that
Portfolio from the beginning date of the measuring period to the ending
date of the measuring period and is reduced by the maximum Salomon Smith
Barney Advisory Service fee during the measuring period. The figure
reflects changes in the price of a Portfolio's shares and assumes that any
income, dividends and/or capital gains distributions made by a Portfolio
during the period are reinvested in shares of that 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 Portfolios' operations or on a year-by-year basis). Aggregate total
returns also 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).
In reports or other communications to shareholders or in advertising
material, a Portfolio may quote total return figures that do not reflect
Salomon 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. The performance information also may include
evaluations of a Portfolio 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.
A Portfolio's average annual total return figures 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. Consequently, the given performance quotations should not be
considered as representative of a Portfolio's performance for any
specified period in the future.
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 a 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.
The Portfolios' average annual total returns without the effect of the
maximum annual fee for participation in TRAK and with the effect of fee
waivers were as follows:
Portfolio
From
September 1,
1998 through
August 31,
1999
From
September
1, 1994
through
August 31,
1999
From
Inception*
***
through
August 31,
1999
Government Money Investments
%
%
%
High Yield 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***
* High Yield Investments commenced operations on July 13, 1998.
** Balanced Investments commenced operations on February 16, 1993.
*** Aggregate from April 21, 1994 (commencement of operations of
Emerging Market Equity Investments) through August 31, 1994.
**** The remaining Portfolios commenced operations on November 18, 1991.
The Portfolios' average annual total returns with the effect of the
maximum annual fee for participation in TRAK and with the effect of fee
waivers were as follows:
Portfolio
From
September 1,
1998 through
August 31,
1999
From
September
1, 1994
through
August 31,
1999
From
Inception**
** through
August 31,
1999
Government Money Investments
%
%
%
High Yield 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***
%
%
%
_________________
* High Yield Investments commenced operations on July 13, 1998.
** Balanced Investments commenced operations on February 16, 1993.
*** Aggregate from April 21, 1994 (commencement of operations of
Emerging Market Equity Investments) 1994 through August 31, 1994.
**** The remaining Portfolios commenced operations on November 18, 1991.
TAXES
The following is a summary of certain federal income tax considerations
that may affect the Portfolios and their shareholders. In addition to the
considerations described below, there may be other federal, state, local
or foreign tax applications to consider. The summary does not address all
of the potential federal income tax consequences that may be applicable to
a Portfolio or to all categories of investors, some of which may be
subject to special tax rules. The summary is not intended as a substitute
for individual tax advice and investors are urged to consult their own tax
advisors as to the tax consequences of an investment in a Portfolio. The
summary is based on the laws in effect on the date of this SAI, which are
subject to change.
Each Portfolio intends to continue to qualify in each year as a separate
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code") by complying with certain requirements regarding the
sources and distribution of its income and the diversification of its
assets. 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, any excess of its net
short-term capital gain over its net long-term capital loss) for a taxable
year and 90% of its tax exempt interest income (reduced by certain
expenses for that year), 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 in compliance with the Code's timing and other requirements.
If, in any taxable year, a Portfolio fails to qualify as a regulated
investment company under the Code or fails to meet the distribution
requirement, it would be taxed in the same manner as an ordinary
corporation and distributions to its shareholders would not be deductible
by the Portfolio in computing its taxable income. In addition, in the
event of a failure to qualify, a Portfolio's distributions, to the extent
derived from its current or accumulated earnings and profits would
constitute dividends (eligible for the corporate dividends-received
deduction) which are taxable to shareholders as ordinary income, even
though those distributions might otherwise (at least in part) have been
treated in the shareholders' hands as tax-exempt interest. If a Portfolio
fails to qualify as a regulated investment company in any year, it must
pay out its earnings and profits accumulated in that year in order to
qualify again as a regulated investment company. In addition, if a
Portfolio failed to qualify as a regulated investment company for a period
greater than one taxable year, the Portfolio may be required to recognize
any net built-in gains (the excess of the aggregate gains, including items
of income, over aggregate losses that would have been realized if it had
been liquidated) in order to qualify as a regulated investment company in
a subsequent year.
In order to avoid the application of a 4% nondeductible excise tax on
certain undistributed amounts of ordinary income and capital gains, a
Portfolio may make an additional distribution shortly before or shortly
after December 31 in each year of any undistributed ordinary income or
capital gains. Each Portfolio generally will seek to pay any additional
dividends and distributions necessary to avoid the application of this
tax.
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, 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. 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 "branch profits" tax, or
the federal "excess net passive income" tax.
As described above, a Portfolio may invest in certain types of warrants,
foreign currencies, forward contracts, options and futures contracts. The
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 that Portfolio (i.e., may affect whether gains or losses are
ordinary or capital and, if capital, the extent to which they are long-
term or short-term), 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 positions
in its portfolio (i.e., treat them as if they were closed out), and (ii)
may cause the 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 referred to above. Each Portfolio will monitor its transactions,
will make the appropriate tax elections, if any, 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 seek to 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.
Gains or losses on the sale of debt securities denominated in a foreign
currency may be recharacterized as ordinary income or losses, as described
below.
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.
Dividends or other income (including, in some cases, capital gains)
received by a Portfolio from investments in foreign securities may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes in some cases. A Portfolio will not be eligible to
elect to treat any foreign taxes paid by it as paid by its shareholders,
who therefore will not be entitled to deductions or credits for such taxes
on their own tax returns.
A Portfolio may be required to treat amounts as taxable income or gain,
subject to the distribution requirements referred to above, even though no
corresponding amounts of cash are received concurrently, as a result of
(1) mark to market, constructive sale or other rules applicable to passive
foreign investment companies or partnerships or trusts in which the
Portfolio invests or to certain options, futures or forward contracts, or
"appreciated financial positions" or (2) the inability to obtain cash
distributions or other amounts due to currency controls or restrictions on
repatriation imposed by a foreign country with respect to a Portfolio's
investments (including through depositary receipts) in issuers in such
country or (3) tax rules applicable to debt obligations acquired with
"original issue discount," including zero-coupon or deferred payment bonds
and pay-in-kind debt obligations, or to market discount if an election is
made with respect to such market discount. A Portfolio may therefore be
required to obtain cash to be used to satisfy these distribution
requirements by selling securities at times that it might not otherwise be
desirable to do so or borrowing the necessary cash, thereby incurring
interest expenses.
Under Section 988 of the Code, gains or losses attributable to
fluctuations in exchange rates between the time a Portfolio accrues income
or receivables or expenses or other liabilities denominated in a foreign
currency and the time the Portfolio actually collects such income or pays
such liabilities are generally treated as ordinary income or ordinary
loss. Similarly, gains or losses on foreign currency, foreign currency
forward contracts, certain foreign currency options or futures contracts
and the disposition of debt securities denominated in foreign currency, to
the extent attributable to fluctuations in exchange rates between the
acquisition and disposition dates, are also treated as ordinary income or
loss.
A Portfolio is permitted to carry forward any unused capital losses to be
utilized to offset its capital gains realized during the eight-year period
following the year in which the losses arose, which will reduce the net
realized capital gains (if any) required to be distributed to shareholders
for those years.
Dividends and Distributions
For federal income tax purposes, dividends declared by a Portfolio in
October, November or December as of a record date in such a month and
which are actually paid in January of the following year will be taxable
to shareholders as if they were paid on December 31 of the year in which
they are declared rather than in the year in which shareholders actually
receive the dividends.
As a general rule, a shareholder's gain or loss on a redemption or other
disposition of Portfolio shares that is treated as a sale under the Code
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.
A Portfolio may realize net long-term capital gains. Distributions of the
excess of net long-term capital gain over net short-term capital loss
("capital gain dividends" if any) will be taxable to shareholders as long-
term capital gains, regardless of whether received in cash or reinvested
in additional shares and how long a shareholder has held Portfolio shares.
If a shareholder receives a capital gain dividend with respect to any
share and redeems, sells or otherwise disposes of the share before it has
been held for more than six months, then any loss, to the extent of the
capital gain dividend, will be treated as a long-term capital loss.
Additionally, any loss realized on a redemption, exchange or other
disposition of Portfolio shares generally will be disallowed to the extent
the shares disposed of are replaced, including replacement through the
reinvesting of dividends and capital gains distributions in the Portfolio,
within a 61-day period beginning 30 days before and ending 30 days after
the disposition of the shares.
Dividends paid from net investment income and distributions of any excess
of net short-term capital gain over net long-term capital loss are taxable
to shareholders as ordinary income, regardless of how long shareholders
have held their Portfolio shares and whether such dividends and
distributions are received in cash or reinvested in additional Portfolio
shares. Dividends paid by a Portfolio that are declared from net
investment income and are attributable to qualifying dividends received by
the Portfolio from domestic corporations may qualify for the federal
dividends-received deduction for corporations.
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. 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
the 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 and the possible availability
of an exemption for dividends paid by a Portfolio attributable to interest
the Portfolio earns from U.S. Government obligations.
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 will 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 even if the net asset value of the Portfolio's shares is
reduced below the investor's cost as a result of the distribution, the
amount of the forthcoming dividend or distribution payment will be a
taxable dividend or distribution payment even though it may represent a
return of invested capital.
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) 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
federal income tax liability. Distributions to nonresident aliens and
foreign entities may be subject to different tax rules, including other
possible withholding taxes.
The foregoing is only a summary of certain tax considerations generally
affecting the Portfolios and their 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.
DISTRIBUTOR
CFBDS, Inc., 21 Milk Street, 5th Floor, Boston, MA 02109 serves as the
Portfolios' distributor on a best efforts basis pursuant to a written
agreement, which was approved by the Trustees of the Trust.
CUSTODIANS AND TRANSFER AGENT
PNC Bank National Association ("PNC") and The Chase Manhattan Bank
("Chase") serve as the custodians for the Trust. The assets of the Trust
are held under bank custodianship in accordance with the 1940 Act. Under
their custody agreements with the Trust, PNC and Chase are authorized to
establish separate accounts for foreign securities owned by the Portfolios
to be held with foreign branches of U.S. banks as well as certain foreign
banks and securities depositories as sub-custodians of assets owned by the
Portfolios. For its custody services, PNC and Chase receive monthly fees
charged to a Portfolio based upon the month-end, aggregate net asset value
of the Portfolio plus certain charges for securities transactions. PNC and
Chase 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., ("First Data"), a subsidiary of
First Data Corporation, serves as the Trust's transfer agent. For its
services as transfer agent, First Data receives fees charged to a
Portfolio at an annual rate based upon the number of shareholder accounts
maintained during the year. First Data is also reimbursed by the
Portfolios for out-of-pocket expenses.
FINANCIAL STATEMENTS
The Trust's Annual Report for the year ended August 31, 1998, was
previously sent to all shareholders and is incorporated into this
Statement of Additional Information by reference.
APPENDIX - RATINGS OF DEBT OBLIGATIONS
BOND AND NOTE RATINGS
Moody's Investors Services, Inc.
Aaa - Bonds that are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
Aa - Bonds that are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in "Aaa" securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present that make the long term risks appear somewhat
larger than in "Aaa" securities.
A - Bonds that are rated "A" possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered
adequate but elements may be present that suggest a susceptibility to
impairment sometime in the future.
Baa - Bonds that are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba - Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated "B" generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Caa - Bonds which are rated "Caa" are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest
Ca - Bonds which are rated "Ca" represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated "C" are the lowest class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Con (..)- Bonds for which the security depends upon the completion of some
act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction,
(b) earnings of projects unseasoned in operating experience, (c) rentals
which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis of
condition.
Note: The modifier 1 indicates that the security ranks in the higher end
of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end
of its generic rating category.
Standard & Poor's Ratings Group
AAA - Debt rated "AAA" has the highest rating assigned by Standard & Poor's
Ratings Group ("S&P"). Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A - Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB - Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
BB, B, CCC, CC, C - Debt rated "BB", "B", "CCC", "CC" and "C" is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. "BB" indicates the lowest degree of speculation and "C" the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus to show relative standing within the major
rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment
of debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project. This rating, however,
while addressing credit quality subsequent to completion of the project,
makes no comment on the likelihood of, or the risk of default upon failure
of, such completion. The investor should exercise judgment with respect to
such likelihood and risk.
L - The letter "L" indicates that the rating pertains to the principal
amount of those bonds where the underlying deposit collateral is fully
insured by the Federal Savings & Loan Insurance Corp. or the Federal
Deposit Insurance Corp.
+ Continuance of the rating is contingent upon S&P's receipt of closing
documentation confirming investments and cash flow.
* Continuance of the rating is contingent upon S&P's receipt of an executed
copy of the escrow agreement.
NR- Indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.
Issuers rated "Prime-l" (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment will normally be evidenced by the following
characteristics: leading market positions in well-established industries;
high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high internal
cash generation; well-established access to a range of financial markets
and assured sources of alternate liquidity.
Issuers rated "Prime-2" (or related supporting institutions) have strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Standard & Poor's Ratings Group
A-1 - This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issuers determined to
possess overwhelming safety characteristics will be noted with a plus (+)
sign designation.
A-2 - Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for
issues designated A-1.
PART C
Item 23. Exhibits
(a)(1) 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").
(a)(2) Amendment No. 1 to Master Trust Agreement is
incorporated by reference to the Registration Statement.
(a)(3) 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").
(a)(4) 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.
(b)(1) By-Laws are incorporated by reference to the
Registration Statement.
(b)(2) Amended and Restated By-Laws are incorporated by
reference to Pre-Effective Amendment No. 1.
(c) Not Applicable.
(d)(1) 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.
(d)(2) 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.
(d)(3) 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.
(d)(4) Investment Advisory Agreement dated January 4, 1999
between Mutual Management Corp. and Seix Investment Advisors Inc.
relating to Registrant's Balanced Investments Portfolio will
be filed by amendment.
(d)(4) Investment Advisory Agreement dated January 4, 1999
between Mutual Management Corp. and Laurel Capital Advisors, LLP
relating to Registrant's Balanced Investments Portfolio will
be filed by amendment.
(d)(6) Investment Advisory Agreement dated April 1, 1999
between SSBC Fund Management Inc. (formerly Smith, Barney Advisers, Inc.)
and Standish, Ayer & Wood, Inc.
relating to Registrant's Intermediate Fixed Income Investments Portfolio
is filed herein.
(d)(7) 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.
(d)(8) Investment Advisory Agreement dated April 1, 1998
between Mutual Management Corp. and NFJ Investment Group Inc. relating
to Registrant's Small Capitalization Value Equity Investments
Portfolio is filed by herein.
(d)(9) Investment Advisory Agreement dated October 1, 1998 between
Mutual Management Corp. (Formerly Smith Barney Mutual Funds
Management Inc.) and The Boston Company
Asset Management LLC relating to Registrant's Large Capitalization Value
Equity Investments Portfolio is to be filed by amendment.
(d)(10) Investment Advisory Agreement dated March 10, 1995
between Smith Barney Mutual Funds Management Inc. and Parametric Portfolio
Associates, Inc. relating to Registrant's Large Capitalization Value Equity
Investments Portfolio is to be filed by amendment.
(d)(11) Investment Advisory Agreement
dated January 11, 1999 between Mutual Management Corp. and Provident
Investment Counsel relating to Registrant's Large Capitalization Growth
Investments Portfolio is to be filed by amendment.
(d)(12) Investment Advisory Agreement dated October 1, 1998
between Mutual Management Corp. and Standish, Ayer & Wood, Inc.
relating to Registrant's Government Money Investments Portfolio is
to be filed by amendment.
(d)(13) Investment Advisory Agreement dated October 1, 1998
between Mutual Management Corp. and Oechsle International Advisors
L.P. relating to Registrant's International Equity Investments Portfolio is
To be filed by amendment.
(d)(14) 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.
(d)(15) Administration Agreement dated June 2, 1994 between the
Registrant and Smith, Barney Advisers, Inc. is incorporated by
reference to Post-Effective Amendment No. 16
(d)(16) Investment Advisory Agreement dated October 1, 1999 between SSB
Citi Fund Management LLC. (formerly Mutual Management Corp. and SSBC Fund
Management Inc.) and Western Asset Management Company relating to
Long-Term Bonds Investments is filed herein.
(d)(17) Investment Advisory Agreement dated June, 1997 between
Smith Barney Mutual Funds Management Inc. and Wall Street Associates
relating to Small Capitalization Growth Investments is incorporated
by reference to Post-Effective Amendment No. 18 to the Registration
Statement on Form N-1A filed.
(d)(18) Investment Advisory Agreement dated November 18 1997 between
Smith Barney Mutual Funds Management Inc. and Westpeak Investment
Advisors, LP relating to Small Capitalization Growth Investments is
Incorporated by reference to Post-Effective Amendment No. 19 to the
Registration
Statement on Form N-1A filed.
(d)(19) Investment Advisory Agreement dated April 1, 1998 between Mutual
Management Corp. and Mellon Capital Management Corporation relating to Small
Capitalization Value Equity Investments is to be filed by amendment.
(d)(20) Investment Advisory Agreement dated April 1, 1998 between Mutual
Management Corp. and Mellon Capital Management Corporation relating to Small
Capitalization Growth Investments is to be filed by amendment.
(d)(21) Investment Advisory Agreement dated April 1, 1998 between Mutual
Management Corp. and Barclays Global Fund Advisors relating to Large
Capitalization Growth Investments is filed herein.
(d)(22) Investment Advisory Agreement dated January 11, 1999 between Mutual
Management Corp. and Barclays Global Fund Advisors relating to Large
Capitalization Value Equity Investments is filed herein.
(d)(23) Investment Advisory Agreement dated April 1, 1998 between Mutual
Management Corp. and David L. Babson & Co. Inc. relating to Small
Capitalization Value Equity Investments is to be filed by amendment.
(d)(24) Investment Advisory Agreement dated June 15, 1998 between Mutual
Management Corp. and Alliance Capital Management L.P. relating to Large
Capitalization Value Equity Investments is to be filed by amendment.
(d)(25) Investment Advisory Agreement dated October 1, 1998 between Mutual
Management Corp. and State Street Global Advisors relating to International
Equity Investments is to be filed by amendment.
(d)(25) Investment Advisory Agreement dated July 15, 1998 between Mutual
Management Corp. and State Street Global Advisors relating to Emerging Markets
Equity Investments is to be filed by amendment.
(d)(26) Investment Advisory Agreement dated August 3, 1998 between Mutual
Management Corp. and Baring Asset Management, Inc. relating to Emerging
Markets Equity Investments is to be filed by amendment.
(d)(27) Investment Advisory Agreement dated April 15, 1999
between SSBC Fund Management Inc. (formerly Mutual Management Corp.)
and Pegasus Investments, Inc.
relating to Registrant's Multi-Strategy Market Neutral Investments is
filed herein.
(d)(28) Investment Advisory Agreement dated April 15, 1999
between SSBC Fund Management Inc. (formerly Mutual Management Corp.)
and State Street Global Advisors
relating to Registrant's Multi-Strategy Market Neutral Investments is
filed herein.
(d)(29) Investment Advisory Agreement dated April 15, 1999
between SSBC Fund Management Inc. (formerly Mutual Management Corp.)
and Calamos Asset Management
relating to Registrant's Multi-Strategy Market Neutral Investments is
filed herein.
(d)(30) Investment Advisory Agreement dated October 1 , 1999
between SSB Citi Fund Management LLC (formerly SSBC Fund Management Inc.
and Mutual Management Corp.) and Standish, Ayer & Wood, Inc.
relating to Registrant's Multi-Sector Fixed Income Investments
is filed herein.
(d)(31) Investment Advisory Agreement dated October 1, 1999
between SSB Citi Fund Management LLC (formerly SSBC Fund Management Inc.
and Mutual Management Corp.) and National Asset Management Corp.
relating to Registrant's Multi-Sector Fixed Income Investments
is filed herein.
(d)(32) Investment Advisory Agreement dated October 1, 1999
between SSB Citi Fund Management LLC (formerly SSBC Fund Management Inc.
and Mutual Management Corp.) and Atlantic Portfolio Analytics and Management
Inc. relating to Registrant's Multi-Sector Fixed Income Investments
is filed herein.
(d)(33) Investment Advisory Agreement dated October 1, 1999
between SSB Citi Fund Management LLC (formerly SSBC Fund Management Inc.
and Mutual Management Corp.) and Alliance Capital Management, L.P.
relating to Registrant's Multi-Sector Fixed Income Investments
is to be filed by amendment.
(d)(34) Investment Advisory Agreement dated October 1 , 1999
between SSB Citi Fund Management LLC (formerly SSBC Fund Management Inc.
and Mutual Management Corp.) and Barclays Global Fund Advisors
relating to Registrant's S & P 500 Index Investments
is filed herein.
(d)(35) Investment Advisory Agreement dated April 1, 1999
between SSBC Fund Management Inc. (formerly Mutual Management Corp.) and
Chartwell Investment Partners relating to Registrant's Large Capitalization
Value Equity Investments Portfolio is filed herein.
(d)(36) Investment Advisory Agreement dated April 1, 1999 between
SSBC Fund Management Inc. (formerly Mutual Management Corp.) and Kern capital
Management LLC relating to Small Capitalization Growth Investments is filed
herein.
(d)(37) Investment Advisory Agreement dated April 1, 1999 between SSBC Fund
Management Inc. (formerly Mutual Management Corp.) and Marvin & Palmer
Associates relating to International Equity Investments is filed herein.
(d)(38) Investment Advisory Agreement dated April 1, 1999
between SSBC Fund Management Inc. and Pacific Investment Management Co.
relating to Registrant's Intermediate Fixed Income Investments Portfolio
is filed herein.
(e)(1) Distribution Agreement dated July 30, 1993 between the
Registrant and Smith Barney Shearson Inc. is incorporated by reference to
Post-Effective Amendment No. 3.
(e)(2) Form of Distribution Agreement between the Registrant
and CFBDS Inc. is incorpotated by reference to
Post-Effective Amendment No.23.
(f) Not Applicable.
(g)(1) Custody Agreements between the Registrant and PNC
Bank and Morgan Guaranty and Trust Company dated March
3, 1995 and August 24, 1995, respectively, are incorporated by reference to
Post-Effective Amendment No. 13 to the Registration Statement
on Form N-1A as filed on November 2, 1995.
(g) (2) Custody Agreement between the Registrant and Chase Manhattan Bank
dated December 6, 1996 is to be filed by amendment.
(h) Transfer Agency and Registrar Agreement between the
Registrant and The Shareholder Services Group, Inc., dated September 26, 1993,
is incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement on Form N-1A, as filed on
December 30, 1993.
(i) Opinion of Willkie Farr & Gallagher, including Consent,
is incorporated by reference to Post-Effective Amendment
No. 13 to the Registration Statement on Form N-1A filed
on November 2, 1995.
(j) Auditors' Consent is to be filed by amendment.
(k) Not Applicable.
(l) Purchase Agreement between the Registrant and Shearson
Lehman Brothers Inc. is incorporated by reference to Post-Effective
Amendment No. 1.
(m) Not Applicable.
(n) Not Applicable.
(o) Not Applicable.
Item 24. Persons Controlled by or Under Common Control with
Registrant
None.
Item 25. Indemnification
Incorporated by reference to Pre-Effective Amendment
No. 2 to the Registration Statement on Form N-1A as filed on
January 7, 1993.
Item 26(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 SSB Citi Fund Management LLC ("SSB Citi")(formerly known as
SSBC Fund Management Inc.), which was incorporated in 1968 under the laws of
the State of Delaware. SSB Citi is a wholly owned subsidiary of Salomon
Smith Barney Holdings Inc., which is in turn a wholly owned subsidiary of
Citigroup Inc.
The list required by this Item 26 of officers and
directors of SSB Citi 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 SSB Citi on behalf of the Consulting Group pursuant to the Advisers
Act (SEC File No. 801-8314).
Item 26.(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 26 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 - 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 26 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 26 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 - The Boston Company Asset Management, Inc.
The Boston Company Asset Management, Inc. ("TBCAM") serves as
co-investment advisor to Large Capitalization Value Equity Investments.
TBCAM has been registered as an investment advisor under the Advisers Act
since 1970. TBCAM's principal executive offices are located at One Boston
Place, Boston, Massachusetts 02108.
The list required by this Item 26 of officers and
directors of TBCAM, 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 TBCAM pursuant to the
Advisers Act (SEC File No. ________).
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 26 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 26 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 - 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 26 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 - Wall Street Associates
Wall Street Associates ("WSA") will serve as
co-investment advisor to Small Capitalization Growth Investments. WSA has
been registered as an investment advisor under the Advisers Act since 1987.
WSA is the investment adviser of various institutional clients. WSA's
principal executive offices are located at 1200 Prospect Street,
Suite 100, LaJolla, CA 92037.
The list required by this Item 26 of officers and
directors of WSA, together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years, is incorporated by
reference to Schedule A and D of Form ADV filed by WSA pursuant to the
Advisers Act (SEC File No.801-30019).
Advisors - Westpeak Investment Advisors, LP
Westpeak Investment Advisors, LP("WSA") will serve as
co-investment advisor to Small Capitalization Growth Investments. Westpeak
has been registered as an investment advisor under the Advisers Act since
1991. Westpeak is the investment adviser of various institutional clients.
Westpeak's principal executive offices are located at 1011 Walnut Street,
Suite 400, Boulder, CO 80302.
The list required by this Item 26 of officers and
directors of Westpeak, together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years, is incorporated by
reference to Schedule A and D of Form ADV filed by Westpeak pursuant to the
Advisers Act (SEC File No.801-39554).
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 26 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 26 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 - AIB Govett Asset Management Ltd.
AIB Govett Asset Management Ltd. ("Govett") will serve as
investment advisor to Emerging Markets Equity Investments. Govett has been
registered as an investment advisor under the Advisers Act since 1972. Govett
is the investment adviser of various institutional clients. Govett's
principal executive offices are located at Shackleton House, 4
Battlebridge Lane, London, SE1-2HR.
The list required by this Item 26 of officers and
directors of Govett, together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years, is incorporated by
reference to Schedule A and D of Form ADV filed by Govett pursuant to the
Advisers Act (SEC File No.801-34730).
Advisors - Alliance Capital Management L.P.
Alliance Capital Management L.P. ("Alliance") will serve as
investment advisor to High Yield Investments. Alliance has been
registered as an investment advisor under the Advisers Act since 1971.
Alliance is the investment adviser of various institutional and individual
clients. Alliance's
principal executive offices are located at 1345 Avenue of the
Americas, New York, New York .
The list required by this Item 26 of officers and
directors of Alliance, together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years, is incorporated by
reference to Schedule A and D of Form ADV filed by Alliance pursuant to the
Advisers Act (SEC File No.801-32361).
Advisors - David L. Babson & Co., Inc.
David L. Babson & Co. Inc. ("Babson") will serve as an
investment advisor to Small Capitalization Value Equity Investments. Babson
has been registered as an investment advisor under the Advisers Act since
1940. Babson is the investment adviser of various institutional and
individual clients. Babson's principal executive offices are located at One
Memorial Drive, Cambridge, MA,02142-1300.
The list required by this Item 26 of officers and
directors of Babson, together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years, is incorporated by
reference to Schedule A and D of Form ADV filed by Babson pursuant to the
Advisers Act (SEC File No.801-241).
Item 27. Principal Underwriters
(a) CFBDS, Inc. the Registrant's Distributor, is also
the distributor for
CitiFundsSM International Growth & Income Portfolio,
CitiFundsSM International Equity Portfolio, CitiFundsSM Large Cap
Growth
Portfolio, CitiFundsSM Intermediate Income Portfolio,
CitiFundsSM Short-Term U.S. Government Income Portfolio,
CitiFundsSM Emerging Asian Markets Equity Portfolio,
CitiFundsSM U.S. Treasury Reserves, CitiFundsSM Cash Reserves,
CitiFundsSM Premium U.S. Treasury Reserves,
CitiFundsSM Premium Liquid Reserves, CitiFundsSM Institutional U.S.
Treasury Reserves, CitiFundsSM Institutional Liquid Reserves,
SM Institutional Cash Reserves, CitiFundsSM Tax Free Reserves,
CitiFundsSM Institutional Tax Free Reserves,
CitiFundsSM California Tax Free Reserves,
CitiFundsSM Connecticut Tax Free Reserves,
CitiFundsSM New York Tax Free Reserves, CitiFundsSM Balanced Portfolio,
CitiFundsSM Small Cap Value Portfolio, CitiFundsSM Growth & Income
Portfolio,
CitiFundsSM Small Cap Growth Portfolio, CitiFundsSM National
Tax Free Income Portfolio, CitiFundsSM New York Tax Free Income
Portfolio,
CitiSelect VIP Folio 200, Citiselect VIP Folio 300,
CitiSelect (VIP Folio 400, CitiSelect (VIP Folio 500,
CitiFundsSM Small Cap Growth VIP Portfolio, CitiSelect (Folio 200,
CitiSelect (Folio 300, CitiSelect (Folio 400, and CitiSelect (Folio
500.
CFBDS is also the placement agent for Large Cap Value Portfolio,
International Portfolio, Foreign Bond Portfolio,
Intermediate Income Portfolio, Short-Term Portfolio,
Growth & Income Portfolio, Large Cap Growth Portfolio,
Small Cap Growth Portfolio, International Equity Portfolio,
Balanced Portfolio, Government Income Portfolio, Emerging
Asian Markets Equity Portfolio, Tax Free Reserves Portfolio,
Cash Reserves Portfolio and U.S. Treasury Reserves Portfolio.
CFBDS, Inc. is also the distributor for the following
Smith Barney Mutual Fund registrants:
Greenwich Street Series Fund
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Concert Allocation Series Inc.
Smith Barney Equity Funds
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.
Smith Barney Income Funds
Smith Barney Institutional Cash Management Fund, Inc.
Smith Barney Investment Trust
Smith Barney Investment Funds Inc.
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc.
Smith Barney Muni Funds
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Natural Resources Fund Inc.
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund Inc.
Smith Barney Principal Return Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Telecommunications Trust
Smith Barney Variable Account Funds
Smith Barney World Funds, Inc.
Travelers Series Fund Inc.
And various series of unit investment trusts.
CFBDS, Inc. is also the distributor for the following
Salomon Brothers funds;
Salomon Brothers Opportunity Fund Inc
Salomon Brothers Investors Fund Inc
Salomon Brothers Capital Fund Inc
Salomon Brothers Series Funds Inc
Salomon Brothers Institutional Series Funds Inc
Salomon Brothers Variable Series Funds Inc
The information required by this Item 27 with respect
to each director, officer and partner of CFBDS, Inc.
is incorporated by reference to Schedule A of Form BD
filed by CFBDS, Inc. pursuant to the Securities
Exchange Act of 1934 (SEC File No. 8-32417).
Item 28. Location of Accounts and Records
Consulting Group Capital Markets Funds
222 Delaware Avenue
Wilmington, Delaware 19801
PNC Bank, National Association
17th and Chestnuts Streets
Philadelphia, Pennsylvania
The Chase Manhattan Bank
Chase MetroTech Center
Brooklyn, NY 11245
Salomon Smith Barney Inc.
388 Greenwich Street, 22nd Floor
New York, New York 10013
First Data Investor Services Group Inc.
Exchange Place
Boston, MA 02109
CFBDS Inc.
21 Milk Street
Boston, MA 02109
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended
(the"1933 Act")and the Investment Company Act of 1940, as amended, the
Registrant has duly caused this Post-Effective Amendment to its Registration
Statement to be signed on its behalf by the undersigned, this Post-Effective
Amendment, and where applicable, the true and lawful attorney-in-fact,
thereto duly authorized, in the City of New York and State of New York on
the 29th day of October 1999.
CONSULTING GROUP CAPITAL MARKETS FUNDS
BY /s/ Heath B. McLendon
(Heath B. McLendon, Chief Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
Signature Title Date
/s/ Heath B. McLendon
Trustee and Chairman of the Board October 29, 1999
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone
Senior Vice President and Treasurer October 29, 1999
Lewis E. Daidone (Chief Financial and Accounting
Officer)
/s/ Walter E. Auch, Sr.*
Walter E. Auch, Sr., Trustee October 29, 1999
H. John Ellis, Trustee
/s/ Armon E. Kamesar, Trustee, October 29, 1999
Armon E. Kamesar
/s/ Martin Brody*
Martin Brody, Trustee, October 29, 1999
/s/ Stephen E. Kaufman*
Stephen E. Kaufman, Trustee, October 29, 1999
* 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 October 29, 1999
CONSULTING GROUP CAPITAL MARKETS FUNDS
INVESTMENT ADVISORY AGREEMENT
April 1, 1999
Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Dear Sirs:
Under an agreement (the "Management Agreement") between the
Consulting Group Capital Markets Funds, a Massachusetts business trust
(the "Trust"), and SSBC Fund 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 Standish, Ayer &
Wood, Inc. (the "Adviser") with respect to the Adviser's serving as an
investment adviser of Intermediate Fixed Income 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 by the Manager and subject to
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 and options of any type 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, with respect to the management of the
Allocated Assets, 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., provided in writing
to the Adviser.
(d) The Manager shall provide to the Adviser at the end of each
calendar month a list of the securities held by the Portfolio as of such
month end. The Adviser agrees that it will review such list as to the
Allocated Assets and promptly alert the Manager's controller, by facsimile
at (212) 816-5597 or such other means as they may agree, as to any
discrepancies between the Adviser's records of such holdings and the list
provided by the Manager. Upon the specific request of the Manager, the
Adviser shall provide to the Manager the Adviser's opinion as to the value
of a security included in the Allocated Assets in order to assist the
Manager, or the Trust's Board of Trustees, as the case may be, in
determining the value of such security.
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 (i).the
Manager or its affiliates (ii) the Adviser or its affiliates or (iii) any
other adviser to the Portfolio 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. In connection with underwritten
fixed-price new issues of securities, the Adviser may receive new issue
credits from managers or members of the underwriting syndicate for
research services (as defined above). In connection with agency
transactions, the Adviser may cause the Portfolio to pay to a broker-
dealer a commission in excess of that another broker-dealer may charge for
the same transaction, if the Adviser determines in good faith that the
commission charged is reasonable in relation to the value of brokerage and
research services (as defined above) provided by such broker, viewed
either in terms of the particular transaction or the Adviser's overall
responsibilities with respect to accounts over which the Adviser exercises
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 first $200 million of
the average daily net assets of the Portfolio and 0.15% thereafter,
multiplied by the average daily value of Allocated Assets (the "Portfolio
Advisory Fee").
(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 of the Trust who are employed by the Adviser.
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 matters 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. The Adviser shall be responsible solely for the management of
the Allocated Assets, and the Adviser's compliance with the Act, rules and
regulations thereunder, other federal and state laws, and written
procedures of the Trust's Board of Trustee will be determined solely by
reference to the Allocated Assets. The Adviser shall have no liability
with respect to the actions of any of any other investment adviser to the
Portfolio and shall not be charged with knowledge of the holdings or
transaction of any position of the Portfolio other than the Allocated
Assets.
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 businesses or to render services of
whatever kind or nature.
Section 10. Duration and Termination
(a) This Agreement shall become effective on April 1, 1999 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 Limitation of Liability
The Manager and the Adviser agree that the obligations of the Trust
under this Agreement shall not be binding upon any of the Board members,
shareholders, nominees, officers, employees or agents, whether past,
present or future, of the Trust individually, but are binding only upon
the assets and property of the Portfolio, as provided in the Master Trust
Agreement of the Trust. The execution and delivery of this Agreement have
been duly authorized by the Manager and the Adviser, and signed by an
authorized officer of each, acting as such.
Section 13. 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.
SSBC FUND MANAGEMENT INC.
By:
__________________________
___
Name: Christina T. Sydor
Title: General Counsel and
Secretary
Accepted:
Standish, Ayer & Wood, Inc.
By: ______________________________
Name:
Title:
- -7-
G:\Fund Accounting\Legal\FUNDS\TRAK\AGREEMTS\AGREEMT\STANDAGR.doc
CONSULTING GROUP CAPITAL MARKETS FUNDS
FORM OF
INVESTMENT ADVISORY AGREEMENT
April 1, 1998
NFJ Investment Group
2121 San Jacinto Street, Suite 1440
Dallas, Texas 75201
Dear Sirs:
Under an agreement (the "Management Agreement") between the
Consulting Group Capital Markets Funds, a Massachusetts business trust
(the "Trust"), and Mutual Management Corp., (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 NFJ Investment Group
(the "Adviser") with respect to the Adviser's serving as an investment
adviser of Small Capitalization Value Equity 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 and options of any
type 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 0.50% of the first $450 million of
the average daily net assets of the Portfolio and 0.45% thereafter,
multiplied by a fraction, the numerator of which is the average daily
value of Allocated Assets and the denominator of which is the average
daily value of the Portfolio's total assets (the "Portfolio Advisory
Fee"). The Portfolio Advisory Fee payable to the Adviser shall be reduced
in the same proportion as the Portfolio Advisory Fee bears to the
Manager's fee from the Portfolio to the extent, in any fiscal year of the
Portfolio, the aggregate expenses of the Portfolio (including fees
pursuant to this Agreement and the Trust's Administration Agreement with
the Administrator, but excluding interest, taxes, brokerage fees, and, if
permitted by state securities commissions, extraordinary expenses) exceed
the expense limitation of any state having jurisdiction over the
Portfolio.
(b) The Portfolio Advisory Fee for the period from the date of
this Agreement becomes effective to the end of the month during which this
Agreement becomes effective shall be prorated according to the proportion
that such period bears to the full monthly period. Upon any termination
of this Agreement before the end of a month, the fee for such part of that
month shall be prorated according to the proportion that such period bears
to the full monthly period and shall be payable upon the date of
termination of this Agreement.
(c) For the purpose of determining fees payable to the 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 businesses or to render services of
whatever kind or nature.
Section 10. Duration and Termination
(a) This Agreement shall become effective on April 1, 1998 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.
MUTUAL MANAGEMENT CORP.
By:
__________________________
___
Name: Heath B. McLendon
Title: President
Accepted:
NFJ Investment Group
By: ______________________________
Name: Ben Fischer
Title: Managing Director
u:/legal/users/dab/nfj1.doc
- -6-
CONSULTING GROUP CAPITAL MARKETS FUNDS
INVESTMENT ADVISORY AGREEMENT
October 1, 1999
Western Asset Management Company
117 East Colorado Boulevard
Pasadena, California 91105
Dear Sirs:
Under an agreement (the "Management Agreement") between the Consulting
Group Capital Markets Funds, a Massachusetts business trust (the "Trust"), and
SSB Citi Fund Management LLC, (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 Western Asset Management
Company (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 by the Manager and subject to 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 and options of
any type 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, with respect to the management of the
Allocated Assets, it will comply with applicable provisions of 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, provided in
writing or such other means as they may agree, to the Adviser.
(d) The Manager will provide to the Adviser at the end of each
calendar month a list (the "Monthly List") of the securities comprising the
Allocated Assets as of such month end. The Adviser agrees that it will review
the Monthly List and promptly alert the Manager's controller, by facsimile at
(212) 816-5597 or such other means as they may agree, as to any discrepancies
between the Adviser's records of such holdings and the Monthly List. Upon the
specific request of the Manager, the Adviser shall provide to the Manager the
Adviser's opinion as to the value of a security included in the Allocated
Assets in order to assist the Manager, or the Trust's Board of Trustees, as
the case may be, in determining the value of such security.
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, but need not, place orders with respect to Allocated Assets with
(i) the Manager or its affiliates (ii) the Adviser or its affiliates or (iii)
any other adviser to the Portfolio 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. In connection with underwritten fixed-price new issues
of securities, the Adviser may receive new issue credits from managers or
members of the underwriting syndicate for research services (as defined
above). In connection with agency transactions, the Adviser may cause the
Portfolio to pay to a broker-dealer a commission in excess of that another
broker-dealer may charge for the same transaction, if the Adviser determines
in good faith that the commission charged is reasonable in relation to the
value of brokerage and research services (as defined above) provided by such
broker, viewed either in terms of the particular transaction or the Adviser's
overall responsibilities with respect to accounts over which the Adviser
exercises 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%, multiplied by the average daily value of
Allocated Assets (the "Portfolio Advisory Fee").
(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 of the Trust who are employed by the Adviser.
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 matters 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. The Adviser shall be responsible solely for the management of
the Allocated Assets, and the Adviser's compliance with the Act, rules and
regulations thereunder, other federal and state laws, and written procedures
of the Trust's Board of Trustees will be determined solely by reference to the
Allocated Assets. The Adviser shall have no liability with respect to the
actions of any other investment adviser to the Portfolio and shall not be
charged with knowledge of the holdings or transaction of any position of the
Portfolio other than the Allocated Assets.
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 businesses or to render services of whatever kind or
nature.
Section 10. Duration and Termination
(a) This Agreement shall become effective on October 1, 1999 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 written 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 written notice to the Manager,
Adviser 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. Limitation of Liability
The Manager and Adviser agree that the obligations of the Trust under
this Agreement shall not be binding upon any of the Board members,
shareholders, nominees, officers, employees or agents, whether past, present
or future, of the Trust individually, but are binding only upon the assets and
property of the Portfolio, as provided in the Master Trust Agreement of
Trust. The execution and delivery of this Agreement have been duly authorized
by the Manager and the Adviser, and signed by an authorized officer of each
acting as such.
Section 13. Notices
Any written notice required by or pertaining to this Agreement shall be
personally delivered to the party for whom it is intended, at the address
stated below, or shall be sent to such party by prepaid first class mail or
facsimile.
If to the Manager: SSB Citi Fund Management LLC
388 Greenwich Street, 22nd floor
New York, New York 10013
Fax: (212) 816-5666
Attention: Christina T. Sydor, Esq.
General Counsel and Corporate Secretary
If to the Adviser: Western Asset Management Company
117 East Colorado Boulevard, 6th Floor
Pasadena, California 91105
Fax: (626) 844-9810
Attention: Ilene S. Harker
Director
Section 14. 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.
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.
SSB CITI FUND MANAGEMENT LLC
By: _____________________________
Name: Christina T. Sydor
Title: General Counsel and
Secretary
Accepted:
Western Asset Management Company
By: ______________________________
Name:
Title:
u:\legal/FUNDS/TRAK/AGREEMTS\AGREEMT\WesternAssetMgmtCoLong-
TermBondInvestagreement.doc
- -8-
CONSULTING GROUP CAPITAL MARKETS FUNDS
INVESTMENT ADVISORY AGREEMENT
January 11,
1999
Barclays Global Fund Advisors
45 Fremont Street
San Francisco, CA 94105
Dear Sirs:
Under an agreement (the "Management Agreement") between the
Consulting Group Capital Markets Funds, a Massachusetts business trust
(the "Trust"), and Mutual Management Corp., (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 Barclays Global Fund
Advisors (the "Adviser") with respect to the Adviser's serving as an
investment adviser of Large Capitalization Value Equity 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 and options of any
type 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 0.02%, multiplied by a fraction,
the numerator of which is the average daily value of Allocated Assets and
the denominator of which is the average daily value of the Portfolio's
total assets (the "Portfolio Advisory Fee"). The Portfolio Advisory Fee
payable to the Adviser shall be reduced in the same proportion as the
Portfolio Advisory Fee bears to the Manager's fee from the Portfolio to
the extent, in any fiscal year of the Portfolio, the aggregate expenses of
the Portfolio (including fees pursuant to this Agreement and the Trust's
Administration Agreement with the Administrator, but excluding interest,
taxes, brokerage fees, and, if permitted by state securities commissions,
extraordinary expenses) exceed the expense limitation of any state having
jurisdiction over the Portfolio.
(b) The Portfolio Advisory Fee for the period from the date of
this Agreement becomes effective to the end of the month during which this
Agreement becomes effective shall be prorated according to the proportion
that such period bears to the full monthly period. Upon any termination
of this Agreement before the end of a month, the fee for such part of that
month shall be prorated according to the proportion that such period bears
to the full monthly period and shall be payable upon the date of
termination of this Agreement.
(c) For the purpose of determining fees payable to the 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 businesses or to render services of
whatever kind or nature.
Section 10. Duration and Termination
(a) This Agreement shall become effective on January 11, 1999 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.
MUTUAL MANAGEMENT CORP.
By:
__________________________
___
Name: Heath B. McLendon
Title: President
Accepted:
Barclays Global Fund Advisers
By: ______________________________
Name:
Title:
u:\legal/users/dab/barcagr.doc
- -5-
CONSULTING GROUP CAPITAL MARKETS FUNDS
INVESTMENT ADVISORY AGREEMENT
April 15, 1999
Pegasus Investments, Inc.
One Boston Place
Boston, Massachusetts 02108
Dear Sirs:
Under an agreement (the "Management Agreement") between the
Consulting Group Capital Markets Funds, a Massachusetts business trust
(the "Trust"), and SSBC Fund 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 Pegasus Investments,
Inc. (the "Adviser") with respect to the Adviser's serving as an
investment adviser of Multi-Strategy Market Neutral 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 by the Manager and subject to
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 and options of any type 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, with respect to the management of the
Allocated Assets, it will comply with applicable provisions of 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, provided in writing or such other means as they may
agree, to the Adviser.
(d) The Manager will provide to the Adviser at the end of each
calendar month a list (the "Monthly List") of the securities comprising
the Allocated Assets as of such month end. The Adviser agrees that it
will review the Monthly List and promptly alert the Manager's controller,
by facsimile at (212) 816-5597 or such other means as they may agree, as
to any discrepancies between the Adviser's records of such holdings and
the Monthly List. Upon the specific request of the Manager, the Adviser
shall provide to the Manager the Adviser's opinion as to the value of a
security included in the Allocated Assets in order to assist the Manager,
or the Trust's Board of Trustees, as the case may be, in determining the
value of such security.
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, but need not, place orders with respect to Allocated
Assets with (i) the Manager or its affiliates (ii) the Adviser or its
affiliates or (iii) any other adviser to the Portfolio 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. In connection with underwritten
fixed-price new issues of securities, the Adviser may receive new issue
credits from managers or members of the underwriting syndicate for
research services (as defined above). In connection with agency
transactions, the Adviser may cause the Portfolio to pay to a broker-
dealer a commission in excess of that another broker-dealer may charge for
the same transaction, if the Adviser determines in good faith that the
commission charged is reasonable in relation to the value of brokerage and
research services (as defined above) provided by such broker, viewed
either in terms of the particular transaction or the Adviser's overall
responsibilities with respect to accounts over which the Adviser exercises
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 1.20%, multiplied by the average
daily value of Allocated Assets (the "Portfolio Advisory Fee").
(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 of the Trust who are employed by the Adviser.
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 matters 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. The Adviser shall be responsible solely for the management of
the Allocated Assets, and the Adviser's compliance with the Act, rules and
regulations thereunder, other federal and state laws, and written
procedures of the Trust's Board of Trustees will be determined solely by
reference to the Allocated Assets. The Adviser shall have no liability
with respect to the actions of any of any other investment adviser to the
Portfolio and shall not be charged with knowledge of the holdings or
transaction of any position of the Portfolio other than the Allocated
Assets.
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 businesses or to render services of
whatever kind or nature.
Section 10. Duration and Termination
(a) This Agreement shall become effective on April 15, 1999 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 written
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 written
notice to the Manager, Adviser 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. Limitation of Liability
The Manager and Adviser agree that the obligations of the Trust
under this Agreement shall not be binding upon any of the Board members,
shareholders, nominees, officers, employees or agents, whether past,
present or future, of the Trust individually, but are binding only upon
the assets and property of the Portfolio, as provided in the Master Trust
Agreement of Trust. The execution and delivery of this Agreement have
been duly authorized by the Manager and the Adviser, and signed by an
authorized officer of each acting as such.
Section 13. Notices
Any written notice required by or pertaining to this Agreement shall
be personally delivered to the party for whom it is intended, at the
address stated below, or shall be sent to such party by prepaid first
class mail or facsimile.
If to the Manager: SSBC Fund Management Inc.
388 Greenwich Street, 22nd floor
New York, New York 10013
Fax: (212) 816-5666
Attention: Christina T. Sydor, Esq.
General Counsel and Corporate Secretary
If to the Adviser: Pegasus Investments, Inc.
One Boston Place, Suite 2975
Boston, Massachusetts 02108
Fax: (617) 367-8488
Attention: Brian Kopperl
Managing Director
Section 14. 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.
SSBC FUND MANGEMENT INC.
By:
__________________________
___
Name: Christina T. Sydor
Title: General Counsel and
Secretary
Accepted:
Pegasus Investments, Inc.
By: ______________________________
Name:
Title:
u:\legal/FUNDS/TRAK/AGREEMTS\AGREEMT\pegasusagreement.doc
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CONSULTING GROUP CAPITAL MARKETS FUNDS
INVESTMENT ADVISORY AGREEMENT
April 15, 1999
State Street Global Advisors
Two International Place
Boston, MA 02110
Dear Sirs:
Under an agreement (the "Management Agreement") between the
Consulting Group Capital Markets Funds, a Massachusetts business trust
(the "Trust"), and SSBC Fund 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 State Street Global
Advisors, a division of State Street Bank and Trust Company (the
"Adviser"), with respect to the Adviser's serving as an investment adviser
to Multi-Strategy Market Neutral 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 and options of any
type 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.
(d) The Adviser agrees that it will, on at least a monthly basis,
review the custodian's pricing of securities with respect to each security
held in the Adviser's portion of the Portfolio and advise the Manager in
writing by sending a facsimile transmission to the Portfolio's controller
at 212 816-5597 of any changes in price which the Adviser recommends.
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 (i) the
Manager or its affiliates (ii) the Adviser or its affiliates or (iii) any
other adviser to the Portfolio 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 1.00%, multiplied by the average
daily value of Allocated Assets (the "Portfolio Advisory Fee").
(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 of the Trust who are employed by the Adviser.
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 matters 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 businesses or to render services of
whatever kind or nature.
Section 10. Duration and Termination
(a) This Agreement shall become effective on April 15, 1999 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. Limitation of Liability
The Manager and Adviser agree that the obligations of the Trust
under this Agreement shall not be binding upon any of the Board members,
shareholders, nominees, officers, employees or agents, whether past,
present or future, of the Trust individually, but are binding only upon
the assets and property of the Portfolio, as provided in the Master Trust
Agreement of the Trust. The execution and delivery of this Agreement have
been duly authorized by the Manager and the Adviser, and signed by an
authorized officer of each acting as such.
Section 13. 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.
SSBC FUND MANAGEMENT INC.
By:
__________________________
___
Name: Christina T. Sydor
Title: General Counsel and
Secretary
Accepted:
State Street Global Advisors,
a division of State Street Bank and Trust Company
By: ______________________________
Name:
Title:
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CONSULTING GROUP CAPITAL MARKETS FUNDS
INVESTMENT ADVISORY AGREEMENT
April 15, 1999
Calamos Asset Management, Inc.
1111 East Warrenville Road
Naperville, Illinois 60563
Dear Sirs:
Under an agreement (the "Management Agreement") between the
Consulting Group Capital Markets Funds, a Massachusetts business trust
(the "Trust"), and SSBC Fund 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 Calamos Asset
Management, Inc. (the "Adviser") with respect to the Adviser's serving as
an investment adviser of Multi-Strategy Market Neutral 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 and options of any
type 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.
(d) The Adviser agrees that it will, on at least a monthly basis,
review the custodian's pricing of securities with respect to each security
held in the Adviser's portion of the Portfolio and advise the Manager in
writing by sending a facsimile transmission to the Portfolio's controller
at 212 816-5597 of any changes in price which the Adviser recommends.
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 (i) the
Manager or its affiliates (ii) the Adviser or its affiliates or (iii) any
other adviser to the Portfolio 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 1.00%, multiplied by the average
daily value of Allocated Assets (the "Portfolio Advisory Fee").
(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 of the Trust who are employed by the Adviser.
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 matters 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 businesses or to render services of
whatever kind or nature.
Section 10. Duration and Termination
(a) This Agreement shall become effective on April 15, 1999 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. The Manager and Adviser agree that the obligations of
the Trust under this Agreement shall not be binding upon any of the Board
members, shareholders, nominees, officers, employees or agents, whether
past, present or future, of the Trust individually, but are binding only
upon the assets and property of the Portfolio, as provided in the Master
Trust Agreement of the Trust. The execution and delivery of this
Agreement have been duly authorized by the Manager and the Adviser, and
signed by an authorized officer of each acting as such.
Section 13. 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.
SSBC FUND MANAGEMENT INC.
By:
__________________________
___
Name: Christina T. Sydor
Title: General Counsel and
Secretary
Accepted:
Calamos Asset Management, Inc.
By: ______________________________
Name:
Title:
u:\legal/FUNDS/TRAK/AGREEMTS\AGREEMT\calmosagreement.doc
- -6-
G:\Fund Accounting\Legal\FUNDS\TRAK\AGREEMTS\AGREEMT\calmosagreement.doc
CONSULTING GROUP CAPITAL MARKETS FUNDS
INVESTMENT ADVISORY AGREEMENT
October 1, 1999
Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Dear Sirs:
Under an agreement (the "Management Agreement") between the Consulting
Group Capital Markets Funds, a Massachusetts business trust (the "Trust"), and
SSB Citi Fund Management LLC, (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 Standish, Ayer & Wood,
Inc. (the "Adviser") with respect to the Adviser's serving as an investment
adviser of Multi-Sector Fixed Income 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 by the Manager and subject to 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 and options of
any type 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, with respect to the management of the
Allocated Assets, it will comply with applicable provisions of 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, provided in
writing or such other means as they may agree, to the Adviser.
(d) The Manager will provide to the Adviser at the end of each
calendar month a list (the "Monthly List") of the securities comprising the
Allocated Assets as of such month end. The Adviser agrees that it will review
the Monthly List and promptly alert the Manager's controller, by facsimile at
(212) 816-5597 or such other means as they may agree, as to any discrepancies
between the Adviser's records of such holdings and the Monthly List. Upon the
specific request of the Manager, the Adviser shall provide to the Manager the
Adviser's opinion as to the value of a security included in the Allocated
Assets in order to assist the Manager, or the Trust's Board of Trustees, as
the case may be, in determining the value of such security.
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, but need not, place orders with respect to Allocated Assets with
(i) the Manager or its affiliates (ii) the Adviser or its affiliates or (iii)
any other adviser to the Portfolio 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. In connection with underwritten fixed-price new issues
of securities, the Adviser may receive new issue credits from managers or
members of the underwriting syndicate for research services (as defined
above). In connection with agency transactions, the Adviser may cause the
Portfolio to pay to a broker-dealer a commission in excess of that another
broker-dealer may charge for the same transaction, if the Adviser determines
in good faith that the commission charged is reasonable in relation to the
value of brokerage and research services (as defined above) provided by such
broker, viewed either in terms of the particular transaction or the Adviser's
overall responsibilities with respect to accounts over which the Adviser
exercises 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 0.15%, multiplied by the average daily value of
Allocated Assets (the "Portfolio Advisory Fee").
(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 of the Trust who are employed by the Adviser.
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 matters 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. The Adviser shall be responsible solely for the management of
the Allocated Assets, and the Adviser's compliance with the Act, rules and
regulations thereunder, other federal and state laws, and written procedures
of the Trust's Board of Trustees will be determined solely by reference to the
Allocated Assets. The Adviser shall have no liability with respect to the
actions of any other investment adviser to the Portfolio and shall not be
charged with knowledge of the holdings or transaction of any position of the
Portfolio other than the Allocated Assets.
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 businesses or to render services of whatever kind or
nature.
Section 10. Duration and Termination
(a) This Agreement shall become effective on October 1, 1999 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 written 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 written notice to the Manager,
Adviser 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. Limitation of Liability
The Manager and Adviser agree that the obligations of the Trust under
this Agreement shall not be binding upon any of the Board members,
shareholders, nominees, officers, employees or agents, whether past, present
or future, of the Trust individually, but are binding only upon the assets and
property of the Portfolio, as provided in the Master Trust Agreement of
Trust. The execution and delivery of this Agreement have been duly authorized
by the Manager and the Adviser, and signed by an authorized officer of each
acting as such.
Section 13. Notices
Any written notice required by or pertaining to this Agreement shall be
personally delivered to the party for whom it is intended, at the address
stated below, or shall be sent to such party by prepaid first class mail or
facsimile.
If to the Manager: SSB Citi Fund Management LLC
388 Greenwich Street, 22nd floor
New York, New York 10013
Fax: (212) 816-5666
Attention: Christina T. Sydor, Esq.
General Counsel and Corporate Secretary
If to the Adviser: Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Fax: (617) 880-7575
Attention: Jennifer Pline
Associate Director
Section 14. 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.
SSB CITI FUND MANAGEMENT LLC
By: _____________________________
Name: Christina T. Sydor
Title: General Counsel and
Secretary
Accepted:
Standish, Ayer & Wood, Inc.
By: ______________________________
Name:
Title:
g:\legal/FUNDS/TRAK/AGREEMTS\AGREEMT\StandishMultiSectorInvestagreement.doc
- -8-
CONSULTING GROUP CAPITAL MARKETS FUNDS
INVESTMENT ADVISORY AGREEMENT
October 1,
1999
Western Asset Management Company
117 East Colorado Boulevard
Pasadena, California 91105
Dear Sirs:
Under an agreement (the "Management Agreement") between the
Consulting Group Capital Markets Funds, a Massachusetts business trust
(the "Trust"), and SSB Citi Fund Management LLC, (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 Western Asset
Management Company (the "Adviser") with respect to the Adviser's serving
as an investment adviser of Multi-Sector Fixed Income 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 by the Manager and subject to
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 and options of any type 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, with respect to the management of the
Allocated Assets, it will comply with applicable provisions of 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, provided in writing or such other means as they may
agree, to the Adviser.
(d) The Manager will provide to the Adviser at the end of each
calendar month a list (the "Monthly List") of the securities comprising
the Allocated Assets as of such month end. The Adviser agrees that it
will review the Monthly List and promptly alert the Manager's controller,
by facsimile at (212) 816-5597 or such other means as they may agree, as
to any discrepancies between the Adviser's records of such holdings and
the Monthly List. Upon the specific request of the Manager, the Adviser
shall provide to the Manager the Adviser's opinion as to the value of a
security included in the Allocated Assets in order to assist the Manager,
or the Trust's Board of Trustees, as the case may be, in determining the
value of such security.
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, but need not, place orders with respect to Allocated
Assets with (i) the Manager or its affiliates (ii) the Adviser or its
affiliates or (iii) any other adviser to the Portfolio 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. In connection with underwritten
fixed-price new issues of securities, the Adviser may receive new issue
credits from managers or members of the underwriting syndicate for
research services (as defined above). In connection with agency
transactions, the Adviser may cause the Portfolio to pay to a broker-
dealer a commission in excess of that another broker-dealer may charge for
the same transaction, if the Adviser determines in good faith that the
commission charged is reasonable in relation to the value of brokerage and
research services (as defined above) provided by such broker, viewed
either in terms of the particular transaction or the Adviser's overall
responsibilities with respect to accounts over which the Adviser exercises
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%, multiplied by the average
daily value of Allocated Assets (the "Portfolio Advisory Fee").
(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 of the Trust who are employed by the Adviser.
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 matters 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. The Adviser shall be responsible solely for the management of
the Allocated Assets, and the Adviser's compliance with the Act, rules and
regulations thereunder, other federal and state laws, and written
procedures of the Trust's Board of Trustees will be determined solely by
reference to the Allocated Assets. The Adviser shall have no liability
with respect to the actions of any other investment adviser to the
Portfolio and shall not be charged with knowledge of the holdings or
transaction of any position of the Portfolio other than the Allocated
Assets.
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 businesses or to render services of
whatever kind or nature.
Section 10. Duration and Termination
(a) This Agreement shall become effective on October 1, 1999 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 written
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 written
notice to the Manager, Adviser 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. Limitation of Liability
The Manager and Adviser agree that the obligations of the Trust
under this Agreement shall not be binding upon any of the Board members,
shareholders, nominees, officers, employees or agents, whether past,
present or future, of the Trust individually, but are binding only upon
the assets and property of the Portfolio, as provided in the Master Trust
Agreement of Trust. The execution and delivery of this Agreement have
been duly authorized by the Manager and the Adviser, and signed by an
authorized officer of each acting as such.
Section 13. Notices
Any written notice required by or pertaining to this Agreement shall
be personally delivered to the party for whom it is intended, at the
address stated below, or shall be sent to such party by prepaid first
class mail or facsimile.
If to the Manager: SSB Citi Fund Management LLC
388 Greenwich Street, 22nd floor
New York, New York 10013
Fax: (212) 816-5666
Attention: Christina T. Sydor, Esq.
General Counsel and Corporate Secretary
If to the Adviser: Western Asset Management Company
117 East Colorado Boulevard, 6th Floor
Pasadena, California 91105
Fax: (626) 844-9810
Attention: Ilene S. Harker
Director
Section 14. 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.
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.
SSB CITI FUND MANAGEMENT LLC
By:
__________________________
___
Name: Christina T. Sydor
Title: General Counsel and
Secretary
Accepted:
Western Asset Management Company
By: ______________________________
Name:
Title:
u:\legal/FUNDS/TRAK/AGREEMTS\AGREEMT\WesternAssetMgmtCoMulti-
SectorFixedIncInvestagreement.doc
- -3-
G:\Fund Accounting\Legal\FUNDS\TRAK\AGREEMTS\AGREEMT\WesternAsset
MgtCoMultiSectoragreement.doc
CONSULTING GROUP CAPITAL MARKETS FUNDS
INVESTMENT ADVISORY AGREEMENT
October 1, 1999
APAM Core Fixed Income LLC
201 East Pine Street
Suite 600
Orlando, Florida 32801
Dear Sirs:
Under an agreement (the "Management Agreement") between the
Consulting Group Capital Markets Funds, a Massachusetts business trust
(the "Trust"), and SSB Citi Fund Management LLC, (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 APAM Core Fixed
Income LLC (the "Adviser") with respect to the Adviser's serving as an
investment adviser of Multi-Sector Fixed Income 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 by the Manager and subject to
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 and options of any type 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, with respect to the management of the
Allocated Assets, it will comply with applicable provisions of 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, provided in writing or such other means as they may
agree, to the Adviser.
(d) The Manager will provide to the Adviser at the end of each
calendar month a list (the "Monthly List") of the securities comprising
the Allocated Assets as of such month end. The Adviser agrees that it
will review the Monthly List and promptly alert the Manager's controller,
by facsimile at (212) 816-5597 or such other means as they may agree, as
to any discrepancies between the Adviser's records of such holdings and
the Monthly List. Upon the specific request of the Manager, the Adviser
shall provide to the Manager the Adviser's opinion as to the value of a
security included in the Allocated Assets in order to assist the Manager,
or the Trust's Board of Trustees, as the case may be, in determining the
value of such security.
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, but need not, place orders with respect to Allocated
Assets with (i) the Manager or its affiliates (ii) the Adviser or its
affiliates or (iii) any other adviser to the Portfolio 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. In connection with underwritten
fixed-price new issues of securities, the Adviser may receive new issue
credits from managers or members of the underwriting syndicate for
research services (as defined above). In connection with agency
transactions, the Adviser may cause the Portfolio to pay to a broker-
dealer a commission in excess of that another broker-dealer may charge for
the same transaction, if the Adviser determines in good faith that the
commission charged is reasonable in relation to the value of brokerage and
research services (as defined above) provided by such broker, viewed
either in terms of the particular transaction or the Adviser's overall
responsibilities with respect to accounts over which the Adviser exercises
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 0.25%, multiplied by the average
daily value of Allocated Assets (the "Portfolio Advisory Fee").
(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 of the Trust who are employed by the Adviser.
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 matters 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. The Adviser shall be responsible solely for the management of
the Allocated Assets, and the Adviser's compliance with the Act, rules and
regulations thereunder, other federal and state laws, and written
procedures of the Trust's Board of Trustees will be determined solely by
reference to the Allocated Assets. The Adviser shall have no liability
with respect to the actions of any other investment adviser to the
Portfolio and shall not be charged with knowledge of the holdings or
transaction of any position of the Portfolio other than the Allocated
Assets.
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 businesses or to render services of
whatever kind or nature.
Section 10. Duration and Termination
(a) This Agreement shall become effective on October 1, 1999 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 written
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 written
notice to the Manager, Adviser 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. Limitation of Liability
The Manager and Adviser agree that the obligations of the Trust
under this Agreement shall not be binding upon any of the Board members,
shareholders, nominees, officers, employees or agents, whether past,
present or future, of the Trust individually, but are binding only upon
the assets and property of the Portfolio, as provided in the Master Trust
Agreement of Trust. The execution and delivery of this Agreement have
been duly authorized by the Manager and the Adviser, and signed by an
authorized officer of each acting as such.
Section 13. Notices
Any written notice required by or pertaining to this Agreement shall
be personally delivered to the party for whom it is intended, at the
address stated below, or shall be sent to such party by prepaid first
class mail or facsimile.
If to the Manager: SSB Citi Fund Management LLC
388 Greenwich Street, 22nd floor
New York, New York 10013
Fax: (212) 816-5666
Attention: Christina T. Sydor, Esq.
General Counsel and Corporate Secretary
If to the Adviser: APAM Core Fixed Income LLC
201 East Pine Street
Suite 600
Orlando, FL 32801
Fax: (407) 841-7670
Attention:
[Title]
Section 14. 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.
SSB CITI FUND MANAGEMENT LLC
By:
__________________________
___
Name: Christina T. Sydor
Title: General Counsel and
Secretary
Accepted:
APAM Core Fixed Income LLC
By: ______________________________
Name:
Title:
g:\legal/FUNDS/TRAK/AGREEMTS\AGREEMT\APAMCFIMultiSectorInvestagreement.doc
- -3-
CONSULTING GROUP CAPITAL MARKETS FUNDS
INVESTMENT ADVISORY AGREEMENT
October 1, 1999
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, NY 10105
Dear Sirs:
Under an agreement (the "Management Agreement") between the
Consulting Group Capital Markets Funds, a Massachusetts business trust
(the "Trust"), and SSB Citi Fund Management LLC (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 Alliance Capital
Management L.P. (the "Adviser") with respect to the Adviser's serving as
an investment adviser of Multi-Sector Fixed Income 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 by the Manager and subject to
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 and options of any type with respect to
Allocated Assets.
(b) The Adviser will keep the Trust and the Manager informed of
developments materially affecting the Allocated Assets 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, with respect to the management of the
Allocated Assets, it will comply with applicable provisions of 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, provided in writing or such other means as they may
agree, to the Adviser.
(d) The Manager will provide to the Adviser at the end of each
calendar month a list (the "Monthly List") of the securities comprising
the Allocated Assets as of such month end. The Adviser agrees that it
will review the Monthly List and promptly alert the Manager's controller,
by facsimile at (212) 816-5597 or such other means as they may agree, as
to any discrepancies between the Adviser's records of such holdings and
the Monthly List. Upon the specific request of the Manager, the Adviser
shall provide to the Manager the Adviser's opinion as to the value of a
security included in the Allocated Assets in order to assist the Manager,
or the Trust's Board of Trustees, as the case may be, in determining the
value of such security.
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, but need not, place orders with respect to Allocated
Assets with (i) the Manager or its affiliates (ii) the Adviser or its
affiliates or (iii) any other adviser to the Portfolio 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. In connection with underwritten
fixed-price new issues of securities, the Adviser may receive new issue
credits from managers or members of the underwriting syndicate for
research services (as defined above). In connection with agency
transactions, the Adviser may cause the Portfolio to pay to a broker-
dealer a commission in excess of that another broker-dealer may charge for
the same transaction, if the Adviser determines in good faith that the
commission charged is reasonable in relation to the value of brokerage and
research services (as defined above) provided by such broker, viewed
either in terms of the particular transaction or the Adviser's overall
responsibilities with respect to accounts over which the Adviser exercises
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 Allocated Assets 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 0.45%, multiplied by the average
daily value of Allocated Assets (the "Portfolio Advisory Fee").
(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 of the Trust who are employed by the Adviser.
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 matters 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. The Adviser shall be responsible solely for the management of
the Allocated Assets, and the Adviser's compliance with the Act, rules and
regulations thereunder, other federal and state laws, and written
procedures of the Trust's Board of Trustees will be determined solely by
reference to the Allocated Assets. The Adviser shall have no liability
with respect to the actions of any other investment adviser to the
Portfolio and shall not be charged with knowledge of the holdings or
transaction of any position of the Portfolio other than the Allocated
Assets.
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 businesses or to render services of
whatever kind or nature.
Section 10. Duration and Termination
(a) This Agreement shall become effective on October 1, 1999 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 written
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 written
notice to the Manager, Adviser 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. Limitation of Liability
The Manager and Adviser agree that the obligations of the Trust
under this Agreement shall not be binding upon any of the Board members,
shareholders, nominees, officers, employees or agents, whether past,
present or future, of the Trust individually, but are binding only upon
the assets and property of the Portfolio, as provided in the Master Trust
Agreement of Trust. The execution and delivery of this Agreement have
been duly authorized by the Manager and the Adviser, and signed by an
authorized officer of each acting as such.
Section 13. Notices
Any written notice required by or pertaining to this Agreement shall
be personally delivered to the party for whom it is intended, at the
address stated below, or shall be sent to such party by prepaid first
class mail or facsimile.
If to the Manager: SSB Citi Fund Management LLC
388 Greenwich Street, 22nd floor
New York, New York 10013
Fax: (212) 816-5666
Attention: Christina T. Sydor, Esq.
General Counsel and Corporate Secretary
If to the Adviser: Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, NY 10105
Fax: (212) 969-2293
Attention: Mark R. Manley
Senior Vice President and Counsel
Section 14. 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.
(e) The Adviser agrees to notify the Manager and the Trust of any
changes in the membership of the general partners within a reasonable time
after such change.
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.
SSB CITI FUND MANAGEMENT LLC
By:
__________________________
___
Name: Christina T. Sydor
Title: General Counsel and
Secretary
Accepted:
Alliance Capital Management L.P.
By: Alliance Capital Management
Corporation, General Partner
By: ______________________________
Name:
Title:
g:\legal/FUNDS/TRAK/AGREEMTS\AGREEMT\AllianceMultiSectorInvestagreement.do
c
- -8-
CONSULTING GROUP CAPITAL MARKETS FUNDS
INVESTMENT ADVISORY AGREEMENT
October 1,
1999
Barclays Global Fund Advisors
45 Fremont Street
5th Floor
San Francisco, California 94105
Dear Sirs:
Under an agreement (the "Management Agreement") between the
Consulting Group Capital Markets Funds, a Massachusetts business trust
(the "Trust"), and SSBC Fund 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 Barclays Global Fund
Advisors (the "Adviser") with respect to the Adviser's serving as an
investment adviser of S&P 500 Index 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 by the Manager and subject to
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 and options of any type 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, with respect to the management of the
Allocated Assets, it will comply with applicable provisions of 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, provided in writing or such other means as they may
agree, to the Adviser.
(d) The Manager will provide to the Adviser at the end of each
calendar month a list (the "Monthly List") of the securities comprising
the Allocated Assets as of such month end. The Adviser agrees that it will
review the Monthly List and promptly alert the Manager's controller, by
facsimile at (212) 816-5597 or such other means as they may agree, as to
any discrepancies between the Adviser's records of such holdings and the
Monthly List. Upon the specific request of the Manager, the Adviser shall
provide to the Manager the Adviser's opinion as to the value of a security
included in the Allocated Assets in order to assist the Manager, or the
Trust's Board of Trustees, as the case may be, in determining the value of
such security.
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, but need not, place orders with respect to Allocated
Assets with (i) the Manager or its affiliates (ii) the Adviser or its
affiliates or (iii) any other adviser to the Portfolio 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. In connection with underwritten
fixed-price new issues of securities, the Adviser may receive new issue
credits from managers or members of the underwriting syndicate for
research services (as defined above). In connection with agency
transactions, the Adviser may cause the Portfolio to pay to a broker-
dealer a commission in excess of that another broker-dealer may charge for
the same transaction, if the Adviser determines in good faith that the
commission charged is reasonable in relation to the value of brokerage and
research services (as defined above) provided by such broker, viewed
either in terms of the particular transaction or the Adviser's overall
responsibilities with respect to accounts over which the Adviser exercises
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 0.02%, multiplied by the average
daily value of Allocated Assets (the "Portfolio Advisory Fee").
(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 of the Trust who are employed by the Adviser.
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 matters 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. The Adviser shall be responsible solely for the management of
the Allocated Assets, and the Adviser's compliance with the Act, rules and
regulations thereunder, other federal and state laws, and written
procedures of the Trust's Board of Trustees will be determined solely by
reference to the Allocated Assets. The Adviser shall have no liability
with respect to the actions of any other investment adviser to the
Portfolio and shall not be charged with knowledge of the holdings or
transaction of any position of the Portfolio other than the Allocated
Assets.
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 businesses or to render services of
whatever kind or nature.
Section 10. Duration and Termination
(a) This Agreement shall become effective on October 1, 1999 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 written
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 written
notice to the Manager, Adviser 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. Limitation of Liability
The Manager and Adviser agree that the obligations of the Trust
under this Agreement shall not be binding upon any of the Board members,
shareholders, nominees, officers, employees or agents, whether past,
present or future, of the Trust individually, but are binding only upon
the assets and property of the Portfolio, as provided in the Master Trust
Agreement of Trust. The execution and delivery of this Agreement have
been duly authorized by the Manager and the Adviser, and signed by an
authorized officer of each acting as such.
Section 13. Notices
Any written notice required by or pertaining to this Agreement shall
be personally delivered to the party for whom it is intended, at the
address stated below, or shall be sent to such party by prepaid first
class mail or facsimile.
If to the Manager: SSBC Fund Management Inc.
388 Greenwich Street, 22nd floor
New York, New York 10013
Fax: (212) 816-5666
Attention: Christina T. Sydor, Esq.
General Counsel and Corporate Secretary
If to the Adviser: Barclays Global Fund Advisors
45 Fremont Street, 33rd Floor
San Francisco, California 94105
Fax: (415) 597-2698
Attention: Legal Department
Section 14. 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.
SSBC FUND MANAGEMENT INC.
By:
__________________________
___
Name: Christina T. Sydor
Title: General Counsel and
Secretary
Accepted:
Barclays Global Fund Advisors
By: ______________________________
Name:
Title:
g:\legal/FUNDS/TRAK/AGREEMTS\AGREEMT\BarclaysS&P500Investagreement.doc
- -4-
CONSULTING GROUP CAPITAL MARKETS FUNDS
INVESTMENT ADVISORY AGREEMENT
April 1, 1999
Chartwell Investment Partners
1235 Westlakes Drive, Suite 330
Berwyn, PA 19312
Dear Sirs:
Under an agreement (the "Management Agreement") between the
Consulting Group Capital Markets Funds, a Massachusetts business trust
(the "Trust"), and SSBC Fund 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 Chartwell Investment
Partners (the "Adviser") with respect to the Adviser's serving as an
investment adviser of Large Capitalization Value Equity 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 and options of any
type 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.
(d) The Adviser agrees that it will, on at least a monthly basis,
review the custodian's pricing of securities with respect to each security
held in the Adviser's portion of the Portfolio and advise the Manager in
writing by sending a facsimile transmission to the Portfolio's controller
at 212 816-5597 of any changes in price which the Adviser recommends.
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 (i) the
Manager or its affiliates; (ii) the Adviser or its affiliates; or (iii)
any other adviser to the Portfolio 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 0.30%, multiplied by a fraction,
the numerator of which is the average daily value of Allocated Assets and
the denominator of which is the average daily value of the Portfolio's
total assets (the "Portfolio Advisory Fee").
(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 of the Trust who are employed by the Adviser.
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 matters 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 businesses or to render services of
whatever kind or nature.
Section 10. Duration and Termination
(a) This Agreement shall become effective on April 1, 1999 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 Limitation of Liability
The Manager and Adviser agree that the obligations of the Trust
under this Agreement shall not be binding upon any of the Board members,
shareholders, nominees, officers, employees or agents, whether past,
present or future, of the Trust individually, but are binding only upon
the assets and property of the Portfolio, as provided in the Master Trust
Agreement of the Trust. The execution and delivery of this Agreement have
been duly authorized by the Manager and the Adviser, and signed by an
authorized officer of each acting as such.
Section 13. 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.
SSBC FUND MANAGEMENT INC.
By:
__________________________
___
Name: Christina T. Sydor
Title: General Counsel and
Secretary
Accepted:
Chartwell Investment Partners
By: ______________________________
Name:
Title:
6
G:\Fund Accounting\Legal\FUNDS\TRAK\AGREEMTS\AGREEMT\chartwellagreement.doc
G:\Fund Accounting\Legal\FUNDS\TRAK\AGREEMTS\AGREEMT\chartwellagreement.doc
CONSULTING GROUP CAPITAL MARKETS FUNDS
INVESTMENT ADVISORY AGREEMENT
April 1, 1999
Kern Capital Management LLC
114 West 47th Street, Suite 1926
New York, New York 10036
Dear Sirs:
Under an agreement (the "Management Agreement") between the
Consulting Group Capital Markets Funds, a Massachusetts business trust
(the "Trust"), and SSBC Fund 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 Kern Capital
Management LLC (the "Adviser") with respect to the Adviser's serving as an
investment adviser of Small Capitalization Growth 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 and options of any
type 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.
(d) The Adviser agrees that it will, on at least a monthly basis,
review the custodian's pricing of securities with respect to each security
held in the Adviser's portion of the Portfolio and advise the Manager in
writing by sending a facsimile transmission to the Portfolio's controller
at 212 816-5597 of any changes in price which the Adviser recommends.
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 (i) the
Manager or its affiliates; (ii) the Advisor or its affiliates; or (iii)
any other adviser to the Portfolio 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
on the Portfolio's total net assets and paid monthly at the annual rate of
0.50%, multiplied by a fraction, the numerator of which is the average
daily value of Allocated Assets and the denominator of which is the
average daily value of the Portfolio's total net assets (the "Portfolio
Advisory Fee").
(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 matters 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 businesses or to render services of
whatever kind or nature.
Section 10. Duration and Termination
(a) This Agreement shall become effective on April 1, 1999 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 Limitation of Liability
The Manager and Adviser agree that the obligations of the Trust
under this Agreement shall not be binding upon any of the Board members,
shareholders, nominees, officers, employees or agents, whether past,
present or future, of the Trust individually, but are binding only upon
the assets and property of the Portfolio, as provided in the Master Trust
Agreement of the Trust. The execution and delivery of this Agreement have
been duly authorized by the Manager and the Adviser, and signed by an
authorized officer of each acting as such.
Section 13. 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.
SSBC FUND MANAGEMENT INC.
By:
__________________________
___
Name: Christina T. Sydor
Title: General Counsel and
Secretary
Accepted:
Kern Capital Management LLC
By: ______________________________
Name:
Title:
G:\Fund Accounting\Legal\FUNDS\TRAK\AGREEMTS\AGREEMT\kernagreement.doc-4-
G:\Fund Accounting\Legal\FUNDS\TRAK\AGREEMTS\AGREEMT\kernagreement.doc
CONSULTING GROUP CAPITAL MARKETS FUNDS
INVESTMENT ADVISORY AGREEMENT
April 1, 1999
Marvin & Palmer Associates, Inc.
1201 N. Market Street, Suite 2300
Wilmington, DE 19801-1165
Dear Sirs:
Under an agreement (the "Management Agreement") between the
Consulting Group Capital Markets Funds, a Massachusetts business trust
(the "Trust"), and SSBC Fund 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 Marvin & Palmer
Associates, Inc. (the "Adviser") with respect to the Adviser's serving as
an investment adviser of International Equity 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 and options of any
type 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.
(d) The Adviser agrees that it will, on at least a monthly basis,
review the custodian's pricing of securities with respect to each security
held in the Adviser's portion of the Portfolio and advise the Manager in
writing by sending a facsimile transmission to the Portfolio's controller
at 212 816-5597 of any changes in price which the Adviser recommends.
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 (i) the
Manager or its affiliates; (ii) the Adviser or its affiliates; or (iii)
any other adviser to the Portfolio 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 0.40%, multiplied by a fraction,
the numerator of which is the average daily value of Allocated Assets and
the denominator of which is the average daily value of the Portfolio's
total assets (the "Portfolio Advisory Fee").
(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 of the Trust who are employed by the Adviser.
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 matters 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 Manager authorizes the Adviser at its discretion to
request the issuance of average price confirmations by participating
brokers.
(d) 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 businesses or to render services of
whatever kind or nature.
Section 10. Duration and Termination
(a) This Agreement shall become effective on April 1, 1999 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 Limitation of Liability
The Manager and Adviser agree that the obligations of the Trust
under this Agreement shall not be binding upon any of the Board members,
shareholders, nominees, officers, employees or agents, whether past,
present or future, of the Trust individually, but are binding only upon
the assets and property of the Portfolio, as provided in the Master Trust
Agreement of the Trust. The execution and delivery of this Agreement have
been duly authorized by the Manager and the Adviser, and signed by an
authorized officer of each, acting as such.
Section 13. 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.
SSBC FUND MANAGEMENT INC.
By:
__________________________
___
Name: Christina T. Sydor
Title: General Counsel and
Secretary
Accepted:
Marvin & Palmer Associates, Inc.
By: ______________________________
Name:
Title:
7
G:\Fund Accounting\Legal\FUNDS\TRAK\AGREEMTS\AGREEMT\marvinpalmeragreement.doc
CONSULTING GROUP CAPITAL MARKETS FUNDS
INVESTMENT ADVISORY AGREEMENT
April 1, 1999
Pacific Investment Management Company
840 Newport Center Drive, #300
Newport Beach, CA 92660
Dear Sirs:
Under an agreement (the "Management Agreement") between the
Consulting Group Capital Markets Funds, a Massachusetts business trust
(the "Trust"), and SSBC Fund 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 Pacific Investment
Management Company (the "Adviser") with respect to the Adviser's serving
as an investment adviser of Intermediate Fixed Income 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 prior to the date
of this Investment Advisory Agreement.
(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 and options of any
type with respect to Allocated Assets. The Manager understands and agrees
that the Adviser does not guarantee or represent that any investment
objectives will be achieved.
(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.
(d) The Adviser agrees that it will, on at least a monthly basis,
review the custodian's pricing of securities with respect to each security
held in the Adviser's portion of the Portfolio and advise the Manager in
writing by sending a facsimile transmission to the Portfolio's controller
at 212 816-5597 of any changes in price which the Adviser recommends.
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 (i) the
Manager or its affiliates; (ii) the Adviser or its affiliates; or (iii)
any other adviser to the Portfolio 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. The Manager
understands and agrees that the Adviser does not guarantee or represent
that any investment objectives will be achieved.
(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 0.25%, multiplied by a fraction,
the numerator of which is the average daily value of Allocated Assets and
the denominator of which is the average daily value of the Portfolio's
total assets (the "Portfolio Advisory Fee").
(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 of the Trust who are employed by the Adviser.
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 matters 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. In addition, the Adviser whall not be liable for any act or
omission of the custodian bank.
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 businesses or to render services of
whatever kind or nature.
(d) Provided the investment objectives of the Portfolio are
adhered to, the Manager agrees that the Adviser may aggregate sales and
purchase orders of securities, commodities and other investments held in
the Portfolio with similar orders being made simultaneously for other
accounts managed by the Adviser or with accounts of affiliates of the
Adviser, if in the Adviser's reasonable judgment such aggregation shall
result in an overall economic benefit to the Portfolio taking into
consideration the advantageous selling or purchase price, brokerage
commission and other expenses. The Manager acknowledges that the
determination of such economic benefit to the Portfolio by the Adviser
represents the Adviser's evaluation that the Portfolio is benefited by
relatively better purchase or sales prices, lower commission expenses and
beneficial timing of transactions or a combination of these and other
factors.
Section 10. Duration and Termination
(a) This Agreement shall become effective on April 1, 1999 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).
Furthermore, if there is a change in the partners of Pacific Investment
Management Company, a Delaware general partnership, the Adviser will
notify the Manager of such change.
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. Limitation of Liability
The Manager and Adviser agree that the obligations of the Trust
under this Agreement shall not be binding upon any of the Board members,
shareholders, nominees, officers, employees or agents, whether past,
present or future, of the Trust individually, but are binding only upon
the assets and property of the Portfolio, as provided in the Master Trust
Agreement of the Trust. The execution and delivery of this Agreement have
been duly authorized by the Manager and the Adviser, and signed by an
authorized officer of each acting as such.
Section 13. Delivery of Documents
Concurrently with the execution of this Agreement, the Adviser is
delivering to the Manager a copy of Part II of its Form ADV, as revised,
on file with the Securities and Exchange Commission. The Manager
acknowledges receipt of such copy.
The Adviser also has delivered to the Manager a copy of its
Disclosure Document, as amended, December 31, 1998, on file with the
Commodity Futures Trading Commission. The Manager hereby acknowledges
receipt of such copy.
Section 14. Notices
Any written notice required by or pertaining to this Agreement shall
be personally delivered to the party for whom it is intended, at the
address stated below, or shall be sent to such party by prepaid first
class mail or facsimile.
If to the Manager: SSBC Fund Management Inc.
388 Greenwich Street, 22nd floor
New York, New York 10013
Fax: (212) 816-5666
Attention: Christina T. Sydor, Esq.
General Counsel and Corporate Secretary
If to the Adviser: Pacific Investment Management Company
840 Newport Center Drive, Suite 300
Newport Beach, California 92660
Fax (949) 720-1376
Attention: David Young
Cc: Chief Administrative Officer
Section 15. 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.
(e) The Manager and the Adviser each agrees that it shall promptly
notify the other (i) of any changes regarding the information about itself
in this Agreement, or (ii) if any of its representations or warranties
hereunder are no longer true or completely accurate.
(f) This Agreement may be amended at any time but only by the
mutual agreement of the parties, in writing.
(g) This Agreement constitutes the entire agreement between the
parties and supersedes in their entirety all prior agreements between the
parties relating to the subject matter hereof.
(h) This Agreement shall be executed in two counterparts, each of
which shall be considered to be an original.
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.
SSBC FUND MANAGEMENT INC.
By:
__________________________
___
Name: Christina T. Sydor
Title: Secretary
Accepted:
Pacific Investment Management Company
By: PIMCO Management Inc., a general partner
By: ______________________________
Name:
Title: Managing Director
8
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