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. 29 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940
Amendment No. 29 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
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)
XXX on October 2, 2000 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>
[GRAPHIC]
Consulting Group
Capital Markets Funds
Global Sciences and Technology
Investments
Prospectus SALOMONSMITHBARNEY
October 2, 2000 ----------------------------
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
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Investment Objective 2
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Principal Investment Strategies 2
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Fees and Expenses 4
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More on the Portfolio's Investments and Related Risks 5
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The Manager 7
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Asset Allocation Programs 9
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Investment and Account Information 10
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Account Transactions 10
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Valuation of shares 11
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Dividends and distributions 11
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Taxes 11
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Appendix A A-1
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Appendix B B-1
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</TABLE>
An investment in the Portfolio is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
Global Sciences and
Technology Investments
<PAGE>
Investments, Risks and Performance
Investment objective
The Global Sciences and Technology Investments (the "Portfolio") seeks capital
appreciation by investing primarily in equity securities of both domestic and
foreign companies.
Principal investment strategies
The Portfolio normally invests at least 65% of its assets in the securities of
companies principally engaged in the technology, telecommunications and
healthcare sectors. The broad industry categories in which these companies may
be found include, but are not limited to, computer software and hardware; net-
work and capital broadcasting; internet and internet-related businesses; the
ownership, operation, development, production, sale, and distribution of goods
or services used in the broadcast and media industries; communications services
or equipment; the design, manufacture, or sale of electric components; defense
and data storage and retrieval; pharmaceuticals; medical diagnostic, biochemi-
cal or other healthcare research and development; healthcare facilities,
healthcare products and services and biotechnology. The relative size of the
Portfolio's investments within these industries will vary from time to time,
and at times, some of these industries may not be represented in the Portfo-
lio's holdings.
The Portfolio invests at least 10%, but no more than 30%, of its assets in se-
curities of foreign issuers and will invest in securities of issuers located in
at least three different countries, including the U.S. The Portfolio may also
invest up to 20% of its assets in companies located in emerging markets and may
invest in securities denominated in one or more currencies. It may invest in
companies of any size or market capitalization.
The Portfolio may invest a portion of its assets in debt securities and may in-
vest up to 20% of its assets in debt securities rated below investment grade.
How the subadvisers select the Portfolio's investments
The manager has selected two subadvisers to manage the Portfolio. The
subadvisers seek to invest in companies focused on the future, with favorable
long-term growth potential from new or innovative products or services. The
subadvisers analyze specific companies within the technology, telecommunication
and healthcare sectors. To determine whether a company is principally doing
business in a sector, it must meet at least one of the following tests:
. At least 50% of its gross income or its net sales must come from activities
in the sector;
. At least 50% of its assets must be devoted to producing revenues from the
sector; or
. Based on other available information, a subadviser determines that the
company's primary business is within the sector.
In analyzing specific companies, the subadvisers look for several of the fol-
lowing characteristics:
. Above average per share earnings growth
. High return on invested capital
. Sound financial and accounting policies
. Overall financial strength
. Strong competitive advantage
. Effective research and product development
. Effective marketing
. Strong management
The Portfolio may, but is not required to, use various techniques such as buy-
ing and selling futures and options contracts to increase or decrease its expo-
sure to changing security prices or other factors that affect security values.
If the Portfolio's strategies do not work as intended, the Portfolio may not
achieve its objective.
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 or the Portfolio may not perform as
well as other investments
. Stock markets are volatile and can decline significantly in response to ad-
verse issuer, political, regulatory, market or economic developments. Differ-
ent parts of the market can react differently to these developments
. The Portfolio may invest a substantial portion of its assets in foreign secu-
rities. Foreign markets can be more volatile than the U.S. market because of
increased risks of adverse issuer, political, regulatory, market or economic
developments. Currency fluctuations may adversely impact the Portfolio's in-
vestments. These risks are more pronounced to the extent the Portfolio in-
vests in issuers located in emerging markets. Most emerging markets are
smaller, less liquid and more volatile than developed markets
2
Global Sciences and
Technology Investments
<PAGE>
Investments, Risks and Performance, continued
. Technology companies can be significantly affected by obsolescence of exist-
ing technology, short product cycles, falling prices and profits and compe-
tition from new market entrants. The technology sector may be subject to
greater governmental regulation than many other industry sectors, and
changes in governmental policies and the need for regulatory approvals may
have a material adverse effect on the sector. The performance of the tech-
nology sector may differ in direction and degree from that of the overall
stock market
. The biotechnology industry can be significantly affected by patent consider-
ations, intense competition, rapid technological change and obsolescence and
governmental regulation. Biotechnology companies can have persistent losses
during a new product's transition from development to production and revenue
patterns may be erratic
. Telecommunications companies may be significantly effected by the federal
deregulation of cable and broadcasting and are subject to competitive pres-
sures and strict government regulation of rates of return and services that
may be offered
. The Portfolio can invest in issuers with a broad range of market capitaliza-
tions. Small and medium market capitalization companies are those companies
with market capitalizations under $5 billion. The value of medium and
smaller capitalized companies may involve greater risks, such as limited
product lines, markets or managerial resources. To the extent the Portfolio
invests in medium and smaller capitalized companies, the Portfolio's invest-
ments may be more volatile and less liquid than funds investing primarily in
securities of large capitalization companies
. To the extent the Portfolio invests in debt securities, it is subject to the
risks of investing in debt securities. These include the risk that an issuer
may default on its obligation to pay principal and/or interest; the
security's credit rating may be downgraded; an issuer of a security may pre-
pay principal earlier than scheduled, which could force the Portfolio to re-
invest in lower yielding securities (call or prepayment risk) and slower
than expected payments may extend a security's life, locking in below-market
interest rates, increasing the security's duration and reducing its value
. Investment in high yield securities, commonly known as "junk bonds" involves
a high degree of risk. These securities are considered speculative with re-
spect to the issuer's ability to pay interest and principal and are suscep-
tible to default and decline in market value because of adverse economic and
business developments. The market values for these securities tend to be
very volatile and they are less liquid than investment grade debt securities
. The Portfolio is "non-diversified" which means that it may invest a larger
percentage of its assets in one issuer than a diversified fund. To the ex-
tent the Portfolio concentrates its assets in fewer issuers, the Portfolio
will be more susceptible to negative events affecting those issuers. In ad-
dition, because the Portfolio invests in narrow segments of the economy, its
investments are not as diversified as most mutual funds and far less diver-
sified than the broad securities market. This means that the Portfolio tends
to be more volatile than other mutual funds and the value of its portfolio
holdings tend to increase or decrease more rapidly. As a result, the value
of your investment in the Portfolio may rise or fall rapidly
3
Global Sciences and
Technology Investments
<PAGE>
Investments, Risks and Performance, continued
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.
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 1.25%
</TABLE>
* Fee payable under the TRAK(R) Personalized Investment Advisory Service for
asset allocation services. See "Asset Allocation Programs."
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>
$ $
</TABLE>
4
Global Sciences and
Technology Investments
<PAGE>
More on the Portfolio's Investments and Related Risks
The section entitled "Investments, Risks and Performance" describes the Portfo-
lio's investment objectives and its principal investment strategies and risks.
This section provides some additional information about the Portfolio's invest-
ments and certain investment management techniques the Portfolio may use. More
information about the Portfolio's investments and portfolio management tech-
niques, some of which entail risk, is included in the Statement of Additional
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 values of the
Portfolio's investments.
Equity Investments. The Portfolio may invest in all types of equity securities.
Equity securities include exchange-traded and over-the-counter common and pre-
ferred stocks, warrants, rights, convertible securities, depositary receipts
and shares, trust certificates, limited partnership interests, shares of other
investment companies and real estate investment trusts and equity participa-
tions.
Fixed Income Investments. The Portfolio may invest a portion of its assets in
fixed income securities. Fixed income investments include bonds, notes (includ-
ing structured notes), convertible securities, eurodollar and yankee dollar in-
struments, preferred stocks and money market instruments. The Portfolio does
not invest in mortgage backed, asset backed or municipal securities. Fixed in-
come securities may be issued by corporate and governmental issuers and may
have all types of interest rate payment and reset terms, including fixed rate,
adjustable rate, zero coupon, contingent, 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 interest
rates. The longer a security's duration, the more sensitive that security's
price will be to changes in interest rates.
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 the 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 in more developed countries. Political or
economic instability, lack of market liquidity and government actions such as
currency controls or seizure of private businesses or property may be more
likely in emerging markets. The Consulting Group generally considers all of the
western European countries, Canada, Australia, New Zealand, Hong Kong, Singa-
pore 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.
5
Global Sciences and
Technology Investments
<PAGE>
More on the Portfolio's Investments and Related Risks, continued
Credit Quality
The Portfolio's rating criteria
are applied at the time of pur-
chase. If a security is subse-
quently downgraded, the
subadviser may, but is not re-
quired to, sell the security. If
a security is rated differently
by two or more rating organiza-
tions, the subadviser 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
subadviser 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. The Portfolio may, but is not required to, use derivative
contracts for any of the following purposes:
. 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 the Portfolio.
. As a substitute for purchasing or selling securities.
. To shorten or lengthen the effective maturity or duration of the Portfolio's
fixed income investments.
. To enhance the Portfolio's potential gain in non-hedging situations.
. To increase the Portfolio's liquidity.
The Portfolio may use various types of derivative instruments, including op-
tions on securities and securities indices, futures and options on futures,
forward currency contracts, currency futures contracts and options on curren-
cies and currency futures. A derivative contract will obligate or entitle the
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 the Portfo-
lio's interest rate, stock market and currency exposure. Therefore, using de-
rivatives can disproportionately increase Portfolio losses and reduce opportu-
nities for gains when interest rates, stock prices or currency rates are chang-
ing. 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 Portfolio's holdings. The other party to certain derivative contracts
presents the same types of credit risk as issuers of fixed income securities.
Derivatives can also make the Portfolio's assets less liquid and harder to val-
ue, especially in declining markets.
High Yield Securities. The Portfolio can invest in high yield securities. These
are commonly known as "junk bonds" and involve a substantial risk of loss.
These securities are considered speculative with respect to the issuer's abil-
ity 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 expe-
rience increased price sensitivity to changing interest rates and greater risk
of loss because of default or declining credit quality. In addition, adverse
company specific events are more likely to render the issuer unable to make in-
terest and/or principal payments. A negative perception of the high yield mar-
ket may develop, depressing the price and liquidity of high yield securities.
This negative perception could last for a significant period of time.
Defensive investing. The Portfolio may depart from its 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 Portfolio's investments in these assets are managed
by SSB Citi Fund Management LLC.
Impact of high portfolio turnover. The 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 the Portfolio's performance.
Investment Policies. The Portfolio's non-fundamental investment policies gener-
ally may be changed by the Board of Trustees without shareholder approval.
6
Global Sciences and
Technology Investments
<PAGE>
The Manager
The manager. The Consulting Group, a division of SSB Citi Fund Management LLC
("SSB Citi"), serves as the manager for the Portfolio. 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 Portfolio. 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 Portfolio is 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 Portfolio and the following additional portfolios which are of-
fered in separate prospectuses, copies of which can be obtained from any Salo-
mon Smith Barney Financial Consultant:
. 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-Strategy Market Neutral Investments
. Multi-Sector Fixed Income Investments
. S & P 500 Index Investments
The subadvisers. and , as subadvisers, are responsible for
the day-to-day investment operations of the Portfolio in accordance with the
Portfolio's investment objectives and policies. The Portfolio's assets are
allocated among each subadviser according to the following percentages:
50% and 50%. Changes to this allocation of greater than 10% of the
Portfolio's assets will be made by the Board of Trustees. The names and
addresses of the subadvisers are included below:
CO-SUBADVISERS
[ ]
[ ]
[ ]
PORTFOLIO MANAGERS
[ ]
[ ]
[ ]
[ ]
[ ]
PORTFOLIO MANAGERS
[ ]
[ ]
The subadviser selection process. Subject to the review and approval of the
Portfolio's Trustees, the Consulting Group is responsible for selecting,
supervising and evaluating subadvisers who manage the Portfolio's assets. The
Consulting Group employs a rigorous evaluation process to select those
subadvisers that have distinguished themselves through consistent and superior
performance. The Consulting Group is also responsible for communicating
performance expectations and evaluations to the subadviser and ultimately
recommending to the Board of Trustees whether the subadviser's contract should
be renewed. The Consulting Group provides written reports to the Trustees
regarding the results of its evaluation and monitoring functions.
7
Global Sciences and Technology Investments
<PAGE>
The Manager, continued
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.
Generally, shareholders must approve any change in subadvisers. However, the
Portfolio relies upon an exemptive order from the Securities and Exchange Com-
mission which permits the manager to select new subadvisers or replace existing
subadvisers without first obtaining shareholder approval for the change. The
Trustees, including a majority of the "non-interested" Trustees, must approve
each new subadvisory contract. This allows the manager to act more quickly to
change subadvisers when it determines that a change is beneficial to sharehold-
ers by avoiding the delay of calling and holding shareholder meetings to ap-
prove each change. In accordance with the exemptive order, the Portfolio will
provide investors with information about each new subadviser and its
subadvisory contract within 90 days of the engagement of a new subadviser.
Management Fees. The Consulting Group receives fees from the Portfolio for its
services at an annual rate of 0.85% of its average daily net assets. In turn,
the Consulting Group pays the subadvisers a portion of these fees for their
services. In addition, the Portfolio pays SSB Citi a fee at an annual rate of
0.20% of the Portfolio's average daily net assets for administration services.
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 subadviser 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.
8
Global Sciences and Technology Investments
<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.
9
Global Sciences and
Technology Investments
<PAGE>
Investment and Account Information
Account Transactions
Purchase of Shares. You may purchase shares of the Portfolio if you are a par-
ticipant 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 the 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 the Portfolio.
. The minimum initial aggregate investment in the TRAK program is $10,000. The
minimum investment in the 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 Portfolio 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 Portfolio 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
The 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 the Portfolio at net asset value
on any day the New York Stock Exchange is open by contacting your broker. All
redemption requests accepted by Salomon Smith Barney or an introducing broker
before 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 Portfolio.
The 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 the 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 the 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 the Port-
folio's performance, hurting the Portfolio's other shareholders. If the Con-
sulting Group discovers a pattern of frequent exchanges, it will provide notice
in writing or by telephone to the shareholder at least 15 days before sus-
pending his or her exchange privilege. During the 15-day period the shareholder
will be re -
10
Global Sciences and Technology Investments
<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
The Portfolio offers its shares at its net asset value per share. The Portfolio
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 as-
set value and transaction deadlines to the actual closing time.
The Portfolio generally values its fund securities based on market prices or
quotations. The Portfolio's currency conversions, if any, are done when the
London stock exchange closes. When reliable market prices or quotations are not
readily available, or when the Consulting 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, the Portfolio may price those
securities at fair value. Fair value is determined in accordance with proce-
dures approved by the Portfolio's 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 quotations 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 the Portfolio could change on days when shares of the Portfolio cannot
be bought or redeemed.
Dividends and distributions
The Portfolio intends to distribute all or substantially all of its net invest-
ment income and realized capital gains, if any, for each taxable year.
The Portfolio declares and pays dividends, if any, from net investment income
annually. The Portfolio declares and distributes realized net capital gains, if
any, annually, typically in December. All dividends and capital gains are rein-
vested in shares of the Portfolio unless the shareholder elects to receive them
in cash.
The Portfolio expects distributions to be primarily from capital gains.
Taxes
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Transactions Federal Tax Status
------------------------------------------------------------------------------
<S> <C>
Sales or exchange of shares Usually capital gain
or loss; 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
investment income
------------------------------------------------------------------------------
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 the Portfolio is about to declare a capital gain distribu-
tion or a taxable dividend, because it will be taxable to you even though it
may actually be a return of a portion of your investment.
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 Portfolio with your correct taxpayer identification number and any
required certifications, you may be subject to backup withholding of 31% of the
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 the 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
11
Global Sciences and Technology Investments
<PAGE>
Investment and Account Information, continued
itemized deduction" for federal income tax purposes. Under current federal in-
come tax law, an individual's miscellaneous itemized deductions for any taxable
year will be allowed as a deduction only to the extent the aggregate of these
deductions exceeds 2% of adjusted gross income. Such deductions are also sub-
ject to the general limitation on itemized deductions for individuals having,
in 2000, adjusted gross income in excess of $128,950 ($64,475 for married indi-
viduals filing separately).
12
Global Sciences and Technology Investments
<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 Balanced Funds Average
An average of the reinvested performance of funds whose primary objective is to
conserve principal by maintaining at all times a balanced portfolio of both
stocks and bonds. Typically, the stock/bond ratio ranges around 60 percent/40
percent, respectively.
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 Emerging Markets Funds Average
An average of the reinvested performance of funds that investing at least 65%
of total assets in emerging market equity securities, where emerging market is
defined by a country's gross national product per capita or other economic
measures.
Lipper General Municipal Debt 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 Canadian 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 International Income Funds Average
An average of the reinvested performance of Funds that invest primarily in U.S.
dollar and non-U.S. dollar debt securities located in at least three countries
excluding the United States, except in periods of market weakness.
Lipper Large-Cap Growth Funds Average
An average of the reinvested performance of funds that normally invest in
companies with long-term earnings expected to grow significantly faster than
the earnings of the stocks represented in a major unmanaged stock index. These
funds will normally have an above-average price-to-earnings ratio, price-to-
book ratio and three-year earnings
A-1
<PAGE>
APPENDIX A
Investment Indices--(Continued)
growth figure, compared to the U.S. diversified large-cap
funds universe average. Large-cap funds will generally invest at least 75% of
their assets in companies with market capitalizations (on a three-year weighted
basis) greater than 300% of the dollar-weighted median market capitalization of
the S&P Mid-Cap 400 Index.
Lipper Multi-Cap Value Funds Average
An average of the reinvested performance of funds that normally invest in
companies considered to be undervalued relative to a major unmanaged stock
index based on price-to-current earnings, book value, asset value or other
factors. These funds will normally have a below-average price-to-earnings
ratio, price-to-book ratio and three-year earnings growth figure, compared to
the U.S. diversified multi-cap funds universe average. Multi-cap funds will
generally have between 25% to 75% of their assets invested in companies with
market capitalizations (on a three-year weighted basis) greater than 300% of
the dollar-weighted median market capitalization of the S&P Mid-Cap 400 Index.
Lipper Small-Cap Growth Funds Average
An average of the reinvested performance of funds that normally invest in
companies with long-term earnings expected to grow significantly faster than
the earnings of the stocks represented in a major unmanaged stock index. These
funds will normally have an above-average price-to-earnings ratio, price-to-
book ratio and three-year earnings growth figure, compared to the U.S.
diversified small-cap funds universe average. Small-cap funds will generally
invest at least 75% of their assets in companies with market capitalizations
(on a three-year weighted basis) of less than 250% of the dollar-weighted
median market capitalization of the S&P Small-Cap 600 Index.
Lipper Small-Cap Value Funds Average
An average of the reinvested performance of funds that normally invest in
companies considered to be undervalued relative to a major unmanaged stock
index based on price-to-current earnings, book value, asset value or other
factors. These funds will normally have a below-average price-to-earnings
ratio, price-to-book ratio and three-year earnings growth figure, compared to
the U.S. diversified small-cap funds universe average. Small-cap funds will
generally invest at least 75% of their assets in companies with market
capitalizations (on a three-year weighted basis) of less than 250% of the
dollar-weighted median market capitalization of the S&P Small-Cap 600 Index.
Lipper Small Company 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 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.
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 $1.35 billion in market capitalization. The average market
capitalization for a company in this index is $12.10 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 lower forecasted growth values 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 higher forecasted growth values 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 approximately 8.0% of the Russell 3000 Index. The
average market capitalization for a company in this index is $526.4 million,
with the largest being $1.35 billion.
A-2
<PAGE>
APPENDIX A
Investment Indices--(Continued)
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 lower forecasted growth values 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 higher forecasted growth values 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, low price-to-book 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
because of their high price-to-earnings and price-to-book ratios, or low yield.
A-3
<PAGE>
(This page is intentionally left blank)
<PAGE>
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.
--------------------------------------------------------------------------------
[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
-------
/1/ Shearson Lehman's other primary division, Lehman Brothers, which is
responsible for securities underwriting, financial advisory, investment and
merchant banking services and commodities trading as a principal and agent has
been retained by Shearson Lehman it has been renamed "Lehman Brothers Inc."
B-1
<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
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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."
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<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.
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<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
B-8
<PAGE>
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
<PAGE>
[GRAPHIC]
For More Information
If you want more information about the Portfolio, the following resources are
available upon request.
Annual and Semiannual Reports
Additional information about the Portfolio's investments will be available in
the Portfolio's annual and semiannual reports to shareholders. The Portfolio's
annual report will contain 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 Portfolio and is incorporated into this prospectus by reference.
Investment Professional
The investor's Financial Consultant is available to answer questions about the
Portfolio 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 Portfolio by contacting their Financial
Consultant, or the Consulting Group at:
The Consulting Group
222 Delaware Avenue
Wilmington, Delaware 19801
Telephone: 1-212-816-8725
Information about the Portfolio (including the SAI) can be reviewed and copied
at the Securities and Exchange Commission's (the "Commission") Public Reference
Room in Washington, D.C. In addition, information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the Portfolio are available on the EDGAR
Database on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: [email protected], or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about the Portfolio that is not in this prospectus,
you should not rely upon that information. Neither the Portfolio nor the
distributor is offering to sell shares of the Portfolio to any person to whom
the Portfolio may not lawfully sell its 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)2000 Salomon Smith Barney Inc. TK---- 10/00
PART B
STATEMENT OF ADDITIONAL INFORMATION
CONSULTING GROUP CAPITAL MARKETS FUNDS
GLOBAL SCIENCES AND TECHNOLOGY INVESTMENTS
OCTOBER 2, 2000
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 Global Sciences and Technology Investments (the "Portfolio"), a
separate series of Consulting Group Capital Markets Funds (the
"Trust"), dated October 2, 2000, and should be read in conjunction
with the Prospectus. The Trust is a series company that consists
of the Portfolio and seventeen other portfolios offered in
separate prospectuses. The Prospectus for the Portfolio 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
3
Investment Restrictions
20
Portfolio Transactions
21
Portfolio Turnover
22
Investment Management and Other Services
23
Distributor
26
Purchase of Shares
26
Redemption of Shares
27
Redemptions in Kind
27
Net Asset Value
27
Determination of Performance
28
Taxes
30
Appendix
34
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.
Walter E. Auch, Director (Age 79). 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; Banyan Land Fund II; Geotek
Communications Inc., an international wireless communications
company. 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, Director (Age 78). Consultant, HMK
Associates; Retired Vice Chairman of the Board of Restaurant
Associates Industries, Inc. Director or trustee of 21 investment
companies associated with Citigroup. His address is c/o HMK
Associates, 30 Columbia Turnpike, Florham Park, New Jersey 07932.
H. John Ellis, Jr., Director (Age 73). Retired. Director or
trustee of 2 investment companies associated with Citigroup. His
address is 858 East Crystal Downs Drive, Frankfort, Michigan
49635.
Stephen E. Kaufman, Director (Age 68). Attorney. Director
or trustee of 13 investment companies associated with Citigroup.
His address is 277 Park Avenue, New York, New York 10172.
Armon E. Kamesar, Director (Age 73). Chairman 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, California 92037.
*Heath B. McLendon, Chairman of the Board (Age 67). Managing
Director of Salomon Smith Barney, President of SSB Citi Fund
Management LLC ("SSB Citi") and Travelers Investment Adviser, Inc.
("TIA"). Mr. McLendon also serves as Chairman, Co-Chairman or
Director of 71 investment companies associated with Citigroup. His
address is 7 World Trade Center, New York, New York 10048.
Lewis E. Daidone, Senior Vice President and Treasurer (Age
42). Managing Director of Salomon Smith Barney; Director and
Senior Vice President of SSB Citi and TIA. Mr. Daidone also serves
as Senior Vice President or Executive Vice President and Treasurer
of 61 investment companies associated with Citigroup. His address
is 125 Broad Street, New York, New York 10004.
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 49). Managing Director
of Salomon Smith Barney; General Counsel and Secretary of SSB Citi
and TIA. Ms. Sydor also serves as Secretary of 61 investment
companies associated with Citigroup. Her address is 388 Greenwich
Street, New York, New York 10013.
Irving David, Controller (Age 39). Director of Salomon Smith
Barney. Controller or Assistant Treasurer of 43 investment
companies associated with Citigroup. His address is 125 Broad
Street, New York, New York 10004.
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 calendar year ended December 31, 1999, such
fees and expenses totaled $__________.
For the calendar year ended December 31, 1999, the Trustees of the
Trust were paid the following compensation:
Total
Pension or Total Number
Aggregate Retirement Benefits Compensation of Funds
Compensation Aggregate Accrued as Expense From Served in
Name From Portfolio Compensation of Trust Fund Complex Complex
Heath B. McLendon* None None None None 71
Walter Auch None None $______.00 2
Martin Brody None None ______.00 21
H. John Ellis None None ______.00 2
Armon E. Kamesar None None ______.00 2
Stephen E. Kaufman None None ______.00 13
* Designates "interested trustee".
INVESTMENT OBJECTIVES, MANAGEMENT POLICIES AND RISK FACTORS
The Portfolio is a non-diversified, open-end management investment
company. The Prospectus discusses the investment objectives of the
Portfolio, a 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 Portfolio may invest, the investment
policies and strategies the Portfolio may utilize and certain
risks attendant to those investments, policies and strategies.
The Portfolio seeks to achieve its objective by investing
primarily in equity securities of both domestic and foreign
companies.
Sector Investing. The Portfolio normally invests in the securities
of companies principally engaged in the technology,
telecommunications and healthcare sectors. The broad industry
categories in which these companies may be found include, but are
not limited to, computer software and hardware; network and
capital broadcasting; internet and internet-related businesses;
the ownership, operation, development, production, sale, and
distribution of goods or services used in the broadcast and media
industries; communications services or equipment; the design,
manufacture, or sale of electric components; defense and data
storage and retrieval; pharmaceuticals; medical diagnostic,
biochemical or other healthcare research and development;
healthcare facilities, healthcare products and services and
biotechnology. The relative size of the Portfolio's investments
within these industries will vary from time to time, and at times,
some of these industries may not be represented in the Portfolio's
holdings.
The subadvisers believe that because of rapid advances in each
sector, an investment in companies with business operations in
these areas may offer substantial opportunities for long-term
capital appreciation. Of course, prices of common stocks of even
the best managed, most profitable corporations are subject to
market risk, which means their stock prices can decline. In
addition, swings in investor psychology or significant trading by
investors can result in price fluctuations. Industries likely to
be owned by the Portfolio include computers, networking and
internetworking software, computer aided design,
telecommunications, media and information services, medical
devices and biotechnology. The Portfolio may also invest in the
stocks of companies that may benefit from the commercialization of
technological advances, although they may not be directly involved
in research and development.
The sectors have exhibited and may continue to exhibit rapid
growth, both through increasing demand for existing products and
services and the broadening of the sector. In general, the stocks
of large capitalized companies that are well established in the
sector and can be expected to grow with the market will frequently
be found among the Portfolio's holdings. The expansion of each
sector and its related industries, however, also provides a
favorable environment for investment in small to medium
capitalized companies. The Portfolio's investment policy is not
limited to any minimum capitalization requirement and the
Portfolio may hold securities without regard to the capitalization
of the issuer. The subadvisers' overall stock selection for the
Portfolio is not based on the capitalization or size of the
company but rather on an assessment of the company's fundamental
prospects.
Companies in each sector face special risks. For example, their
products or services may not prove commercially successful or may
become obsolete quickly. The value of the Portfolio's shares may
be susceptible to factors affecting the technology and science
areas and to greater risk and market fluctuation than an
investment in a fund that invests in a broader range of portfolio
securities not concentrated in any particular industry. As such,
the Portfolio is not an appropriate investment for individuals who
are not long-term investors and who, as their primary objective,
require safety of principal or stable income from their
investments. Each sector may be subject to greater governmental
regulation than many other areas and changes in governmental
policies and the need for regulatory approvals may have a material
adverse effect on these areas. Additionally, companies in each
sector may be subject to risks of developing technologies,
competitive pressures and other factors and are dependent upon
consumer and business acceptance as new technologies evolve.
Further, the market may value companies according to size, or
market capitalization, rather than on financial performance. The
companies in each sector may be developing or changing. They may
be subject to greater business risks and more sensitive to changes
in economic conditions than larger, more established companies.
Company earnings in these sectors may fluctuate more than those of
other companies because of short product cycles and competitive
pricing. Investors' enthusiasm for these stocks can also change
dramatically, causing stock prices to rise and fall sharply.
Technology Securities. Many technological products and services
are subject to rapid obsolescence, which may lower the market
value of the securities of the companies in this sector. Also,
the Portfolio holds faster-growing, more volatile technology
companies the subadvisers believe to be emerging leaders in their
fields. The market prices of these companies tend to rise and
fall more rapidly than those of larger, more established
companies.
Telecommunications Securities. Companies in the media and
telecommunications sector are subject to the risks of rapid
obsolescence, lack of investor or consumer acceptance, lack of
standardization or compatibility with existing technologies, an
unfavorable regulatory environment, intense competition, and a
dependency on patent and copyright protection. The media sector
can be significantly (and adversely) affected by the federal
deregulation of cable and broadcasting, competitive pressures, and
government regulation, including regulation of the concentration
of investment in AM, FM, or TV stations. The telecommunications
industry, particularly telephone operating companies, is subject
to both federal and state government regulations of rates of
return and services that may be offered. Many telecommunications
companies fiercely compete for market share.
Certain of the companies in which the Portfolio invests may
allocate greater than usual financial resources to research and
product development. The securities of such companies may
experience above-average price movements associated with the
perceived prospects of success of the research and development
programs. In addition, companies in which the Portfolio invests
may be adversely affected by lack of commercial acceptance of a
new product or process or by technological change and
obsolescence.
Healthcare and Biotechnology Securities. Many faster-growing
healthcare companies have limited operating histories and their
potential profitability may be dependent on regulatory approval of
their products, which increases the volatility of these companies'
security prices. Many of these activities are funded or subsidized
by governments. The withdrawal or curtailment of this support
could lower the profitability and market prices of such companies.
Changes in government regulation could also have an adverse
impact. Continuing technological advances may mean rapid
obsolescence of products and services. Patent considerations,
intense competition, rapid technological change and obsolescence,
and government regulation can significantly (and adversely) affect
the biotechnology sector. Biotechnology companies can have
persistent losses during a new product's transition from
development to production, and revenue patterns can be erratic.
Equity Securities. The Portfolio may invest in all types of
equity securities, including, but not limited to, exchange-traded
and over-the-counter common and preferred stocks, warrants,
rights, depository receipts and shares, trust certificates,
limited partnership interests, shares of other investment
companies, real estate investment trusts and equity
participations. 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.
ADRs, EDRs and GDRs. The Portfolio 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. The Portfolio may invest in ADRs
through both sponsored and unsponsored arrangements.
Real Estate Investment Trusts ("REITs"). The 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 Portfolio may invest in the
securities of other investment companies to the extent such
investments are consistent with the Portfolio's investment
objectives and policies and permissible under the Investment
Company Act of 1940, as amended (the "1940 Act"). Under the 1940
Act, the 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. The Portfolio will not invest in other investment
companies for which the subadvisers or any of their affiliates act
as an investment advisor or distributor.
The 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. The
Portfolio may invest in securities of all market capitalizations.
Investing in the equity securities of small and medium
capitalization companies involves 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 a subadviser considers appropriate.
Fixed Income Securities. The Portfolio may invest a portion of its
assets in fixed income (or "debt") securities. The market value
of the obligations held by the Portfolio can be expected to vary
inversely to changes in prevailing interest rates. Investors also
should recognize that, in periods of declining interest rates, the
Portfolio's yield will tend to be somewhat higher than prevailing
market rates and, in periods of rising interest rates, the
Portfolio's yield will tend to be somewhat lower. Also, when
interest rates are falling, the inflow of net new money to the
Portfolio from the continuous sale of its shares will tend to be
invested in instruments producing lower yields than the balance of
its portfolio, thereby reducing the Portfolio's current yield. In
periods of rising interest rates, the opposite can be expected to
occur. In addition, securities in which the Portfolio may invest
may not yield as high a level of current income as might be
achieved by investing in securities with less liquidity, less
creditworthiness or longer maturities.
The Portfolio may also invest in U.S. Government securities,
corporate bonds, debentures, non-convertible fixed income
preferred stocks and Eurodollar and Yankee instruments.
Eurodollar Instruments and Yankee Bonds. The Portfolio 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.
High Yield Securities. The Portfolio may invest in medium or
lower rated securities and unrated securities of comparable
quality, sometimes referred to as "junk bonds." Generally, such
securities 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 because of 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 subadvisers, 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 than 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 subadviser will consider the event in determining whether the
Portfolio should continue to hold the security. See "Debt
Securities Rating Criteria" below for additional information
regarding high yield securities.
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 Portfolio may incur
additional expenses to the extent it is required to seek recovery
upon a default in payment of principal or interest on its
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 the 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, the 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
the 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 subadvisers 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 Portfolio as initial
criteria for the selection of portfolio securities, but the
Portfolio will also rely upon the independent advice of their
respective investment advisers (separately a subadviser,
collectively, the subadvisers) 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 the Portfolio, an issue of debt
obligations may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Portfolio. Neither
event will require the sale of the debt obligation by the
Portfolio, but the Portfolio's subadvisers 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,
the Portfolio will attempt to use comparable ratings as standards
for its investments in accordance with its investment objectives
and policies.
Risks of Non-U.S. Investments. To the extent the 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 the Portfolio's securities holdings
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 the 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 Portfolio to accurately price its
securities holdings 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 the 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, the 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 the 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 the 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. The 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, the 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. Custodian
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 the Portfolio to make intended
securities purchases because of 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 because of
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 the Portfolio against loss or
theft of its assets.
Withholding and Other Taxes. The Portfolio 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 the Portfolio's
investments in such countries. These taxes will reduce the return
achieved by the Portfolio. Treaties between the U.S. and such
countries may not be available to reduce the otherwise applicable
tax rates.
Currency Exchange Rates. The Portfolio's share value may change
significantly when the currencies, other than the U.S. dollar, in
which the 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.
Emerging Markets Countries. A developing or emerging markets
country generally is considered to be a country that is in the
initial stages of its industrialization cycle. Investing in the
equity markets of developing countries involves exposure to
economic structures that are generally less diverse and mature,
and to political systems that can be expected to have less
stability, than those of developed countries. Historical
experience indicates that the markets of developing countries have
been more volatile than the markets of the more mature economies
of developed countries; however, such markets often have provided
higher rates of return to investors.
One or more of the risks discussed above could adversely affect
the economy of a developing market or the Portfolio's investments
in such a market. The claims of many property owners against
those of governments may remain unsettled. There can be no
assurance that any investments the Portfolio might make in such
emerging markets would be expropriated, nationalized or otherwise
confiscated at some time in the future. In such an event, the
Portfolio could lose its entire investment in the market involved.
Moreover, changes in the leadership or policies of such markets
could halt the expansion or reverse the liberalization of foreign
investment policies now occurring in certain of these markets and
adversely affect existing investment opportunities.
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.
Forward Currency Contracts. The Portfolio 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 the 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 the Portfolio enters into the
contract. To assure that the 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 Portfolio,
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, the
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, the 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 subadviser. 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 the
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 the 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, the Portfolio may not be
able to contract to sell currency at a price above the devaluation
level it anticipates. The successful use of forward currency
contracts as a hedging technique draws upon special skills and
experience with respect to these instruments and usually depends
on the ability of the Portfolio's subadviser 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. The 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. The 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 Indices. The
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.
The 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. The Portfolio may cover call and put
options on a securities index by segregating assets with a value
equal to the exercise price.
Purchasing Call and Put Options. The Portfolio will normally
purchase call options in anticipation of an increase in the market
value of securities of the type in which they may invest. The
purchase of a call option will entitle the Portfolio, in return
for the premium paid, to purchase specified securities at a
specified price during the option period. The 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.
The 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 the 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
the 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 the 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.
The 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."
The 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, the
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 the 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 the 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 subadviser'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 the
Portfolio's holdings 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. The Portfolio 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 subadviser that
such contracts are necessary or appropriate in the management of
the Portfolio's assets. These contracts will be entered into on
exchanges designated by the Commodity Futures Trading Commission
("CFTC") or, consistent with CFTC regulations, on foreign
exchanges. These transactions may be entered into for bona fide
hedging and other permissible risk management purposes including
protecting against anticipated changes in the value of securities
the Portfolio intends to purchase.
The Portfolio will not enter into futures contracts and related
options for which the aggregate initial margin and premiums exceed
5% of the fair market value of the Portfolio's assets after taking
into account unrealized profits and unrealized losses on any
contracts it has entered into. All futures and options on futures
positions will be covered by owning the underlying security or
segregation of assets. With respect to long positions in a
futures contract or option (e.g., futures contracts to purchase
the underlying instrument and call options purchased or put
options written on these futures contracts or instruments), the
underlying value of the futures contract at all times will not
exceed the sum of cash, short-term U.S. debt obligations or other
high quality obligations set aside for this purpose.
The Portfolio may lose the expected benefit of these futures or
options transactions and may incur losses if the prices of the
underlying securities or commodities move in an unanticipated
manner. In addition, changes in the value of the Portfolio's
futures and options positions may not prove to be perfectly or
even highly correlated with changes in the value of its portfolio
securities. Successful use of futures and related options is
subject to a subadviser'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, the 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.
The Portfolio will incur brokerage costs whether or not its
hedging is successful and will be required to post and maintain
"margin" as a good-faith deposit against performance of its
obligations under futures contracts and under options written by
the Portfolio. Futures and options positions are marked to the
market daily and the Portfolio may be required to make subsequent
"variation" margin payments depending upon whether its positions
increase or decrease in value. In this context margin payments
involve no borrowing on the part of the Portfolio.
When-Issued and Delayed Delivery Securities. The 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 the 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. The Portfolio may enter into repurchase
agreements. Under the terms of a typical repurchase agreement,
the 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. The
Portfolio may enter into repurchase agreements with respect to
U.S. Government Securities with member banks of the Federal
Reserve System and certain non-bank dealers approved by the board
of trustees. Under each repurchase agreement, the selling
institution is required to maintain the value of the securities
subject to the repurchase agreement at not less than their
repurchase price. The Portfolio's subadvisers, acting under the
supervision of the Board of Trustees, review 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. The Portfolio will not invest in a repurchase
agreement maturing in more than seven days if the investment,
together with illiquid securities held by the Portfolio, exceeds
15% of the Portfolio's net assets. In entering into a repurchase
agreement, the Portfolio bears a risk of loss if 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.
Borrowing. Leverage increases investment risk as well as
investment opportunity. If the income and investment gains on
securities purchased with borrowed money exceed the interest paid
on the borrowing, the net asset value of the Portfolio's shares
will rise faster than would otherwise be the case. On the other
hand, if the income and investment gains fail to cover the cost,
including interest, of the borrowings, or if there are losses, the
net asset value of the Portfolio's shares will decrease faster
than otherwise would be the case.
Lending Portfolio Securities. Consistent with applicable
regulatory requirements, the Portfolio may lend portfolio
securities to brokers, dealers and other financial organizations.
The 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. The Portfolio's loan of
securities will be collateralized by cash, letters of credit or
U.S. Government Securities. The Portfolio will maintain the
collateral in an amount at least equal to the current market value
of the loaned securities. From time to time, the 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." The 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.
Illiquid Securities. The Portfolio 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 subadvisers. The
subadvisers 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 subadvisers'
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 the subadvisers of the Portfolio, in consultation
with the Manager, believe that pursuing the Portfolio's basic
investment strategy may be inconsistent with the best interests of
its shareholders, the Portfolio may invest its assets in the
following money market instruments: U.S. Government Securities
(including those purchased in the form of custodial receipts),
repurchase agreements, certificates of deposit and bankers'
acceptances issued by U.S. banks or savings and loan associations
having assets of at least $500 million as of the end of their most
recent fiscal year and high quality commercial paper. The
Portfolio's U.S. dollar-denominated temporary investments are
managed by SSB Citi. The 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.
The 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.
Non-Diversified Classification. The Portfolio is classified as a
non-diversified fund under the 1940 Act which means the Portfolio
is not limited in the proportion of its assets it may invest in
the obligations of a single issuer. As a result, the Portfolio
may be subject to greater volatility with respect to its
securities holdings than funds that are more broadly diversified.
The Portfolio intends to conduct its operations, however, so as to
qualify as a "regulated investment company" for purposes of the
Internal Revenue Code of 1986, as amended (the "Code"), which will
relieve the Portfolio of any liability for Federal income tax to
the extent its earnings are distributed to shareholders. To
qualify as a regulated investment company, the Portfolio will,
among other things, limit its investments so that, at the close of
each quarter of the taxable year (a) not more than 25% of the
market value of the Portfolio's total assets will be invested in
the securities of a single issuer and (b) with respect to 50% of
the market value of its total assets, not more than 5% of the
market value of its total assets will be invested in the
securities of a single issuer and the Portfolio will not own more
than 10% of the outstanding voting securities of a single issuer.
INVESTMENT RESTRICTIONS
The investment restrictions numbered 1 through 6 below have been
adopted by the Trust as fundamental policies of the Portfolio.
Under the 1940 Act, a fundamental policy may not be changed
without the vote of a majority of the outstanding voting
securities of the 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 7 through 11 may be changed by a vote of a majority
of the Board of Trustees at any time.
Under the investment restrictions adopted by the Portfolio:
1. 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.
2. The Portfolio will not borrow money, except that (a) the
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.
3. The 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.
4. The 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.
5. The 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.
6. The 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.
7. The Portfolio will not invest in oil, gas or other
mineral leases or exploration or development programs.
8. The 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.
9. The Portfolio will not make investments for the purpose
of exercising control or management.
10. Purchase or otherwise acquire any security if, as a
result, more than 15% of its net assets would be invested in
securities that are illiquid.
11. The 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 2 above) apply at the
time of purchase of securities.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the Portfolio are made by
the subadvisers, subject to the overall review of the manager and
the Board of Trustees. Although investment decisions for the
Portfolio are made independently from those of the other accounts
managed by the subadvisers investments of the type that the
Portfolio may make also may be made by those other accounts. When
the Portfolio and one or more other accounts managed by the
subadvisers 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 subadvisers to
be equitable to each. In some cases, this procedure may adversely
affect the price paid or received by the Portfolio or the size of
the position obtained or disposed of by the 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 the Portfolio, its subadvisers seeks the best overall
terms available. In assessing the best overall terms available for
any transaction, the subadvisers 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, the Advisory
Agreement between the Trust and the subadvisers authorize the
subadvisers, 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 subadvisers or their affiliates exercise
investment discretion. The fees under the Management Agreement and
the Advisory Agreement, respectively, are not reduced by reason of
the Portfolio's subadvisers receiving brokerage and research
services. The Board of Trustees of the Trust will periodically
review the commissions paid by the 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 the 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
the Portfolio may be executed through Salomon Smith Barney and
other affiliated broker-dealers if, in the judgment of the
subadvisers, 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 Portfolio 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 Portfolio 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 subadvisers, 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 Portfolio commodity commissions at rates
comparable to those charged by Salomon Smith Barney to its most
favored clients for comparable trades in comparable accounts.
PORTFOLIO TURNOVER
The Portfolio does not intend to seek profits through short-term
trading. Nevertheless, the Portfolio will not consider portfolio
turnover rate a limiting factor in making investment decisions.
The 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
Portfolio is authorized to engage in transactions in options, it
may experience increased portfolio turnover under certain market
conditions as a result of its investment strategies. For instance,
the exercise of a substantial number of options written by the
Portfolio (because of 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 the 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 the 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
subadviser 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
the Portfolio's shares as well as by requirements that enable the
Portfolio to receive favorable tax treatment.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Manager; Subadvisers; Administrator. The manager serves as
investment manager to the Trust pursuant to an investment
management agreement ("Management Agreement"). The subadvisers
serve as investment advisers to the Portfolio pursuant to separate
written agreements with the manager ("Advisory Agreement"). SSB
Citi serves as administrator to the Portfolio pursuant to a
written agreement ("Administration Agreement").
The Portfolio bears its own expenses, which generally include all
costs not specifically borne by the manager, the subadvisers, and
SSB Citi. Included among the Portfolio's expenses are costs
incurred in connection with the Portfolio's organization;
investment management and administration fees; fees for necessary
professional and brokerage services; fees for any pricing service;
the costs of regulatory compliance; and costs associated with
maintaining the Trust's legal existence and shareholder relations.
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. The Portfolio pays SSB Citi a fee for these services
that is computed daily and paid monthly at the annual rate of
0.20% of the value of the Portfolio's average daily net assets.
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, 2000 in excess of $___ billion. The Consulting Group, a
division of SSB Citi, has extensive experience in providing
investment adviser 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. They screen
more than 3,000 registered investment advisory firms and track the
performance of more than 700 firms on the manager's comprehensive
database. In addition, the manager conducts over 300 on-site
evaluations of advisors annually. As of August 31, 2000, the
Consulting Group provided services with respect to over $___
billion in client assets representing more than ________ separate
accounts under a variety of programs designed for individual and
institutional investors.
The manager and the subadvisers 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 subadvisers bear all expenses in connection with the
performance of their respective services under the Management
Agreement, the Advisory Agreement, and the Administration
Agreement.
As noted in the Prospectus, subject to the supervision and
direction of the manager and, ultimately, the Board of Trustees,
the subadvisers manage the securities held by the Portfolio in
accordance with the Portfolio's stated investment objectives and
policies, make investment decisions for the Portfolio and place
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 subadvisers for the Portfolio and thereafter
monitoring the subadvisers' performance through quantitative and
qualitative analysis as well as periodic in-person, telephonic and
written consultations with subadvisers. In evaluating prospective
subadvisers, the manager considers, among other factors, each
subadviser'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 the
subadvisers and ultimately recommending to the Board of Trustees
whether a subadviser's contract 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 a
subadviser, custodian, transfer agent, sub-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 subadvisers. However, the
manager's decisions, including the identity of the subadviser and
the specific amount of the manager's compensation to be paid to
the subadviser, 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 subadviser 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 subadvisers.
The Exemption is based on among other things: (1) the manager
will select, monitor, evaluate and allocate assets to, the
subadvisers and ensure that the subadvisers 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 subadviser and its investment
advisory contract within 90 days of the engagement of a new
subadviser; (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.
Code of Ethics. Pursuant to Rule 17j-1 of the 1940 Act, the
Portfolio, its manager, subadvisers and principal underwriter have
adopted codes of ethics that permit personnel to invest in
securities for their own accounts, including securities that may
be purchased or held by the Portfolio. All personnel must place
the interests of clients first and avoid activities, interests and
relationships that might interfere with the duty to make decisions
in the best interests of the clients. All personal securities
transactions by employees must adhere to the requirements of the
codes and must be conducted in such a manner as to avoid any
actual or potential conflict of interest, the appearance of such a
conflict, or the abuse of an employee's position of trust and
responsibility.
A copy of each of these Codes of Ethics is on file with the SEC.
Organization of the Trust. The Trust is 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 Agreement, 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.
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.
Distributor. Salomon Smith Barney, 388 Greenwich Street, New
York, NY 10013 serves as the Portfolio's distributor on a best
efforts basis pursuant to a written agreement, which was approved
by the Trustees of the Trust.
Custodians. 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 Portfolio 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 Portfolio. For its custody services, PNC and Chase
receive monthly fees charged to the 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 Portfolio for out-of-pocket expenses including
the costs of any foreign and domestic sub-custodians.
Transfer Agent. Citi Fiduciary Trust Company, located at 388
Greenwich Street, New York, New York 10013, serves as the
Portfolio's transfer and dividend-paying agent. Under the
transfer agency agreement, the transfer agent maintains the
shareholder account records for the Portfolio, handles certain
communications between shareholders and the Portfolio, distributes
dividends and distributions payable by the Portfolio and produces
statements with respect to account activity for the Portfolio and
its shareholders. For these services, the transfer agent receives
fees from the Portfolio computed on the basis of the number of
shareholder accounts that the transfer agent maintains for the
Portfolio during the month and is reimbursed for out-of-pocket
expenses.
Sub-Transfer Agent. PFPC Global Fund Services, located at P.O.
Box 9699, Providence, RI 02940-9699, serves as the Portfolio's
sub-transfer agent. Under the transfer agency agreement, the sub-
transfer agent maintains the shareholder account records for the
Portfolio, handles certain communications between shareholders and
the Portfolio and distributes dividends and distributions payable
by the Portfolio. For these services, the sub-transfer agent
receives a monthly fee computed on the basis of the number of
shareholder accounts it maintains for the Portfolio during the
month, and is reimbursed for out-of-pocket expenses.
PURCHASE OF SHARES
Purchases of shares of the 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 Portfolio are available exclusively to participants
in Advisory Services and are generally designed to relieve
investors of the burden of devising an asset allocation strategy
to meet their individual needs as well as selecting individual
investments within each asset category among the myriad choices
available. Advisory Services generally provide investment advice
in connection with investments among the 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 Portfolio based on an evaluation of
an investor's investment objective and risk tolerances. Shares of
the Portfolio are offered for purchase and redemption at its
respective net asset value next determined, without imposition of
any initial or contingent deferred sales charge. If the Consulting
Group is paid directly by the investors purchasing Portfolio
shares based on the recommendation of investment advisers other
than the Consulting Group, or who contract with the Consulting
Group for services other than those described above, such
investors 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 the Portfolio is
included in the Prospectus. The right of redemption of shares of
the Portfolio may be suspended or the date of payment postponed
(i) for any periods during which the New York Stock Exchange, Inc.
(the "NYSE") is closed (other than for customary weekend and
holiday closings), (ii) when trading in the markets the Portfolio
normally utilizes is restricted, or an emergency, as defined by
the rules and regulations of the SEC, exists making disposal of
the Portfolio's investments or determination of its net asset
value not reasonably practicable or (iii) for such other periods
as the SEC by order may permit for the protection of the
Portfolio's shareholders.
REDEMPTIONS IN KIND
If the Board of Trustees determines that it would be detrimental
to the best interests of the 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
The Portfolio's net asset value per share is calculated by SSB
Citi 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 the Portfolio may nevertheless be actively traded and the
value of the Portfolio's shares could be significantly affected.
Securities listed on a national securities exchange will be valued
on the basis of the last sale on the date on which the valuation
is made or, in the absence of sales, at the mean between the
closing bid and asked prices. Over-the-counter securities will be
valued at the mean between the closing bid and asked prices on
each day, or, if market quotations for those securities are not
readily available, at fair value, as determined in good faith by
the Portfolio's Board of Trustees. Short-term obligations with
maturities of 60 days or less are valued at amortized cost, which
constitutes fair value as determined by the Portfolio's Board of
Trustees. Amortized cost involves valuing an instrument at its
original cost to the Portfolio and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of
the effect of fluctuating interest rates on the market value of
the instrument. All other securities and other assets of the
Portfolio will be valued at fair value as determined in good faith
by the Portfolio's Board of Trustees.
DETERMINATION OF PERFORMANCE
Average Annual Total Return
From time to time, the Trust may advertise the 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 the 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 the Portfolio's shares and assumes that any income,
dividends and/or capital gains distributions made by the Portfolio
during the period are reinvested in shares of the Portfolio.
Figures will be given for recent one-, five- and ten-year periods
(if applicable) and may be given for other periods as well (such
as from commencement of the Portfolio's operations or on a year-
by-year basis). 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, the 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 the
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.
The 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. The 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.
The 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 the Portfolio's
performance for any specified period in the future. In addition,
because performance will fluctuate, it may not provide a basis for
comparing an investment in the Portfolio with certain bank
deposits or other investments that pay a fixed yield for a stated
period of time. Investors comparing the 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 Portfolio's shares, including data from Lipper
Analytical Services, Inc., Standard & Poor's 500 Composite Stock
Price Index and other industry publications.
Yield and Equivalent Taxable Yield
From time to time, the Trust may also quote the Portfolio's yield
in advertisements or in reports and other communications to
shareholders. The 30-day yield figure is calculated according to
a formula prescribed by the SEC, expressed as follows:
YIELD = 2[(a - b + 1)6 - 1]
cd
Where:
a = dividends and interest earned during the period.
b= expenses accrued for the period (net of reimbursement),
including a ratable portion of the maximum annual fee for
participation in TRAK.
c= the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d= the maximum offering price per share on the last day of
the period.
For the purpose of determining the interest earned (variable
"a" in the formula) on debt obligations that were purchased by the
Portfolio at a discount or premium, the formula generally calls
for amortization of the discount or premium; the amortization
schedule will be adjusted monthly to reflect changes in the market
values of the debt obligations.
The 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.
Investors should recognize that in periods of declining interest
rates, the 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 the 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.
TAXES
The following is a summary of certain federal income tax
considerations that may affect the Portfolio and its 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 the
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 the Portfolio. The summary is based on the laws in
effect on the date of this SAI, which are subject to change.
The Portfolio intends 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 the
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, the 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, the
Portfolio's distributions, to the extent derived from the
Portfolio's 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 would otherwise (at least
in part) be treated as long-term capital gains. If the 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 the 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, the Portfolio may make an additional distribution shortly
before or shortly after December 31 in each year of any
undistributed ordinary income or capital gains. The Portfolio
generally will seek to pay any additional dividends and
distributions necessary to avoid the application of this tax.
As described above, the Portfolio may invest in certain types of
warrants, foreign currencies, forward contracts, options and
futures contracts. The Portfolio anticipates that these investment
activities will not prevent it from qualifying as a regulated
investment company.
The Portfolio's transactions in foreign currencies, forward
contracts, options and futures contracts (including options and
futures contracts on foreign currencies) will be subject to
special provisions of the Code that, among other things, may
affect the character of gains and losses realized by the Portfolio
(i.e., may affect whether gains or losses are ordinary or capital
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 the 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. The 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, the 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 Portfolio expects 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 on the sale or exchange of
the share, to the extent of the capital gain dividend, will be
treated as a long-term capital loss.
Dividends or other income (including, in some cases, capital
gains) received by the 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. The 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.
The 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 the 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. The 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 the 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.
The 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 the
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.
The 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 the
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 the 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 the Portfolio attributable to
interest the Portfolio earns from U.S. Government obligations.
If the 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, the 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 the 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 Portfolio and its shareholders, and is not
intended as a substitute for careful tax planning. Shareholders
are urged to consult their tax advisors with specific reference to
their own tax situations, including their state and local tax
liabilities.
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.
Shearson Lehman Brothers, Inc. (Shearson Lehman), Located in New
York,
NY [Application No. D-8723]
Proposed Exemption
Section I. Covered Transactions
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2)
4975(c)(2) of the Code and in accordance with the procedures set
forth
in 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10,
1990).
If the exemption is granted, the restrictions of section 406(a) of
the
Act and the sanctions resulting from the application of section
4975
of the Code, by reason of section 4975(c)(1)(A) through (D) shall
not apply to the proposed purchase or redemption of shares by an
employee benefit plan, an individual retirement account (the IRA)
or a
retirement plan for a self-employed individual (the Keogh Plan;
collectively, the Plans) in the Shearson Lehman-established Trust
for
TRAK Investments (the Trust) in connection with such Plans'
participation in the TRAK Personalized Investment Advisory Service
(the TRAK Program). In addition, the restrictions of section
406(b)(1)
and (b)(2) of the Act and the sanctions resulting from the
application
of section 4975 of the Code by reason of section 4975(c)(1)(E)
shall not apply to the provision, by the Consulting Group Division
of
Shearson Lehman (the Consulting Group), of investment advisory
services to an independent fiduciary of a participating Plan (the
Independent Plan Fiduciary) which may result in such fiduciary's
selection of a portfolio grouping (the Portfolio-Type) in the TRAK
Program for the investment of Plan assets.
This proposed exemption is subject to the following conditions
that
are set forth below in section II.
Section II. General Conditions
(1) The participation of Plans in the TRAK Program will be
approved by
a Plan fiduciary which is independent of Shearson Lehman.
(2) The total fees paid to the Consulting Group and its affiliates
will constitute no more than reasonable compensation.
(3) No Plan will pay a fee or commission by reason of the
acquisition
or redemption of shares in the Trust.
(4) The terms of each purchase or redemption of Trust shares shall
remain at least as favorable to an investing Plan as those
obtainable
in an arm's length transaction with an unrelated party.
(5) The Consulting Group will provide written documentation to an
Independent Plan Fiduciary of its recommendations or evaluations
based
upon objective criteria.
(6) Any recommendation or evaluation made by the Consulting Group
to
an Independent Plan Fiduciary will be implemented only at the
express
direction of such independent fiduciary.
(7) The Consulting Group will generally give investment advice to
an
Independent Plan Fiduciary with respect to Portfolio-Types.
However,
in the case of a Plan providing for participant-directed
investments
(the Section 404(c) Plan), the Consulting Group will provide
investment advice that is limited to the Portfolios made available
under the Plan.
(8) Any sub-adviser (the Sub-Adviser) that is appointed by the
Consulting Group to exercise investment discretion over a
Portfolio
will be independent of Shearson Lehman and its affiliates.
(9) Immediately following the acquisition by a Portfolio of any
securities that are issued by Shearson Lehman and/or its
affiliates,
the percentage of that Portfolio's net assets invested in such
securities will not exceed one percent.
(10) The quarterly investment advisory fee that is paid by a Plan
to
the Consulting Group for investment advisory services rendered to
such
Plan will be offset by such amount as is necessary to assure that
the
Consulting Group retains no more than 20 basis points from any
Portfolio which contains investments attributable to the Plan
investor.
(11) The Consulting Group will not retain an investment advisory
or
management fee from the Government Money Investments Portfolio.
(12) With respect to its participation in the TRAK Program prior
to
purchasing Trust shares.
(a) Each Plan will receive the following written or oral
disclosures
from the Consulting Group:
(1) A copy of the prospectus (the Prospectus) for the Trust
discussing
the investment objectives of the Portfolios comprising the Trust,
the
policies employed to achieve these objectives, the corporate
affiliation existing between the Consulting Group, Shearson Lehman
and
its subsidiaries and the compensation paid to such entities.
(2) Upon written or oral request to Shearson Lehman, a Statement
of
Additional Information supplementing the Prospectus which
describes
the types of securities and other instruments in which the
Portfolios
may invest, the investment policies and strategies that the
Portfolios
may utilize and certain risks attendant to those investments,
policies
and strategies.
(3) A copy of the investment advisory agreement between the
Consulting
Group and such Plan relating to participation in the TRAK Program.
(4) A copy of the respective investment advisory agreement between
the
Consulting Group and the Sub-Advisers upon written request to
Shearson
Lehman.
(5) In the case of a Section 404(c) Plan, if required by the
arrangement negotiated between the Consulting Group and the Plan,
an
explanation by a Shearson Lehman Financial Consultant (the
Financial
Consultant) to eligible participants in such Plan, of the services
offered under the TRAK Program and the operation and objectives of
the
Portfolios.
(b) If accepted as an investor in the TRAK Program, an Independent
Plan Fiduciary of an IRA or Keogh Plan, will be required to
acknowledge, in writing, prior to purchasing Trust shares that
such
fiduciary has received copies of such documents.
(c) With respect to a Section 404(c) Plan, written acknowledgement
of
the receipt of such documents will be provided by the Independent
Plan
Fiduciary (i.e., the plan administrator, trustee or named
fiduciary,
as the recordholder of Trust shares). Such Independent Plan
Fiduciary
will be required to represent in writing to Shearson Lehman that
such
fiduciary is (1) independent of Shearson Lehman and its affiliates
and
(2) knowledgeable with respect to the Plan in administrative
matters
and funding matters related thereto, and able to make an informed
decision concerning participation in the TRAK Program.
(d) With respect to a Plan that is covered under title I of the
Act,
where investment decisions are made by a trustee, investment
manager
or a named fiduciary, such Independent Plan Fiduciary will be
required
to acknowledge, in writing, receipt of such documents and
represent to
Shearson Lehman that such fiduciary is (1) independent of Shearson
Lehman and its affiliates, (2) capable of making an independent
decision regarding the investment of Plan assets and (3)
knowledgeable
with respect to the Plan in administrative matters and funding
matters
related thereto, and able to make an informed decision concerning
participation in the TRAK Program.
(13) Each Plan will receive the following written or oral
disclosures
with respect to its ongoing participation in the TRAK Program.
(a) The Trust's semi-annual and annual report which will include
financial statements for the Trust and investment management fees
paid
by each Portfolio.
(b) A written quarterly monitoring report containing an analysis
and
an evaluation of a Plan investor's account to ascertain whether
the
Plan's investment objectives have been met and recommending, if
required, changes in Portfolio allocations.
(c) If required by the arrangement negotiated between the
Consulting
Group and a Section 404(c) Plan, a quarterly, detailed investment
performance monitoring report, in writing, provided to an
Independent
Plan Fiduciary of such Plan showing Plan level asset allocations,
Plan
cash flow analysis and annualized risk adjusted rates of return
for
Plan investments. In addition, if required by such arrangement,
Financial Consultants will meet periodically with Independent Plan
Fiduciaries of Section 404(c) Plans to discuss the performance
monitoring report as well as with eligible participants to review
their accounts' performance.
(d) If required by the arrangement negotiated between the
Consulting
Group and a Section 404(c) Plan, a quarterly participant
performance
monitoring report provided to a Plan participant which accompanies
the
participant's benefit statement and describes the investment
performance of the Portfolios, the investment performance of the
participant's individual investment in the TRAK Program, and gives
market commentary and toll-free numbers that will enable the
participant to obtain more information about the TRAK Program or
to
amend his or her investment allocations.
(e) On a quarterly and annual basis, written disclosures to all
Plans
of the (1) percentage of each Portfolio's brokerage commissions
that
are paid to Shearson Lehman and its affiliates and (2) the average
brokerage commission per share paid by each Portfolio to Shearson
Lehman and its affiliates, as compared to the average brokerage
commission per share paid by the Trust to brokers other than
Shearson
Lehman and its affiliates, both expressed as cents per share.
(14) Shearson Lehman shall maintain, for a period of six years,
the
records necessary to enable the persons described in paragraph
(15) of
this section to determine whether the conditions of this exemption
have been met, except that (a) a prohibited transaction will not
be
considered to have occurred if, due to circumstances beyond the
control of Shearson Lehman and/or its affiliates, the records are
lost
or destroyed prior to the end of the six year period, and (b) no
party
in interest other than Shearson Lehman shall be subject to the
civil
penalty that may be assessed under section 502(1) of the Act, or
to
the taxes imposed by section 4975(a) 4975(a) and 4975(b) (b) of
the
Code, if the records are not maintained, or are not available for
examination as required by paragraph (15) below.
(15) (a) Except as provided in section (b) of this paragraph and
notwithstanding any provisions of subsections (a)(2) and (b) of
section 504 of the Act, the records referred to in paragraph (14)
of
this section shall be unconditionally available at their customary
location during normal business hours by:
(1) Any duly authorized employee or representative of the
Department
or the Internal Revenue Service (the Service);
(2) Any fiduciary of a participating Plan or any duly authorized
representative of such fiduciary;
(3) Any contributing employer to any participating Plan or any
duly
authorized employee representative of such employer; and
(4) Any participant or beneficiary of any participating Plan, or
any
duly authorized representative of such participant or beneficiary.
(b) None of the persons described above in subparagraphs (2)-(4)
of
this paragraph (15) shall be authorized to examine the trade
secrets
of Shearson Lehman or commercial or financial information which is
privileged or confidential.
The availability of this exemption is subject to the express
condition
that the material facts and representations contained in the
application are true and complete, and that the application
accurately
describes all material facts which are the subject of this
exemption.
Summary of Facts and Representations
1. Shearson Lehman, whose principal executive offices are located
in
New York, New York, is a wholly owned subsidiary of Shearson
Lehman
Brothers Holdings, Inc. (Shearson Holdings). Shearson Holdings is
one
of the leading full-line securities firms servicing institutions,
governments and individual investors in the United States and
throughout the world. Shearson Holdings conducts its principal
businesses through two divisions--Shearson Lehman Brothers
(referred
to herein as Shearson Lehman) and Lehman Brothers. Shearson Lehman
is
responsible for individual investor services and asset management
while Lehman Brothers is responsible for securities underwriting,
financial advisory, investment and merchant banking services and
securities and commodities trading as principal and agent.
Shearson
Holdings is a member of all principal securities and commodities
exchanges in the United States and the National Association of
Securities Dealers, Inc. In addition, it holds memberships or
associate memberships on several principal foreign securities and
commodities exchanges.
Shearson Holdings was incorporated in Delaware on December 29,
1983.
The American Express Company owns 100 percent of Shearson
Holdings'
issued and outstanding common stock, which represents 92 percent
of
its issued and outstanding voting stock. The 8 percent remaining
shares of Shearson Holdings' issued and outstanding voting stock
is
preferred stock which is owned by Nippon Life Insurance Company.
Although Shearson Holdings is not an operating company and, as
such,
it maintains no assets under management, as of December 31, 1991,
Shearson Lehman and its subsidiaries rendered investment advisory
services with respect to $91 billion in assets.
2. On April 12, 1991, Shearson Lehman formed the Trust, a no load,
open- end, diversified management investment company registered
under
the Investment Company Act of 1940, as amended. The Trust is
organized
as a Massachusetts business trust and it has an indefinite
duration.
As of January 17, 1992, the Trust had net assets of $132,608,001.
The Trust consists of twelve different portfolios which range from
Government Money Investments to International Fixed Income
Investments
and which pay monthly or annual dividends to investors. The
Portfolios
currently have a per share value ranging from $0 per share for
Balanced Investments to $9.45 per share for Small Capitalization
Growth Equity Investments. The composition of the Portfolios
covers a
spectrum of investments which include U.S. Government-related
securities of equity or debt securities issued by foreign or
domestic
corporations. The Portfolios are further categorized under four
major
Portfolio-Types. (1)
3. Shares in the Trust are offered by Shearson Lehman, as
distributors, at no load, to participants in the TRAK Program.(2)
Although investors in the Trust currently consist of institutions
and
individuals, it is proposed that prospective investors will
include
plans for which Shearson Lehman may or may not currently maintain
investment accounts. A majority of these Plans will be IRAs or
Keogh
Plans. In addition, it is proposed that Plans for which Shearson
Lehman or an affiliate serves as a prototype sponsor and/or a
nondiscretionary trustee or custodian be permitted to invest in
the
Trust. (3)
As for voting rights, Shearson Lehman states that they are
accorded to
recordholders of Trust shares. Shearson Lehman notes that a
recordholder of Trust shares may determine to seek the submission
of
proxies by Plan participants and vote Trust shares accordingly. In
the
case of individual account plans such as Section 404(c) Plans,
Shearson Lehman notes that most Plans will pass-through the vote
to
participants on a pro-rata basis.
The applicant represents that the initial purchase of shares in
the
Trust by a Plan may give rise to a prohibited transaction where
Shearson Lehman or an affiliate has a party in interest
relationship
with the Plan. Shearson Lehman also acknowledges that a prohibited
transaction could arise upon a subsequent purchase or redemption
of
shares in the Trust by a participating Plan inasmuch as the party
in
interest relationship between Shearson Lehman and the Plan may
have
been established at that point. Accordingly, Shearson Lehman has
requested prospective exemptive relief from the Department with
respect to the purchase and redemption of shares in the Trust by
participating Plans which it does not sponsor or have
discretionary
investment authority over the Plan's assets which would be
invested in
Trust shares.(4) Such shares will be held in a brokerage account
maintained by the Plan with Shearson Lehman. No commissions or
fees
will be paid with respect to such transactions.
According to the applicant, the minimum initial investment in the
Trust is set at $20,000, and may be reduced periodically to
$10,000.
Effectively, therefore, a Plan with less than $20,000 in assets
($10,000 when the minimum has been reduced) would not be able to
participate in the TRAK Program. The minimum investment in a
Portfolio
is $100.
4. Overall responsibility for the management and supervision of
the
Trust and the Portfolios rests with the Trust's Board of Trustees
(The
Trustees) which is comprised of twelve members. The Trustees
approve
all significant agreements involving the Trust and the persons and
companies that provide services to the Trust and the Portfolios.
Three
of the Trustees and all of the Trust's executive officers are
affiliated with Shearson Lehman and/or its affiliates. The nine
remaining Trustees are not affiliated with Shearson Lehman.
5. Boston Advisors, located in Boston, Massachusetts, is a wholly
owned subsidiary of The Boston Company, a financial services
holding
company which is, in turn, wholly owned by Shearson Lehman. Boston
Advisors provides investment management, investment advisory
and/or
administrative services to investment companies with total assets
in
excess of $83 billion as of July 31, 1991. Boston Advisors serves
as
the Trust's administrator. In particular, Boston Advisors
calculates
the net asset value (5) of the Portfolios' shares and manages all
aspects of the Portfolios' administration and operation. In
addition,
Boston Advisors is responsible for managing each Portfolio's
temporary
investments in money market instruments, as well as making
arrangements for, and managing collateral received with respect
to,
the lending of securities by each Portfolio.
6. Organized within Shearson Lehman, is the Consulting Group,
which is
located in Wilmington, Delaware. The Consulting Group serves as
the
investment manager of the Trust and the underlying Portfolios.
Although the Consulting Group has not previously served as
investment
manager for a registered investment company, it and its related
division, the Consulting Services Division of Shearson Lehman
(Consulting Services), have over eighteen years of experience in
evaluating investment advisers for individual and institutional
investors. Together the Consulting Group and Consulting Services
provide various financial consulting services to over 30,000
accounts,
representing more than $30 billion in client assets. Account sizes
range from institutional accounts in excess of $1 billion to
individual accounts with $100,000 minimum investments. As of July
31,
1991, the Consulting Group rendered advisory services with respect
to
assets with a value in excess of $42.7 billion.
7. Under its investment management agreement, the Consulting Group
is
required to make recommendations to the Trustees regarding (a) the
investment policies of each Portfolio and (b) the selection and
retention of certain Sub-Advisers which exercise investment
discretion
over each Portfolio.(6) In addition, through the TRAK Program, the
Consulting Group provides investors with non-binding, generalized
asset allocation recommendations with respect to such investors'
investments in the Portfolios. For example, the Consulting Group
evaluates an investor's risk tolerances and financial goals,
provides
investment advice as to the appropriate mix of investment types
designed to balance the investor's risk tolerances as part of a
long-term investment strategy and provides the investor with
advice
about implementing its investment decisions through the Trust.
However, the applicant states that the Consulting Group does not
have
any discretionary authority or control with respect to the
allocation
of an investor's assets among the Portfolios.
In the case of an IRA, a Keogh Plan or a Title I Plan, the
applicant
represents that all of the Consulting Group's recommendations and
evaluations will be presented to a Plan fiduciary which is
independent
of Shearson Lehman and will be implemented only if accepted and
acted
upon by such Independent Plan Fiduciary. In the case of a Section
404(c) Plan, Shearson Lehman represents that participants in such
Plan
will be presented with the Consulting Group's recommendations and
evaluations only to the extent agreed to by Shearson Lehman and
the
Plan sponsor. Shearson Lehman expects that some sponsors of
Section
404(c) Plans will elect to have the Consulting Group's
recommendations
and evaluations passed-through to participants, while others will
elect to have the Independent Plan Fiduciary responsible for
selecting
the Portfolios made available to Plan participants receive such
advice. (7)
However, if investment advisory services are provided directly to
a
participant in a Section 404(c) Plan, the applicant explains (as
also
described herein above) that a Financial Consultant will provide a
participant with pre-enrollment meetings and ongoing
communications
regarding the TRAK Program. In addition, the applicant notes that
the
Consulting Group will recommend long term investment allocations
to
the participant and provide the participant with a written,
quarterly
performance monitoring report.
8. As stated above, the Consulting Group is responsible for
selecting
the Sub-Advisers which provide discretionary advisory services
with
respect to the investment of the assets of the individual
Portfolios
on the basis of their "able" performance in their respective areas
of
expertise in asset management. The applicant represents that there
are
presently eleven Sub- Advisers, all of which are independent of,
and
will remain independent of, Shearson Lehman and/or its
affiliates.(8)
The Sub-Advisers are registered investment advisers under the
Investment Adviser's Act of 1940. They maintain their principal
executive offices in the eastern and western regions of the United
States. As of June 30, 1991, the Sub-Advisers had assets under
management ranging from $62 million to $51 billion.
9. In order for a Plan to participate in the TRAK Program,
Shearson
Lehman or the Consulting Group will provide an Independent Plan
Fiduciary with a copy of the Trust Prospectus discussing the
investment objectives of the Portfolios comprising the Trust, the
policies employed to achieve these objectives, the corporate
affiliation existing between the Consulting Group, Shearson Lehman
and
its subsidiaries and the compensation paid to such entities. In
addition, upon written or oral request to Shearson Lehman, the
Independent Plan Fiduciary will be given a Statement of Additional
Information supplementing the Prospectus which describes the types
of
securities and other instruments in which the Portfolios may
invest,
the investment policies and strategies that the Portfolios may
utilize
and certain risks attendant to those investments, policies and
strategies.(9) Further, each Plan will be given a copy of the
investment
advisory agreement between the Consulting Group and such Plan
relating
to participation in the TRAK Program, and upon written request to
Shearson Lehman, with a copy of the respective investment advisory
agreement between the Consulting Group and the Sub-Advisers.
With respect to a Section 404(c) Plan, Financial Consultants
affiliated with Shearson Lehman will explain the services offered
under the TRAK Program to eligible Section 404(c) Plan
participants as
well as the operation and objectives of the Portfolios, if
required by
the arrangement negotiated between the Consulting Group and the
Plan.(10)
If accepted as a Trust investor, an Independent Plan Fiduciary
will be
required by Shearson Lehman to acknowledge, in writing, prior to
purchasing Trust shares that such fiduciary has received copies of
the
aforementioned documents. With respect to a Plan that is covered
by
Title I of the Act (e.g., a defined contribution plant), where
investment decisions will be made by a trustee, investment manager
or
a named fiduciary, Shearson Lehman will require (except if relying
on
Class PTE 77-3) that such Independent Plan Fiduciary acknowledge
in writing receipt of such documents and represent to Shearson
Lehman
that such fiduciary is (a) independent of Shearson Lehman and its
affiliates, (b) capable of making an independent decision
regarding
the investment of Plan assets and (c) knowledgeable with respect
to
the Plan in administrative matters and funding matters related
thereto, and able to make an informed decision concerning
participation in the TRAK Program.
With respect to Section 404(c) Plan, written acknowledgment of the
receipt of such documents will be provided by the Independent Plan
Fiduciary (i.e., the Plan administrator, trustee or named
fiduciary,
as the recordholder of Trust shares). Such Independent Plan
Fiduciary
will be required to represent, in writing, to Shearson Lehman that
such fiduciary is (a) independent of Shearson Lehman and its
affiliates and (b) knowledgeable with respect to the Plan in
administrative matters and funding matters related thereto, and
able
to make an informed decision concerning participation in the TRAK
Program.
10. The books of the Trust will be audited annually by independent
public accountants selected by the Trustees and approved by the
investors. All investors will receive copies of an audited
financial
report no later than 60 days after the close of each Trust fiscal
year. The books and financial records of the Trust will be open
for
inspection by any investor, as well as the Department and the
Service,
at all times during regular business hours.
11. As noted under the TRAK Program, the Consulting Group will
provide
the Independent Plan Fiduciary with asset allocation advice
related to
the Portfolios. In this regard, the applicant states that the
Consulting Group's asset allocation advice will not focus on
recommendations that a Plan's assets be allocated to a specific
Portfolio. Rather, the applicant represents that the Consulting
Group
will recommend only that Plan assets be allocated among particular
types of Portfolios (e.g., Growth, Fixed Income, etc.)
After the selection of specific Portfolios by an Independent Plan
Fiduciary, the Consulting Group will continue to render general
Portfolio-Type selection advice to Plans or Plan fiduciaries
relating
to asset allocations among the selected Portfolios. However, in
the
case of a Section 404(c) Plan in which at least three to five
Portfolios may be selected by the Plan sponsor, the Consulting
Group's
initial asset allocation advice will be limited to the suggested
Portfolio-Types offered under the Plan. The Consulting Group may
also
work with the Independent Plan Fiduciary to identify and draft
investment objectives, select investment categories or actual
Portfolios to be offered to Plan participants, if such fiduciary
is
the recipient of the Consulting Group's asset allocation advice,
or
recommend appropriate long-term investment allocations to an
individual participant, if the participant receives such advice.
12. The Consulting Group will also identify a Plan's risk
tolerances
and investment objectives, the performance of each Portfolio in
which
assets are invested, and recommend, in writing, an appropriate
allocation of assets among the Portfolio-Types that conform to
these
tolerances and objectives. The Consulting Group will not have the
authority to implement its advice or recommendations and will not
participate in the deliberations regarding the decision by an
investor
of whether or not to act upon such advice. As noted earlier, the
applicant represents that the decision of a Plan to invest in the
TRAK
Program will be made by an unrelated Plan fiduciary acting on the
basis of his or her own investigation into the advisability of
participating in the TRAK Program.
13. The Consulting Group will provide, at least quarterly,
monitoring
reports to a Title I, IRA or Keogh Plan containing an analysis and
evaluation of the Plan's account to ascertain whether the
investor's
objectives are being met and recommending, when appropriate,
changes
in the allocation among the Portfolios.
If required by the arrangement negotiated with the Independent
Plan
Fiduciary, the Consulting Group will provide an Independent Plan
Fiduciary of a Section 404(c) Plan with a written, detailed
investment
performance monitoring report, that will contain Plan level asset
allocations showing the performance of the Plan's investment
vehicles
and the performance of relevant indices for evaluating the
performance
of each Portfolio, a Plan cash flow analysis and annualized risk
adjusted rates of return for Plan investment vehicles. Such report
will be provided on a quarterly basis.
In addition, to the extent required by the arrangement negotiated
with
the Consulting Group, a Section 404(c) Plan participant will
receive a
written, quarterly performance monitoring report with his or her
quarterly benefit statement which includes the investment
performance
of the Portfolios, the investment performance for the
participant's
account, and specifies market commentary and toll-free numbers for
such participant to call Shearson Lehman in order to obtain more
information about the TRAK Program or to amend the participant's
investment allocations. Further, if required by such arrangement,
a
Financial Consultant will meet periodically with an Independent
Plan
Fiduciary of a Section 404(c) Plan to review and discuss the
investment performance monitoring report. The Financial Consultant
may
also meet periodically with an eligible participant to review the
performance of the participant's account. The applicant notes that
this intermittent contact will not prevent the participant from
contacting the Financial Consultant at any time to inquire about
his
or her participation in the TRAK Program.
Finally, on a quarterly and annual basis, the Consulting Group
will
provide written disclosures to all Plans with respect to (1) the
percentage of each Trust Portfolio's brokerage commissions that
are
paid to Shearson Lehman and its affiliates and (2) the average
brokerage commission per share paid by each Portfolio to Shearson
Lehman as compared to the average brokerage commission per share
paid
by each Portfolio to brokers other than Shearson Lehman and its
affiliates, both expressed as cents per share.
14. Shares of a Portfolio will be redeemed by Shearson Lehman, at
no
charge, and generally on a daily basis (weekends and holidays
excepted) when the Portfolio calculates its net asset value.
Redemption requests received in proper form prior to the close of
trading on the NYSE will be affected at the net asset value per
share
determined on that day. Redemption requests received after the
close
of regular trading on the NYSE will be effected at the net asset
value
at the close of business of the next day, except on weekends or
holidays when the NYSE is closed. A Portfolio is required to
transmit
redemption proceeds for credit to an investor's account with
Shearson
Lehman or to an "introducing" broker (11) within 7 days after
receipt of
the redemption request. In the case of an IRA or Keogh Plan
investor,
Shearson Lehman will not hold redemption proceeds as free credit
balances and will, in the absence of receiving investment
instructions, place all such assets in a money market fund that is
not
affiliated with Shearson Lehman. In the case of Plans that are
covered
by title I of the Act, the redemption proceeds will be invested by
Shearson Lehman in accordance with the investment directions of
the
Independent Plan Fiduciary responsible for the management of the
Plan's assets. With respect to a Section 404(c) Plan, the
treatment of
such investment assets will depend upon the arrangement for
participant investment instructions selected by the Plan sponsor.
(12) In
the event that the Independent Plan Fiduciary does not give other
investment directions, such assets will be swept weekly into a
money
market fund that is not affiliated with Shearson Lehman for the
benefit of the Plan.
Due to the high costs of maintaining small accounts, the Trust may
also redeem an account having a current value of $7,500 or less,
after
the investor has been given at least 30 days in which to increase
the
account balance to more than the $7,500 amount. Proceeds of an
involuntary redemption will be deposited in the investor's
brokerage
account unless Shearson Lehman is otherwise instructed.
15. Shares of a Portfolio may be exchanged by an investor with
another
investor in the TRAK Program without payment of any exchange fee
for
shares of another Portfolio at their respective net asset values.
However, Portfolio shares are not exchangeable with shares of
other
funds within the Shearson Lehman Group of funds or portfolio
families.
16. With respect to brokerage transactions that are entered into
under
the TRAK Program for a Portfolio, such transactions may be
executed
through Shearson-Lehman and other affiliated broker-dealers, if in
the
judgment of the Sub-Adviser, the use of such broker-dealer is
likely
to result in price and execution at least as favorable, and at a
commission charge at least as comparable to those of other
qualified
broker-dealers. In addition, Shearson Lehman may not execute
transactions for a Portfolio on the floor of any national
securities
exchange but it may effect transactions by transmitting orders to
other brokers for execution. In this regard, Shearson Lehman is
required to pay fees charged by those persons performing the floor
brokerage elements out of the brokerage compensation it receives
from
a Portfolio.
17. Each Portfolio bears its own expenses, which generally include
all
costs that are not specifically borne by the Consulting Group, the
Sub-Advisers or Boston Advisors. Included among a Portfolio's
expenses are costs incurred in connection with the Portfolio's
organization, investment management and administration fees, fees
for
necessary professional and brokerage services, fees for any
pricing
service, the costs of regulatory compliance and costs associated
with
maintaining the Trust's legal existence and shareholder relations.
No
Portfolio, however, will impose sales charges on purchases,
reinvested
dividends, deferred sales charges, redemption fees, nor will any
Portfolio incur distribution expenses.
18. The total fees that are paid to the Consulting Group and its
affiliates will constitute no more than reasonable compensation.
In
this regard, for its asset allocation and related services, the
Consulting Group charges an investor a quarterly investment
advisory
fee. This "outside fee" is negotiated between the Consulting Group
and
the investor and it varies up to an annual maximum of 1.50 percent
of
the net asset value of the investor's Trust shares computed each
quarter based on the value determined on the last calendar day of
the
previous calendar quarter. The outside fee is charged directly to
an
investor and it is not affected by the allocation of assets among
the
Portfolios nor by whether an investor follows or ignores the
Consulting Group's advice. (13) For Plan investors, the outside
fee for a
calendar quarter will be reduced by an amount equal to, for all
Portfolios in which Plan assets are invested (a) the value of Plan
assets invested in a Portfolio on the last calendar day of the
previous calendar quarter (or the value of an initial investment
in
the Portfolio, as of the day such initial investment is made
during
the calendar quarter) multiplied by (b) a reduction factor (the
Reduction Factor) which is described in below, multiplied by (c) a
fraction, the numerator of which is the number of days in the
period
for which the outside fee is being assessed and the denominator of
which is the actual number of days in the calendar year of which
that
period is a part. For subsequent investments or redemptions
aggregating to more than $5,000, the pro-rated fee for credit for
the
balance of the quarter will be calculated on the basis of the net
percentage of the outside fee paid for the quarter during which
the
subsequent investment or redemption is made.
In addition, for investment management and related services
provided
to the Trust, the Consulting Group is paid, from each Portfolio, a
management fee which computed daily and paid monthly at an annual
rate
ranging from .15 percent to .70 percent of the value of the
Portfolio's average daily net assets depending upon the
Portfolio's
objective. From these management fees, the Consulting Group
compensates the Sub-Adviser. This "inside fee," which is the
difference between the individual Portfolio's total management fee
and
the fee paid by the Consulting Group to the Sub-Adviser, varies
from
20 to 30 basis points depending on the Portfolio (except for the
Government Money Investments Portfolio which, for competitive
purposes, pays a management fee equal to the Sub-Adviser's fee).
Each
Portfolio also pays Boston Advisors a management fee that is
computed
daily and paid monthly for the services it performs as
administrator
to the Trust at an annual fixed rate of .20 percent of the value
of
the Portfolio's average daily net assets. Such fee is also
included in
the total management fee.
The management fees that are paid at the Portfolio level to Boston
Advisors, the Consulting Group and the Sub-Advisers are set forth
in
the table below. For purposes of the table, Boston Advisors is
referred to as "BA", the Consulting Group as "CG" and the Sub-
Advisers
as "SA." As noted in the table, the sum of the management fees
paid by
a Portfolio to Boston Advisors plus the fees retained by the
Consulting Group and the Sub-Advisers equals the total management
fee
paid by that Portfolio.
SA
CG
Total Total fee retained
retained
management BA fee SA/CG fee
fee
Portfolio fee (percent) (percent) (percent)
(percent)
Government money
investments 0.35 0.20 0.15 0.15
0.00
Intermediate fixed
income investments .60 .20 .40 .20
.20
Total return fixed
income investments .60 .20 .40 .20
.20
Municipal bond
investments .60 .20 .40 .20
.20
Mortgage backed
investments .70 .20 .50 .25
.25
Balanced investments .80 .20 .60 .30
.30
Large capitalization
value equity
investments .80 .20 .60 .30
.30
Large capitalization
growth investments .80 .20 .60 .30
.30
Small capitalization
value equity
investments .80 .20 .60 .30
.30
Small capitalization
growth investments .80 .20 .60 .30
.30
International equity
investments .90 .20 .70 .40
.30
International fixed
income investments .70 .20 .50 .25
.25
Shearson Lehman proposes to offset, quarterly, against the outside
fee
such amount as is necessary to assure that the Consulting Group
retains no more than 20 basis points from any Portfolio on
investment
of assets attributable to any Plan.(14) In this way, the aggregate
of
the inside fees and the outside fees retained by the Consulting
Group
will remain constant regardless of the distribution of a Plan's
assets
among the Portfolio.
Shearson Lehman has developed the following example to demonstrate
how
the fee offset mechanism would work:
Assume that as of March 31, 1992, the average daily value of Trust
Portfolio shares held by a Plan investor was $1,000. Investment
assets
attributable to the Plan were distributed among five Trust
Portfolios:
(1) Government Money Investments in which the Plan made a $50
investment and from which the Consulting Group would not retain an
inside fee; (2) Total Return Fixed Income Investments in which the
Plan made a $200 investment and the Consulting Group would retain
an
inside fee of .20 percent; (3) Small Capitalization Growth
Investments
in which the Plan made a $250 investment and the Consulting Group
would be entitled to receive an inside fee of .30 percent; (4)
Large
Capitalization Growth Investments in which the Plan made a $250
investment and the Consulting Group would retain an inside fee of
.30
percent; and (5) International Equity Investments in which the
Plan
made a $250 investment and the Consulting Group would be entitled
to
receive an inside fee of .30 percent.
Assume that the Plan investor pays the maximum annual outside fee
of
1.50 percent so that the total outside fee for the calendar
quarter
April 1 through June 30, prior to the fee offset would be ($1,000)
1.50% (.25) = $3.75.
Under the proposed fee offset, the outside fee charged to the Plan
must be reduced by a Reduction Factor to ensure that the
Consulting
Group retains an inside fee of no more than .20% from each of the
Portfolios on investment assets attributable to the Plan. The
following table shows the Reduction Factor as applied to each of
the
Portfolios comprising the Trust:
CG
retained Fee
Reduction
fee offset
factor
Portfolio (percent) (percent)
(percent)
Government money investments 0.00 0.20
0.00
Intermediate fixed income investments .20 .20
.00
Total return fixed income investments .20 .20
.00
Municipal bond investments .20 .20
.00
Mortgage backed investments .25 .20
.05
Balanced investments .30 .20
.10
Large capitalization value equity
investments .30 .20
.10
Large capitalization growth investments .30 .20
.10
Small capitalization value equity
investments .30 .20
.10
Small Capitalization growth investments .30 .20
.10
International equity investments .30
.20
.10
International fixed income investments .25 .20
.05
Under the proposed fee offset, a Reduction Factor of .10% is
applied
against the quarterly outside fee with respect to the value of
Plan
assets that have been invested in Portfolios (3), (4) and (5)
only. As
noted above Portfolios (1) and (2) do not involve a Reduction
Factor
because the fee retained by the Consulting Group for these
Portfolios
does not exceed 20 basis points. Therefore, the quarterly offset
for
the plan investor is computed as follows: (.25)
[($250) .10%+($250) .10%+($250) .10%] = $0.1875.
In the foregoing example, the Plan investor, like all other
investors
in the TRAK Program, would receive a statement for its TRAK
account on
or about April 15, 1992. This statement would show the outside fee
to
be charged for the calendar quarter April 1, through June 30
(i.e.,
$3.75-$0.1875 = $3.5625). The Plan investor would be asked to pay
the
outside fee for that quarter by May 3, 1992 (i.e., the third day
of
the second month of the calendar quarter). If the outside fee were
not
paid by that date, Shearson Lehman would debit the account of the
Plan
investor (as with other investors) for the amount of the outside
fee
(pursuant to the authorization contained in the TRAK Investment
Advisory Agreement, and as described in the Statement of
Additional
Information appended to the Prospectus).(15)
Because the Consulting Group will retain no inside fee with
respect to
assets invested in the Government Money Investment Portfolio,
Shearson
Lehman notes that a potential conflict may exist by reason of the
variance in net inside fees among the Government Money Investments
Portfolio and the other Portfolios. Shearson Lehman also
recognizes
that this factor could result in the Consulting Group's
recommendation
of a higher-fee generating Portfolio- Type to an investing Plan.
To
address this potential conflict, Shearson Lehman will disclose to
all
participants in the TRAK Program that the Consulting Group will
retain
no inside fee for assets invested in the Government Money
Investments
Portfolio.
19. In summary, it is represented that the proposed transactions
will
meet the statutory criteria for an exemption under section 408(a)
of
the Act because: (a) The investment of a Plan's assets in the TRAK
Program will be made and approved by a Plan fiduciary which is
independent of Shearson Lehman and its affiliates such that
Independent Plan Fiduciaries will maintain complete discretion
with
respect to participating in the TRAK Program; (b) Independent Plan
Fiduciaries will have an opportunity to redeem their shares in the
Trust in such fiduciaries' individual discretion; (c) no Plan will
pay
a fee or commission by reason of the acquisition or redemption of
shares in the Trust; (d) prior to making an investment in TRAK,
each
Independent Plan Fiduciary will receive offering materials and
disclosures from either Shearson Lehman or the Consulting Group
which
disclose all material facts concerning the purpose, structure,
operation and investment in the TRAK Program; (e) the Consulting
Group
will provide written documentation to an Independent Plan
Fiduciary of
its recommendations or evaluations, including the reasons and
objective criteria forming the basis for such recommendations or
evaluations; (f) any sub-Adviser that is appointed by the
Consulting
Group to exercise investment discretion over a Portfolio will
always
be independent of Shearson Lehman and its affiliates; (g) the
annual
investment advisory fee that is paid by a Plan to the Consulting
Group
for investment advisory services rendered to such Plan will be
offset
by such amount as is necessary to assure that the Consulting Group
retains no more than 20 basis points from any Portfolio on
investment
assets attributable to the Plan investor; (h) the Consulting Group
or
Shearson Lehman will make periodic written disclosures to
participating Plans with respect to the financial condition of the
TRAK Program, the total fees that it and its affiliates will
receive
from such Plan investors and the value of the Plan's interest in
the
TRAK Program; and (i) on a quarterly and annual basis, the
Consulting
Group will provide written disclosures to all Plans with respect
to
(1) the percentage of each Trust Portfolio's brokerage commissions
that are paid to Shearson Lehman and its affiliates and (2) the
average brokerage commission per share paid by each Portfolio to
Shearson Lehman as compared to the average brokerage commission
per
share paid by each Portfolio to brokers other than Shearson Lehman
and
its affiliates, both expressed as cents per share.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the
Department,
telephone (202) 523-8881. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under
section 408(a) of the Act and/or section 4975(c)(20) 4975(c)(20)
of
the Code does not relieve a fiduciary or other party in interest
of
disqualified person from certain other provisions of the Act
and/or
the Code, including any prohibited transaction provisions to which
the
exemption does not apply and the general fiduciary responsibility
provisions of section 404 of the Act, which among other things
require
a fiduciary to discharge his duties respecting the plan solely in
the
interest of the participants and beneficiaries of the plan and in
a
prudent fashion in accordance with section 404(a)(1)(b) of the
act,
nor does it affect the requirement of section 401(a) 401(a) of
the
Code that the plan must operate for the exclusive benefit of the
employees of the employer maintaining the plan and their
beneficiaries;
(2) Before an exemption may be granted under section 408(a) of the
Act
and/ or section 4975(c)(2) 4975(c)(2) of the Code, the Department
must find that the exemption is administratively feasible, in the
interests of the plan and of its participants and beneficiaries
and
protective of the rights of participants and beneficiaries of the
plan;
(3) The proposed exemptions, if granted, will be supplemental to,
and
not in derogation of, any other provisions of the Act and/or the
Code,
including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of
whether
the transaction is in fact a prohibited transaction; and
(4) The proposed exemptions, if granted, will be subject to the
express condition that the material facts and representations
contained in each application are true and complete, and that each
application accurately describes all material terms of the
transaction
which is the subject of the exemption.
Signed at Washington, DC, this 31st day of March 1992.
Ivan Strasfeld, Director of Exemption Determinations, Pension and
Welfare Benefits Administration, U.S. Department of Labor.
[FR Doc. 92-7712 Filed 4-2-92; 8:45 am] BILLING CODE 4510 4510-
29-M
Footnotes
1 Because a Portfolio is not precluded from investing in
securities
that are issued by Shearson Lehman or its affiliates, Shearson
Lehman
represents that, as a limitation, the percentage of that
Portfolio's
net assets invested in these securities will never exceed one
percent.
2 According to the Statement of Additional Information which
accompanies the Prospectus for the TRAK Program, shares in the
Trust
are not certificated for reasons of economy and convenience.
Boston
Safe Deposit and Trust Company, the Trust's custodian, however,
maintains a record of each investor's ownership of shares.
Although
Trust shares are transferable and accord voting rights to their
owners, they do not confer pre-emptive rights (i.e., the privilege
of
a shareholder to maintain a proportionate share of ownership of a
company by purchasing a proportionate share of any new stock
issues).
Shearson Lehman represents that in the context of an open-end
investment company, that continuously issues and redeems shares, a
pre- emptive right would make the normal operations of the Trust
impossible. Therefore, such right is precluded in the charter
documents of the Trust's Master Trust Agreement as well as those
of
other open-end investment companies.
3 The Department notes that the general standards of fiduciary
conduct
promulgated under the Act would apply to the participation in the
TRAK
Program by an Independent Plan Fiduciary. Section 404 of the Act
requires that a fiduciary discharge his duties respecting a plan
solely in the interest of the plan's participants and
beneficiaries
and in a prudent fashion. Accordingly, an Independent Plan
Fiduciary
must act prudently with respect to the decision to enter into the
TRAK
Program with the Consulting Group as well as with respect to the
negotiation of services that will be performed thereunder and the
compensation that will be paid to Shearson Lehman and its
affiliates.
The Department expects that an Independent Plan Fiduciary, prior
to
entering in the TRAK Program, to understand fully all aspects of
such
arrangement following disclosure by Shearson Lehman of all
relevant
information.
4 The applicant represents that employee benefit plans for are
maintained by Shearson Lehman may purchase or redeem shares in the
Trust under the provisions of Prohibited Transaction Exemption
(PTE)
77-3 (42 FR 18734, April 8, 1977). The applicant further
represents
that, although the exemptive relief proposed above would not
permit
Shearson Lehman or an affiliate, while serving as a Plan fiduciary
with discretionary authority over the management of a Plan's
assets,
to invest a Plan's assets in the Trust shares, a purchase or
redemption of Trust shares under such circumstances will comply
with
the terms and conditions of class PTE 77-4 (42 FR 18732, April
8, 1977). The Department expresses no opinion herein as to whether
such transactions will comply with the terms and conditions of
PTEs
77-3 and 77-4.
5 Each Portfolio's net asset value per share is calculated by
Boston
Advisors on each weekday, except on days on which the New York
Stock
Exchange (the NYSE) is closed. In general, the net asset value for
securities is determined as of the close of trading on the NYSE or
a
foreign exchange by dividing the value of a Portfolio net assets
by
the total number of its shares outstanding. Typically, a
Portfolio's
investments are valued at market value. However, in the absence of
a
market value, Portfolio investments are valued at fair market
value as
determined by, or under the direction of, the Trustees.
6 Subject to the supervision and direction of the Trustees,
the
Consulting Group was required to perform initial "due diligence"
on
prospective Sub-Advisers for each Portfolio and thereafter to
monitor
each Sub-Adviser's performance through qualitative and
quantitative
analysis as well as through periodic, in person, telephonic and
written consultations. The Consulting Group is also required to
communicate its performance expectations and evaluations to the
Sub-Advisers and ultimately recommend whether a Sub-Adviser's
contract
should be renewed, modified or terminated. In this regard, the
Consulting Group is further obligated to provide written reports
to
the Trustees of its evaluation and monitoring functions.
7 If the Independent Plan Fiduciary of a Section 404(c) Plan
is the
recipient of the Consulting Group's investment advice, the
applicant
explains that the Consulting Group will work with the Independent
Plan
Fiduciary by identifying and drafting investment objectives,
selecting
investment categories or actual Portfolios to be offered to Plan
participants. In addition to these services (and as described
above),
the applicant explains that the Consulting Group will provide an
Independent Plan Fiduciary with a detailed investment performance
monitoring report on a quarterly basis. Furthermore, a Financial
Consultant affiliated with Shearson Lehman will meet periodically
with
the Independent Plan Fiduciary to discuss the investment
performance
monitoring report.
8 Although there are presently twelve Portfolios comprising
the Trust,
there are only eleven Sub-Advisers. One Sub-Adviser, Standish,
Ayer
and Wood, Inc., advises both the Government Money Investments
Portfolio and the Intermediate Fixed Income Investments Portfolio.
9 In the case of a Section 404(c) Plan, the applicant
represents that
the Plan administrator, trustee or named fiduciary, as the
recordholder of Trust shares, will make available the Trust's
Prospectus to Section 404(c) Plan participants. In addition,
Shearson
Lehman will make available to such Independent Plan Fiduciaries
sufficient quantities of Prospectuses for this purpose, as well as
provide Statements of Additional Information to any party upon
request.
10 The Department is expressing no opinion as to whether the
information provided under the TRAK Program is sufficient to
enable a
participant to exercise independent control over assets in his or
her
account as contemplated by section 404(c) of the Act.
11 According to the applicant, Shearson Lehman provides
clearance,
settlement and other back office services to other broker-dealers.
The
applicant notes that Shearson Lehman may also provide
confirmations
and account statements to clients of brokers who have "introduced"
clients to Shearson Lehman such as The Robinson Humphrey Company,
Inc.
a wholly-owned broker-dealer subsidiary of Shearson Lehman.
12 Shearson Lehman explains that, under one alternative, Plan
participants who give instructions to redeem shares of a Portfolio
must give corresponding instructions to reinvest proceeds in
another
investment vehicle made available under the Plan, thus ensuring
that a
participant's investment assets are continually invested. Under a
second alternative which is described above, Shearson Lehman
represents that participants will not be required to give
corresponding instructions and all investment assets for which no
investment instructions have been given will be swept into a money
market fund that is not affiliated with Shearson Lehman. In this
regard, the Department is expressing no opinion regarding whether
any
of the arrangements described above comply with the requirements
of
section 404(c) of the Act.
13 The applicant represents that the outside fee is not imposed
on
accounts of employees of American Express and its subsidiaries,
including Shearson Lehman, accounts of their immediate families
and
IRAs and certain employee pension benefit plans for these persons.
The
applicant states that this fee is waived to encourage employees to
invest in Shearson Lehman. With respect to IRAs or Plans
maintained by
Shearson Lehman and its affiliates, the applicant asserts that
such
waiver would be required by PTE 77-3.
14 Shearson Lehman asserts that it chose 20 basis points as the
maximum
net fee retained for management services rendered to the
Portfolios
because this amount represents the lowest percentage management
fee
charged by Shearson Lehman among the Portfolios (excluding the
Government Money Investments Portfolio for which Shearson Lehman
charges no management fee).
15 The applicant explains that the foregoing example
illustrates the
fact that the outside fee and the fee offset are computed
contemporaneously and that Plan investors will get the benefit of
the
fee offset contemporaneously upon the payment of the outside fee.
Because the inside fee is paid monthly and the fee offset is
computed
quarterly, the applicant also explains that Shearson Lehman does
not
receive the benefit of a "float" as a result of such calculations
because the fee offset will always be realized no later than the
time
that the outside fee is paid (i.e., on or about the third day of
the
second month of the calendar quarter). Since the inside fee is
paid at
the end of each calendar month, the applicant further explains
that
Plan investors will realize the full benefit of the offset before
the
time that the inside fee is paid for the second and third months
of
the calendar quarter.
DOL Prohibited Transaction Exemption 92-77
Final Exemption 92-77
10/05/1992
[57 FR 45833, October 5, 1992]
Shearson Lehman Brothers, Inc. (Shearson Lehman), Located in New
York,
NY
[Prohibited Transaction Exemption 92-77; Exemption Application No.
D-8723]
Exemption
Section I. Covered Transactions
The restrictions of section 406(a) of the Act and the sanctions
resulting from the application of section 4975 of the Code, by
reason of section 4975(c)(1) (A) through (D) shall not apply to
the
proposed purchase or redemption of shares by an employee benefit
plan,
an individual retirement account (the IRA) or a retirement plan
for a
self-employed individual (the Keogh Plan; collectively, the Plans)
in
the Shearson Lehman-established Trust for TRAK Investments (the
Trust)
in connection with such Plans' participation in the TRAK
Personalized
Investment Advisory Service (the TRAK Program). In addition, the
restrictions of section 406 (b)(1) and (b)(2) of the Act and the
sanctions resulting from the application of section 4975 of the
Code by reason of section 4975(c)(1)(E) shall not apply to the
provision, by the Consulting Group Division of Shearson Lehman
(the
Consulting Group), of investment advisory services to an
independent
fiduciary of a participating Plan (the Independent Plan Fiduciary)
which may result in such fiduciary's selection of a portfolio
grouping
(the Portfolio-Type) in the TRAK Program for the investment of
Plan
assets.
This exemption is subject to the following conditions that are set
forth below in section II.
Section II. General Conditions
(1) The participation of Plans in the TRAK Program will be
approved by
an Independent Plan Fiduciary. For purposes of this requirement,
an
employee, officer or director of Shearson Lehman and/or its
affiliates
covered by an IRA not subject to title I of the Act will be
considered
an Independent Plan Fiduciary with respect to such IRA.
(2) The total fees paid to the Consulting Group and its affiliates
will constitute no more than reasonable compensation.
(3) No Plan will pay a fee or commission by reason of the
acquisition
or redemption of shares in the Trust.
(4) The terms of each purchase or redemption of Trust shares shall
remain at least as favorable to an investing Plan as those
obtainable
in an arm's length transaction with an unrelated party.
(5) The Consulting Group will provide written documentation to an
Independent Plan Fiduciary of its recommendations or evaluations
based
upon objective criteria.
(6) Any recommendation or evaluation made by the Consulting Group
to
an Independent Plan Fiduciary will be implemented only at the
express
direction of such independent fiduciary.
(7) The Consulting Group will generally give investment advice to
an
Independent Plant Fiduciary with respect to Portfolio-Types.
However,
in the case of a Plan providing for participant-directed
investments
(the Section 404(c) Plan), the Consulting Group will provide
investment advice that is limited to the Portfolios made available
under the Plan.
(8) Any sub-adviser (the Sub-Adviser) that acts for the Trust to
exercise investment discretion over a Portfolio will be
independent of
Shearson Lehman and its affiliates.
(9) Immediately following the acquisition by a Portfolio of any
securities that are issued by Shearson Lehman and/or its
affiliates,
the percentage of that Portfolio's net assets invested in such
securities will not exceed one percent.
(10) The quarterly investment advisory fee that is paid by a Plan
to
the Consulting Group for investment advisory services rendered to
such
Plan will be offset by such amount as is necessary to assure that
the
Consulting Group retains no more than 20 basis points from any
Portfolio which contains investments attributable to the Plan
investor.
(11) The Consulting Group will not retain an investment advisory
or
management fee from the Government Money Investments Portfolio.
(12) With respect to its participation in the TRAK Program prior
to
purchasing Trust shares,
(a) Each Plan will receive the following written or oral
disclosures
from the Consulting Group:
(1) A copy of the prospectus (The Prospectus) for the Trust
discussing
the investment objectives of the Portfolios comprising the Trust,
the
policies employed to achieve these objectives, the corporate
affiliation existing between the Consulting Group, Shearson Lehman
and
its subsidiaries and the compensation paid to such entities.
(2) Upon written or oral request to Shearson Lehman, a Statement
of
Additional Information supplementing the Prospectus which
describes
the types of securities and other instruments in which the
Portfolios
may invest, the investment policies and strategies that the
Portfolios
may utilize and certain risks attendant to those investments,
policies
and strategies.
(3) A copy of the investment advisory agreement between the
Consulting
Group and such Plan relating to participation in the TRAK Program.
(4) Upon written request of Shearson Lehman, copy of the
respective
investment advisory agreement between the Consulting Group and the
Sub- Advisers.
(5) In the case of a Section 404(c) Plan, if required by the
arrangement negotiated between the Consulting Group and the Plan,
an
explanation by a Shearson Lehman Financial Consultant (the
Financial
Consultant) to eligible participants in such Plan, of the services
offered under the TRAK Program and the operation and objectives of
the
Portfolios.
(b) If accepted as an investor in the TRAK Program, an Independent
Plan Fiduciary of an IRA or Keogh Plan, will be required to
acknowledge, in writing, prior to purchasing Trust shares that
such
fiduciary has received copies of such documents.
(c) With respect to a Section 404(c) Plan, written acknowledgement
of
the receipt of such documents will be provided by the Independent
Plan
Fiduciary (i.e., the Plan administrator, trustee or named
fiduciary,
as the recordholder of Trust shares). Such Independent Plan
Fiduciary
will be required to represent in writing to Shearson Lehman that
such
fiduciary is (1) independent of Shearson Lehman and its affiliates
and
(2) knowledgeable with respect to the Plan in administrative
matters
and funding matters related thereto, and able to make an informed
decision concerning participation in the TRAK Program.
(d) With respect to a Plan that is covered under Title I of the
Act,
where investment decisions are made by a trustee, investment
manager
or named fiduciary, and Independent Plan Fiduciary will be
required to
acknowledge, in writing, receipt of such documents and represent
to
Shearson Lehman that such fiduciary is (1) independent of Shearson
Lehman and its affiliates, (2) capable of making an independent
decision regarding the investment of Plan assets and (3)
knowledgeable
with respect to the Plan in administrative matters and funding
matters
related thereto, and able to make an informed decision concerning
participation in the TRAK Program.
(13) Each Plan will receive the following written or oral
disclosures
with respect to its ongoing participation in the TRAK Program:
(a) The Trust's semi-annual and annual report which will include
financial statements for the Trust and investment management fees
paid
by each Portfolio.
(b) A written quarterly monitoring report containing an analysis
and
an evaluation of a Plan investor's account to ascertain whether
the
Plan's investment objectives have been met and recommending, if
required, changes in Portfolio allocations.
(c) If required by the arrangement negotiated between the
Consulting
Group and a Section 404(c) Plan, a quarterly, detailed investment
performance monitoring report, in writing, provided to an
Independent
Plan Fiduciary of such Plan showing Plan level asset allocations,
Plan
cash flow analysis and annualized risk adjusted rates of return
for
Plan investments. In addition, if required by such arrangement,
Financial Consultants will meet periodically with Independent Plan
Fiduciaries of Section 404(c) Plans to discuss the performance
monitoring report as well as with eligible participants to review
their accounts' performance.
(d) If required by the arrangement negotiated between the
Consulting
Group and a Section 404(c) Plan, a quarterly participant
performance
monitoring report provided to a Plan participant which accompanies
the
participant's benefit statement and describes the investment
performance of the Portfolios, the investment performance of the
participant's individual investment in the TRAK Program, and gives
market commentary and toll-free numbers that will enable the
participant to obtain more information about the TRAK Program or
to
amend his or her investment allocations.
(e) On a quarterly and annual basis, written disclosures to all
Plans
of the (1) percentage of each Portfolio's brokerage commissions
that
are paid to Shearson Lehman and its affiliates and (2) the average
brokerage commission per share paid by each Portfolio to Shearson
Lehman and its affiliates, as compared to the average brokerage
commission per share paid by the Trust to brokers other than
Shearson
Lehman and its affiliates, both expressed as cents per share.
(14) Shearson Lehman shall maintain, for a period of six years,
the
records necessary to enable the persons described in paragraph
(16) of
this section to determine whether the conditions of this exemption
have been met, except that (a) a prohibited transaction will not
be
considered to have occurred if, due to circumstances beyond the
control of Shearson Lehman and/or its affiliates, the records are
lost
or destroyed prior to the end of the six year period, and (b) no
party
in interest other than Shearson Lehman shall be subject to the
civil
penalty that may be assessed under section 502(i) of the Act, or
to
the taxes imposed by section 4975 (a) and (b) of the Code, if the
records are not maintained, or are not available for examination
as
required by paragraph (15) below.
(15)(a) Except as provided in section (b) of this paragraph and
notwithstanding any provisions of subsections (a)(2) and (b) of
section 504 of the Act, the records referred to in paragraph (14)
of
this section shall be unconditionally available at their customary
location during normal business hours by:
(1) Any duly authorized employee or representative of the
Department
or the Internal Revenue Service (the Service);
(2) Any fiduciary of a participating Plan or any duly authorized
representative of such fiduciary;
(3) Any contributing employer to any participating Plan or any
duly
authorized employee representative of such employer; and
(4) Any participant or beneficiary of any participating Plan, or
any
duly authorized representative of such participant or beneficiary.
(b) None of the persons described above in subparagraphs (2)-(4)
of
this paragraph (15) shall be authorized to examine the trade
secrets
of Shearson Lehman or commercial or financial information which is
privileged or confidential.
Section III. Definitions
For purposes of this exemption:
(1) An "affiliate" of Shearson Lehman includes--
(a) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common
control
with Shearson Lehman. (For purposes of this subsection, the term
"control" means the power to exercise a controlling influence over
the
management or policies of a person other than an individual.)
(b) Any officer, director or partner in such person, and
(c) Any corporation or partnership of which such person is an
officer,
director or a 5 percent partner or owner.
(2) An "Independent Plan Fiduciary" is a Plan fiduciary which is
independent of Shearson Lehman and its affiliates and is either
(a) A Plan administrator, trustee or named fiduciary, as the
recordholder of Trust shares of a Section 404(c) Plan,
(b) A participant in a Keogh Plan,
(c) An individual covered under a self-directed IRA which invests
in
Trust shares, or
(d) A trustee, investment manager or named fiduciary responsible
for
investment decisions in the case of a title I Plan that does not
permit individual direction as contemplated by Section 404(c) of
the
Act.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption,
refer to
the notice of proposed exemption (the Notice) published on April
3,
1992 at 57 FR 11514.
EFFECTIVE DATE: This exemption is effective as of April 3, 1992.
Written Comments
The Department received one comment letter with respect to the
Notice
and no requests for a public hearing. The letter, which was
submitted
by Shearson Lehman, addresses certain clarifications to the
Notice,
including clarifications to the General Conditions and the Summary
of
Facts and Representations. Discussed below are the changes
suggested
by Shearson Lehman and the Department's responses thereto. In
addition, the Department has made several clarifying changes to
the
final exemption which are also discussed below.
With respect to the General Conditions that are set forth in
Section
II of the Notice, Shearson Lehman wishes to make several
clarifications. In this regard, Shearson Lehman notes that, in
general, in the case of IRAs that are maintained by employees of
Shearson Lehman or its affiliates, such employees should be
considered
"Independent Plan Fiduciaries." In addition, Shearson Lehman
requests
that Condition (1) should read as follows in order that it will
conform to the other General Conditions:
The participation of plans in the TRAK Program will be approved by
an
Independent Plan Fiduciary.
To clarify that Sub-Advisers act for the Trust after having been
approved by the Trust in accordance with the terms of section 15
(a)
and (c) of the Investment Company Act of 1940, as amended (the
1940
Act), or any exemption granted by the Securities and Exchange
Commission, Shearson Lehman recommends that Condition (8) of the
General Conditions be modified to read as follows:
Any sub-adviser (the Sub-Adviser) that acts for the Trust to
exercise
investment discretion over a Portfolio will be independent of
Shearson
Lehman and its affiliates.
In the case of a Plan covering one or more employees of the Plan
sponsor (such as a Section 404(c) Plan), Shearson Lehman notes
that
Condition (10) requires only that the investment advisory fee paid
by
the Plan be offset in the manner described in the condition (i.e.,
the
offset will be determined based on the aggregate investment of the
Plan accounts). Shearson Lehman represents that it does not have
control over how the Plan, for internal expenses, allocates the
offset
among individual accounts. As long as the fee is offset at the
Plan
level, Shearson Lehman represents that it cannot be construed to
have
any economic incentive to provide investment allocation advice
favoring one Portfolio over another.
Shearson Lehman observes that several of the General Conditions
refer
to "Shearson Lehman and its affiliates" but the Notice does not
define
the term "affiliate." After giving due consideration to this
comment,
the Department has determined to add a new Section III to the
exemption titled "Definitions" in which the terms "affiliate," and
"Independent Plan Fiduciary" are defined as follows:
An "affiliate" of Shearson Lehman includes (a) any person directly
or
indirectly through one or more intermediaries, controlling,
controlled
by, or under common control with Shearson Lehman (For purposes of
this
subsection, the term "control" means the power to exercise a
controlling influence over the management or policies of a person
other than an individual.) (b) any officer, director or partner in
such person, and (c) any corporation or partnership of which such
person is an officer, director or a 5 percent partner or owner.
An "Independent Plan Fiduciary" is a Plan fiduciary which is
independent of Shearson Lehman and its affiliates and is either
(a) a
Plan administrator, trustee or named fiduciary, as the
recordholder of
Trust shares of a Section 404(c) Plan, (b) a participant in a
Keogh
Plan, (c) an individual covered under a self-directed IRA which
invests in Trust shares, or (d) a trustee, investment manager or
named
fiduciary responsible for investment decisions in the case of a
Title
I Plan that does not permit individual direction as contemplated
by
section 404(c) of the Act.
With respect to modifications to the Summary of Facts and
Representations, Shearson Lehman represents that the first
paragraph
of Item 1 of the Notice which was based on the application for
exemption confuses the descriptions of Shearson Holdings, Shearson
Lehman and Shearson Lehman Brothers. Accordingly, Shearson Lehman
requests that the third, fourth and fifth sentences of that
paragraph
be amended to read as follows:
Shearson Holdings conducts its principal businesses through two
divisions of Shearson Lehman--Shearson Lehman Brothers and Lehman
Brothers. Shearson Lehman Brothers is responsible for individual
investor services and asset management while Lehman Brothers is
responsible for securities underwriting, financial advisory,
investment and merchant banking services and securities and
commodities trading as principal and agent. Shearson Lehman is a
member of all principal securities and commodities exchanges in
the
United States and the National Association of Securities Dealers,
Inc.
Shearson Lehman also wishes to update the second sentence of the
second paragraph under Item 2 of the Notice by noting that the
Balanced Investments Portfolio is expected to be offered in July
1992
at an initial per share value of $8.00.
In order that Footnote 1 of the Notice more closely tracks the
language of Condition (9), Shearson Lehman suggests the following
modification:
Because a Portfolio is not precluded from investing in securities
that
are issued by Shearson Lehman or its affiliates, Shearson Lehman
represents that, as a limitation, immediately following the
acquisition by a Portfolio of any securities that are issued by
Shearson Lehman and/or its affiliates, the percentage of that
Portfolio's net assets invested in such securities will not exceed
one
percent.
Since Shearson Lehman cannot assure that Section 404(c) Plans
participating in the TRAK Program will pass through voting rights
to
participants on a pro rata basis, it recommends that the second
paragraph of Footnote 2 of the Notice be amended to read as
follows:
In the case of individual account plans such as Section 404(c)
Plans,
Shearson Lehman believes that most Plans will pass-through the
vote to
participants on a pro rata basis.
Shearson Lehman also represents that it may serve as prototype
sponsor
for Plans participating in the TRAK Program. Therefore, the third
sentence of the second paragraph under Item 3 of the Notice should
be
amended by adding the following language:
Accordingly, Shearson Lehman has requested prospective exemptive
relief from the Department with respect to the purchase and
redemption
of shares in the Trust by participating Plans which it does not
sponsor (other than only as prototype sponsor) or have
discretionary
investment authority over the Plan's assets which would be
invested in
Trust shares.
To clarify that Plans for which Shearson Lehman has a pre-existing
relationship will be able to participate in TRAK, Shearson Lehman
asks
that the second sentence of Footnote 4 be amended to read as
follows:
The applicant further represents that, although the exemptive
relief
proposed above would not permit Shearson Lehman or an affiliate,
while
serving as a Plan fiduciary with discretionary authority over the
management of a Plan's assets, to invest in Trust shares those
assets
over which it exercises discretionary authority, a purchase or
redemption of Trust shares under such circumstances would be
permissible if made in compliance with the terms and conditions of
Class Prohibited Transaction Exemption (PTE) 77-4 (42 FR 18732,
April
8, 1977).
Shearson Lehman represents that the Trust's Board of Directors
consists of seven members, four of whom are not affiliated with
Shearson Lehman and three of whom are affiliated with Shearson
Lehman,
all in accordance with the provisions of section 10(b) of the 1940
Act. Accordingly, Shearson Lehman recommends that Item 4 of the
Notice
be amended to read as follows:
Overall responsibility for the management and supervision of the
Trust
and the Portfolios rests with the Trust's Board of Trustees (the
Trustees) which currently is comprised of seven members. The
Trustees
approve all significant agreements involving the Trust and the
persons
and companies who provide services to the Trust and the
Portfolios.
Three of the Trustees and all of the Trust's executive officers
are
affiliated with Shearson Lehman and/or its affiliates. The four
remaining Trustees are not affiliated with Shearson Lehman.
Because the applicant now represents that not all services
described
in Footnote 7 of the Notice will be provided to every Section
404(c)
Plan, Shearson Lehman believes that an updated, clarifying
paragraph
should be added to the footnote which would read as follows:
The applicant notes that not all of the services described in the
preceding two paragraphs will be provided to every Section 404(c)
Plan. The services provided to each Plan will depend on the
arrangement negotiated between Shearson Lehman and the Independent
Plan Fiduciary.
Shearson Lehman represents that it cannot assure that the Plan
administrator, trustee or named fiduciary of a Section 404(c) Plan
will make available a copy of the Trust Prospectus to each
participant. Therefore, it requests that Footnote 9 of the Notice
be
amended to read as follows:
In the case of a Section 404(c) Plan, the applicant represents
that
the Plan administrator, trustee or named fiduciary, as the
recordholder of Trust shares, will receive a copy of the Trust
Prospectus. If requested by such Plan administrator, trustee or
named
fiduciary, Shearson Lehman will make available to such Independent
Plan Fiduciary sufficient quantities of Prospectuses for a
distribution to Plan participants, as well as provide Statements
of
Additional Information to any party upon request.
Item 15 of the Notice inadvertently states that investors in the
TRAK
Program may exchange Portfolio shares with one another. Shearson
Lehman wishes to clarify that the first sentence of Item 15 should
be
amended to read as follows:
Shares of a Portfolio may be exchanged by an investor, without any
exchange fee, for shares of another Portfolio at their respective
net
asset values.
Shearson Lehman states that PTE 77-3 applies only to employee
benefit plans and is, therefore, inapplicable to IRAs maintained
by
employees of Shearson Lehman or its affiliates. In addition,
Shearson
Lehman states that it does not currently charge an outside fee for
such IRA accounts but it may do so in the future. Accordingly,
Shearson Lehman recommends that the first and last sentences of
Footnote 13 of the Notice be amended to read as follows:
The applicant represents that the outside fee is not currently
imposed
on accounts of American Express and its subsidiaries, including
Shearson Lehman, accounts of their immediate families and IRAs and
certain employee pension benefit plans for these persons * * *
With
respect to employee pension benefit plans maintained by Shearson
Lehman or its affiliates for their employees, the applicant
asserts
that such waiver would be required by PTE 77-3.
With respect to the TRAK fee structure described in the Notice in
Item
18 and the accompanying example, Shearson Lehman wishes to make
two
clarifications. First, because the TRAK fee and corresponding fee
offset for a calendar quarter are based on the "net asset value"
of
Trust Portfolio shares at the end of the immediately preceding
calendar quarter rather than the "average daily value" of Trust
Portfolio shares, Shearson Lehman requests that the first sentence
of
the example be amended to read as follows:
Assume that as of March 31, 1992, the net asset value of Trust
Portfolio shares held by a Plan investor was $1,000.
Second, Shearson Lehman has updated its submission by representing
that the last parenthetical of the last paragraph of the example
should not refer to the "Statement of Additional Information" but
should instead refer to the "TRAK Program Description." Therefore,
Shearson Lehman recommends that the parenthetical read as follows:
(pursuant to the authorization contained in the TRAK Investment
Advisory Agreement, and as described in the TRAK Program
Description
appended to the Prospectus).
Finally, Shearson Lehman suggests that Clause (e) under Item 19
should
be modified to track the language of Condition (5) as follows:
the Consulting Group will provide written documentation to an
Independent Plan Fiduciary of its recommendations or evaluations
based
on objective criteria.
The Department has reviewed the clarifications and amendments as
described above, and concurs with these changes. Accordingly, upon
consideration of the entire record, including the written comment
received, the Department has determined to grant the exemption
subject
to the aforementioned changes.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the
Department,
telephone (202) 523-8881. (This is not a toll-free number.)
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 is
incorporated by reference to Post-Effective Amendment No. 28 ("Post-
Effective Amendment No. 28") to the Registration Statement on Form N-
1A filed with the Commission
on December 23, 1999.
(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 is
incorporated by reference to Post-Effective Amendment No. 28.
(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 incorporated by reference to Post-Effective Amendment No. 27.
(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 incorporated by reference to Post-Effective Amendment
No.27.
(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 incorporated by reference to Post-
Effective Amendment No. 28.
(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 incorporated by reference to Post-Effective
Amendment No. 28.
(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
incorporated by reference to Post-Effective Amendment No. 28.
(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
incorporated by reference to Post-Effective Amendment No. 28.
(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 Bond Investments is incorporated by reference to
Post-Effective Amendment No. 27.
(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
incorporated by reference to Post-Effective Amendment No. 28.
(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 incorporated by
reference to Post-Effective Amendment No. 28.
(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 incorporated by reference
to
Post-Effective Amendment No. 27.
(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 incorporated by
reference to Post-Effective Amendment No.27.
(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 incorporated by
reference to Post-Effective Amendment No. 28.
(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 incorporated by
reference to Post-Effective Amendment No. 28.
(d)(25) Investment Advisory Agreement dated October 1, 1998 between
Mutual Management Corp. and State Street Global Advisors relating to
International Equity Investments is incorporated by reference to Post-
Effective Amendment No. 28.
(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 incorporated by reference to
Post-Effective Amendment No. 28.
(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 incorporated by reference to
Post-Effective Amendment No. 28.
(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
incorporated by reference to Post-Effective Amendment No. 27.
(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
incorporated by reference to Post-Effective Amendment No. 27.
(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
incorporated by reference to Post-Effective Amendment No. 27.
(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 incorporated by reference to Post-Effective Amendment No.27.
(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 incorporated by reference to Post-Effective Amendment No. 27.
(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 incorporated by reference to Post-Effective Amendment No. 27.
(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 incorporated by reference to Post-Effective Amendment No. 27.
(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 incorporated by reference to Post-Effective Amendment No. 27.
(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 incorporated by
reference to
Post-Effective Amendment No. 27.
(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 incorporated by reference to Post-Effective Amendment
No.27.
(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 incorporated
by reference to Post-Effective Amendment No.27.
(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 incorporated by reference to Post-Effective Amendment No. 27.
(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.
(p) Code of Ethics to be filed by amendment.
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. On September 21, 1999, SSB Citi was
converted into a Delaware Limited Liability Company. 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 - Utendahl Capital Management CFI (Formerly Atlantic
Portfolio Analytics & Management, Inc.)
Utendahl Capital Management CFI ("Utendahl")
serves as investment advisor to Mortgage Backed Investments. Utendahl
has been registered as an investment advisor under the Advisers Act
since 1984. Utendahl serves as an investment advisor to institutions.
Utendahl'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 Utendahl, 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 Utendahl pursuant
to the
Advisers Act (SEC File No. 801-24775).
Advisors - Western Asset Management Company
Western Asset Management Company ("Western")
serves as investment advisor to Long-Term Bond Investments. Western
has been registered as an investment advisor under the Advisers Act
since 1971. Western serves as an investment advisor to institutions
and retail clients. Western's principal executive offices are located
at 117 East Colorado Blvd., Pasadena, CA 91105.
The list required by this Item 26 of officers and
directors of Western, 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 Western pursuant
to the
Advisers Act (SEC File No. 801-8162).
Advisors - Pacific Investment Management Company
Pacific Investment Management Company ("PIMCO")
serves as an investment advisor to Intermediate Fixed Income
Investments. PIMCO has been registered as an investment advisor under
the Advisers Act
since 1971. PIMCO serves as an investment advisor to institutions
and retail clients. PIMCO's principal executive offices are located at
840 Newport Center Drive, Suite 300, Newport Beach, CA 92660.
The list required by this Item 26 of officers and
directors of PIMCO, 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 PIMCO pursuant to
the
Advisers Act (SEC File No. 801-48187).
Advisors - Chartwell Investment Partners
Chartwell Investment Partners ("Chartwell")
serves as investment advisor to fLArge Capitalization Value Equity
Investments. Chartwell has been registered as an investment advisor
under the Advisers Act since 1997. Chartwell serves as an investment
advisor to institutions. Chartwell's principal executive offices are
located at 1235 Westlakes Drive, Suite330, Berwyn, PA 19312.
The list required by this Item 26 of officers and
directors of Chartwell, 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 Chartwell pursuant
to the Advisers Act (SEC File No. 801-54124).
Advisors - The Boston Company Asset Management LLC
The Boston Company Asset Management LLC ("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.801-6829).
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 - Barclays Global Fund Advisors
Barclays Global Fund Advisors ("Barclays") serves as an
investment advisor to Large Capitalization Value Equity Investments,
Large Capitalization Growth Investments and S&P 500 Index Investments.
Barclays is registered as an investment advisor under the Advisers
Act. Barclays provides investment advisory services to a number of
individual and institutional clients. Barclays' principal executive
offices
are located at 45 Fremont Street, San Francisco, CA 94105.
The list required by this Item 26 of officers and
directors of Barclays, 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 Barclays pursuant
to the
Advisers Act (SEC File No. 801-22609).
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 - Mellon Capital Management Corporation
Mellon Capital Management Corporation ("Mellon") serves as an
investment advisor to Small Capitalization Value Equity Investments
and Small Capitalization Growth Investments. Mellon is registered as
an investment advisor under the Advisors Act. Mellon provides
investment advisory services to a number of institutional clients.
Mellon's principal executive offices are located at 595 Market Street,
Suite 3000, San Francisco, CA 94105.
The list required by this Item 26 of officers and
directors of Mellon, 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 Mellon pursuant to
the
Advisers Act (SEC File No. 801-19785).
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 - Kern Capital Management LLC
Kern Capital Management LLC ("Kern") serves as an investment
advisor to Small Capitalization Growth Investments. Kern has been
registered as an investment advisor under the Advisers Act since 1997.
Kern is the investment adviser of various institutional and retail
clients. Kern's
principal executive offices are located at 114 West 47th Street, Suite
1926,
New York, NY 10036.
The list required by this Item 26 of officers and
directors of Kern, 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 Kern pursuant to
the
Advisers Act (SEC File No.801-54766).
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 - State Street Global Advisors
State Street Global Advisors ("SSGA") serves as an
investment advisor to International Equity Investments and Emerging
Markets Equity Investments. SSGA provides investment advisory services
to a number of individual and institutional clients. SSGA's principal
executive offices are located at Two International Place, Boston,
Massachusetts 02110.
The list required by this Item 26 of officers and
directors of SSGA, 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 _____.
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 - Baring Asset Management, Inc.
Baring Asset Management, Inc. ("Baring") serves as an
investment advisor to Emerging Markets Equity Investments. Baring has
been
registered as an investment advisor under the Advisers Act since 1967.
Baring is the investment adviser of various institutional clients.
Baring's
principal executive offices are located at 125 High Street, Boston, MA
02110.
The list required by this Item 26 of officers and
directors of Baring, 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 Baring pursuant to
the
Advisers Act (SEC File No.801-_____).
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 - Laurel Capital Advisors, LLP
Laurel Capital Advisors, LLP ("Laurel") serves as an
investment advisor to Balanced Investments. Laurel has been
registered as an investment advisor under the Advisers Act since 1990.
Laurel is the investment adviser of various institutional and
individual clients. Babson's principal executive offices are located
at One Mellon Bank Center,
Suite 151-3925, Pittsburgh, PA 15258.
The list required by this Item 26 of officers and
directors of Laurel, 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 Laurel pursuant to
the
Advisers Act (SEC File No.801-37598).
Advisors - Seix Investment Advisors
Seix Investment Advisors ("Seix") serve as an
investment advisor to Balanced Investments. Seix has been registered
as an investment advisor under the Advisers Act since 1992. Seix is
the investment adviser of various institutional clients. Seix's
principal executive offices are located at 300 Tice Blvd., Woodcliff
Lake, NJ 07675.
The list required by this Item 26 of officers and
directors of Seix, 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 Seix pursuant to
the
Advisers Act (SEC File No.801-42070).
Item 27. Principal Underwriters
(a)
Salomon Smith Barney, Inc., ("Salomon Smith Barney")
the Registrant's Distributor,
is also the distributor for the following Smith Barney
funds: Concert Investment Series,
Greenwich Street Series Fund, Smith Barney
Adjustable Rate Government Income Fund, Smith Barney
Aggressive Growth Fund Inc., 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 Funds
Inc., Smith Barney Investment Trust, 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 New
Jersey Municipals Fund Inc., Smith Barney Oregon Municipals
Fund Inc., Smith Barney Principal Return Fund,
Smith Barney Sector Series Fund Inc., 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.
(b) The information required by
this Item 27 with respect to each director, officer and partner
of Salomon Smith Barney is incorporated by reference
to Schedule A of FORM BD filed by Salomon Smith Barney pursuant to
the Securities Exchange Act of 1934 (SEC File No. 812-8510).
(c) Not applicable.
Item 28. Location of Accounts and Records
Consulting Group Capital Markets Funds
222 Delaware Avenue
Wilmington, Delaware 19801
SSB Citi Fund Management LLC
388 Greenwich Street
New York, New York 10013
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
and
125 Broad Street
New York, New York 10004
Citi Fiduciary Trust Company
125 Broad Street
New York, New York 10004
PFPC Global Fund Services
P. O. Box 9699
Providence, RI 02940-9699
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 18th day of July 2000.
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 July 18, 2000
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone
Senior Vice President and Treasurer July 18, 2000
Lewis E. Daidone (Chief Financial and Accounting
Officer)
/s/ Walter E. Auch, Sr.*
Walter E. Auch, Sr., Trustee July 18, 2000
H. John Ellis, Trustee
/s/ Armon E. Kamesar, Trustee, July 18, 2000
Armon E. Kamesar
/s/ Martin Brody*
Martin Brody, Trustee, July 18, 2000
/s/ Stephen E. Kaufman*
Stephen E. Kaufman, Trustee, July 18, 2000
* 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 July 18, 2000
