CONSULTING GROUP CAPITAL MARKETS FUNDS, 485BPOS, 2000-12-28

CONSULTING GROUP CAPITAL MARKETS FUNDS
485BPOS, 2000-12-28

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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. 31 X

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940

Amendment No. 31 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
7 World Trade Center, 39th Floor
New York, New York 10048
(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

XXX on December 29, 2000 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)

on (date) pursuant to paragraph (a)(2) of Rule 485.

If appropriate, check the following box:

this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Title of Securities Being Registered: Shares of Beneficial Interest, par
value $0.001 per share.

PART A

<PAGE>

Consulting Group
Since 1973

Consulting Group
Capital Markets Funds

S&P 500 Index Investments

INVESTMENT PRODUCTS: NOT FDIC INSURED . NO BANK GUARANTEE . MAY LOSE VALUE

Prospectus TRAK/R/
December 29, 2000 ----------------------------------------
Personalized Investment Advisory Service

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>
<S> <C>
Investments, Risks and Performance 2
-----------------------------------------
Investment objective 2
-----------------------------------------
Principal investment strategies 2
-----------------------------------------
Fee table 3
-----------------------------------------

More on the Portfolio's Investments 4
-----------------------------------------

The Manager 6
-----------------------------------------
Asset Allocation Programs 8
-----------------------------------------

Investment and Account Information 9
-----------------------------------------
Account transactions 9
-----------------------------------------
Valuation of shares 10
-----------------------------------------
Dividends and distributions 10
-----------------------------------------
Taxes 10
-----------------------------------------
Financial highlights 11
-----------------------------------------
Appendix A A-1
-----------------------------------------
Appendix B B-1
-----------------------------------------
</TABLE>
"S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. and has been li-
censed for use by SSB Citi Fund Management LLC. The Portfolio is not sponsored,
endorsed, sold or promoted by Standard & Poor's (S&P), a division of The Mc-
Graw-Hill Companies, Inc. S&P makes no representation or warranty, express or
implied, to the shareholders of the Portfolio or any member of the public re-
garding the advisability of investing in securities generally or in the Portfo-
lio.

S&P 500 Index Investments
<PAGE>

Investments, Risks and Performance
Investment objective

The S&P 500 Index Investments (the "Portfolio") seeks to provide investment re-
sults that, before expenses, correspond to the price and yield performance of
the S&P 500 Index. The Portfolio will hold a broadly diversified portfolio of
common stocks that is comparable to the S&P 500 Index in terms of economic sec-
tor weightings, market capitalization and liquidity.

Principal investment strategies

The Portfolio invests at least 80% of its assets in common stocks included in
the S&P 500 Index. The Portfolio holds stocks of substantially all of the com-
panies which comprise the S&P 500 Index, including those companies which are
headquartered outside the U.S. The Portfolio also enters into repurchase agree-
ments, lends portfolio securities and uses certain types of derivative instru-
ments to help implement its objective.

How the subadviser selects the Portfolio's investments

The manager has selected a subadviser to manage the Portfolio. The subadviser
manages the portfolio as a "pure" index fund. This means that the subadviser
does not evaluate individual companies to identify attractive investment candi-
dates. Instead, the subadviser attempts to mirror the composition of the S&P
500 Index as closely as possible by adjusting the Portfolio's holdings daily to
reflect the companies included in the index and their weightings. The Portfolio
does not mirror the index exactly because, unlike the index, the Portfolio must
maintain a portion of its assets in cash and liquid securities to meet redemp-
tion requests and pay the Portfolio's expenses.

The S&P 500 Index is one of the most widely used benchmarks of U.S. equity per-
formance. The index consists of 500 stocks chosen for market capitalization,
liquidity and industry group representation. The index is market-value-weight-
ed, so the larger of the 500 companies have a bigger impact on the performance
of the index. The index is unmanaged and does not have to maintain liquidity to
meet redemption requests or pay expenses.

Principal risks of investing in the Portfolio

An investment in the Portfolio involves specific risks relating to the nature
of its investment strategies. You should invest in the Portfolio only if you
are capable of bearing the risks described below.

. You could lose money on your investment in a portfolio, or the portfolio may
not perform as well as other investments

. The S&P 500 Index may go down, or perform poorly relative to other U.S. eq-
uity indices or individual stocks

. An adverse company specific event, such as an unfavorable earnings report,
may negatively affect the stock price of one of the larger companies in the
S&P 500 Index

. The stocks of companies which comprise the S&P 500 Index may fall out of fa-
vor with investors

. The Portfolio may not fully benefit from or may lose money on derivatives if
changes in their value do not correspond accurately to changes in the value
of the underlying securities

Because the Portfolio is managed as an index fund, it will not ordinarily sell
a portfolio security because of the security's poor performance. The Portfolio
normally buys or sells a portfolio security only to reflect additions or dele-
tions of stocks that comprise the S&P 500 Index or to adjust their relative
weightings. Although the subadviser seeks to replicate the performance of the
S&P 500 Index, the Portfolio may underperform the index even before deducting
expenses because the Portfolio must maintain a portion of its assets in liquid
short-term debt securities which historically have generated significantly
lower returns than common stocks.

Who may want to invest

The Portfolio may be an appropriate investment if you:

. Are seeking to participate in the long term growth potential of U.S. large
capitalization stocks

. Are seeking an investment which tracks the performance of the S&P 500 Index

. Are looking for an investment with potentially greater return but higher risk
than a fund investing primarily in fixed income securities

. Are willing to accept the risks of the stock market

S&P 500 Index Investments
<PAGE>

Investments, Risks and Performance, continued

Performance

Because this Portfolio commenced operations on October 1, 1999, the Portfolio
does not yet have a sufficient operating history to generate the performance
information which other portfolios of the Consulting Group Capital Markets
Funds show in bar and table form in this location of a prospectus.

Year to date: (2.19)% (through 3rd Quarter/2000)

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 expenses for the Portfolio's latest
fiscal year.

<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)
Maximum annual TRAK(R) fee* 1.50%
Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fee 0.12%
Other expenses 0.70%
-------
Total annual Portfolio operating
expenses 0.82%
Management and Administration Fee
Waivers and expense
reimbursements** (0.52)%
-------
Net annual Portfolio operating
expenses 0.30%
=======
</TABLE>

* Fee payable under the TRAK(R) Personalized Investment Advisory Service for
asset allocation services. See "Asset Allocation Programs."

** Management has agreed to waive a portion of management and administration
fees and reimburse certain expenses because it has voluntarily agreed to
limit total annual portfolio operating expenses to 0.30% of average net as-
sets. The manager may change or eliminate this expense limitation at any
time.

Example

This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.

The example assumes:

. You invest $10,000 in the Portfolio for the time periods indicated;

. You reinvest all dividends and distributions;

. You redeem at the end of each period;

. Your investment has a 5% return each year; and

. The Portfolio's operating expenses remain the same.

Under these assumptions, your costs including the maximum annual TRAK(R) fee,
would be:

<TABLE>
<CAPTION>
After 1 After 3 After 5 After 10
year years years years
<S> <C> <C> <C>
$235 $724 $1,240 $2,656
</TABLE>

S&P 500 Index Investments
<PAGE>

More on the Portfolio's Investments

The section entitled "Investments, Risks and Performance" describes the Portfo-
lio's investment objective 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 value of the
Portfolio's investments.

Equity Investments. Equity securities include exchange-traded and over-the-
counter common and preferred stocks, warrants, rights, convertible securities,
depositary receipts and shares, trust certificates, limited partnership inter-
ests, shares of other investment companies and real estate investment trusts
and equity participations.

Derivatives. The Portfolio may, but is not required to, use futures and options
on securities and securities indices, and options on these futures, for any of
the following purposes:

. to simulate full investment in the S&P 500 Index while maintaining sufficient
liquidity to satisfy daily redemption requests and operating expenses

. to facilitate trading in the securities of companies that comprise the index

. to reduce transaction costs

. to seek higher investment returns when a contract is priced more attractively
than the stocks comprising the index

The Portfolio may not invest more than 20% of its assets in derivative con-
tracts or more than 5% of its assets in open purchased put options.

A derivative contract will obligate or entitle the Portfolio to deliver or re-
ceive an asset or cash payment based on the change in value of one or more se-
curities or indices. Even a small investment in derivative contracts can have a
big impact on the Portfolio's stock market exposure. Therefore, using deriva-
tives can disproportionately increase losses and reduce opportunities for gains
when stock prices are changing. The Portfolio may not fully benefit from or may
lose money on derivatives if changes in their value do not correspond accu-
rately to changes in the value of the Portfolio's holdings. Derivatives can
also make the Portfolio less liquid and harder to value, especially in declin-
ing markets.

Money market instruments. The Portfolio may temporarily maintain up to 10% of
its assets in money market instruments. The Portfolio invests in money market
instruments under the following circumstances:

. pending investment of proceeds of the sale of shares of the Portfolio

. pending settlement of purchases of securities by the Portfolio

. to maintain liquidity to meet anticipated redemptions

Foreign investments. The Portfolio may purchase common stocks and American De-
positary Receipts (ADRs) of the foreign companies included in the S&P 500 In-
dex. These securities are publicly traded on U.S. securities exchanges or over-
the-counter markets. ADRs are U.S. dollar denominated securities which repre-
sent an interest in an underlying foreign security.

Foreign countries generally have markets that are less liquid and more volatile
than markets in the U.S. In some foreign countries, there is also less informa-
tion available about foreign issuers and markets because of less rigorous ac-
counting and regulatory standards than in the U.S. Currency fluctuations could
erase investment gains or add to investment losses. Because the value of an ADR
is dependent upon the market price of an underlying foreign security, ADRs are
subject to most of the risks associated with foreign investing.

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.

More information about investment styles. The subadviser follows a passive
style, in which the principal objective is to mirror the return of a benchmark
index. The subadviser may seek to achieve that goal by investing in all of the
securities in the index. However, in those

S&P 500 Index Investments
<PAGE>

instances where the subadviser is unable to replicate the exact index
weightings for a particular company in the index, it will allocate a pro rata
portion to the other companies in the index.

Order of Exemption. The Trust is subject to an Order of Exemption from the De-
partment of Labor requiring, among other things, that the Portfolio limit its
investments in the securities of affiliates of Salomon Smith Barney, including
Citigroup Inc., to one percent of the Portfolio's net assets. However, this
percentage limitation may be exceeded where the amount held by the subadviser
is used to replicate an established third party index such as
the S&P 500 Index.

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 ("SSB Citi").

Investment Policies. The Portfolio's non-fundamental investment policies
generally may be changed by the Board of Trustees without shareholder
approval.

Potential Conversion. The Portfolio reserves the right, if approved by the
Board of Trustees, to convert in the future to a "Master/Feeder" fund that
would invest all of its assets in a Master/Feeder fund having substantially the
same investment objective, policies and restrictions. At least 30 days written
notice of any action would be given to all shareholders if, and when, such a
proposal is approved.

S&P 500 Index Investments
<PAGE>

The Manager
The manager. The Consulting Group, a division of 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 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

. Global Sciences and Technology Investments

The subadviser. Barclays Global Fund Advisors, as subadviser, is responsible
for the day-to-day investment operations of the Portfolio in accordance with
the Portfolio's investment objectives and policies. The name and address of the
subadviser is included below.

SUBADVISER

BARCLAYS GLOBAL FUND ADVISORS
45 Fremont Street
5th Floor
San Francisco, CA 94105

PORTFOLIO MANAGERS
Domestic Equity Team of
Barclays Global Fund Advisors

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.

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.

S&P 500 Index Investments
<PAGE>

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 0.02%% of its average daily net assets, which, in
turn, it pays to the subadviser for its services. For the most recent fiscal
year, the Consulting Group received 0.02% of the Portfolio's average daily net
assets for its services. In addition, the Portfolio pays SSB Citi a fee at an
annual rate of 0.10% of the Portfolio's average daily net assets for adminis-
tration services. For the most recent fiscal year, SSB Citi waived all of its
administration fees.

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.

S&P 500 Index Investments
<PAGE>

Asset Allocation Programs
Shares of the Trust's portfolios are available to participants in advisory pro-
grams or asset based fee programs Salomon Smith Barney Inc., including the
TRAK(R) Personal-ized Investment Advisory Service, or other qualified
investment
advisers ap-proved by the Consulting Group. The advisory services provide
investors with asset allocation recommendations, which are implemented 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.

S&P 500 Index 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 affiliated 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 Barney (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 a Portfolio is $100.

. There is no minimum on additional investments.

. The minimum initial aggregate investment in the TRAK program for employees of
Salomon Smith Barney and members of their immediate families, and retirement
accounts or plans for those persons, is $5,000.

. The 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 or asset based fee
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 required either to redeem his or her shares in the Portfolio or estab-
lish an allocation which the shareholder expects to maintain for a significant
period of time.

S&P 500 Index Investments
<PAGE>

Investment and Account Information, continued

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 their net asset value per share. The Portfo-
lio calculates net asset value once daily as of the close of regular trading on
the New York Stock Exchange (generally at 4:00 p.m., New York time) on each day
the exchange is open. The exchange is closed on certain holidays listed in the
SAI. If the exchange closes early, the Portfolio accelerates calculation of net
asset value and transaction deadlines to the actual closing time.

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 available, or when the
Consulting Group believes they are unreliable or that the value of the security
has been materially affected by events occurring after the securities or cur-
rency exchanges close, the Portfolio may price those securities at fair value.
Fair value is determined in accordance with procedures approved by the Portfo-
lio'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 quo-
tations 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 annu-
ally. The Portfolio declares and distributes realized net capital gains, if
any, annually. All dividends and capital gains are reinvested in shares of the
Portfolio unless the shareholder elects to receive them in cash.

The Portfolio expects distributions to be primarily from capital gains, a sub-
stantial portion of which may be short-term.

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 and redemption proceeds. Because each
shareholder's circumstances are different and special tax rules may apply, you
should consult your tax adviser about your investment 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 itemized deduction" for federal income tax purposes. Under cur-
rent federal income tax law, an individual's miscellaneous itemized deductions
for any taxable year will be allowed as a deduction only to the extent the ag-
gregate of these deductions exceeds 2% of adjusted gross income. Such deduc-
tions are also subject to the general limitation on itemized deductions for in-
dividuals having, in 2000, adjusted gross income in excess of $128,950 ($64,475
for married individuals filing separately).

S&P 500 Index Investments
<PAGE>

Financial Highlights

The financial highlights table is intended to help you understand the perfor-
mance of the Portfolio for the past five years (or since inception if less than
5 years). The information in the following tables was audited by KPMG LLP, in-
dependent auditors, whose report, along with the portfolio's financial state-
ments, are included in the annual report (available upon request). Certain in-
formation reflects financial results for a single share. Total return repre-
sents the rate that a shareholder would have earned (or lost) on a share of a
fund assuming reinvestment of all dividends and distributions.

For a share of beneficial interest
outstanding throughout each year ended August
31:

-------------------------------------------------------------
<TABLE>
<CAPTION>
2000(1)(2)
-------------------------------------------
<S> <C>
Net Asset Value, Beginning of Year $8.00
-------------------------------------------
Income From Operations:
Net investment income(3) 0.11
Net realized and unrealized gain 1.35
-------------------------------------------
Total Income From Operations 1.46
-------------------------------------------
Less Distributions From:
Net investment income (0.05)
-------------------------------------------
Total Distributions (0.05)
-------------------------------------------
Net Asset Value, End of Year $9.41
-------------------------------------------
Total Return++ 18.24%
-------------------------------------------
Net Assets, End of Year (000s) $35,365
-------------------------------------------
Ratios to Average Net Assets+:
Expenses(3)(4) 0.30%
Net investment income 1.31
-------------------------------------------
Portfolio Turnover Rate 54%
-------------------------------------------
</TABLE>

(1) For the period from October 1, 1999 (commencement of
operations) to August 31, 2000.
(2) Per share amounts have been calculated using the monthly
average share method.
(3) Expense ratios and the per share decrease in net
investment income before fee waivers and/or expense
reimbursements were as follows:

<TABLE>
<CAPTION>
Expense Ratio
Net Investment Without
Income Per Waiver and/or
Share Decrease Reimbursements
2000 2000
------------------------------
<S> <C> <C>
$0.04 0.82%+
</TABLE>

(4) As a result of a voluntary expense limitation, expense
ratios will not exceed 0.30%.
++Total return is not annualized, as it may not be
representative of the total return for the year.
+ Annualized.

S&P 500 Index 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 their 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 $1.6 billion in market capitalization. The average market
capitalization for a company in this index is $14.10 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 $580 million,
with the largest being $1.50 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
As of November 30, 2000, the index tracks the total return of 500 of the
largest stocks (378 industrial, 38 utility, 10 transportation and 74 financial
companies) in the United States, which represent about 86% 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 Smith Barney 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 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 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 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 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>

APPENDIX B

The following are copies of the proposed and final exemption and a technical
amendment to the final exemption from the Department of Labor from certain
provisions of the Employee Retirement Income Security Act of 1974 relating to
the purchase of shares and participation in TRAK by certain retirement plans
and individual retirement accounts.

--------------------------------------------------------------------------------
PENSION AND WELFARE BENEFITS ADMINISTRATION

[Application Nos. D-10809 and D-10865]

Notice of Proposed Individual Exemption to Amend and Replace Prohibited
Transaction Exemption (PTE) 99-15, Involving Salomon Smith Barney Inc., Located
in New York, NY

AGENCY: Pension and Welfare Benefits Administration, U.S. Department of Labor.

ACTION: Notice of proposed individual exemption to modify and replace PTE 99-
15.
--------------------------------------------------------------------------------
SUMMARY: This document contains a notice of pendency before the Department of
Labor (the Department) of a proposed and replacement individual exemption
which, if granted, would amend PTE 99-15 (64 FR 1648, April 5, 1999), an
exemption granted to Salomon Smith Barney. PTE 99-15 relates to the operation
of the TRAK Personalized Investment Advisory Service product (the TRAK Program)
and 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 amendment will be effective as of
April 1, 2000.

DATES: Written comments and requests for a public hearing should be received by
the Department on or before July 17, 2000.

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, NW, Washington, DC 20210, Attention: Application Nos. D-
10809 and D-10865. 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-5507, 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 amend and replace PTE 99-15. PTE
99-15, 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 99-15 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), a
retirement plan for a self-employed individual (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). PTE 99-15 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 Salomon Smith
Barney (the Consulting Group), of (1) investment advisory services or (2) an
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./1/
-------
/1/ PTE 99-15 also (a) described a series of corporate mergers which changed
the names of the parties identified in two prior TRAK exemptions which it
superseded [i.e., PTE 94-50 (59 FR 32024, June 21, 1994) and PTE 92-77 (55 FR
45833, October 5, 1992)] and which would permit broader distribution of TRAK-
related products; (b) implemented a recordkeeping reimbursement offset
procedure under the TRAK Program; (c) adopted an automated reallocation option
under the TRAK Program that would reduce the asset allocation (or "outside")
fee paid to Salomon Smith Barney by a Plan investor; and (d) expanded the scope
of the exemption to include Section 403(b) Plans. PTE 94-50 permitted Smith,
Barney Inc. (Smith Barney), Salomon Smith Barney's predecessor, 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. PTE 94-
50 also replaced references to Shearson Lehman Brothers, Inc. (Shearson Lehman)
with Smith Barney and amended and replaced PTE 92-77. Finally, PTE 92-77
permitted Shearson Lehman to make the TRAK Program available to Plans that
acquired shares in the former Trust for TRAK Investments and allowed the
Consulting Group to provide investment advisory services to an Independent Plan
Fiduciary which might result in such fiduciary's selection of a Portfolio in
the TRAK Program for the investment of Plan assets.

As of December 31, 1998, the TRAK Program held assets that were in excess of
$9.6 billion. Of those assets, approximately $1.9 billion were held in 407 Plan
accounts having cash or deferred compensation arrangements and approximately
$4.2 billion were held in more than 59,000 employee benefit plan and IRA/Keogh-
type Plan accounts. At present, the Trust consists of 17 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 requests a modification of PTE 99-15 and a replacement of
that exemption with a new exemption for purposes of uniformity./2/
Specifically, Salomon Smith Barney requests that the term "affiliate," as set
forth in PTE 99-15, in Section II(h) of the General Conditions and in Section
III(b) of the Definitions, be amended and clarified to avoid possible
misinterpretation. In this regard, Salomon Smith Barney also requests that the
term "officer" be defined and incorporated into the proposed exemption, in new
Section III(d), to limit the affiliate definition to persons who have a
significant management role. Further, Salomon Smith Barney requests that
Section II(i) of PTE 99-15 be amended to permit an independent sub-adviser (the
Sub-Adviser), under certain circumstances, to exceed the current one percent
limitation on the acquisition of securities that are issued by Salomon Smith
Barney and/or its affiliates, notably in the Sub-Adviser's replication of a
third-party index. If granted, the proposed exemption would be effective as of
April 1, 2000.

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
proposed exemption is being issued solely by the Department.
-------
/2/ The Department deems PTE 94-50 as having been effectively superseded by
PTE 99-15. Therefore, the proposed amendments described herein will not apply
to PTE 94-50.

B-1
<PAGE>

I. Proposed Modification of the Term "Affiliate"

Salomon Smith Barney represents that in early December 1999, Citigroup and
State Street Corporation announced an agreement to form a joint venture called
CitiStreet LLC, a Delaware limited liability company (the Joint Venture). The
Joint Venture, which was closed on April 1, 2000, is each 50 percent owned by
Keeper Holdings LLC (Citi), a wholly owned subsidiary of Citigroup, and by
State Street Bank and Trust Company (State Street), a wholly owned subsidiary
of State Street Corporation. Both Citigroup and State Street Corporation are
publicly-held corporations.

Salomon Smith Barney explains that the formation of the Joint Venture may have
resulted in the disqualification of State Street Global Advisers (SSgA), a
division of State Street, from acting as a Sub-Adviser in the TRAK Program due
to certain ambiguities in the meaning of the word "affiliate." Salomon Smith
Barney represents that SSgA is currently a Sub-Adviser with respect to
approximately $800 million in assets in the International Equity Investments
Portfolio and the Emerging Markets Equity Investments Portfolio.

A. Sections II(h) and III(b)

Section II(h) of PTE 99-15 provides that--

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.

Although the term "independent" is not defined in the exemption, Salomon Smith
Barney notes that this condition was added to the original Shearson Lehman
exemption request when Shearson Lehman agreed not to use affiliated Sub-
Advisers. Therefore, Salomon Smith Barney presumes that the term "independent"
means "not an affiliate." Salomon Smith Barney represents that Section III(b)
of PTE 99-15 defines the term "affiliate" of Salomon Smith Barney to include:

(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 subparagraph, 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.

Salomon Smith Barney notes that problems of interpretation have arisen because
subparagraphs (2) and (3) of the affiliate definition use the term "such
person" rather than referring directly to Salomon Smith Barney. Salomon Smith
Barney explains that when defining an "affiliate" of Salomon Smith Barney, the
definition may be construed to encompass only relationships with Salomon Smith
Barney that involve shared control, influence or economic interests or it could
be interpreted to cover affiliates of Salomon Smith Barney's affiliates, where
there is no basis for common management or identical economic interests,
because subparagraphs (2) and (3) have no clear antecedents.

Salomon Smith Barney asserts that State Street is not under common corporate
control with either it or any of its corporate affiliates. Instead, State
Street is a subsidiary of an independently-owned and managed public company.
Therefore, there is no control relationship, as contemplated in subparagraph
(1) of Section III(b), between Citigroup and State Street Corporation, the
respective parent companies of Salomon Smith Barney and of State Street.
Salomon Smith Barney also states that the Joint Venture is not necessarily its
affiliate under subparagraph (1) of the definition because Salomon Smith
Barney's indirect 50 percent ownership interest in the Joint Venture is not a
"controlling interest." Therefore, if the Joint Venture is not an affiliate,
Salomon Smith Barney believes that State Street is not a partner of Salomon
Smith Barney, nor an officer or director of Salomon Smith Barney, as
contemplated in subparagraph (2) of Section III(b). Further, Salomon Smith
Barney explains that State Street's exclusive ownership by State
Street Corporation does not trigger the ownership provisions of subparagraph
(3) of Section III(b).

In addition to the above, Salomon Smith Barney states that it will not
exercise control or influence in the operation of the Joint Venture that will
inure to State Street. In addition, Salomon Smith Barney represents that Citi
will not exercise control of the Joint Venture because it has only a 50 percent
interest. Further, since all significant corporate actions of the Joint Venture
will require unanimity, Salomon Smith Barney explains that neither Citi nor
State Street will be able to exercise exclusive control over the Joint Venture.

B. Proposed Amendment

Salomon Smith Barney submits that subparagraph (1) of Section III(b) does not
require any clarification. However, it proposes that subparagraphs (2) and (3)
of the affiliate definition be modified to cover only those persons and
entities that have a significant role in the decisions made by Salomon Smith
Barney or which are managed or influenced by Salomon Smith Barney. These
entities or persons include individual officers, directors and partners in
Salomon Smith Barney and its corporate affiliates, and corporations and
partnerships in which Salomon Smith Barney and its corporate affiliates have a
10 percent or greater interest. Salomon Smith Barney believes that this
tailoring of the affiliate definition will avoid future problems in determining
the independence of the Sub-Advisers, including SSgA.

Thus, on the basis of the foregoing, Section III(b) of PTE 99-15 is hereby
modified in this notice of proposed exemption to read as follows:

(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 subparagraph, 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 individual who is an officer, director or partner in Salomon Smith
Barney or a person who is described in subparagraph (b)(1);

(3) Any corporation or partnership of which Salomon Smith Barney or an
affiliate described in subparagraph (b)(1), is a 10 percent or more partner or
owner; and

(4) Any corporation or partnership of which any individual which is an officer
or director of Salomon Smith Barney, is a 10 percent or more partner or owner.

In connection with the revised affiliate definition, Salomon Smith Barney
requests that the term "officer" be defined in new subparagraph (d) of Section
III to limit this portion of the affiliate definition to individuals who have a
significant management role. Salomon Smith Barney points out that there are job
titles at fairly modest levels of authority within it as well as in any
company, and it wishes to ensure that future factual inquiries into an

B-2
<PAGE>

individual's status as an affiliate do not require that it contact virtually
every official in its corporate population in a due diligence effort.
Therefore, Salomon Smith Barney proposes that Section III(d) should read as
follows:

The term "officer" means a president, any vice president in charge of a
principal business unit, division or function (such as sales, administration or
finance), or any other officer who performs a policy-making function for the
entity.

Under the foregoing modifications, Salomon Smith Barney believes that Sections
II(h) and III(b) of the proposed exemption will no longer have conflicting
meanings.

II. Proposed Modification of the One Percent Limitation on Stock Issued by
Salomon Smith Barney and/or Its Affiliates

Salomon Smith Barney represents that there are a number of established market
indexes that have been created by parties which are unaffiliated with
Citigroup, its indirect parent. For example, the S&P 500 Index is a widely-used
benchmark index of domestic equity performance. This index consists of 500
stocks that have been selected by the Standard & Poor's Company (S&P) for
market capitalization, liquidity and industry group representation. The index
is market-value weighted so the performance of the larger of the included
companies has a greater impact on the performance of the index as a whole.
Currently, the common stock (the Common Stock) of Citigroup represents 1.57
percent of the S&P 500 Index.

In addition to the S&P 500 Index, Salomon Smith Barney explains that the
Russell 3000 Index is composed of the 3,000 largest United States companies,
based upon total market capitalization. Salomon Smith Barney also points out
that there are a number of Russell Indexes which are based on subsets of the
Russell 3000 Index. These Indexes include (a) the Russell 2000 Index, which
measures the performance of the smallest 2,000 United States companies in the
Russell 3000 Index and therefore, excludes Citigroup; and (b) the Russell 1000
Index, which measures the performance of the 1,000 largest United States
companies in the Russell 3000 Value Index and includes Citigroup. In addition,
Salomon Smith Barney represents that there are further subsets of the Russell
Indexes which are based upon Russell's characterization of stock as either
"Growth" or "Value." For example, Salomon Smith Barney explains that Citigroup
is included within these subsets. As of March 31, 2000, Citigroup Common Stock
represented 3.8981 percent of the Russell 1000 Value Index and 3.6343 percent
of the Russell 3000 Value Index.

A. Section II(i)

Based upon the foregoing descriptions of the stock indexes, Salomon Smith
Barney requests that Section II(i) of PTE 99-15 be modified in order to permit
an independent Sub-Adviser which manages the assets in a Portfolio to exceed
the one percent investment limitation on securities issued by Salomon Smith
Barney and/or its affiliates under certain circumstances. As currently drafted,
Section II(i) states that--

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.

In other words, the exception will apply to "any higher percentage" which may
result from a Sub-Adviser's management of an index fund (the Index Fund)
Portfolio which includes Citigroup Common Stock. The index will be an
established third party index and the Sub-Adviser will track the index results
using the "passive full replication" trading method./3/

Because the Sub-Adviser will purchase and sell Citigroup Common Stock to
approximate the performance of an index rather than reflect the Sub-Adviser's
evaluation of the Common Stock in its individual merits, Salomon Smith Barney
states that any additional investment by a Portfolio in Citigroup Common Stock
over the one percent threshold will result from the implementation of the
trading method and not from the Sub-Adviser's exercise of investment
discretion.

Due to the one percent limitation of Section II(i), Salomon Smith Barney
states that active Sub-Advisers for the Consulting Group may not own or trade
Citigroup Common Stock and they will continue to be prohibited from trading in
Citigroup Common Stock. However, Salomon Smith Barney proposes that passive or
pure Index Fund Sub-Advisers be permitted to hold Citigroup Common Stock in
their portfolios which exceed the one percent limitation to the extent such
higher percentage is
-------
/3/ According to Salomon Smith Barney, there are two forms of index trading--
passive full replication (wherein each stock in the same weightings as the in-
dex is owned by a mutual fund) and sampling (in which each sector, but not nec-
essarily all stocks in such sector, in the same weightings as the index is also
owned by a mutual fund). Salomon Smith Barney notes that sampling is used most
often when a portfolio is smaller and cannot efficiently replicate the entire
index.

necessary to replicate the underlying index./4/ Salomon Smith Barney points out
that pure index Sub-Advisers that are responsible for investing only a portion
of the assets in the Consulting Group Capital Markets Large Cap Value Fund and
the Large Cap Growth Consulting Group Capital Markets Fund, are currently in
compliance with the one percent limitation. These Portfolios, which consist of
both an actively-managed portion and a distinct, passively-managed portion,
held less than one percent of the their total assets in Citigroup Common Stock.

If an index-based Sub-Adviser were to manage a greater portion or all of
either of the aforementioned Portfolios, Salomon Smith Barney explains that the
total Portfolio may include Citigroup Common Stock which breaches the one
percent threshold. Similarly, Salomon Smith Barney notes that if the entire
Portfolio, such as the Consulting Group Capital Markets S&P 500 Index
Investment Fund Portfolio, has the investment objective of providing results
that correspond to the price and yield performance of the S&P 500 Index, the
Sub-Adviser would be expected to approximate the cited percentage of 1.57
percent for Citigroup Common Stock in the S&P 500 Index. This would also
violate the one percent investment limitation.

Salomon Smith Barney states that the present one percent limitation placed on
Citigroup Common Stock increases the likelihood that the performance of an
Index Fund Portfolio will not replicate the applicable index. Because Citigroup
is among the largest companies on the basis of capitalization in the S&P 500,
Salomon Smith Barney states that Citigroup's performance can have a significant
impact in index performance calculations. However, if Citigroup Common Stock is
not proportionately represented, Salomon Smith Barney explains that Index Fund
performance will deviate from the index whether Citigroup Common Stock does
well or underperforms.
-------
/4/ In its management of a "pure" Index Fund, the Sub-Adviser does not
evaluate individual companies to identify attractive investment candidates or
to eliminate underperforming investments. Instead, the Sub-Adviser attempts to
mirror the composition of the relevant index as closely as possible by
adjusting the Portfolio holdings daily to reflect the companies included in the
index and their relative weightings. Because performance of the Index Fund is
tied to the performance of the index that it tracks, investors are advised that
this investment strategy may mean losses if the applicable index performs
poorly relative to other indexes or individual stocks.
The performance of a pure Index Fund generally does not mirror the index
performance exactly. The index is merely a composite performance figure, based
upon an established selection of companies. It does not represent actual assets
being managed so there are no expenses deducted from its performance results.
In contrast, an Index Fund Portfolio represents actual assets under management
and has liquidity requirements associated with Fund operation. To meet
redemption requests and to pay expenses, the Index Fund must maintain a portion
of its assets in cash and cash equivalents.

B-3
<PAGE>

In any event, Salomon Smith Barney believes that the one percent limitation
has the effect of depriving a Plan of the opportunity to invest in a Fund
(available to non-Plan investors) that might otherwise track the applicable
index more exactly. Because many Plan sponsors are anxious to have an Index
Fund available through the TRAK Program, Salomon Smith Barney wishes to move
quickly to accommodate the Plan market's design preferences.

For these reasons, Salomon Smith Barney requests that the current one percent
restriction be lifted and allowed to be exceeded with respect to Portfolio
investments that are made by passive Sub-Advisers in Citigroup Common Stock in
their replication of third-party indexes. In addition, Salomon Smith Barney
seeks the flexibility to have the Portfolios consist, in whole or in part, of
Index Funds that are managed by passive Sub-Advisers. However, the ownership by
a Portfolio of Citigroup Common Stock which is in excess of the one percent
limitation would result solely from the activities of the passive Sub-Adviser
in replicating an index.

B. Exemptive Safeguards

Section II(i) of the proposed exemption has been further expanded to include a
number of substantive safeguards for the protection of Plans investing under
the TRAK Program. In this regard, Section II(i) requires that the amount held
by the Sub-Adviser in managing an Index Fund Portfolio be held in order to
replicate an established third party index. In addition, Section II(i) states
that the index must represent the investment performance of a specific segment
of the public market for equity securities in the United States and/or foreign
countries. In this regard, the organization creating the index must be (a)
engaged in the business of providing financial information; (b) a publisher of
financial news information; or (c) a public stock exchange or association of
securities dealers. The index must also be created and maintained by an
organization independent of Salomon Smith Barney and its affiliates and must be
a generally-accepted standardized index of securities which is not specifically
tailored for use by Salomon Smith Barney and its affiliates.

Moreover, Section II(i) requires that the acquisition or disposition of
Citigroup Common Stock must not include any agreement, arrangement or
understanding regarding the design or operation of the Portfolio acquiring the
Citigroup Common Stock, which is intended to benefit Salomon Smith Barney or
any party in which Salomon Smith Barney may have an interest.

Finally, Section II(i) requires that an Independent Plan Fiduciary authorize
the investment of a Plan's assets in an Index Fund Portfolio which purchases
and/or holds Citigroup Common Stock while the Sub-Adviser will be responsible
for voting any shares of Citigroup Common Stock that are held by an Index Fund
on any matter in which shareholders of Citigroup Common Stock are required or
permitted to vote.

Notice to Interested Persons

Notice of the proposed exemption will be mailed by first class mail to the
Independent Plan Fiduciary 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 extend to transactions prohibited
under section 406(b)(3) of the 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 facts and representations set forth in the notice of proposed
exemption relating to PTE 99-15 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).

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

B-4
<PAGE>

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; collectively, the Plans)
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.

(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
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, such as
Citigroup Inc. common stock (the Citigroup Common Stock), the percentage of
that Portfolio's net assets invested in such securities will not exceed one
percent. However, this percentage limitation may be exceeded if--

(1) The amount held by a Sub-Adviser in managing a Portfolio is held in order
to replicate an established third party index.

(2) The index represents the investment performance of a specific segment of
the public market for equity securities in the United States and/or foreign
countries. The organization creating the index must be--
(i) Engaged in the business of providing financial information;
(ii) A publisher of financial news information; or
(iii) A public stock exchange or association of securities dealers. The index
is created and maintained by an organization independent of Salomon Smith
Barney and its affiliates and is a generally-accepted standardized index of
securities which is not specifically tailored for use by Salomon Smith Barney
and its affiliates.

(3) The acquisition or disposition of Citigroup Common Stock does not include

B-5
<PAGE>

any agreement, arrangement or understanding regarding the design or operation
of the Portfolio acquiring the Citigroup Common Stock, which is intended to
benefit Salomon Smith Barney or any party in which Salomon Smith Barney may
have an interest.

(4) The Independent Plan Fiduciary authorizes the investment of a Plan's
assets in an Index Fund which purchases and/or holds Citigroup Common Stock and
the Sub-Adviser is responsible for voting any shares of Citigroup Common Stock
that are held by an Index Fund on any matter in which shareholders of Citigroup
Common Stock are required or permitted to vote.

(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./5/

(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.
-------
/5/ 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 the fees and expenses to be paid by the
Plan, including the fees paid directly to Salomon Smith Barney or to other
third parties.

(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 the proposed exemption and the final exemption, if granted,
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) 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.

B-6
<PAGE>

(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 subparagraphs (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 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--

(2) Any individual who is an officer (as defined in Section III(d) hereof),
director or partner in Salomon Smith Barney or a person described in
subparagraph (b)(1);

(3) Any corporation or partnership of which Salomon Smith Barney or an
affiliate described in subparagraphs(b)(1), is a 10 percent or more partner or
owner; and

(4) Any corporation or partnership of which any individual which is an officer
or director of Salomon Smith Barney, is a 10 percent or more 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 (i) a self-directed IRA or (ii) 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.

(d) The term "officer" means a president, any vice president in charge of a
principal business unit, division or function (such as sales, administration or
finance), or any other officer who performs a policymaking function for the
entity.

Section IV. Effective Dates

If granted, this proposed exemption will be effective as of April 1, 2000,
with respect to the amendments to Section II(i) and Section III(b) and the
inclusion of new Section III(d).

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 PTE 92-77, PTE 94-50 and PTE 99-15, refer to the
proposed exemptions and the grant notices which are cited above.

Signed at Washington, D.C., this 25th day of May, 2000.

Ivan L. Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.

[FR Doc. 00-13643 Filed 5-31-00; 8:45 am]

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--------------------------------------------------------------------------------
DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 2000-45; Exemption Application Nos. D-10809
and D-10865]

Grant of Individual Exemption To Amend and Replace Prohibited Transaction
Exemption (PTE) 99-15, Involving Salomon Smith Barney Inc. (Salomon Smith
Barney), Located in New York, NY

AGENCY: Pension and Welfare Benefits Administration, Department of Labor.

ACTION: Grant of individual exemption to modify and replace PTE 99-15.

--------------------------------------------------------------------------------
SUMMARY: This document contains a final exemption (the Final Exemption) by the
Department of Labor (the Department) which amends and replaces PTE 99-15 (64 FR
1648, April 5, 1999), an exemption granted to Salomon Smith Barney. PTE 99-15
relates to the operation of the TRAK Personalized Investment Advisory Service
product (the TRAK Program) and the Trust for Consulting Group Capital Markets
Funds (the Trust). These transactions are described in a notice of pendency
(the Proposed Exemption) that was published in the Federal Register on June 1,
2000 at 65 FR 35138.

EFFECTIVE DATES: This exemption is effective as of April 1, 2000 with respect
to the amendments to Section II(i) and Section III(b) of the grant notice. In
addition, this exemption is effective as of April 1, 2000 with respect to the
inclusion of new Section III(d) in the grant notice.

SUPPLEMENTARY INFORMATION: On June 1, 2000, the Department published, in the
Federal Register, the above referenced Proposed Exemption which would amend and
replace PTE 99-15. PTE 99-15, 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 99-15
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), a retirement plan for a self-employed individual,
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; collectively, the Plans).

PTE 99-15 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 Salomon Smith Barney (the
Consulting Group), of (1) investment advisory services or (2) an 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./1/

In the Proposed Exemption, Salomon Smith Barney requested a modification of
PTE 99-15 and a replacement of that exemption with a new exemption for purposes
of uniformity./2/ Specifically, Salomon Smith Barney requested that the term
"affiliate," as set forth in PTE 99-15, in Section II(h) of the General
Conditions and in Section III(b) of the Definitions, be amended and clarified
to avoid possible misinterpretation. In this regard, Salomon Smith Barney also
requested that the term
-------
/1/PTE 99-15 also (a) described a series of corporate mergers which changed
the names of the parties identified in two prior TRAK exemptions which it
superseded [i.e., PTE 94-50 (59 FR 32024, June 21, 1994) and PTE 92-77 (55 FR
45833, October 5, 1992)] and which would permit broader distribution of TRAK-
related products; (b) implemented a recordkeeping reimbursement offset
procedure under the TRAK Program; (c) adopted an automated reallocation option
under the TRAK Program that would reduce the reallocation option under the TRAK
Program that would reduce the Plan-level investment advisory fee (the Outside
Fee) paid to Salomon Smith Barney by a Plan investor; and (d) expanded the
scope of the exemption to include Section 403(b) Plans.
PTE 94-50 permitted Smith, Barney Inc. (Smith Barney), Salomon Smith Barney's
predecessor, to add a daily-traded collective investment fund (the GIC Fund) to
the existing portfolios (the Portfolios) of mutual funds (the Funds) comprising
the Trust, and to describe the various entities operating the GIC Fund. PTE 94-
50 also replaced references to Shearson Lehman Brothers, Inc. (Shearson Lehman)
with Smith Barney and amended and replaced PTE 92-77.
Finally, PTE 92-77 permitted Shearson Lehman to make the TRAK Program
available to Plans that acquired shares in the former Trust for TRAK
Investments and allowed the Consulting Group to provide investment advisory
services to an Independent Plan Fiduciary which might result in such
fiduciary's selection of a Portfolio in the TRAK Program for the investment of
Plan assets.
/2/The Department deems PTE 94-50 as having been effectively superseded by PTE
99-15. Therefore, the amendments described herein do not apply to PTE 94-50.

"officer" be defined and incorporated into the Proposed Exemption, in new
Section III(d), to limit the affiliate definition to persons who have a
significant management role. Further, Salomon Smith Barney requested that
Section II(i) of PTE 99-15 be amended to permit an independent sub-adviser (the
Sub-Adviser), under certain circumstances, to exceed the current one percent
limitation on the acquisition of securities that are issued by Salomon Smith
Barney and/ or its affiliates, notably in the Sub-Adviser's replication of a
third- party index (the Index). The Final Exemption is effective as of April 1,
2000 with respect to the amendments to Sections II(i) and III(b) of the grant
notice, and is effective as of July 10, 2000 with respect to Section III(d) of
the grant notice.

The Proposed Exemption was requested in an application filed on behalf of
SalomonSmith 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 Final Exemption is being issued solely by the
Department.

The Proposed Exemption gave interested persons an opportunity to comment and
to request a hearing. During the comment period, the Department received two
written comments and no requests for a hearing. One of the comments was
submitted by the holder of an IRA which participates in the TRAK Program. The
commenter said he concurred with the modifications proposed by Salomon Smith
Barney to amend and clarify the terms "affiliate" and "officer." The commenter
also stated that he supported the proposed modification of the one percent
limitation on the acquisition, by an independent Sub-Adviser, of securities
that are issued by Salomon Smith Barney and/or its affiliates in the Sub-
Adviser's replication of an Index. The commenter explained that he believed the
requested changes made sense and would be beneficial to all TRAK Program
participants. Therefore, the commenter urged the Department to approve the
Final Exemption.

The second comment was submitted by Salomon Smith Barney. The comment is
intended to clarify and modify the preamble (the Preamble) of the Proposed
Exemption.

B-8
<PAGE>

Following is a discussion of Salomon Smith Barney's comment letter and the
Department's responses with respect thereto.

1. Modifications to the Proposed Exemption. On page 35139 of the Proposed
Exemption, the first paragraph of the Preamble states that "As of December 31,
1998, the TRAK Program held assets that were in excess of $9.6 billion." Also,
in that same paragraph, the last sentence states, in part, that "one or more
unaffiliated [S]ub-advisers [is] selected by Salomon Smith Barney." Salomon
Smith Barney notes that the December 31, 1998 valuation date at the beginning
of the paragraph should be changed to September 30, 1999 and the last words of
the paragraph should be changed from "Salomon Smith Barney" to "the Consulting
Group," which actually chooses the Sub-Advisers.

In addition, on page 35140 of the Proposed Exemption, the last paragraph of
the Preamble states, in part, that--

On page 35141 of the Proposed Exemption, the third sentence of the first
"carry-over" paragraph of the Preamble identifies two Funds which currently
comply with the one percent limitation on investments in Citigroup Common
Stock. These Funds are the "Consulting Group Capital Markets Large Cap Value
Fund" and the "Large Cap Growth Consulting Group Capital Markets Fund."
However, Salomon Smith Barney suggests, for the purpose of clarity, that the
formal names of the subject Funds be specified. Thus, Salomon Smith Barney
explains that the proper names for the Funds are the "Consulting Group Capital
Markets Funds Large Capitalization Value Equity Investments" and the
"Consulting Group Capital Markets Funds Large Capitalization Growth
Investments." Similarly, in the next paragraph of the Proposed Exemption on
page
-------
/3/Rule 12d3-1(c) of the ICA states that an acquiring company, such as a
registered investment company, may not acquire a general partnership interest
or a security issued by the acquiring company's investment adviser, promoter,
or principal underwriter, or by any affiliated person of such investment
adviser, promoter, or principal underwriter.

35141 of the Preamble, Salomon Smith Barney wishes to clarify that the formal
name for the S&P Fund designated as the "Consulting Group Capital Markets S&P
500 Index Investment Fund Portfolio" is the "Consulting Group Capital Markets
S&P Index Investment Fund Portfolio."

In response to these comments, the Department acknowledges the foregoing
clarifications to the names for the Funds identified in the Preamble of the
Proposed Exemption.

2. General Information. As a matter of general information, Salomon Smith
Barney states that beginning with the billing cycle commencing on January 1,
2001, the Outside Fee charged to 401(k) Plan clients will be calculated on the
average daily asset value for the quarter for which the fee is billed rather
than the asset value on the last day of the quarter. Salomon Smith Barney
explains that this change generally conforms to the billing procedure in the
industry generally and is believed to be more equitable since it reflects the
asset value over time rather than on a single day during a calendar quarter
which may not be representative of the account balance during the period.

In response to this comment, the Department notes Salomon Smith Barney's
modification to the billing procedure in the calculation of the Outside Fee for
participants in the TRAK Program that are section 401(k) Plans.

For further information regarding the comments or other matters discussed
herein, interested persons are encouraged to obtain copies of the exemption
application files (Exemption Application Nos. D-10809 and D-10865) the
Department is maintaining in this case. The complete application files, 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:

(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) The exemption is subject to the express condition that the Summary of
Facts and Representations set forth in the notice of proposed exemption
relating to PTE 99-15, as amended by this Final Exemption, 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 99-15 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

B-9
<PAGE>

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; collectively, the Plans) 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

(b) The total fees paid to the Consulting Group and its affiliates will
constitute no more than reasonable compensation.

(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.

(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.

(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.

(1) The amount held by a Sub-Adviser in managing a Portfolio is held in order
to replicate an established third party index (the Index).

(2) The Index represents the investment performance of a specific segment of
the public market for equity securities in the United States and/or foreign
countries. The organization creating the Index must be--

(i) Engaged in the business of providing financial information;

(ii) A publisher of financial news information; or

(iii) A public stock exchange or association of securities dealers.

The Index is created and maintained by an organization independent of Salomon
Smith Barney and its affiliates and is a generally-accepted standardized Index
of

B-10
<PAGE>

securities which is not specifically tailored for use by Salomon Smith Barney
and its affiliates.

(3) The acquisition or disposition of Citigroup Common Stock does not include
any agreement, arrangement or understanding regarding the design or operation
of the Portfolio acquiring the Citigroup Common Stock, which is intended to
benefit Salomon Smith Barney or any party in which Salomon Smith Barney may
have an interest.

(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:

(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
-------
/4/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 the fees and expenses to be paid by the
Plan, including the fees paid directly to Salomon Smith Barney or to other
third parties.

policies and strategies that the Portfolios may utilize and certain risks
attendant to those investments, policies and strategies.

(D) Upon written request of Salomon Smith Barney, a copy of the respective
investment advisory agreement between the Consulting Group and the Sub-
Advisers.

(F) A copy of the Proposed Exemption and the Final Exemption pertaining to the
exemptive relief described herein.

(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.

(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.

B-11
<PAGE>

Trust to brokers other than Salomon Smith Barney and its affiliates, both
expressed as cents per share.

(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.

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 subparagraph, 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 individual who is an officer (as defined in Section III(d) hereof),
director or partner in Salomon Smith Barney or a person described in
subparagraph (b)(1);

(3) Any corporation or partnership of which Salomon Smith Barney, or an
affiliate described in subparagraphs(b)(1), is a 10 percent or more partner or
owner; and

(4) Any corporation or partnership of which any individual which is an officer
or director of Salomon Smith Barney is a 10 percent or more 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 (i) a self-directed IRA or (ii) a Section
403(b) Plan, which invests in Trust shares;

(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 April 1, 2000 with respect to the amendments
to Section II(i) and Section III(b) of this grant notice. In addition, this
exemption is effective as of April 1, 2000 with respect to the inclusion of new
Section III(d) in the grant notice.

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 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.

Signed at Washington, D.C., this 31st day of August, 2000.

Ivan L. Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits Administra-
tion, U.S. Department of Labor.

[FR Doc. 00-22853 Filed 9-6-00; 8:45 am]

B-12
<PAGE>

--------------------------------------------------------------------------------
DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 2000-45; Exemption Application Nos. D-10809
and D-10865]

Grant of Individual Exemption to Amend and Replace Prohibited Transaction
Exemption (PTE) 99-15, Involving Salomon Smith Barney Inc. (Salomon Smith
Barney), Located in New York, NY

AGENCY: Pension and Welfare Benefits Administration, U.S. Department of Labor
(the Department).

ACTION: Notice of Technical Correction.
--------------------------------------------------------------------------------
On September 7, 2000, the Department published in the Federal Register (65 FR
54315) a final exemption which amends and replaces PTE 99-15 (64 FR 1648, April
5,
1999), an exemption granted to Salomon Smith Barney. PTE 99-15 relates to the
operation of the TRAK Personalized Investment Advisory Service product (the
TRAK Program) and the Trust for Consulting Group Capital Markets Funds (the
Consulting Group).

On page 54316 of the grant notice, the last sentence of the third paragraph of
the Supplementary Information, erroneously refers to an effective date of July
10, 2000 with respect to Section III(d) of the grant notice. Thus, the sentence
should be revised to read as follows:

The Final Exemption is effective as of April 1, 2000 with respect to the
amendments to Sections II(i) and III(b) of the grant notice and the inclusion
of new Section III(d) of the grant notice.

Also on page 54316 of the grant notice, clause (c) of Footnote 1, should be
revised as follows to describe more accurately the purpose of the automated
reallocation option:

(c) adopted an automated reallocation option under the TRAK Program which
would afford an Independent Plan Fiduciary the option of having his or her
asset allocation adjusted automatically whenever the Consulting Group changes
an allocation model;

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department at (202)
219-8881. (This is not a toll-free number.)

Signed at Washington, DC, this 18th day of September, 2000.

Ivan L. Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor.

[FR Doc. 00-24388 Filed 9-21-00; 8:45 am]

TK 2088S

B-13
<PAGE>

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 by writing to the Portfolio's sub-transfer agent, PFPC Global
Fund Services, at:

Consulting Group Capital Markets Funds
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699

or by calling the Portfolio's transfer agent at 800-451-2010

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

SALOMON SMITH BARNEY
---------------------------
A member of citigroup [LOGO]

Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.

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. TK2094 12/00

<PAGE>

[Consulting Group]
Since 1973

Consulting Group
Capital Markets Funds

Large Capitalization Growth Investments
Large Capitalization Value Equity Investments
Small Capitalization Growth Investments
International Equity Investments
Emerging Markets Equity Investments
Balanced Investments
Intermediate Fixed Income Investments
Long-Term Bond Investments
Mortgage Backed Investments
High Yield Investments
Multi-Sector Fixed Income Investments
International Fixed Income Investments
Municipal Bond Investments
Government Money Investments

--------------------------------------------------------------------------------
INVESTMENT PRODUCTS: NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
--------------------------------------------------------------------------------

Prospectus [LOGO]TRAK(R)
December 29, 2000 ------------------------------------
Personalized Investment Advisory Service

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 3
----------------------------------------------------
Large Capitalization Growth Investments 4
----------------------------------------------------
Large Capitalization Value Equity Investments 6
----------------------------------------------------
Small Capitalization Growth Investments 8
----------------------------------------------------
Small Capitalization Value Equity Investments 12
----------------------------------------------------
International Equity Investments 16
----------------------------------------------------
Emerging Markets Equity Investments 18
----------------------------------------------------
Balanced Investments 20
----------------------------------------------------
Intermediate Fixed Income Investments 22
----------------------------------------------------
Long-Term Bond Investments 24
----------------------------------------------------
Mortgage Backed Investments 26
----------------------------------------------------
High Yield Investments 28
----------------------------------------------------
Multi-Sector Fixed Income Investments 30
----------------------------------------------------
International Fixed Income Investments 34
----------------------------------------------------
Municipal Bond Investments 36
----------------------------------------------------
Government Money Investments 38
----------------------------------------------------
More on the Portfolios' Investments 40
----------------------------------------------------

The Manager 44
----------------------------------------------------

Asset Allocation Programs 51
----------------------------------------------------
Investment and Account Information 52
----------------------------------------------------
Account Transactions 52
----------------------------------------------------
Valuation of Shares 53
----------------------------------------------------
Dividends and distributions 53
----------------------------------------------------
Taxes 53
----------------------------------------------------
Financial Highlights 55
----------------------------------------------------
Appendix A A-1
----------------------------------------------------
Appendix B B-1
----------------------------------------------------
</TABLE>

Consulting Group Capital Markets Funds
<PAGE>

This page intentionally left blank

Consulting Group Capital Markets Funds
<PAGE>

Investments, Risks and Performance

About the portfolios

The manager selects and oversees professional money managers who are responsi-
ble for investing the assets of the portfolios comprising the Consulting Group
Capital Markets Funds (each a "Portfolio").

You should know:

. You could lose money on your investment in a Portfolio, or the Portfolio may
not perform as well as other investments

. An investment in any of the Portfolios is not a bank deposit and is not in-
sured or guaranteed by the FDIC or any other government agency

Principal risks of investing in fixed income securities and equity securities

The Portfolios invest in fixed income securities and equity securities. Risks
common to investments in fixed income securities and equity securities are set
forth below. Because each Portfolio has a different investment strategy, there
are also principal risks that are specific to an investment in a particular
Portfolio. These unique risks are described in the Portfolio summaries begin-
ning on the next page.

Fixed Income Securities:

. When interest rates go up, prices of fixed income securities go down

. An issuer of a security may default on its obligation to pay principal and/or
interest or the security's credit rating may be downgraded

. An issuer of a security may prepay principal earlier than scheduled, which
would force an underlying fund to reinvest in lower yielding securities. This
is known as call or prepayment risk

. Slower than expected principal payments may extend a security's life. This
locks in a below-market interest rate, increases the security's duration and
reduces the value of the security. This is known as extension risk

Equity Securities:

. Stock prices may decline generally

. If an adverse event occurs, such as the issuance of an unfavorable earnings
report, the value of a particular issuer's security may be depressed

Consulting Group Capital Markets Funds
<PAGE>

Large Capitalization Growth Investments

Investment objective

Capital appreciation.

Principal investment strategies

The Portfolio invests primarily in the common stocks of companies with favora-
ble growth prospects and total market capitalizations of $1 billion or more at
the time of purchase.

How the subadvisors select the Portfolio's investments

The manager has selected three subadvisors to manage the Portfolio. Each
subadvisor manages its portion of the Portfolio's assets using a different in-
vestment style. Each subadvisor's investment approach is described below.

Barclays Global Fund Advisors ("Barclays") is a passive, index-based manager
which uses a quantitative investment approach to create a portfolio which fully
replicates the performance of the Russell 1000 Growth Index. The percentage of
the Portfolio's assets allocated to Barclays is 60%.

TCW Investment Management Company (" TCW") employs an active management style
and seeks to invest in high quality companies with opportunities for growth
that are not fully reflected in stock market valuations. TCW utilizes a " bot-
tom-up" investment strategy that focuses primarily on assessing the operating
prospects of each prospective holding. Companies targeted for investment typi-
cally are those believed to have strong and enduring business models and inher-
ent advantages over competitors. TCW generally sells a security when a stock
price reflects full value as calculated by TCW's proprietary model or when a
security fails to meet operational expectations. The percentage of the Portfo-
lio's assets allocated to TCW is 20%.

Turner Investment Partners, Inc. (" Turner") employs an active management style
and seeks to invest in companies with improving earnings dynamics in each of
ten broad market sectors. In order to identify potential investments, the
subadvisor utilizes (i) a proprietary computer model which ranks stocks by sec-
tor and size by examining 80 factors; (ii) fundamental analysis of stocks se-
lected by the proprietary model, including communications with company manage-
ment, industry experts and competitors; and (iii) technical analysis, including
examination of money flow and relative strength. The subadvisor will sell a
stock because of a poor ranking from the model, concern about the fundamentals
of a stock, a downward revision in earnings estimates from Wall Street analysts
or company management, or changes in money flow for a stock. The percentage of
the Portfolio's assets allocated to Turner is 20%.

Principal risks of investing in the Portfolio

Your investment in the Portfolio is subject to the risks associated with in-
vesting in equity securities generally. These principal risks are described on
page 3. Your investment in the Portfolio is also subject to the following spe-
cific risks:

. Large cap or growth stocks may fall out of favor with investors

. A share price that is generally more volatile than that of Large Capitaliza-
tion Value Equity Investments because of the Portfolio's focus on growth
stocks

The bar chart and tables below indicate the risks and returns of investing in
the Portfolio. The bar chart shows changes in the performance of the Portfolio
from year to year since its founding on November 18, 1991. The table shows how
the Portfolio's average annual returns for different calendar periods compare
to those of the Portfolio's benchmark index and its Lipper peer group. The
Portfolio's past performance does not necessarily indicate how the Portfolio
will perform in the future.

[GRAPH]

Percentage Total Returns for
Large Capitalization Growth Investments

92 6.52%
93 0.20%
94 0.26%
95 31.66%
96 20.71%
97 29.03%
98 38.05%
99 32.84%

Calendar years ended December 31

AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1999)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
One Five Life of Inception
year years Portfolio Date
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio (without advisory program fee)* 32.84% 30.33% 20.71% 11/18/91
Russell 1000 Growth Index 20.91% 28.04% 20.86% **
Lipper Growth Funds Average 30.43% 25.26% 20.67% **
Lipper Large Cap Growth Funds Average 41.37% 29.44% 20.67% **
----------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in an advisory
program. These programs charge an annual fee, which in the case of TRAK(R)
may be up to 1.5%.
** Index comparison begins on 11/18/91.

Consulting Group Capital Markets Funds
<PAGE>

Large Capitalization Growth Investments, continued

PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Total
return Quarter/Year
------------------------------------------------------------------------------------------------
<S> <C> <C>
Best 26.04 % 4th/1998
Worst (9.26)% 3rd/1998
------------------------------------------------------------------------------------------------
Year-to-date (0.19)% through 3rd/2000
------------------------------------------------------------------------------------------------
</TABLE>

BENCHMARKS

The Portfolio's benchmark is the
Russell 1000 Growth Index. The
index is comprised of those
Russell 1000 securities with
greater-than-average growth
orientation. The Russell 1000
Index is composed of the 1000
largest U.S. companies by market
capitalization. Unlike the
Portfolio, the benchmark is
unmanaged and does not include
any expenses. In addition, the
Portfolio compares its
performance with the Lipper
Large-Cap Growth Funds Average
and Lipper Growth Funds Average.
Lipper Large-Cap Growth Funds
Average is 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 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 Growth Funds Average is
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 major unmanaged
stock indices.

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 expenses of the Portfolio's latest
fiscal year.

<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)

Maximum annual TRAK(R) fee 1.50%

Annual Portfolio operating expenses
(expenses that are deducted from
portfolio assets)
Management fees 0.60%
Other expenses 0.11%
-----
Total annual Portfolio operating
expenses 0.71%
=====
</TABLE>

Example

This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.

The example assumes:

. You invest $10,000 in the Portfolio for the time periods indicated;

. You reinvest all dividends and distributions;

. You redeem at the end of each period;

. Your investment has a 5% return each year; and

. The Portfolio's operating expenses remain the same.

Under these assumptions, your costs, including the maximum annual TRAK(R) fee,
would be:

<TABLE>
<CAPTION>
After 1 After 3 After 5 After 10
year years years years
<S> <C> <C> <C>
$224 $691 $1,185 $2,544
</TABLE>

Consulting Group Capital Markets Funds
<PAGE>

Large Capitalization Value Equity Investments
Investment objective

Total return consisting of capital appreciation and dividend income.

Principal investment strategies

The Portfolio invests primarily in common stock of companies with total market
capitalizations of $1 billion or more at the time of purchase. The majority of
the Portfolio's investments are expected to pay regular dividends.

How the subadvisors select the Portfolio's investments

The manager has selected four subadvisors to manage the Portfolio. Each
subadvisor manages its portion of the Portfolio's assets using a different in-
vestment style. Each subadvisor's investment approach is described below.

The Boston Company Asset Management ("TBCAM") seeks total return by investing
in portfolios of highly liquid common stocks that in its opinion have above av-
erage appreciation potential. The subadvisor employs an active portfolio man-
agement style using a proprietary quantitative model to identify those compa-
nies which demonstrate characteristics of both value and positive market momen-
tum. Those stocks ranking highest through quantitative analysis are then evalu-
ated using qualitative fundamental analysis to verify the quantitative scores
and to make recommendations for investment. The subadvisor assesses a company's
value by looking at traditional measures such as its price-to-earnings and
price-to-book ratios, as well as extensive balance sheet analysis, including
the company's break-up worth. The firm looks for momentum in a company's rising
expectations about earnings or sales, or through a return to financial health
following management changes or restructuring. The percentage of the Portfo-
lio's assets allocated to TBCAM is 20%.

Chartwell Investment Partners ("Chartwell") employs "top-down" and "bottom-up"
management techniques in managing its portion of the Portfolio's assets.
Chartwell focuses on a combination of low price to sales, price to earnings,
price to cash flow and price to book ratios, along with a preference for pre-
mium yielding issues. Specific price targets are established for each stock se-
lected for the Portfolio. The subadvisor then shifts its focus to identifying
those companies with evidence of a major catalyst for change. Stocks are evalu-
ated through such factors as management/board changes, the extent to which per-
formance incentives are in place, the degree of insider ownership, positive re-
structuring and acquisition opportunities. The percentage of the Portfolio's
assets allocated to Chartwell is 20%.

Parametric Portfolio Associates ("Parametric") seeks to track the performance
of the Russell 1000 Value Index. The subadvisor uses a quantitative process to
identify stocks which the firm believes are underpriced relative to their un-
derlying value. The subadvisor then looks for companies from that list with
rising earnings expectations, reasonable valuations and positive market momen-
tum through an analysis of the company's fundamentals, including factors such
as revenues, cash flow, earnings and analyst ratings. The subadvisor designs
the portfolio to have a risk profile similar to that of the Russell 1000 Value
Index. The percentage of the Portfolio's assets allocated to Parametric is 10%.

Barclays Global Fund Advisors ("Barclays") is a passive, index-based manager
which uses a quantitative investment approach to create a portfolio which fully
replicates the performance of the Russell 1000 Value Index. The percentage of
the Portfolio's assets allocated to Barclays is 50%.

Principal risks of investing in the Portfolio

Your investment in the Portfolio is subject to the risks associated with in-
vesting in equity securities generally. These risks are described on page 3.
Your investment in the Portfolio is also subject to the following specific
risks:

. Large cap or value stocks may fall out of favor with investors

. The Portfolio can invest in issuers with a broad range of market capitaliza-
tions. To the extent the Portfolio invests in companies at the lower end of
such range, the Portfolio's investments may be more volatile and less liquid
than other large cap funds

The bar chart and tables indicate the risks and returns of investing in the
Portfolio. The bar chart below shows changes in the performance of the Portfo-
lio from year to year since its founding on November 18, 1991. The table on the
next page shows how the Portfolio's average annual returns for different calen-
dar periods compare to those of the Portfolio's benchmark index and its Lipper
peer group. The Portfolio's past performance does not necessarily indicate how
the Portfolio will perform in the future.

[GRAPH]

Percentage Total Returns for
Large Capitalization Value Equity Investments

92 4.44%
93 9.88%
94 (3.63)%
95 33.92%
96 20.42%
97 31.45%
98 12.62%
99 6.10%

Calendar years ended December 31

Consulting Group Capital Markets Funds
<PAGE>

Large Capitalization Value Equity Investments, continued
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1999)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
One Five Life of Inception
year years Portfolio Date
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio (without advisory program fee)* 6.10% 20.43% 14.14% 11/18/91
Russell 1000 Value Index 7.35% 23.07% 18.83% **
Lipper Multi-Cap Value Funds Average 7.02% 18.43% 15.61% **
---------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in an advisory
program. These programs charge an annual fee, which in the case of TRAK(R)
may be up to 1.5%.
** Index comparison begins on 11/18/91.

PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Total
return Quarter/Year
------------------------------------------------------------------------------------------------
<S> <C> <C>
Best 16.84 % 4th/1998
Worst (14.09)% 3rd/1998
------------------------------------------------------------------------------------------------
Year-to-date 2.05 % through 3rd/2000
------------------------------------------------------------------------------------------------
</TABLE>

BENCHMARKS

The Portfolio's benchmark is the
Russell 1000 Value Index. The
index represents the stocks in
the Russell 1000 Index with less
than average growth orientation.
The Russell 1000 Index includes
the 1,000 largest U.S. companies
by market capitalization. Unlike
the Portfolio, the benchmark is
unmanaged and does not include
any expenses. In addition, the
Portfolio compares its
performance with the Lipper
Multi-Cap Value Funds Average.
It is 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.

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 expenses of the Portfolio's latest
fiscal year.

<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)

Maximum annual TRAK(R) fee 1.50%

Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fees 0.67%
Other expenses 0.11%
-----
Total annual Portfolio operating
expenses 0.78%
=====
</TABLE>

Example

This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual cost may be
higher or lower.

The example assumes:

. You invest $10,000 in the Portfolio for the time periods indicated;

. You reinvest all dividends and distributions;

. You redeem at the end of each period;

. Your investment has a 5% return each year; and

. The Portfolio's operating expenses remain the same.

Under these assumptions, your costs, including the maximum annual TRAK(R) fee,
would be:

<TABLE>
<CAPTION>
After 1 After 3 After 5 After 10
year years years years
<S> <C> <C> <C>
$231 $712 $1,220 $2,615
</TABLE>

Consulting Group Capital Markets Funds
<PAGE>

Small Capitalization Growth Investments

Investment objective

Capital appreciation.

Principal investment strategies

The Portfolio invests primarily in common stock of small capitalization
"growth" companies. The Portfolio considers small cap companies to have total
market capitalizations at the time of purchase below the maximum market capi-
talization permitted for a stock in the Russell 2000 Growth Index. As of June
30, 2000, that maximum market capitalization was $3.85 billion. A portion of the
Portfolio's assets will be invested in common stocks of companies with market
capitalizations at the lower range of the Russell 2000 Growth Index.

How the subadvisors select the Portfolio's investments

The manager has selected five subadvisors to manage the Portfolio. Each
subadvisor manages its portion of the Portfolio's assets using a different in-
vestment style. Each subadvisor's investment approach is described below.

Mellon Capital Management ("Mellon") is a passive, index-based manager that
seeks to fully replicate the performance of the Russell 2000 Growth Index. It
minimizes performance differences from the index through systematic quantita-
tive methods. The percentage of the Portfolio's assets allocated to Mellon is
40%.

Wall Street Associates ("Wall Street") is an active manager and follows a bot-
tom-up investment style. It looks for companies with superior earnings growth,
strong balance sheets, attractive valuations and potentially positive earning
surprises. The percentage of the Portfolio's assets allocated to Wall Street is
20%.

Westpeak Investment Advisors ("Westpeak") is an active manager and employs a
value-oriented and research-driven approach to identify reasonably priced
growth stocks that are likely to have positive earnings surprises and revi-
sions. The firm uses a value constraint to ensure that the growth stocks se-
lected are reasonably priced. The percentage of the Portfolio's assets allo-
cated to Westpeak is 15%.

Kern Capital Management ("Kern") is an active manager. Its investment style fo-
cuses fundamental research on uncovering innovative small-cap companies early
in their growth cycle. The firm's bottom-up investment process, which targets
the four most innovative sectors (technology, healthcare, consumer and servic-
es) involves (i) detailed financial analysis, (ii) in-depth meetings with cor-
porate management, (iii) discussions with brokerage firm and industry analysts
and (iv) competitive analysis for discovering attractively priced small-cap
companies. The percentage of the Portfolio's assets allocated to Kern is 15%.

Westfield Capital Management Co., Inc. ("Westfield") uses an active management
style and favors investing in earnings growth stocks given its conviction that
stock prices follow earnings progress and that they offer the best opportunity
for superior real rates of return. The subadvisor believes that reasonably
priced stocks with high earning potential are best identified through in-depth,
fundamental research. The subadvisor believes that the small cap portion of the
market is under-researched, and therefore less efficient than the large cap
sector. It generally sells a security when a stock price exceeds full value as
calculated by the subadvisor or as evidenced by declining earnings growth rates
and balance sheet trends. The percentage of the Portfolio's assets allocated to
Westfield is 10%.

Principal risks of investing in the Portfolio

. Growth stocks or small capitalization stocks may fall out of favor with in-
vestors

. Recession or adverse economic trends may have a greater adverse affect on the
earnings or financial condition of smaller companies than on larger ones

. Greater volatility of share price because of the focus on small cap compa-
nies. Compared to large cap companies, small cap companies or the market for
their equity securities are more likely to:

. Be more sensitive to changes in earnings results and investor expectations

. Have more limited product lines, capital resources and management depth

. Experience sharper swings in market values

. Be harder to sell at the times and prices the subadvisor believes appropri-
ate

. Offer greater potential for gain and loss

Consulting Group Capital Markets Funds
<PAGE>

Small Capitalization Growth Investments, continued

The bar chart and tables below indicate the risks and returns of investing
in the Portfolio. The bar chart shows changes in the performance of the Portfo-
lio from year to year since its founding on November 18, 1991. The table also
shows how the Portfolio's average annual returns for different
calendar periods compare to those of the Portfolio's benchmark index and its
Lipper peer group. The Portfolio's past performance does not necessarily indi-
cate how the Portfolio will perform in the future.

[GRAPH]

Percentage Total Returns for
Small Capitalization Growth Investments

92 11.42%
93 23.52%
94 13.11%
95 34.19%
96 18.88%
97 10.30%
98 2.17%
99 49.55%

Calendar years ended December 31

AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1999)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
One Five Life of Inception
year years Portfolio Date
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio (without advisory program fee)* 49.55% 21.87% 21.05% 11/18/91
Russell 2000 Growth Index 43.09% 18.99% 15.09% **
Lipper Small-Cap Growth Funds Average 61.80% 22.33% 21.15% **
----------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in an advisory
program. These programs charge an annual fee, which in the case of TRAK(R)
may be up to 1.5%.
** Index comparison begins on 11/18/91.

PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Total
return Quarter/Year
------------------------------------------------------------------------------------------------
<S> <C> <C>
Best 36.13% 4th/1999
Worst (23.81%) 3rd/1998
------------------------------------------------------------------------------------------------
Year-to-date 0.84% through 3rd/2000
------------------------------------------------------------------------------------------------
</TABLE>

BENCHMARKS

The Portfolio's benchmark is The
Russell 2000 Growth Index. This
index represents stocks in the
Russell 2000 Index with better
than average growth orientation.
The Russell 2000 Index includes
the smallest 2000 U.S. stocks
out of Russell 3000 Universe.
Unlike the Portfolio, the
benchmark is unmanaged and does
not include any expenses. In
addition, the Portfolio compares
its performance with the Lipper
Small Cap Growth Funds Average.
Lipper Small Cap Growth Funds
Average is 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.

Fee table

This table describes the fees and expenses you may pay if you buy and hold
shares of the Portfolio based upon the expenses of the Portfolio's latest fis-
cal year.

<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)

Maximum annual TRAK(R) fee 1.50%

Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fees 0.80%
Other expenses 0.18%
-----
Total annual Portfolio operating
expenses 0.98%
=====
</TABLE>

Consulting Group Capital Markets Funds
<PAGE>

Small Capitalization Growth Investments, continued

Example

This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.

The example assumes:

. You invest $10,000 in the Portfolio for the time periods indicated;

. You reinvest all dividends and distributions;

. You redeem at the end of each period;

. Your investment has a 5% return each year; and

. The Portfolio's operating expenses remain the same.

Under these assumptions, your costs, including the maximum annual TRAK(R) fee,
would be:

<TABLE>
<CAPTION>
After 1 After 3 After 5 After 10
year years years years
<S> <C> <C> <C>
$251 $773 $1,321 $2,816
</TABLE>

Consulting Group Capital Markets Funds
<PAGE>

This page intentionally left blank

Consulting Group Capital Markets Funds
<PAGE>

Small Capitalization Value Equity Investments

Investment objective

Above average capital appreciation.

Principal investment strategies

The Portfolio invests primarily in common stocks of small capitalization "val-
ue" companies. The active subadvisors primarily invest the Portfolio's assets
in the common stocks of companies with total market capitalizations at the time
of purchase below the maximum market capitalization permitted for a stock in
the Russell 2000 Value Index. As of June 30, 2000, that maximum market capital-
ization was $2.42 billion. The Portfolio may also invest a portion of its assets
in common stocks of companies with total market capitalization of $550 million
or less at the time of purchase.

How the subadvisors select the Portfolio's investments

Mellon Capital Management ("Mellon") is a passive, index based manager that
seeks to fully replicate the performance of the Russell 2000 Value Index. It
minimizes performance differences from the index through systematic quantita-
tive methods. The percentage of the Portfolio's assets allocated to Mellon is
60%.

NFJ Investment Group ("NFJ") uses an active management style that invests in a
diversified portfolio of small capitalization common stocks that it believes
are undervalued in the marketplace generally and within their respective indus-
tries. These securities are characterized as having below average price-to-
earnings ratios and improving fundamentals. These securities are often out of
favor, and widespread securities analyst coverage is not common. The subadvisor
also considers valuation factors such as price-to-book, price-to-cash flow,
dividend policy and industry outlook in selecting stocks for investment. The
percentage of the Portfolio's assets allocated to NFJ is 25%.

Rutabaga Capital Management LLC ("Rutabaga") uses an active management style
and focuses exclusively on micro and small cap stocks and looks to unearth un-
common or currently unfavored stocks. The subadvisor's analysts employ exten-
sive "bottom-up" fundamental research to identify high quality companies with
catalysts to increase margins and intrinsic value, but that are neglected or
misperceived by the market. All candidates are subject to careful group consid-
eration, with the final decisions being made by the portfolio manager. This
process focuses on clearly identifying the catalysts that should generate ac-
celerating earnings growth and thereby drive future stock performance. The
subadvisor also attempts to mitigate downside risk by buying stocks in compa-
nies with leading market positions, but with low valuations and low investor
expectations. The percentage of the Portfolio's assets allocated to Rutabaga is
15%.

Principal risks of investing in the Portfolio

. Value stocks or small capitalization stocks fall out of favor with investors

. Greater volatility of share price because of the focus on small cap compa-
nies. Compared to large companies, small cap companies or the market for
their equity securities are more likely to:

. Be more sensitive to changes in earnings results and investor expectations

. Have more limited product lines, capital resources and management depth

. Experience sharper swings in market values

. Be harder to sell at the times and prices the subadvisors believe appropri-
ate

. Offer greater potential for gain and loss

The bar chart and tables on the next page indicate the risks and returns
of investing in the
Portfolio. The bar chart shows changes in the performance of the Portfo-
lio from year to year since its founding on November 18, 1991. The table
also shows how the Portfolio's average annual returns for different
calendar periods compare to those of the Portfolio's benchmark index and its
Lipper peer group. The Portfolio's past performance does not necessarily indi-
cate how the Portfolio will perform in the future.

Consulting Group Capital Markets Funds
<PAGE>

Small Capitalization Value Equity Investments, continued

[GRAPH]

Percentage Total Returns for
Small Capitalization Value Equity Investments

92 23.65%
93 (4.27)%
94 (8.54)%
95 24.54%
96 25.05%
97 35.94%
98 (8.88)%
99 (3.96)%

Calendar years ended December 31

AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1999)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
One Five Life of Inception
year years Portfolio Date
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio (without advisory program fee)* (3.96)% 13.13% 9.55% 11/18/91
Russell 2000 Value Index (1.49)% 13.14% 15.10% **
Lipper Small-Cap Value Funds Average 5.92 % 13.57% 9.59% **
-----------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in an advisory
program. These programs charge an annual fee, which in the case of TRAK(R)
may be up to 1.5%.
** Index comparison begins on 11/18/91.

PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Total
Year Return Quarter/Year
------------------------------------------------------------------------------------------------
<S> <C> <C>
Best 17.74 % 4th/1992
Worst (18.18)% 3rd/1998
------------------------------------------------------------------------------------------------
Year-to-date 8.50 % through 3rd/2000
------------------------------------------------------------------------------------------------
</TABLE>

BENCHMARKS

The Portfolio's benchmark is The
Russell 2000 Value Index. The
index represents stocks in the
Russell 2000 Index with less
than average growth orientation.
The Russell 2000 Index is
comprised of the smallest 2000
U.S. stocks out of the Russell
3000 Universe. Unlike the
Portfolio, the benchmark is
unmanaged and does not include
any expenses. In addition, the
Portfolio compares its
performance with the Lipper
Small-Cap Value Funds Average.
It is 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.

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 expenses of the Portfolio's latest
fiscal year.

<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)

Maximum annual TRAK(R) fee 1.50%

Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fees 0.76%
Other expenses 0.15%
-----
Total annual Portfolio operating
expenses 0.91%
=====
</TABLE>

Consulting Group Capital Markets Funds
<PAGE>

Small Capitalization Value Equity Investments, continued

Example

This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.

The example assumes:

. You invest $10,000 in the Portfolio for the time periods indicated;

. You reinvest all dividends and distributions.

. You redeem at the end of each period;

. Your investment has a 5% return each year; and

. The Portfolio's operating expenses remain the same.

Under these assumptions, your costs, including the maximum annual TRAK(R) fee,
would be:

<TABLE>
<CAPTION>
After 1 After 3 After 5 After 10
year years years years
<S> <C> <C> <C>
$244 $751 $1,285 $2,746
</TABLE>

Consulting Group Capital Markets Funds
<PAGE>

This page intentionally left blank

Consulting Group Capital Markets Funds
<PAGE>

International Equity Investments

Investment objective

Capital appreciation.

Principal investment strategies

The Portfolio invests primarily in equity securities of companies located out-
side the U.S. The Portfolio focuses on companies located in developed markets,
but may also invest a portion of its assets in securities of companies located
in emerging markets. The Portfolio intends to diversify its assets by investing
primarily in securities of issuers located in at least three foreign countries.
The Portfolio generally attempts to hedge against unfavorable changes in cur-
rency exchange rates by engaging in forward currency transactions and trading
currency futures contracts and options on these futures. However, the Portfolio
may not always choose or be able to hedge its currency exposure.

How the subadvisors select the Portfolio's investments

State Street Global Advisors ("SSGA") uses a quantitative process to construct
a portfolio that fully replicates the performance of the Morgan Stanley Capital
International Europe Australia Far East (EAFE) Index. The EAFE Index consists
of securities of companies located in 20 countries outside of North America and
represents approximately 60% of the total market value of all publicly traded
stocks in these countries. The percentage of the Portfolio's assets allocated
to SSGA is 40%.

Oechsle International Advisors, LLC ("Oechsle") first seeks to identify the
most attractive foreign markets by ranking their expected returns through coun-
try and currency analysis. It then selects investments within attractive mar-
kets through both a top-down and bottom-up company analysis. The percentage of
the Portfolio's assets allocated to Oechsle is 30%.

Scudder Kemper Investments, Inc. ("Scudder") evaluates the prospects of foreign
economies and analyzes individual companies to identify investment opportuni-
ties. In defining country allocations, the Portfolio may focus on global, eco-
nomic, industrial and investment themes. Individual stocks are purchased on the
basis of wide-ranging fundamental and valuation criteria. The subadvisor util-
izes a "three-circle" approach that includes extensive research on global
themes, company analysis and country analysis. The percentage of the Portfo-
lio's assets allocated to Scudder is 30%.

Principal risks of investing in the Portfolio

Your investment in the Portfolio is subject to the risks associated with in-
vesting in equity securities generally. The principal risks associated with in-
vesting in equity securities are described on page 3.

Your investment is also subject to the unique risks of investing in foreign is-
suers. These risks are more pronounced to the extent that the Portfolio invests
in countries with emerging markets or the Portfolio invests significantly in
any one foreign country. These risks include:

. Less information about foreign issuers or markets may be available because of
less rigorous accounting standards or regulatory practices

. Many foreign markets are smaller, less-liquid and more volatile than U.S.
markets. In a changing market, the subadvisors may not be able to sell the
Portfolio's securities in amounts and at prices they consider reasonable

. The U.S. dollar may appreciate against non-U.S. currencies

. Economic, political or social instability in foreign countries may signifi-
cantly disrupt the principal financial markets in which the Portfolio invests

Consulting Group Capital Markets Funds
<PAGE>

International Equity Investments, continued

The bar chart and tables shown below indicate the risks of investing in the
Portfolio. The bar chart shows changes in the performance of the Portfolio from
year to year since the Portfolio's inception on November 18, 1991. The table
shows how the Portfolio's average annual returns for different calendar periods
compare to those of the Portfolio's benchmark index and its Lipper peer group.
The Portfolio's past performance does not necessarily indicate how the Portfo-
lio will perform in the future.

[GRAPH]

Percentage Total Returns for
International Equity Investments

92 (6.68)%
93 28.97%
94 9.50%
95 9.64%
96 4.87%
97 1.73%
98 22.51%
99 41.52%

Calendar years ended December 31

AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1999)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
One Five Life of Inception
year years Portfolio Date
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio (without advisory program fee)* 41.52% 15.19% 12.88% 11/18/91
EAFE Index 26.96% 12.83% 11.33% **
Lipper International Funds Average 41.04% 15.13% 12.91% **
----------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in an advisory
program. These programs charge an annual fee, which in the case of TRAK(R)
may be up to 1.5%.

** Index comparison begins on 11/18/91.

PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Total
return Quarter/Year
------------------------------------------------------------------------------------------------
<S> <C> <C>
Best 28.41 % 4th/1999
Worst (13.97)% 3rd/1988
------------------------------------------------------------------------------------------------
Year-to-date (13.87)% through 3rd/2000
------------------------------------------------------------------------------------------------
</TABLE>

BENCHMARKS

The Portfolio's benchmark is the
Morgan Stanley Capital Interna-
tional EAFE--Capitalization
Weighted Index. The index is a
composite portfolio of equity
total returns for the countries
of Europe, Australia, New Zea-
land and the Far East. Unlike
the Portfolio, the benchmark is
unmanaged and does not include
any expenses. In addition, the
Portfolio compares its perfor-
mance with the Lipper Interna-
tional Funds Average. It is an
average of the reinvested per-
formance of funds that invest
their assets in securities whose
primary trading markets are out-
side of the United States.

Fee table

This table describes the fees and expenses you may pay if you buy and hold
shares of the Portfolio based upon expenses of the Portfolio's latest fiscal
year.

<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)

Maximum annual TRAK(R) fee 1.50%

Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fees 0.77%
Other expenses 0.17%
-----
Total annual Portfolio operating
expenses 0.94%
=====
</TABLE>

Example

This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds.

The example assumes:

. You invest $10,000 in the Portfolio for the time periods indicated;

. You reinvest all dividends and distributions;

. You redeem at the end of each period;

. Your investment has a 5% return each year; and

. The Portfolio's operating expenses remain the same.

Under these assumptions, your costs, including the maximum TRAK(R) fee, would
be:

<TABLE>
<CAPTION>
After 1 After 3 After 5 After 10
year years years years
<S> <C> <C> <C>
$247 $761 $1,301 $2,776
</TABLE>

Consulting Group Capital Markets Funds
<PAGE>

Emerging Markets Equity Investments

Investment objective.

Long-term capital appreciation.

Principal investment strategies

The Portfolio invests primarily in equity securities of issuers located in
countries with emerging markets. The Portfolio considers an emerging market
country to be one having per capita income in the low to middle ranges, as de-
termined by the International Bank for Reconstruction and Development (The
World Bank). To diversify its investments, the Portfolio invests primarily in
securities of issuers located in at least three foreign countries. The Portfo-
lio may also invest a portion of its assets in closed-end investment companies
that invest in emerging markets. The Portfolio generally attempts to hedge
against unfavorable changes in currency exchange rates by engaging in forward
currency transactions and trading currency futures contracts and options on
these futures. However, the Portfolio may not always choose or be able to hedge
its currency exposure.

How the subadvisors select the Portfolio's investments

Foreign & Colonial Emerging Markets Ltd. ("Foreign & Colonial") is an active
manager. Its style combines a rigorous "top-down" macroeconomic approach to
country allocation with fundamental, "bottom-up" stock selection. Investment
decisions are founded on the primary research undertaken by the team of invest-
ment managers. Risk is controlled through a core/satellite approach to country
allocation and a focus on quality companies that must pass rigorous selection
criteria. Country allocation decisions are made within a disciplined framework
and revolve around analysis of key political and macro-economic variables. The
percentage of the Portfolio's assets allocated to Foreign & Colonial is 30%.

State Street Global Advisors ("SSGA") uses quantitative analysis to identify
countries and stocks which are under-valued relative to their growth rates. It
employs an investment process that combines top-down country selection with
bottom-up stock selection to determine an optimal country and security mix. The
percentage of the Portfolio's assets allocated to SSGA is 20%.

Baring Asset Management ("Baring") looks for unrecognized "growth" stocks
through an investment process that combines top-down country allocation, bot-
tom-up company research and risk analysis to determine an optimal country and
security mix. This process is driven by structured fundamental research using a
disciplined investment framework at both the country and company levels. The
fundamental research is supported by quantitative screening at the country lev-
el. The percentage of the Portfolio's assets allocated to Baring is 50%.

Principal risks of investing in the Portfolio

Because the Portfolio invests primarily in equity securities, your investment
in the Portfolio is subject to the risks associated with investing in equity
securities generally. These risks are described on page 3.

Your investment is also subject to the unique risks of investing in securities
of foreign issuers. These risks are more pronounced because the Portfolio in-
vests in countries with emerging markets. The market value for emerging market
equity securities historically has been very volatile and an investment in the
Portfolio involves a substantial degree of risk. These risks include:

. Less information about emerging market issuers or markets may be available
because of less rigorous disclosure or accounting standards or regulatory
practices

. Most emerging markets are smaller, less liquid and more volatile than devel-
oped markets. In a changing market, the subadvisors may not be able to sell
portfolio securities in amounts and at prices they consider reasonable

. Economic, political or social instability in an emerging market country or
region may significantly disrupt the principal financial market

. The economies of emerging market countries may grow at slower rates than ex-
pected or suffer a downturn or recession

. Emerging market countries may experience rising interest rates, or, more sig-
nificantly, rapid inflation or hyperinflation

. The Portfolio could experience a loss from settlement and custody practices
in some emerging markets

. Withholding and other foreign taxes may decrease the Portfolio's return

Consulting Group Capital Markets Funds
<PAGE>

Emerging Markets Equity Investments, continued

The bar chart and tables below indicate the risks and returns of investing
in the Portfo-
lio. The bar chart shows changes in the performance of the Portfolio from year
to year since the Portfolio's inception on April 21, 1994. The table shows how
the Portfolio's average annual returns for different calendar periods compare
to those of the Portfolio's benchmark index. The Portfolio's past performance
does not necessarily indicate how the Portfolio will perform in the future.

[GRAPH]

Percentage Total Returns for
Emerging Markets Equity Investments

95 (2.52)%
96 13.16%
97 (8.06)%
98 (32.02)%
99 67.81%

Calendar years ended December 31

AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1999)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
One Five Life of Inception
year years Portfolio Date
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio (without advisory program fee)* 67.81% 2.96% 2.90% 4/21/94
Morgan Stanley Emerging Markets Free Index 26.96% 12.83% 11.93% **
Lipper Emerging Markets Funds Average 70.26% 4.60% 2.46% **
-----------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in an advisory
program. These programs charge an annual fee, which in the case of TRAK(R)
may be up to 1.5%.
** Index comparison begins on 4/21/94.

PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Total
return Quarter/Year
------------------------------------------------------------------------------------------------
<S> <C> <C>
Best 30.40 % 4th/1999
Worst (23.67)% 3rd/1998
------------------------------------------------------------------------------------------------
Year-to-date (21.48)% through 3rd/2000
------------------------------------------------------------------------------------------------
</TABLE>

BENCHMARKS

The Portfolio's benchmark is the
Morgan Stanley Emerging Markets
Free Index. The index is com-
posed of equity total returns of
countries with low to middle per
capita incomes, as determined by
the World Bank. Unlike the Port-
folio, the benchmark is unman-
aged and does not include any
expenses. In addition, the Port-
folio compares its performance
with the Lipper Emerging Markets
Funds Average. It is an average
of the reinvested performance of
funds that invest at least 65%
of total assets in emerging mar-
ket equity securities, where
emerging market is defined by a
country's gross national product
per capita or other economic
measures.

Fee table

This table describes the fees and expenses you may pay if you buy and hold
shares of the Portfolio based upon expenses of the Portfolio's latest fiscal
year.

<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)

Maximum annual TRAK(R) fee 1.50%

Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fees 1.10%
Other expenses 0.56%
-----
Total annual Portfolio operating
expenses 1.66%
=====
</TABLE>

Example

This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.

The example assumes:

. You invest $10,000 in the Portfolio for the time periods indicated;

. You reinvest all dividends and distributions;

. You redeem at the end of each period;

. Your investment has a 5% return each year; and

. The Portfolio's operating expenses remain the same.

Under these assumptions, your costs, including the maximum annual TRAK fee,
would be:

<TABLE>
<CAPTION>
After 1 After 3 After 5 After 10
year years years years
<S> <C> <C> <C>
$319 $974 $1,654 $3,467
</TABLE>

Consulting Group Capital Markets Funds
<PAGE>

Balanced Investments

Investment objective

Total return through a combination of current income and capital appreciation.

Principal investment strategies

The Portfolio balances its investments across both common stocks and investment
grade fixed income securities issued by corporate and governmental issuers. The
Portfolio intends to maintain at least a quarter of its assets in fixed-income
senior securities, preferred stocks and convertible debt securities and con-
vertible preferred stocks to the extent their value is attributable to their
fixed income characteristics.

How the subadvisors select the Portfolio's investments

The manager has selected two subadvisors to manage the Portfolio, an equity
subadvisor and a fixed income subadvisor.

Laurel Capital Advisors ("Laurel") manages the equity portion of the Portfo-
lio's assets. In selecting stocks for investment, it focuses on common stocks
of companies which it believes are undervalued and which exhibit improving
earnings momentum, while maintaining sector weightings similar to the S&P 500
Index. The percentage of the Portfolio's assets allocated to Laurel is 60%.

Seix Investment Advisors ("Seix") manages the fixed income portion of the Port-
folio's assets. The subadvisor combines traditional credit research with pro-
prietary analysis that seeks to identify mispriced or undervalued fixed-income
securities such as U.S. government securities and corporate bonds. It empha-
sizes those securities that have a potential for higher income while maintain-
ing a duration that is approximately equal to the Lehman Brothers Aggregate
Bond Index. The percentage of the Portfolio's assets allocated to Seix is 40%.

Principal risks of investing in the Portfolio

Your investment in the Portfolio is subject to the risks of investing in equity
securities and of investing in fixed income securities generally. These risks
are described on page 3. The market prices of common stocks are generally more
volatile than fixed income investments. As a balanced investment, the Portfo-
lio's net asset value may be less volatile than other equity oriented portfo-
lios. However, since the Portfolio invests a significant portion of its assets
in fixed income securities, it has less potential for capital appreciation.

The market value of foreign securities may go down because of unfavorable for-
eign government actions, political, economic or market instability or the ab-
sence of accurate information about foreign companies. These risks may be more
severe for securities of issuers in emerging markets. Foreign securities are
sometimes less liquid and harder to value than securities of U.S. issuers.

The bar chart and tables below indicate the risks and returns of investing in
the Portfolio. The bar chart shows changes in the performance of the Portfolio
from year to year since its founding on February 16, 1993. The table shows how
the Portfolio's average annual returns for different calendar periods compare
to those of the Portfolio's benchmark indices and its Lipper peer group. The
Portfolio's past performance does not necessarily indicate how the Portfolio
will perform in the future.

[GRAPH]

Percentage Total Returns for
Balanced Investments

94 (2.68)%
95 27.41%
96 15.32%
97 20.29%
98 8.43%
99 9.47%

Calendar years ended December 31

AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1999)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
One Five Life of Inception
year years Portfolio Date
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio (without advisory program fee)* 9.47 % 15.97% 12.31% 2/16/93
Lehman Gov/Corp Bond Index (2.15)% 7.61% 5.93% **
S&P 500 21.03 % 28.54% 21.96% **
Lipper Balanced Funds Average 8.92 % 16.37% 12.33% **
-----------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in an advisory
program. These programs charge an annual fee, which in the case of TRAK(R)
may be up to 1.5%.
** Index comparison begins on 2/16/93.

Consulting Group Capital Markets Funds
<PAGE>

Balanced Investments, continued

PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Total
return Quarter/Year
------------------------------------------------------------------------------------------------
<S> <C> <C>
Best 11.66 % 2nd/1997
Worst (8.06)% 3rd/1998
------------------------------------------------------------------------------------------------
Year-to-date 3.62 % through 3rd/2000
------------------------------------------------------------------------------------------------
</TABLE>

BENCHMARKS

The Portfolio's benchmarks are
Standard & Poor's 500 Index and
the Lehman Brothers Government/
Corporate Bond Index. The S&P
500 is an index of 500 of the
largest stocks in the U.S. The
Lehman Index is a composite of
debt securities of the U.S.
government and its agencies and
publicly issued fixed income,
investment grade, non-
convertible corporate debt
securities. Unlike the
Portfolio, the benchmarks are
unmanaged and do not include any
expenses. In addition, the
Portfolio compares its
performance with the Lipper
Balanced Funds Average. It is 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.

The Consulting Group has de-
signed this Portfolio for in-
vestors who participate in the
TRAK(R) Advisory Service through
employee benefit plans which do
not make the full range of Capi-
tal Markets Funds offered
through this prospectus avail-
able to participants. The Con-
sulting Group will not recommend
this Portfolio to investors in
advisory programs which make all
of the Capital Markets Funds
available.

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 expenses of the Portfolio's latest
fiscal year.

<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)

Maximum annual TRAK(R) fee 1.50%

Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fees 0.78%
Other expenses 0.38%
-------
Total annual Portfolio operating
expenses 1.16%
=======
Management and Administration fee
waivers* (0.16)%
-------
Net annual portfolio expenses 1.00%
=======
</TABLE>

* Management has agreed to waive a portion of management and administration
fees. The manager may change or eliminate the management and/or administra-
tion fee waivers at any time.

Example

This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.

The example assumes:

You invest $10,000 in the Portfolio for the time periods indicated;

. You reinvest all dividends and distributions;

. You redeem at the end of each period;

. Your investment has a 5% return each year; and

. The Portfolio's operating expenses remain the same.

Under these assumptions, your costs, including the maximum annual TRAK(R) fee,
would be:

<TABLE>
<CAPTION>
After After After After
1 year 3 years 5 years 10 years
<S> <C> <C> <C>
$269 $826 $1,410 $2,993
</TABLE>

Consulting Group Capital Markets Funds
<PAGE>

Intermediate Fixed Income Investments

Investment objective

Current income and reasonable stability of principal.

Principal investment strategies

The Portfolio invests primarily in fixed income securities and instruments is-
sued by governmental and corporate issuers. These securities include mortgage-
related and asset-backed securities, although the Portfolio will not invest
more than 5% of its assets at the time of purchase in asset-backed securities.

Credit quality. The Portfolio invests exclusively in securities rated invest-
ment grade by a nationally recognized rating organization, or, if unrated, of
equivalent quality as determined by the subadvisor.

Maturity. The Portfolio's average maturity ranges from three to ten years. Av-
erage maturity is a weighted average of the stated maturities of the debt secu-
rities the Portfolio owns. Individual investments may be of any maturity.

How the subadvisors select the Portfolio's investments

Pacific Investment Management Company ("PIMCO") employs top-down and bottom-up
investment techniques. It implements the following "top-down" strategies: dura-
tion and volatility analyses, sector evaluation and yield curve shape analysis.
The subadvisor also employs the following "bottom-up" strategies: credit analy-
sis, quantitative research, issue selection and cost-effective trading. The
percentage of the Portfolio's assets allocated to PIMCO is 40%.

Metropolitan West Asset Management, LLC ("MWAM") seeks to consistently
outperform the benchmark while maintaining below average volatility. The
subadvisor believes consistent outperformance is gained through the measured
application of five value-added strategies: limited average maturity/duration
shifts, yield curve management, utilization of all sectors of the bond market,
quantitative security selection and sophisticated buy/sell execution strate-
gies. The percentage of the Portfolio's assets allocated to MWAM is 20%.

BlackRock Financial Management, Inc. ("BlackRock") employs a relative value ap-
proach which entails portfolio duration within a narrow range and value added
through sector and sub-sector rotation within the corporate and mortgage sec-
tors. The subadvisor evaluates securities within a risk management framework
which consists of determining interest rate risk, yield curve risk, cash flow
risk, credit risk and liquidity risk of securities. The percentage of the Port-
folio's assets allocated to BlackRock is 40%.

Principal risks of investing in the Portfolio

Your investment in the Portfolio is subject to the risks associated with in-
vesting in fixed income securities generally. These risks are described on page
3.

Your investment is also subject to the following specific risks:

. Greater sensitivity to rising interest rates than Government Money Invest-
ments because of the Portfolio's longer average maturity

. Greater exposure to prepayment and extension risks because the Portfolio may
invest a portion of its assets in mortgage-related and asset-backed securi-
ties

. Increased volatility in share price to the extent the Portfolio holds mort-
gage derivative securities having imbedded leverage or unusual interest rate
reset terms

The bar chart and tables indicate the risks and returns of investing in the
Portfolio. The bar chart below shows changes in the performance of the Portfo-
lio from year to year since its founding on November 18, 1991. The table on the
next page shows how the Portfolio's average annual returns for different calen-
dar periods compare to those of the Portfolio's benchmark index and its Lipper
Investor Services peer group. The Portfolio's past performance does not neces-
sarily indicate how the Portfolio will perform in the future.

[GRAPH]

Percentage Total Returns for
Intermediate Fixed Income Investments

92 5.86%
93 10.49%
94 (2.76)%
95 14.67%
96 3.64%
97 7.45%
98 7.23%
99 (0.43)%

Calendar years ended December 31

Consulting Group Capital Markets Funds
<PAGE>

Intermediate Fixed Income Investments, continued

AVERAGE ANNUAL TOTAL RETURNS

(for the period ended December 31, 1999)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
One Five Life of Inception
year years Portfolio Date
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio (without advisory program fee)* (0.43)% 6.40% 5.84% 11/18/91
Lehman Brothers Intermediate Gov/Corp Bond
Index 0.49 % 6.93% 6.21% **
Lipper Intermediate Investment Grade Debt
Funds Average (1.23)% 6.85% 6.47% **
------------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in an advisory
program. These programs charge an annual fee, which in the case of TRAK(R)
may be up to 1.5%.
** Index comparison begins on 11/18/91.

PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Total
return Quarter/Year
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Best 5.08 % 1st/1993
Worst (2.30)% 1st/1994
--------------------------------------------------------------------------------------------------
Year-to-date 5.86 % through 3rd/2000
--------------------------------------------------------------------------------------------------
</TABLE>

BENCHMARKS

The Portfolio's primary
benchmark is the Lehman Brothers
Intermediate
Government/Corporate Bond Index.
The index is composed of debt
securities of the U.S.
government and its agencies and
publicly issued, fixed rate,
non-convertible, investment-
grade domestic corporate debt
with at least one year remaining
to maturity. Unlike the
Portfolio, the benchmark is
unmanaged and does not include
any expenses. In addition, the
Portfolio compares its
performance with the Lipper
Intermediate Investment Grade
Debt Funds Average. It is an
average of the reinvested
performance of funds that invest
at least 65% of their assets in
corporate investment grade debt
issues rated in the top four
grades by a nationally
recognized rating organization
with dollar-weighted average
maturities of five to ten years.

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 expenses for the Portfolio's latest
fiscal year.

<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)

Maximum annual TRAK(R) fee 1.50%

Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fees 0.61%
Other expenses 0.17%
-----
Total annual Portfolio operating
expenses 0.78%
=====
</TABLE>

Example

This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.

The example assumes:

. You invest $10,000 in the Portfolio for the time periods indicated;

. You reinvest all dividends and distributions;

. You redeem at the end of each period;

. Your investment has a 5% return each year; and

. The Portfolio's operating expenses remain the same.

Under these assumptions, your costs, including the maximum annual TRAK(R) fee,
would be:

<TABLE>
<CAPTION>
After 1 After 3 After 5 After 10
year years years years
<S> <C> <C> <C>
$231 $712 $1,220 $2,615
</TABLE>

Consulting Group Capital Markets Funds
<PAGE>

Long-Term Bond Investments

Investment objective

Total return consisting of current income and appreciation of capital through
investments in fixed income securities without regard to remaining maturity.

Principal investment strategies

The Portfolio invests primarily in fixed income securities issued by U.S. gov-
ernmental and corporate issuers, U.S. dollar denominated fixed income securi-
ties of foreign issuers and mortgage-related and asset-backed securities. The
Portfolio will not invest more than 25% of its assets in privately issued mort-
gage-related securities.

Maturity. The Portfolio's average maturity is at least 10 years. Average matu-
rity is a weighted average of the stated maturity of debt securities the Port-
folio owns. Individual investments may be of any maturity.

How the subadvisor selects the Portfolio's investments

The subadvisor emphasizes three key strategies to enhance the Portfolio's total
return:

. Adjusting the allocation of the Portfolio among the key sectors of the fixed-
income market--government, corporate and mortgage and asset-backed--depending
upon its forecast of relative values.

. Tracking the duration of the overall portfolio so that it falls within a nar-
row band relative to the benchmark index, with adjustment made to reflect the
subadvisor's long-term outlook for interest rates.

. Purchasing under-valued securities in each of the key sectors of the bond
market while keeping overall quality high.

Principal risks of investing in the Portfolio

Your investment in the Portfolio is subject to the risks associated with in-
vesting in fixed income securities generally. These risks are described on page
3.

Your investment is also subject to the following specific risks:

. Greater sensitivity to rising interest rates than Intermediate Fixed Income
Investments because of the Portfolio's longer average maturity

. Greater exposure to prepayment and extension risks because the Portfolio may
invest a portion of its assets in mortgage-related and asset-backed securi-
ties

[GRAPH]

Percentage Total Returns for
Long-Term Bond Investments

92 5.93%
93 10.02%
94 (5.12)%
95 18.13%
96 3.11%
97 12.90%
98 10.63%
99 (9.57)%

Calendar years ended December 31

AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1999)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
One Five Life of Inception
year years Portfolio Date
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio (without advisory program fee)* (9.57)% 6.59% 5.62% 11/18/91
Lehman Brothers Gov/Corp Bond Index (2.15)% 7.61% 6.93% **
Lipper Corporate Debt Funds A Rated Average (2.50)% 6.96% 6.60% **
-------------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in an advisory
program. These programs charge an annual fee, which in the case of TRAK(R)
may be up to 1.5%.
** Index comparison begins on 11/18/91.

PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Total
return Quarter/Year
------------------------------------------------------------------------------------------------
<S> <C> <C>
Best 6.76 % 3rd/1998
Worst (3.95)% 1st/1999
------------------------------------------------------------------------------------------------
Year-to-date 10.04 % through 3rd/2000
------------------------------------------------------------------------------------------------
</TABLE>

Consulting Group Capital Markets Funds
<PAGE>

Long-Term Bond Investments, continued

BENCHMARKS

The Portfolio's primary bench-
mark is the Lehman Brothers
Government/Corporate Bond Index.
The index is composed of debt
securities of the U.S. govern-
ment and its agencies and pub-
licly issued fixed rate, non-
convertible, investment-grade
corporate debt securities with
at least one year remaining to
maturity. Unlike the Portfolio,
the benchmark is unmanaged and
does not include any expenses.
In addition, the Portfolio com-
pares its performance with the
Lipper Corporate Debt Funds A
Rated Average. It is an average
of the reinvested performance of
funds that invest at least 65%
of their assets in corporate
debt issues rated "A" or better
by a nationally recognized rat-
ing organization or government
issues.

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 expenses for the Portfolio's latest
fiscal year.

<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)

Maximum annual TRAK(R) fee 1.50%

Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fees 0.60%
Other expenses 0.32%
-----
Total annual Portfolio operating
expenses 0.92%
=====
</TABLE>

Example

This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.

The example assumes:

. You invest $10,000 in the Portfolio for the time periods indicated;

. You reinvest all dividends and distributions;

. You redeem at the end of each period;

. Your investment has a 5% return each year; and

. The Portfolio's operating expenses remain the same.

Under these assumptions, your costs, including the maximum annual TRAK(R) fee,
would be:

<TABLE>
<CAPTION>
After 1 After 3 After 5 After 10
year years years years
<S> <C> <C> <C>
$245 $755 $1,291 $2,756
</TABLE>

Consulting Group Capital Markets Funds
<PAGE>

Mortgage Backed Investments
Investment objective

High current income and secondarily capital appreciation, each to the extent
consistent with the protection of capital.

Principal investment strategies

The Portfolio invests primarily in mortgage-related securities representing
pools of mortgage loans assembled for sale to investors by various U.S. govern-
mental agencies, and government-related organizations, and private issuers. The
Portfolio will not invest more than 25% of its assets in privately issued mort-
gage-related securities.

The Portfolio may also invest in mortgage-related derivative securities such as
government stripped mortgage-backed securities (SMBS) and collateralized mort-
gage obligations (CMOs). SMBS represent the right to receive either principal
or interest payments on U.S. government securities. Interests in CMOs entitle
the holder to specified cash flows from a pool of mortgages. In order to en-
hance current income, the Portfolio may enter into mortgage dollar roll trans-
actions with respect to mortgage-related securities issued by U.S. governmental
agencies or instrumentalities.

How the subadvisor selects the Portfolio's investments

The subadvisor, Utendahl Capital Management CFI, uses a quantitative
computer-modelled in-
vestment process to seek to identify and capitalize on inefficiencies in the
mortgage-backed securities market.

The subadvisor generally maintains the portfolio's average duration within a
narrow band around the duration of the entire mortgage-backed securities mar-
ket. Duration is an approximate measure of the sensitivity of the market value
of the Portfolio's holdings to changes in interest rates. The subadvisor nor-
mally focuses the Portfolio's holdings on mortgage related securities issued by
U.S. government agencies and government related organizations.

Credit quality. The Portfolio generally invests in securities rated no lower
than "A" at the time of purchase by a nationally recognized rating agency or,
if unrated, of equivalent quality as determined by the subadvisor. However, up
to 20% of the Portfolio's assets may be invested in securities rated as low as
"B" by a nationally recognized rating organization or, if unrated, of equiva-
lent quality as determined by the subadvisor, upon the concurrence of the man-
ager.

Principal risks of investing in the Portfolio

Because mortgage-related securities are a type of fixed income security, your
investment in the Portfolio is subject to the risks of investing in fixed in-
come securities generally. These risks are described on page 3.

Your investment is also subject to the specific risks of investing primarily in
mortgage related securities. Mortgage-related securities generally represent
direct or indirect interests in the principal and interest payments on individ-
ual pools of mortgage loans. The mortgage loans typically allow the mortgagor
(i.e., the homeowner) to prepay principal on their mortgages whenever they
choose. For this reason, your investment is also subject to:

. Increased prepayment and extension risk which increases price and yield vola-
tility

. Increased volatility in share price to the extent the Portfolio holds mort-
gage derivative securities having imbedded leverage or unusual interest rate
reset terms

. To the extent the Portfolio enters into mortgage dollar roll transactions,
the risk that the securities the Portfolio has agreed to purchase will be
worth less on the repurchase date than the repurchase price because of
changes in interest rates and market conditions

Payments of principal and interest on mortgage pools issued by government re-
lated organizations are not guaranteed by the U.S. government. Although mort-
gage pools issued by U.S. agencies are guaranteed with respect to payments of
principal and interest, such guarantee does not apply to losses resulting from
declines in the market value of such securities.

Consulting Group Capital Markets Funds
<PAGE>

Mortgage Backed Investments, continued

[GRAPH]

Percentage Total Returns for
Mortgage Backed Investments

92 6.55%
93 6.20%
94 (2.08)%
95 15.46%
96 4.69%
97 8.78%
98 6.93%
99 0.83%

Calendar years ended December 31

AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1999)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
One Five Life of Inception
year years Portfolio Date
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio (without advisory program fee)* 0.83% 7.23% 6.02% 11/18/91
Lehman Mortgage Backed Index 1.86% 7.98% 4.86% **
Lipper U.S. Mortgage Funds Average 0.71% 7.03% 5.94% **
---------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in an advisory
program. These programs charge an annual fee, which in the case of TRAK(R)
may be up to 1.5%.
** Index comparison begins on 11/18/91.

PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Total
return Quarter/Year
------------------------------------------------------------------------------------------------
<S> <C> <C>
Best 4.95 % 2nd/1995
Worst (2.16)% 1st/1994
------------------------------------------------------------------------------------------------
Year-to-date 6.83 % through 3rd/2000
------------------------------------------------------------------------------------------------
</TABLE>

BENCHMARKS

The Portfolio's primary
benchmark is Lehman Brothers
Mortgage Backed Securities
Index. The index contains most
fixed rate securities issued and
backed by mortgage pools of
federal agencies or government
related organizations. Unlike
the Portfolio, the benchmark is
unmanaged and does not include
any expenses. In addition, the
Portfolio compares its
performance with the Lipper U.S.
Mortgage Funds Average. It is 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.

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 expenses of the Portfolio's latest
fiscal year.

<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)

Maximum annual TRAK(R) fee 1.50%

Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fees 0.70%
Other expenses 0.27%
-------
Total annual Portfolio operating
expenses 0.97%
Management and Administration
Fee waivers* (0.12)%
-------
Net annual Portfolio operating
expenses 0.85%
=======
</TABLE>
* Management has agreed to waive a portion of management and administration
fees because it has voluntarily agreed to limit total annual portfolio oper-
ating expenses (excluding interest expense) to 0.80% of average net assets.
The interest expense for the most recent fiscal year was 0.05% of average net
assets. The manager may change or eliminate this expense limitation at any
time.

Example

This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.

The example assumes:

. You invest $10,000 in the Portfolio for the time periods indicated;
. You reinvest all dividends and distributions;
. You redeem at the end of each period;
. Your investment has a 5% return each year; and
. The Portfolio's operating expenses remain the same.

Under these assumptions, your costs, including the maximum annual TRAK(R) fee,
would be:

<TABLE>
<CAPTION>
After 1 After 3 After 5 After 10
year years years years
<S> <C> <C> <C>
$250 $770 $1,316 $2,806
</TABLE>

Consulting Group Capital Markets Funds
<PAGE>

High Yield Investments

Investment objective

A high level of current income by investing primarily in below investment grade
debt securities.

Principal investment strategies

The Portfolio invests primarily in fixed income securities of corporate issuers
located in the United States. The Portfolio may invest a portion of its assets
in securities of issuers located in developed foreign countries. The Portfolio
may also invest up to 10% of its assets in equity and equity-related securi-
ties, including convertible securities, preferred stock, warrants and rights.

Credit quality. The Portfolio invests primarily in fixed-income securities
rated below investment grade by two or more nationally recognized rating orga-
nizations, or, if unrated, of equivalent quality as determined by the
subadvisor, Alliance Capital Management L.P. Securities rated below investment
grade are commonly known as "junk bonds."

Duration. The Portfolio's average duration ranges from two to six years. Dura-
tion is an approximate measure of the sensitivity of the market value of the
Portfolio's holdings to changes in interest rates. Individual securities may be
of any maturity.

How the subadvisor selects the Portfolio's investments

The subadvisor employs a relative value investment process, looking for securi-
ties of companies with improving or stable credit quality trends. The Portfolio
focuses on investments in the "BB" and "B" quality spectrum. The investing
process includes:

. Extensive portfolio research on issuers and their business conditions

. Thorough analysis of issuers and their credit quality

. Emphasis on general economic and interest rate trends and forecasts

Principal risks of investing in the Portfolio

Your investment in the Portfolio is subject to the risks of investing in fixed
income securities generally. However, these risks, which are described on page
3, are significantly greater for the Portfolio because of its focus on non-in-
vestment grade fixed income securities.

Investment in high yield securities involves substantial risk of loss. These
securities are considered speculative with respect to the issuer's ability to
pay interest and principal and are susceptible to default or decline in market
value because 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. For these reasons, your in-
vestment in the Portfolio is subject to the following specific risks:

. Increased price sensitivity to changing interest rates

. Greater risk of loss because of default or declining credit quality

. Adverse company specific events are more likely to render the issuer unable
to make interest and/or principal payments

. A negative perception of the high yield market develops, depressing the price
and liquidity of high yield securities. This negative perception could last
for a significant period of time

The market value of foreign securities may decline because of unfavorable for-
eign government actions, political, economic or market instability or the ab-
sence of accurate information about foreign companies. These risks may be more
severe for securities of issuers in emerging markets. Foreign securities are
sometimes less liquid and harder to value than securities of U.S. issuers.

Consulting Group Capital Markets Funds
<PAGE>

High Yield Investments, continued
The bar chart and tables below indicate the risks and returns of investing in
the Portfolio. The bar chart shows changes in the performance of the Portfolio
from year to year since its founding on July 13, 1998. The table shows how the
Portfolio's average annual returns for different calendar periods compare to
those of the Portfolio's benchmark index and its Lipper peer group. The Portfo-
lio's past performance does not necessarily indicate how the Portfolio will
perform in the future.

[GRAPH]

Percentage Total Returns for
High Yield Investments

99 (6.96)%

Calendar year ended December 31

AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1999)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
One Five Life of Inception
year years Portfolio Date
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio (without advisory program fee)* (6.96)% n/a (3.62)% 7/13/98
CS First Boston Global High Yield Index 3.28 % n/a (0.78)% **
----------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in an advisory
program. These programs charge an annual fee, which in the case of TRAK(R)
may be up to 1.5%.
** Index comparison begins on 7/13/98.

PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Total
return Quarter/Year
------------------------------------------------------------------------------------------------
<S> <C> <C>
Best 2.11 % 2nd/1999
Worst (6.03)% 4th/1999
------------------------------------------------------------------------------------------------
Year-to-date (1.94)% through 3rd/2000
------------------------------------------------------------------------------------------------
</TABLE>

BENCHMARKS

The Portfolio's benchmark is CS
First Boston Global High Yield
Index, a broad-based market
measure of high yield bonds,
commonly known as "junk bonds".
Because the index is not a
managed portfolio, there are no
advisory fees or internal
management expenses reflected in
the index's performance. An
investor cannot invest directly
in an index.

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 expenses of the Portfolio's latest
fiscal year.

<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)

Maximum annual TRAK(R) fee 1.50%

Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fees 0.90%
Other expenses 0.30%
-----
Total annual Portfolio operating
expenses 1.20%
=====
</TABLE>

Example

This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.

The example assumes:

. You invest $10,000 in the Portfolio for the time periods indicated;

. You redeem at the end of each period;

. You reinvest all dividends and distributions;

. Your investment has a 5% return each year; and

. The Portfolio's operating expenses remain the same.

Under these assumptions, your costs, including the maximum annual TRAK(R) fee,
would be:

<TABLE>
<CAPTION>
After After After After
1 year 3 years 5 years 10 years
<S> <C> <C> <C>
$273 $838 $1,430 $3,032
</TABLE>

Consulting Group Capital Markets Funds
<PAGE>

Multi-Sector Fixed Income Investments

Investment objective

Total return consisting of capital appreciation and income.

Principal investment strategies

The Portfolio invests primarily in fixed-income securities issued by U.S. gov-
ernmental and corporate issuers and mortgage-related and asset-backed securi-
ties.

How the subadvisors select the Portfolio's investments

The manager has selected four subadvisors to manage the Portfolio. Each
subadvisor focuses on a different segment of the fixed income marketplace. Each
subadvisor's investment approach is described below.

Metropolitan West Asset Management LLC ("MWAM") seeks to consistently
outperform the benchmark while maintaining below average volatility. The
subadvisor believes consistent outperformance is gained through the measured
application of five value-added strategies: limited average maturity/duration
shifts, yield curve management, utilization of all sectors of the bond market,
quantitative security selection and sophisticated buy/sell execution strate-
gies. The percentage of the Portfolio's assets allocated to MWAM is 50%.

Western Asset Management Company ("Western") focuses on investment grade long-
term fixed income securities, including those issued by U.S. governmental and
corporate issuers, U.S. dollar denominated fixed income securities of foreign
issuers and mortgage-backed and asset-backed securities. It emphasizes three
key strategies to enhance the Portfolio's total return:

. Adjusting the allocation of the Portfolio among the key sectors of the fixed
income market (government, corporate and mortgage and asset-backed) depending
on its forecast of relative values

. Tracking the duration of the overall Portfolio so that it falls within a
narrow band relative to the benchmark index, with adjustment made to reflect
its long-term outlook for interest rates

. Purchasing under-valued securities in each of the key sectors of the bond
market while keeping overall quality high.

The percentage of the Portfolio's assets allocated to Western is 20%.

Utendahl Capital Management CFI ("Utendahl") focuses on mortgage-related
securities represent-
ing pools of mortgage loans assembled for sale to investors by various U.S.
government agencies, government-related organizations and private issuers. The
Portfolio may also invest in mortgage-related derivative securities such as
government stripped mortgage-backed securities ("SMBS") and collaterized mort-
gage obligations ("CMOs"). SMBS represent the right to receive either principal
or interest payments of U.S. government securities. Interests in CMOs entitle
the holder to specified cash flows from a pool of mortgages. In order to en-
hance current income, the Portfolio may enter into mortgage dollar roll trans-
actions with respect to mortgage-related securities issued by U.S. governmental
agencies or instrumentalities.

The subadvisor uses a quantitative computer-modelled investment process to seek
to identify and capitalize on inefficiencies in the mortgage-backed securities
market. The subadvisor generally maintains the Portfolio within a narrow band
around the duration of the entire mortgage-backed market and normally focuses
on mortgage-related securities issued by U.S. government agencies and govern-
ment related organizations. The percentage of the Portfolio's assets allocated
to Utendahl is 20%.

Alliance Capital Management L.P. ("Alliance") focuses on below investment grade
fixed income securities, also known as "high yield" securities and commonly re-
ferred to as "junk bonds." It invests primarily in fixed income securities of
corporate issuers located in the U.S., but may also invest in securities of is-
suers located in developed foreign countries. It may also invest a portion of
the Portfolio in equity and equity-related securities, including convertible
securities, preferred stocks, warrants and rights.

The subadvisor invests primarily in fixed income securities whose average dura-
tion ranges from two to six years. Individual securities may be of any maturi-
ty.

The subadvisor employs a relative value investment process, looking for securi-
ties of companies with improving or stable credit quality trends. It focuses on
investments in the "BB" and "B" quality spectrum. The investing process
includes:

. Extensive research of issuers and their business conditions

. Thorough analysis of issuers and their credit quality

. Emphasis on general economic and interest rate trends and forecasts.

The percentage of the Portfolio's assets allocated to Alliance is 10%.

Consulting Group Capital Markets Funds
<PAGE>

Multi-Sector Fixed Income Investments, continued

Credit Quality. The intermediate maturity, long-term maturity and mortgage-re-
lated portions of the Portfolio are invested primarily in securities rated in-
vestment grade by a nationally recognized statistical rating organization, or,
if unrated, of equivalent quality as determined by the subadvisor. The high
yield portion of the Portfolio will primarily be invested in fixed income secu-
rities rated below investment grade, or, if unrated, of equivalent quality as
determined by the subadvisor. Securities rated below investment grade are com-
monly known as "junk bonds."

Duration and Maturity. The Portfolio's average duration is normally within one
year of the duration of the Lehman Brothers Aggregate Bond Index. Duration is
an approximate measure of the sensitivity of the market value of the Portfo-
lio's holdings to changes in interest rates. Individual securities may be of
any maturity.

Principal risks of investing in the Portfolio

. You could lose money on your investment in the portfolio, or the portfolio
may not perform as well as other investments

. The manager's judgment about the attractiveness and risk adjusted return
potential of particular asset classes, investment styles or other issues may
prove to be wrong

. When interest rates go up, prices of fixed income securities decline

. An issuer of a security may prepay principal earlier than scheduled, which
would force the portfolio to reinvest in lower yielding securities. This is
known as call or prepayment risk

. An issuer of a security may default on its obligation to pay principal and/or
interest or the security's credit rating may be downgraded

. Greater sensitivity to rising interest rates because of the Portfolio's
longer average maturity and because the Portfolio invests a portion of its
assets in high yield securities

. Increased volatility in share price because the Portfolio invests a portion
of its assets in high yield securities and holds mortgage derivative securi-
ties with embedded leverage or unusual interest rate reset terms

. The Portfolio may not fully benefit from or may lose money on derivatives if
changes in their value do not correspond accurately to changes in the value
of the underlying securities

Performance

Because this Portfolio commenced operations on October 1, 1999, the Portfolio
does not yet have a sufficient operating history to generate the performance
information which other Portfolios show in bar and table form at this location
of the prospectus.

Year to date: 6.37% (through 3rd Quarter 2000)

BENCHMARK

The Portfolio's primary benchmark
is Lehman Brothers Aggregate Bond
Index. The Index is composed of
the Lehman Intermediate
Government/Corporate Bond Index
and the Lehman Mortgage-Backed
Securities Index and also
includes treasury issues, agency
issues, corporate bond issues and
mortgage-backed securities.
Unlike the Portfolio, the
benchmark is unmanaged and does
not include any expenses.

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 0.32%
-------
Total annual Portfolio operating
expenses** 1.17%
Management and Administration fee
waivers** (0.37)%
-------
Net annual Portfolio operating
expenses 0.80%
=======
</TABLE>

* Fee payable under the TRAK(R) Personalized Investment Advisory Service for
asset allocation services. See "Asset Allocation Programs."
** Management has agreed to waive a portion of management and administration
fees because it has voluntarily agreed to limit total annual Portfolio oper-
ating expenses to 0.80% of average net assets. The manager may change or
eliminate this expense limitation at any time.

Consulting Group Capital Markets Funds
<PAGE>

Multi-Sector Fixed Income Investments, continued

Example

This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.

The example assumes:

. You invest $10,000 in the Portfolio for the time periods indicated;

. You reinvest all dividends and distributions;

. You redeem at the end of each period;

. Your investment has a 5% return each year; and

. The Portfolio's operating expenses remain the same.

Under these assumptions, your costs including the maximum annual TRAK(R) fee,
would be:

<TABLE>
<CAPTION>
After
After 1 After 3 5 After 10
year years years years
<S> <C> <C> <C>
$270 $829 $1,415 $3,003
</TABLE>

Consulting Group Capital Markets Funds
<PAGE>

This page intentionally left blank

Consulting Group Capital Markets Funds
<PAGE>

International Fixed Income Investments

Investment objective

Maximize current income consistent with the protection of principal.

Principal investment strategies

The Portfolio invests primarily in non-U.S. dollar denominated fixed income se-
curities issued by foreign governments and corporations and supranational enti-
ties. The Portfolio invests primarily in fixed income securities of issuers lo-
cated in at least three countries and will not invest more than 25% of its as-
sets in the securities of governments or corporations in any one country. The
Portfolio attempts to hedge against unfavorable changes in currency exchange
rates by engaging in forward currency transactions and trading currency futures
contracts and options on these futures.

Credit Quality: The Portfolio invests in securities rated investment grade by a
nationally recognized rating organization, or if unrated, of equivalent quality
as determined by the subadvisor, Julius Baer Investment Management. The Portfo-
lio may invest up to 10% of its assets in emerging market debt securities rated
below investment grade, or if unrated, of equivalent quality as determined by
the subadvisor.

Duration: The Portfolio's average duration ranges from two to eight years. Du-
ration is an approximate measure of the sensitivity of the market value of the
Portfolio's holdings to changes in interest rates. The Portfolio may invest in
individual securities of any maturity.

How the subadvisor selects the Portfolio's investments

The subadvisor applies portfolio economic analysis to select a portfolio of
high-quality, well-diversified foreign bonds. From a universe of 20 developed
countries outside the U.S., the subadvisor forecasts which bond markets offer
the best opportunity to outperform the U.S. bond market, considering factors
such as currencies, local bond market conditions, issuers and instruments. It
pays particular attention to markets that offer attractive yields. The
subadvisor employs a proprietary computer model to analyze exchange rates to
assist in its forecasts and to help manage the risk of the Portfolio.

Principal risks of investing in the Portfolio

Your investment in the Portfolio is subject to the risks associated with in-
vesting in fixed income securities generally. These risks are described on page
3.

Your investment is also subject to the unique risks of investing in securities
of foreign issuers. These risks are more pronounced to the extent that the
Portfolio invests in countries with emerging markets or the Portfolio invests
significantly in any one foreign country. These risks include:

. Less information about foreign issuers or markets may be available because of
less rigorous accounting standards or regulatory practices

. Many foreign markets are smaller, less-liquid and more volatile than U.S.
markets. In a changing market, the subadvisor may not be able to sell the
Portfolio's securities in amounts and at prices the subadvisor considers
reasonable

. The foreign governmental issuer may default on, declare a moratorium on, or
restructure its obligations

. The U.S. dollar may appreciate against non-U.S. currencies

. Economic, political or social instability in foreign countries may signifi-
cantly disrupt the principal financial markets in which the Portfolio invests

The bar chart and tables indicate the risks and returns of investing in the
Portfolio. The bar chart below shows changes in the performance of the Portfo-
lio from year to year since the Portfolio's inception on November 18, 1991. The
table on the next page shows how the Portfolio's average annual returns for
different calendar periods compare to those of the Portfolio's benchmark index
and its Lipper peer group. The Portfolio's past performance does not necessar-
ily indicate how the Portfolio will perform in the future.

[GRAPH]

Percentage Total Returns for
International Fixed Income Investments

92 3.23%
93 13.83%
94 2.30%
95 23.85%
96 8.69%
97 (2.38)%
98 17.64%
99 (6.83)%

Calendar years ended December 31

Consulting Group Capital Markets Funds
<PAGE>

International Fixed Income Investments, continued

AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1999)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
One Five Life of Inception
year years Portfolio Date
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio (without advisory program fee)* (6.83)% 7.57% 7.76% 11/18/91
Salomon Smith Barney Non-U.S. Gov. Bond
Index (5.07)% 5.90% 7.68% **
Lipper International Income Funds Average (4.25)% 6.79% 6.74% **
-----------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in an advisory
program. These programs charge an annual fee, which in the case of TRAK(R)
may be up to 1.5%.
** Index comparison begins on 11/18/91.

PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Total
return Quarter/Year
------------------------------------------------------------------------------------------------
<S> <C> <C>
Best 11.45 % 1st/1995
Worst (5.43)% 1st/1999
------------------------------------------------------------------------------------------------
Year-to-date (7.09)% through 3rd/2000
------------------------------------------------------------------------------------------------
</TABLE>

BENCHMARKS

The Portfolio's primary bench-
mark is the Salomon Smith Barney
Non-U.S. Government Bond Index.
The index is a market capital-
ization-weighted index consist-
ing of government bond markets
in 13 developed countries, ex-
cluding the U.S. Unlike the
Portfolio, the benchmark is un-
managed and does not include any
expenses. In addition, the Port-
folio compares its performance
with the Lipper International
Income Funds Average. It is an
average of the reinvested per-
formance of funds that invest
primarily in U.S. dollar and
non-U.S. dollar debt securities
located in at least three coun-
tries, excluding the United
States, except in periods of
market weakness.

Fee table
This table describes the fees and expenses you may pay if you buy and hold
shares of the Portfolio based upon expenses of the Portfolio's latest fiscal
year.

<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)

Maximum annual TRAK(R) fee 1.50%

Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fees 0.70%
Other expenses 0.28%
-----
Total annual Portfolio operating
expenses 0.98%
=====
</TABLE>

Example

This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.

The example assumes:

. You invest $10,000 in the Portfolio for the time periods indicated;

. You reinvest all dividends and distributions;

. You redeem at the end of each period;

. Your investment has a 5% return each year; and

. The Portfolio's operating expenses remain the same.

Under these assumptions, your costs, including the maximum annual TRAK(R) fee,
would be:

<TABLE>
<CAPTION>
After 1 After 3 After 5 After 10
year years years years
<S> <C> <C> <C>
$251 $773 $1,321 $2,816
</TABLE>
The Portfolio is a "non-diversified portfolio," which means that it
is permitted to invest in a limited number of issuers. To the extent
the Portfolio concentrates its investments in a limited number of is-
suers or countries, it is subject, to a greater extent, to the risks
associated with those issuers or countries.

Consulting Group Capital Markets Funds
<PAGE>

Municipal Bond Investments

Investment objective

A high level of interest income that is excluded from federal income taxation
to the extent consistent with prudent investment management and the preserva-
tion of capital.

Principal investment strategies

The Portfolio invests principally in tax exempt general obligation, revenue and
private activity bonds and notes, which are issued by or on behalf of states,
territories or possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities (including
Puerto Rico, the Virgin Islands and Guam). Tax exempt means that the bonds pay
interest that is excluded from gross income for federal income tax purposes.
The Portfolio's investments generally include municipal obligations with a full
range of maturities and broad issuer and geographic diversification.

Credit quality. The Portfolio limits its investments to municipal obligations
that are rated investment grade or higher by a nationally recognized rating or-
ganization, or, if unrated, of equivalent quality as determined by the
subadvisor, Smith Affiliated Capital Corporation.

How the subadvisor selects the Portfolio's investments

The subadvisor uses an active fixed-income management style that focuses first
on the appropriate maturity allocation for the Portfolio within a given market
environment. The maturity allocation is supplemented by a long-term market sec-
tor rotation. The subadvisor focuses primarily on:

. ""Vital service" revenue bonds (i.e., water, electric, power, sewer and se-
lect transportation authority) and secondarily on general obligation bonds of
high-quality issuers.

. Using portfolio credit analysis to evaluate the relative attractiveness of
various securities and sectors.

. Broad geographic and issuer diversification.

Maturity. The Portfolio is generally composed of a full range of maturities.
Individual investments may be of any maturity.

Principal risks of investing in the Portfolio

Because municipal obligations are a type of fixed income security, your invest-
ment in the Portfolio is subject to the risks associated with investing in
fixed income securities generally. These risks are described on page 3.

Your investment in the Portfolio is also subject to the following specific
risks:

. New federal or state legislation may adversely affect the tax-exempt status
of securities held by the Portfolio or the financial ability of the munici-
palities to repay these obligations

. The issuer of municipal obligations may not be able to make timely payments
because of general economic downturns or increased governmental costs

It is possible that some of the Portfolio's income distributions may be, and
distributions of the Portfolio's gains will be, subject to federal taxation.
The Portfolio may realize taxable gains on the sale of its securities or other
transactions, and some of the Portfolio's income distributions may be subject
to the federal alternative minimum tax. This may result in a lower tax-adjusted
return. In addition, distribution of the Portfolio's income and gains will be
subject to state taxation.

[GRAPH]

Percentage Total Returns for
Municipal Bond Investments

92 8.13%
93 12.59%
94 (10.20)%
95 20.12%
96 2.10%
97 8.82%
98 5.39%
99 (5.62)%

Calendar years ended December 31

Consulting Group Capital Markets Funds
<PAGE>

Municipal Bond Investments, continued

AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1999)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
One Five Life of Inception
Year Years Portfolio Date
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio (without advisory program fee)* (5.62)% 5.83% 4.91% 11/18/91
Lehman Municipal Bond Index (2.06)% 6.91% 6.42% **
Lipper General Municipal Debt Funds Average (4.58)% 5.78% 5.72% **
-------------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in an advisory
program. These programs charge an annual fee, which in the case of TRAK(R)
may be up to 1.5%.
** Index comparison begins on 11/18/91.

PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Total
return Quarter/Year
------------------------------------------------------------------------------------------------
<S> <C> <C>
Best 8.99 % 1st/1995
Worst (8.16)% 1st/1994
------------------------------------------------------------------------------------------------
Year-to-date (8.07)% through 3rd/2000
------------------------------------------------------------------------------------------------
</TABLE>

BENCHMARKS

The Portfolio's primary bench-
mark is the Lehman Brothers Mu-
nicipal Bond Index. The index is
a composite measure of the total
return performance of the munic-
ipal bond market. Unlike the
Portfolio, the benchmark is un-
managed and does not include any
expenses. In addition, the Port-
folio compares its performance
with the Lipper General Munici-
pal Debt Funds Average. It is an
average of the reinvested per-
formance of funds that invest at
least 65% of their assets in mu-
nicipal debt issues in the top
four credit ratings as deter-
mined by a nationally recognized
rating organization.

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 expenses of the Portfolio's latest
fiscal year.

<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)

Maximum annual TRAK(R) fee 1.50%

Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fees 0.60%
Other expenses 0.19%
----
Total annual Portfolio operating
expenses 0.79%
====
</TABLE>

Example

This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.

The example assumes:

. You invest $10,000 in the Portfolio for the time periods indicated;

. You reinvest all dividends and distributions;

. You redeem at the end of each period;

. Your investment has a 5% return each year; and

. The Portfolio's operating expenses remain the same.

Under these assumptions, your costs, including the maximum annual TRAK(R) fee,
would be:

<TABLE>
<CAPTION>
After 1 After 3 After 5 After 10
year years years years
<S> <C> <C> <C>
$232 $715 $1,225 $2,626
</TABLE>

Consulting Group Capital Markets Funds
<PAGE>

Government Money Investments

Investment objective

To provide maximum current income to the extent consistent with the maintenance
of liquidity and the preservation of capital.

Principal investment strategies

The Portfolio invests exclusively in U.S. dollar denominated short-term debt
securities issued or guaranteed by the U.S. government, its agencies, or in-
strumentalities and in repurchase agreements with respect to these securities.

Credit quality. The Portfolio invests exclusively in U.S. treasury securities
and other U.S. government securities rated by a nationally recognized rating
organization in the two highest short-term rating categories or, if unrated, of
equivalent quality as determined by the subadvisor, Standish Ayer & Wood, Inc..

Maturity. Individual securities must have remaining maturities of 397 days or
less. The Portfolio maintains a dollar-weighted portfolio maturity of 90 days
or less.

How the subadvisor selects the Portfolio's investments

The Portfolio seeks to maintain a constant net asset value of $1 per share by
investing in securities which the subadvisor believes present minimal credit
risks. It focuses on improving the Portfolio's yield by:

. Actively managing sector allocations and the average maturity of the Portfo-
lio.

. Monitoring the spread relationships between U.S. Treasury and government
agency issues and purchasing agencies when they provide a yield advantage.

. Adjusting average portfolio maturity to reflect the subadvisor's outlook on
interest rates.

Principal risks of investing in the Portfolio

Your investment in the Portfolio is subject to the risks associated with in-
vesting in fixed income securities generally. These risks are described on page
3. Because the Portfolio invests exclusively in short-term, high-quality debt
securities, these risks are less significant than in the case of Portfolios
which invest in longer-term securities or in below investment grade securities.

Investment in short-term U.S. government securities is generally the most con-
servative investment approach of all the Portfolios. Over time, the Portfolio
is likely to underperform other investment options.

The Portfolio seeks to maintain a $1 share price. However, the maintenance of a
$1 share price is not guaranteed and you may lose money on your investment.

The bar chart and tables below indicate the risks and returns of investing in
the Portfolio. The bar chart shows changes in the performance of the Portfolio
from year to year since its founding on November 18, 1991. The table shows how
the Portfolio's average annual returns for different calendar periods compare
to the return on the 90-day Treasury bill. The Portfolio's past performance
does not necessarily indicate how the Portfolio will perform in the future.

[GRAPH]

Percentage Total Returns for
Government Money Investments

92 3.25%
93 2.69%
94 3.71%
95 5.48%
96 4.91%
97 5.04%
98 4.99%
99 4.58%

Calendar years ended December 31

AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1999)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
One Five Life of Inception
year years Portfolio Date
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio (without advisory program fee)* 4.58% 5.00% 4.32% 11/18/91
90-day T-bill Index 4.74% 5.11% 4.54% **
--------------------------------------------------------------------------
</TABLE>
* The Portfolio is available only to investors participating in advisory pro-
grams. These programs charge an annual fee, which in the case of TRAK(R)
Personalized Investment Advisory Service may be up 1.5%

** Index comparison begins on 11/18/91.

The portfolio's 7-day yield as of December 31, 1999 was 5.11%.

Consulting Group Capital Markets Funds
<PAGE>

Government Money Investments, continued

PORTFOLIO'S BEST AND WORST CALENDAR QUARTERS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Total
return Quarter/Year
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Best 1.40% 2nd/1995
Worst 0.65% 1st & 2nd/1993
-------------------------------------------------------------------------------------------------
Year-to-date 4.26% through 3rd/2000
-------------------------------------------------------------------------------------------------
</TABLE>

BENCHMARK

The Portfolio's benchmark is the
rate of return of the 90 day
Treasury bill. Unlike the
Portfolio, the benchmark is
unmanaged and does not include
any expenses.

Fees and Expenses

This table describes the fees and expenses you may pay if you buy and hold
shares of the Portfolio and is based upon expenses for the Portfolio's latest
fiscal year.

<TABLE>
<S> <C>
Shareholder fees None
(fees paid directly from your
investment)

Maximum annual TRAK(R) fee 1.50 %

Annual Portfolio operating expenses
(expenses that are deducted from
Portfolio assets)
Management fees 0.35 %
Other expenses 0.43 %
-----
Total annual Portfolio operating
expenses 0.78 %
Management and Administration fee
waivers and expense
reimbursements* (0.18)%
-----
Net annual Portfolio operating
expenses 0.60 %
=====
</TABLE>
* Management has agreed to waive a portion of management and administration
fees because it has voluntarily agreed to limit total annual Portfolio oper-
ating expenses to 0.60% of average net assets. The manager may change or
eliminate this expense limitation at any time.

Example

This example is intended to help you compare the cost of investing in the Port-
folio with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.

The example assumes:

. You invest $10,000 in the Portfolio for the time periods indicated;

. You reinvest all dividends and distributions;

. You redeem at the end of each period;

. Your investment has a 5% return each year; and

. The Portfolio's operating expenses remain the same.

Under these assumptions, your costs, including the maximum annual TRAK(R) fee,
would be:

<TABLE>
<CAPTION>
After 1 After 3 After 5 After 10
year years years years
<S> <C> <C> <C>
$231 $712 $1,220 $2,615
</TABLE>

Consulting Group Capital Markets Funds
<PAGE>

More on the Portfolios' Investments

The section entitled "Investments, Risks and Performance" describes the Portfo-
lios' investment objectives and their principal investment strategies and
risks. This section provides some additional information about the Portfolios'
investments and certain investment management techniques the Portfolios may
use. More information about the Portfolios' investments and portfolio manage-
ment techniques, some of which entail risk, is included in the Statement of Ad-
ditional Information (SAI). To find out how to obtain an SAI, please turn to
the back cover of this prospectus.

Percentage Limits

Equity Investments. The equity oriented Portfolios may invest in all types of
equity securities. Equity securities include exchange-traded and over-the-
counter common and preferred stocks, warrants, rights, convertible securities,
depositary receipts and shares, trust certificates, limited partnership inter-
ests, shares of other investment companies and real estate investment trusts
and equity participations.

Fixed Income Investments. The fixed income oriented Portfolios (except Govern-
ment Money Investments, Municipal Bond Investments and Balanced Investments,
which limit their investments to certain types of fixed income instruments) may
invest in all types of fixed income securities. The equity oriented Portfolios
may invest a portion of their assets in fixed income securities. Fixed income
investments include bonds, notes (including structured notes), mortgage-related
and asset-backed securities (Intermediate Fixed Income Investments, Long-Term
Bond Investments, Mortgage Backed Investments, Multi-Sector Fixed Income In-
vestments and Balanced Investments only), convertible securities, eurodollar
and yankee dollar instruments, preferred stocks and money market instruments.
Fixed income securities may be issued by corporate and governmental issuers and
may have all types of interest rate 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.

Mortgage-related securities may be issued by private companies or by agencies
of the U.S. government and represent direct or indirect participations in, or
are collateralized by and payable from, mortgage loans secured by real proper-
ty. Intermediate Fixed Income Investments, Long-Term Bond Investments and Mort-
gage Backed Investments may each invest up to 25% of their assets in privately
issued mortgage-related securities. Long-Term Bond Investments, Balanced In-
vestments and Intermediate Fixed Income Investments may each invest up to 5% of
their respective assets and Multi-Sector Fixed Income Investments may invest up
to 10% of its assets in asset-backed securities, which represent participations
in, or are secured by and payable from, assets such as installment sales or
loan contracts, leases, credit card receivables and other categories of receiv-
ables. A Portfolio's investments in asset-backed securities will be rated in
the highest rating category at the time of investment.

Certain debt instruments may pay principal only at maturity or may represent
only the right to receive payments of principal or payments of interest on un-
derlying pools of mortgages or government securities, but not both. The value
of these types of instruments may change more drastically than debt securities
that pay both principal and interest during periods of changing interest rates.
Interest only mortgage-backed securities are particularly subject to prepayment
risk. A Portfolio may obtain a below market yield or incur a loss on such in-
struments during periods of declining interest rates. Principal only instru-
ments are particularly subject to extension risk. For mortgage derivatives and
structured securities that have imbedded leverage features, small changes in
interest or prepayment rates may cause large and sudden price movements. Mort-
gage derivatives can also become illiquid and hard to value in declining mar-
kets.

Foreign Securities. Investments in securities of foreign entities and securi-
ties quoted or denominated in foreign currencies involve special risks. These
include possible political and economic instability and the possible imposition
of exchange controls or other restrictions on investments. If a Portfolio in-
vests in securities denominated or quoted in currencies other than the U.S.
dollar, changes in foreign currency rates relative to the U.S. dollar will af-
fect the U.S. dollar value of the Portfolio's assets.

Emerging market investments offer the potential of significant gains but also
involve greater risks than investing

Consulting Group Capital Markets Funds
40
<PAGE>

More on the Portfolios' Investments, continued

in more developed countries. Political or economic instability, lack of market
liquidity and government actions such as currency controls or seizure of pri-
vate businesses or property may be more likely in emerging markets. The Con-
sulting Group generally considers all of the western European countries, Cana-
da, Australia, New Zealand, Hong Kong, Singapore and Japan to have developed
markets and economies and the rest of the countries in the world to have emerg-
ing 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. For
participating countries, EMU means sharing a single currency and single offi-
cial 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 de-
gree of uncertainty as to whether participating countries will remain committed
to EMU in the face of changing economic conditions. This uncertainty may in-
crease the volatility of the international markets.

Each Portfolio which is not an international oriented Portfolio (International
Equity Investments, International Fixed Income Investments and Emerging Markets
Equity Investments), may invest up to 10% of its assets in foreign securities,
including emerging market securities.

Municipal Obligations. Municipal Bond Investments invests primarily in munici-
pal obligations, which are debt obligations issued by or on behalf of states,
cities, municipalities and other public authorities. The two principal classi-
fications of municipal obligations are "general obligation" securities and
"revenue" securities. General obligation securities are secured by the issuer's
pledge of its full faith, credit and taxing power for the payment of principal
and interest. Revenue securities are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source such as the
user of a facility being financed. Revenue securities may include private ac-
tivity bonds which may be issued by or on behalf of public authorities to fi-
nance various privately operated facilities and are not payable from the unre-
stricted revenues of the issuer. As a result, the credit quality of private ac-
tivity bonds is frequently related directly to the credit standing of private
corporations or other entities.

The secondary market for municipal obligations may be less liquid than for most
taxable fixed income securities which may limit the Portfolio's ability to buy
and sell these obligations at times and prices the manager believes would be
advantageous. There may be less information available about the financial con-
dition of an issuer of municipal obligations than about issuers of other pub-
licly traded securities. Also, state and federal bankruptcy laws could hinder
the Portfolio's ability to recover interest or principal in the event of a de-
fault by the issuer.

The Portfolio will not invest more than 25% of its total assets in municipal
obligations whose issuers are located in the same state or more than 25% of its
total assets in obligations that are secured by revenues from entities in any
one of the following categories: hospitals and health facilities; ports and
airports; or colleges and universities. The Portfolio also will not invest more
than 25% of its total assets in private activity bonds of similar projects. The
Portfolio may, however, invest more than 25% of its total assets in municipal
obligations of one or more of the following types: turnpikes and toll roads;
public housing authorities; general obligations of states and localities; state
and local housing finance authorities; municipal utilities systems; tax-free
prefunded bonds secured or backed by the U.S. Treasury or other U.S. government
guaranteed securities; and pollution control bonds.

Consulting Group Capital Markets Funds
<PAGE>

More on the Portfolios' Investments, continued

Credit Quality

A Portfolio's rating criteria
are applied at the time of pur-
chase. If a security is subse-
quently downgraded, the
subadvisor may, but is not re-
quired to, sell the security. If
a security is rated differently
by two or more rating organiza-
tions, the subadvisor may use
the higher rating to determine
the security's rating category.

Securities are considered in-
vestment grade if they are:

. rated in one of the top four
long-term rating categories by
a nationally recognized sta-
tistical rating organization.

. unrated securities that the
subadvisor believes to be of
comparable quality.

Securities are considered below
investment grade if they are
rated below the top four long-
term ratings or are of equiva-
lent quality if unrated. Below
investment grade securities,
also known as "high yield secu-
rities," (commonly known as
"junk bonds") are subject to:

. the increased risk of an is-
suer's inability to meet prin-
cipal and interest obliga-
tions.

. greater price volatility be-
cause of a heightened sensi-
tivity to changing interest
rates.

. less liquidity.

Derivative contracts. Each Portfolio, except Government Money Investments, may,
but is not required to, use derivative contracts for any of the following pur-
poses:

. To hedge against adverse changes caused by changing interest rates, stock
market prices or currency exchange rates in the market value of securities
held by or to be bought for a Portfolio.

. As a substitute for purchasing or selling securities.

. To shorten or lengthen the effective maturity or duration of a Portfolio's
fixed income investments.

. To enhance a Portfolio's potential gain in non-hedging situations.

. To increase a Portfolio's liquidity.

The Portfolios may use various types of derivative instruments, including op-
tions on securities and securities indices, futures and options on futures (ex-
cept Government Money Investments, Municipal Bond Investments and Balanced In-
vestments) and, for those Portfolios that invest directly in foreign securi-
ties, forward currency contracts, currency futures contracts and options on
currencies and currency futures. A derivative contract will obligate or entitle
a Portfolio to deliver or receive an asset or a cash payment based on the
change in value of one or more designated securities, currencies or indices.
Even a small investment in derivative contracts can have a big impact on a
Portfolio's interest rate, stock market and currency exposure. Therefore, using
derivatives can disproportionately increase Portfolio losses and reduce oppor-
tunities for gains when interest rates, stock prices or currency rates are
changing. A Portfolio may not fully benefit from or may lose money on deriva-
tives if changes in their value do not correspond accurately to changes in the
value of the Portfolio's holdings. The other party to certain derivative con-
tracts presents the same types of credit risk as issuers of fixed income secu-
rities. Derivatives can also make a Portfolio's assets less liquid and harder
to value, especially in declining markets.

Mortgage Dollar Rolls. Mortgage Backed Investments, Balanced Investments and
Multi-Sector Fixed Income Investments may enter into mortgage dollar roll
transac-tions to earn additional income. In these transactions, a Portfolio
sells a U.S. agency mortgage-backed security and simultaneously agrees to re-
purchase at a future date another U.S. agency mortgage-backed security with the
same interest rate and maturity date, but generally backed by a different pool
of mortgages. The Portfolio loses the right to receive interest and principal
payments on the security it sold. However, the Portfolio benefits from the in-
terest earned on investing the proceeds of the sale and may receive a fee or a
lower repurchase price. The benefits from these transactions depend upon the
subadvisor's ability to forecast mortgage prepayment patterns on different
mortgage pools. The Portfolio may lose money if, during the period between the
time it agrees to the forward purchase of the mortgage securities and the set-
tlement date, these securities decline in value because of market conditions or
prepayments on the underlying mortgages.

High Yield Securities. High Yield Investments and Multi-Sector Fixed Income In-
vestments can invest in high yield securities. These are commonly known as
"junk bonds" and involve a substantial risk of loss. These securities are con-
sidered speculative with respect to the issuer's ability to pay interest and
principal and are susceptible to default or decline in market value be-cause of
adverse economic and business developments. The market values for high yield
securities tend to be very volatile, and these securities are less liquid than
investment grade debt securities. The Portfolio may experience increased price
sensitivity to changing interest rates and greater risk of loss because of de-
fault or declining credit quality. In addition, adverse company specific

Consulting Group Capital Markets Funds
<PAGE>

More on the Portfolios' Investments, continued

events are more likely to render the issuer unable to make interest and/or
principal payments. A negative perception of the high yield market may develop,
depressing the price and liquidity of high yield securities. This negative per-
ception could last for a significant period of time.

Swaps. Emerging Markets Equity Investments, with respect to 15% of the total
assets allocated to SSGA, may enter into index swaps.
Index swaps involve the exchange by the Portfolio with another party of the re-
spective amounts payable with respect to a notional principal amount related to
one or more indices. The Portfolio may enter into these transactions to pre-
serve a return or spread on a particular investment or portion of its assets,
as a duration management technique or to protect against any increase in the
price of securities the Portfolio anticipates purchasing at a later date. Swaps
have risks associated with them, including possible default by the counterparty
to the transaction, illiquidity and, where swaps are used as hedges, the risk
that the use of a swap could result in losses greater than if the swap had not
been employed.

Defensive investing. The Portfolios may depart from their principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short
term debt securities. The Portfolios' investments in these assets are managed
by SSB Citi Fund Management LLC ("SSB Citi").

Impact of high portfolio turnover. Each Portfolio may engage in active and fre-
quent trading to achieve its principal investment strategies. This may lead to
the realization and distribution to shareholders of higher capital gains, which
would increase their tax liability. Frequent trading also increases transaction
costs, which could detract from a Portfolio's performance.

Order of Exemption. The Trust is subject to an Order of Exemption from the De-
partment of Labor requiring the Portfolio to limit its investments in the secu-
rities of affiliates of Salomon Smith Barney, including Citigroup, Inc., to one
percent of the Portfolio's net assets. Since the Portfolio will be managed to
comply with this limitation, this may result in differences in performance be-
tween the Portfolio and other funds that fully replicate the S&P 500 Index.

Investment Policies. The Portfolios' non-fundamental investment policies gener-
ally may be changed by the Board of Trustees without shareholder approval.

More information about investment styles. If a subadvisor follows a passive
style, the subadvisor's principal objective is to mirror the return of a bench-
mark index. The subadvisor may seek to achieve that goal by investing in all of
the securities in the index or by selecting certain securities in the index
with respect to which the subadvisor believes there is a high correlation be-
tween changes in the value of the index and these securities. An active
subadvisor seeks to outperform the index by selecting securities which the
subadvisor believes will appreciate in value at a rate greater than the index.
However, if the subadvisor is incorrect in its estimate of a security's perfor-
mance, the Portfolio may underperform the index. A risk controlled subadvisor
uses an active management style but employs investment criteria that are in-
tended to limit the positive or negative variances from the index. A top down
investment approach places greater emphasis on selecting the industries or sec-
tors, or in the case of an international fund, country allocations, that the
subadvisor believes will outperform the market rather than on individual stock
selection. Consequently, these subadvisors place greater emphasis upon economic
and market trends. A subadvisor using a bottom up approach primarily emphasizes
the outlook for individual companies. Stock picking and not overall market
trends or industry or sector weightings is most important. A subadvisor using a
contrarian approach primarily focuses on companies which are out of favor
and/or its market value is depressed. The subadvisor believes the stock market
will adjust ultimately to reflect the intrinsic value of these companies. If a
subadvisor or Portfolio focuses upon growth stocks, the emphasis is upon compa-
nies whose earnings are expected to increase at a rate that exceeds the average
of the market as a whole. Value investing seeks to identify companies that have
an underlying value that is not currently reflected in the company's market
price. The subadvisor anticipates that over time the market will reflect the
underlying value in the market price.

Potential Conversion. The High Yield Investments reserves the right, if ap-
proved by the Board of Trustees, to convert in the future to a "Master/Feeder"
fund that would invest all of its assets in a Master/Feeder fund having sub-
stantially the same investment objective, policies and restrictions. At least
30 days' written notice of any action would be given to all shareholders if,
and when, such a proposal is approved.

Consulting Group Capital Markets Funds
<PAGE>

The Manager
The manager. The Consulting Group, a division of SSB Citi, serves as the man-
ager for the Portfolios. SSB Citi is a wholly-owned subsidiary of Salomon Smith
Barney Holdings Inc., which in turn is a wholly-owned subsidiary of Citigroup
Inc. Citigroup businesses produce a broad range of financial services--asset
management, banking and consumer finance, credit and charge cards, insurance,
investments, investment banking and trading--and use diverse channels to make
them available to consumer and corporate customers around the world. As manag-
er, the Consulting Group selects and oversees professional money managers who
are responsible for investing the assets of the Portfolios. The Consulting
Group was established to match the investment needs of institutional investors
and substantial individual investors with appropriate and well-qualified in-
vestment advisors. Since 1973, the Consulting Group has grown to become one of
the nation's foremost organizations providing portfolio evaluation, asset allo-
cation, market analysis and investment advisor selection services.

The Portfolios are part of a series of portfolios which comprise the Consulting
Group Capital Markets Funds (the "Trust"). The Trust is a series company that
consists of the Portfolios and the following additional portfolios which are
offered in separate prospectuses, copies of which can be obtained from any Sal-
omon Smith Barney Financial Consultant:

. Multi-Strategy Market Neutral Investments

. S&P 500 Index Investments

. Global Sciences and Technology Investments

The Evaluation Process

. level of expertise

. relative performance and
consistency of performance

. strict adherence to investment
discipline or philosophy

. personnel, facility and finan-
cial strength

. quality of service and commu-
nication.

The subadvisors. The subadvisors are responsible for the day-to-day investment
operations of the Portfolios in accordance with each Portfolio's investment ob-
jectives and policies. The name and address of each subadvisor, and the name
and background of each portfolio manager, is included on pages 45-49.

The subadvisor selection process. Subject to the review and approval of the
Portfolios' Trustees, the Consulting Group is responsible for selecting, super-
vising and evaluating subadvisors who manage the Portfolios' assets. The Con-
sulting Group may adjust the allocation of a Portfolio's assets among the
subadvisors by up to 10%. Any adjustment affecting more than 10% of a Portfo-
lio's assets can only be made by the Board of Trustees. The Consulting Group
employs a rigorous evaluation process to select those subadvisors that have
distinguished themselves through consistent and superior performance. The Con-
sulting Group is also responsible for communicating performance expectations
and evaluations to the subadvisors and ultimately recommending to the Board of
Trustees whether a subadvisor's contract should be renewed. The Consulting
Group provides written reports to the Trustees regarding the results of its
evaluation and monitoring functions.

The Portfolios rely upon an exemptive order from the Securities and Exchange
Commission which permits the manager to select new subadvisors or replace ex-
isting subadvisors without first obtaining shareholder approval. 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
subadvisors when it determines that a change is beneficial to shareholders by
avoiding the delay of calling and holding shareholder meetings to approve each
change. In accordance with the exemptive order, the Portfolios will provide in-
vestors with information about each new subadvisor and its subadvisory contract
within 90 days of the engagement of a new subadvisor.

Consulting Group Capital Markets Funds
<PAGE>

The Manager, continued
The subadvisors, portfolio managers and the percentage of Portfolio assets each
subadvisor manages are described below.
<TABLE>
<CAPTION>
Fund Subadvisor Percentage Portfolio Manager
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Large Capitalization Growth Barclays Global Fund Advisors 60% Barclays uses a team management
Investments 45 Fremont Street approach to manage indexed
San Francisco, CA 94105 portfolios.
TCW Investment Management 20% Glen Bickerstaff
Company Mr. Bickerstaff has been
865 South Figueroa Street responsible for the day-to-day
Suite 1800 management of the Portfolio
Los Angeles, CA 90017 since 2000. He joined the firm
in 1998. Prior to joining TCW,
he was a senior portfolio
manager of Transamerica
Investments Services.
Turner Investment Partners, 20% Robert Turner, CFA
Inc. Mr. Turner has been primarily
1235 Westlakes Drive responsible for the day-to-day
Suite 350 management of the Portfolio
Berwyn, PA 19312 since 2000. He has been
chairman and chief investment
officer of the firm since 1990
and has 19 years of investment
experience.
Large Capitalization Value The Boston Company Asset 20% Robert J. Eastman
Equity Investments Management L.L.C. Mr. Eastman has been
One Boston Place responsible for the day-to-day
Boston, MA 02108 management of the Portfolio
since 1996. He has been a vice
president of the firm since
1991.
Parametric Portfolio Associates 10% David Stein
7310 Columbia Center Tom Seto
701 Fifth Avenue Mr. Stein has been primarily
Seattle, WA 98164 responsible for the day-to-day
management of the Portfolio
since 1996. Mr. Stein, a
managing director of
Parametric, joined the firm in
1997 and has had 13 years of
investment experience. Mr. Seto
is a portfolio manager and
joined Parametric in 1998 and
has 8 years of investment
experience.
Barclays Global Fund Advisors 50% Barclays uses a team management
45 Fremont Street approach to manage indexed
San Francisco, CA 94105 portfolios.
Chartwell Investment Partners 20% Bernard Schaffer
1235 Westlakes Drive, Suite 330 Mr. Schaffer has been primarily
Berwyn, PA 19312 responsible for the day-to-day
management of the Portfolio
since 1999. He has been with
Chartwell since 1997 and has
had 29 years of investment
experience.
</TABLE>

Consulting Group Capital Markets Funds
<PAGE>

The Manager, continued
<TABLE>
<CAPTION>
Fund Subadvisor Percentage Portfolio Manager
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Small Capitalization Growth Mellon Capital Management 40% Mellon uses a team management
Investments Corporation approach to manage indexed
595 Market Street, Suite 3000 portfolios.
San Francisco, CA 94105
Wall Street Associates 20% William Jeffery, III
1200 Prospect Street, Suite 100 Kenneth McCain
La Jolla, CA 92037 Messrs. Jeffery and McCain have
been primarily responsible for
the day-to-day management of
the Portfolio since 1997.
Messrs. Jeffery and McCain are
founding partners of the firm
and have over 25 years of
investment experience.
Westpeak Investment Advisors, 15% Gerald Scriver
L.P. Mr. Scriver has been primarily
1011 Walnut Street, Suite 400 responsible for the day-to-day
Boulder, CO 80302 management of the Portfolio
since 1997. He has been
president, chief investment
officer and chief executive
officer of the firm since its
inception in 1991.
Kern Capital Management LLC 114 15% David G. Kern
West 47th Street, Suite 1926 Mr. Kern has been primarily
New York, NY 10036 responsible for the day-to-day
management of the Portfolio
since 1999. He has been with
Kern since 1997 and has had 13
years of investment experience.
Westfield Capital Management 10% Randall Watts
Co., Inc. Mr. Watts has been primarily
One Financial Center responsible for the day-to-day
Boston, MA 02111 management of the Portfolio
since 2000. He has been with
Westfield since 1992 and has 10
years of investment experience.
Small Capitalization Value Mellon Capital Management 60% Mellon uses a team management
Equity Investments Corporation approach to manage indexed
595 Market Street, Suite 3000 portfolios.
San Francisco, CA 94105
NFJ Investment Group 25% Benno Fischer
2121 San Jacinto Street, Paul Magnuson
Suite 1840 Messrs. Fischer and Magnuson
Dallas, TX 75201 have been responsible for the
day-to-day management of the
Portfolio since 1993. Mr.
Fischer is a managing director
and has been with NFJ since
1989. Mr. Magnuson is a
portfolio manager and has been
with NFJ since 1992.
</TABLE>

Consulting Group Capital Markets Funds
<PAGE>

The Manager, continued
<TABLE>
<CAPTION>
Fund Subadvisor Percentage Portfolio Manager
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Small Capitalization Value Rutabaga Capital Management LLC 15% Peter Schliemann
Equity Investments-- Two Oliver Street Mr. Schliemann has been
(Continued) Boston, MA 02109 primarily responsible for the
day-to-day management of the
Portfolio since 2000. Mr.
Schliemann founded Rutabaga in
1999, and is President. Prior
to founding Rutabaga, he was a
director, executive vice
president and portfolio manager
of David L. Babson & Co. Inc.
International Equity State Street Global Advisors 40% State Street utilizes a team
Investments Two International Place management approach.
Boston, MA 02110
Oechsle International Advisors, 30% Kathleen Harris
LLC Ms. Harris had shared
One International Place management responsibility since
Boston, MA 02110 1997. She has been with Oechsle
since 1997. Previously, Ms.
Harris was portfolio manager
and investment director for the
State of Wisconsin Investment
Board, where she managed the
fund's international equity
assets. Prior to that time, she
was a fund manager and equity
analyst for the Northern Trust
Company.
Scudder Kemper Investments, Inc. 30% Scudder uses a team management
345 Park Avenue approach.
New York, NY 10154
Emerging Markets Equity State Street Global Advisors 20% State Street uses a team
Investments Two International Place management approach.
Boston, MA 02110
Foreign & Colonial Emerging 30% Foreign & Colonial utilizes a
Markets Ltd. team management approach.
8th Floor
Exchange House
Primrose Street
London EC2A 2NY
England
Baring Asset Management, Inc. 50% Baring utilizes a team
125 High Street management approach.
Boston, MA 02110
</TABLE>

Consulting Group Capital Markets Funds
<PAGE>

The Manager, continued
<TABLE>
<CAPTION>
Fund Subadvisor Percentage Portfolio Manager
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balanced Investments Laurel Capital Advisors, LLP 60% Bert Mullins
One Mellon Bank Center, Mr. Mullins is a senior vice
Suite 151-3925 president and has been with the
Pittsburgh, PA 15258 firm for 9 years and has had 34
years of investment experience.
He has been primarily
responsible for the day-to-day
management of the Portfolio
since January 1999.
Seix Investment Advisors 40% Christina Seix
300 Tice Boulevard Ms. Seix is Chairman and Chief
Woodcliff Lake, NJ 07675 Investment Officer of the firm.
She has been with the firm for
8 years and has had 27 years of
investment experience. Ms. Seix
has been primarily responsible
for the day-to-day management
of the portfolio since January
1999.
Intermediate Fixed Income Metropolitan West Asset 20% MWAM utilizes a
Investments Management, LLC team management approach.
11766 Wilshire Boulevard
Suite 1580
Los Angeles, CA 90025
Pacific Investment Management 40% William C. Powers
Company Mr. Powers is a Managing
840 Newport Center Drive, Director at Pacific Investment
Suite 300 Management Company and has been
Newport Beach, CA 92660 with the firm for 10 years. He
has had 17 years of investment
experience.
Black Rock Financial 40% Black Rock utilizes a team
Management, Inc. approach.
345 Park Avenue
New York, NY 10154
Long-Term Bond Investments Western Asset Management 100% Western utilizes a team
Company management approach.
117 East Colorado Boulevard
Pasadena, CA 91105
Mortgage Backed Investments Utendahl Capital Management CFI 100% Utendahl utilizes a team
(Successor to Atlantic management approach.
Portfolio Analytics &
Management, Inc.)
201 East Pine Street,
Suite 825
Orlando, FL 32801
High Yield Investments Alliance Capital Management 100% Nelson R. Jantzen
L.P. 1345 Avenue of the Sheryl A. Rothman
Americas Mr. Jantzen is a senior vice
New York, NY 10105 president and co-head of the
High Yield Group and has had 26
years of investment experience.
Ms. Rothman is a senior vice
president and portfolio manager
and has 16 years of investment
experience.
</TABLE>

Consulting Group Capital Markets Funds
<PAGE>

The Manager, continued
<TABLE>
<CAPTION>
Fund Subadvisor Percentage Portfolio Manager
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Multi-Sector Fixed Income Metropolitan West Asset 50% MWAM utilizes a
Investments Management, LLC team management
approach
11766 Wilshire Boulevard
Suite 1580
Los Angeles, CA 90025
Western Asset Management 20% Western utilizes
a team
Company management approach.
117 East Colorado Boulevard
Pasadena, CA 91105
Utendahl Capital Management CFI 20% Utendahl utilizes a team
management approach.

201 East Pine Street, Suite 825
Orlando, FL 32801
Alliance Capital Management 10% Nelson R. Jantzen
L.P. 1345 Avenue of the Sheryl A. Rothman
Americas Mr. Jantzen is a senior vice
New York, NY 10105 president and co-head of the
High Yield Group and has had 26
years of investment experience.
Ms. Rothman is a senior vice
president and portfolio manager
and has 16 years of investment
experience.
International Fixed Income Julius Baer Investment 100% Edward Dove
Investments Management Inc. Mr. Dove has been primarily
330 Madison Avenue responsible for the day-to-day
New York, NY 10017 management of the Portfolio
since 1992. He is a Director of
Fixed Income and Portfolio
Manager at Julius Baer and has
had 19 years of investment
experience.
Municipal Bond Investments Smith Affiliated Capital 100% Smith utilizes a team
Corporation management approach.
880 Third Avenue
New York, NY 10022
Government Money Investments Standish Ayer & Wood, Inc. 100% Jennifer Pline
One Financial Center Ms. Pline has been primarily
Boston, MA 02111 responsible for the day-to-day
management of the Portfolio
since its inception in 1991.
Ms. Pline is a Vice President
and joined Standish in 1987.
</TABLE>

Consulting Group Capital Markets Funds
<PAGE>

The Manager, continued

Management Fees. The Consulting daily net assets for administra-
Group receives fees from each tion services. The Consulting
Portfolio for its services. In Group and SSB Citi may voluntar-
turn, the Consulting Group pays ily waive a portion or all of
the subadvisors a portion of their respective fees otherwise
this fee for their services. In payable to them. The chart below
addition, each Portfolio pays SSB shows the management fees paid by
Citi a fee at an annual rate of each Portfolio.
0.20% of its average
<TABLE>
<CAPTION>
Actual
Management
Fee Paid
During
Most
Recent
Management Fiscal
Portfolio Fee Year
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Large Capitalization Growth Investments 0.60% 0.40%
Large Capitalization Value Equity Investments 0.60% 0.47%
Small Capitalization Growth Investments 0.80% 0.62%
Small Capitalization Value Equity Investments 0.80% 0.56%
International Equity Investments 0.70% 0.57%
Emerging Markets Equity Investments 0.90% 0.90%
Balanced Investments 0.60% 0.58%
Intermediate Fixed Income Investments 0.40% 0.41%
Long-Term Bond Investments 0.40% 0.40%
Mortgage Backed Investments 0.50% 0.50%
High Yield Investments 0.70% 0.70%
Multi-Sector Fixed Income Investments 0.65% 0.36%
International Fixed Income Investments 0.50% 0.50%
Municipal Bond Investments 0.40% 0.40%
Government Money Investments 0.15% 0.13%
</TABLE>

Possible Conflict of Interest. The advisory fee paid by each Portfolio in the
Trust to the manager and the portion of that advisory fee paid by the manager
to each subadvisor varies depending upon the Portfolio of the Trust selected.
For this reason, the manager could retain a larger portion of the advisory fee
by recommending to clients in its asset allocation program certain Portfolios
in the Trust over other Portfolios for asset allocation. You should consider
this possible conflict of interest when evaluating the manager's asset alloca-
tion recommendation. The manager intends to comply with standards of fiduciary
duty that require it to act solely in the best interest of a participant when
making investment recommendations.

Consulting Group Capital Markets Funds

50
<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.

Consulting Group Capital Markets Funds
<PAGE>

Investment and Account Information
Account Transactions

Purchase of Shares. You may purchase shares of a Portfolio if you are a partic-
ipant in an advisory program or asset based fee program sponsored by Salomon
Smith Barney, including TRAK(R), or by qualified investment advisors not affil-
iated with Salomon Smith Barney. Purchases of shares of a Portfolio must be
made through a brokerage account maintained with Salomon Smith Barney or
through a broker that clears securities transactions through Salomon Smith Bar-
ney (an introducing broker). You may establish a brokerage account with Salomon
Smith Barney free of charge in order to purchase shares of a Portfolio.

. The minimum initial aggregate investment in the TRAK program is $10,000. The
minimum investment in a Portfolio is $100.

. There is no minimum on additional investments.

. The Portfolios and the TRAK program may vary or waive the investment minimums
at any time.

. You may establish a Systematic Withdrawal/Investment Schedule. For more in-
formation, contact your Investment Professional or consult the SAI.

Shares of the Portfolios are sold at net asset value per share without imposi-
tion of a sales charge but will be subject to any applicable advisory program
fee. All orders to purchase accepted by Salomon Smith Barney or the introducing
broker before 4:00 p.m., Eastern time, will receive that day's share price. Or-
ders accepted after 4:00 p.m. will receive the next day's share price. All pur-
chase orders must be in good order to be accepted. This means you have provided
the following information:

. Name of the Portfolio

. Account Number

. Dollar amount or number of shares to be purchased

. Signatures of each owner exactly as the account is registered

Each Portfolio reserves the right to reject purchase orders or to stop offering
its shares without notice. No order will be accepted unless Salomon Smith Bar-
ney has received and accepted an advisory agreement signed by the investor par-
ticipating in the TRAK(R) program or other advisory program sponsored by Salo-
mon Smith Barney. With respect to investors participating in advisory programs
sponsored or asset based fee program by entities other than Salomon Smith
Barney, Salomon Smith Barney
must have received and accepted the appropriate documents before the order will
be accepted. Payment for shares must be received by Salomon Smith Barney or the
introducing broker within three business days after the order is placed in good
order.

Redemption of Shares. You may sell shares of a Portfolio at net asset value on
any day the New York Stock Exchange is open by contacting your broker. All re-
demption requests accepted by Salomon Smith Barney or an introducing broker be-
fore 4:00 p.m. Eastern time on any day will be executed at that day's share
price. Orders accepted after 4:00 p.m. will be executed at the next day's
price. All redemption orders must be in good form, which may require a signa-
ture guarantee (available from most banks, dealers, brokers, credit unions and
federal savings and loan associations, but not from a notary public) to assure
the safety of your account. If you discontinue your Salomon Smith Barney advi-
sory service, you must redeem your shares in the Portfolios.

Each Portfolio has the right to suspend redemptions of shares and to postpone
the transmission of redemption proceeds to a shareholder's account at Salomon
Smith Barney or at an introducing broker for up to seven days, as permitted by
law. Redemption proceeds held in an investor's brokerage account generally will
not earn any income and Salomon Smith Barney or the introducing broker may ben-
efit from the use of temporarily uninvested funds. A shareholder who pays for
shares of a Portfolio by personal check will be credited with the proceeds of a
redemption of those shares after the purchaser's check has cleared, which may
take up to 15 days.

Exchange of Shares. An investor that participates in an advisory program may
exchange shares in a Portfolio for shares in any other Portfolio in the Trust
at net asset value without payment of an exchange fee. Be sure to consider the
investment objectives and policies of any Portfolio into which you make an ex-
change. An exchange is a taxable transaction except for exchanges within a re-
tirement account.

The Consulting Group may limit additional exchanges and/or purchases by a
shareholder if it determines that the shareholder is pursuing a pattern of fre-
quent exchanges. Excessive exchange transactions can adversely affect a Portfo-
lio's performance, hurting the Portfolio's other shareholders. If the Consult-
ing Group discovers a pattern of frequent exchanges, it will provide notice in
writing or by telephone to the shareholder at least 15 days before suspending
his or her exchange privilege. During the 15-day period the shareholder will be
re-

Consulting Group Capital Markets Funds
<PAGE>

Investment and Account Information, continued
quired either to redeem his or her shares in the Portfolio or establish an al-
location which the shareholder expects to maintain for a significant period of
time.

Valuation of shares

Each Portfolio offers its shares at their net asset value per share. Each Port-
folio calculates net asset value once daily as of the close of regular trading
on the New York Stock Exchange (generally at 4:00 p.m., New York time) on each
day the exchange is open. The exchange is closed on certain holidays listed in
the SAI. If the exchange closes early, the Portfolio accelerates calculation of
net asset value and transaction deadlines to the actual closing time.

A Portfolio generally values its fund securities based on market prices or quo-
tations. A Portfolio's currency conversions, if any, are done when the London
stock exchange closes. When reliable market prices or quotations are not avail-
able, 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, a Portfolio may price those securities
at fair value. Fair value is determined in accordance with procedures approved
by the Portfolios' Board of Trustees. A mutual fund that uses fair value to
price securities may value those securities higher or lower than another fund
using market 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 a Portfolio could change on days when shares of the Portfolio cannot
be bought or redeemed.

Dividends and distributions

Each Portfolio intends to distribute all or substantially all of its net in-
vestment income and realized capital gains, if any, for each taxable year. Gov-
ernment Money Investments declares dividends, if any, from net investment in-
come daily and pays dividends monthly. Shareholders in Government Money Invest-
ments receive dividends from the day following purchase through the date of
redemption. The other fixed income oriented Portfolios and Balanced Investments
declare and pay dividends, if any, from net investment income monthly. The eq-
uity oriented Portfolios declare and pay dividends, if any, from net investment
income annually. All of the Portfolios declare and distribute realized net cap-
ital gains, if any, annually, typically in December. All dividends and capital
gains are reinvested in shares of the Portfolio that paid them unless the
shareholder elects to receive them in cash.

The equity oriented Portfolios expect distributions to be primarily from capi-
tal gains. Balanced Investments expects distributions to be from both capital
gains and income. The fixed income oriented Portfolios expect distributions to
be primarily from income.

Taxes
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Transactions Federal Tax Status
------------------------------------------------------------------------------
<S> <C>
Sales or exchange of shares Usually capital gain
or loss (except no
gain or loss for
Government Money
Investments); long-
term only if shares
owned more than one
year
------------------------------------------------------------------------------
Distributions of long term Long-term capital
capital gain gain
------------------------------------------------------------------------------
Distributions of short term Ordinary income
capital gain
------------------------------------------------------------------------------
Dividends from net Ordinary income (for
investment income all Portfolios
except Municipal
Bond Investments)
------------------------------------------------------------------------------
Any of the above received by Not a taxable event
a retirement account
------------------------------------------------------------------------------
</TABLE>

Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when a Portfolio is about to declare a capital gain distribution
or a taxable dividend, because it will be taxable to you even though it may ac-
tually be a return of a portion of your investment.

Dividends paid by Municipal Bond Investments that are derived from interest
earned on qualifying tax-exempt obligations are expected to be "exempt-inter-
est" dividends that shareholders may exclude from their gross incomes for fed-
eral income tax purposes if the Portfolio satisfies certain asset percentage
requirements.

Consulting Group Capital Markets Funds
<PAGE>

Investment and Account Information, continued

After the end of each year, you will receive a Form 1099 indicating your divi-
dends and distributions for the prior year, which are taxable as described
above even if reinvested, and your redemptions during that year. If you do not
provide the Portfolios with your correct taxpayer identification number and any
required certifications, you may be subject to backup withholding of 31% of a
Portfolio's distributions, dividends (other than exempt-interest dividends) and
redemption proceeds. Because each shareholder's circumstances are different and
special tax rules may apply, you should consult your tax adviser about your in-
vestment in a Portfolio.

Consulting Group Capital Markets Funds
<PAGE>

Financial Highlights

The financial highlights tables are intended to help you understand the perfor-
mance of each portfolio for the past five years. The information in the follow-
ing tables was audited by KPMG LLP, independent auditors, whose report, along
with each portfolio's financial statements, is included in the annual report
(available upon request). Certain information reflects financial results for a
single share. Total return represents the rate that a shareholder would have
earned (or lost) on a share of a fund assuming reinvestment of all dividends
and distributions.

For a share of beneficial interest
outstanding throughout each year ended August
31:

Large Capitalization Growth Investments
-------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year $24.35 $17.30 $17.27 $13.10 $12.13
--------------------------------------------------------------
Income (Loss) From
Operations:
Net investment income (loss) (0.04) 0.01 0.04 0.07 0.07
Net realized and unrealized
gain 7.87 7.87 1.31 4.72 1.46
--------------------------------------------------------------
Total Income From Operations 7.83 7.88 1.35 4.79 1.53
--------------------------------------------------------------
Less Distributions From:
Net investment income -- (0.01) (0.08) (0.08) (0.06)
Net realized gains (2.85) (0.82) (1.24) (0.54) (0.50)
--------------------------------------------------------------
Total Distributions (2.85) (0.83) (1.32) (0.62) (0.56)
--------------------------------------------------------------
Net Asset Value, End of Year $29.33 $24.35 $17.30 $17.27 $13.10
--------------------------------------------------------------
Total Return 34.31% 46.29% 7.81% 37.47% 12.89%
--------------------------------------------------------------
Net Assets, End of Year
(millions) $2,758 $2,326 $1,793 $1,845 $1,205
--------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.71% 0.68% 0.76% 0.69% 0.83%
Net investment income (loss) (0.15) 0.06 0.16 0.50 0.63
--------------------------------------------------------------
Portfolio Turnover Rate 59% 34% 39% 65% 40%
--------------------------------------------------------------

Large Capitalization Value Equity Investments
-------------------------------------------------------------
<CAPTION>
2000 1999 1998 1997 1996
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year $13.53 $12.28 $14.91 $11.55 $10.42
--------------------------------------------------------------
Income From Operations:
Net investment income 0.17 0.17 0.16 0.23 0.26
Net realized and unrealized
gain 0.31 2.94 0.08 4.09 1.25
--------------------------------------------------------------
Total Income From Operations 0.48 3.11 0.24 4.32 1.51
--------------------------------------------------------------
Less Distributions From:
Net investment income (0.17) (0.18) (0.11) (0.34) (0.24)
Net realized gains (1.91) (1.68) (2.76) (0.62) (0.14)
--------------------------------------------------------------
Total Distributions (2.08) (1.86) (2.87) (0.96) (0.38)
--------------------------------------------------------------
Net Asset Value, End of Year $11.93 $13.53 $12.28 $14.91 $11.55
--------------------------------------------------------------
Total Return 4.00% 26.36% 0.03% 38.98% 14.75%
--------------------------------------------------------------
Net Assets, End of Year
(millions) $1,933 $1,946 $1,712 $1,935 $1,512
--------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.78% 0.75% 0.80% 0.78% 0.80%
Net investment income 1.34 1.10 1.18 1.70 2.31
--------------------------------------------------------------
Portfolio Turnover Rate 78% 54% 57% 70% 24%
--------------------------------------------------------------
</TABLE>

Consulting Group Capital Markets Funds
<PAGE>

Financial Highlights, continued
Small Capitalization Growth Investments
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
2000(1) 1999 1998 1997 1996
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $17.93 $12.83 $18.29 $17.79 $17.19
------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss (0.11) (0.07) (0.07) (0.06) (0.08)
Net realized and unrealized gain (loss) 8.66 5.68 (4.23) 2.87 3.36
------------------------------------------------------------------------------
Total Income (Loss) From Operations 8.55 5.61 (4.30) 2.81 3.28
------------------------------------------------------------------------------
Less Distributions From:
Net realized gains (2.12) (0.51) (1.16) (2.31) (2.68)
------------------------------------------------------------------------------
Total Distributions (2.12) (0.51) (1.16) (2.31) (2.68)
------------------------------------------------------------------------------
Net Asset Value, End of Year $24.36 $17.93 $12.83 $18.29 $17.79
------------------------------------------------------------------------------
Total Return 50.57% 44.32% (25.10)% 17.53% 21.33%
------------------------------------------------------------------------------
Net Assets, End of Year (millions) $1,572 $1,109 $859 $777 $494
------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.98% 0.93% 1.01% 0.90% 1.00%
Net investment loss (0.50) (0.39) (0.43) (0.39) (0.49)
------------------------------------------------------------------------------
Portfolio Turnover Rate 110% 108% 91% 81% 83%
------------------------------------------------------------------------------
</TABLE>

Small Capitalization Value Equity Investments
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
2000 1999 1998(1) 1997 1996
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $10.56 $11.11 $14.45 $11.11 $10.01
-----------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.20 0.19 0.17 0.19 0.16
Net realized and unrealized gain (loss) 0.30 1.28 (1.66) 4.22 1.08
-----------------------------------------------------------------------------
Total Income (Loss) From Operations 0.50 1.47 (1.49) 4.41 1.24
-----------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.16) (0.20) (0.13) (0.19) (0.14)
Net realized gains (0.18) (1.82) (1.72) (0.88) --
-----------------------------------------------------------------------------
Total Distributions (0.34) (2.02) (1.85) (1.07) (0.14)
-----------------------------------------------------------------------------
Net Asset Value, End of Year $10.72 $10.56 $11.11 $14.45 $11.11
-----------------------------------------------------------------------------
Total Return 5.09% 13.61% (12.84)% 42.40% 12.48%
-----------------------------------------------------------------------------
Net Assets, End of Year (millions) $852 $744 $740 $622 $479
-----------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.91% 0.96% 0.94% 0.90% 0.95%
Net investment income 2.12 1.70 1.45 1.62 1.52
-----------------------------------------------------------------------------
Portfolio Turnover Rate 72% 53% 59% 53% 39%
-----------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.

Consulting Group Capital Market Funds
<PAGE>

Financial Highlights (continued)
International Equity Investments
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.43 $10.69 $10.63 $10.49 $10.50
----------------------------------------------------------------------
Income From Operations:
Net investment income 0.14 0.09 0.14 0.09 --
Net realized and unrealized gain 2.19 2.39 0.21 0.87 0.44
----------------------------------------------------------------------
Total Income From Operations 2.33 2.48 0.35 0.96 0.44
----------------------------------------------------------------------
Less Distributions From:
Net investment income (0.11) (0.15) (0.17) (0.12) (0.17)
Net realized gains (1.15) (0.59) (0.12) (0.70) (0.28)
----------------------------------------------------------------------
Total Distributions (1.26) (0.74) (0.29) (0.82) (0.45)
----------------------------------------------------------------------
Net Asset Value, End of Year $13.50 $12.43 $10.69 $10.63 $10.49
----------------------------------------------------------------------
Total Return 19.17% 24.06% 3.53% 9.53% 4.23%
----------------------------------------------------------------------
Net Assets, End of Year (millions) $1,569 $1,385 $1,331 $1,136 $844
----------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(1) 0.94% 0.82% 0.90% 0.97% 1.00%
Net investment income (loss) 0.54 0.90 1.23 0.70 (0.12)
----------------------------------------------------------------------
Portfolio Turnover Rate 75% 45% 45% 32% 50%
----------------------------------------------------------------------
</TABLE>
(1) During the year ended August 31, 1996, the portfolio earned credits from
the custodian which reduced service fees incurred. If the credits are taken
into consideration, the ratio of expenses to average net assets for
International Equity Investments would be 1.00%; prior year numbers have
not been restated to reflect these numbers.

Consulting Group Capital Markets Funds
<PAGE>

Financial Highlights, continued

Emerging Markets Equity Investments
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
2000(1) 1999(1) 1998 1997 1996
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $6.74 $4.37 $9.31 $8.50 $7.85
--------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss)(2) (0.02) 0.05 0.06 0.04 0.03
Net realized and unrealized gain
(loss) 0.67 2.36 (4.44) 0.79 0.62
--------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.65 2.41 (4.38) 0.83 0.65
--------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.04) (0.04) (0.10) (0.01) --
Net realized gains -- -- (0.46) (0.01) --
--------------------------------------------------------------------------------
Total Distributions (0.04) (0.04) (0.56) (0.02) --
--------------------------------------------------------------------------------
Net Asset Value, End of Year $7.35 $6.74 $4.37 $9.31 $8.50
--------------------------------------------------------------------------------
Total Return 9.62% 55.37% (49.49)% 9.88% 8.28%
--------------------------------------------------------------------------------
Net Assets, End of Year (000s) $305,066 $317,626 $230,526 $226,280 $97,489
--------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(2)(3) 1.66% 1.72% 1.69% 1.60% 1.84%
Net investment income (loss) (0.24) 0.84 0.80 0.39 0.26
--------------------------------------------------------------------------------
Portfolio Turnover Rate 110% 135% 139% 105% 106%
--------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Expense ratios and the per share decreases in net investment income before
fee waivers and/or expense reimbursements were as follows:

<TABLE>
<CAPTION>
Expense Ratios
Net Investment Without
Income Per Waivers and/or
Share Decrease Reimbursements
Portfolio 1996 1996
-------------------------------------------------------------------
<S> <C> <C>
Emerging Markets Equity Investments $0.01 1.97%
</TABLE>
(3) During the year ended August 31, 1996, the portfolio earned credits from
the custodian which reduced service fees incurred. If the credits are taken
into consideration, the ratio of expenses to average net assets for
Emerging Markets Equity Investments would be 1.80%; prior year numbers have
not been restated to reflect these numbers.

Consulting Group Capital Markets Funds
<PAGE>

Financial Highlights, continued
Balanced Investments
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year $11.41 $10.87 $12.01 $10.00 $9.37
------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(1) 0.30 0.25 0.26 0.27 0.29
Net realized and unrealized gain
(loss) 1.19 1.74 (0.53) 2.27 0.95
------------------------------------------------------------------------------
Total Income (Loss) From
Operations 1.49 1.99 (0.27) 2.54 1.24
------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.24) (0.29) (0.30) (0.27) (0.28)
Net realized gains (1.48) (1.16) (0.57) (0.26) (0.33)
------------------------------------------------------------------------------
Total Distributions (1.72) (1.45) (0.87) (0.53) (0.61)
------------------------------------------------------------------------------
Net Asset Value, End of Year $11.18 $11.41 $10.87 $12.01 $10.00
------------------------------------------------------------------------------
Total Return 14.45% 18.78% (2.85)% 26.05% 13.60%
------------------------------------------------------------------------------
Net Assets, End of Year (000s) $58,810 $74,866 $68,470 $89,789 $50,281
------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(1) 1.00% 0.85% 1.00% 1.00% 1.00%
Net investment income 2.60 1.77 1.92 2.49 2.85
------------------------------------------------------------------------------
Portfolio Turnover Rate 303% 332% 57% 67% 47%
------------------------------------------------------------------------------
Intermediate Fixed Income Investments
------------------------------------------------------------------------------

<CAPTION>
2000 1999 1998 1997 1996
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year $7.83 $8.19 $8.06 $7.92 $8.10
------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.48 0.44 0.48 0.50 0.50
Net realized and unrealized gain
(loss) (0.05) (0.35) 0.15 0.14 (0.17)
------------------------------------------------------------------------------
Total Income From Operations 0.43 0.09 0.63 0.64 0.33
------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.44) (0.45) (0.50) (0.50) (0.51)
------------------------------------------------------------------------------
Total Distributions (0.44) (0.45) (0.50) (0.50) (0.51)
------------------------------------------------------------------------------
Net Asset Value, End of Year $7.82 $7.83 $8.19 $8.06 $7.92
------------------------------------------------------------------------------
Total Return 5.73% 1.07% 8.00% 8.23% 4.08%
------------------------------------------------------------------------------
Net Assets, End of Year (000s) $564,715 $594,666 $574,998 $384,094 $296,053
------------------------------------------------------------------------------
Ratios to Average Net Assets:
Total expenses 0.78% 0.61% 0.73% 0.73% 0.73%
Interest expense 0.03 -- -- -- --
Other expenses 0.75 0.61 0.73 0.73 0.73
Net investment income 6.02 4.53 5.95 6.19 5.78
------------------------------------------------------------------------------
Portfolio Turnover Rate 195% 207% 63% 118% 98%
------------------------------------------------------------------------------
</TABLE>
(1) Expense ratios and the per share decreases in net investment income before
fee waivers and/or expense reimbursements were as follows:

<TABLE>
<CAPTION>
Net Investment Income Expense Ratios Without Waivers
Per Share Decrease and/or Reimbursements
Portfolio 2000 1999 1998 1997 1996 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced Investments $0.02 N/A N/A $0.00* $0.03 1.16% N/A N/A 1.02% 1.26%
</TABLE>

* Amount represents less than $0.01 per share.

Consulting Group Capital Markets Funds
<PAGE>

Financial Highlights (continued)
Long-Term Bond Investments
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year $7.70 $9.05 $8.26 $7.87 $8.23
-------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(2) 0.48 0.49 0.52 0.53 0.51
Net realized and unrealized gain
(loss) 0.21 (1.00) 0.78 0.46 (0.41)
-------------------------------------------------------------------------------
Total Income (Loss) From
Operations 0.69 (0.51) 1.30 0.99 0.10
-------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.48) (0.50) (0.51) (0.59) (0.46)
Net realized gains (0.05) (0.34) -- -- --
Capital (0.01) -- -- (0.01) --
-------------------------------------------------------------------------------
Total Distributions (0.54) (0.84) (0.51) (0.60) (0.46)
-------------------------------------------------------------------------------
Net Asset Value, End of Year $7.85 $7.70 $9.05 $8.26 $7.87
-------------------------------------------------------------------------------
Total Return 9.50% (6.19)% 16.22% 12.93% 1.11%
-------------------------------------------------------------------------------
Net Assets, End of Year (000s) $75,091 $115,355 $157,612 $183,051 $155,910
-------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(2) 0.92% 0.80% 0.82% 0.78% 0.80%
Net investment income 6.18 5.81 5.96 6.54 6.18
-------------------------------------------------------------------------------
Portfolio Turnover Rate 358% 30% 63% 34% 125%
-------------------------------------------------------------------------------
Mortgage Backed Investments
-------------------------------------------------------------------------------

<CAPTION>
2000 1999 1998 1997 1996(1)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year $7.73 $8.13 $7.96 $7.74 $7.91
-------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(2) 0.49 0.45 0.46 0.48 0.48
Net realized and unrealized gain
(loss) 0.08 (0.34) 0.19 0.25 (0.14)
-------------------------------------------------------------------------------
Total Income From Operations 0.57 0.11 0.65 0.73 0.34
-------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.46) (0.45) (0.48) (0.51) (0.48)
Net realized gains -- (0.05) -- -- --
Capital -- (0.01) -- -- (0.03)
-------------------------------------------------------------------------------
Total Distributions (0.46) (0.51) (0.48) (0.51) (0.51)
-------------------------------------------------------------------------------
Net Asset Value, End of Year $7.84 $7.73 $8.13 $7.96 $7.74
-------------------------------------------------------------------------------
Total Return 7.58% 1.30% 8.37% 9.69% 4.37%
-------------------------------------------------------------------------------
Net Assets, End of Year (000s) $100,342 $131,039 $156,043 $136,586 $120,945
-------------------------------------------------------------------------------
Ratios to Average Net Assets:
Total expenses(2)(3) 0.85 0.80% 0.80% 0.80% 0.80%
Interest expense 0.05 -- -- -- --
Other expenses 0.80 0.80 0.80 0.80 0.80
Net investment income 6.26 5.67 5.69 6.08 6.09
-------------------------------------------------------------------------------
Portfolio Turnover Rate 28% 87% 214% 94% 23%
-------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares
method.
</TABLE>
(2) Expense ratios and the per share decreases in net investment income before
fee waivers and/or expense reimbursements were as follows:

<TABLE>
<CAPTION>
Net Investment Income Expense Ratios Without Waivers
Per Share Decrease and/or Reimbursements
Portfolio 2000 1999 1998 1997 1996 2000 1999 1998 1997 1996
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage Backed
Investments $0.01 $0.01 $0.01 $0.01 $0.01 0.97% 0.91% 0.93% 0.93% 0.94%
</TABLE>
(3)As a result of a voluntary expense limitation, expense ratios (excluding
interest expense) will not exceed 0.80%.

Consulting Group Capital Markets Funds
<PAGE>

Financial Highlights, continued

High Yield Investments
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
2000(2) 1999(2) 1998(3)
-----------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $7.33 $7.89 $8.00
-----------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(1) 0.69 0.83 0.05
Net realized and unrealized loss (1.37) (0.54) (0.16)
-----------------------------------------------------------------
Total Income (Loss) From Operations (0.68) 0.29 (0.11)
-----------------------------------------------------------------
Less Distributions From:
Net investment income (0.71) (0.83) --
Net realized gains -- (0.02) --
Capital (0.09) -- --
-----------------------------------------------------------------
Total Distributions (0.80) (0.85) --
-----------------------------------------------------------------
Net Asset Value, End of Year $5.85 $7.33 $7.89
-----------------------------------------------------------------
Total Return (9.37)% 3.67% (1.38)%++
-----------------------------------------------------------------
Net Assets, End of Year (000s) $164,056 $155,057 $76,557
-----------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(1) 1.20% 1.19% 1.20%+
Net investment income 11.30 10.62 7.37+
-----------------------------------------------------------------
Portfolio Turnover Rate 129% 122% 13%
-----------------------------------------------------------------
</TABLE>
(1)Expense ratios and the per share decreases in net investment income before
fee waivers and/or expense reimbursements were as follows:

<TABLE>
<CAPTION>
Expense Ratios
Net Investment Income Without Waivers
Per Share Decrease and Reimbursements
Portfolio 1998 1998
-----------------------------------------------------------------
<S> <C> <C>
High Yield Investments 0.01 2.42+
</TABLE>

(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period from July 13, 1998 (commencement of operations) to August
31, 1998.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.

Consulting Group Capital Markets Funds
<PAGE>

Financial Highlights, continued

International Fixed Income Investments
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
2000(1) 1999(1) 1998 1997 1996
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $8.10 $8.34 $8.21 $9.11 $9.01
--------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.36 0.42 0.51 0.51 0.55
Net realized and unrealized gain
(loss) (0.84) (0.24) 0.31 (0.62) 0.49
--------------------------------------------------------------------------------
Total Income (Loss) From
Operations (0.48) 0.18 0.82 (0.11) 1.04
--------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.06) (0.42) (0.27) (0.55) (0.94)
Net realized gains -- -- (0.34) (0.24) --
Capital (0.32) (0.00)* (0.08) -- --
--------------------------------------------------------------------------------
Total Distributions (0.38) (0.42) (0.69) (0.79) (0.94)
--------------------------------------------------------------------------------
Net Asset Value, End of Year $7.24 $8.10 $8.34 $8.21 $9.11
--------------------------------------------------------------------------------
Total Return (6.13)% 2.30% 10.45% (1.52)% 12.05%
--------------------------------------------------------------------------------
Net Assets, End of Year (000s) $235,566 $236,254 $192,068 $125,610 $129,410
--------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(2) 0.98% 0.94% 0.97% 0.99% 1.02%
Net investment income 4.70 4.85 5.39 5.87 6.34
--------------------------------------------------------------------------------
Portfolio Turnover Rate 225% 204% 211% 251% 211%
--------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) During the years ended August 31, 1997 and August 31, 1996, the portfolios
earned credits from the custodian which reduced service fees incurred. If
the credits are taken into consideration, the ratio of expenses to average
net assets for International Fixed Income Investments would be 0.97% and
0.97%, respectively; prior year numbers have not been restated to reflect
these numbers.
* Amount represents less than $0.01 per share.

Consulting Group Capital Markets Funds
<PAGE>

Financial Highlights (continued)

Municipal Bond Investments
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year $8.22 $8.92 $8.62 $8.26 $8.27
------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(1) 0.37 0.35 0.36 0.38 0.38
Net realized and unrealized gain
(loss) 0.17 (0.57) 0.32 0.34 --
------------------------------------------------------------------------------
Total Income (Loss) From
Operations 0.54 (0.22) 0.68 0.72 0.38
------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.35) (0.35) (0.38) (0.36) (0.39)
In excess of net investment
income -- -- (0.00)* -- --
Net realized gains (0.01) (0.13) -- -- --
------------------------------------------------------------------------------
Total Distributions (0.36) (0.48) (0.38) (0.36) (0.39)
------------------------------------------------------------------------------
Net Asset Value, End of Year $8.40 $8.22 $8.92 $8.62 $8.26
------------------------------------------------------------------------------
Total Return 6.79% (2.60)% 8.09% 8.88% 4.62%
------------------------------------------------------------------------------
Net Assets, End of Year (000s) $48,789 $61,743 $72,511 $52,024 $46,485
------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(1) 0.79% 0.78% 0.80% 0.80% 0.80%
Net investment income 4.50 4.03 4.20 4.50 4.59
------------------------------------------------------------------------------
Portfolio Turnover Rate 37% 142% 160% 31% 29%
------------------------------------------------------------------------------
Government Money Investments
------------------------------------------------------------------------------

(1) Expense ratios and the per share decreases in net investment income before
fee waivers and/or expense reimbursements were as follows:

<TABLE>
<CAPTION>
Expense Ratios
Net Investment Income Without Waivers
Per Share Decrease and/or Reimbursements
Portfolio 2000 1999 1998 1997 1996 2000 1999 1998 1997 1996
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal Bond
Investments N/A N/A N/A $0.00* $0.02 N/A N/A N/A 0.83% 1.02%
Government Money
Investments $0.02 $0.00* $0.00* 0.01 0.01 0.78% 0.71% 0.66% 0.64 0.72
</TABLE>

(2) As a result of a voluntary expense limitation, expense ratios will not
exceed 0.60%.
* Amount represents less than $0.01 per share.

Consulting Group Capital Markets Funds
<PAGE>

Financial Highlights, continued
Multi-Sector Fixed Income Investments
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
2000(1)(2)
----------------------------------------------
<S> <C>
Net Asset Value, Beginning of Year $8.00
----------------------------------------------
Income From Operations:
Net investment income(3) 0.45
Net realized and unrealized gain 0.06
----------------------------------------------
Total Income From Operations 0.51
----------------------------------------------
Less Distributions From:
Net investment income (0.28)
----------------------------------------------
Total Distributions (0.28)
----------------------------------------------
Net Asset Value, End of Year $8.23
----------------------------------------------
Total Return++ 6.47%
----------------------------------------------
Net Assets, End of Year (000s) $29,989
----------------------------------------------
Ratios to Average Net Assets+:
Expenses(3)(4) 0.80%
Net investment income 6.13
----------------------------------------------
Portfolio Turnover Rate 249%
----------------------------------------------
</TABLE>
(1) For the period from October 1, 1999 (commencement of operations) to August
31, 2000.
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) Expense ratios and the per share decrease in net investment income before
fee waivers and/or expense reimbursements were as follows:

<TABLE>
<CAPTION>
Net Investment Income Expense Ratio Without Waiver
Per Share Decrease and Reimbursements
Portfolio 2000 2000
------------------------------------------------------------------------------
<S> <C> <C>
Multi-Sector Fixed Income
Investments $0.03 1.17%
</TABLE>
(4) As a result of a voluntary expense limitation, expense ratios will not
exceed 0.80%.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
* Amount represents less than $0.01 per share.

Consulting Group Capital Markets Funds
<PAGE>

This page intentionally left blank
<PAGE>

APPENDIX A

Investment Indices

Following are definitions of indices that are utilized in the Client's Recom-
mendation and Review.

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.

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 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 their 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.

A-1
<PAGE>

APPENDIX A

Investment Indices--(Continued)

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.

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.

A-2
<PAGE>

APPENDIX A

Investment Indices--(Continued)

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.

A-3
<PAGE>

This page intentionally left blank
<PAGE>

APPENDIX B

The following are copies of the proposed and final exemption and a technical
amendment to the final exemption from the Department of Labor from certain pro-
visions of the Employee Retirement Income Security Act of 1974 relating to the
purchase of shares and participation in TRAK by certain retirement plans and
individual retirement accounts.