Securities Act Registration No. 33-43446
Investment Company Act Registration No. 811-6444
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 26 [X]
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 26 [X]
__________________
Smith Barney Investment Trust
(a Massachusetts Business Trust)
(Exact Name of Registrant as Specified in Charter)
388 Greenwich Street
New York, New York 10013
(Address of Principal Executive Offices)
(212) 816-6474
(Registrants Telephone Number, including Area Code)
Christina T. Sydor, Secretary
Smith Barney Investment Trust
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)
_____________________
Approximate Date of Proposed Public Offering:
Continuous.
It is proposed that this filing will become effective
(check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b) of
Rule 485
[ X ] on October 13, 1999 pursuant to paragraph (b)
of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of
Rule 485
[ ] On (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
of rule 485
[ ] 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
PART A - PROSPECTUS
Combined Prospectus for the Smith Barney U.S. 5000
Index Fund and the Smith Barney EAFE Index Fund.
<PAGE>
[LOGO] Smith Barney
Mutual Funds
P R O S P E C T U S
U.S. 5000
Index Fund
EAFE
Index Fund
Class A and D Shares
- -----------------------------------------------------------
- ---------------------
October 13, 1999
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>
Contents
<TABLE>
<S>
<C>
Investments, risks and performance
Smith Barney U.S. 5000 Index
Fund......................................... 2
Smith Barney EAFE Index
Fund........................................... 6
More on the funds'
investments.............................
10
Funds'
Structure..............................
.......... 11
Management......................................
................. 12
Choosing a class of shares to
buy..................................... 13
Buying
shares......................................
.......... 14
Exchanging
shares...................................
...... 15
Redeeming
shares.................................
....... 17
Other things to know
about share
transactions..............................
..... 18
Smith Barney 401(k) and
ExecChoice(TM)
programs..................................
.. 20
Dividends, distributions and
taxes...................................... 20
Share
price...........................................
........... 21
</TABLE>
You should know: An investment in either fund is not a bank
deposit and is not
insured or guaranteed by the FDIC or any other government
agency.
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
Smith Barney U.S. 5000 Index Fund
Investment objective
The Smith Barney U.S. 5000 Index Fund (the "U.S. 5000 Index
Fund") seeks to
offer long-term capital growth by approximating, before
fees and expenses, the
performance of the Wilshire 5000 Index. The fund is a
separate series of Smith
Barney Investment Trust, a Massachusetts business trust.
The fund is a feeder fund in a master/feeder structure.
Accordingly, the fund
does not buy individual securities directly. Instead, it
invests all of its
assets in the US Equity Index Master Portfolio ("Master
Portfolio" as to the
U.S. 5000 Index Fund), a series of Master Investment
Portfolio ("MIP"), a reg-
istered open-end management investment company. The Master
Portfolio seeks to
provide investment results that match as closely as
practicable, before fees
and expenses, the performance of the Wilshire 5000 Index.
The fund will invest in the Master Portfolio, which seeks
to achieve its objec-
tive by investing substantially all of its assets in two
other Master Portfo-
lios of MIP--the Extended Index Master Portfolio (which
invests substantially
all of its assets in a representative sample of stocks
comprising the Wilshire
4500 Index) and the S&P 500 Index Master Portfolio (which
invests substantially
all of its assets in stocks comprising the S&P 500 Index)
(together, the "Un-
derlying Portfolios"). The Equity Index Master Portfolio's
assets will be
invested in the Underlying Portfolios in proportions
adjusted periodically to
approximate the capitalization range of the Wilshire 5000
Index.
In addition to selling its shares to the fund, the Master
Portfolio has sold
and may continue to sell its shares to certain other mutual
funds or other
accredited investors. The expenses and, correspondingly,
the returns of other
investment options in the Equity Index Master Portfolio may
differ from those
of the fund.
Principal Investment Strategies
Key investments The Master Portfolio invests in a sampling
of securities that
are selected and weighted to result in investment
characteristics comparable
to, and performance that will correlate with the
performance before fees and
expenses of, the Wilshire 5000 Index. The statistical
sampling techniques are
based on capitalization, industry exposures, dividend
yield, price/earnings
ratio, price/ book ratio and earnings growth.
Index Funds
2
<PAGE>
The returns for the fund are likely to be below those of
the Wilshire 5000
Index because the fund, the Master Portfolio and the
Underlying Portfolios each
have fees and transaction expenses while the Wilshire 5000
Index, the Wilshire
4500 Index and the S&P 500 Index have none.
Under normal market conditions the Master Portfolio invests
at least 90% of its
assets, through the Underlying Portfolios, in common stocks
included in the
Wilshire 5000 Index, which represents the performance of a
broad range of U.S.
stocks.
Selection process The Master Portfolio follows an indexed
or "passively
managed" approach to investing. This means that Barclays
Global Fund Advisors
("BFGA") determines which proportion of the Equity Index
Master Portfolio's
assets will be invested in each Underlying Portfolio to
match, to the extent
feasible, the capitalization range and returns of the
Wilshire 5000 Index. In
turn, the Underlying Portfolios determine which securities
are to be purchased
or sold to match or sample their respective benchmarks.
This means that BGFA does not evaluate individual companies
to identify attrac-
tive investment candidates. Instead, BGFA attempts to
mirror the composition of
the Wilshire 5000 Index as closely as possible by adjusting
the Equity Index
Master Portfolio's portfolio periodically to reflect the
companies included in
the index and their weightings. The Equity Index Master
Portfolio does not mir-
ror the Wilshire 5000 Index exactly because, unlike the
Wilshire 5000 Index,
the Equity Index Master Portfolio must maintain a portion
of its assets in cash
and liquid securities to meet redemption requests and pay
the Equity Index Mas-
ter Portfolio's expenses.
The Wilshire 5000 Index, an unmanaged capitalization-
weighted index of over
7,000 U.S. equity securities, consists of all the U.S.
stocks regularly traded
on the New York and American Stock Exchanges and the Nasdaq
over-the-counter
market for which daily pricing is available. An Index is a
hypothetical measure
of performance based on the movement of securities that
make up a particular
market. The Wilshire 5000 Index does not show actual
investment returns or
reflect payment of management or brokerage fees, which
would lower the index's
performance. The Wilshire 5000 Index does not have to
maintain liquidity to
meet redemption requests or pay expenses.
The Wilshire 5000 Index is comprised of the stocks in the
Standard & Poor's 500
Stock Index, except for a small number of foreign stocks
that represent approx-
imately 3% of the S&P 500 Index, and the stocks in the
Wilshire 4500 Index.
Smith Barney Mutual Funds
3
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investments in the
fund, or the fund may
not perform as well as other investments, if:
.The Wilshire 5000 Index declines or performs poorly
relative to other U.S.
equity indices or individual stocks
.An adverse company specific event, such as an unfavorable
earnings report,
negatively affects the stock price of one of the larger
companies in the
Wilshire 5000 Index
The fund is exposed to the risks of investing in common
stocks as well as, to a
lesser extent, the additional risks of investing in foreign
securities, which
can be affected by currency, political, legal, regulatory
and operational fac-
tors.
The fund is expected to have the same volatility as the
U.S. stock market as a
whole. Additionally, the Wilshire 5000 Index includes
smaller capitalization
companies whose stocks tend to have more price volatility
than larger compa-
nies.
The fund may not track the Wilshire 5000 Index perfectly
because differences
between the Wilshire 5000 Index and the fund's portfolio
will cause differences
in performance. In addition, expenses and transaction
costs, the size and fre-
quency of cash flows into and out of the fund, and the
differences between how
and when the fund and the Wilshire 5000 Index are valued
can also cause differ-
ences in performance.
Who may want to invest The fund may be an appropriate
investment if you:
.Are seeking to participate in the long term growth
potential of U.S. stocks
.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
Performance
The fund does not yet have a sufficient operating history
to generate the per-
formance information which other Smith Barney funds show in
bar and table form
in this part of the prospectus.
Index Funds
4
<PAGE>
Fees table
This table sets forth the fees and expenses you will pay if
you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A Class D
<S> <C> <C>
Maximum sales charge (load) imposed
on purchases (as a % of offering price) None None
Maximum deferred sales charge (load)
(as a % of the lower of net asset value at
purchase or redemption) None None
Annual fund operating expenses
<CAPTION>
(expenses deducted from fund assets) Class A Class D
<S> <C> <C>
Management fee* 0.23% 0.23%
Service (12b-1) fees 0.20% None
Other expenses** 0.25% 0.25%
Total annual fund operating expenses*** 0.68% 0.48%
</TABLE>
* The "Management Fee" includes an investment management
fee payable by the
Master Portfolio and an administration fee payable by
the fund.
** The fund is new, and therefore, has no historical
expense data. The amount
set forth in "Other Expenses" represents the aggregate
amount that is pay-
able by the Master Portfolio, the Underlying Portfolios
and the fund, and
have been estimated based on expenses the fund expects
to incur during its
first full fiscal year.
*** Management has agreed to cap the fund's other expenses
at 0.25%. Management
may not discontinue or modify this cap without the
approval of the fund's
trustees. As a result of the expense cap, the total
annual fund operating
expenses will not exceed 0.68% for Class A Shares and
0.48% Class D Shares.
Example
This example helps you compare the costs of investing in
the fund with the
costs of investing in other mutual funds. Your actual costs
may be higher or
lower. The example assumes:
.You invest $10,000 in the fund for the period shown
.You redeem all shares at the end of the period
.Your investment has a 5% return each year
.The fund's operating expenses remain the same
Number of years you own your shares*
<TABLE>
<CAPTION>
1 year 3 years
<S> <C> <C>
Class A $49 $218
Class D $49 $154
</TABLE>
* Reflects costs at the fund, the Master Portfolio and the
Underlying Portfolio
levels.
Smith Barney Mutual Funds
5
<PAGE>
Investments, risks and performance
Smith Barney EAFE Index Fund
Investment objective
The Smith Barney EAFE Index Fund (the "EAFE Index Fund")
seeks to offer long-
term capital growth and diversification by approximating,
before fees and
expenses, the performance of the Morgan Stanley Capital
International Europe,
Australasia, and Far East Free (EAFE Free) Index (the "EAFE
Index"). The fund
is a separate series of Smith Barney Investment Trust, a
Massachusetts business
trust.
The fund is a feeder fund in a master/feeder structure.
Accordingly, the fund
does not buy individual securities directly. Instead, it
invests all of its
assets in the International Index Master Portfolio ("Master
Portfolio" as to
the EAFE Index Fund) a series of MIP, rather than directly
in a portfolio of
securities. The Master Portfolio seeks to provide
investment results that match
as closely as practicable, before fees and expenses, the
performance of the
Index.
In addition to selling its shares to the fund, the Master
Portfolio has sold
and may continue to sell its shares to certain other mutual
funds or other
accredited investors. The expenses and, correspondingly,
the returns of other
investment options in the Master Portfolio may differ from
those of the fund.
Principal Investment Strategics
Key investments The Master Portfolio invests in a sampling
of securities that
are selected and weighted to result in investment
characteristics comparable
to, and performance that will correlate with the
performance before fees and
expenses of, the EAFE Index. Under normal conditions, the
Master Portfolio
invests at least 90% of its assets in common stocks
included in the EAFE Index,
which represents the performance of foreign stock markets.
The statistical
sampling techniques are based on capitalization, industry
exposures, dividend
yield, price/ earnings ratio, price/book ratio, earnings
growth, country
weightings and the effect of foreign taxes.
The returns for the fund are likely to be below those of
the EAFE Index because
the fund and the Master Portfolio each have fees and
transaction expenses while
the EAFE Index has none.
Index Funds
6
<PAGE>
Selection process BGFA follows an indexed or "passively
managed" approach to
investing. This means that BGFA does not evaluate
individual companies to
identify attractive investment candidates. Instead, BGFA
attempts to mirror the
composition of the EAFE Index as closely as possible by
adjusting the
International Index Master Portfolio's portfolio
periodically to reflect the
companies included in the EAFE Index and their weightings.
The International
Index Master Portfolio does not mirror the EAFE Index
exactly because, unlike
the EAFE Index, the International Index Master Portfolio
must maintain a
portion of its assets in cash and liquid securities to meet
redemption requests
and pay the International Index Master Portfolio's
expenses.
The EAFE Index is an unmanaged index of common stocks of
companies located in
Europe, Australasia and the Far East (includes dividends
net of withholding
taxes). An index is a hypothetical measure of performance
based on the movement
of securities that make up a particular market. The EAFE
Index does not show
actual investment returns or reflect payment of management
or brokerage fees,
which would lower the index's performance. The EAFE Index
is unmanaged and does
not have to maintain liquidity to meet redemption requests
or pay expenses.
Principal risks of investing in the fund
Investors could lose money on their investments in the
fund, or the fund may
not perform as well as other investments, if:
.An adverse company specific event, such as an unfavorable
earnings report,
negatively affects the stock price of one of the larger
companies in the EAFE
Index
.Adverse governmental action or political, economic or
market instability
affects a foreign country or region
.The currency in which a security is priced declines in
value relative to the
U.S. dollar
.The EAFE Index declines or performs poorly relative to
other non-U.S. equity
indices or individual stocks
Foreign markets can be less liquid and more volatile than
the U.S. market
because of increased risks of adverse issuer, political,
regulatory, market or
economic developments and can perform differently that the
U.S. market. The
value of securities of smaller, less well-known issuers can
perform differently
than the market as a whole and other types of stocks and
can be more volatile
than that of larger issuers. Currency fluctuations could
erase investment gains
or add to investment losses. Because the value of an
American Depositary
Receipt ("ADR") is dependent upon the market price of an
underlying foreign
security, ADRs are subject to most of the risks associated
with foreign invest-
ing.
Smith Barney Mutual Funds
7
<PAGE>
The fund may not track the EAFE Index perfectly because
differences between the
EAFE Index and the fund's portfolio will cause differences
in performance. In
addition, expenses and transaction costs, the size and
frequency of cash flows
into and out of the fund, and the differences between how
and when the fund and
the EAFE Index are valued can also cause differences in
performance.
Who may want to invest The fund may be an appropriate
investment if you:
.Are seeking to participate in the long term growth
potential of international
markets
.Currently have exposure to U.S. stock markets and wish to
diversify your
investment portfolio by adding non-U.S. stocks that may
not move in tandem
with U.S. stocks
.Are comfortable with the risks of the stock market and the
special risks of
investing in foreign securities, including emerging
market securities
Index Funds
8
<PAGE>
Performance
The fund does not yet have a sufficient operating history
to generate the per-
formance information which other Smith Barney funds show in
bar and table form
in this part of the prospectus.
Fees table
This table sets forth the fees and expenses you will pay if
you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment)
Class A Class D
<S>
<C> <C>
Maximum sales charge (load) imposed on purchases (as a % of
offering price)
None None
Maximum deferred sales charge (load)(as a % of the lower of
net asset value at purchase or redemption)
None None
Annual fund operating expenses
<CAPTION>
(expenses deducted from fund assets)
Class A Class D
<S>
<C> <C>
Management fee*
0.40% 0.40%
Service (12b-1) fees
0.20% None
Other expenses**
0.25% 0.25%
Total annual fund operating expenses***
0.85% 0.65%
</TABLE>
* The "Management Fee" includes an investment management
fee payable by
theMaster Portfolio and an administration fee payable
by the fund.
** The fund is new, and therefore, has no historical
expense data. The amount
set forth in "Other Expenses" represents the aggregate
amount that is pay-
able by both the Master Portfolio and the fund, and
have been estimated
based on expenses the fund expects to incur during its
first full fiscal
year.
*** Management has agreed to cap the fund's other expenses
to 0.25%. Management
may not discontinue or modify this cap without the
approval of the fund
trustees. As a result of this expense cap, the total
annual fund operating
expenses will not exceed 0.85% for Class A Shares and
0.65% for Class D
Shares.
Example
This example helps you compare the costs of investing in
the fund with the
costs of investing in other mutual funds. Your actual costs
may be higher or
lower. The example assumes:
.You invest $10,000 in the fund for the period shown
.You redeem all shares at the end of the period
Smith Barney Mutual Funds
9
<PAGE>
.Your investment has a 5% return each year
.The fund's operating expenses remain the same
Number of years you own your shares*
<TABLE>
<CAPTION>
1 year 3 years
<S> <C> <C>
Class A $87 271
Class D $66 208
</TABLE>
*Reflects costs at both the fund and Master Portfolio
levels.
More on the funds' investments
Because it can be very expensive to buy and sell all of the
securities in each
funds' corresponding Index, each Master Portfolio employs a
"sampling" tech-
nique to approximate Index characteristics such as
capitalization and industry
weight using fewer securities than contained in the
corresponding Index.
Each Master Portfolio follows an indexed or "passively
managed" approach to
investing. This means that BGFA selects securities for each
Master Portfolio
designed to approximate the investment characteristics and
performance of the
corresponding Index.
Derivative Contracts BGFA uses various techniques, such as
buying and selling
futures contracts, to increase or decrease each fund's
exposure to changing
security prices or other factors that affect security
values. If BGFA's strate-
gies do not work as intended, each fund may not achieve its
objective.
Each Master Portfolio may enter into transactions in
futures contracts and
options on futures contracts, each of which involves risk.
The futures con-
tracts and options on futures contracts each Master
Portfolio may purchase are
considered derivatives. Derivatives are financial
instruments whose values are
derived, at least in part, from the prices of other
securities or specified
assets, indices or rates. Each Master Portfolio intends to
use futures con-
tracts and options as part of its short-term liquidity
holdings and/or as sub-
stitutes for comparable market positions in the underlying
securities. Some
derivatives may be more sensitive than direct securities to
changes in interest
rates or sudden market moves. Some derivatives also may be
susceptible to fluc-
tuations in yield or value because of their structure or
contract terms.
Index Funds
10
<PAGE>
In seeking to match the performance of the corresponding
Index, each Master
Portfolio also may engage in futures and options
transactions and other deriva-
tive securities transactions and lend its portfolio
securities, each of which
involves risk. Although each Master Portfolio attempts to
be fully invested at
all times in securities comprising the corresponding Index
and in futures con-
tracts and options on futures contracts, each Master
Portfolio may also invest
up to 10% of its assets in high-quality money market
instruments to provide
liquidity. Each Master Portfolio also may invest up to 15%
of the value of its
net assets in illiquid securities, including repurchase
agreements providing
for settlement in more than seven days.
Funds' Structure
Each fund is structured as a feeder fund. Neither fund buys
individual securi-
ties directly. Instead, each fund invests in a
corresponding Master Portfolio.
Each Master Portfolio invests in securities in accordance
with investment
objectives, policies and limitations that are similar to
those of the fund.
As other investors invest their assets in each Master
Portfolio, certain eco-
nomic efficiencies may be realized with respect to each
Master Portfolio. For
example, fixed expenses that otherwise would have been
borne solely by the fund
(and the other existing interestholders in each Master
Portfolio) would be
spread across a larger asset base as more funds invest in
the Master Portfolio.
However, if a mutual fund or other investor withdraws its
investment from each
Master Portfolio, the economic efficiencies that should be
available through
investment in each Master Portfolio may not be fully
achieved or maintained. In
addition, given the relatively complex nature of the
master/feeder structure,
accounting and operational difficulties could occur. For
example, coordination
of calculation of net asset value could be affected at the
master and/or feeder
level.
The fund may withdraw its investments in each Master
Portfolio if the Board
determines that it is in the best interests of the fund and
its shareholders to
do so. Upon any such withdrawal, the Board would consider
what action might be
taken, including the investment of all the assets of each
fund in another
pooled investment entity having the same investment
objective as each fund,
direct management of each portfolio by SSB Citi Fund
Management LLC ("SSB
Citi") or the hiring of a sub-advisor to manage the fund's
assets.
Investment of each fund's assets in the Master Portfolio is
not a fundamental
policy of the fund and a shareholder vote is not required
for the fund to with-
draw its investment from the Master Portfolio.
Smith Barney Mutual Funds
11
<PAGE>
Management
A feeder fund does not need an investment manager. Each
Master Portfolio's
investment advisor is BGFA. BGFA is a wholly owned direct
subsidiary of
Barclays Global Investors, N.A. (which is an indirect
subsidiary of Barclays
Bank PLC) and is located at 45 Fremont Street, San
Francisco, California 94105.
BGFA has provided asset management, administration and
advisory services for
over 25 years. For the U.S. 5000 Index Fund, BGFA receives
a monthly advisory
fee from the Master Portfolio at an annual rate equal to
0.01% of the Equity
Index Master Portfolio's average daily net assets, 0.08% of
the average daily
net assets of the Extended Index Portfolio and 0.05% of the
average daily net
assets of the S&P 500 Index Portfolio. BGFA receives a
monthly advisory fee
from the International Index Master Portfolio at an annual
rate equal to 0.15%
of the first $1 billion, and 0.10% thereafter, of the
International Index Mas-
ter Portfolio's average daily net assets. From time to
time, BGFA may waive
such fees in whole or in part. Any such waiver will reduce
the expenses of the
applicable Master Portfolio, and accordingly, have a
favorable impact on its
performance.
Each fund bears a pro rata portion of the investment
advisory fees paid by the
Master Portfolio as well as certain other fees paid by the
Master Portfolio,
such as accounting, legal and Securities and Exchange
Commission registration
fees.
Administrator The funds' administrator is SSB Citi whose
address is 388 Green-
wich Street, New York, New York 10013. SSB Citi and Salomon
Smith Barney Inc.
are subsidiaries 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.
Administration fees For its services, SSB Citi receives a
fee equal on an
annual basis to 0.15% of each fund's average daily net
assets.
Distributor Each fund has entered into an agreement with
CFBDS, Inc. to dis-
tribute the fund's shares. A selling group consisting of
Salomon Smith Barney
and other broker-dealers sells fund shares to the public.
Distribution plans Each fund has adopted a Rule 12b-1
service plan for its
Class A shares. Under the plan, Class A shares pay a
service fee for the sale
of its shares and for services provided to shareholders.
The fee for Class A
shares is an ongoing expense and, over time, may cost you
more than other types
of sales charges.
Year 2000 issue Information technology experts are
concerned about computer
systems' ability to process date-related information on and
after January 1,
2000. This situation, commonly known as the "Year 2000"
issue,
Index Funds
12
<PAGE>
could have an adverse impact on a fund. The cost of
addressing the Year 2000
issue, if substantial, could adversely affect companies and
governments that
issue securities held by either fund. SSB Citi and Salomon
Smith Barney are
addressing the Year 2000 issue for their systems. Each fund
has been informed
by other service providers that they are taking similar
measures. Although each
fund does not expect the Year 2000 issue to adversely
affect it, the fund can-
not guarantee the efforts of the fund, which are limited to
requesting and
receiving reports from its service providers, or the
efforts of its service
providers to correct the problem will be successful.
Each Master Portfolio's investment advisor and principal
service providers have
also advised the Master Portfolio that they are working on
any necessary
changes to their systems and that they expect their systems
to be Year 2000
compliant in time. There can, of course, be no assurance of
success by either
the fund's or the Master Portfolio's service providers. In
addition, because
the Year 2000 issue affects virtually all organizations,
the issuers in whose
securities the Master Portfolio invests and the economy as
a whole also could
be adversely impacted by the Year 2000 issue. The extent of
such impact cannot
be predicted.
Choosing a class of shares to buy
You may purchase Class A shares which are sold at net asset
value with no ini-
tial or deferred sales charge. Class A shares are subject
to an ongoing service
fee.
You may purchase Class D shares only if you are
participating in certain
investment programs which charge a fee for participation,
including the Smith
Barney 401(k) Platform program. Class D shares are also
offered to tax-exempt
employee benefit and retirement plans of Salomon Smith
Barney and its affili-
ates. For more information about these programs, please
contact a Salomon Smith
Barney Financial Consultant.
You may buy shares from:
.A Salomon Smith Barney Financial Consultant
.An investment dealer in the selling group or a broker that
clears through Sal-
omon Smith Barney--a dealer representative
.The fund, but only if you are investing through certain
qualified plans or
certain dealer representatives
Investment minimums Minimum initial and additional
investment amounts vary
depending on the nature of your investment account.
Smith Barney Mutual Funds
13
<PAGE>
<TABLE>
<CAPTION>
Initial Additional
<S> <C> <C>
General $1,000 $50
IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $ 250 $50
Qualified Retirement Plans* $ 25 $25
Simple IRAs $ 1 $ 1
Monthly Systematic Investment Plans $ 25 $25
Quarterly Systematic Investment Plans $ 50 $50
</TABLE>
* Qualified Retirement Plans are retirement plans
qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue
Code, including 401(k)
plans
Buying shares
Through a
Salomon Smith You should contact your Salomon Smith
Barney Financial Con-
Barney sultant or dealer representative to open a
brokerage account
Financial and make arrangements to buy shares. If
you do not provide
Consultant or the following information, your order will
be rejected:
dealer
representative .Class of shares being bought
.Dollar amount or number of shares being
bought
You should pay for your shares through
your brokerage account
no later than the third business day after
you place your
order. Salomon Smith Barney or your dealer
representative may
charge an annual account maintenance fee.
- -----------------------------------------------------------
- ---------------------
Through the
fund's Qualified retirement plans and certain
other investors who
transfer are clients of a selling group member are
eligible to buy
agent shares directly from the fund.
.Write the transfer agent at the following
address:
Smith Barney Investment Trust
U.S. 5000 Index Fund
EAFE Index Fund
(Specify fund and class of shares)
c/o First Data Investor Services
Group, Inc.
P.O. Box 9699
Providence, Rhode Island 02940-9699
Index Funds
14
<PAGE>
.Enclose a check to pay for the shares.
For initial pur-
chases, complete and send an account
application
.For more information, call the transfer
agent at 1-800-451-
2010.
Through a
systematic You may authorize Salomon Smith Barney,
your dealer represen-
investment tative or the transfer agent to transfer
funds automatically
plan from a regular bank account, cash held in
a Salomon Smith
Barney brokerage account or Smith Barney
money market fund to
buy shares on a regular basis.
.Amounts transferred should be at least
$25 monthly or $50
quarterly
.If you do not have sufficient funds in
your account on a
transfer date, Salomon Smith Barney,
your dealer represen-
tative or the transfer agent may charge
you a fee
For more information, contact your Salomon
Smith Barney
Financial Consultant, dealer
representative or the transfer
agent or consult the Statement of
Additional Information
("SAI").
Exchanging shares
Smith Barney Each fund is exchangeable into the other.
In addition, each
offers a fund is exchangeable into the Smith Barney
S&P 500 Index
distinctive Fund.
family of
funds
tailored to
help meet the
varying needs
of both large
and small
investors
You should contact your Salomon Smith
Barney Financial
Consultant or dealer representative to
exchange into the
funds. Be sure to read the prospectus of
mutual funds you are
exchanging into. An exchange is a taxable
transaction.
.You may exchange shares only for shares
of the same class.
.You may also exchange fund shares only
for shares of other
classes if you are participating in
certain fee based advi-
sory programs or employer-sponsored
retirement plans.
Please contact your Salomon Smith Barney
Financial Consul-
tant or your dealer representative for
more information.
Smith
Barney Mutual Funds
15
<PAGE>
.You must meet the minimum investment
amount for each fund
.If you hold share certificates, the
transfer agent must
receive the certificates endorsed for
transfer or with
signed stock powers (documents
transferring ownership of
certificates) before the exchange is
effective.
.The fund may suspend or terminate your
exchange privilege if
you engage in an excessive pattern of
exchanges
- -----------------------------------------------------------
- ---------------------
By telephone If you do not have a brokerage account,
you may be eligible
to exchange shares through the transfer
agent. You must com-
plete an authorization form to authorize
telephone transfers.
If eligible, you may make telephone
exchanges on any day the
New York Stock Exchange is open. Call the
transfer agent at
1-800-451-2010 between 9:00 a.m. and 5:00
p.m. (Eastern
time). Requests received after the close
of regular trading
on the Exchange are priced at the net
asset value next deter-
mined.
You can make telephone exchanges only
between accounts that
have identical registrations.
- -----------------------------------------------------------
- ---------------------
By mail If you do not have a Salomon Smith Barney
brokerage account,
contact your dealer representative or
write to the transfer
agent at the address on the next page.
Index Funds
16
<PAGE>
Redeeming shares
Generally
Contact your Salomon Smith Barney
Financial Consultant or
your dealer representative to redeem
shares of a fund.
If you hold share certificates, the
transfer agent must
receive the certificates endorsed for
transfer or with signed
stock powers (documents transferring
ownership of certifi-
cates) before the redemption is effective.
If the shares are held by a fiduciary or
corporation, other
documents may be required.
Your redemption proceeds will be sent
within three business
days after your request is received in
good order. However,
if you recently purchased your shares by
check, your redemp-
tion proceeds will not be sent to you
until your original
check clears, which may take up to 15
days.
If you have a Salomon Smith Barney
brokerage account, your
redemption proceeds will be placed in your
account and not
reinvested without your specific
instruction. In other cases,
unless you direct otherwise, your
redemption proceeds will be
paid by check mailed to your address of
record.
- -----------------------------------------------------------
- ---------------------
By mail For accounts held directly at the fund,
send written requests
to the transfer agent at the following
address:
Smith Barney Investment Trust
U.S. 5000 Index Fund
EAFE Index Fund
(Specify fund and class of shares)
c/o First Data Investor Services
Group, Inc.
P.O. Box 9699
Providence, Rhode Island 02940-9699
Your written request must provide the
following:
.The account number
.The class of shares and the dollar amount
or number of
shares to be redeemed
.Signatures of each owner exactly as the
account is regis-
tered
Smith
Barney Mutual Funds
17
<PAGE>
- -----------------------------------------------------------
- ---------------------
By telephone If you do not have a brokerage account,
you may be eligible
to redeem shares (except those held in
retirement plans) in
amounts up to $10,000 per day through the
transfer agent. You
must complete an authorization form to
authorize telephone
redemptions. If eligible, you may request
redemptions by tel-
ephone on any day the New York Stock
Exchange is open. Call
the transfer agent at 1-800-451-2010
between 9:00 a.m. and
5:00 p.m. (Eastern time). Requests
received after the close
of regular trading on the Exchange are
priced at the net
asset value next determined.
Your redemption proceeds can be sent by
check to your address
of record or by wire transfer to a bank
account designated on
your authorization form. You must submit a
new authorization
form to change the bank account designated
to receive wire
transfers and you may be asked to provide
certain other docu-
ments.
- -----------------------------------------------------------
- ---------------------
Automatic
cash You can arrange for the automatic
redemption of a portion of
withdrawal your shares on a monthly or quarterly
basis. To qualify you
plans must own shares of the fund with a value
of at least $10,000
($5,000 for retirement plan accounts) and
each automatic
redemption must be at least $50.
The following conditions apply:
.Your shares must not be represented by
certificates
.All dividends and distributions must be
reinvested
For more information, contact your Salomon
Smith Barney
Financial Consultant or dealer
representative or consult the
SAI.
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must
be in good order.
This means you have provided the following information
without which your
request will not be processed:
.Name of the fund
.Account number
.Class of shares being bought, exchanged or redeemed
.Dollar amount or number of shares being bought, exchanged
or redeemed
.Signature of each owner exactly as the account is
registered
Index Funds
18
<PAGE>
The transfer agent will try to confirm that any telephone
exchange or redemp-
tion request is genuine by recording calls, asking the
caller to provide a per-
sonal identification number for your account, sending you a
written
confirmation or requiring other confirmation procedures
from time to time.
Signature guarantees To be in good order, your redemption
request must include
a signature guarantee if you:
.Are redeeming over $10,000 of shares
.Are sending signed share certificates or stock powers to
the transfer agent
.Instruct the transfer agent to mail the check to an
address different from the
one on your account
.Changed your account registration
.Want the check paid to someone other than the account
owner(s)
.Are transferring the redemption proceeds to an account
with a different regis-
tration
You can obtain a signature guarantee from most banks,
dealers, brokers, credit
unions and federal savings and loan institutions, but not
from a notary public.
Each fund has the right to:
.Suspend the offering of shares
.Waive or change minimum and additional investment amounts
.Reject any purchase or exchange order
.Change, revoke or suspend the exchange privilege
.Suspend telephone transactions
.Suspend or postpone redemptions of shares on any day when
trading on the New
York Stock Exchange is restricted, or as otherwise
permitted by the Securi-
ties and Exchange Commission
.Pay redemption proceeds by giving you securities. You may
pay transaction
costs to dispose of the securities.
Small account balances If your account falls below $500
because of a redemption
of fund shares, the fund may ask you to bring your account
up to $500. If your
account is still below $500 after 60 days, the fund may
close your account and
send you the redemption proceeds.
Excessive exchange transactions SSB Citi may determine that
a pattern of fre-
quent exchanges is detrimental to a fund's performance and
other shareholders.
Each fund may limit additional purchases and/or exchanges
by a shareholder.
Share certificates The funds do not issue share
certificates unless a written
request signed by all registered owners is made to the
transfer agent. If you
hold share certificates it will take longer to exchange or
redeem shares.
Smith
Barney Mutual Funds
19
<PAGE>
Smith Barney 401(k) and ExecChoice(TM) programs
You may be eligible to participate in the Smith Barney
401(k) program or the
Smith Barney ExecChoice(TM) program. Each fund offers Class
A shares to partici-
pating plans as an investment alternative under the
programs. You can meet min-
imum investment and exchange amounts by combining the
plan's investments in any
of the Smith Barney funds.
There are no sales charges when you buy or sell shares.
Class A Shares may be purchased by Plans investing at least
$1 million.
For more information, call your Salomon Smith Barney
Financial Consultant or
the transfer agent, or consult the SAI.
Dividends, distributions and taxes
Dividends Each fund generally makes capital gain
distributions and pays divi-
dends, if any, once a year, typically in December. Each
fund may pay additional
distributions and dividends at other times if necessary for
the fund to avoid a
federal tax. Each fund expects distributions to be
primarily from capital
gains. Capital gain distributions and dividends are
reinvested in additional
fund shares of the same class you hold. Alternatively, you
can instruct your
Salomon Smith Barney Financial Consultant, dealer
representative or the trans-
fer agent to have your distributions and/or dividends paid
in cash. You can
change your choice at any time to be effective as of the
next distribution or
dividend, except that any change given to the transfer
agent less than five
days before the payment date will not be effective until
the next distribution
or dividend is paid.
Taxes In general, redeeming shares, exchanging shares and
receiving distribu-
tions (whether in cash or additional shares) are all
taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
Redemption or exchange of shares Usually capital gain
or loss;
long-term only if
shares owned
more than one year
Long-term capital gain distributions Long-term capital
gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
</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 fund is about to declare a long-term
capital
Index Funds
20
<PAGE>
gain distribution or a 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, each fund will provide you with
information about
the distributions and dividends you received and any
redemptions of shares dur-
ing the previous year. If you do not provide the fund with
your correct tax-
payer identification number and any required
certifications, you may be subject
to back-up withholding of 31% of your 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 fund.
Share price
You may buy, exchange or redeem shares at their net asset
value next determined
after receipt of your request in good order. Each fund's
net asset value is the
value of its assets minus its liabilities. Net asset value
is calculated sepa-
rately for each class of shares. Each fund calculates its
net asset value every
day the New York Stock Exchange is open. This calculation
is done when regular
trading closes on the Exchange (normally 4:00 p.m., Eastern
time). The Exchange
is closed on certain holidays listed in the SAI.
The Master Portfolio for each fund is valued daily by the
Master Portfolio
itself, and the Master Portfolio's net asset value is part
of the calculation
of the fund's net asset value.
The assets of each fund include its investments in the
Master Portfolio, plus
cash and any other assets. Each fund's investment in a
Master Portfolio is val-
ued at the fund's proportionate interest in the net asset
value of the Master
Portfolio. Each Master Portfolio calculates the net asset
value of its shares
on the same days and at the same time as the fund.
Each Master Portfolio's assets are valued based on current
market prices. If
such prices are not readily available, BGFA estimates the
securities' fair
value in accordance with guidelines approved by the
applicable Master Portfo-
lio's Board of Trustees.
In order to buy, redeem or exchange shares at that day's
price, you must place
your order with your Salomon Smith Barney Financial
Consultant or dealer repre-
sentative before the New York Stock Exchange closes. If the
Exchange closes
early, you must place your order prior to the actual
closing time. Otherwise,
you will receive the next business day's price.
Smith
Barney Mutual Funds
21
<PAGE>
Salomon Smith Barney or members of the selling group must
transmit all orders
to buy, exchange or redeem shares to the fund's agent
before the agent's close
of business.
The U.S. 5000 Index Fund is not sponsored, endorsed, sold
or promoted by Stan-
dard & Poor's or Wilshire Associates and neither Standard &
Poor's nor Wilshire
Associates makes a representation regarding the
advisability of investing in
the fund. Please see the SAI for further disclosure.
Morgan Stanley Capital International Inc. ("MSCI") does not
sponsor the EAFE
Index Fund or the International Index Master Portfolio, nor
is it affiliated in
any way with the EAFE Index Fund, Barclays or the
International Index Master
Portfolio. "Morgan Stanley Capital International Europe,
Australia, Far East
Free Index(R)" and "EAFE Free Index(R)" are trademarks of
MSCI. The Interna-
tional Index Master Portfolio is not sponsored, endorsed,
sold or promoted by
the EAFE Free Index, and neither MSCI nor the EAFE Free
Index makes any repre-
sentation or warranty, express or implied, regarding the
advisability of
investing in the International Index Master Portfolio.
Index Funds
22
<PAGE>
(This page is intentionally left
blank.)
<PAGE>
SalomonSmithBarney
--------
- --------------------
A member
of citigroup [LOGO]
U.S. 5000 Index Fund
EAFE Index Fund
Each an investment portfolio of Smith Barney Investment
Trust
Shareholder reports Annual and semiannual reports to
shareholders provide
additional information about a fund's investments. These
reports discuss the
market conditions and investment strategies that affected
the fund's perfor-
mance.
Each fund sends only one report to a household if more than
one account has
the same address. Contact your Salomon Smith Barney
Financial Consultant,
dealer representative or the transfer agent if you do not
want this policy to
apply to you.
Statement of additional information The statement of
additional information
provides more detailed information about a fund and is
incorporated by refer-
ence into (is a legally part of) this prospectus.
You can make inquiries about a fund or obtain shareholder
reports or the
statement of additional information (without charge) by
contacting your Salo-
mon Smith Barney Financial Consultant or dealer
representative, by calling the
fund at 1-800-451-2010, or by writing to the fund at Smith
Barney Mutual
Funds, 388 Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at
www.smithbarney.com
You can also review and copy a fund's shareholder reports,
prospectus and
statement of additional information at the Securities and
Exchange Commis-
sion's Public Reference Room in Washington, D.C. You can
get copies of these
materials for a duplicating fee by writing to the Public
Reference Section of
the Commission, Washington, D.C. 20549-6009. Information
about the public ref-
erence room may be obtained by calling 1-800-SEC-0330. You
can get the same
reports and information free from the Commission's Internet
web site--
www.sec.gov
If someone makes a statement about either fund that is not
in this prospectus,
you should not rely upon that information. Neither the
funds nor the distribu-
tor is offering to sell shares of the fund to any person to
whom the fund may
not lawfully sell its shares.
(TM)Salomon Smith Barney is a service mark of Salomon Smith
Barney Inc.
(Investment Company Act
file no. 811-06444)
FD 01711 10/99
PART B - STATEMENT OF ADDITIONAL INFORMATION
Combined Statement of Additional Information for the
Smith Barney U.S. 5000 Index Fund and the Smith Barney
EAFE Index Fund
October 13, 1999
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY INVESTMENT TRUST
Smith Barney U.S. 5000 Index Fund
Smith Barney EAFE Index Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
This Statement of Additional Information ("SAI") is meant
to
be read in conjunction with the prospectuses of the Smith
Barney U.S. 5000 Index Fund (the "U.S. 5000 Index Fund")
and the Smith Barney EAFE Index Fund (the "EAFE Index
Fund") (each, a "Fund") dated October 13, 1999, as amended
or supplemented from time to time (each, the
"prospectus"), and is incorporated by reference in its
entirety into the prospectus. Additional information about
the fund's investments is available in the fund's annual
and
semi-annual reports to shareholders, which are incorporated
herein by reference. The prospectus and copies of the
reports may be obtained free of charge by contacting a
Salomon Smith Barney Financial Consultant, or by writing or
calling Salomon Smith Barney at the address or telephone
number above. Each fund is a separate investment series of
Smith Barney Investment Trust (the "Trust").
TABLE OF CONTENTS
Investment Objective and Management Policies 2
Portfolio Securities 8
Investment Restrictions 27
Risk Considerations 33
Trustees of the Trust and Executive Officers
of the Fund 35
Investment Management and Other Services 38
Portfolio Transactions and Turnover 42
Purchase of Shares 44
Redemption of Shares 45
Exchange Privilege 47
Valuation of Shares 48
Performance Data 49
Dividends, Distributions and Taxes 52
Additional Information 57
Other Information 60
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
General
In order to take advantage of the economies of scale
offered
by a larger pool of assets, each Fund is structured as a
"feeder" fund. A feeder fund seeks to achieve its
investment objective by investing its assets in a "Master
Portfolio" managed by Barclays Global Fund Advisors, N.A.
("BGFA"). The Master Portfolio invests substantially all
of its assets in securities in accordance with investment
objectives, policies, and limitations that are
substantially
similar to those of the Fund. In other words, the Fund
"feeds" shareholder investments into its corresponding
Master Portfolio.
The prospectus discusses each Fund's and each Master
Portfolio's investment objective and policies. This
section
contains supplemental information concerning the types of
securities and other instruments in which each Fund and
each
Master Portfolio may invest, the investment policies and
portfolio strategies the Fund and each Master Portfolio may
utilize and certain risks associated with these
investments,
policies and strategies. SSB Citi Fund Management LLC ("SSB
Citi" or the "administrator") serves as the Fund's
administrator.
Master Investment Portfolio ("MIP") is an open-end,
management investment company, organized on October 21,
1993
as a business trust under the laws of the State of
Delaware.
MIP is a "series fund," which is a mutual fund divided
into separate portfolios. The U.S. Equity Index Master
Portfolio and the International Index Portfolio are
diversified portfolios of MIP. Each Master Portfolio is
treated as a separate entity for certain matters under the
Investment Company Act of 1940, as amended (the "1940
Act"), and for other purposes, and an interestholder of the
Master Portfolio is not deemed to be an interestholder of
any other portfolio of MIP.
Beneficial interests in the Master Portfolios are issued
solely in private placement transactions which do not
involve any "public offering" within the meaning of
Regulation D under the Securities Act of 1933, as amended
(the "1933 Act"). Investments in the Master Portfolios
may be made only by investment companies or certain other
entities, which are "accredited investors" within the
meaning of Regulation D under the 1933 Act. Investment
companies that hold units of beneficial interest
("interests") in the Master Portfolios are sometimes
referred to herein as "feeder funds."
Master/Feeder Fund Structure
Unlike mutual funds that directly acquire and managed their
own portfolio of securities, each Fund is a "feeder" fund
in a "master/feeder" structure. This means that each Fund
invests in a larger "master" portfolio of securities that
has investment objectives and policies substantially
identical to those of each Fund. The investment
performance
of each Fund depends on the investment performance of each
Master Portfolio. If the investment policies of the Fund
and the Master Portfolio become inconsistent, the Board of
Trustees of the Fund can decide what actions to take.
Actions the Board of Trustees may recommend include
withdrawal of the Fund's assets from the Master Portfolio.
The Board of Trustees would then consider whether it should
hire its own investment adviser, invest in a different
master portfolio, or take other action.
The U.S. 5000 Index Fund seeks to offer long-term capital
growth by approximating the performance, before expenses,
of
the Wilshire 5000 Index.
The U.S. 5000 Index Fund's Master Portfolio, the U.S.
Equity
Index Master Portfolio, invests substantially all of its
assets in two other Master Portfolios of BGFA. One of these
Master Portfolios invests substantially all of its assets
in
a representative sample of stocks comprising the Wilshire
4500 Index (the "Extended Index Portfolio"). The other
Master Portfolio invests substantially all of it assets in
stocks comprising the S&P 500 Index (the "S&P 500 Index
Portfolio") (together, the "Underlying Portfolios"). The
Master Portfolio's assets will be invested in the
Underlying
Portfolios in proportions adjusted periodically to maintain
the capitalization range of the Wilshire 5000 Index.
The EAFE Index Fund seeks to offer long-term capital growth
and diversification by approximating the performance,
before
expenses, of the Morgan Stanley Capital International
Europe, Australia, and Far East Free Index (the " EAFE
Index").
Because it can be very expensive to buy and sell all of the
securities in a target benchmark, the Master Portfolio
employs "sampling" techniques to approximate benchmark
characteristics such as capitalization and industry weight
using fewer securities than contained in the benchmark.
Therefore, the performance of the Master Portfolio versus
its benchmark can be expected to deviate more than that of
funds investing in all of the securities contained in a
benchmark.
The EAFE Index Fund and the International Index Master
Portfolio maintain equity exposure for cash balances by
purchasing appropriate futures contracts. Futures
contracts
are not used for leverage. The EAFE Index Fund and the
International Index Master Portfolio seek to remain fully
invested at all times, without significant cash balances.
INVESTMENT OBJECTIVE-U.S. Equity Index Master Portfolio.
The U.S. Equity Index Master Portfolio seeks to match as
closely as practicable, before fees and expenses, the
performance of the Wilshire 5000 Equity Index (the
"Wilshire 5000 Index"). The U.S. Equity Index Master
Portfolio uses a "fund of funds" structure to track the
Wilshire 5000 Index, which is comprised of the stocks in
the
Standard & Poor's 500 Stock Index ("S&P 500 Index"),
except for a small number of foreign stocks that represent
approximately 3% of the S&P 500 Index, and the stocks in
the
Wilshire 4500 Equity Index (the "Wilshire 4500 Index").
In this regard, the U.S. Equity Index Master Portfolio
seeks
to achieve its objective by investing substantially all of
its assets in two other portfolios of MIP-the Extended
Index Portfolio (which invests substantially all of its
assets in a representative sample of stocks comprising the
Wilshire 4500 Index) and the S&P 500 Index Portfolio (which
invests substantially all of its assets in stocks
comprising
the S&P 500 Index) (together, the "Underlying
Portfolios"). The U.S. Equity Index Master Portfolio's
assets will be invested in the Underlying Portfolios of MIP
in proportions adjusted periodically to maintain the
capitalization range of the Wilshire 5000 Index. The
performance of the U.S. Equity Index Master Portfolio will
correspond directly to the performance of the Underlying
Portfolios. The Master Portfolio and the Fund may not
track
its index perfectly, as differences between the Index and
the Master Portfolio's Underlying Portfolios may cause
differences in performance.
INVESTMENT OBJECTIVES-Underlying Portfolios
- - The S&P 500 Index Portfolio seeks to provide
investment results, before fees and expenses,
that correspond to the total return performance
of publicly traded common stocks in the
aggregate, as represented by the Standard &
Poor's 500 Stock Index.
- - The Extended Index Portfolio seeks to
approximate, before fees and expenses, the
capitalization range and performance of the
Wilshire 4500 Index.
- - The U.S. Equity Index Master Portfolio's
investment objective can be changed by MIP's
Board of Trustees without interestholder
approval. The objective and policies of the
Master Portfolio determine the types of
portfolio securities in which it invests, the
degree of risk to which it is subject and,
ultimately, its performance. There can be no
assurance that the Master Portfolio's investment
objective will be achieved.
ABOUT THE INDICES The Wilshire 5000 Index was created
December 31, 1980. It measures the performance of all U.S.
headquartered equity securities with readily available
price
data. Over 7,000 capitalization weighted security returns
are used to adjust the index.
- - The Wilshire 4500 Index was created December 31,
1983. It is the Wilshire 5000 Index with most
of the companies in the S&P 500 Index removed.
Over 6,500 capitalization weighted security
returns are used to adjust the index.
- - The S&P 500 Index was created March 5, 1957. It
is composed of 500 selected common stocks, most
of which are listed on the NYSE.
The securities comprising the S&P 500 Index represent the
stocks of primarily large-cap companies. The securities
comprising the Wilshire 4500 Index represent the smaller-
and medium-sized companies of the Wilshire 5000 Index. In
order for the U.S. Equity Index Master Portfolio to
maintain
a capitalization weighted representative sample of the
Wilshire 5000 Index, it will invest in the Underlying
Portfolios in proportion to the overall capitalization of
their respective indices. Based on their relative overall
capitalizations as of the date of this SAI, roughly two
thirds of the U.S. Equity Index Master Portfolio's
portfolio
will be invested in the S&P 500 Index Portfolio and the
other third in the Extended Index Portfolio. Historically,
the overall capitalization of the indices have varied, and
as a result, the U.S. Equity Index Master Portfolio's
portfolio is also likely to vary.
INVESTMENT POLICIES- U.S. Equity Index Master Portfolio.
- - The U.S. Equity Index Master Portfolio seeks to
match the total return performance of the
Wilshire 5000 Index, which is composed of over
7,000 selected common stocks traded on the New
York Stock Exchange, American Stock Exchange and
Nasdaq Stock Market. The weightings of stocks
in the Wilshire 5000 Index are based on each
stock's relative total market capitalization;
that is, its market price per share times the
number of shares outstanding. The percentage of
the U.S. Equity Index Master Portfolio's assets
invested in the Underlying Portfolios is
approximately the same as the percentage such
Portfolios are invested in stocks represented in
the Wilshire 5000 Index. Securities are
selected for investment by the Underlying
Portfolios as indicated below.
INVESTMENT POLICIES - Underlying Portfolios.
- - The Extended Index Portfolio seeks to match the
total return performance of U.S. stocks,
excluding the large-cap stocks included in the
S&P 500 Index. The Fund defines these stocks as
those comprising the Wilshire 4500 Index, which
is composed of over 6,500 equity stocks of
issuers headquartered in the United States. The
Index is almost entirely comprised of common
stocks listed on the New York Stock Exchange,
American Stock Exchange or Nasdaq Stock Market.
The weightings of stocks in the Wilshire 4500
Index are based on each stock's relative total
market capitalization, that is, its market price
per share times the number of shares
outstanding. The Extended Index Portfolio
invests in a representative sample of these
securities. Securities are selected for
investment by the Extended Index Portfolio in
accordance with their capitalization, industry
sector and valuation, among other factors.
- - The S&P 500 Index Portfolio seeks to match the
total return performance of the S&P 500 Index,
which is composed of 500 selected common stocks,
most of which are listed on the New York Stock
Exchange. The weightings of stocks in the S&P
500 Index are based on each stock's relative
total market capitalization; that is, its market
price per share times the number of shares
outstanding. The percentage of the S&P 500
Index Portfolio's assets invested in a given
stock is approximately the same as the
percentage such stock represents in the S&P 500
Index
Unlike the Extended Index Portfolio, which invests in a
representative sample of the over 6,500 stocks represented
by its benchmark, the Wilshire 4500 Index, the S&P 500
Index
Portfolio invests in all 500 of the stocks represented by
its benchmark, the S&P 500 Index.
No attempt is made to manage the portfolio of the U.S.
Equity Index Master Portfolio using economic, financial or
market analysis. The U.S. Equity Index Master Portfolio is
managed by determining which proportion of its assets will
be invested in each Underlying Portfolio to match, to the
extent feasible, the capitalization range and returns of
the
Wilshire 5000 Index. The Underlying Portfolios determine
which securities are to be purchased or sold to match or
sample their respective benchmarks. Under normal market
conditions, at least 90% of the value of the U.S. Equity
Index Master Portfolio's total assets is invested, through
the Underlying Portfolios, in securities comprising the
Wilshire 5000 Index. The U.S. Equity Index Master
Portfolio's ability to match its investment performance to
the investment performance of the Wilshire 5000 Index may
be
affected by, among other things, the U.S. Equity Index
Master Portfolio's and Underlying Portfolios' expenses, the
amount of cash and cash equivalents held by the U.S. Equity
Index Master Portfolio and the Underlying Portfolios, the
manner in which the total returns of the Wilshire 5000
Index, the Wilshire 4500 Index and the S&P 500 Index are
calculated; the size of the U.S. Equity Index Master
Portfolio's investment portfolio; and the timing, frequency
and size of shareholder purchases and redemptions.
The Underlying Portfolios use cash flows from
interestholder
purchase and redemption activity to maintain, to the extent
feasible, the similarity of their portfolio to the
securities comprising their respective benchmarks. The
U.S.
Equity Index Master Portfolio uses cash flows from its
interestholder purchase and redemption activity to
periodically adjust its investment in the Underlying
Portfolios to maintain, to the extent feasible, the
similarity of its capitalization range and returns to those
of the securities comprising the Wilshire 5000 Index. BGFA
regularly monitors the U.S. Equity Index Master Portfolio's
correlation to the Wilshire 5000 Index and adjusts the U.S.
Equity Index Master Portfolio's investment in the
Underlying
Portfolios to the extent necessary. Inclusion of a
security
in an Index in no way implies an opinion by the sponsor of
the Index as to its attractiveness as an investment.
The sampling techniques utilized by the U.S. Equity Index
Master Portfolio and the Extended Index Portfolio are
designed to allow said portfolios to substantially
duplicate
the investment performance of their respective benchmarks.
However, the U.S. Equity Index Master Portfolio is not
expected to track the Wilshire 5000 Index with the same
degree of accuracy that complete replication of such Index
would provide. In addition, at times, the portfolio
composition of the U.S. Equity Index Master Portfolio may
be
altered (or "rebalanced") to reflect changes in the
characteristics of the Wilshire 5000 Index, primarily by
adjusting the U.S. Equity Index Master Portfolio's
investment in the Underlying Portfolios. The S&P 500 Index
seeks to replicate completely the investments and
capitalization range of the S&P 500 Index
The investment policies, strategies, techniques and
restrictions employed by the U.S. Equity Index Master
Portfolio in pursuing its investment objective vis-a-vis
the
Wilshire 5000 Index are substantially similar to those
employed by the Underlying Portfolios in pursuing their
respective investment objectives vis-a-vis their respective
benchmarks. Unless otherwise indicated, references to the
investment policies, strategies, techniques and
restrictions
of the U.S. Equity Index Master Portfolio also are
references to the investment policies, strategies,
techniques and restrictions of the Underlying Portfolios in
which the U.S. Equity Index Master Portfolio invests
substantially all of its assets.
In seeking to match the performance of the Wilshire 5000
Index, the U.S. Equity Index Master Portfolio also may
engage in futures and options transactions and other
derivative securities transactions and lend its portfolio
securities, each of which involves risk. The U.S. Equity
Index Master Portfolio attempts to be fully invested at all
times in securities comprising the Wilshire 5000 Index and
in futures contracts and options on futures contracts,
although the U.S. Equity Index Master Portfolio may invest
up to 10% of its assets in high-quality money market
instruments to provide liquidity. The U.S. Equity Index
Master Portfolio also may invest up to 15% of the value of
its net assets in illiquid securities, including repurchase
agreements providing for settlement in more than seven
days.
INVESTMENT OBJECTIVE - International Index Master Portfolio
- - The International Index Master Portfolio seeks to
match as closely as practicable, before fees and
expenses, the performance of an international
portfolio of common stocks represented by the
Morgan Stanley Capital International Europe,
Australia, Far East Free Index (the "EAFE Free
Index," or the "Index").
The International Index Master Portfolio's investment
objective can be changed by MIP's Board of Trustees without
interestholder approval. The objective and policies of the
Master Portfolio determines the types of portfolio
securities in which it invests, the degree of risk to which
it is subject and, ultimately, its performance. There can
be no assurance that the Master Portfolio's investment
objective will be achieved.
PRINCIPAL STRATEGIES - International Index Master Portfolio
- - The International Index Master Portfolio seeks to match
the total return performance of foreign stock markets by
investing in common stocks included in the EAFE Free
Index. The EAFE Free Index is a capitalization-weighted
index that currently includes stocks of companies located
in 15 European countries (Austria, Belgium, Denmark,
Finland, France, Germany, Ireland, Italy, the
Netherlands, Norway, Portugal, Spain, Sweden, Switzerland
and the United Kingdom), Australia, New Zealand, Hong
Kong, Japan and Singapore The EAFE Free Index broadly
represents the performance of foreign stock markets. The
weightings of stocks in the EAFE Free Index are based on
each stock's relative total market capitalization, that
is, its market price per share times the number of shares
outstanding. The Master Portfolio invests in a
representative sample of these securities. Securities
are selected for investment by the Master Portfolio in
accordance with their capitalization, industry sector and
valuation, among other factors.
No attempt is made to manage the portfolio of the Master
Portfolio using economic, financial and market analysis.
The Master Portfolio is managed by determining which
securities are to be purchased or sold to match, to the
extent feasible, the capitalization range and returns of
the
EAFE Free Index. Under normal market conditions, at least
90% of the value of the Master Portfolio's total assets is
invested in securities comprising the EAFE Free Index. The
Master Portfolio attempts to achieve, in both rising and
falling markets, a correlation of at least 95% between the
total return of its net assets before expenses and the
total
return of the EAFE Free Index. The Master Portfolio's
ability to match its investment performance to the
investment performance of the EAFE Free Index may be
affected by, among other things: the Master Portfolio's
expenses; the amount of cash and cash equivalents held by
the Master Portfolio; the manner in which the total return
of the EAFE Free Index is calculated; the size of the
Master
Portfolio's investment portfolio; and the timing, frequency
and size of interestholder purchases and redemptions. The
Master Portfolio uses cash flows from interestholder
purchase and redemption activity to maintain, to the extent
feasible, the similarity of its capitalization range and
returns to those of the securities comprising the EAFE Free
Index. BGFA regularly monitors the Master Portfolio's
correlation to the EAFE Free Index and adjusts the Master
Portfolio's portfolio to the extent necessary. Inclusion
of
a security in the EAFE Free Index in no way implies an
opinion by MSCI as to its attractiveness as an investment.
BGFA may use statistical sampling techniques to attempt to
replicate the returns of the EAFE Free Index using a
smaller
number of securities. Statistical sampling techniques
attempt to match the investment characteristics of the
index
and the fund by taking into account such factors as
capitalization, industry exposures, dividend yield,
price/earnings ratio, price/book ratio, earnings growth,
country weightings and the effect of foreign taxes. The
sampling techniques utilized by the Master Portfolio are
designed to allow the Master Portfolio to substantially
duplicate the investment performance of the EAFE Free
Index.
However, the Master Portfolio is not expected to track the
EAFE Free Index with the same degree of accuracy that
complete replication of such Index would provide. In
addition, at times, the portfolio composition of the Master
Portfolio may be altered (or "rebalanced") to reflect
changes in the characteristics of the EAFE Free Index.
In seeking to match the performance of the EAFE Free Index,
the Master Portfolio also may engage in futures and options
transactions and other derivative securities transactions
and lend its portfolio securities, each of which involves
risk. The Master Portfolio attempts to be fully invested
at
all times in securities comprising the EAFE Free Index and
in futures contracts and options on futures contracts,
although the Master Portfolio may invest up to 10% of its
assets in high-quality money market instruments to provide
liquidity. The Master Portfolio may invest up to 15% of
the
value of its net assets in illiquid securities, including
repurchase agreements providing for settlement in more than
seven days.
PORTFOLIO SECURITIES
The U.S. 5000 Index Fund and the EAFE Index Fund (each, the
"fund")
Repurchase Agreements. The fund may agree to purchase
securities from a bank or recognized securities dealer and
simultaneously commit to resell the securities to the bank
or dealer at an agreed-upon date and price reflecting a
market rate of interest unrelated to the coupon rate or
maturity of the purchased securities ("repurchase
agreements"). The fund would maintain custody of the
underlying securities prior to their repurchase; thus, the
obligation of the bank or dealer to pay the repurchase
price
on the date agreed to would be, in effect, secured by such
securities. If the value of such securities were less than
the repurchase price, plus interest, the other party to the
agreement would be required to provide additional
collateral
so at all times the collateral is at least 102% of the
repurchase price plus accrued interest. Default by or
bankruptcy of a seller would expose the fund to possible
loss because of adverse market action, expenses and/or
delays in connection with the disposition of the underlying
obligations. The financial institutions with which the
fund
may enter into repurchase agreements will be banks and non-
bank dealers of U.S. Government securities on the Federal
Reserve Bank of New York's list of reporting dealers, if
such banks and non-bank dealers are deemed creditworthy by
the fund's manager. The manager will continue to monitor
creditworthiness of the seller under a repurchase
agreement,
and will require the seller to maintain during the term of
the agreement the value of the securities subject to the
agreement to equal at least 102% of the repurchase price
(including accrued interest). In addition, SSB Citi will
require the value of this collateral, after transaction
costs (including loss of interest) reasonably expected to
be
incurred on a default, be equal to 102% or greater than the
repurchase price (including accrued premium) provided in
the
repurchase agreement or the daily amortization of the
difference between the purchase price and the repurchase
price specified in the repurchase agreement. The manager
will mark-to-market daily the value of the securities.
Repurchase agreements are considered to be loans by the
fund
under the 1940 Act.
U.S. Equity Index Master Portfolio
The U.S. Equity Index Master Portfolio may invest in the
securities described below.
The investment policies, strategies, techniques and
restrictions employed by the Master Portfolio in pursuing
its investment objective vis-a-vis the Wilshire 5000 Index
are substantially similar to those employed by the
Underlying Portfolios in pursuing their respective
investment objectives vis-a-vis their respective
benchmarks.
Unless otherwise indicated, references to the investment
policies, strategies, techniques and restrictions of the
U.S
Equity Index Master Portfolio also are references to the
investment policies, strategies, techniques and
restrictions
of the Underlying Portfolios in which the U.S, Equity Index
Master Portfolio invests substantially all of its assets.
Futures Contracts and Options Transactions-The U.S. Equity
Index Master Portfolio may use futures as a substitute for
a
comparable market position in the underlying securities.
A futures contract is an agreement between two parties, a
buyer and a seller, to exchange a particular commodity or
financial statement at a specific price on a specific date
in the future. An option transaction generally involves a
right, which may or may not be exercised, to buy or sell a
commodity or financial instrument at a particular price on
a
specified future date. Futures contracts and options are
standardized and traded on exchanges, where the exchange
serves as the ultimate counterparty for all contracts.
Consequently, the primary credit risk on futures contracts
is the creditworthiness of the exchange. Futures contracts
are subject to market risk (i.e., exposure to adverse price
changes).
Although the U.S. Equity Index Master Portfolio intends to
purchase or sell futures contracts only if there is an
active market for such contracts, no assurance can be given
that a liquid market will exist for any particular contract
at any particular time. Many futures exchanges and boards
of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day. Once
the daily limit has been reached in a particular contract,
no trades may be made that day at a price beyond that limit
or trading may be suspended for specified periods during
the
trading day. Futures contract prices could move to the
limit for several consecutive trading days with little or
no
trading, thereby preventing prompt liquidation of futures
positions and potentially subjecting the U.S. Equity Index
Master Portfolio to substantial losses. If it is not
possible, or if the U.S. Equity Index Master Portfolio
determines not to close a futures position in anticipation
of adverse price movements, the U.S. Equity Index Master
Portfolio will be required to make daily cash payments on
variation margin.
Stock Index Futures and Options on Stock Index Futures-The
U.S. Equity Index Master Portfolio may invest in stock
index
futures and options on stock index futures as a substitute
for a comparable market position in the underlying
securities. A stock index future obligates the seller to
deliver (and the purchaser to take), effectively, an amount
of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at
the close of the last trading day of the contract and the
price at which the agreement is made. No physical delivery
of the underlying stocks in the index is made. With
respect
to stock indices that are permitted investments, the U.S.
Equity Index Master Portfolio intends to purchase and sell
futures contracts on the stock index for which it can
obtain
the best price with consideration also given to liquidity.
There can be no assurance that a liquid market will exist
at
the time when the U.S. Equity Index Master Portfolio seeks
to close out a futures contract or a futures option
position. Lack of a liquid market may prevent liquidation
of an unfavorable position.
Index Swaps-The U.S. Equity Index Master Portfolio may
enter into index swaps in pursuit of its investment
objective. Index swaps involve the exchange by the U.S.
Equity Index Master Portfolio with another party of cash
flows based upon the performance of an index of securities
or a portion of an index of securities that usually include
dividends or income. In each case, the exchange
commitments
can involve payments to be made in the same currency or in
different currencies. The U.S. Equity Index Master
Portfolio will usually enter into swaps on a net basis. In
so doing, the two payment streams are netted out, with the
U.S. Equity Index Master Portfolio receiving or paying, as
the case may be, only the net amount of the two payments.
If the U.S. Equity Index Master Portfolio enters into a
swap, it will maintain a segregated account on a gross
basis, unless the contract provides for a segregated
account
on a net basis. If there is a default by the other party
to
such a transaction, the U.S. Equity Index Master Portfolio
will have contractual remedies pursuant to the agreements
related to the transaction.
The use of index swaps is a highly specialized activity
which involves investment techniques and risks different
from those associated with ordinary portfolio security
transactions. There is no limit, except as provided below,
on the amount of swap transactions that may be entered into
by the U.S. Equity Index Master Portfolio. These
transactions generally do not involve the delivery of
securities or other underlying assets or principal.
Accordingly, the risk of loss with respect to swaps
generally is limited to the net amount of payments that the
U.S. Equity Index Master Portfolio is contractually
obligated to make. There is also a risk of a default by
the
other party to a swap, in which case the U.S. Equity Index
Master Portfolio may not receive net amount of payments
that
the U.S. Equity Index Master Portfolio contractually is
entitled to receive.
Borrowing Money-As a fundamental policy, the U.S. Equity
Index Master Portfolio is permitted to borrow to the extent
permitted under the 1940 Act. However, the U.S. Equity
Index Master Portfolio currently intends to borrow money
only for temporary or emergency (not leveraging) purposes,
and may borrow up to one-third of the value of its total
assets (including the amount borrowed) valued at the lesser
of cost or market, less liabilities (not including the
amount borrowed) at the time the borrowing is made.
International Index Master Portfolio
The International Index Master Portfolio may invest in the
securities described below.
Foreign Currency Futures Contracts.
In General. A foreign currency futures contract is an
agreement between two parties for the future delivery of a
specified currency at a specified time and at a specified
price. A "sale" of a futures contract means the
contractual obligation to deliver the currency at a
specified price on a specified date, or to make the cash
settlement called for by the contract. Futures contracts
have been designed by exchanges which have been designated
"contract markets" by the Commodity Futures Trading
Commission ("CFTC") and must be executed through a
brokerage firm, known as a futures commission merchant,
which is a member of the relevant contract market. Futures
contracts trade on these markets, and the exchanges,
through
their clearing organizations, guarantee that the contracts
will be performed as between the clearing members of the
exchange.
While futures contracts based on currencies do provide for
the delivery and acceptance of a particular currency, such
deliveries and acceptances are very seldom made.
Generally,
a futures contract is terminated by entering into an
offsetting transaction. The International Index Master
Portfolio will incur brokerage fees when it purchases and
sells futures contracts. At the time such a purchase or
sale is made, the International Index Master Portfolio must
provide cash or money market securities as a deposit known
as "margin." The initial deposit required will vary, but
may be as low as 2% or less of a contract's face value.
Daily thereafter, the futures contract is valued through a
process known as "marking to market," and the
International Index Master Portfolio may receive or be
required to pay "variation margin" as the futures contract
becomes more or less valuable.
Purchase and Sale of Currency Futures Contracts. In order
to hedge its portfolio and to protect it against possible
variations in foreign exchange rates pending the settlement
of securities transactions, the International Index Master
Portfolio may buy or sell currency futures contracts. If a
fall in exchange rates for a particular currency is
anticipated, the International Index Master Portfolio may
sell a currency futures contract as a hedge. If it is
anticipated that exchange rates will rise, the
International
Index Master Portfolio may purchase a currency futures
contract to protect against an increase in the price of
securities denominated in a particular currency the
International Index Master Portfolio intends to purchase.
These futures contracts will be used only as a hedge
against
anticipated currency rate changes.
A currency futures contract sale creates an obligation by
the International Index Master Portfolio, as seller, to
deliver the amount of currency called for in the contract
at
a specified future time for a specified price. A currency
futures contract purchase creates an obligation by the
International Index Master Portfolio, as purchaser, to take
delivery of an amount of currency at a specified future
time
at a specified price. Although the terms of currency
futures contracts specify actual delivery or receipt, in
most instances the contracts are closed out before the
settlement date without the making or taking of delivery of
the currency. Closing out of a currency futures contract
is
effected by entering into an offsetting purchase or sale
transaction.
In connection with transactions in foreign currency
futures,
the International Index Master Portfolio will be required
to
deposit as "initial margin" an amount of cash or short-
term government securities equal to from 5% to 8% of the
contract amount. Thereafter, subsequent payments (referred
to as "variation margin") are made to and from the broker
to reflect changes in the value of the futures contract.
Risk Factors Associated with Futures Transactions. The
effective use of futures strategies depends on, among other
things, the International Index Master Portfolio's ability
to terminate futures positions at times when BGFA deems it
desirable to do so. Although the International Index
Master
Portfolio will not enter into a futures position unless
BGFA
believes that a liquid secondary market exists for such
future, there is no assurance that the International Index
Master Portfolio will be able to effect closing
transactions
at any particular time or at an acceptable price. The
International Index Master Portfolio generally expects that
its futures transactions will be conducted on recognized
US.
and foreign securities and commodity exchanges.
Futures markets can be highly volatile and transactions of
this type carry a high risk of loss. Moreover, a
relatively
small adverse market movement with respect to these
transactions may result not only in loss of the original
investment but also in unquantifiable further loss
exceeding
any margin deposited.
The use of futures involves the risk of imperfect
correlation between movements in futures prices and
movements in the price of currencies which are the subject
of the hedge. The successful use of futures strategies
also
depends on the ability of BGFA to correctly forecast
interest rate movements, currency rate movements and
general
stock market price movements.
In addition to the foregoing risk factors, the following
sets forth certain information regarding the potential
risks
associated with the International Index Master Portfolio's
futures transactions.
Risk of Imperfect Correlation. The International Index
Master Portfolio's ability effectively to hedge currency
risk through transactions in foreign currency futures
depends on the degree to which movements in the value of
the
currency underlying such hedging instrument correlate with
movements in the value of the relevant securities held by
the International Index Master Portfolio. If the values of
the securities being hedged do not move in the same amount
or direction as the underlying currency, the hedging
strategy for the International Index Master Portfolio might
not be successful and the International Index Master
Portfolio could sustain losses on its hedging transactions
which would not be offset by gains on its portfolio. It is
also possible that there may be a negative correlation
between the currency underlying a futures contract and the
portfolio securities being hedged, which could result in
losses both on the hedging transaction and the portfolio
securities. In such instances, the International Index
Master Portfolio's overall return could be less than if the
hedging transactions had not been undertaken.
Under certain extreme market conditions, it is possible
that
the International Index Master Portfolio will not be able
to
establish hedging positions, or that any hedging strategy
adopted will be insufficient to completely protect the
International Index Master Portfolio.
The International Index Master Portfolio will purchase or
sell futures contracts only if, in BGFA's judgment, there
is
expected to be a sufficient degree of correlation between
movements in the value of such instruments and changes in
the value of the relevant portion of the International
Index
Master Portfolio's portfolio for the hedge to be effective.
There can be no assurance that BGFA's judgment will be
accurate.
Potential Lack of a Liquid Secondary Market. The ordinary
spreads between prices in the cash and futures markets, due
to differences in the natures of those markets, are subject
to distortions. First, all participants in the futures
market are subject to initial deposit and variation margin
requirements. This could require the International Index
Master Portfolio to post additional cash or cash
equivalents
as the value of the position fluctuates. Further, rather
than meeting additional variation margin requirements,
investors may close futures contracts through offsetting
transactions which could distort the normal relationship
between the cash and futures markets. Second, the
liquidity
of the futures market may be lacking. Prior to exercise or
expiration, a futures position may be terminated only by
entering into a closing purchase or sale transaction, which
requires a secondary market on the exchange on which the
position was originally established. While the
International Index Master Portfolio will establish a
futures position only if there appears to be a liquid
secondary market therefor, there can be no assurance that
such a market will exist for any particular futures
contract
at any specific time. In such event it may not be possible
to close out a position held by the International Index
Master Portfolio, which could require the International
Index Master Portfolio to purchase or sell the instrument
underlying the position, make or receive a cash settlement
or meet ongoing variation margin requirements. The
inability to close out futures positions also could have an
adverse impact on the International Index Master
Portfolio's ability effectively to hedge its securities, or
the relevant portion thereof.
The liquidity of a secondary market in a futures contract
may be adversely affected by "daily price fluctuation
limits" established by the exchanges, which limit the
amount of fluctuation in the price of a contract during a
single trading day and prohibit trading beyond such limits
once they have been reached. The trading of futures
contracts also is subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of the brokerage firm
or
clearing house or other disruptions of normal trading
activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover
excess variation margin payments.
Trading and Position Limits. Each contract market on which
futures contracts arc traded has established a number of
limitations governing the maximum number of positions which
may be held by a trader, whether acting alone or in concert
with others. "Shares" means the equal proportionate
transferable units of interest into which the beneficial
interest of each Series or Class is divided from time to
time (including whole Shares and fractions of Shares).
BGFA
does not believe that these trading and position limits
will
have an adverse impact on the hedging strategies regarding
the International Index Master Portfolio's investments.
Regulations on the Use of Futures Contracts. Regulations
of
the CFTC require that the International Index Master
Portfolio enter into transactions in futures contracts for
hedging purposes only, in order to assure that it is not
deemed to be a "commodity pool" under such regulations.
In particular, CFTC regulations require that all short
futures positions be entered into for the purpose of
hedging
the value of investment securities held by the
International
Index Master Portfolio, and that all long futures positions
either constitute bona fide hedging transactions, as
defined
in such regulations, or have a total value not in excess of
an amount determined by reference to certain cash and
securities positions maintained for the International Index
Master Portfolio, and accrued profits on such positions.
In
addition, the International Index Master Portfolio may not
purchase or sell such instruments if, immediately
thereafter, the sum of the amount of initial margin
deposits
on its existing futures positions and premiums paid for
options on futures contracts would exceed 5% of the market
value of the International Index Master Portfolio's total
assets.
When the International Index Master Portfolio purchases a
futures contract, an amount of cash or cash equivalents or
high quality debt securities will be segregated with the
International Index Master Portfolio's custodian so that
the
amount so segregated, plus the initial deposit and
variation
margin held in the account of its broker, will at all times
equal the value of the futures contract, thereby insuring
that the use of such futures is unleveraged.
The International Index Master Portfolio's ability to
engage
in the hedging transactions described herein may be limited
by the policies and concerns of various Federal and state
regulatory agencies. Such policies may be changed by vote
of the Board of Trustees.
BGFA uses a variety of internal risk management procedures
to ensure that derivatives use is consistent with the
International Index Master Portfolio's investment
objective,
does not expose the International Index Master Portfolio to
undue risk and is closely monitored. These procedures
include providing periodic reports to the Board of Trustees
concerning the use of derivatives.
Foreign Obligations and Securities.
The foreign securities in which the International Index
Master Portfolio may invest include common stocks,
preferred
stocks, warrants, convertible securities and other
securities of issuers organized under the laws of countries
other than the United States. Such securities also include
equity interests in foreign investment funds or trusts,
real
estate investment trust securities and any other equity or
equity-related investment whether denominated in foreign
currencies or U.S. dollars.
The International Index Master Portfolio may invest in
foreign securities through American Depository Receipts
("ADRs"), Canadian Depository Receipts (''CDRs''),
European Depository Receipts ("EDRs"), International
Depository Receipts ("IDRs") and Global Depository
Receipts ("GDRs") or other similar securities convertible
into securities of foreign issuers. These securities may
not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs
(sponsored or unsponsored) are receipts typically issued by
a U.S. bank or trust company and traded on a U.S. stock
exchange, and CDRs are receipts typically issued by a
Canadian bank or trust company that evidence ownership of
underlying foreign securities. Issuers of unsponsored ADRs
are not contractually obligated to disclose material
information in the U.S. and, therefore, such information
may
not correlate to the market value of the unsponsored ADR.
EDRs and IDRs are receipts typically issued by European
banks and trust companies, and GDRs are receipts issued by
either a U.S. or non-U.S. banking institution, that
evidence
ownership of the underlying foreign securities. Generally,
ADRs in registered form are designed for use in US.
securities markets and EDRs and IDRs in bearer form are
designed primarily for use in Europe.
For temporary defensive purposes, the International Index
Master Portfolio may invest in fixed income securities of
non-U.S. governmental and private issuers. Such
investments
may include bonds, notes, debentures and other similar debt
securities, including convertible securities.
Investments in foreign obligations involve certain
considerations that are not typically associated with
investing in domestic securities. There may be less
publicly available information about a foreign issuer than
about a domestic issuer. Foreign issuers also are not
generally subject to the same accounting auditing and
financial reporting standards or governmental supervision
as
domestic issuers. In addition, with respect to certain
foreign countries, taxes may be withheld at the source
under
foreign tax laws, and there is a possibility of
expropriation or confiscatory taxation, political, social
and monetary instability or diplomatic developments that
could adversely affect investments in, the liquidity of,
and
the ability to enforce contractual obligations with respect
to, securities of issuers located in those countries.
From time to time, investments in other investment
companies
may be the most effective available means by which the
International Index Master Portfolio may invest in
securities of issuers in certain countries. Investment in
such investment companies may involve the payment of
management expenses and, in connection with some purchases,
sales loads, and payment of substantial premiums above the
value of such companies' portfolio securities. At the same
time, the International Index Master Portfolio would
continue to pay its own management fees and other expenses.
Investment income on certain foreign securities in which
the
International Index Master Portfolio may invest may be
subject to foreign withholding or other taxes that could
reduce the return on these securities. Tax treaties
between
the United States and foreign countries, however, may
reduce
or eliminate the amount of foreign taxes to which the
International Index Master Portfolio would be subject.
The International Index Master Portfolio's investments in
foreign securities involve currency risks. The U.S. dollar
value of a foreign security tends to decrease when the
value
of the U.S. dollar rises against the foreign currency in
which the security is denominated, and tends to increase
when the value of the U.S. dollar falls against such
currency. To attempt to minimize risks to the
International
Index Master Portfolio from adverse changes in the
relationship between the U.S. dollar and foreign
currencies,
the International Index Master Portfolio may engage in
foreign currency transactions on a spot (i.e., cash) basis
and may purchase or sell forward foreign currency exchange
contracts ("forward contracts"). A forward contract is an
obligation to purchase or sell a specific currency for an
agreed price at a future date that is individually
negotiated and privately traded by currency traders and
their customers. The International Index Master Portfolio
may also purchase and sell foreign currency futures
contracts (see "Purchase and Sale of Currency Futures
Contracts").
Forward contracts establish an exchange rate at a future
date. These contracts are transferable in the interbank
market conducted directly between currency traders (usually
large commercial banks) and their customers. A forward
contract generally has no deposit requirement and is traded
at a net price without commission. The International Index
Master Portfolio will direct its custodian, to the extent
required by applicable regulations, to segregate high grade
liquid assets in an amount at least equal to its
obligations
under each forward contract. Neither spot transactions nor
forward contracts eliminate fluctuations in the prices of
the International Index Master Portfolio's portfolio
securities or in foreign exchange rates, or prevent loss if
the prices of these securities should decline.
The International Index Master Portfolio may enter into a
forward contract, for example, when it enters into a
contract for the purchase or sale of a security denominated
in a foreign currency in order to "lock in" the U.S.
dollar price of the security (a "transaction hedge"). In
addition, when BGFA believes that a foreign currency may
suffer a substantial decline against the U.S. dollar, it
may
enter into a forward sale contract to sell an amount of
that
foreign currency approximating the value of some or all of
the International Index Master Portfolio's securities
denominated in such foreign currency, or when BGFA believes
that the U.S. dollar may suffer a substantial decline
against the foreign currency, it may enter into a forward
purchase contract to buy that foreign currency for a fixed
dollar amount (a "position hedge').
The International Index Master Portfolio may, in the
alternative, enter into a forward contract to sell a
different foreign currency for a fixed U.S. dollar amount
where BGFA believes that the U.S. dollar value of the
currency to be sold pursuant to the forward contract will
fall whenever there is a decline in the U.S. dollar value
of
the currency in which the portfolio securities are
denominated (a "cross-hedge").
Foreign currency hedging transactions are an attempt to
protect the International Index Master Portfolio against
changes in foreign currency exchange rates between the
trade
and settlement dates of specific securities transactions or
changes in foreign currency exchange rates that would
adversely affect a portfolio position or an anticipated
portfolio position. Although these transactions tend to
minimize the risk of loss due to a decline in the value of
the hedged currency, at the same time they tend to limit
any
potential gain that might be realized should the value of
the hedged currency increase. The precise matching of the
forward contract amount and the value of the securities
involved will not generally be possible because the future
value of these securities in foreign currencies will change
as a consequence of market movements in the value of those
securities between the date the forward contract is entered
into and date it matures.
The International Index Master Portfolio's custodian will,
to the extent required by applicable regulations, segregate
cash, U.S. Government securities or other high-quality debt
securities having a value equal to the aggregate amount of
the International Index Master Portfolio's commitments
under
forward contracts entered into with respect to position
hedges and cross-hedges. If the value of the segregated
securities declines, additional cash or securities will be
segregated on a daily basis so that the value of the
segregated securities will equal the amount of the
International Index Master Portfolio's commitments with
respect to such contracts.
The cost to the International Index Master Portfolio of
engaging in currency transactions varies with factors such
as the currency involved, the length of the contract period
and the market conditions then prevailing. Because
transactions in currency exchange usually are conducted on
a
principal basis, no fees or commissions are involved. BGFA
considers on an ongoing basis the creditworthiness of the
institutions with which the International Index Master
Portfolio enters into foreign currency transactions. The
use of forward currency exchange contracts does not
eliminate fluctuations in the underlying prices of the
securities, but it does establish a rate of exchange that
can be achieved in the future. If a devaluation generally
is anticipated, the International Index Master Portfolio
may
not be able to contract to sell the currency at a price
above the devaluation level it anticipates.
Hedging and Related Strategies.
The International Index Master Portfolio may attempt to
protect the U.S. dollar equivalent value of one or more of
its investments (hedge) by purchasing and selling foreign
currency futures contracts and by purchasing and selling
currencies on a spot (i.e., cash) or forward basis.
Foreign
currency futures contracts are bilateral agreements
pursuant
to which one party agrees to make, and the other party
agrees to accept, delivery of a specified type of currency
at a specified future time and at a specified price.
Although such futures contracts by their terms call for
actual delivery or acceptance of currency, in most cases
the
contracts are closed out before the settlement date without
the making or taking of delivery. A forward currency
contract involves an obligation to purchase or sell a
specific currency at a specified future date, which may be
any fixed number of days from the contract date agreed upon
by the parties, at a price set at the time the contract is
entered into.
The International Index Master Portfolio may enter into
forward currency contracts for the purchase or sale of a
specified currency at a specified future date either with
respect to specific transactions or with respect to
portfolio positions. For example, the International Index
Master Portfolio may enter into a forward currency contract
to sell an amount of a foreign currency approximating the
value of some or all of the Master Portfolio's securities
denominated in such currency. The International Index
Master Portfolio may use forward contracts in one currency
or a basket of currencies to hedge against fluctuations in
the value of another currency when BGFA anticipates there
will be a correlation between the two and may use forward
currency contracts to shift the International Index Master
Portfolio's exposure to foreign currency fluctuations from
one country to another. The purpose of entering into these
contracts is to minimize the risk to the International
Index
Master Portfolio from adverse changes in the relationship
between the U.S. dollar and foreign currencies.
BGFA might not employ any of the strategies described
above,
and there can be no assurance that any strategy used will
succeed. If BGFA incorrectly forecasts exchange rates,
market values or other economic factors in utilizing a
strategy for the International Index Master Portfolio, the
Master Portfolio might have been in a better position had
it
not hedged at all. The use of these strategies involves
certain special risks, including (1) the fact that skills
needed to use hedging instruments are different from those
needed to select the International Index Master Portfolio's
securities, (2) possible imperfect correlation, or even no
correlation, between price movements of hedging instruments
and price movements of the investments being hedged, (3)
the
fact that, while hedging strategies can reduce the risk of
loss, they can also reduce the opportunity for gain, or
even
result in losses, by offsetting favorable price movements
in
hedged investments and (4) the possible inability of the
International Index Master Portfolio to purchase or sell a
portfolio security at a time that otherwise would be
favorable for it to do so, or the possible need for the
International Index Master Portfolio to sell a portfolio
security at a disadvantageous time, due to the need for the
International Index Master Portfolio to maintain "cover"
or to segregate securities in connection with hedging
transactions and the possible inability of the
International
Index Master Portfolio to close out or to liquidate its
hedged position.
New financial products and risk management techniques
continue to be developed. The International Index Master
Portfolio my use these instruments and techniques to the
extent consistent with its investment objectives and
regulatory and tax considerations.
Privately Issued Securities.
The International Index Master Portfolio may invest in
privately issued securities, including those which may be
resold only in accordance with Rule 144A under the
Securities Act of 1933 ("Rule 144A Securities"). Rule
144A Securities are restricted securities that are not
publicly traded. Accordingly, the liquidity of the market
for specific Rule 144A Securities may vary. Delay or
difficulty in selling such securities may result in a loss
to the International Index Master Portfolio. Privately
issued or Rule 144A securities that are determined by BGFA
to be "illiquid" are subject to the International Index
Master Portfolio's policy of not investing more than 15% of
its net assets in illiquid securities. BGFA, under
guidelines approved by Board of Trustees of MIP, will
evaluate the liquidity characteristics of each Rule 144A
Security proposed for purchase by the International Index
Master Portfolio on a case-by-case basis and will consider
the following factors, among others, in their evaluation:
(1) the frequency of trades and quotes for the Rule 144A
Security; (2) the number of dealers willing to purchase or
sell the Rule 144A Security and the number of other
potential purchasers; (3) dealer undertakings to make a
market in the Rule 144A Security; and (4) the nature of the
Rule 144A Security and the nature of the marketplace trades
(e.g., the time needed to dispose of the Rule 144A
Security,
the method of soliciting offers and the mechanics of
transfer).
PORTFOLIO SECURITIES - U.S. Equity Index and International
Index Master
Portfolios
The U.S. Equity Index Master Portfolio and the
International
Index Master Portfolio (each, a "Master Portfolio") may
invest in the securities described below.
Short-Term Instruments and Temporary Investments.
The Master Portfolio may invest in high-quality money
market
instruments on an ongoing basis to provide liquidity, for
temporary purposes when there is an unexpected level of
interestholder purchases or redemptions or when
"defensive" strategies are appropriate. The instruments
in which the Master Portfolio may invest include: (i)
short-
term obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (including
government-sponsored enterprises); (ii) negotiable
certificates of deposit ("CDs"), bankers' acceptances,
fixed time deposits and other obligations of domestic banks
(including foreign branches) that have more than $1 billion
in total assets at the time of investment and that are
members of the Federal Reserve System or are examined by
the
Comptroller of the Currency or whose deposits are insured
by
the Federal Deposit Insurance Company (the "FDIC"); (iii)
commercial paper rated at the date of purchase "Prime-1"
by Moody's or "A-1+" or "A-1" by S&P, or, if unrated, of
comparable quality as determined by BGFA; (iv) non-
convertible corporate debt securities (e.g., bonds and
debentures) with remaining maturities at the date of
purchase of not more than one year that are rated at least
"Aa" by Moody's or "AA" by S&P; (v) repurchase
agreements; and (vi) short-term, U.S. dollar-denominated
obligations of foreign banks (including U.S. branches) that
at the time of investment have more than $10 billion, or
the
equivalent in other currencies, in total assets and in the
opinion of BGFA are of comparable quality to obligations of
U.S. banks which may be purchased by the Master Portfolio.
Bank Obligations. The Master Portfolio may invest in bank
obligations, including certificates of deposit, time
deposits, bankers' acceptances and other short-term
obligations of domestic banks, foreign subsidiaries of
domestic banks, foreign branches of domestic banks, and
domestic and foreign branches of foreign banks, domestic
savings and loan associations and other banking
institutions. Certificates of deposit are negotiable
certificates evidencing the obligation of a bank to repay
funds deposited with it for a specified period of time.
Time deposits are non-negotiable deposits maintained in a
banking institution for a specified period of time at a
stated interest rate. Time deposits which may be held by
the Master Portfolio will not benefit from insurance from
the Bank Insurance Fund or the Savings Association
Insurance
Fund administered by the FDIC. Bankers' acceptances are
credit instruments evidencing the obligation of a bank to
pay a draft drawn on it by a customer. These instruments
reflect the obligation both of the bank and of the drawer
to
pay the face amount of the instrument upon maturity. The
other short-term obligations may include uninsured, direct
obligations, bearing fixed, floating- or variable-interest
rates.
Domestic commercial banks organized under Federal law are
supervised and examined by the Comptroller of the Currency
and are required to be members of the Federal Reserve
System
and to have their deposits insured by the FDIC. Domestic
banks organized under state law are supervised and examined
by state banking authorities but are members of the Federal
Reserve System only if they elect to join. In addition,
state banks whose CDs may be purchased by the Master
Portfolio are insured by the FDIC (although such insurance
may not be of material benefit to the Master Portfolio,
depending on the principal amount of the CDs of each bank
held by the Master Portfolio) and are subject to Federal
examination and to a substantial body of Federal law and
regulation. As a result of Federal or state laws and
regulations, domestic branches of domestic banks whose CDs
may be purchased by the Master Portfolio generally are
required, among other things, to maintain specified levels
of reserves, are limited in the amounts which they can loan
to a single borrower and are subject to other regulation
designed to promote financial soundness. However, not all
of such laws and regulations apply to the foreign branches
of domestic banks.
Obligations of foreign branches of domestic banks, foreign
subsidiaries of domestic banks and domestic and foreign
branches of foreign banks, such as CDs and time deposits
("TDs"), may be general obligations of the parent bank in
addition to the issuing branch, or may be limited by the
terms of a specific obligation and governmental regulation.
Such obligations are subject to different risks than are
those of domestic banks. These risks include foreign
economic and political developments, foreign governmental
restrictions that may adversely affect payment of principal
and interest on the obligations, foreign exchange controls
and foreign withholding and other taxes on interest income.
These foreign branches and subsidiaries are not necessarily
subject to the same or similar regulatory requirements that
apply to domestic banks, such as mandatory reserve
requirements, loan limitations, and accounting, auditing
and
financial record keeping requirements. In addition, less
information may be publicly available about a foreign
branch
of a domestic bank or about a foreign bank than about a
domestic bank
Obligations of United States branches of foreign banks may
be general obligations of the parent bank in addition to
the
issuing branch, or may be limited by the terms of a
specific
obligation or by Federal or state regulation as well as
governmental action in the country in which the foreign
bank
has its head office. A domestic branch of a foreign bank
with assets in excess of $1 billion may be subject to
reserve requirements imposed by the Federal Reserve System
or by the state in which the branch is located if the
branch
is licensed in that state.
In addition, Federal branches licensed by the Comptroller
of
the Currency and branches licensed by certain states
("State Branches") may be required to: (1) pledge to the
regulator by depositing assets with a designated bank
within
the state, a certain percentage of their assets as fixed
from time to time by the appropriate regulatory authority;
and (2) maintain assets within the state in an amount equal
to a specified percentage of the aggregate amount of
liabilities of the foreign bank payable at or through all
of
its agencies or branches within the state. The deposits of
Federal and State Branches generally must be insured by the
FDIC if such branches take deposits of less than $100,000.
In view of the foregoing factors associated with the
purchase of CDs and TDs issued by foreign branches of
domestic banks, by foreign subsidiaries of domestic banks,
by foreign branches of foreign banks or by domestic
branches
of foreign banks, BGFA carefully evaluates such investments
on a case-by-case basis.
The Master Portfolio may purchase CDs issued by banks,
savings and loan associations and similar thrift
institutions with less than $1 billion in assets, which are
members of the FDIC, provided such Master Portfolio
purchases any such CD in a principal amount of not more
than
$100,000, which amount would be fully insured by the Bank
Insurance Fund or the Savings Association Insurance Fund
administered by the FDIC. Interest payments on such a CD
are not insured by the FDIC. No Master Portfolio will own
more than one such CD per such issuer.
Commercial Paper and Short-Term Corporate Debt Instruments.
The Master Portfolio may invest in commercial paper
(including variable amount master demand notes), which
consists of short-term, unsecured promissory notes issued
by
corporations to finance short-term credit needs.
Commercial
paper is usually sold on a discount basis and has a
maturity
at the time of issuance not exceeding nine months.
Variable
amount master demand notes are demand obligations that
permit the investment of fluctuating amounts at varying
market rates of interest pursuant to arrangements between
the issuer and a commercial bank acting as agent for the
payee of such notes whereby both parties have the right to
vary the amount of the outstanding indebtedness on the
notes. BGFA monitors on an ongoing basis the ability of an
issuer of a demand instrument to pay principal and interest
on demand.
The Master Portfolio also may invest in non-convertible
corporate debt securities (e.g., bonds and debentures) with
not more than one year remaining to maturity at the date of
settlement. The Master Portfolio will invest only in such
corporate bonds and debentures that are rated at the time
of
purchase at least "Aa" by Moody's or "AA" by S&P.
Subsequent to its purchase by the Master Portfolio, an
issue
of securities may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by
the Master Portfolio. BGFA will consider such an event in
determining whether the Master Portfolio should continue to
hold the obligation. To the extent the Master Portfolio
continues to hold such obligations, it may be subject to
additional risk of default.
U.S. Government Obligations. The Master Portfolio may
invest in various types of U.S. Government obligations.
U.S. Government obligations include securities issued or
guaranteed as to principal and interest by the U.S.
Government its agencies or instrumentalities. Payment of
principal and interest on U.S. Government obligations (i)
may be backed by the full faith and credit of the United
States (as with U.S. Treasury obligations and GNMA
certificates) or (ii) may be backed solely by the issuing
or
guaranteeing agency or instrumentality itself (as with FNMA
notes). In the latter case, the investor must look
principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment, which
agency or instrumentality may be privately owned. There
can
be no assurance that the U.S. Government would provide
financial support to its agencies or instrumentalities
where
it is not obligated to do so. As a general matter, the
value of debt instruments, including U.S. Government
obligations, declines when market interest rates increase
and rises when market interest rates decrease. Certain
types of U.S. Government obligations are subject to
fluctuations in yield or value due to their structure or
contract terms.
Repurchase Agreements
The Master Portfolio may engage in a repurchase agreement
with respect to any security in which it is authorized to
invest, although the underlying security may mature in more
than thirteen months. The Master Portfolio may enter into
repurchase agreements wherein the seller of a security to
the Master Portfolio agrees to repurchase that security
from
the Master Portfolio at a mutually agreed-upon time and
price that involves the acquisition by the Master Portfolio
of an underlying debt instrument, subject to the seller's
obligation to repurchase, and the Master Portfolio's
obligation to resell, the instrument at a fixed price
usually not more than one week after its purchase. The
Master Portfolio's custodian has custody of, and holds in a
segregated account, securities acquired as collateral by
the
Master Portfolio under a repurchase agreement. Repurchase
agreements are considered by the staff of the Securities
and
Exchange Commission (the "SEC") to be loans by the Master
Portfolio. The Master Portfolio may enter into repurchase
agreements only with respect to securities of the type in
which it may invest, including government securities and
mortgage-related securities, regardless of their remaining
maturities, and requires that additional securities be
deposited with the custodian if the value of the securities
purchased should decrease below resale price. BGFA
monitors
on an ongoing basis the value of the collateral to assure
that it always equals or exceeds the repurchase price.
Certain costs may be incurred by the Master Portfolio in
connection with the sale of the underlying securities if
the
seller does not repurchase them in accordance with the
repurchase agreement. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the
securities, disposition of the securities by the Master
Portfolio may be delayed or limited. While it does not
presently appear possible to eliminate all risks from these
transactions (particularly the possibility of a decline in
the market value of the underlying securities, as well as
delay and costs to the Master Portfolio in connection with
insolvency proceedings), it is the policy of the Master
Portfolio to limit repurchase agreements to selected
creditworthy securities dealers or domestic banks or other
recognized financial institutions. The Master Portfolio
considers on an ongoing basis the creditworthiness of the
institutions with which it enters into repurchase
agreements. Repurchase agreements are considered to be
loans by the Master Portfolio under the 1940 Act.
Floating- and Variable-Rate Obligations.
The Master Portfolio may purchase floating- and variable-
rate obligations. The Master Portfolio may purchase
floating- and variable-rate demand notes and bonds, which
are obligations ordinarily having stated maturities in
excess of thirteen months, but which permit the holder to
demand payment of principal at any time, or at specified
intervals not exceeding thirteen months. Variable rate
demand notes include master demand notes that are
obligations that permit the Master Portfolio to invest
fluctuating amounts, which may change daily without
penalty,
pursuant to direct arrangements between the Master
Portfolio, as lender, and the borrower. The interest rates
on these notes fluctuate from time to time. The issuer of
such obligations ordinarily has a corresponding right after
a given period, to prepay in its discretion the outstanding
principal amount of the obligations plus accrued interest
upon a specified number of days' notice to the holders of
such obligations. The interest rate on a floating-rate
demand obligation is based on a known lending rate, such as
a bank's prime rate, and is adjusted automatically each
time
such rate is adjusted. The interest rate on a variable-
rate
demand obligation is adjusted automatically at specified
intervals. Frequently, such obligations are secured by
letters of credit or other credit support arrangements
provided by banks. Because these obligations are direct
lending arrangements between the lender and borrower, it is
not contemplated that such instruments generally will be
traded, and there generally is no established secondary
market for these obligations, although they are redeemable
at face value. Accordingly, where these obligations are
not
secured by letters of credit or other credit support
arrangements, the Master Portfolio's right to redeem is
dependent on the ability of the borrower to pay principal
and interest on demand. Such obligations frequently are
not
rated by credit rating agencies and the Master Portfolio
may
invest in obligations, which are not so rated only if BGFA
determines that at the time of investment the obligations
are of comparable quality to the other obligations in which
each Master Portfolio may invest. BGFA, on behalf of the
Master Portfolio, considers on an ongoing basis the
creditworthiness of the issuers of the floating- and
variable-rate demand obligations in the Master Portfolio's
portfolio. Each Master Portfolio will not invest more than
10% of the value of its total net assets in floating- or
variable-rate demand obligations whose demand feature is
not
exercisable within seven days. Such obligations may be
treated as liquid, provided an active secondary market
exists.
Illiquid Securities.
The Master Portfolio may invest up to 15% of the value of
its net assets in securities as to which a liquid trading
market does not exist, provided such investments are
consistent with its investment objective. Such securities
may include securities that are not readily marketable,
such
as privately issued securities and other securities that
are
subject to legal or contractual restrictions on resale,
floating- and variable-rate demand obligations as to which
the Master Portfolio cannot exercise a demand feature on
not
more than seven days' notice and as to which there is no
secondary market and repurchase agreements providing for
settlement more than seven days after notice.
Investment Company Securities.
The Master Portfolio may invest in securities issued by
other open-end, management investment companies to the
extent permitted under the 1940 Act. As a general matter,
under the 1940 Act investment in such securities is limited
to: (i) 3% of the total voting stock of any one investment
company, (ii) 5% of the Master Portfolio's net assets with
respect to any one investment company and (iii) 10% of the
Master Portfolio's net assets with respect to all such
companies in the aggregate. Investments in the securities
of other investment companies generally will involve
duplication of advisory fees and certain other expenses.
The Master Portfolio may also purchase interests of
exchange-listed closed-end funds to the extent permitted
under the 1940 Act.
Loans of Portfolio Securities.
The Master Portfolio may lend securities from its portfolio
to brokers, dealers and financial institutions (but not
individuals) if cash, U.S. Government securities or other
high quality debt obligations equal to at least 100% of the
current market value of the securities loaned (including
accrued interest thereon) plus the interest payable to the
Master Portfolio with respect to the loan is maintained
with
the Master Portfolio. In determining whether or not to
lend
a security to a particular broker, dealer or financial
institution, the BGFA considers all relevant facts and
circumstances, including the size, creditworthiness and
reputation of the broker, dealer, or financial institution.
Any loans of portfolio securities are fully collateralized
based on values that are marked to market daily. The
Master
Portfolio does not enter into any portfolio security
lending
arrangements having a duration longer than one year. Any
securities that the Master Portfolio receives as collateral
do not become part of its portfolio at the time of the loan
and, in the event of a default by the borrower, the Master
Portfolio will, if permitted by law, dispose of such
collateral except for such part thereof that is a security
in which the Master Portfolio is permitted to invest.
During the time securities are on loan, the borrower will
pay the Master Portfolio any accrued income on those
securities, and the Master Portfolio may invest the cash
collateral and earn income or receive an agreed-upon fee
from a borrower that has delivered cash-equivalent
collateral. The Master Portfolio will not lend securities
having a value that exceeds one-third of the current value
of its respective total assets. Loans of securities by the
Master Portfolio are subject to termination at the Master
Portfolio or the borrower's option. The Master Portfolio
may pay reasonable administrative and custodial fees in
connection with a securities loan and may pay a negotiated
portion of the interest or fee earned with respect to the
collateral to the borrower or the placing broker.
Borrowers
and placing brokers are not permitted to be affiliated,
directly or indirectly, with the Master Portfolio or BGFA.
Forward Commitments, When-Issued Purchases and
Delayed-Delivery Transactions.
The Master Portfolio may purchase or sell securities on a
when-issued or delayed-delivery basis and make contracts to
purchase or sell securities for a fixed price at a future
date beyond customary settlement time. Securities
purchased
or sold on a when-issued, delayed-delivery or forward
commitment basis involve a risk of loss if the value of the
security to be purchased declines, or the value of the
security to be sold increases, before the settlement date.
Although the Master Portfolio will generally purchase
securities with the intention of acquiring them, the Master
Portfolio may dispose of securities purchased on a when-
issued, delayed-delivery or a forward commitment basis
before settlement when deemed appropriate by the adviser.
Securities purchased on a when-issued or forward commitment
basis may expose the Master Portfolio to risk because they
may experience such fluctuations prior to their actual
delivery. Purchasing securities on a when-issued or
forward-commitment basis can involve the additional risk
that the yield available in the market when the delivery
takes place actually may be higher than that obtained in
the
transaction itself.
The Master Portfolio will segregate cash, U.S. Government
obligations or other high-quality debt instruments in an
amount at least equal in value to the Master Portfolio's
commitments to purchase when-issued securities. If the
value of these assets declines, the Master Portfolio will
segregate additional liquid assets on a daily basis so that
the value of the segregated assets is equal to the amount
of
such commitments.
Future Developments.
The Master Portfolio may take advantage of opportunities in
the area of options and futures contracts and options on
futures contracts and any other derivative investments
which
are not presently contemplated for use by the Master
Portfolio or which are not currently available but which
may
be developed, to the extent such opportunities are both
consistent with the Master Portfolio's investment objective
and legally permissible for the Master Portfolio. Before
entering into such transactions or making any such
investment, the Master Portfolio will provide appropriate
disclosure in its prospectus.
Portfolio Characteristics and Policies
Each of the Funds and the Master Portfolios are diversified
under the federal securities laws and regulations.
Because the structures of the Master Portfolios are based
on
the relative market capitalizations of eligible holdings,
it
is possible that a Master Portfolio might include at least
5% of the outstanding voting securities of one or more
issuers. In such circumstances, the Master Portfolio and
the
issuer would be deemed affiliated persons and certain
requirements under the federal securities laws and
regulations regulating dealings between mutual funds and
their affiliates might become applicable. However, based
on
the present capitalizations of the groups of companies
eligible for inclusion in the Master Portfolios and the
anticipated amount of the assets intended to be invested in
such securities, management does not anticipate that the
Master Portfolios will include as much as 5% of the voting
securities of any issuer.
The Fund will not incur any brokerage or other costs in
connection with their purchase or redemption of shares of
the Master Portfolio, except if the Fund receives
securities
or currencies from a Master Portfolio to satisfy the Fund's
redemption request.
INVESTMENT LIMITATIONS
Futures Contracts
The Master Portfolio may enter into futures contracts and
options on futures contracts only for the purpose of
remaining fully invested and to maintain liquidity to pay
redemptions. Futures contracts provide for the future sale
by one party and purchase by another party of a specified
amount of defined securities at a specified future time and
at a specified price. Futures contracts that are
standardized as to maturity date and underlying financial
instruments are traded on national futures exchanges. A
Master Portfolio will be required to make a margin deposit
in cash or government securities with a broker or custodian
to initiate and maintain positions in futures contracts.
Minimal initial margin requirements are established by the
futures exchange and brokers may establish margin
requirements that are higher than the exchange
requirements.
After a futures contract position is opened, the value of
the contract is marked to market daily. If the futures
contract price changes, to the extent that the margin on
deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required.
Conversely,
reduction in the contract value may reduce the required
margin resulting in a repayment of excess margin to a
Master
Portfolio. Variation margin payments are made to and from
the futures broker for as long as the contract remains
open.
The Master Portfolios expect to earn income on their margin
deposits. To the extent a Master Portfolio invests in
futures contracts and options thereon for other than bona
fide hedging purposes, no Master Portfolio will enter into
such transactions if, immediately thereafter, the sum of
the
amount of initial margin deposits and premiums paid for
open
futures options would exceed 5% of the Master Portfolio's
net assets, after taking into account unrealized profits
and
unrealized losses on such contracts it has entered into;
provided, however, that, in the case of an option that is
in-the-money at the time of purchase, the in-the-money
amount may be excluded in calculating the 5%. Pursuant to
published positions of the SEC, the Master Portfolios may
be
required to maintain segregated accounts consisting of
liquid assets, such as cash or liquid securities (or, as
permitted under applicable regulation, enter into
offsetting
positions) in connection with their futures contract
transactions in order to cover their obligations with
respect to such contracts.
Positions in futures contracts may be closed out only on an
exchange that provides a secondary market. However, there
can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific
time. Therefore, it might not be possible to close a
futures position and, in the event of adverse price
movements, a Master Portfolio would continue to be required
to make variation margin deposits. In such circumstances,
if a Master Portfolio has insufficient cash, it might have
to sell portfolio securities to meet daily margin
requirements at a time when it might be disadvantageous to
do so. Management intends to minimize the possibility that
it will be unable to close out a futures contract by only
entering into futures which are traded on national futures
exchanges and for which there appears to be a liquid
secondary market.
Cash Management Practices
The Fund and the Master Portfolios engage in cash
management
practices in order to earn income on uncommitted cash
balances. Generally, cash is uncommitted pending
investment
in other obligations, payment of redemptions or in other
circumstances where BGFA believes liquidity is necessary or
desirable. For example, cash investments may be made for
temporary defensive purposes during periods in which
market,
economic or political conditions warrant. All the
Portfolios
and Master Funds may invest cash in short-term repurchase
agreements.
The aggregate amount of expenses for the Fund and the
Master
Portfolio may be greater than it would be if the fund were
to invest directly in the securities held by the Master
Portfolios. However, the total expense ratios for the fund
and the Master Portfolios are expected to be less over time
than such ratios would be if the fund were to invest
directly in the underlying securities. This arrangement
enables institutional investors, including the fund, to
pool
their assets, which may be expected to result in economies
by spreading certain fixed costs over a larger asset base.
Each shareholder in a Master Portfolio, including the Fund,
will pay its proportionate share of the expenses of that
Master Portfolio.
The shares of the Master Portfolio will be offered to
institutional investors for the purpose of increasing the
funds available for investment, to reduce expenses as a
percentage of total assets and to achieve other economies
that might be available at higher asset levels. Investment
in a Master Portfolio by other institutional investors
offers potential benefits to the Master Portfolio and
through their investment in the Master Portfolio, the Fund
also. However, such economies and expense reductions might
not be achieved, and additional investment opportunities,
such as increased diversification, might not be available
if
other institutions do not invest in the Master Portfolio.
Also, if an institutional investor were to redeem its
interest in a Master Portfolio, the remaining investors in
that Master Portfolio could experience higher pro rata
operating expenses, thereby producing lower returns, and
the
Master Portfolio's security holdings may become less
diverse, resulting in increased risk. Institutional
investors that have a greater pro rata ownership interest
in
a Master Portfolio than the corresponding Feeder Fund could
have effective voting control over the operation of the
Master Portfolio.
If the Board of Trustees of the Fund determines that it is
in the best interest of the Fund, the fund may withdraw its
investment in the Master Portfolio at any time. Upon any
such withdrawal, the Board would consider what action the
Fund might take, including either seeking to invest its
assets in another registered investment company with the
same investment objective as the Fund, which might not be
possible, or retaining an investment advisor to manage the
Fund's assets in accordance with its own investment
objective, possibly at increased cost. Shareholders of the
Fund will receive written notice thirty days prior to the
effective date of any changes in the investment objective
of
its corresponding Master Portfolio. A withdrawal by a Fund
of its investment in the corresponding Master Portfolio
could result in a distribution in kind of portfolio
securities (as opposed to a cash distribution) to the Fund.
Should such a distribution occur, the Fund could incur
brokerage fees or other transaction costs in converting
such
securities to cash in order to pay redemptions. In
addition,
a distribution in kind to a Fund could result in a less
diversified portfolio of investments and could affect
adversely the liquidity of the Fund. Moreover, a
distribution in kind by a Master Portfolio to a Fund may
constitute a taxable exchange for federal income tax
purposes resulting in gain or loss to such Fund. Any net
capital gains so realized will be distributed to that
Fund's
shareholders.
Shareholder Rights
Whenever the Fund, as an investor in its corresponding
Master Portfolio, is asked to vote on a shareholder
proposal, the respective Fund will solicit voting
instructions from the Fund's shareholders with respect to
the proposal. The Trustees of the Trust will then vote the
Fund's shares in the Master Portfolio in accordance with
the
voting instructions received from the Fund's shareholders.
The Trustees of the Trust will vote shares of the Fund for
which they receive no voting instructions in accordance
with
their best judgment.
INVESTMENT RESTRICTIONS OF THE FUND
The fund has adopted the following investment restrictions
for the protection of shareholders. Although the Fund
currently will invest all of its assets in the Master
Portfolio, the Board of Trustees intends to maintain the
following additional investment restrictions. To the
extent
that the Fund's restrictions listed are inconsistent with
the Master Portfolios, the Master Portfolios restrictions
are controlling. Restrictions 1 through 7 below cannot be
changed without approval by the holders of a majority of
the
outstanding shares of the Fund, defined as the lesser of
(a)
67% or more of the Fund's shares present at a meeting, if
the holders of more than 50% of the outstanding shares are
present in person or by proxy or (b) more than 50% of the
Fund's outstanding shares. The remaining restrictions may
be
changed by the Fund's board of trustees at any time. In
accordance with these restrictions, the Fund will not:
1. Invest in a manner that would cause it to fail to be
a
"diversified company" under the 1940 Act and the
rules, regulations and orders thereunder.
2. Issue "senior securities" as defined in the 1940
Act, and the rules, regulations and orders thereunder,
except as permitted under the 1940 Act and the rules,
regulations and orders thereunder.
3. Invest more than 25% of its total assets in
securities, the issuers of which conduct their
principal business activities in the same industry.
For purposes of this limitation, securities of the
U.S. government (including its agencies and
instrumentalities) and securities of state or
municipal governments and their political subdivisions
are not considered to be issued by members of any
industry.
4. Borrow money, except that (a) the fund may borrow
from
banks for temporary or emergency (not leveraging)
purposes, including the meeting of redemption requests
which might otherwise require the untimely disposition
of securities, and (b) the Fund may, to the extent
consistent with its investment policies, enter into
reverse repurchase agreements, forward roll
transactions and similar investment strategies and
techniques. To the extent that it engages in
transactions described in (a) and (b), the Fund will
be limited so that no more than 33 1/3% of the value
of its total assets (including the amount borrowed),
valued at the lesser of cost or market, less
liabilities (not including the amount borrowed) valued
at the time the borrowing is made, is derived from
such transactions.
5. Make loans. This restriction does not apply to: (a)
the purchase of debt obligations in which the Fund may
invest consistent with its investment objective and
policies; (b) repurchase agreements; and (c) loans of
its portfolio securities, to the fullest extent
permitted under the 1940 Act.
6. Engage in the business of underwriting securities
issued by other persons, except to the extent that the
Fund may technically be deemed to be an underwriter
under the Securities Act of 1933, as amended, in
disposing of portfolio securities.
7. Purchase or sell real estate, real estate mortgages,
commodities or commodity contracts, but this
restriction shall not prevent the Fund from: (a)
investing in securities of issuers engaged in the real
estate business or the business of investing in real
estate (including interests in limited partnerships
owning or otherwise engaging in the real estate
business or the business of investing in real estate)
and securities which are secured by real estate or
interests therein; (b) holding or selling real estate
received in connection with securities it holds or
held; (c) trading in futures contracts and options on
futures contracts (including options on currencies to
the extent consistent with the Fund' investment
objective and policies); or (d) investing in real
estate investment trust securities.
8. Purchase any securities on margin (except for such
short-term credits as are necessary for the clearance
of purchases and sales of portfolio securities) or
sell any securities short (except "against the
box"). For purposes of this restriction, the deposit
or payment by the fund of underlying securities and
other assets in escrow and collateral agreements with
respect to initial or maintenance margin in connection
with futures contracts and related options and options
on securities, indexes or similar items is not
considered to be the purchase of a security on margin.
9. Invest in oil, gas or other mineral exploration or
development programs.
10. Purchase or otherwise acquire any security if, as a
result, more than 15% of its net assets would be
invested in securities that are illiquid.
11. Invest for the purpose of exercising control of
management.
If any percentage restriction described above is complied
with at the time of an investment, a later increase or
decrease in percentage resulting from a change in values or
assets will not constitute a violation of such restriction.
INVESTMENT RESTRICTIONS OF THE U.S. EQUITY INDEX MASTER
PORTFOLIO
The U.S. Equity Index Master Portfolio has adopted the
following investment restrictions as fundamental policies.
These restrictions cannot be changed, as to the Master
Portfolio, without approval by the holders of a majority
(as
defined in the 1940 Act) of the Master Portfolio's
outstanding voting securities. The Master Portfolio may
not:
1. Invest more than 5% of its assets in the obligations
of any single issuer, except that up to 25% of the
value of its total assets may be invested, and
securities issued or guaranteed by the U.S. Government
or its agencies or instrumentalities may be purchased,
without regard to any such limitation.
2. Hold more than 10% of the outstanding voting
securities of any single issuer. This Investment
Restriction applies only with respect to 75% of its
total assets.
3. Invest in commodities, except that the Master
Portfolio may purchase and sell (i.e., write) options,
forward contracts, futures contracts, including those
relating to indexes, and options on futures contracts
or indexes.
4. Purchase, hold or deal in real estate, or oil, gas or
other mineral leases or exploration or development
programs, but the Master portfolio may purchase and
sell securities that are secured by real estate or
issued by companies that invest or deal in real
estate.
5. Borrow money, except to the extent permitted under
the
1940 Act provided that the Master Portfolio may
borrow up to 20% of the current value of its net
assets for temporary purposes only in order to meet
redemptions, and these borrowings may be secured by
the pledge of up to 20% of the current value of its
net assets. For purposes of this investment
restriction, the Master Portfolio's entry into
options, forward contracts, futures contracts,
including those relating to indexes, and options on
futures contracts or indexes shall not constitute
borrowing to the extent certain segregated accounts
are established and maintained by the Master
Portfolio.
6. Make loans to others, except through the purchase of
debt obligations and the entry into repurchase
agreements. However, the Master Portfolio may lend
its portfolio securities in an amount not to exceed
one-third of the value of its total assets. Any loans
of portfolio securities will be made according to
guidelines established by the Securities and Exchange
Commission and the MIP's Board of Trustees.
7. Act as an underwriter of securities of other issuers,
except to the extent the Master Portfolio may be
deemed an underwriter under the Securities Act of
1933, as amended, by virtue of disposing of portfolio
securities.
8. Invest 25% or more of its total assets in the
securities of issuers in any particular industry or
group of closely related industries except that there
shall be no limitation with respect to investments in
(i) obligations of the U.S. Government, its agencies
or instrumentalities (ii) any industry in which the
Wilshire 4500 Index becomes concentrated to the same
degree during the same period, the Master Portfolio
will be concentrated as specified above only to the
extent the percentage of its assets invested in those
categories of investments is sufficiently large that
25% or more of its total assets would be invested in a
single industry.
The U.S. Equity Index Master Portfolio has adopted the
following investment restrictions as non-fundamental
policies. These restrictions may be changed without
shareholder approval by a vote of a majority of the
Trustees
of MIP, at any time. The Master Portfolio is subject to
the
following investment restrictions, all of which are non-
fundamental policies.
1. The Master Portfolio may invest in shares of other
open-end management investment companies, subject to
the limitations of Section 12(d)(1) of the 1940 Act.
Under the 1940 Act, the Master Portfolio's investment
is such securities currently is limited, subject to
certain exceptions, to (i) 3% of the total voting
stock of any one investment company, (ii) 5% of the
Master Portfolio's net assets with respect to any one
investment company and (iii) 10% of the Master
Portfolio's net assets in the aggregate. Other
investment companies in which the Master Portfolio
invests can be expected to charge fees for operating
expense, such as investment advisory and
administration fees, that would be in addition to
those charged by the Master Portfolio.
2. The Master Portfolio may not invest more than 15% of
the Master Portfolio's net assets in illiquid
securities. For this purpose, illiquid securities
include, among others, (a) securities that are
illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions
on resale, (b) fixed time deposits that are subject to
withdrawal penalties and that have maturities of more
than seven days, and (c) repurchase agreements not
terminable within seven days.
3. The Master Portfolio may lend securities from its
portfolio to brokers, dealers and financial
institutions, in amounts not to exceed (in the
aggregate) one-third of the Fund's total assets. Any
such loans of portfolio securities will be fully
collateralized based on values that are marked to
market daily. The Master Portfolio will not enter
into any portfolio security lending arrangement having
a duration of longer than one year.
If any percentage restriction described above is complied
with at the time of an investment, a later increase or
decrease in percentage resulting from a change in values or
assets will not constitute a violation of such restriction.
INVESTMENT RESTRICTIONS OF THE INTERNATIONAL INDEX MASTER
PORTFOLIO
The International Index Master Portfolio has adopted the
following investment restrictions as fundamental policies.
These restrictions cannot be changed, as to the Master
Portfolio, without approval by the holders of a majority
(as
defined in the 1940 Act) of the Master Portfolio's
outstanding voting securities. The Master Portfolio may
not:
1. Invest more than 5% of its assets in the obligations
of any single issuer, except that up to 25% of the
value of its total assets may be invested, and
securities issued or guaranteed by the US. Government
or its agencies or instrumentalities may be purchased,
without regard to any such limitation. This
limitation does not apply to foreign currency
transactions including without limitation forward
currency contracts.
2. Hold more than 10% of the outstanding voting
securities of any single issuer. This Investment
Restriction applies only with respect to 75% of its
total assets.
3. Invest in commodities, except that the Master
Portfolio may purchase and sell (i.e., write) options,
forward contracts, futures contracts, including those
relating to indexes, and options on futures contracts
or indices.
4. Purchase, hold or deal in real estate, or oil, gas or
other mineral leases or exploration or development
program, but the Master Portfolio may purchase and
sell securities that are secured by real estate or
issued by companies that invest or deal in real
estate.
5. Borrow money, except to the extent permitted under
the
1940 Act provided that the Master Portfolio may borrow
up to 20% of the current value of its net assets for
temporary purposes only in order to meet redemptions,
and these borrowings may be secured by the pledge of
up to 20% of the current value of its net assets. For
purposes of this investment restriction, the Master
Portfolio's entry into options, forward contracts,
futures contracts, including those relating to
indices, and options on futures contracts or indices
shall not constitute borrowing to the extent certain
segregated accounts are established and maintained by
the Master Portfolio.
6. Make loans to others, except through the purchase of
debt obligations and the entry into repurchase
agreements. However, the Master Portfolio may lend
its portfolio securities in an amount not to exceed
one-third of the value of its total assets. Any loans
of portfolio securities will be made according to
guidelines established by the Securities and Exchange
Commission and the MIP's Board of Trustees.
7. Act as an underwriter of securities of other issuers,
except to the extent the Master Portfolio may be
deemed an underwriter under the 1933 Act as amended,
by virtue of disposing of portfolio securities.
8. Invest 25% or more of its total assets in the
securities of issuers in any particular industry or
group of closely related industries except that there
shall be no limitation with respect to investments in
(i) obligations of the US. Government, its agencies or
instrumentalities (ii) any industry in which the EAFE
Free Index becomes concentrated to the same degree
during the same period, the Master Portfolio will be
concentrated as specified above only to the extent the
percentage of its assets invested in those categories
of investments is sufficiently large that 25% or more
of its total assets would be invested in a single
industry.
9. Issue any senior security (as such term is defined in
Section 18(f) of the 1940 Act), except to the extent
the activities permitted in Investment Restriction
Nos. 3 and 5 may be deemed to give rise to a senior
security
The International Index Master Portfolio has adopted the
following investment restrictions as non-fundamental
policies. These restrictions may be changed without
shareholder approval by a vote of a majority of the
Trustees
of MIP, at any time. The Master Portfolio is subject to
the
following investment restrictions, all of which are non-
fundamental policies.
1. The Master Portfolio may invest in shares of other
open-end management investment companies, subject to
the limitations of Section 12(d)(1) of the 1940 Act.
Under the 1940 Act, the Master Portfolio's investment
in such securities currently is limited, subject to
certain exceptions, to (i) 3% of the total voting
stock of any one investment company, (ii) 5% of the
Master Portfolio's net assets with respect to any one
investment company, and (iii) 10% of the Master
Portfolio's net assets in the aggregate. Other
investment companies in which the Master Portfolio
invests can be expected to charge fees for operating
expenses, such as investment advisory and
administration fees, that would be in addition to
those charged by the Master Portfolio.
2. The Master Portfolio may not invest more than 15% of
its net assets in illiquid securities. For this
purpose, illiquid securities include, among others,
(a) securities that are illiquid by virtue of the
absence of a readily available market or legal or
contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and
that have maturities of more than seven days, and (c)
repurchase agreements not terminable within seven
days.
3. The Master Portfolio may lend securities from its
portfolio to brokers, dealers and financial
institutions, in amounts not to exceed (in the
aggregate) one-third of the Master Portfolio's total
assets. Any such loans of portfolio securities will
be fully collateralized based on values that are
marked to market daily. The Master Portfolio will not
enter into any portfolio security lending arrangement
having a duration of longer than one year.
If any percentage restriction described above is complied
with at the time of an investment, a later increase or
decrease in percentage resulting from a change in values or
assets will not constitute a violation of such restriction.
RISK CONSIDERATIONS
U.S. EQUITY INDEX MASTER PORTFOLIO
General-The value of the U.S. Equity Index Master
Portfolio's interests is neither insured nor guaranteed, is
not fixed and should be expected to fluctuate.
Equity Securities-The stock investments of the Master
Portfolio are subject to equity market risk. Equity market
risk is the possibility that common stock prices will
fluctuate or decline over short or even extended periods.
The U.S. stock market tends to be cyclical, with periods
when stock prices generally rise and periods when prices
generally decline. In addition, many of the companies
whose
securities comprise the Wilshire 4500 Index are small- to
medium-sized companies which, historically, have been more
susceptible to market fluctuations than securities of
larger
capitalization companies such as those comprising the S&P
500 Index. As of the date of this registration statement,
the U.S. stock market, as measured by the Wilshire 5000
Index and other commonly used indices, was trading at or
close to record levels. There can be no assurance that
these record levels will continue.
Debt Securities-The debt instruments in which the Master
Portfolio may invest are subject to credit and interest
rate
risk. Credit risk is the risk that issuers of debt
instruments may default on the payment of principal and/or
interest. Interest-rate risk is the risk that increases in
market interest rates may adversely affect the value of
debt
instruments. The value of debt instruments generally
changes inversely to market interest rates. Debt
securities
with longer maturities, which tend to produce higher
yields,
are subject to potentially greater capital appreciation and
depreciation than, obligations with shorter maturities.
Changes in the financial strength of an issuer or changes
in
the ratings of any particular security may also affect the
value of debt instruments. Although some debt instruments
are guaranteed by the U.S. Government, its agencies or
instrumentalities, such instruments are subject to interest
rate risk and the market value of these instruments will
fluctuate. No assurance can be given that the U.S.
Government, would provide financial support to the agencies
or instrumentalities that issue or guarantee these
instruments where it is not obligated to do so.
INTERNATIONAL INDEX MASTER PORTFOLIO
General-The value of the International Index Master
Portfolio's interests is neither insured nor guaranteed, is
not fixed and should be expected to fluctuate.
Equity Securities-The stock investments of the Master
Portfolio are subject to equity market risk. Equity market
risk is the possibility that common stock prices will
fluctuate or decline over short or even extended periods.
International stock markets tend to be cyclical, with
periods when stock prices generally rise and periods when
prices generally decline. In addition, many of the
companies whose securities comprise the EAFE Free Index are
small to medium size companies which, historically, have
been more susceptible to market fluctuations than
securities
of larger capitalization companies.
Foreign Investment Risk-The Master Portfolio invests
substantially all of its assets in foreign securities.
This
means the Master Portfolio can be affected by the risks of
foreign investing, including changes in currency exchange
rates and the costs of converting currencies; foreign
government controls on foreign investment; repatriation of
capital, and currency and exchange; foreign taxes;
inadequate supervision and regulation of some foreign
markets; volatility from lack of liquidity; different
settlement practices or delayed settlements in some
markets;
difficulty in getting complete and accurate information
about foreign companies; less strict accounting, auditing
and financial reporting standards than those in the U.S.;
political, economic and social instability, and difficulty
enforcing legal rights outside the U.S.
In addition, many foreign countries are less prepared than
the United States to properly process and calculate
information related to dates from and after January 1,
2000,
which could result in difficulty pricing foreign
investments
and failure by foreign issuers to pay timely dividends,
interest or principal. All of these factors can make
foreign investments, especially those in emerging markets,
more volatile and potentially less liquid than U.S.
investments.
Issuer-Specific Changes-Changes in the financial condition
of an issuer, changes in specific economic or political
conditions that affect a particular type of security or
issuer, and changes in general economic or political
conditions can affect the value of an issuer's securities.
Small Company Investing-The value of securities of smaller,
less well-known issuers can be more volatile than that of
larger issuers and can react differently to issuer,
political, market and economic developments than the market
as a whole and other types of stocks. Smaller issuers can
have more limited product lines, markets and financial
resources.
Other Investment Considerations-The Master Portfolio may
enter into transactions in futures contracts and options on
futures contracts, each of which involves risk. The
futures
contracts and options on futures contracts that the Master
Portfolio may purchase may be considered derivatives.
Derivatives are financial instruments whose values are
derived, at least in part, from the prices of other
securities or specified assets, indices or rates. The
Master Portfolio intends to use futures contracts and
options as part of its short-term liquidity holdings and/or
substitutes for comparable market positions in the
underlying securities. Some derivatives may be more
sensitive than direct securities to changes in interest
rates or sudden market moves. Some derivatives also may be
susceptible to fluctuations in yield or value due to their
structure or contract terms.
Securities Loans
The Master Portfolios are authorized to lend securities to
qualified brokers, dealers, banks and other financial
institutions for the purpose of earning additional income.
While the Master Portfolios may earn additional income from
lending securities, such activity is incidental to their
investment objectives. The value of securities loaned may
not exceed 33 1/3% of the value of each Master Portfolio's
total assets. In connection with such loans, the Master
Portfolio will receive collateral consisting of cash or
U.S.
government securities, which will be maintained at all
times
in an amount equal to at least 100% of the current market
value of the loaned securities. In addition, the Master
Portfolio will be able to terminate the loan at any time,
will receive reasonable compensation on the loan, as well
as
amounts equal to any dividends, interest or other
distributions on the loaned securities. In the event of
the
bankruptcy of the borrower, a Master Portfolio could
experience delay in recovering the loaned securities.
Management believes that this risk can be controlled
through
careful monitoring procedures.
The Funds and the Trust bear all of their own costs and
expenses, including: services of its independent
accountants, legal counsel, brokerage commissions and
transfer taxes in connection with the acquisition and
disposition of portfolio securities, taxes, insurance
premiums, costs incidental to meetings of its shareholders
and Trustees, the cost of filing its registration
statements
under federal securities laws and the cost of any filings
required under state securities laws, reports to
shareholders, and transfer and dividend disbursing agency,
administrative services and custodian fees. Expenses
allocable to a particular Fund or Master Portfolio are so
allocated.
TRUSTEES OF THE TRUST AND EXECUTIVE OFFICERS OF THE FUND
The names of the Trustees of the Trust and executive
officers of the Fund, together with information as to their
principal business occupations, are set forth below. The
executive officers of the Fund are employees of
organizations that provide services to the Fund. Each
Trustee who is an "interested person" of the Trust, as
defined in the 1940 Act, is indicated by an asterisk. The
address of the "non-interested" Trustees and the executive
officers of the Fund is 388 Greenwich Street, New York, New
York 10013.
Herbert Barg (Age 76). Trustee
Private Investor. Director or trustee of 18 investment
companies associated with Citigroup Inc. ("Citigroup") His
address is 273 Montgomery Avenue, Bala Cynwyd, Pennsylvania
19004.
*Alfred J. Bianchetti (Age 76). Trustee
Retired; formerly Senior Consultant to Dean Witter Reynolds
Inc. Director or trustee of 13 investment companies
associated with Citigroup. His address is 19 Circle End
Drive, Ramsey, New Jersey 07466.
Martin Brody (Age 78). Trustee
Consultant, HMK Associates; Retired Vice Chairman of the
Board of Restaurant Associates Corp. Director or trustee of
22 investment companies associated with Citigroup. His
address is c/o HMK Associates, 30 Columbia Turnpike,
Florham
Park, New Jersey 07932.
Dwight B. Crane (Age 61). Trustee
Professor, Harvard Business School. Director or trustee of
25 investment companies associated with Citigroup. His
address is c/o Harvard Business School, Soldiers Field
Road,
Boston, Massachusetts 02163.
Burt N. Dorsett (Age 68). Trustee
Managing Partner of Dorsett McCabe Management. Inc., an
investment counseling firm; Director of Research
Corporation
Technologies, Inc., a nonprofit patent clearing and
licensing firm. Director or trustee of 13 investment
companies associated with Citigroup. His address is 201
East
62nd Street, New York, New York 10021.
Elliot S. Jaffe (Age 73). Trustee
Chairman of the Board and President of The Dress Barn, Inc.
Director or trustee of 13 investment companies associated
with Citigroup. His address is 30 Dunnigan Drive, Suffern,
New York 10901.
Stephen E. Kaufman (Age 67). Trustee
Attorney. Director or trustee of 15 investment companies
associated with Citigroup. His address is 277 Park Avenue,
New York, New York 10172.
Joseph J. McCann (Age 69). Trustee
Financial Consultant; Retired Financial Executive, Ryan
Homes, Inc. Director or trustee of 13 investment companies
associated with Citigroup. His address is 200 Oak Park
Place, Pittsburgh, Pennsylvania 15243.
*Heath B. McLendon (Age 66).Chairman of the Board
President and Chief Executive Officer of the Fund; Managing
Director of Salomon Smith Barney Inc.; President of SSB
Citi
Fund Management LLC ("SSB Citi" or the "administrator") and
Travelers Investment Adviser, Inc. ("TIA"); Chairman or Co-
Chairman of the Board and director or trustee of 64
investment companies associated with Citigroup. His address
is 388 Greenwich Street, New York, New York 10013.
Cornelius C. Rose, Jr. (Age 65). Trustee
President, Cornelius C. Rose Associates, Inc., financial
consultants, and Chairman and Director of Performance
Learning Systems, an educational consultant. Director or
trustee of 13 investment companies associated with
Citigroup. His address is Meadowbrook Village, Building 4,
Apt 6, West Lebanon, New Hampshire 03784.
Lewis E. Daidone (Age 42). Senior Vice President and
Treasurer
Managing Director of Salomon Smith Barney; Chief Financial
Officer of the Smith Barney Mutual funds; Director and
Senior Vice President of SSB Citi and TIA. Senior Vice
President and Treasurer of 59 investment companies
associated with Citigroup.
Irving David (Age 38). Controller
Director of Salomon Smith Barney; formerly Assistant
Treasurer of First Investment Management Company.
Controller or Assistant Treasurer of various other
investment companies associated with Citigroup.
Christina T. Sydor (Age 48). Secretary
Managing Director of Salomon Smith Barney; General Counsel
and Secretary of SSB Citi and TIA. Secretary of 59
investment companies associated with Citigroup.
No officer, Trustee or employee of Salomon Smith Barney or
any of its affiliates receives any compensation from the
Trust for serving as an officer of the funds or Trustee of
the Trust. The Trust pays each Trustee who is not an
officer, director or employee of Salomon Smith Barney or
any
of its affiliates a fee of $10,000 per annum plus $1000 per
in-person meeting and $100 per telephonic meeting. Each
Trustee emeritus who is not an officer, director or
employee
of Salomon Smith Barney or its affiliates receives a fee of
$5,000 per annum plus $500 per in-person meeting and $50
per
telephonic meeting. All Trustees are reimbursed for travel
and out-of-pocket expenses incurred to attend such
meetings,
which for the last fiscal year totaled $13,594.
For the fiscal year ended November 30, 1998, the Trustees
of
the Trust were paid the following compensation:
Name of Person
Aggregate
Compensat
ion
from
Trust
Total
Pension or
Retirement
Benefits
Accrued
As part of
Trust
Expenses
Compensation
from Trust
and Fund
Complex
Paid to
Trustees
Number of
Funds for Which DirecD
Trustee Serves Within
Fund Complex
Herbert Barg**
Alfred
Bianchetti* **
Martin Brody**
Dwight B.
Crane**
Burt N.
Dorsett**
Elliot S.
Jaffe**
Stephen E.
Kaufman**
Joseph J.
McCann**
Heath B.
McLendon*
Cornelius C.
Rose, Jr.**
$11,600
11,600
11,600
11,600
11,600
11,600
11,600
11,600
- -----
11,600
$0
0
0
0
0
0
0
0
0
0
$105,425
51,200
132,500
139,975
51,200
47,550
96,400
51,200
- -----
51,200
18
13
22
25
13
13
15
13
64
13
_________________
* Designated an "interested" Trustee.
** Designates member of Audit Committee.
Upon attainment of age 80, Fund Trustees are required to
change to emeritus status. Trustees emeritus are entitled
to
serve in emeritus status for a maximum of 10 years.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Master Portfolio Adviser
Each Master Portfolio has substantially the same investment
objectives as the corresponding Fund. Consequently, the
Funds do not have their own investment adviser. BGFA
serves
as the Master Portfolios Investment Adviser and provides
investment guidance and policy direction for the Master
Portfolios.
BGFA makes no attempt to apply economic, financial or
market
analysis when managing the Master Portfolios. BGFA selects
securities because they will help the Master Portfolios
achieve returns corresponding to the returns of the
applicable index.. The process reflects BGFA's commitment
to
an objective and consistent investment management
structure.
BGFA serves as investment adviser to the Master Portfolios
and the Underlying Portfolios. BGFA is a direct subsidiary
of Barclays Global Investors, N.A. (which, in turn, is an
indirect subsidiary of Barclays Bank PLC and is located at
45 Fremont Street San Francisco, CA 94105. As of December
31, 1998, BGFA and its affiliates provided investment
advisory services for approximately $615 billion of assets
under management.
BGFA provides the Master Portfolios and the Underlying
Portfolios with investment guidance and policy direction in
connection with the daily portfolio management of each,
subject to the supervision of MIP's Board of Trustees and
in
conformity with Delaware law and the stated policies of
each
such portfolio. BGFA furnishes to MIP's Board of Trustees
periodic reports on the investment strategy and performance
of the Master Portfolios and the Underlying Portfolios.
BGFA is entitled to receive monthly fees at the annual rate
of 0.01% of the average daily net assets of the Master
Portfolio, 0.08% of the average daily net assets of the
Extended Index Portfolio and 0.05% of the average daily net
assets of the S&P 500 Index Portfolio as compensation for
its advisory services. The U.S. Equity Index Master
Portfolio bears its pro rata share of the advisory fees of
the Underlying Portfolios. Based on these fee levels and
the expected allocation of assets between the two
Underlying
Portfolios, the advisory fees payable to BGFA by the Master
Portfolio on a combined basis will be approximately 0.07%
of
the average daily net assets of the Master Portfolio. As
compensation for its advisory services to the International
Index Master Portfolio, BGFA is entitled to receive fees at
an annual rate of 0.15% of the first $1 billion and 0.10%
thereafter, of the International Index Master Portfolio's
average daily net assets. From time to time, BGFA may waive
such fees in whole or in part. Any such waiver will reduce
the expenses of the Master Portfolio and, accordingly, have
a favorable impact on its performance.
Purchase and sale orders for portfolio securities of the
Master Portfolios may be combined with those of other
accounts that BGFA manages or advises, and for which it has
brokerage placement authority, in the interest of seeking
the most favorable overall net results. When BGFA, subject
to the supervision and the overall authority of MIP's Board
of Trustees, determines that a particular security should
be
bought or sold for a Master Portfolio and other accounts
managed by BGFA, it undertakes to allocate those
transactions among the participants equitably.
BGFA may deal, trade and invest for its own account in the
types of securities in which the Master Portfolio may
invest. BGFA has informed MIP that in making its
investment
decisions it does not obtain or use material inside
information in its possession.
Morrison & Foerster LLP, counsel to MIP and special counsel
to BGFA, has advised MIP and BGFA that BGFA and its
affiliates may perform the services contemplated by the
BGFA
Advisory Contracts without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are
no controlling judicial or administrative interpretations
or
decisions and that future judicial or administrative
interpretations of or decisions relating to, present
federal
or state statutes, including the Glass-Steagall Act and
regulations relating to the permissible activities of banks
and their subsidiaries or affiliates, as well as future
changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent
such entities from continuing to perform, in whole or in
part, such services. If any such entity were prohibited
from performing any such services, it is expected that new
agreements would be proposed or entered into with another
entity or entities qualified to perform such services.
Administrator - SSB Citi
SSB Citi serves as administrator to the Fund pursuant to a
written agreement (the "Administration Agreement"). SSB
Citi is a wholly owned subsidiary of Salomon Smith Barney
Holdings Inc. ("Holdings"), which in turn, is a wholly
owned
subsidiary of Citigroup Inc. ("Citigroup"). The
administrator will pay the salary of any officer and
employee who is employed by both it and the Fund and bears
all expenses in connection with the performance of its
services.
As administrator SSB Citi: (a) assists in supervising all
aspects of the Fund's operations except those performed by
other parties pursuant to written agreements; b) supplies
the Fund with office facilities (which may be in SSB Citi's
own offices), statistical and research data, data
processing
services, clerical, accounting and bookkeeping services,
including, but not limited to, the calculation of (i) the
net asset value of shares of the Fund, (ii) service fees,
internal auditing and legal services, internal executive
and
administrative services, and stationary and office
supplies;
and (c) prepares reports to shareholders of the Fund, tax
returns and reports to and filings with the SEC and state
blue sky authorities.
As compensation for administrative services rendered to the
Fund, the administrator will receive a fee computed daily
and paid monthly at the annual rate of 0.15% of the value
of
the Fund's average daily net assets.
The Fund bears expenses incurred in its operation,
including: taxes, interest, brokerage fees and commissions,
if any; fees of Trustees who are not officers, Directors,
shareholders or employees of the administrator or its
affiliates; SEC fees and state Blue Sky qualification fees;
charges of custodians; transfer and dividend disbursing
agent's fees; certain insurance premiums; outside auditing
and legal expenses; costs of maintaining corporate
existence; investor services (including allocated telephone
and personnel expenses); costs of preparation and printing
of prospectuses and statements of additional information
for
regulatory purposes and for distribution to existing
shareholders; costs of shareholders' reports and
shareholder
meetings; and meetings of the officers or Board of Trustees
of the Fund.
Auditors
KPMG LLP, independent auditors, 345 Park Avenue, New York,
New York 10154, have been selected to serve as auditors of
the Trust and to render opinions on the Fund's financial
statements for the fiscal year ending December 31, 1999.
Transfer Agent
First Data Investor Services Group, Inc, ("First Data" or
"transfer agent") located at Exchange Place, Boston,
Massachusetts 02109, serves as the Trust's transfer agent.
Under the transfer agency agreement, the transfer agent
maintains the shareholder account records for the Trust,
handles certain communications between shareholders and the
Trust and distributes dividends and distributions payable
by
the Trust. For these services, the transfer agent receives
a monthly fee computed on the basis of the number of
shareholder accounts it maintains for the Trust during the
month, and is reimbursed for out-of-pocket expenses.
Distributor
CFBDS, Inc. serves as the Fund's distributor pursuant to a
written agreement dated October 8, 1998 (the "Distribution
Agreement") which was approved by the Fund's Board of
Trustees, including a majority of the Independent Trustees,
on July 15, 1998.
When payment is made by the investor before the settlement
date, unless otherwise noted by the investor, the Funds
will
be held as a free credit balance in the investor's
brokerage
account and Salomon Smith Barney may benefit from the
temporary use of the funds. The Fund's Board of Trustees
has been advised of the benefits to Salomon Smith Barney
resulting from these settlement procedures and will take
such benefits into consideration when reviewing the
Administration and Distribution Agreements for continuance.
Shareholding Servicing Arrangements
To compensate Salomon Smith Barney's Financial Consultants
for the services they provide to fund shareholders, each
Fund has adopted a services plan (the "Plan") pursuant to
Rule 12b-1 under the 1940 Act. Under the Plan, the Fund
pays a service fee with respect to Class A shares that is
accrued daily and paid monthly, calculated at the annual
rate of 0.20 % of the value of the Fund's average daily net
assets attributable to Class A shares. Class D shares are
not subject to a service fee.
Under its terms, the Plan continues from year to year,
provided such continuance is approved annually by vote of
the Board of Trustees, including a majority of the Trustees
who are not interested persons of the Trust and who have no
direct or indirect financial interest in the operation of
the Plan (the "Independent Trustees"). The Plan may not
be
amended to increase the amount of the service and
distribution fees without shareholder approval, and all
amendments of the Plan also must be approved by the
Trustees
including all of the Independent Trustees in the manner
described above. The Plan may be terminated with respect
to
the Class A shares at any time, without penalty, by vote of
a majority of the Independent Trustees or, with respect to
any fund, by vote of a majority of the outstanding voting
securities of the Fund. Pursuant to the Plan, Salomon
Smith
Barney will provide the Board of Trustees with periodic
reports of amounts expended under the Plan and the purpose
for which such expenditures were made.
Co-Administrators and Placement Agent of the Master
Portfolio
Stephens, Inc. ("Stephens"), and Barclays Global Investors,
N.A. ("BGI") serve as co-administrators on behalf of the
Master Portfolio. Under the Co-Administration Agreement
between Stephens, BGI and the Master Portfolio, Stephens
and
BGI provide the Master Portfolio with administrative
services, including: (i) general supervision of the Master
Portfolio's non-investment operations, coordination of the
other services provided to the Master Portfolio; (ii)
compilation of information for reports to, and filings
with,
the SEC and state securities commissions; and preparation
of
proxy statements and shareholder reports for the Master
Portfolio; and (iii) general supervision relative to the
compilation of data required for the preparation of
periodic
reports distributed to the MIP's officers and Board.
Stephens also furnishes office space and certain facilities
required for conducting the business of the Master
Portfolio, and compensates the MIP's trustees, officers and
employees who are affiliated with Stephens. In addition,
Stephens and BGI will be responsible for paying all
expenses
incurred by the Master Portfolio other than the fees
payable
to BGFA and other than custodial fees of up to 0.01%
payable
after the first two years of the Master Portfolio's
operations. Stephens and BGI are entitled to receive a
monthly fee, in the aggregate, at an annual rate of 0.02%
of
the average daily net assets of the Master Portfolio for
providing administrative services and assuming expenses.
Stephens also acts as the placement agent of Master
Portfolio's shares pursuant to a Placement Agency Agreement
with the Master Portfolio.
Custodian, Fund Accounting Services Agent and Sub-
administrator of the Master Portfolio
Investors Bank & Trust Company ("IBT"), 200 Clarendon
Street, Boston, MA 02116, serves as custodian of the
assets of the Fund and the Master Portfolio. As a result,
IBT has custody of all securities and cash of the Fund and
the Master Portfolio, delivers and receives payment for
securities sold, receives and pays for securities
purchased,
collects income from investments, and performs other
duties,
all as directed by the officers of the Fund and the Master
Portfolio. The custodian has no responsibility for any of
the investment policies or decisions of the Fund and the
Master Portfolio. IBT also acts as the Fund's Accounting
Services Agent.
PORTFOLIO TRANSACTIONS AND TURNOVER
BGFA assumes general supervision over placing orders on
behalf of the Master Portfolios for the purchase or sale of
portfolio securities. Allocation of brokerage transactions,
including their frequency, is made in the best judgment of
BGFA and in a manner deemed fair and reasonable to
interestholders. In executing portfolio transactions and
selecting brokers or dealers, BGFA seeks to obtain the best
overall terms available for the Master Portfolios. In
assessing the best overall terms available for any
transaction, BGFA considers factors deemed relevant,
including the breadth of the market in the security, the
price of the security, the financial condition and
execution
capability of the broker or dealer, and the reasonableness
of the commission, if any, both for the specific
transaction
and on a continuing basis. The primary consideration is
prompt execution of orders at the most favorable net price.
Certain of the brokers or dealers with whom the Master
Portfolios may transact business offer commission rebates
to
the Master Portfolios. BGFA considers such rebates in
assessing the best overall terms available for any
transaction. The overall reasonableness of brokerage
commissions paid is evaluated by BGFA based upon its
knowledge of available information as to the general level
of commissions paid by other institutional investors for
comparable services. Brokers also are selected because of
their ability to handle special executions such as are
involved in large block trades or broad distributions,
provided the primary consideration is met. Portfolio
turnover may vary from year to year, as well as within a
year. High turnover rates over 100% are likely to result in
comparatively greater brokerage expenses.
The Master Portfolio has no obligation to deal with any
dealer or group of dealers in the execution of transactions
in portfolio securities. Subject to policies established
by
the Master Portfolio's Board of Trustees, BGFA as advisor
is
responsible for the Master Portfolio's investment portfolio
decisions and the placing of portfolio transactions. In
placing orders, it is the policy of the Master Portfolio to
obtain the best results taking into account the
broker/dealer's general execution and operational
facilities, the type of transaction involved and other
factors such as the broker/dealer's risk in positioning the
securities involved. While BGFA generally seeks
reasonably competitive spreads or commissions, the Master
Portfolio will not necessarily be paying the lowest spread
or commission available.
Purchase and sale orders of the securities held by the
Master Portfolio may be combined with those of other
accounts that BGFA manages, and for which it has brokerage
placement authority, in the interest of seeking the most
favorable overall net results. When BGFA determines that a
particular security should be bought or sold for the Master
Portfolio and other accounts managed by BGFA, BGFA
undertakes to allocate those transactions among the
participants equitably.
Under the 1940 Act, persons affiliated with the Master
Portfolio such as Stephens, BGFA and their affiliates are
prohibited from dealing with the Master Portfolio as a
principal in the purchase and sale of securities unless an
exemptive order allowing such transactions is obtained from
the SEC or an exemption is otherwise available.
Except in the case of equity securities purchased by the
Master Portfolio, purchases and sales of securities
usually will be principal transactions. Portfolio
securities normally will be purchased or sold from or to
dealers serving as market makers for the securities at a
net
price. The Master Portfolio also will purchase portfolio
securities in underwritten offerings and may purchase
securities directly from the issuer. Generally, money
market securities, adjustable rate mortgage securities
("ARMS"), municipal obligations, and collateralized
mortgage
obligations ("CMOs") are traded on a net basis and do not
involve brokerage commissions. The cost of executing
the
Master Portfolio's investment portfolio securities
transactions will consist primarily of dealer spreads and
underwriting commissions.
Purchases and sales of equity securities on a securities
exchange are effected through brokers who charge a
negotiated commission for their services. Orders may be
directed to any broker including, to the extent and
in
the manner permitted by applicable law, Stephens or BGI.
In the over-the-counter market, securities are
generally
traded on a "net" basis with dealers acting as
principal for their own accounts without a stated
commission, although the price of the security usually
includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price that
includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or
discount.
In placing orders for portfolio securities of the Master
Portfolio, BGFA is required to give primary consideration
to obtaining the most favorable price and efficient
execution. This means that BGFA seeks to execute each
transaction at a price and commission, if any, that
provide the most favorable total cost or proceeds
reasonably attainable in the circumstances. While BGFA
generally seeks reasonably competitive spreads or
commissions, the Master Portfolio will not necessarily be
paying the lowest spread or commission available. In
executing portfolio transactions and selecting brokers or
dealers, BGFA seeks to obtain the best overall terms
available for the Master Portfolio. In assessing the best
overall terms available for any transaction, BGFA
considers factors deemed relevant, including the breadth
of the market in the security, the price of the security,
the financial condition and execution capability of the
broker or dealer, and the reasonableness of the commission,
if any, both for the specific transaction and on a
continuing basis. Rates are established pursuant to
negotiations with the broker based on the quality and
quantity of execution services provided by the broker in
the light of generally prevailing rates. The allocation of
orders among brokers and the commission rates paid are
reviewed periodically by the Master Portfolio's Board of
Trustees.
Certain of the brokers or dealers with whom the Master
Portfolio may transact business offer commission rebates to
the Master Portfolio. BGFA considers such rebates in
assessing the best overall terms available for any
transaction. The overall reasonableness of brokerage
commissions paid is evaluated by BGFA based upon its
knowledge of available information as to the general level
of commission paid by other institutional
PURCHASE OF SHARES
Detailed information about the purchase, redemption and
exchange of Fund shares appears in the prospectus.
General
The shares of each Fund are offered at net asset value,
which is calculated as of the close of the New York Stock
Exchange ("NYSE") on each day that the NYSE is open for
business. The value of the shares of each Fund will
fluctuate in relation to the investment experience of the
Master Portfolio in which it invests.
Investors may purchase shares from a Salomon Smith Barney
Financial Consultant or a broker that clears through
Salomon
Smith Barney ("Dealer Representative"). In addition,
certain investors, including qualified retirement plans
purchasing through certain Dealer Representatives, may
purchase shares directly from the fund. When purchasing
shares of the Fund, investors must specify whether the
purchase is for Class A or Class D shares. Salomon Smith
Barney and Dealer Representatives may charge their
customers
an annual account maintenance fee in connection with a
brokerage account through which an investor purchases or
holds shares. Accounts held directly at the transfer agent
are not subject to a maintenance fee.
Investors may open an account in the Fund by making an
initial investment of at least $1,000 for each account, or
$250 for an IRA or a Self-Employed Retirement Plan, in the
Fund. Subsequent investments of at least $50 may be made
for
all Classes. For shareholders purchasing shares of the Fund
through the Systematic Investment Plan on a monthly basis,
the minimum initial investment requirement and subsequent
investment requirement for all Classes is $25. For
shareholders purchasing shares of the Fund through the
Systematic Investment Plan on a quarterly basis, the
minimum
initial investment required and the subsequent investment
requirement for all Classes is $50. There are no minimum
investment requirements for employees of Citigroup and its
subsidiaries, including Salomon Smith Barney, unitholders
who invest distributions from a Unit Investment Trust
("UIT") sponsored by Salomon Smith Barney, and
Directors/Trustees of any of the Smith Barney Mutual Funds,
and their spouses and children. The Fund reserves the right
to waive or change minimums, to decline any order to
purchase its shares and to suspend the offering of shares
from time to time. Shares purchased will be held in the
shareholder's account by First Data. Share certificates are
issued only upon a shareholder's written request to First
Data.
Purchase orders received by the fund or a Salomon Smith
Barney Financial Consultant prior to the close of regular
trading on the NYSE, on any day the Fund calculates its net
asset value, are priced according to the net asset value
determined on that day (the ''trade date''). Orders
received by a Dealer Representative prior to the close of
regular trading on the NYSE on any day the Fund calculates
its net asset value, are priced according to the net asset
value determined on that day, provided the order is
received
by the Fund or the Fund's agent prior to its close of
business. For shares purchased through Salomon Smith Barney
or a Dealer Representative purchasing through Salomon Smith
Barney, payment for shares of the Fund is due on the third
business day after the trade date. In all other cases,
payment must be made with the purchase order.
Systematic Investment Plan. Shareholders may make
additions
to their accounts at any time by purchasing shares through
a
service known as the Systematic Investment Plan. Under the
Systematic Investment Plan, Salomon Smith Barney or First
Data is authorized through preauthorized transfers of at
least $25 on a monthly basis or at least $50 on a quarterly
basis to charge the shareholder's account held with a bank
or other financial institution on a monthly or quarterly
basis as indicated by the shareholder, to provide for
systematic additions to the shareholder's Fund account. A
shareholder who has insufficient funds to complete the
transfer will be charged a fee of up to $25 by Salomon
Smith
Barney or First Data. The Systematic Investment Plan also
authorizes Salomon Smith Barney to apply cash held in the
shareholder's Salomon Smith Barney brokerage account or
redeem the shareholder's shares of a Smith Barney money
market fund to make additions to the account. Additional
information is available from the Fund or a Salomon Smith
Barney Financial Consultant or a Dealer Representative.
Class D shares are offered to a limited group of investors
who participate in certain investment programs which charge
a fee for participation, including the Smith Barney 401(k)
Platform program. In addition, Class D shares are offered
to tax-exempt employee benefit and retirement plans of
Salomon Smith Barney and its affiliates. For more
information about these programs, contact a Salomon Smith
Barney Financial Consultant.
REDEMPTION OF SHARES
The right of redemption of shares of the Fund may be
suspended or the date of payment postponed (a) for any
periods during which the NYSE is closed (other than for
customary weekend and holiday closings), (b) when trading
in
the markets the Fund normally utilizes is restricted, or an
emergency exists, as determined by the SEC, so that
disposal
of the Fund's investments or determination of its net asset
value is not reasonably practicable or (c) for any other
periods as the SEC by order may permit for the protection
of
the Fund's shareholders.
If the shares to be redeemed were issued in certificate
form, the certificates must be endorsed for transfer (or be
accompanied by an endorsed stock power) and must be
submitted to First Data together with the redemption
request. Any signature appearing on a share certificate,
stock power or written redemption request in excess of
$10,000 must be guaranteed by an eligible guarantor
institution such as a domestic bank, savings and loan
institution, domestic credit union, member bank of the
Federal Reserve System or member firm of a national
securities exchange. Written redemption requests of
$10,000
or less do not require a signature guarantee unless more
than one such redemption request is made in any 10-day
period or the redemption proceeds are to be sent to an
address other than the address of record. Unless otherwise
directed, redemption proceeds will be mailed to an
investor's address of record. First Data may require
additional supporting documents for redemptions made by
corporations, executors, administrators, trustees or
guardians. A redemption request will not be deemed
properly
received until First Data receives all required documents
in
proper form.
If a shareholder holds shares in more than one Class, any
request for redemption must specify the Class being
redeemed. In the event of a failure to specify which
Class,
or if the investor owns fewer shares of the Class than
specified, the redemption request will be delayed until the
Transfer Agent receives further instructions from Salomon
Smith Barney, or if the shareholder's account is not with
Salomon Smith Barney, from the shareholder directly. The
redemption proceeds will be remitted on or before the third
business day following receipt of proper tender, except on
any days on which the NYSE is closed or as permitted under
the 1940 Act, in extraordinary circumstances. Generally,
if
the redemption proceeds are remitted to a Salomon Smith
Barney brokerage account, these funds will not be invested
for the shareholder's benefit without specific instruction
and Salomon Smith Barney will benefit from the use of
temporarily uninvested funds. Redemption proceeds for
shares purchased by check, other than a certified or
official bank check, will be remitted upon clearance of the
check, which may take up to ten days or more.
Distribution in Kind
If the Board of Trustees of the Trust determines that it
would be detrimental to the best interests of the remaining
shareholders to make a redemption payment wholly in cash,
the Fund may pay, in accordance with SEC rules, any portion
of a redemption in excess of the lesser of $250,000 or
1.00%
of the Fund's net assets by a distribution in kind of
portfolio securities in lieu of cash. Shareholders may
incur brokerage commissions when they subsequently sell
those securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal Plan")
is
available to shareholders of the Fund who own shares of the
Fund with a value of at least $10,000 and who wish to
receive specific amounts of cash monthly or quarterly.
Withdrawals of at least $50 may be made under the
Withdrawal
Plan by redeeming as many shares of the Fund as may be
necessary to cover the stipulated withdrawal payment. To
the extent withdrawals exceed dividends, distributions and
appreciation of a shareholder's investment in a Fund,
continued withdrawal payments will reduce the shareholder's
investment, and may ultimately exhaust it. Withdrawal
payments should not be considered as income from investment
in a Fund. Furthermore, as it generally would not be
advantageous to a shareholder to make additional
investments
in the Fund at the same time he or she is participating in
the Withdrawal Plan, purchases by such shareholders in
amounts of less than $5,000 ordinarily will not be
permitted.
Shareholders of the Fund who wish to participate in the
Withdrawal Plan and who hold their shares in certificate
form must deposit their share certificates with the
transfer
agent as agent for Withdrawal Plan members. All dividends
and distributions on shares in the Withdrawal Plan are
reinvested automatically at net asset value in additional
shares of the Fund involved. A shareholder who purchases
shares directly through the Transfer Agent may continue to
do so and applications for participation in the Withdrawal
Plan must be received by the Transfer Agent no later than
the eighth day of the month to be eligible for
participation
beginning with that month's withdrawal. For additional
information, shareholders should contact a Salomon Smith
Barney Financial Consultant.
Additional Information Regarding Telephone Redemption And
Exchange Program
Neither the Fund nor its agents will be liable for
following
instructions communicated by telephone that are reasonably
believed to be genuine. The Fund and its agents will
employ
procedures designed to verify the identity of the caller
and
legitimacy of instructions (for example, a shareholder's
name and account number will be required and phone calls
may
be recorded). The Fund reserves the right to suspend,
modify or discontinue the telephone redemption and exchange
program or to impose a charge for this service at any time
following at least seven (7) days' prior notice to
shareholders.
EXCHANGE PRIVILEGE
Shares of each Class of the U.S. 5000 Index Fund may only
be
exchanged for shares of the same Class of
1. Smith Barney S&P 500 Index Fund and
2. Smith Barney EAFE Index Fund
Shares of each Class of the EAFE Index Fund may only be
exchanged for shares of the same Class of
1. Smith Barney S&P 500 Index Fund and
2. Smith Barney U.S. 5000 Index Fund
Exchanges can be made to the extent shares are offered for
sale in the shareholder's state of residence. Exchanges of
Class A and Class D shares are subject to minimum
investment
requirements and all shares are subject to the other
requirements of the fund into which exchanges are made.
Class A and Class D shareholders of the fund who wish to
exchange all or a portion of their shares for shares of the
respective Class in any of the funds identified above may
do
so without imposition of any charge.
Additional Information Regarding the Exchange Privilege.
Although the exchange privilege is an important benefit,
excessive exchange transactions can be detrimental to the
fund's performance and its shareholders. The manager may
determine that a pattern of frequent exchanges is excessive
and contrary to the best interests of the fund's other
shareholders. In this event, the fund may, at its
discretion, decide to limit additional purchases and/or
exchanges by the shareholder. Upon such a determination,
the
fund will provide notice in writing or by telephone to the
shareholder at least 15 days prior to suspending the
exchange privilege and during the 15 day period the
shareholder will be required to (a) redeem his or her
shares
in the fund or (b) remain invested in the fund or exchange
into any of the funds of the Smith Barney Mutual Funds
ordinarily available, which position the shareholder would
be expected to maintain for a significant period of time.
All relevant factors will be considered in determining what
constitutes an abusive pattern of exchanges.
Certain shareholders may be able to exchange shares by
telephone. See ''Redemption of Shares-Telephone Redemptions
and Exchange Program.'' Exchanges will be processed at the
net asset value next determined. Redemption procedures
discussed below are also applicable for exchanging shares,
and exchanges will be made upon receipt of all supporting
documents in proper form. If the account registration of
the shares of the fund being acquired is identical to the
registration of the shares of the fund exchanged, no
signature guarantee is required. An exchange involves a
taxable redemption of shares, subject to the tax treatment
described in "Dividend, Distributions and Taxes" above,
followed by a purchase of shares of a different fund.
Before exchanging shares, investors should read the current
prospectus describing the shares to be acquired. The fund
reserves the right to modify or discontinue exchange
privileges upon 60 days' prior notice to shareholders.
VALUATION OF SHARES
The net asset value per share of the Fund's Classes is
calculated on each day, Monday through Friday, except days
on which the NYSE is closed. The NYSE currently is
scheduled to be closed on New Year's Day, Martin Luther
King
Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas,
and
on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively.
Because of the differences in distribution fees and Class-
specific expenses, the per share net asset value of each
Class may differ. The following is a description of the
procedures used by the Trust in valuing its assets.
The net asset value per share of each Fund and each Master
Portfolio is calculated as of the close of the NYSE by
dividing the total market value of its investments and
other
assets, less any liabilities, by the total outstanding
shares of the stock of the Fund or Master Portfolio. The
value of each Fund's shares will fluctuate in relation to
the investment experience of the Master Portfolio in which
such Fund invests. Securities held by a Fund or Master
Portfolio which are listed on a securities exchange and for
which market quotations are available are valued at the
last
quoted sale price of the day. Price information on listed
securities is taken from the exchange where the security is
primarily traded.
The securities of the Master Portfolios, including covered
call options written by the Master Portfolios, are valued
as
discussed below. Domestic securities are valued at the
last
sale price on the domestic securities or commodities
exchange or national securities market on which such
securities primarily are traded. Securities not listed on
a
domestic exchange or national securities market, or
securities in which there were no transactions, are valued
at the most recent bid prices. Portfolio securities which
are traded primarily on foreign securities or commodities
exchanges generally are valued at the preceding closing
values of such securities on their respective exchanges,
except that when an occurrence subsequent to the time a
value was so established is likely to have changed such
value, then the fair value of those securities is
determined
by BGFA in accordance with guidelines approved by MIP's
Board of Trustees. Short-term investments are carried at
amortized cost which approximates value. Any securities or
other assets for which recent market quotations are not
readily available are valued at fair value as determined in
good faith by BGFA in accordance with such guidelines.
Restricted securities, as well as securities or other
assets
for which market quotations are not readily available, or
are not valued by a pricing service approved by MIP's Board
of Trustees, are valued at fair value as determined in good
faith by BGFA in accordance with guidelines approved by
MIP's Board of Trustees. BGFA and MIP's Board of Trustees
periodically review the method of valuation. In making its
good faith valuation of restricted securities, BGFA
generally takes the following factors into consideration:
restricted securities which are, or are convertible into,
securities of the same class of securities for which a
public market exists usually will be valued at market value
less the same percentage discount at which purchased. This
discount is revised periodically if it is believed that the
discount no longer reflects the value of the restricted
securities. Restricted securities not of the same class as
securities for which a public market exists usually are
valued initially at cost. Any subsequent adjustment from
cost is based upon considerations deemed relevant by MIP's
Board of Trustees.
PERFORMANCE DATA
From time to time a Fund may advertise its total return and
average annual total return in advertisements and/or other
types of sales literature. These figures are computed
separately for Class A and Class D shares of the Fund.
These figures are based on historical earnings and are not
intended to indicate future performance. Total return is
computed for a specified period of time assuming
reinvestment of all income dividends and capital gain
distributions on the reinvestment dates at prices
calculated
as stated in the prospectus, then dividing the value of the
investment at the end of the period so calculated by the
initial amount invested and subtracting 100%. The standard
average annual total return, as prescribed by the SEC is
derived from this total return, which provides the ending
redeemable value. Such standard total return information
may also be accompanied with nonstandard total return
information for differing periods computed in the same
manner but without annualizing the total return. A Fund
may
also include comparative performance information in
advertising or marketing its shares. Such performance
information may include data from Lipper Analytical
Services, Inc. and other financial publications.
</R
Average Annual Total Return
A Fund's "average annual total return," as described below,
is computed according to a formula prescribed by the SEC.
The formula can be expressed as follows:
P(1 + T)n = ERV
Where: P = a hypothetical initial
payment of $1,000.
T = average annual total
return.
n = number of years.
ERV = Ending Redeemable Value
of a hypothetical $1,000
investment made at the
beginning of a 1-, 5- or
10-year period at the
end of a 1-, 5- or 10-
year period (or
fractional portion
thereof), assuming
reinvestment of all
dividends and
distributions.
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period. A Fund's
net
investment income changes in response to fluctuations in
interest rates and the expenses of the Fund.
Aggregate Annual Total Return
Class of Shares
1-Year
5-Year
10-Year
Life of
Fund
Class A
N/A
N/A
N/A
N/A
Class D
N/A
N/A
N/A
N/A
Aggregate Total Return
A Fund's "aggregate total return," as described below,
represents the cumulative change in the value of an
investment in the Fund for the specified period and is
computed by the following formula:
ERV - P
P
Where: P = a hypothetical initial
payment
of $10,000.
ERV = Ending Redeemable Value
of a
hypothetical $10,000
investment made at the
beginning of the 1-, 5- or 10-
year period at the end of the
1-, 5- or 10-year period (or
fractional portion thereof),
assuming reinvestment of all
dividends and distributions.
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period.
Aggregate Annual Total Return
Class of Shares
1-Year
5-Year
10-
Year
Life of
Fund
Class A
N/A
N/A
N/A
N/A
Class D
N/A
N/A
N/A
N/A
Performance will vary from time to time depending upon
market conditions, the composition of the Fund's portfolio
and operating expenses and the expenses exclusively
attributable to the Class. Consequently, any given
performance quotation should not be considered
representative of the Class' performance for any specified
period in the future. Because performance will vary, it
may
not provide a basis for comparing an investment in the
Class
with certain bank deposits or other investments that pay a
fixed yield for a stated period of time. Investors
comparing a Class' performance with that of other mutual
funds should give consideration to the quality and maturity
of the respective investment companies' portfolio
securities.
DIVIDENDS, DISTRIBUTIONS AND TAXES
MIP is organized as a business trust under Delaware law.
Under MIP's current classification for federal income tax
purposes, it is intended that each Master Portfolio will be
treated as a partnership for such purposes and, therefore,
such Master Portfolio will not be subject to any federal
income tax on its income and gains (if any). However, each
investor in a Master Portfolio will be taxed on its share
(as determined in accordance with the governing instruments
of MIP) of such Master Portfolio's taxable income and
capital gain in determining its federal income tax
liability. The determination of such share will be made in
accordance with the Internal Revenue Code of 1986, as
amended (the "Code"), and regulations promulgated
thereunder.
MIP's taxable year-end is the last day of December.
Although MIP will not be subject to federal income tax, it
will file appropriate federal income tax returns
The Master Portfolios assets, income and distributions will
be managed in such a way that an investor in a Master
Portfolio may satisfy the requirements of Subchapter M of
the Code by investing substantially all of its assets in
the
Master Portfolio. Investors are advised to consult their
own tax advisors as to the tax consequences of an
investment
in the Master Portfolio.
Taxes
The following is a summary of the material United States
federal income tax considerations regarding the purchase,
ownership and disposition of shares of a Fund. Each
prospective shareholder is urged to consult his own tax
adviser with respect to the specific federal, state, local
and foreign tax consequences of investing in a Fund. The
summary is based on the laws in effect on the date of this
SAI, which are subject to change. Each Fund will be
treated
as a separate entity for federal tax purposes. Unless
otherwise noted, the following discussion is applicable to
each Fund.
The Fund and Its Investments
The Fund intends to continue to qualify to be treated as a
regulated investment company each taxable year under the
Code. To so qualify, the Fund must, among other things:
(a)
derive at least 90% of its gross income in each taxable
year
from dividends, interest, payments with respect to
securities loans and gains from the sale or other
disposition of stock or securities or foreign currencies,
or
other income (including, but not limited to, gains from
options, futures or forward contracts) derived with respect
to its business of investing in such stock, securities or
currencies; and (b) diversify its holdings so that, at the
end of each quarter of the Fund's taxable year, (i) at
least
50% of the market value of the Fund's assets is represented
by cash, securities of other regulated investment
companies,
United States government securities and other securities,
with such other securities limited, in respect of any one
issuer, to an amount not greater than 5% of the Fund's
assets and not greater than 10% of the outstanding voting
securities of such issuer and (ii) not more than 25% of the
value of its assets is invested in the securities (other
than United States government securities or securities of
other regulated investment companies) of any one issuer or
any two or more issuers that the Fund controls and are
determined to be engaged in the same or similar trades or
businesses or related trades or businesses. For purposes
of
federal income tax law, including the application of the
foregoing qualification requirements, a Fund will be
treated
as if it derived directly its proportionate share of each
item of income, deduction, gain or loss (and as if it held
directly its proportionate share of the assets and
liabilities) of each Master Portfolio in which it invests,
either directly or indirectly.
As a regulated investment company, the Fund will not be
subject to United States federal income tax on its net
investment income (i.e., income other than its net realized
long- and short-term capital gains) and its net realized
long- and short-term capital gains, if any, that it
distributes to its shareholders, provided an amount equal
to
at least 90% of the sum of its investment company taxable
income (i.e., 90% of its taxable income minus the excess,
if
any, of its net realized long-term capital gains over its
net realized short-term capital losses (including any
capital loss carryovers), plus or minus certain other
adjustments as specified in the Code) and its net tax-
exempt
income for the taxable year is distributed in compliance
with the Code's timing and other requirements but will be
subject to tax at regular corporate rates on any taxable
income or gains it does not distribute. Furthermore, the
Fund will be subject to a United States corporate income
tax
with respect to such distributed amounts in any year it
fails to qualify as a regulated investment company or fails
to meet this distribution requirement. The Code imposes a
4%
nondeductible excise tax on the Fund to the extent it does
not distribute by the end of any calendar year at least 98%
of its net investment income for that year and 98% of the
net amount of its capital gains (both long-and short-term)
for the one-year period ending, as a general rule, on
October 31 of that year. For this purpose, however, any
income or gain retained by the Fund that is subject to
corporate income tax will be considered to have been
distributed by year-end. In addition, the minimum amounts
that must be distributed in any year to avoid the excise
tax
will be increased or decreased to reflect any
underdistribution or overdistribution, as the case may be,
from the previous year. The Fund anticipates that it will
pay such dividends and will make such distributions as are
necessary in order to avoid the application of this tax.
If, in any taxable year, the Fund fails to qualify as a
regulated investment company under the Code or fails to
meet
the distribution requirement, it would be taxed in the same
manner as an ordinary corporation and distributions to its
shareholders would not be deductible by the Fund in
computing its taxable income. In addition, in the event of
a failure to qualify, the Fund's distributions, to the
extent derived from the Fund's current or accumulated
earnings and profits would constitute dividends (eligible
for the corporate dividends-received deduction) which are
taxable to shareholders as ordinary income, even though
those distributions might otherwise (at least in part) have
been treated in the shareholders' hands as long-term
capital
gains. If the Fund fails to qualify as a regulated
investment company in any year, it must pay out its
earnings
and profits accumulated in that year in order to qualify
again as a regulated investment company. In addition, if
the Fund failed to qualify as a regulated investment
company
for a period greater than one taxable year, the Fund may be
required to recognize any net built-in gains (the excess of
the aggregate gains, including items of income, over
aggregate losses that would have been realized if it had
been liquidated) in order to qualify as a regulated
investment company in a subsequent year.
The Fund's transactions in foreign currencies, forward
contracts, options and futures contracts (including options
and futures contracts on foreign currencies) will be
subject
to special provisions of the Code (including provisions
relating to "hedging transactions" and "straddles") that,
among other things, may affect the character of gains and
losses realized by the Fund (i.e., may affect whether gains
or losses are ordinary or capital), accelerate recognition
of income to the Fund and defer Fund losses. These rules
could therefore affect the character, amount and timing of
distributions to shareholders. These provisions also (a)
will require the Fund to mark-to-market certain types of
the
positions in its portfolio (i.e., treat them as if they
were
closed out) and (b) may cause the Fund to recognize income
without receiving cash with which to pay dividends or make
distributions in amounts necessary to satisfy the
distribution requirements for avoiding income and excise
taxes. The Fund will monitor its transactions, will make
the
appropriate tax elections and will make the appropriate
entries in its books and records when it acquires any
foreign currency, forward contract, option, futures
contract
or hedged investment in order to mitigate the effect of
these rules and prevent disqualification of the fund as a
regulated investment company.
The Fund's investment in Section 1256 contracts, such as
regulated futures contracts, most forward currency
contracts
traded in the interbank market and options on most stock
indices, are subject to special tax rules. All section
1256
contracts held by the Fund at the end of its taxable year
are required to be marked to their market value, and any
unrealized gain or loss on those positions will be included
in the Fund's income as if each position had been sold for
its fair market value at the end of the taxable year. The
resulting gain or loss will be combined with any gain or
loss realized by the Fund from positions in section 1256
contracts closed during the taxable year. Provided such
positions were held as capital assets and were not part of
a
"hedging transaction" nor part of a "straddle," 60% of the
resulting net gain or loss will be treated as long-term
capital gain or loss, and 40% of such net gain or loss will
be treated as short-term capital gain or loss, regardless
of
the period of time the positions were actually held by the
Fund.
Index Swaps. As a result of entering into index swaps, the
Fund may make or receive periodic net payments. It may also
make or receive a payment when a swap is terminated prior
to
maturity through an assignment of the swap or other closing
transaction. Periodic net payments will constitute ordinary
income or deductions, while termination of a swap will
result in capital gain or loss (which will be a long-term
capital gain or loss if the Fund has been a party to the
swap for more than one year).
Foreign Investments. Dividends or other income (including,
in some cases, capital gains) received by the Fund from
investments in foreign securities may be subject to
withholding and other taxes imposed by foreign countries.
Tax conventions between certain countries and the United
States may reduce or eliminate such taxes in some cases.
The Fund will not be eligible to elect to treat any foreign
taxes paid by it as paid by its shareholders, who therefore
will not be entitled to credits for such taxes on their own
tax returns. Foreign taxes paid by the Fund will reduce
the
return from the Fund's investments.
Passive Foreign Investment Companies. If the Fund
purchases
shares in certain foreign investment entities, called
"passive foreign investment companies" (a "PFIC"), it may
be
subject to United States federal income tax on a portion of
any "excess distribution" or gain from the disposition of
such shares even if such income is distributed as a taxable
dividend by the Fund to its shareholders. Additional
charges in the nature of interest may be imposed on the
Fund
in respect of deferred taxes arising from such
distributions
or gains. If the Fund were to invest in a PFIC and elected
to treat the PFIC as a "qualified electing fund" under the
Code, in lieu of the foregoing requirements, the Fund might
be required to include in income each year a portion of the
ordinary earnings and net capital gains of the qualified
electing Fund, even if not distributed to the Fund, and
such
amounts would be subject to the 90% and excise tax
distribution requirements described above. In order to
make
this election, the Fund would be required to obtain certain
annual information from the passive foreign investment
companies in which it invests, which may be difficult or
not
possible to obtain.
Alternatively, the Fund may elect to apply a mark-to-market
to its stock in a PFIC. This election would result in the
Fund being treated as if it had sold and repurchased all of
the PFIC stock at the end of each year. In this case, the
fund would report gains as ordinary income and would deduct
losses as ordinary losses to the extent of previously
recognized gains. The election, once made, would be
effective for all subsequent taxable years of the Fund,
unless revoked with the consent of the Internal Revenue
Service (the "IRS"). By making the election, the Fund
could potentially ameliorate the adverse tax consequences
with respect to its ownership of shares in a PFIC, but in
any particular year may be required to recognize income in
excess of the distributions it receives from PFICs and its
proceeds from dispositions of PFIC company stock. The Fund
may have to distribute this "phantom" income and gain to
satisfy its distribution requirement and to avoid
imposition
of the 4% excise tax. The Fund will make the appropriate
tax elections, if possible, and take any additional steps
that are necessary to mitigate the effect of these rules.
Taxation of United States Shareholders
Dividends and Distributions. Any dividend declared by the
Fund in October, November or December of any calendar year
and payable to shareholders of record on a specified date
in
such a month shall be deemed to have been received by each
shareholder on December 31 of such calendar year and to
have
been paid by the Fund not later than such December 31,
provided such dividend is actually paid by the Fund during
January of the following calendar year. The Fund intends
to
distribute annually to its shareholders substantially all
of
its investment company taxable income, and any net realized
long-term capital gains in excess of net realized short-
term
capital losses (including any capital loss carryovers).
However, if the Fund retains for investment an amount equal
to all or a portion of its net long-term capital gains in
excess of its net short-term capital losses and capital
loss
carryovers, it will be subject to a corporate tax
(currently
at a rate of 35%) on the amount retained. In that event,
the
Fund will designate such retained amounts as undistributed
capital gains in a notice to its shareholders who (a) will
be required to include in income for United Stares federal
income tax purposes, as long-term capital gains, their
proportionate shares of the undistributed amount, (b) will
be entitled to credit their proportionate shares of the 35%
tax paid by the Fund on the undistributed amount against
their United States federal income tax liabilities, if any,
and to claim refunds to the extent their credits exceed
their liabilities, if any, and (c) will be entitled to
increase their tax basis, for United States federal income
tax purposes, in their shares by an amount equal to 65% of
the amount of undistributed capital gains included in the
shareholder's income. Organizations or persons not subject
to federal income tax on such capital gains will be
entitled
to a refund of their pro rata share of such taxes paid by
the Fund upon filing appropriate returns or claims for
refund with the IRS.
Dividends of net investment income and distributions of net
realized short-term capital gains are taxable to a United
States shareholder as ordinary income, whether paid in cash
or in shares. Distributions of net-long-term capital
gains,
if any, that the Fund designates as capital gains dividends
are taxable as long-term capital gains, whether paid in
cash
or in shares and regardless of how long a shareholder has
held shares of the Fund. Dividends and distributions paid
by the fund attributable to dividends on stock of U.S.
corporations received by the Fund, with respect to which
the
fund meets certain holding period requirements, will be
eligible for the deduction for dividends received by
corporations. Distributions in excess of the Fund's current
and accumulated earnings and profits will, as to each
shareholder, be treated as a tax-free return of capital to
the extent of a shareholder's basis in his shares of the
Fund, and as a capital gain thereafter (if the shareholder
holds his shares of the Fund as capital assets).
Shareholders receiving dividends or distributions in the
form of additional shares should be treated for United
States federal income tax purposes as receiving a
distribution in the amount equal to the amount of money
that
the shareholders receiving cash dividends or distributions
will receive, and should have a cost basis in the shares
received equal to such amount.
Investors considering buying shares just prior to a
dividend
or capital gain distribution should be aware that, although
the price of shares just purchased at that time may reflect
the amount of the forthcoming distribution, such dividend
or
distribution may nevertheless be taxable to them. If the
Fund is the holder of record of any stock on the record
date
for any dividends payable with respect to such stock, such
dividends are included in the Fund's gross income not as of
the date received but as of the later of (a) the date such
stock became ex-dividend with respect to such dividends
(i.e., the date on which a buyer of the stock would not be
entitled to receive the declared, but unpaid, dividends) or
(b) the date the Fund acquired such stock. Accordingly, in
order to satisfy its income distribution requirements, the
Fund may be required to pay dividends based on anticipated
earnings, and shareholders may receive dividends in an
earlier year than would otherwise be the case.
Sales of Shares. Upon the sale or exchange of his shares,
a
shareholder will realize a taxable gain or loss equal to
the
difference between the amount realized and his basis in his
shares. Such gain or loss will be treated as capital gain
or loss, if the shares are capital assets in the
shareholder's hands, and will be long-term capital gain or
loss if the shares are held for more than one year and
short-term capital gain or loss if the shares are held for
one year or less. Any loss realized on a sale or exchange
will be disallowed to the extent the shares disposed of are
replaced, including replacement through the reinvesting of
dividends and capital gains distributions in the Fund,
within a 61-day period beginning 30 days before and ending
30 days after the disposition of the shares. In such a
case, the basis of the shares acquired will be increased to
reflect the disallowed loss. Any loss realized by a
shareholder on the sale of a Fund share held by the
shareholder for six months or less will be treated for
United States federal income tax purposes as a long-term
capital loss to the extent of any distributions or deemed
distributions of long-term capital gains received by the
shareholder with respect to such share. If a shareholder
incurs a sales charge in acquiring shares of the Fund,
disposes of those shares within 90 days and then acquires
shares in a mutual fund for which the otherwise applicable
sales charge is reduced by reason of a reinvestment right
(e.g., an exchange privilege), the original sales charge
will not be taken into account in computing gain/loss on
the
original shares to the extent the subsequent sales charge
is
reduced. Instead, the disregarded portion of the original
sales charge will be added to the tax basis in the newly
acquired shares. Furthermore, the same rule also applies
to
a disposition of the newly acquired shares made within 90
days of the second acquisition. This provision prevents a
shareholder from immediately deducting the sales charge by
shifting his or her investment in a family of mutual funds.
Backup Withholding. The Fund may be required to withhold,
for United States federal income tax purposes, 31% of the
dividends, distributions and redemption proceeds payable to
shareholders who fail to provide the Fund with their
correct
taxpayer identification number or to make required
certifications, or who have been notified by the IRS that
they are subject to backup withholding. Certain
shareholders
are exempt from backup withholding. Backup withholding is
not an additional tax and any amount withheld may be
credited against a shareholder's United States federal
income tax liabilities.
Notices. Shareholders will be notified annually by the
Fund
as to the United States federal income tax status of the
dividends, distributions and deemed distributions
attributable to undistributed capital gains (discussed
above
in "Taxes- Taxation of United States Shareholders -
Dividends and Distributions") made by the Fund to its
shareholders. Furthermore, shareholders will also receive,
if appropriate, various written notices after the close of
the Fund's taxable year regarding the United States federal
income tax status of certain dividends, distributions and
deemed distributions that were paid (or that are treated as
having been paid) by the Fund to its shareholders during
the
preceding taxable year.
Other Taxation
Distributions also may be subject to additional state,
local
and foreign taxes depending on each shareholder's
particular
situation.
The foregoing is only a summary of certain material tax
consequences affecting the Fund and its shareholders.
Shareholders are advised to consult their own tax advisers
with respect to the particular tax consequences to them of
an investment in the Fund.
ADDITIONAL INFORMATION
The Fund
The Trust was organized on October 17, 1991 under the laws
of the Commonwealth of Massachusetts and is a business
entity commonly known as a "Massachusetts business trust"
under the name Shearson Lehman Brothers Intermediate-Term
Trust. On October 14, 1994 and August 16, 1995, the
Trust's
name was changed to Smith Barney Income Trust and Smith
Barney Investment Trust, respectively. In addition to each
Fund, the Trust offers shares of beneficial interest of
five
other separate Funds with a par value of $.001 per share.
Each fund offers shares of beneficial interest currently
classified into two Classes - A and D. Each Class of the
Fund represents an identical interest in the Fund's
investment portfolio. As a result, the Classes have the
same rights, privileges and preferences, except with
respect
to: (a) the designation of each Class; (b) the effect of
the respective sales charge, if any, for each Class; (c)
the
distribution and/or service fees borne by each Class
pursuant to the Plan; (d) the expenses allocable
exclusively
to each Class; (e) voting rights on matters exclusively
affecting a single Class; and (f) the exchange privilege of
each Class. The Trust's Board of Trustees does not
anticipate that there will be any conflicts among the
interests of the holders of the different Classes. The
Trustees, on an ongoing basis, will consider whether any
such conflict exists and, if so, take appropriate action.
Under Massachusetts's law, shareholders could, under
certain
circumstances, be held personally liable for the
obligations
of the Fund. The Master Trust Agreement disclaims
shareholder liability for acts or obligations of the Fund,
however, and requires that notice of such disclaimer be
given in each agreement, obligation or instrument entered
into or executed by the Fund or a Trustee. The Master
Trust
Agreement provides for indemnification from fund property
for all losses and expenses of any shareholder held
personally liable for the obligations of the Fund. Thus,
the risk of a shareholder's incurring financial loss on
account of shareholder liability is limited to
circumstances
in which the Fund itself would be unable to meet its
obligations, a possibility which management of the Fund
believes is remote. Upon payment of any liability incurred
by the Fund, a shareholder paying such liability will be
entitled to reimbursement from the general assets of the
Fund. The Trustees intend to conduct the operation of the
Fund in such a way so as to avoid, as far as possible,
ultimate liability of the shareholders for liabilities of
the Fund.
The Master Trust Agreement permits the Trustees of the Fund
to issue an unlimited number of full and fractional shares
of a single class and to divide or combine the shares into
a
greater or lesser number of shares without thereby changing
the proportionate beneficial interests in the fund. Each
share in the Fund represents an equal proportional interest
in the Fund with each other share. Shareholders of the
Fund
are entitled upon its liquidation to share pro rata in its
net assets available for distribution. No shareholder of
the Fund has any preemptive or conversion rights. Shares of
the Fund are fully paid and non-assessable.
Pursuant to the Master Trust Agreement, the Fund's Trustees
may authorize the creation of additional series of shares
(the proceeds of which would be invested in separate,
independently managed portfolios) and additional classes of
shares within any series (which would be used to
distinguish
among the rights of different categories of shareholders,
as
might be required by future regulations or other unforeseen
circumstances).
The Fund does not hold annual shareholder meetings. There
normally will be no meetings of shareholders for the
purpose
of electing Trustees unless and until such time as less
than
a majority of the Trustees holding office have been elected
by shareholders, at which time the Trustees then in office
will call a shareholders' meeting for the election of
Trustees. Shareholders of record of no less than two-
thirds
of the outstanding shares of the Trust may remove a Trustee
through a declaration in writing or by vote cast in person
or by proxy at a meeting called for that purpose. The
Trustees will call a meeting for any purpose upon written
request of shareholders holding at least 10% of the Trust's
outstanding shares and the Trust will assist shareholders
in
calling such a meeting as required by the 1940 Act.
When matters are submitted for shareholder vote,
shareholders of each Class will have one vote for each full
share owned and a proportionate, fractional vote for any
fractional share held of that Class. Generally, shares of
the Fund will be voted on a fund-wide basis on all matters
except matters affecting only the interests of one Class,
in
which case only shares of the affected Class would be
entitled to vote.
Master Portfolio Organization
The Master Portfolio is a series of Master Investment
Portfolio ("MIP"), an open-end, series management
investment company organized as Delaware business trust.
MIP was organized on October 21, 1993. In accordance with
Delaware law and in connection with the tax treatment
sought
by MIP, the Declaration of Trust provides that its
investors
are personally responsible for Trust liabilities and
obligations, but only to the extent the Trust property
is insufficient to satisfy such liabilities and
obligations. The Declaration of Trust also provides that
MIP
must maintain appropriate insurance (for example, fidelity
bonding and errors and omissions insurance) for the
protection of the Trust, its investors, trustees,
officers,
employees and agents covering possible tort and other
liabilities, and that investors will be indemnified to the
extent they are held liable for a disproportionate share
of
MIP's obligations. Thus, the risk of an investor incurring
financial loss on account of investor liability is limited
to circumstances in which both inadequate insurance
existed and MIP itself was unable to meet its obligations.
The Declaration of Trust further provides that
obligations of MIP are not binding upon its trustees
individually but only upon the property of MIP and that
the
trustees will not be liable for any action or failure
to
act, but nothing in the Declarations of Trust protects a
trustee against any liability to which the trustee would
otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the
duties
involved in the conduct of the trustee's office.
The interests in the Master Portfolio have substantially
identical voting and other rights as those rights
enumerated above for shares of the Fund. MIP is generally
not required to hold annual meetings, but is required by
Section 16(c) of the 1940 Act to hold a special meeting
and assist investor communications under certain
circumstances. Whenever the Fund is requested to vote on a
matter with respect to the Master Portfolio, the Fund
will hold a meeting of Fund shareholders and will cast its
votes as instructed by such shareholders.
In a situation where the Fund does not receive instruction
from certain of its shareholders on how to vote the
corresponding shares of the Master Portfolio, such Fund
will vote such shares in the same proportion as the
shares
for which the Fund does receive voting instructions.
Annual and Semi-annual Reports. The Fund sends its
shareholders a semi-annual report and an audited annual
report, which include listings of investment securities
held
by the Fund at the end of the period covered. In an effort
to reduce the Fund's printing and mailing costs, the Fund
consolidates the mailing of its semi-annual and annual
reports by household. This consolidation means that a
household having multiple accounts with the identical
address of record will receive a single copy of each
report.
The Fund also consolidates the mailing of its prospectus so
that a shareholder having multiple accounts will receive a
single Prospectus annually. Shareholders who do not want
this consolidation to apply to their accounts should
contact
their Salomon Smith Barney Financial Consultant or the
transfer agent.
OTHER INFORMATION
In an industry where the average portfolio manager has
seven
years of experience (source: ICI, 1998), the portfolio
managers of Smith Barney Mutual Funds average 21 years in
the industry and 15 years with the firm.
Smith Barney Mutual Funds offers more than 60 mutual funds.
We understand that many investors prefer an active role in
allocating the mix of funds in their portfolio, while
others
want the asset allocation decisions to be made by
experienced managers.
That's why we offer four "styles" of fund management that
can be tailored to suit each investor's unique financial
goals.
Style Pure Series
Our Style Pure Series funds stay fully invested within
their asset class and investment style, enabling
investors to make asset allocation decisions in
conjunction with their Salomon Smith Barney Financial
Consultant.
Classic Investor Series
Our Classic Investor Series funds offer a range of
equity and fixed income strategies that seek to
capture opportunities across asset classes and
investment styles using disciplined investment
approaches.
The Concert Allocation Series
As a fund of funds, investors can select a Concert
Portfolio that may help their investment needs. As
needs change, investors can easily choose another
long-term, diversified investment from our Concert
family.
Special Discipline Series
Our Special Discipline Series funds are designed for
investors who are looking beyond more traditional
market categories: from natural resources to a roster
of state-specific municipal funds.
U.S. 5000 Index Fund
Wilshire Associates, Incorporated ("Wilshire Associates")
does not sponsor any portfolio of the Fund, nor is it
affiliated in anyway with the Funds. "Wilshire 5000 Equity
Index" and related marks are trademarks of Wilshire
Associates. None of the Funds are sponsored, endorsed,
sold, or promoted by the index or its sponsor and neither
the index nor its sponsor make any representation or
warranty, express or implied, regarding the advisability of
investing in the Funds.
The Fund is not sponsored, endorsed, sold or promoted by
Wilshire Associates. Wilshiure Associates makes no
representation or warranty, express or implied, to the
owners of this Fund or any member of the public regarding
the advisability of investing in funds generally or in this
Fund particularly or the ability of the Wilshire 5000 Index
to track general stock market performance. Wilshire's only
relationship to the Fund is the licensing of certain
trademarks and and trade names of Wilshire. The Wilshire
5000 Index which is composed and calculated without regard
to the issuer of this Fund or this Fund. Wilshire has no
obligation to take the needs of the issuer of this Fund or
the owners of this Fund into consideration in determining,
composing or calculating the Wilshire 5000 Index. Wilshire
does not guarantee the accuracy or the completeness of the
Wilshire 5000 Index or any data included therein and
Wilshire shall have no liability for any errors,
ommissions,
or interruptions therein. Wilshire makes no warranty,
express or implied, as to results to be obtained by the
Fund, owners of the product, or any other person or entity
from the use of the Wilshire 5000 Index or any data
included
therein. Wilshire makes no express or implied warranties,
and expressly disclaims all warranties of merchantability
or
fitness for a particular purpose or use with respect to the
Wilshire 5000 Index or any data included therein. Without
limiting any of the foregoing, in no event shall Wilshire
have any liability for any special, punitive, indirect, or
consequential damages (including lost profits), even if
notified of the possibility of such damages.
U.S. 5000 Index Fund
"S&P 500(r)" is a trademark of The McGraw-Hill Companies,
Inc.
and has been licensed for use by Salomon Smith Barney. The
fund is not sponsored, endorsed, sold or promoted by
Standard & Poor's (S&P), a division of The McGraw-Hill
Companies, Inc. S&P makes no representation or warranty,
express or implied, to the shareholders of the fund or any
member of the public regarding the advisability of
investing
in securities generally or in the fund particularly or the
ability of the S&P 500 Index to track general stock market
performance. S&P's only relationship to Salomon Smith
Barney is the licensing of certain trademarks and trade
names of S&P and the S&P 500 Index which is determined,
composed and calculated by S&P without regard to Salomon
Smith Barney or the fund. S&P has no obligation to take
the
needs of Salomon Smith Barney or the shareholders of the
fund into consideration in determining, composing or
calculating the S&P 500 Index. S&P is not responsible for
and has not participated in the determination of the prices
and amount of the fund's shares or the timing of the
issuance or sale of the fund's shares or in the
determination or calculation of the equation by which fund
shares are to be converted into cash. S&P has no
obligation
or liability in connection with the administration,
marketing or trading of fund shares.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS
OF THE S&P
500 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE
NO LIABILITY
FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P
MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED
BY THE FUND,
OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE
USE OF THE S&P
500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO
EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
S&P 500
INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE
FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY
SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING
LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
EAFE Index Fund
The Fund is not sponsored, endorsed, sold or promoted by
MSCI or any affiliate of MSCI. Neither MSCI nor any other
party makes any representation or warranty, express or
implied, to the owners of this fund or any member of the
public regarding the advisability of investing in funds
generally or in this Fund particularly or the ability of
the
EAFE Index to track general stock market performance. MSCI
is the licensor of certain trademarks, service marks, and
trade names of MSCI and the EAFE Index which is determined,
composed and calculated by MSCI without regard to the
issuer
of this Fund or this Fund. MSCI has no obligation to take
the needs of the issuer of this Fund of the owners of this
Fund into consideration in determining, composing or
calculating the EAFE Index. MSCI is not responsible for
and
has not participated in the determination or calculation of
the equation by which the Fund is redeemable for cash.
Neither MSCI nor any other party has any obligation or
liability to owners of this fund in connection with the
administration, marketing or trading of this Fund.
ALTHOUGH MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR
FOR USE IN THE CALCULATION OF THE INDEXES FROM SOURCES
WHICH
MSCI CONSIDERS RELIABLE, NEITHER MSCI NOR ANY OTHER PARTY
GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE
INDEXES OR ANY DATA INCLUDED THEREIN. NEITHER MSCI NOT ANY
OTHER PARTY MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO
RESULTS TO BE OBTAINED BY LICENSEE, LICENSEE'C CUSTOMERS
AND
COUNTERPARTIES, OWNERS OF THE FUNDS, OR ANY OTHER PERSON OR
ENTITY FROM THE USE OF THE INDEXES OR ANY DATA INCLUDED
THEREIN IN CONNECTION WITH THE RIGHTS LICENSED HEREUNDER OR
FOR ANY OTHER USE. NEITHER MSCI NOT ANY OTHER PARTY MAKES
ANY EXPRESS OF IMPLIED WARRANTIES, AND MSCI HEREBY
EXPRESSLY
DISCLAIMS ALL WARRANTIES OR MERCHANTABILITY OR FITNESS FOR
A
PARTICULAR PURPOSE WITH RESPECT TO THE INDEXES OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING,
IN
NO EVENT SHALL MSCI OR ANY OTHER PARTY HAVE ANY LIABILITY
FOR ANY DIRECT, INDEIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL
RO ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES
APPENDIX
Description of certain ratings assigned by Standard &
Poor's
Corporation ("S&P") and Moody's Investors Service, Inc.
("Moody's")
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
A-1 and Prime-1 Commercial Paper Ratings
The rating A-1 (including A-1+) is the highest commercial
paper rating assigned by S&P. Commercial paper rated A-1 by
S&P has the following characteristics:
- - liquidity ratios are adequate to meet cash
requirements;
- - long-term senior debt is rated "A" or better;
- - the issuer has access to at least two additional
channels of borrowing;
- - basic earnings and cash flow have an upward trend
with allowance made for unusual circumstances;
- - typically, the issuer's industry is well established
and the issuer has a strong position within the industry;
and
- - the reliability and quality of management are
unquestioned.
Relative strength or weakness of the above factors
determines whether the issuer's commercial paper is
rated
A-1, A-2 or A-3. Issues rated A-1 that are determined by
S&P to have overwhelming safety characteristics are
designated A-1+.
The rating Prime-1 is the highest commercial paper rating
assigned by Moody's. Among the factors considered by
Moody's
in assigning ratings are the following:
- - evaluation of the management of the issuer;
- - economic evaluation of the issuer's industry or
industries and an appraisal of speculative-type risks
which may be inherent in certain areas;
- - evaluation of the issuer's products in relation
to competition and customer acceptance;
- - liquidity;
- - amount and quality of long-term debt;
- - trend of earnings over a period of ten years;
- - financial strength of parent company and the
relationships which exist with the issuer; and
- - recognition by the management of obligations which
may be present or may arise as a result of public interest
questions and preparations to meet such obligations.
SMITH BARNEY
INVESTMENT TRUST
U.S. 5000 Index Fund
EAFE Index Fund
October 13, 1999
SMITH BARNEY INVESTMENT TRUST
388 Greenwich Street
New York, NY 10013
SALOMON
SMITH BARNEY
A Member of
Citigroup [Symbol]
73
PART C - OTHER INFORMATION
Item 23. Exhibits
Unless otherwise noted, all references are to
the Registrants Registration Statement on Form N-1A
(the Registration Statement) as filed with the
Securities and Exchange
Commission (SEC) on October 21, 1991 (File Nos.
33-43446 and 811-6444).
(a)(1) Registrant's Master Trust Agreement dated
October 17, 1991 and Amendments to the Master Trust
Agreement dated November 21, 1991 and July 30,1993,
respectively, are incorporated by reference to Post-
Effective Amendment No. 4 to the Registration
Statement filed on January 28, 1994 (Post-Effective
Amendment No. 4).
(a)(2) Amendments to the Master Trust Agreement
dated October 14, 1994 and November 7, 1994,
respectively, are incorporated by reference to the
Registration Statement filed on Form N-14 on January
6, 1995 (the N-14).
(a)(3) Amendments to the Master Trust Agreement
dated July 20, 1995 and August 10, 1995 are
incorporated by reference to Post-Effective Amendment
No. 9 to the Registration Statement filed on August
29, 1995 (Post-Effective Amendment No. 9).
(a)(4) Amended and Restated Master Trust Agreement
dated February 28, 1998 is incorporated by reference
to Post Effective Amendment No. 18 to the Registration
Statement filed on March 30, 1998 (Post-
Effective Amendment No, 18)
(a)(5) Amendment No. 1 to the First Amended and
Restated
Master Trust Agreement dated June 1, 1998
is incorporated by reference to Post-Effective Amendment
No.20 to the
Registration Statement filed on June 26, 1998.
(a)(6) Amendment No. 2 to the First Amended and
Restated Master
Trust Agreement dated October 16, 1998 is incorporated by
reference
to Post-Effective Amendment No.21 to the Registration
Statement
filed on November 12, 1998.
(b) Registrant's by-laws are incorporated by
reference to the Registration Statement.
(c)(1) Registrant's form of stock certificate
for Smith Barney S&P 500 Index Fund is incorporated by
reference to Post-Effective Amendment No. 16 to the
Registration Statement filed on December 29, 1997.
(c)(2) Registrant's form of stock certificate
for Smith Barney Large Capitalization Growth Fund is
incorporated by reference to Post-Effective Amendment
No.17 to the Registration Statement filed on
February 20, 1998 (Post-Effective Amendment No. 17).
(c)(3) Registrant's form of stock certificate for
Smith Barney Mid Cap Blend Fund is incorporated by
reference to Post-Effective Amendment No. 22 to the
Registration Statement filed on January 28, 1999
(Post-Effective Amendment No. 22).
(d)(1) Investment Advisory Agreement between
the Registrant and
Greenwich Street Advisors dated July 30, 1993 is
incorporated by reference to Post-Effective Amendment
No. 3 to the Registration Statement filed on December
1, 1993 (Post-Effective Amendment No. 3).
(d)(2) Transfer of Investment Advisory Agreement
dated November 7, 1994 between the Registrant on
behalf of Smith Barney Intermediate Maturity
California Municipals Fund, Greenwich Street Advisors
and Mutual Management Corp. is incorporated by
reference to the N-14.
(d)(3) Form of Transfer of Investment Advisory
Agreement for Smith Barney Limited Maturity
Municipals Fund, Smith Barney Intermediate Maturity
New York Municipals Fund and Smith Barney Limited
Maturity Treasury Fund is incorporated by reference
to Post-Effective Amendment No. 6 to the Registration
Statement filed on January 27, 1995 (Post-Effective
Amendment No. 6).
(d)(4) Form of Investment Advisory Agreement
between the Registrant on behalf of Smith Barney S&P
500 Index Fund and Travelers Investment
Management Company dated December 11, 1997 is
incorporated by reference to Post Effective Amendment
No. 15 to the Registration Statement
filed on December 12, 1997.
(d)(5) Form of Investment Management Agreement
between the Registrant on behalf of Smith Barney
Large Capitalization Growth Fund and Mutual
Management Corp.("MMC") (f/k/a Smith Barney Mutual Funds
Management Inc.) is incorporated by reference to
Post-Effective Amendment No. 17 to the Registration
Statement filed on February 20,1998 (Post-Effective
Amendment No. 17)
(d)(6) Form of Investment Management Agreement
between Smith Barney Mid Cap Blend Fund and MMC.
is incorporated by reference to Post-Effective Amendment
No. 17 to the Registration Statement filed on February
20,1998
(Post-Effective Amendment No. 17)
(e)(1) Distribution Agreement between the
Registrant and Smith Barney Shearson Inc. dated July
30, 1993 is incorporated by reference to Post-
Effective Amendment No. 3.
(e)(2) Form of Distribution Agreement between the
Registrant on behalf of Smith Barney S&P 500 Index
Fund and PFS Distributors is incorporated by
reference to Post-Effective Amendment No. 10.
(e)(3) Distribution Agreement between the Registrant
and CFBDS, Inc. dated October 8, 1998 is incorporated by
reference
to Post-Effective Amendment No.21 to the Registration
Statement
Filed on November 12, 1998.
(e)(4) Selling Group Agreement between CFBDS Inc. And
Salomon Smith Barney is incorporated by reference to Post-
Effective
Amendment No. 24 to the Registration Statement filed on
March 30, 1999
(Post-Effective Amendment No.24).
(f) Not Applicable.
(g) Form of Custody Agreement with PNC Bank,
National Association, is incorporated by reference to
Post-Effective Amendment No. 9.
(h)(1) Administration Agreement between the
Registrant on behalf of Smith Barney Intermediate
Maturity California Municipals Fund and Smith Barney
Advisers, Inc. (SBA) is incorporated by reference to
the N-14.
(h)(2) Form of Administration Agreement between
the Registrant on behalf of Smith Barney Limited
Maturity Municipals Fund and Smith Barney
Intermediate Maturity New York Municipals Fund and
SBA is incorporated by reference to Post-Effective
Amendment No. 6.
(h)(3) Form of Administration Agreement between
the Registrant on behalf of Smith Barney S&P 500
Index Fund and Mutual Management Corp. is
incorporated by reference to Post Effective Amendment
No. 15.
(h)(4) Transfer Agency Agreement with First Data
Investor Services Group, Inc. is incorporated by reference
to Post-Effective Amendment No. 3.
(h)(5) Form of Sub-Transfer Agency Agreement
between the Registrant on behalf of Smith Barney S&P
500 Index Fund and PFS Shareholder Services is
incorporated by reference to Post-Effective Amendment
No. 10.
(h)(6) Form of Administration Agreement between
the Registrant on behalf of Smith Barney U.S. 5000 Index
Fund ("U.S. 5000 Index Fund") and SSB Citi Fund
Management LLC ("SSB Citi") is filed herein.
(h)(7) Form of Administration Agreement between
the Registrant on behalf of Smith Barney EAFE Index Fund
("EAFE Index Fund") and SSB Citi is filed herein.
(i) Opinion of counsel regarding legality of
shares being registered is incorporated by reference to
Pre-
Effective Amendment No. 1 to the Registration
Statement filed on December 6, 1991.
(i)(2) Legal Counsel's consent is incorporated by
reference to Post-Effective Amendment No. 24.
(j)(1) Auditor's consent is incorporated by
reference
to Post-Effective Amendment No. 24.
(k) Not Applicable.
(l) Purchase Agreement between the Registrant
and Shearson Lehman Brothers Inc. is incorporated by
reference to Pre-Effective Amendment No. 1.
(m)(1) Amended Service and Distribution Plan
pursuant to Rule 12b-1 between the Registrant on
behalf of Smith Barney Intermediate Maturity
California Municipals Fund and Smith Barney Inc. is
incorporated by reference to the N-14.
(m)(2) Form of Amended Service and Distribution
Plan pursuant to Rule 12b-1 between the Registrant on
behalf of Smith Barney Limited Maturity Municipals
Fund and Smith Barney Intermediate Maturity New York
Municipals Fund and Smith Barney Inc. is incorporated
by reference to Post-Effective Amendment No. 6.
(m)(3) Form of Shareholder Services and
Distribution Plan pursuant to Rule 12b-1 between the
Registrant on behalf of Smith Barney S&P 500 Index
Fund is incorporated by reference to Post Effective
Amendment No. 15.
(m)(4) Form of Service and Distribution Plan
pursuant to Rule 12b-1 between the Registrant on behalf
of the Fund and Smith Barney Large Capitalization Growth
Fund is incorporated by reference to Post
Effective Amendment No. 17 to the Registration
Statement filed on February 20, 1998 (Post-Effective
Amendment
No. 17).
(m)(5) Form of Amended and Restated
Service and Distribution Plan
pursuant to Rule 12b-1 between the Registrant on behalf
of the Funds is incorporated by
reference to Post-Effective Amendment No. 22.
(m)(6) Form of Shareholder Services Plan
pursuant to Rule 12b-1 between the Registrant on
behalf of the U.S. 5000 Index Fund and Salomon
Smith Barney Inc. is filed herein.
(m)(7) Form of Shareholder Services Plan
pursuant to Rule 12b-1 between the Registrant on
behalf of the EAFE Index Fund and Salomon
Smith Barney Inc. is filed herein.
(n) Financial Data Schedule is incorporated by
reference to
Post-Effective Amendment No. 24.
(o)(1) Plan adopted pursuant to Rule 18f-3(d) of
the Investment Company Act of 1940, as amended, is
incorporated by reference to Post-Effective Amendment
No. 10.
(o)(2) Rule 18f-3(d) Multiple Class Plan of the
Registrant
is incorporated by reference to Post-Effective Amendment
No. 22.
Item 24. Persons Controlled by or under Common
Control with Registrant
None
Item 25. Indemnification
The response to this item is incorporated by
reference to Pre-Effective Amendment No. 1.
Item 26(a). Business and Other Connections of
Investment Adviser
Investment Adviser and Administrator - SSB Citi Fund
Management LLC
("SSB Citi") (Formerly SSBC Fund Management Inc.),
was incorporated in December 1968
under the laws of the State of Delaware.
On September 21, 1999, SSB Citi was converted into a
Delaware
Limited Liability Company. SSB Citi is a wholly owned
subsidiary
of Salomon Smith Barney Holdings Inc. ("Holdings") (formerly
known as Smith Barney Holdings Inc.) which in turn is a
wholly
owned subsidiary of Citigroup Inc. ("Citigroup"). SSB Citi
is
registered as an investment adviser under the Investment
Advisers
Act of 1940 (the "Advisers Act").
and has, through its predecessors, been in the
investment counseling business since 1934. SSB Citi
serves as the Investment Adviser and Administrator
for Smith Barney Intermediate Maturity California
Fund and Smith Barney Intermediate Maturity New York
Fund and Investment Manager for Smith Barney Large
Capitalization Growth Fund and Smith Barney Mid Cap Blend
Fund.
SSB Citi also serves as the administrator to the Smith
Barney S&P 500
Index Fund, the Smith Barney U.S. 5000 Index Fund and the
Smith Barney EAFE Index Fund.
The list required by this Item 26 of the officers and
directors of SSB Citi together with information as to any
other business,
profession, vocation or employment of a substantial
nature engaged in by such officer and directors
during the past two fiscal years, is incorporated by
reference to Schedules A and D of FORM ADV filed by
SSBC pursuant to the Advisers Act (SEC File No. 801-
8314).
Investment Adviser - Travelers Investment Management
Company. (TIMCO). TIMCO serves as the investment
adviser for Smith Barney S&P 500 Index Fund pursuant to a
written
agreement (the Advisory Agreement). TIMCO was
incorporated on August 31, 1967 under the laws of the
State of Connecticut. TIMCO is a wholly owned
subsidiary of Holdings, which in turn is a wholly owned
subsidiary of Citigroup.
TIMCO is registered as an investment adviser under
the Investment Advisers Act of 1940 (the Advisers
Act) since 1971 and has, through its predecessors,
been in the investment counseling business since
1967.
The list required by this Item 26 of the officers
and directors of TIMCO together with information as
to any other business, profession, vocation or
employment of a substantial nature engaged in by such
officers and directors during the past two fiscal
years, is incorporated by reference to Schedules A
and D of FORM ADV filed by SSBC pursuant to the
Advisers Act (SEC File No.801-07212).
Item 27. Principal Underwriters
(a) CFBDS, Inc., ("CFBDS") the Registrant's Distributor, is
also
the distributor for the following Smith Barney funds:
Concert
Investment Series, Consulting Group Capital Markets Funds,
Greenwich
Street Series Fund, Smith Barney Adjustable Rate Government
Income
Fund, Smith Barney Aggressive Growth Fund Inc., Smith
Barney
Appreciation Fund Inc., Smith Barney Arizona Municipals
Fund Inc.,
Smith Barney California Municipals Fund Inc., Smith Barney
Concert
Allocation Series Inc., Smith Barney Equity Funds, Smith
Barney
Fundamental Value Fund Inc., Smith Barney Funds, Inc.,
Smith Barney
Income Funds, Smith Barney Institutional Cash Management
Fund, Inc.,
Smith Barney Investment Funds Inc.,
Smith Barney Managed Governments Fund Inc., Smith Barney
Managed
Municipals Fund Inc., Smith Barney Massachusetts Municipals
Fund,
Smith Barney Money Funds, Inc., Smith Barney Muni Funds,
Smith Barney
Municipal Money Market Fund, Inc., Smith Barney
Natural Resources Fund Inc., Smith Barney New Jersey
Municipals
Fund Inc., Smith Barney Oregon Municipals Fund Inc., Smith
Barney
Principal Return Fund, Smith Barney Small Cap Blend Fund,
Inc., Smith
Barney Telecommunications Trust, Smith Barney Variable
Account Funds,
Smith Barney World Funds, Inc., Travelers Series Fund Inc.,
and
various series of unit investment trusts.
CFBDS also serves as the distributor for the following
funds: The
Travelers Fund UL for Variable Annuities, The Travelers
Fund VA for
Variable Annuities, The Travelers Fund BD for Variable
Annuities, The
Travelers Fund BD II for Variable Annuities, The Travelers
Fund BD
III for Variable Annuities, The Travelers Fund BD IV for
Variable
Annuities, The Travelers Fund ABD for Variable Annuities,
The
Travelers Fund ABD II for Variable Annuities, The Travelers
Separate
Account PF for Variable Annuities, The Travelers Separate
Account PF
II for Variable Annuities, The Travelers Separate Account
QP for
Variable Annuities, The Travelers Separate Account TM for
Variable
Annuities, The Travelers Separate Account TM II for
Variable
Annuities, The Travelers Separate Account Five for Variable
Annuities, The Travelers Separate Account Six for Variable
Annuities,
The Travelers Separate Account Seven for Variable
Annuities, The
Travelers Separate Account Eight for Variable Annuities,
The
Travelers Fund UL for Variable Annuities, The Travelers
Fund UL II
for Variable Annuities, The Travelers Variable Life
Insurance
Separate Account One, The Travelers Variable Life Insurance
Separate
Account Two, The Travelers Variable Life Insurance Separate
Account
Three, The Travelers Variable Life Insurance Separate
Account Four,
The Travelers Separate Account MGA, The Travelers Separate
Account
MGA II, The Travelers Growth and Income Stock Account for
Variable
Annuities, The Travelers Quality Bond Account for Variable
Annuities,
The Travelers Money Market Account for Variable Annuities,
The
Travelers Timed Growth and Income Stock Account for
Variable
Annuities, The Travelers Timed Short-Term Bond Account for
Variable
Annuities, The Travelers Timed Aggressive Stock Account for
Variable
Annuities, The Travelers Timed Bond Account for Variable
Annuities.
In addition, CFBDS, the Registrant's Distributor, is also
the
distributor for CitiFunds Multi-State Tax Free Trust,
CitiFunds
Premium Trust, CitiFunds Institutional Trust, CitiFunds Tax
Free
Reserves, CitiFunds Trust I, CitiFunds Trust II, CitiFunds
Trust III,
CitiFunds International Trust, CitiFunds Fixed Income
Trust,
CitiSelect VIP Folio 200, CitiSelect VIP Folio 300,
CitiSelect VIP
Folio 400, CitiSelect VIP Folio 500, CitiFunds Small Cap
Growth VIP
Portfolio. CFBDS is also the placement agent for Large Cap
Value
Portfolio, Small Cap Value Portfolio, International
Portfolio,
Foreign Bond Portfolio, Intermediate Income Portfolio,
Short-Term
Portfolio, Growth & Income Portfolio, U.S. Fixed Income
Portfolio,
Large Cap Growth Portfolio, Small Cap Growth Portfolio,
International
Equity Portfolio, Balanced Portfolio, Government Income
Portfolio,
Tax Free Reserves Portfolio, Cash Reserves Portfolio and
U.S.
Treasury Reserves Portfolio.
In addition, CFBDS is also the distributor for the
following Salomon
Brothers funds: Salomon Brothers Opportunity Fund Inc.,
Salomon
Brothers Investors Fund Inc., Salomon Brothers Capital Fund
Inc.,
Salomon Brothers Series Funds Inc., Salomon Brothers
Institutional
Series Funds Inc., Salomon Brothers Variable Series Funds
Inc.
In addition, CFBDS is also the distributor for the
Centurion Funds,
Inc.
(b) The information required by this Item 27 with respect
to each
director and officer of CFBDS is incorporated by reference
to
Schedule A of Form BD filed by CFBDS pursuant to the
Securities and
Exchange Act of 1934 (File No. 8-32417).
(c) Not applicable.
Item 28. Location of Accounts and Records
(1) Smith Barney Investment Trust
388 Greenwich Street, 22nd Floor
New York, New York 10013
(2) SSB Citi Fund Management LLC
Formerly known as SSBC Fund Management Inc.
388 Greenwich Street, 22nd Floor
New York, New York 10013
(3) Travelers Investment Management Company
One Tower Square
Hartford, CT 06183
(For Smith Barney S&P 500 Index Fund)
(4)(a) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, PA
(Custodian for Smith Barney Intermediate Maturity
California Municipals Fund, Smith Barney Intermediate
Maturity New York Municipals Fund, Smith Barney
Large Capitalization Growth Fund and Smith Barney
Mid Cap Blend Fund and Smith Barney S&P 500
Index Fund)
(4)(b) Investors Bank and Trust Company
200 Clarendon Street
Boston, Massachusetts 02117-9130
(Custodian for Smith Barney U.S. 5000 Index Fund and
Smith Barney EAFE Index Fund)
(5) First Data Investor Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
(6) CFBDS Inc.
21 Milk Street, 5th floor
Boston, Massachusetts 02109
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
Not applicable
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933, and the Investment Company Act of 1940,
the Fund certifies that it meets all of the requirements
for effectiveness
of this registration statement under rule 485(b) under the
Securities
Act and has duly caused this registration statement to be
signed
on its behalf by the undersigned, thereto duly
authorized in the City of New York, in the State of
New York on the 13th day of October, 1999.
SMITH BARNEY INVESTMENT TRUST
/s/Heath B. McLendon
Heath B. McLendon,
Chief Executive Officer
Pursuant to the requirements of the Securities
Act of 1933, this registration statement has been signed
below by the following persons in the capacities and on
the date indicated.
Signature Title Date
/s/Heath B. McLendon Chairman of the Board
10/13/99
Heath B. McLendon (Chief Executive Officer)
and President
/s/Lewis E. Daidone Treasurer
10/13/99
Lewis E. Daidone (Chief Financial and
Accounting Officer)
/s/Herbert Barg* Trustee
10/13/99
Herbert Barg
/s/Alfred J. Bianchetti* Trustee
10/13/99
Alfred J. Bianchetti
/s/Martin Brody* Trustee
10/13/99
Martin Brody
/s/Dwight B. Crane* Trustee
10/13/99
Dwight B. Crane
/s/Burt N. Dorsett* Trustee
10/13/99
Burt N. Dorsett
/s/Elliot S. Jaffe* Trustee
10/13/99
Elliot S. Jaffe
/s/Stephen E. Kaufman* Trustee
10/13/99
Stephen E. Kaufman
/s/Joseph J. McCann* Trustee
10/13/99
Joseph J. McCann
/s/Cornelius C. Rose, Jr.* Trustee
10/13/99
Cornelius C. Rose, Jr.
___________________________________________________________
__________
* Signed by Heath B. McLendon, their duly authorized
attorney-in-fact, pursuant to power
of attorney dated January 27, 1995.
/s/ Heath B. McLendon
Heath B. McLendon
EXHIBIT INDEX
Exhibit No. Exhibit
(h)(6) Form of Administration Agreement
for U.S. 5000 Index Fund
(h)(7) Form of Administration Agreement
for EAFE Index Fund
(m)(7) Form of 12b-1 Plan for U.S. 5000
Index Fund
(m)(8) Form of 12b-1 Plan for EAFE Index
Fund
SMITH BARNEY INVESTMENT TRUST
on behalf of the
SMITH BARNEY U.S. 5000 INDEX FUND
FORM OF ADMINISTRATION AGREEMENT
October 13, 1999
SSB Citi Fund Management LLC
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Smith Barney Investment Trust (the "Trust"), a
business trust organized under the laws of the
Commonwealth of Massachusetts, on behalf of its sub-
trust Smith Barney U.S. 5000 Index Fund (the "Fund"),
confirms its agreement with SSB Citi Fund Management
LLC ("SSB Citi") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by
investing and reinvesting in investments of the kind
and in accordance with the limitations specified in
the Trust's Amended and Restated Master Trust
Agreement (the "Master Trust Agreement"), as amended
from time to time, in the Fund's Prospectus and
Statement of Additional Information as from time to
time in effect, and in such manner and to the extent
as may from time to time be approved by the Board of
Trustees of the Trust. Copies of the Fund's
Prospectus, Statement of Additional Information and
the Master Trust Agreement have been submitted to SSB
Citi. The Trust desires to employ and hereby appoints
SSB Citi as its administrator. SSB Citi accepts this
appointment and agrees to furnish services for the
compensation set forth below.
2. Services as Administrator
Subject to the supervision and direction of the
Board of Trustees of the Trust, SSB Citi will (a)
assist in supervising all aspects of the Fund's
operations except those performed by other parties
pursuant to written agreements with the Fund; (b)
supply the Fund with office facilities (which may be
in SSB Citi's own offices), statistical and research
data, data processing services, clerical, accounting
and bookkeeping services, including but not limited
to, the calculation of (i) net asset value of shares
of the Fund and (ii) service fees, internal auditing
and legal services, internal executive and
administrative services, and stationary and office
supplies; and (c) prepare reports to the shareholders
of the Fund, tax returns and reports to and filings
with the Securities and Exchange Commission (the
"SEC") and state blue sky authorities.
3. Compensation
In consideration of services rendered pursuant
to this Agreement, the Fund will pay SSB Citi on the
first business day of each month a fee for the
previous month at the annual rate of 0.15% of the
Fund's average daily net assets. The fee for the
period from the date the Fund's initial registration
statement is declared effective by the SEC to the end
of the month during which the initial registration
statement is declared effective shall be prorated
according to the proportion that such period bears to
the full monthly period. Upon any termination of this
Agreement before the end of any month, the fee for
such part of the month shall be prorated according to
the proportion which such period bears to the full
monthly period and shall be payable upon the date of
termination of this Agreement. For the purpose of
determining fees payable to SSB Citi, the value of the
Fund's net assets shall be computed at the times and
in the manner specified in the Prospectus and
Statement of Additional Information as from time to
time in effect.
4. Expenses
SSB Citi will bear all expenses in connection
with the performance of its services under this
Agreement. The Fund will bear certain other expenses
to be incurred in its operation, including: taxes,
interest, brokerage fees and commissions, if any; fees
of Trustees of the Trust who are not officers,
directors, or employees of SSB Citi; SEC fees and
state blue sky qualification fees; charges of
custodians and transfer and dividend disbursing
agents; certain insurance premiums; outside auditing
and legal expenses, costs of maintenance of corporate
existence; costs attributable to investor services,
including without limitation, telephone and personnel
expenses; costs of preparing and printing prospectuses
and statements of additional information for
regulatory purposes and for distribution to existing
shareholders; costs of shareholders' reports and
meetings, and meetings of the officers or Board of
Trustees of the Trust; and any extraordinary expenses.
In addition, the Fund will pay all fees pursuant to a
Shareholder Services Plan adopted under Rule 12b-1 of
the Investment Company Act of 1940, as amended (the
"1940 Act").
5. Standard of Care
SSB Citi shall exercise its best judgment in
rendering the services listed in paragraph 2 above.
SSB Citi shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the Fund
in connection with the matters to which this Agreement
relates provided that nothing in this Agreement shall
be deemed to protect or purport to protect SSB Citi
against liability to the Fund or to its shareholders
to which SSB Citi would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or by
reason of SSB Citi's reckless disregard of its
obligations and duties under this Agreement.
6. Term of Agreement
This Agreement shall continue automatically for
successive annual periods, provided such continuance
is specifically approved at least annually by the
Board.
7. Service to Other Companies or Accounts
The Trust understands that SSB Citi now acts,
will continue to act and may act in the future as
administrator, investment manager, investment adviser
or subadviser to one or more other investment
companies, and the Trust has no objection to SSB Citi
so acting. The Trust understands that the persons
employed by SSB Citi to assist in the performance of
SSB Citi's duties hereunder will not devote their full
time to such service and nothing contained herein
shall be deemed to limit or restrict the right of SSB
Citi or any affiliate of SSB Citi to engage in and
devote time and attention to other businesses or to
render services of whatever kind or nature.
8. Indemnification
The Fund agrees to indemnify SSB Citi and its
officers, directors, employees, affiliates,
controlling persons, agents (including persons to whom
responsibilities are delegated hereunder)
("indemnitees") against any loss, claim, expense or
cost of any kind (including reasonable attorney's
fees) resulting or arising in connection with this
Agreement or from the performance or failure to
perform any act hereunder, provided that no such
indemnification shall be available if the indemnitee
violated the standard of care in paragraph 5 above.
This indemnification shall be limited by the 1940 Act,
and relevant state law. Each indemnitee shall be
entitled to advancement of its expenses in accordance
with the requirements of the 1940 Act and the rules,
regulations and interpretations thereof as in effect
from time to time.
9. Limitation of Liability
The Trust and SSB Citi agree that the
obligations of the Fund under this Agreement shall not
be binding upon any of the Trustees, shareholders,
nominees, officers, employees or agents, whether past,
present or future, of the Trust individually, but are
binding only upon the assets and property of the Fund,
as provided in the Master Trust Agreement. The
execution and delivery of this Agreement have been
authorized by the Trustees and signed by an authorized
officer of the Fund, acting as such, and neither such
authorization by such Trustees nor such execution and
delivery by such officer shall be deemed to have been
made by any of them individually or to impose any
liability on any of them personally, but shall bind
only the assets and property of the Fund as provided
in the Master Trust Agreement.
If the foregoing is in accordance with your
understanding, kindly indicate your acceptance hereof
by signing and returning to us the enclosed copy
hereof.
Very truly yours,
Smith Barney Investment
Trust
Smith Barney U.S.
5000 Index Fund
By: /s/
Title: Chairman of the
Board
Accepted:
SSB Citi Fund Management LLC
By: /s/
Title:
APPENDIX A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services involve
comprehensive accrual-based recordkeeping and
management information. They include maintaining a
fund's books and records in accordance with the
Investment Company Act of 1940, as amended (the "1940
Act"), net asset value calculation, daily dividend
calculation, tax accounting and portfolio accounting.
The designated fund accountants interact with
the Fund's custodian, transfer agent and investment
adviser daily. As required, the responsibilities of
each fund accountant may include:
- Cash Reconciliation - Reconcile prior
day's ending cash balance per custodian's
records and the accounting system to the
prior day's ending cash balance per fund
accounting's cash availability report;
- Cash Availability - Combine all activity
affecting the Fund's cash account and
produce a net cash amount available for
investment;
- Formal Reconciliations - Reconcile system
generated reports to prior day's
calculations of interest, dividends,
amortization, accretion, distributions,
capital stock and net assets;
- Trade Processing - Upon receipt of
instructions from the investment adviser
review, record and transmit buys and sells
to the custodian;
- Journal Entries - Input entries to the
accounting system reflecting shareholder
activity and Fund expense accruals;
- Reconcile and Calculate N.O.A. (net other
assets) - Compile all activity affecting
asset and liability accounts other than
investment account;
- Calculate Net Income, Mil Rate and Yield
for Daily Distribution Funds - Calculate
income on purchase and sales, calculate
change in income due to variable rate
change, combine all daily income less
expenses to arrive at net income,
calculate mil rate and yields (1 day, 7
day and 30 day);
- Mini-Cycle (except for Money Market Funds)
- - Review intra day trial balance and
reports, review trial balance N.O.A.;
- Holdings Reconciliation - Reconcile the
portfolio holdings per the system to
custodian records;
- Pricing - Determine N.A.V. for Fund using
market value of all securities and
currencies (plus N.O.A.), divided by the
shares outstanding, and investigate
securities with significant price changes
(over 5%);
- Money Market Fund Pricing - Monitor
valuation for compliance with Rule 2a-7;
- System Check-Back - Verify the change in
market value of securities which saw
trading activity per the system;
- Net Asset Value Reconciliation - Identify
the impact of current day's Fund activity
on a per share basis;
- Reporting of Price to NASDAQ - 5:30 P.M.
is the final deadline for Fund prices
being reported to the newspaper;
- Reporting of Price to Transfer Agent-
N.A.V.s are reported to transfer agent
upon total completion of above activities.
In addition, fund accounting personnel:
communicate corporate actions of portfolio holdings to
portfolio managers; initiate notification to custodian
procedures on outstanding income receivables; provide
information to the Fund's treasurer for reports to
shareholders, SEC, Board members, tax authorities,
statistical and performance reporting companies and
the Fund's auditors; interface with the Fund's
auditors; prepare monthly reconciliation packages,
including expense pro forma; prepare amortization
schedules for premium and discount bonds based on the
effective yield method; prepare vault reconciliation
reports to indicate securities currently "out-for-
transfer;" and calculate daily expenses based on
expense ratios supplied by Fund's treasurer.
Financial Administration. The financial
administration services made available to the Fund
fall within three main categories: Financial
Reporting; Statistical Reporting; and Publications.
The following is a summary of the services made
available to the Fund by the Financial Administration
Division:
Financial Reporting
- Coordinate the preparation and
review of the annual, semi-annual
and quarterly portfolio of
investments and financial statements
included in the Fund's shareholder
reports.
Statistical Reporting
- Total return reporting;
- SEC 30-day yield reporting and 7-day
yield reporting (for money market
funds);
- Prepare dividend summary;
- Prepare quarter-end reports;
- Communicate statistical data to the
financial media (Donoghue, Lipper,
Morningstar, et al.)
Publications
- Coordinate the printing and mailing
process with outside printers for
annual and semi-annual reports,
prospectuses, statements of
additional information, proxy
statements and special letters or
supplements;
- Provide graphics and design
assistance relating to the creation
of marketing materials and
shareholder reports.
Treasury. The following is a summary of the treasury
services available to the
Fund:
- Provide a Treasurer and Assistant
Treasurer for the Fund;
- Determine expenses properly
chargeable to the Fund;
- Authorize payment of bills for
expenses of the Fund;
- Establish and monitor the rate of
expense accruals;
- Prepare financial materials for
review by the Fund's Board (e.g.,
Rule 2a-7, 10f-3, 17a-7 and 17e-1
reports, repurchase agreement dealer
lists, securities transactions);
- Recommend dividends to be voted by
the Fund's Board;
- Monitor mark-to-market comparisons
for money market funds;
- Recommend valuation to be used for
securities which are not readily
saleable;
- Function as a liaison with the
Fund's outside auditors and
arrange for audits;
- Provide accounting, financial and
tax support relating to portfolio
management and any contemplated
changes in the Fund's structure or
operations;
- Prepare and file forms with the
Internal Revenue Service
* Form 8613
* Form 1120-RIC
* Board Members' and
Shareholders' 1099s
* Mailings in connection with
Section 852 and related
regulations.
Legal and Regulatory Services. The legal and
regulatory services made available to the Fund fall
within four main areas: SEC and Public Disclosure
Assistance; Corporate and Secretarial Services;
Compliance Services; and Blue Sky Registration. The
following is a summary of the legal and regulatory
services available to the Fund:
SEC and Public Disclosure Assistance
- File annual amendments to the Fund's
registration statements, including
updating the prospectus and
statement of additional information
where applicable;
- File annual and semi-annual
shareholder reports with the
appropriate regulatory agencies;
- Prepare and file proxy statements;
- Review marketing material for SEC
and NASD clearance;
- Provide legal assistance for
shareholder communications.
Corporate and Secretarial Services
- Provide a Secretary and an Assistant
Secretary for the Fund;
- Maintain general corporate calendar;
- Prepare agenda and background
materials for Fund board meetings,
make presentations where
appropriate, prepare minutes and
follow-up matters raised at Board
meetings;
- Organize, attend and keep minutes of
shareholder meetings;
- Maintain Articles of Incorporation
and By-Laws of the Fund.
Legal Consultation and Business Planning
- Provide general legal advice on
matters relating to portfolio
management, Fund operations and any
potential changes in the Fund's
investment policies, operations or
structure;
- Maintain continuing awareness of
significant emerging regulatory and
legislative developments which may
affect the Fund, update the Fund's
Board and the investment adviser on
those developments and provide
related planning assistance where
requested or appropriate;
- Develop or assist in developing
guidelines and procedures to improve
overall compliance by the Fund and
its various agents;
- Manage Fund litigation matters and
assume full responsibility for the
handling of routine Fund
examinations and investigations by
regulatory agencies.
Compliance Services
The Compliance Department is responsible
for preparing compliance manuals, conducting seminars
for fund accounting and advisory personnel and
performing on-going testing of the Fund's portfolio to
assist the Fund's investment adviser in complying with
prospectus guidelines and limitations, 1940 Act
requirements and Internal Revenue Code requirements.
The Department may also act as liaison to the SEC
during its routine examinations of the Fund.
State Regulation
The State Regulation Department operates
in a fully automated environment using blue sky
registration software developed by Price Waterhouse.
In addition to being responsible for filing the
initial and on-going notice filings for shares in each
state, the Department acts as liaison between the Fund
and state regulators, and monitors and reports on
shares sold and remaining shares available for sale.
Wed\1999\misc\administrationagreement- US 5000
SMITH BARNEY INVESTMENT TRUST
on behalf of the
SMITH BARNEY EAFE INDEX FUND
FORM OF ADMINISTRATION AGREEMENT
October 13, 1999
SSB Citi Fund Management LLC
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Smith Barney Investment Trust (the "Trust"), a
business trust organized under the laws of the
Commonwealth of Massachusetts, on behalf of its sub-
trust Smith Barney EAFE Index Fund (the "Fund"),
confirms its agreement with SSB Citi Fund Management
LLC ("SSB Citi") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by
investing and reinvesting in investments of the kind
and in accordance with the limitations specified in
the Trust's Amended and Restated Master Trust
Agreement (the "Master Trust Agreement"), as amended
from time to time, in the Fund's Prospectus and
Statement of Additional Information as from time to
time in effect, and in such manner and to the extent
as may from time to time be approved by the Board of
Trustees of the Trust. Copies of the Fund's
Prospectus, Statement of Additional Information and
the Master Trust Agreement have been submitted to SSB
Citi. The Trust desires to employ and hereby appoints
SSB Citi as its administrator. SSB Citi accepts this
appointment and agrees to furnish services for the
compensation set forth below.
2. Services as Administrator
Subject to the supervision and direction of the
Board of Trustees of the Trust, SSB Citi will (a)
assist in supervising all aspects of the Fund's
operations except those performed by other parties
pursuant to written agreements with the Fund; (b)
supply the Fund with office facilities (which may be
in SSB Citi's own offices), statistical and research
data, data processing services, clerical, accounting
and bookkeeping services, including but not limited
to, the calculation of (i) net asset value of shares
of the Fund and (ii) service fees, internal auditing
and legal services, internal executive and
administrative services, and stationary and office
supplies; and (c) prepare reports to the shareholders
of the Fund, tax returns and reports to and filings
with the Securities and Exchange Commission (the
"SEC") and state blue sky authorities.
3. Compensation
In consideration of services rendered pursuant
to this Agreement, the Fund will pay SSB Citi on the
first business day of each month a fee for the
previous month at the annual rate of 0.15% of the
Fund's average daily net assets. The fee for the
period from the date the Fund's initial registration
statement is declared effective by the SEC to the end
of the month during which the initial registration
statement is declared effective shall be prorated
according to the proportion that such period bears to
the full monthly period. Upon any termination of this
Agreement before the end of any month, the fee for
such part of the month shall be prorated according to
the proportion which such period bears to the full
monthly period and shall be payable upon the date of
termination of this Agreement. For the purpose of
determining fees payable to SSB Citi, the value of the
Fund's net assets shall be computed at the times and
in the manner specified in the Prospectus and
Statement of Additional Information as from time to
time in effect.
4. Expenses
SSB Citi will bear all expenses in connection
with the performance of its services under this
Agreement. The Fund will bear certain other expenses
to be incurred in its operation, including: taxes,
interest, brokerage fees and commissions, if any; fees
of Trustees of the Trust who are not officers,
directors, or employees of SSB Citi; SEC fees and
state blue sky qualification fees; charges of
custodians and transfer and dividend disbursing
agents; certain insurance premiums; outside auditing
and legal expenses, costs of maintenance of corporate
existence; costs attributable to investor services,
including without limitation, telephone and personnel
expenses; costs of preparing and printing prospectuses
and statements of additional information for
regulatory purposes and for distribution to existing
shareholders; costs of shareholders' reports and
meetings, and meetings of the officers or Board of
Trustees of the Trust; and any extraordinary expenses.
In addition, the Fund will pay all fees pursuant to a
Shareholder Services Plan adopted under Rule 12b-1 of
the Investment Company Act of 1940, as amended (the
"1940 Act").
5. Standard of Care
SSB Citi shall exercise its best judgment in
rendering the services listed in paragraph 2 above.
SSB Citi shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the Fund
in connection with the matters to which this Agreement
relates provided that nothing in this Agreement shall
be deemed to protect or purport to protect SSB Citi
against liability to the Fund or to its shareholders
to which SSB Citi would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or by
reason of SSB Citi's reckless disregard of its
obligations and duties under this Agreement.
6. Term of Agreement
This Agreement shall continue automatically for
successive annual periods, provided such continuance
is specifically approved at least annually by the
Board.
7. Service to Other Companies or Accounts
The Trust understands that SSB Citi now acts,
will continue to act and may act in the future as
administrator, investment manager, investment adviser
or subadviser to one or more other investment
companies, and the Trust has no objection to SSB Citi
so acting. The Trust understands that the persons
employed by SSB Citi to assist in the performance of
SSB Citi's duties hereunder will not devote their full
time to such service and nothing contained herein
shall be deemed to limit or restrict the right of SSB
Citi or any affiliate of SSB Citi to engage in and
devote time and attention to other businesses or to
render services of whatever kind or nature.
8. Indemnification
The Fund agrees to indemnify SSB Citi and its
officers, directors, employees, affiliates,
controlling persons, agents (including persons to whom
responsibilities are delegated hereunder)
("indemnitees") against any loss, claim, expense or
cost of any kind (including reasonable attorney's
fees) resulting or arising in connection with this
Agreement or from the performance or failure to
perform any act hereunder, provided that no such
indemnification shall be available if the indemnitee
violated the standard of care in paragraph 5 above.
This indemnification shall be limited by the 1940 Act,
and relevant state law. Each indemnitee shall be
entitled to advancement of its expenses in accordance
with the requirements of the 1940 Act and the rules,
regulations and interpretations thereof as in effect
from time to time.
9. Limitation of Liability
The Trust and SSB Citi agree that the
obligations of the Fund under this Agreement shall not
be binding upon any of the Trustees, shareholders,
nominees, officers, employees or agents, whether past,
present or future, of the Trust individually, but are
binding only upon the assets and property of the Fund,
as provided in the Master Trust Agreement. The
execution and delivery of this Agreement have been
authorized by the Trustees and signed by an authorized
officer of the Fund, acting as such, and neither such
authorization by such Trustees nor such execution and
delivery by such officer shall be deemed to have been
made by any of them individually or to impose any
liability on any of them personally, but shall bind
only the assets and property of the Fund as provided
in the Master Trust Agreement.
If the foregoing is in accordance with your
understanding, kindly indicate your acceptance hereof
by signing and returning to us the enclosed copy
hereof.
Very truly yours,
Smith Barney Investment
Trust
Smith Barney EAFE
Index Fund
By: /s/
Title: Chairman of the
Board
Accepted:
SSB Citi Fund Management LLC
By: /s/
Title:
APPENDIX A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services involve
comprehensive accrual-based recordkeeping and
management information. They include maintaining a
fund's books and records in accordance with the
Investment Company Act of 1940, as amended (the "1940
Act"), net asset value calculation, daily dividend
calculation, tax accounting and portfolio accounting.
The designated fund accountants interact with
the Fund's custodian, transfer agent and investment
adviser daily. As required, the responsibilities of
each fund accountant may include:
- Cash Reconciliation - Reconcile prior
day's ending cash balance per custodian's
records and the accounting system to the
prior day's ending cash balance per fund
accounting's cash availability report;
- Cash Availability - Combine all activity
affecting the Fund's cash account and
produce a net cash amount available for
investment;
- Formal Reconciliations - Reconcile system
generated reports to prior day's
calculations of interest, dividends,
amortization, accretion, distributions,
capital stock and net assets;
- Trade Processing - Upon receipt of
instructions from the investment adviser
review, record and transmit buys and sells
to the custodian;
- Journal Entries - Input entries to the
accounting system reflecting shareholder
activity and Fund expense accruals;
- Reconcile and Calculate N.O.A. (net other
assets) - Compile all activity affecting
asset and liability accounts other than
investment account;
- Calculate Net Income, Mil Rate and Yield
for Daily Distribution Funds - Calculate
income on purchase and sales, calculate
change in income due to variable rate
change, combine all daily income less
expenses to arrive at net income,
calculate mil rate and yields (1 day, 7
day and 30 day);
- Mini-Cycle (except for Money Market Funds)
- - Review intra day trial balance and
reports, review trial balance N.O.A.;
- Holdings Reconciliation - Reconcile the
portfolio holdings per the system to
custodian records;
- Pricing - Determine N.A.V. for Fund using
market value of all securities and
currencies (plus N.O.A.), divided by the
shares outstanding, and investigate
securities with significant price changes
(over 5%);
- Money Market Fund Pricing - Monitor
valuation for compliance with Rule 2a-7;
- System Check-Back - Verify the change in
market value of securities which saw
trading activity per the system;
- Net Asset Value Reconciliation - Identify
the impact of current day's Fund activity
on a per share basis;
- Reporting of Price to NASDAQ - 5:30 P.M.
is the final deadline for Fund prices
being reported to the newspaper;
- Reporting of Price to Transfer Agent-
N.A.V.s are reported to transfer agent
upon total completion of above activities.
In addition, fund accounting personnel:
communicate corporate actions of portfolio holdings to
portfolio managers; initiate notification to custodian
procedures on outstanding income receivables; provide
information to the Fund's treasurer for reports to
shareholders, SEC, Board members, tax authorities,
statistical and performance reporting companies and
the Fund's auditors; interface with the Fund's
auditors; prepare monthly reconciliation packages,
including expense pro forma; prepare amortization
schedules for premium and discount bonds based on the
effective yield method; prepare vault reconciliation
reports to indicate securities currently "out-for-
transfer;" and calculate daily expenses based on
expense ratios supplied by Fund's treasurer.
Financial Administration. The financial
administration services made available to the Fund
fall within three main categories: Financial
Reporting; Statistical Reporting; and Publications.
The following is a summary of the services made
available to the Fund by the Financial Administration
Division:
Financial Reporting
- Coordinate the preparation and
review of the annual, semi-annual
and quarterly portfolio of
investments and financial statements
included in the Fund's shareholder
reports.
Statistical Reporting
- Total return reporting;
- SEC 30-day yield reporting and 7-day
yield reporting (for money market
funds);
- Prepare dividend summary;
- Prepare quarter-end reports;
- Communicate statistical data to the
financial media (Donoghue, Lipper,
Morningstar, et al.)
Publications
- Coordinate the printing and mailing
process with outside printers for
annual and semi-annual reports,
prospectuses, statements of
additional information, proxy
statements and special letters or
supplements;
- Provide graphics and design
assistance relating to the creation
of marketing materials and
shareholder reports.
Treasury. The following is a summary of the treasury
services available to the
Fund:
- Provide a Treasurer and Assistant
Treasurer for the Fund;
- Determine expenses properly
chargeable to the Fund;
- Authorize payment of bills for
expenses of the Fund;
- Establish and monitor the rate of
expense accruals;
- Prepare financial materials for
review by the Fund's Board (e.g.,
Rule 2a-7, 10f-3, 17a-7 and 17e-1
reports, repurchase agreement dealer
lists, securities transactions);
- Recommend dividends to be voted by
the Fund's Board;
- Monitor mark-to-market comparisons
for money market funds;
- Recommend valuation to be used for
securities which are not readily
saleable;
- Function as a liaison with the
Fund's outside auditors and
arrange for audits;
- Provide accounting, financial and
tax support relating to portfolio
management and any contemplated
changes in the Fund's structure or
operations;
- Prepare and file forms with the
Internal Revenue Service
* Form 8613
* Form 1120-RIC
* Board Members' and
Shareholders' 1099s
* Mailings in connection with
Section 852 and related
regulations.
Legal and Regulatory Services. The legal and
regulatory services made available to the Fund fall
within four main areas: SEC and Public Disclosure
Assistance; Corporate and Secretarial Services;
Compliance Services; and Blue Sky Registration. The
following is a summary of the legal and regulatory
services available to the Fund:
SEC and Public Disclosure Assistance
- File annual amendments to the Fund's
registration statements, including
updating the prospectus and
statement of additional information
where applicable;
- File annual and semi-annual
shareholder reports with the
appropriate regulatory agencies;
- Prepare and file proxy statements;
- Review marketing material for SEC
and NASD clearance;
- Provide legal assistance for
shareholder communications.
Corporate and Secretarial Services
- Provide a Secretary and an Assistant
Secretary for the Fund;
- Maintain general corporate calendar;
- Prepare agenda and background
materials for Fund board meetings,
make presentations where
appropriate, prepare minutes and
follow-up matters raised at Board
meetings;
- Organize, attend and keep minutes of
shareholder meetings;
- Maintain Articles of Incorporation
and By-Laws of the Fund.
Legal Consultation and Business Planning
- Provide general legal advice on
matters relating to portfolio
management, Fund operations and any
potential changes in the Fund's
investment policies, operations or
structure;
- Maintain continuing awareness of
significant emerging regulatory and
legislative developments which may
affect the Fund, update the Fund's
Board and the investment adviser on
those developments and provide
related planning assistance where
requested or appropriate;
- Develop or assist in developing
guidelines and procedures to improve
overall compliance by the Fund and
its various agents;
- Manage Fund litigation matters and
assume full responsibility for the
handling of routine Fund
examinations and investigations by
regulatory agencies.
Compliance Services
The Compliance Department is responsible
for preparing compliance manuals, conducting seminars
for fund accounting and advisory personnel and
performing on-going testing of the Fund's portfolio to
assist the Fund's investment adviser in complying with
prospectus guidelines and limitations, 1940 Act
requirements and Internal Revenue Code requirements.
The Department may also act as liaison to the SEC
during its routine examinations of the Fund.
State Regulation
The State Regulation Department operates
in a fully automated environment using blue sky
registration software developed by Price Waterhouse.
In addition to being responsible for filing the
initial and on-going notice filings for shares in each
state, the Department acts as liaison between the Fund
and state regulators, and monitors and reports on
shares sold and remaining shares available for sale.
WED\1999\MISC\ADMINISTRATIONAGREEMENT-EAFE
FORM OF
SHAREHOLDER SERVICES PLAN
SMITH BARNEY INVESTMENT TRUST
on behalf of the
SMITH BARNEY U.S. 5000 INDEX FUND
This Shareholder Services Plan (the "Plan") is adopted
in accordance with Rule 12b-1 (the "Rule") under the
Investment Company Act of 1940, as amended (the "1940
Act"), by Smith Barney Investment Trust, a business trust
organized under the laws of the Commonwealth of
Massachusetts (the "Trust") on behalf of its sub-trust
the Smith Barney U.S. 5000 Index Fund (the "Fund"),
subject to the following terms and conditions:
Section 1. Annual Fee.
(a) Service Fee for Class A shares. The Trust will
pay to Salomon Smith Barney Inc., a corporation
organized under the laws of the State of New
York ("Salomon Smith Barney"), a service fee
under the Plan at an annual rate of 0.20% of the
average daily net assets of the Fund
attributable to the Class A (the "Class") shares
sold and not redeemed (the "Service Fee").
(b) Payment of Fees. The Service Fee will be
calculated daily and paid monthly by the Trust
with respect to the Fund's Class shares at the
annual rate indicated above.
Section 2. Expenses Covered by the Plan.
With respect to expenses incurred, the Service Fee may
be used by Salomon Smith Barney for: (a) distributing
prospectuses and sales literature; (b) answering routine
shareholder inquiries regarding the Fund; (c) assisting
shareholders in changing dividend options, account
designations and addresses, and in enrolling into the
pre-authorized check plan, systematic withrawal plan or
any of several tax sheltered retirement plans offered in
connection with the purchase of shares; (d) assisting in
the establishment and maintenance of customer accounts
and records and in the processing of purchase and
redemption transactions; (e) investing dividends and
capital gains distributions automatically in shares; and
(f) providing such other services as the Fund or the
shareholder may reasonably request.
Section 3. Approval by Trustees.
Neither the Plan nor any related agreements will take
effect until approved by a majority vote of both (a) the
Board of Trustees and (b) those Trustees who are not
interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plan
or in any agreements related to it (the "Qualified
Trustees"), cast in person at a meeting called for the
purpose of voting on the Plan and the related agreements.
Section 4. Continuance of the Plan.
The Plan will continue in effect until October 13,
2000 and thereafter for successive twelve-month periods;
provided, such continuance is specifically approved at
least annually by the Trustees of the Trust and by a
majority of the Qualified Trustees.
Section 5. Termination.
The Plan may be terminated at any time (i) by the
Trust without the payment of any penalty, by the vote of
a majority of the outstanding voting securities of the
Class or (ii) by a majority vote of the Qualified
Trustees.
Section 6. Amendments.
The Plan may not be amended so as to increase
materially the amounts of the fees described in Section 1
above, unless the amendment is approved by a vote of
holders of at least a majority of the outstanding voting
securities of the Class. No material amendment to the
Plan may be made unless approved by the Trust's Board of
Trustees in the manner described in Section 3 above.
Section 7. Selection of Certain Trustees.
While the Plan is in effect, the selection and
nomination of the Trust's Trustees who are not interested
persons of the Trust will be committed to the discretion
of the Trustees then in office who are not interested
persons of the Trust.
Section 8. Written Reports
In each year during which the Plan remains in effect,
any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to the Plan or any
related agreement will prepare and furnish to the Trust's
Board of Trustees and the Board will review, at least
quarterly, written reports complying with the
requirements of the Rule, which set out the amounts
expended under the Plan and the purposes for which those
expenditures were made.
Section 9. Preservation of Materials.
The Trust will preserve copies of the Plan, any
agreement relating to the Plan and any report made
pursuant to Section 8 above, for a period of not less
than six years (the first two years in an easily
accessible place) from the date of the Plan, agreement or
report.
Section 10. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and
"majority of the outstanding voting securities" will be
deemed to have the same meaning that those terms have
under the rules and regulations under the 1940 Act,
subject to any exemption that may be granted to the Trust
under the 1940 Act, by the Securities and Exchange
Commission.
Section 11. Limitation of Liability.
The obligations of the Trust under this Agreement
shall not be binding upon any of the Trustees,
shareholders, nominees, officers, employees or agents,
whether past, present or future, of the Trust,
individually, but are binding only upon the assets and
property of the Trust, as provided in the Master Trust
Agreement. The execution of this Plan has been
authorized by the Trustees and signed by an authorized
officer of the Trust, acting as such, and neither such
authorization by such Trustees nor such execution by such
officer shall be deemed to have been made by any of them
individually or to impose any liability on any of them
personally, but shall bind only the trust property of the
Trust as provided in its Master Trust Agreement.
IN WITNESS WHEREOF, the Fund has executed the Plan as
of October 13, 1999.
SMITH BARNEY INVESTMENT TRUST
On behalf of the Smith Barney
U.S. 5000 Index Fund
By:
____________________________________
Heath B. McLendon
Chairman of the
Board
BOARDS\WED\1999\MISC\INDEX FUNDS 12B1 PLAN - US 5000
FORM OF
SHAREHOLDER SERVICES PLAN
SMITH BARNEY INVESTMENT TRUST
on behalf of the
SMITH BARNEY EAFE INDEX FUND
This Shareholder Services Plan (the "Plan") is adopted
in accordance with Rule 12b-1 (the "Rule") under the
Investment Company Act of 1940, as amended (the "1940
Act"), by Smith Barney Investment Trust, a business trust
organized under the laws of the Commonwealth of
Massachusetts (the "Trust") on behalf of its sub-trust
the Smith Barney EAFE Index Fund (the "Fund"), subject to
the following terms and conditions:
Section 1. Annual Fee.
(a) Service Fee for Class A shares. The Trust will
pay to Salomon Smith Barney Inc., a corporation
organized under the laws of the State of New
York ("Salomon Smith Barney"), a service fee
under the Plan at an annual rate of 0.20% of the
average daily net assets of the Fund
attributable to the Class A (the "Class") shares
sold and not redeemed (the "Service Fee").
(b) Payment of Fees. The Service Fee will be
calculated daily and paid monthly by the Trust
with respect to the Fund's Class shares at the
annual rate indicated above.
Section 2. Expenses Covered by the Plan.
With respect to expenses incurred, the Service Fee may
be used by Salomon Smith Barney for: (a) distributing
prospectuses and sales literature; (b) answering routine
shareholder inquiries regarding the Fund; (c) assisting
shareholders in changing dividend options, account
designations and addresses, and in enrolling into the
pre-authorized check plan, systematic withrawal plan or
any of several tax sheltered retirement plans offered in
connection with the purchase of shares; (d) assisting in
the establishment and maintenance of customer accounts
and records and in the processing of purchase and
redemption transactions; (e) investing dividends and
capital gains distributions automatically in shares; and
(f) providing such other services as the Fund or the
shareholder may reasonably request.
Section 3. Approval by Trustees.
Neither the Plan nor any related agreements will take
effect until approved by a majority vote of both (a) the
Board of Trustees and (b) those Trustees who are not
interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plan
or in any agreements related to it (the "Qualified
Trustees"), cast in person at a meeting called for the
purpose of voting on the Plan and the related agreements.
Section 4. Continuance of the Plan.
The Plan will continue in effect until October 13,
2000 and thereafter for successive twelve-month periods;
provided, such continuance is specifically approved at
least annually by the Trustees of the Trust and by a
majority of the Qualified Trustees.
Section 5. Termination.
The Plan may be terminated at any time (i) by the
Trust without the payment of any penalty, by the vote of
a majority of the outstanding voting securities of the
Class or (ii) by a majority vote of the Qualified
Trustees.
Section 6. Amendments.
The Plan may not be amended so as to increase
materially the amounts of the fees described in Section 1
above, unless the amendment is approved by a vote of
holders of at least a majority of the outstanding voting
securities of the Class. No material amendment to the
Plan may be made unless approved by the Trust's Board of
Trustees in the manner described in Section 3 above.
Section 7. Selection of Certain Trustees.
While the Plan is in effect, the selection and
nomination of the Trust's Trustees who are not interested
persons of the Trust will be committed to the discretion
of the Trustees then in office who are not interested
persons of the Trust.
Section 8. Written Reports
In each year during which the Plan remains in effect,
any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to the Plan or any
related agreement will prepare and furnish to the Trust's
Board of Trustees and the Board will review, at least
quarterly, written reports complying with the
requirements of the Rule, which set out the amounts
expended under the Plan and the purposes for which those
expenditures were made.
Section 9. Preservation of Materials.
The Trust will preserve copies of the Plan, any
agreement relating to the Plan and any report made
pursuant to Section 8 above, for a period of not less
than six years (the first two years in an easily
accessible place) from the date of the Plan, agreement or
report.
Section 10. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and
"majority of the outstanding voting securities" will be
deemed to have the same meaning that those terms have
under the rules and regulations under the 1940 Act,
subject to any exemption that may be granted to the Trust
under the 1940 Act, by the Securities and Exchange
Commission.
Section 11. Limitation of Liability.
The obligations of the Trust under this Agreement
shall not be binding upon any of the Trustees,
shareholders, nominees, officers, employees or agents,
whether past, present or future, of the Trust,
individually, but are binding only upon the assets and
property of the Trust, as provided in the Master Trust
Agreement. The execution of this Plan has been
authorized by the Trustees and signed by an authorized
officer of the Trust, acting as such, and neither such
authorization by such Trustees nor such execution by such
officer shall be deemed to have been made by any of them
individually or to impose any liability on any of them
personally, but shall bind only the trust property of the
Trust as provided in its Master Trust Agreement.
IN WITNESS WHEREOF, the Fund has executed the Plan as
of October 13, 1999.
SMITH BARNEY INVESTMENT TRUST
On behalf of the Smith Barney
EAFE Index Fund
By:
____________________________________
Heath B. McLendon
Chairman of the
Board
FUNDS\SLIT\AGREEMTS\INDEX FUNDS 12B1 PLAN - EAFE
