UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-6318
Consulting Group Capital Markets Funds
(Exact name of registrant as specified in charter)
125 Broad Street, New York, NY 10004
(Address of principal executive offices) (Zip code)
Robert I. Frenkel, Esq.
Smith Barney Fund Management LLC
300 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 451-2010
Date of fiscal year end: March 31
Date of reporting period: March 31, 2004
ITEM 1. REPORT TO STOCKHOLDERS.
The Annual Report to Stockholders is filed herewith.
[LOGO] Consulting Group
Consulting Group
Capital Markets Funds
Multi-Strategy Market Neutral Investments
Annual Report [LOGO] TRAK(R)
March 31, 2004 Personalized Investment Advisory Service
-------------------------------------------------------------
NOT FDIC INSURED . NOT BANK GUARANTEED . MAY LOSE VALUE
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Table of Contents
Shareholder Letter.......................................... 1
Fund Performance............................................ 4
Schedule of Investments..................................... 5
Schedule of Securities Sold Short........................... 21
Statement of Assets and Liabilities......................... 31
Statement of Operations..................................... 32
Statements of Changes in Net Assets......................... 33
Notes to Financial Statements............................... 34
Financial Highlights........................................ 40
Independent Auditors' Report................................ 41
Additional Information...................................... 42
Tax Information............................................. 45
Consulting Group
Capital Markets Funds
DEAR SHAREHOLDER:
The fiscal year ending March 31, 2004 produced returns that were significantly
above average for long-positioned financial assets. Most of the risk aversions
and concerns that produced negative asset class returns and market volatility
in the previous fiscal year reversed. The Consulting Group Capital Markets
Funds -- Multi-Strategy Market Neutral Investments ("Fund") lagged the returns
of the equity and bond markets. The return for the Fund (2.33%) was positive
for the twelve months ending March 31, 2004, but lagged equity market returns
as investors returned to risk taking positions in stocks and bonds.
Our letter one year ago discussed global investors, preference to avoid
investing in risky assets and their preference to hold perceived risk-less
assets. At the time, global political concerns and on-going financial and
economic credibility issues drove investors away from risk taking. Over the
last twelve months, the economic recovery took hold and investors reversed
their positions. In both the equity and fixed income markets, there is a simple
analysis - the higher risk the asset class, or security, the higher the return.
For example, in the fixed income markets, high yield bonds outperformed
investment grade corporate bonds, which outperformed government bonds. In the
equity markets, smaller cap issues outperformed larger cap issues. Investors
also favored companies with greater sensitivity to the economic rebound over
those that produce stable and consistent earnings growth. Many of these
factors, combined with the falling short-term interest rates, produced
conditions that were not favorable to the Fund, generating returns similar to
equity markets and intermediate and long term bond markets.
Consulting Group, in its capacity as Investment Manager for the Fund, is
responsible for overseeing and implementing the multiple strategies utilized --
Convertible Arbitrage, Merger Arbitrage and Equity Market Neutral. During the
period, Consulting Group recommended, and the Board of Trustees approved, the
hiring of Camden Asset Management and Freeman Associates Investment Management
as additional investment advisers to the Fund.
For your review, we have included a brief description of each style:
. Convertible Arbitrage: consists of buying debt securities, preferred stocks
and other securities convertible into common stock and hedging a portion of
the equity risk inherent in the securities. The hedging is achieved by
selling short the common stock of the company. Calamos Asset Management and
Camden Asset Management were responsible for this strategy during the
period.
. Equity Market Neutral: consists of purchasing stocks of companies the
sub-advisor believes are undervalued and will outperform the equity
markets. At the same time, the investment adviser sells short the stock of
companies it believes are overvalued and will under-perform the markets.
SSI Investment Management, Franklin Portfolio Associates, and Freeman
Associates Investment Management were responsible for this strategy during
the period.
. Merger Arbitrage: the strategy is designed to profit from the successful
completion of announced merger and acquisition transactions involving
publicly owned companies. The Fund establishes merger arbitrage positions
by purchasing the shares (a long position) of the target company at a
discount to the value of the consideration offered in the merger or tender
offer. A short sale position is initiated in the acquiring company. Pegasus
Investments was responsible for this strategy during the period until March
26, 2004, at which time, they were terminated due to business concerns and
the assets were allocated among the existing investment advisers.
For the twelve months ended March 31, 2004, the Fund returned 2.33%,
outperforming its primary benchmark, the 3-Month T-Bill Index, which returned
0.97%. However, the Fund also compares its performance with the Lehman
1
Brothers Intermediate Government Credit Index and the S&P 500 Index, which
returned 5.30% and 35.10%, respectively.
The 3-Month T-Bill Index is composed of one three-month U.S. Treasury Bill
whose return is tracked until its maturity. The Lehman Brothers Intermediate
Government Credit Index is composed of U.S. Government and Agency bonds and
U.S. investment grade corporate bonds with maturities between 1 and 10 years.
The S&P 500 Index is a broad-based unmanaged index of widely held common
stocks. Unlike the Fund, the 3-Month T-Bill Index, Lehman Brothers Intermediate
Government Credit Index, and the S&P 500 Index are unmanaged and do not include
any deduction for fees, expenses or taxes. Please note that an investor cannot
invest directly in an index.
Each of the investment advisers produced positive results for the Fund over the
trailing twelve months. However, on a relative basis, the best performing
strategy was Convertible Arbitrage. Throughout the entire period, the
investment advisers witnessed low aggregate yields in the fixed income market,
with short-term interest rates hovering at historic lows. In addition, low
equity market volatility and record new convertible issuance during the summer
of 2003 added to the challenging environment for Convertible Arbitrage
investing. But at the start of the third quarter, tightening credit spreads and
higher volatility eased the difficult conditions in the months that followed.
Within the Equity Market Neutral strategy, the investing environment proved to
be a greater challenge. During the calendar year 2003, stocks with high risk,
low price, and poor price momentum led the market sharply upward. However, the
equity market reversed course in the beginning of 2004, and stocks with better
fundamental characteristics, generally favored by the Fund's investment
advisers, managed to outperform other sectors of the market. This allowed the
strategy to finish the fiscal year strongly.
The Merger Arbitrage strategy began the twelve-month period far less than fully
invested. This situation stemmed from the meager flow of potential M&A
transactions on the tail end of a global equity bear market. But as the economy
slowly started to recover and investors shifted back into the equity market,
the number of announced M&A deals increased steadily, providing an opportunity
for the strategy to become over 90% invested by mid-2003. However, despite the
dramatic pickup of activity, the continued low interest rate environment and
demand for relatively safe merger arbitrage opportunities narrowed the spreads
and made many of the newly announced transactions less attractive.
While the financial markets produced solid gains for the trailing twelve
months, these returns mask the significant levels of investor concern dealing
with geopolitical risk and an uncertain economic recovery. As such, we continue
to stress the importance of asset allocation and diversification of assets
among multiple strategies and managers. We thank you for your continued support
and encourage you to contact your Financial Consultant for further assistance
and guidance.
Information About Your Fund
In recent months, the mutual fund industry has come under the scrutiny of
federal and state regulators. Along with others in the industry, Smith Barney
Fund Management LLC ("SBFM"), the adviser to your fund, and some of its
affiliates have responded to requests for information from various government
regulators regarding market timing, late trading, fees and other mutual fund
issues. The regulators appear to be examining, among other things, how fund
managers dealt with market timing and shareholder exchange activity, including
compliance with prospectus disclosure related to these subjects. We have
identified market timing in your fund, including an arrangement with an
investor that permitted frequent trading to occur in your fund. We do not
believe that arrangement involved selective portfolio disclosure or late
trading. The arrangement was terminated early in 2001. Governmental review of
these matters is continuing. Any resolution of this matter is not expected to
have a financial impact on the fund.
We thank you for your continued support and encourage you to contact your
Financial Consultant for further assistance and guidance.
2
Sincerely,
/s/ R Jay Gerken
R. Jay Gerken, CFA
Chairman, President and Chief
Executive Officer
April 30, 2004
The Fund makes short sales of securities, which may result in losses greater
than the amount invested. Although the Fund's strategies attempt to neutralize
the effect of general trends in the equity markets, an investment in the Fund
is subject to the risks associated with investing in equity securities
generally. Equity securities, particularly common stocks, have historically
generated higher average returns than fixed-income securities, but have also
experienced significantly more volatility on those returns. In addition to the
risks associated with equity securities, convertible arbitrage also entails
risks associated with fixed-income securities, such as interest rate and credit
risk. There may be a risk of insufficient merger arbitrage investment
opportunities and the risk that a proposed transaction is not completed, is
negatively negotiated or is delayed and the price of the target company's
securities declines. The Fund may engage in active and frequent trading which
would increase the investor's tax liability and increase transaction costs,
which would in turn, reduce the Fund's performance.
3
Fund Highlights
(unaudited)
The following graph depicts the performance of the Multi-Strategy Market
Neutral Investments vs. the S&P 500 Index and 3-Month T-Bill Index.
HISTORICAL PERFORMANCE SINCE INCEPTION THROUGH MARCH 31, 2004 MULTI-STRATEGY
MARKET NEUTRAL INVESTMENTS
Comparison of $10,000 investment in the Fund with the S&P 500 Index and
3-Month T-Bill Index
[CHART]
Multi-Strategy Multi-Strategy
Market Neutral Market Neutral
Investments* Investments S&P 500 3-Month
(With Trak Fee) (Without Trak Fee) Index T-Bill Index
--------------- ------------------ ---------- ------------
5/10/99 10,000 10,000 10,000 10,000
3/00 10,655 10,798 11,304 10,462
3/01 11,197 11,519 8,855 11,069
3/02 11,604 12,119 8,877 11,360
3/03 11,786 12,495 6,680 11,525
3/31/04 11,881 12,787 9,018 11,637
The S&P 500 Index is an index composed of 500 widely held common stocks listed
on the New York Stock Exchange, American Stock Exchange and over-the-counter
market. Because the index is not a managed portfolio, there are no advisory
fees or internal management expenses reflected in the index's performance. The
3-Month T-Bill Index is composed of one 3-Month U.S. T-Bill whose return is
tracked until its maturity. An investor cannot invest directly in an index.
It is the opinion of management that the 3-Month U.S. T-Bill Index more
accurately reflects the current composition of the Fund than the S&P 500 Index.
In future reporting, the 3-Month U.S. T-Bill Index will be used as a basis of
comparison of total return performance rather than the S&P 500 Index.
The performance shown above represents past performance. Past performance is no
guarantee of future results and current performance may be higher or lower than
the performance shown above. Principal value and investment returns will
fluctuate and investors' shares, when redeemed may be worth more or less than
their original cost. To obtain performance data current to the most recent
month-end, please visit our website at www.smithbarney.com. The returns shown
do not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
Average Annual Total Returns For the Period Ended March 31, 2004+++
Multi-Strategy Market Neutral
Investments Without TRAK Fee With TRAK Fee*
- ---------------------------------------------------------------
Since inception (5/10/99) 5.15% 3.59%
3 Year 3.54 2.00
1 Year 2.33 0.81
- -------------------------------------------------------------
* The Fund is available only to investors participating in an advisory program.
These programs charge an annual fee, which in the case of TRAK(R) may be up
to 1.50%.
+ Assumes the reinvestment of all distributions.
++The returns shown do not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
4
Schedule of Investments
March 31, 2004
Shares Security Value
- ------------------------------------------------------------------------
COMMON STOCK (a) -- 49.3%
Aerospace and Defense -- 1.0%
2,000 Alliant Techsystems Inc. (b).................... $ 108,800
5,675 Empresa Brasileira de Aeronautica S.A., ADR..... 182,167
2,200 Goodrich Corp................................... 61,754
7,200 L-3 Communications Holdings, Inc................ 428,256
800 Northrop Grumman Corp........................... 78,736
1,800 Precision Castparts Corp........................ 79,254
7,260 Rockwell Collins, Inc........................... 229,489
8,700 United Defense Industries, Inc. (b)............. 276,573
3,100 United Technologies Corp........................ 267,530
-------------
1,712,559
-------------
Air Freight and Couriers -- 0.2%
3,100 FedEx Corp...................................... 232,996
2,300 Ryder System, Inc............................... 89,079
-------------
322,075
-------------
Airlines -- 0.1%
9,000 Continental Airlines, Inc., Class B Shares (b).. 112,770
9,550 Mesa Air Group, Inc. (b)........................ 78,883
-------------
191,653
-------------
Auto Components -- 0.6%
7,510 American Axle & Manufacturing Holdings, Inc.
(b).................................................. 276,743
2,300 ArvinMeritor, Inc............................... 45,609
15,400 Autoliv, Inc.................................... 631,400
5,725 Dana Corp....................................... 113,698
-------------
1,067,450
-------------
Automobiles -- 0.3%
7,000 Ford Motor Co................................... 94,990
4,500 General Motors Corp............................. 211,950
5,370 Winnebago Industries, Inc....................... 167,383
-------------
474,323
-------------
Banks -- 4.6%
1,600 Bank of America Corp............................ 129,568
2,425 Bank of Hawaii Corp............................. 112,350
1,000 CCBT Financial Cos., Inc........................ 36,900
2,825 City National Corp.............................. 169,217
4,086 CNB Florida Bancshares, Inc..................... 101,047
3,700 The Colonial BancGroup, Inc..................... 68,450
5,100 Cullen/Frost Bankers, Inc....................... 218,076
1,800 Fifth Third Bancorp............................. 99,666
10,500 First Tennessee National Corp................... 500,850
20,900 FleetBoston Financial Corp. (c)................. 938,410
24,000 Franklin Financial Corp......................... 757,440
2,050 GreenPoint Financial Corp....................... 89,605
5,450 Hudson City Bancorp, Inc........................ 206,228
16,370 Independence Community Bank Corp................ 667,077
3,850 Mellon Financial Corp........................... 120,466
3,700 National City Corp.............................. 131,646
17,575 National Commerce Financial Corp................ 502,821
10,554 New York Community Bancorp, Inc................. 361,791
See Notes to Financial Statements.
5
Schedule of Investments
(continued)
Shares Security Value
- -------------------------------------------------------------------------
Banks -- 4.6% (continued)
4,715 North Fork Bancorp., Inc.......................... $ 199,539
3,500 PNC Financial Services Group...................... 193,970
5,500 Popular, Inc...................................... 237,050
10,350 Provident Financial Services, Inc................. 193,442
15,224 Resource Bankshares Corp.......................... 496,302
1 The South Financial Group, Inc.................... 30
5,272 Southern Financial Bancorp, Inc................... 235,131
7,635 Sovereign Bancorp, Inc............................ 163,542
12,227 Staten Island Bancorp, Inc........................ 304,208
12,100 U.S. Bancorp...................................... 334,565
4,600 Wachovia Corp..................................... 216,200
2,000 Wells Fargo & Co.................................. 113,340
6,305 Zions Bancorp..................................... 360,646
------------
8,259,573
------------
Beverages -- 0.5%
3,950 Anheuser-Busch Cos., Inc.......................... 201,450
13,200 Coca-Cola Enterprises Inc......................... 319,044
4,700 PepsiAmericas, Inc................................ 95,974
8,475 The Pepsi Bottling Group, Inc..................... 252,131
------------
868,599
------------
Biotechnology -- 0.2%
1,500 Charles River Laboratories International, Inc.
(b).................................................... 64,275
200 Genentech, Inc. (b)............................... 21,164
1,700 Gen-Probe Inc. (b)................................ 56,797
14,800 Human Genome Sciences, Inc. (b)................... 185,444
1,300 ImClone Systems Inc. (b).......................... 66,118
2,300 Protein Design Labs, Inc. (b)..................... 54,786
------------
448,584
------------
Building Products -- 0.3%
2,150 American Standard Cos. Inc. (b)................... 244,563
3,700 Masco Corp........................................ 112,628
3,850 York International Corp........................... 151,344
------------
508,535
------------
Chemicals -- 0.8%
2,600 Airgas, Inc....................................... 55,380
1,900 Cytec Industries Inc.............................. 67,583
5,300 The Dow Chemical Co............................... 213,484
7,660 Hercules Inc. (b)................................. 87,937
2,000 Monsanto Co....................................... 73,340
4,250 PPG Industries, Inc............................... 247,775
2,795 The Scotts Co., Class A Shares (b)................ 179,299
8,000 Sigma-Aldrich Corp................................ 442,720
------------
1,367,518
------------
Commercial Services and Supplies -- 0.9%
100 Alliance Data Systems Corp. (b)................... 3,355
6,550 ARAMARK Corp., Class B Shares..................... 179,535
15,455 Cendant Corp...................................... 376,947
4,000 Convergys Corp. (b)............................... 60,800
1,500 Deluxe Corp....................................... 60,150
See Notes to Financial Statements.
6
Schedule of Investments
(continued)
Shares Security Value
- -----------------------------------------------------------------
Commercial Services and Supplies -- 0.9% (continued)
2,400 R.R. Donnelley & Sons Co.............. $ 72,600
6,830 Tetra Tech, Inc. (b).................. 146,572
2,800 University of Phoenix Online (b)...... 243,656
2,900 Viad Corp............................. 70,093
8,800 Waste Management, Inc................. 265,584
2,500 West Corp. (b)........................ 62,250
------------
1,541,542
------------
Communications Equipment -- 1.0%
2,400 ADTRAN, Inc........................... 72,072
5,830 Avocent Corp. (b)..................... 214,486
15,400 Corning Inc. (b)...................... 172,172
3,400 Harris Corp........................... 164,594
35,200 Lucent Technologies Inc. (b).......... 144,672
10,075 Nokia Oyj, Sponsored ADR.............. 204,321
12,450 Polycom, Inc. (b)..................... 264,313
6,800 QUALCOMM Inc.......................... 451,656
2,200 Scientific-Atlanta, Inc............... 71,148
------------
1,759,434
------------
Computers and Peripherals -- 0.5%
3,850 Avid Technology, Inc. (b)............. 177,600
17,775 Quantum Corp. (b)..................... 65,767
9,600 SanDisk Corp. (b)..................... 272,352
7,675 Storage Technology Corp. (b).......... 213,595
5,440 Synaptics Inc. (b).................... 95,418
6,300 Western Digital Corp. (b)............. 70,749
------------
895,481
------------
Construction and Engineering -- 0.1%
5,100 Jacobs Engineering Group Inc. (b)..... 227,460
4,200 McDermott International, Inc. (b)..... 35,238
------------
262,698
------------
Construction Materials -- 0.0%
39 Eagle Materials Inc................... 2,295
134 Eagle Materials Inc., Class B Shares.. 7,826
------------
10,121
------------
Containers and Packaging -- 0.5%
1,700 AptarGroup, Inc....................... 65,280
3,180 Ball Corp............................. 215,540
5,800 Bemis Co., Inc........................ 150,800
3,900 Owens-Illinois, Inc. (b).............. 48,516
11,860 Pactiv Corp. (b)...................... 263,885
1,300 Temple-Inland Inc..................... 82,342
------------
826,363
------------
Diversified Financials -- 2.1%
4,900 A.G. Edwards, Inc..................... 191,688
14,425 Ameritrade Holding Corp. (b).......... 222,145
5,300 The Bear Stearns Cos., Inc............ 464,704
1,700 Capital One Financial Corp............ 128,231
2,000 CIT Group Inc......................... 76,100
See Notes to Financial Statements.
7
Schedule of Investments
(continued)
Shares Security Value
- -----------------------------------------------------------------------------
Diversified Financials -- 2.1% (continued)
1,333 Countrywide Financial Corp............................ $ 127,835
11,900 Doral Financial Corp.................................. 418,880
6,300 E*TRADE Financial Corp. (b)........................... 84,105
3,200 Friedman, Billings, Ramsey Group, Inc., Class A
Shares..................................................... 86,368
2,400 IndyMac Bancorp, Inc.................................. 87,096
8,925 J.P. Morgan Chase & Co................................ 374,404
3,600 Lehman Brothers Holdings Inc.......................... 298,332
14,175 MBNA Corp............................................. 391,655
2,400 Merrill Lynch & Co., Inc.............................. 142,944
1,200 New Century Financial Corp............................ 58,272
7 NTL Inc. (b).......................................... 394
2,200 Principal Financial Group, Inc........................ 78,386
10,865 Providian Financial Corp. (b)......................... 142,332
4,525 State Street Corp..................................... 235,888
1,700 WFS Financial Inc. (b)................................ 73,644
------------
3,683,403
------------
Diversified Telecommunication Services -- 0.2%
4,500 AT&T Corp............................................. 88,065
2,100 BellSouth Corp........................................ 58,149
300 CenturyTel, Inc....................................... 8,247
6,575 PTEK Holdings, Inc. (b)............................... 60,424
700 SpectraSite, Inc. (b)................................. 25,970
6,500 Sprint Corp. -- FON Group............................. 119,795
------------
360,650
------------
Electric Utilities -- 1.6%
7,400 The AES Corp. (b)..................................... 63,122
6,200 CenterPoint Energy, Inc............................... 70,866
4,495 Constellation Energy Group............................ 179,575
23,800 DPL Inc............................................... 446,250
12,000 Edison International.................................. 291,480
4,000 Entergy Corp.......................................... 238,000
1,950 Exelon Corp........................................... 134,298
10,500 Great Plains Energy Inc............................... 354,795
21,100 Northeast Utilities................................... 393,515
10,040 PG&E Corp. (b)........................................ 290,859
200 Pinnacle West Capital Corp............................ 7,870
200 Texas Genco Holdings, Inc............................. 7,150
2,300 TXU Corp.............................................. 65,918
6,150 Wisconsin Energy Corp................................. 197,722
3,900 Xcel Energy, Inc...................................... 69,459
------------
2,810,879
------------
Electrical Equipment -- 0.6%
5,870 Emerson Electric Co................................... 351,730
10,900 Energizer Holdings, Inc. (b).......................... 508,921
6,675 Rockwell Automation, Inc.............................. 231,422
------------
1,092,073
------------
Electronic Equipment and Instruments -- 1.6%
7,925 Agilent Technologies, Inc. (b)........................ 250,668
8,140 Amphenol Corp., Class A Shares (b).................... 241,758
10,700 Arrow Electronics, Inc. (b)........................... 272,422
See Notes to Financial Statements.
8
Schedule of Investments
(continued)
Shares Security Value
- ---------------------------------------------------------------------
Electronic Equipment and Instruments -- 1.6% (continued)
3,500 Avnet, Inc. (b)............................ $ 85,715
5,700 AVX Corp................................... 93,993
2,500 Benchmark Electronics, Inc. (b)............ 78,700
4,400 Broadcom Corp., Class A Shares (b)......... 172,348
5,495 Global Imaging Systems, Inc. (b)........... 182,544
23,700 Ingram Micro Inc., Class A Shares (b)...... 428,970
14,600 PerkinElmer, Inc........................... 302,074
18,700 Sanmina-SCI Corp. (b)...................... 205,887
2,965 ScanSource, Inc. (b)....................... 142,142
15,175 Symbol Technologies, Inc................... 209,415
4,075 Thermo Electron Corp. (b).................. 115,241
------------
2,781,877
------------
Energy Equipment and Services -- 1.1%
8,950 ENSCO International Inc.................... 252,121
20,705 FMC Technologies, Inc. (b)................. 559,656
8,200 Halliburton Co............................. 249,198
8,925 Maverick Tube Corp. (b).................... 210,184
4,300 Patterson-UTI Energy, Inc. (b)............. 152,263
5,775 Schlumberger Ltd........................... 368,734
5,525 Transocean Inc. (b)........................ 154,092
------------
1,946,248
------------
Food and Drug Retailing -- 0.4%
3,600 7-Eleven, Inc. (b)......................... 54,612
7,630 CVS Corp................................... 269,339
5,025 NeighborCare, Inc. (b)..................... 121,856
9,975 SUPERVALU INC.............................. 304,637
1,700 Winn-Dixie Stores, Inc..................... 12,920
------------
763,364
------------
Food Products -- 0.6%
6,550 Chiquita Brands International, Inc. (b).... 136,568
4,425 General Mills, Inc......................... 206,559
5,425 H.J. Heinz Co.............................. 202,298
2,350 Hershey Foods Corp......................... 194,697
6,575 Kellogg Co................................. 258,003
5,765 SunOpta Inc. (b)........................... 57,016
5,100 Tyson Foods, Inc., Class A Shares.......... 92,055
------------
1,147,196
------------
Gas Utilities -- 1.0%
4,450 Kinder Morgan, Inc......................... 280,439
18,450 MDU Resources Group, Inc................... 433,390
2,300 National Fuel Gas Co....................... 56,580
10,230 ONEOK, Inc................................. 230,686
8,750 Sempra Energy.............................. 278,250
13,190 Southwestern Energy Co. (b)................ 318,143
4,300 WGL Holdings Inc........................... 129,430
------------
1,726,918
------------
Healthcare Equipment and Supplies -- 0.9%
2,100 Apogent Technologies Inc. (b).............. 64,428
12,600 Applera Corp. -- Applied Biosystems Group.. 249,228
See Notes to Financial Statements.
9
Schedule of Investments
(continued)
Shares Security Value
- ------------------------------------------------------------------------------
Healthcare Equipment and Supplies -- 0.9% (continued)
1,000 Bausch & Lomb Inc................................. $ 59,970
4,225 Beckman Coulter, Inc.............................. 230,431
4,060 Bio-Rad Laboratories, Inc., Class A Shares (b).... 228,862
10,200 Cytyc Corp. (b)................................... 226,950
6,050 Medtronic, Inc.................................... 288,887
1,200 Millipore Corp. (b)............................... 61,656
1,800 Varian Medical Systems, Inc. (b).................. 155,358
------------
1,565,770
------------
Healthcare Providers and Services -- 1.7%
2,200 Apria Healthcare Group Inc. (b)................... 65,868
2,225 CIGNA Corp........................................ 131,320
10,100 Community Health Systems Inc. (b)................. 281,083
10,400 Coventry Health Care, Inc. (b).................... 440,232
2,000 DaVita, Inc. (b).................................. 95,500
5,400 Health Net Inc. (b)............................... 134,622
2,600 Henry Schein, Inc. (b)............................ 185,692
20,700 Humana Inc. (b)................................... 393,714
16,300 McKesson Corp..................................... 490,467
8,950 Omnicell, Inc. (b)................................ 177,300
2,300 PacifiCare Health Systems, Inc. (b)............... 90,965
10,960 Select Medical Corp............................... 183,032
8,000 Service Corp. International (b)................... 59,760
4,375 United Surgical Partners International, Inc. (b).. 148,488
3,900 Universal Health Services, Inc., Class B Shares... 179,673
------------
3,057,716
------------
Hotels, Restaurants and Leisure -- 1.3%
12,000 Caesars Entertainment, Inc. (b).................... 156,480
3,400 Carnival Corp...................................... 152,694
17,975 CBRL Group, Inc.................................... 712,529
1,600 Cedar Fair, L.P.................................... 55,952
4,800 Mandalay Resort Group.............................. 274,848
3,700 Marriott International, Inc., Class A Shares....... 157,435
12,250 McDonald's Corp.................................... 349,983
800 Ruby Tuesday, Inc.................................. 25,720
6,325 Sunterra Corp. (b)................................. 85,641
14,390 Triarc Cos., Inc., Class A Shares.................. 157,427
5,775 Wendy's International, Inc......................... 234,985
------------
2,363,694
------------
Household Durables -- 2.3%
13,150 The Black & Decker Corp............................ 748,761
4,300 Centex Corp........................................ 232,458
17,150 D.R. Horton, Inc................................... 607,624
96,525 Fleetwood Enterprises, Inc. (b).................... 1,185,327
5,400 Fortune Brands, Inc................................ 413,802
1,200 KB HOME............................................ 96,960
10,900 La-Z-Boy Inc....................................... 237,184
900 M.D.C. Holdings, Inc............................... 63,360
100 NVR, Inc. (b)...................................... 46,000
900 The Ryland Group, Inc.............................. 79,947
4,100 The Stanley Works.................................. 174,988
3,800 Whirlpool Corp..................................... 261,706
------------
4,148,117
------------
See Notes to Financial Statements.
10
Schedule of Investments
(continued)
Shares Security Value
- -----------------------------------------------------------------------------
Household Products -- 0.1%
1,600 Kimberly-Clark Corp................................... $ 100,960
------------
Industrial Conglomerates -- 0.2%
1,300 Carlisle Cos. Inc..................................... 73,645
5,490 Textron Inc........................................... 291,794
------------
365,439
------------
Information Technology Consulting and Services -- 0.1%
1,300 Affiliated Computer Services, Inc., Class A Shares
(b)........................................................ 67,470
2,000 Computer Sciences Corp. (b)........................... 80,660
4,500 Unisys Corp. (b)...................................... 64,260
------------
212,390
------------
Insurance -- 2.7%
2,000 ACE Ltd............................................... 85,320
4,400 AFLAC INC............................................. 176,616
3,950 The Allstate Corp..................................... 179,567
2,600 American Financial Group, Inc......................... 77,558
1,400 The Chubb Corp........................................ 97,356
3,600 Cincinnati Financial Corp............................. 156,420
2,700 Conseco, Inc. (b)..................................... 62,532
15,418 Cotton States Life Insurance Co....................... 309,131
2,360 Everest Re Group, Ltd................................. 201,638
14,802 Fidelity National Financial, Inc...................... 586,159
17,700 First American Corp................................... 538,434
2,200 Fremont General Corp.................................. 67,320
2,500 The Hartford Financial Services Group, Inc............ 159,250
2,400 HealthExtras, Inc. (b)................................ 27,552
6,030 Infinity Property & Casualty Corp..................... 189,523
16,266 John Hancock Financial Services, Inc.................. 710,662
4,100 MetLife, Inc.......................................... 146,288
2,000 Nationwide Financial Services, Inc., Class A Shares... 72,100
2,800 Odyssey Re Holdings Corp.............................. 75,600
3,000 Old Republic International Corp....................... 73,680
1,800 The Progressive Corp.................................. 157,680
9,000 Protective Life Corp.................................. 337,050
4,060 Prudential Financial, Inc............................. 181,807
1,950 W. R. Berkley Corp.................................... 77,766
3,500 Willis Group Holdings Ltd............................. 130,200
------------
4,877,209
------------
Internet and Catalog Retail -- 0.1%
4,735 InterActiveCorp (b)................................... 149,579
------------
Internet Software and Services -- 0.3%
4,000 Akamai Technologies, Inc. (b)......................... 52,560
13,725 Digitas Inc. (b)...................................... 141,230
14,700 DoubleClick Inc. (b).................................. 165,375
10,400 Openwave Systems Inc. (b)............................. 138,736
------------
497,901
------------
Leisure Equipment and Products -- 0.3%
6,100 Brunswick Corp........................................ 249,063
4,050 Marvel Enterprises, Inc. (b).......................... 77,720
7,925 Mattel, Inc........................................... 146,137
------------
472,920
------------
See Notes to Financial Statements.
11
Schedule of Investments
(continued)
Shares Security Value
- ----------------------------------------------------------------------------------------
Machinery -- 1.7%
18,210 AGCO Corp. (b)................................................... $ 377,129
3,275 Briggs & Stratton Corp........................................... 220,964
1,450 CNH Global N.V................................................... 27,144
1,200 Cummins Inc...................................................... 70,140
4,075 Danaher Corp..................................................... 380,483
5,395 Deere & Co....................................................... 373,927
5,400 Eaton Corp....................................................... 303,426
4,410 Ingersoll-Rand Co., Class A Shares............................... 298,337
3,200 Oshkosh Truck Corp............................................... 178,240
5,117 PACCAR Inc....................................................... 287,780
4,750 Parker Hannifin Corp............................................. 268,375
3,825 Terex Corp. (b).................................................. 141,410
7,125 UNOVA, Inc. (b).................................................. 153,971
------------
3,081,326
------------
Marine -- 0.1%
4,500 Overseas Shipholding Group, Inc.................................. 164,250
------------
Media -- 1.3%
5,600 Belo Corp., Class A Shares....................................... 155,456
4,800 EchoStar Communications Corp., Class A Shares (b)................ 157,200
10,400 Fox Entertainment Group, Inc., Class A Shares (b)................ 281,840
800 Hearst-Argyle Television, Inc.................................... 21,512
2,300 John Wiley & Sons, Inc., Class A Shares.......................... 68,839
19,060 Liberty Media Corp., Class A Shares (b).......................... 208,707
10,346 Metro-Goldwyn-Mayer Inc. (b)..................................... 180,020
8,600 The News Corp. Ltd., Sponsored ADR............................... 309,428
25,085 Time Warner Inc. (b)............................................. 422,933
11,088 UnitedGlobalCom, Inc., Class A Shares (b)........................ 94,137
8,335 Viacom Inc., Class B Shares...................................... 326,815
1,100 The Walt Disney Co............................................... 27,489
4,600 XM Satellite Radio Holdings Inc., Class A Shares (b)............. 128,800
------------
2,383,176
------------
Metals and Mining -- 0.6%
3,800 Alcoa Inc........................................................ 131,822
8,335 Inco Ltd. (b).................................................... 288,641
4,525 Newmont Mining Corp.............................................. 211,001
3,975 Peabody Energy Corp.............................................. 184,877
3,545 POSCO, ADR....................................................... 125,458
1,600 Southern Peru Copper Corp........................................ 64,720
1,700 United States Steel Corp......................................... 63,359
------------
1,069,878
------------
Multi-Line Retail -- 1.1%
7,600 BJ's Wholesale Club, Inc. (b).................................... 193,420
9,050 Dollar General Corp.............................................. 173,760
10,190 Federated Department Stores, Inc................................. 550,770
2,300 The May Department Stores Co..................................... 79,534
4,400 Nordstrom, Inc................................................... 175,560
23,400 Saks Inc. (b).................................................... 411,840
7,600 Sears, Roebuck and Co............................................ 326,496
5,475 ShopKo Stores, Inc. (b).......................................... 80,045
------------
1,991,425
------------
See Notes to Financial Statements.
12
Schedule of Investments
(continued)
Shares Security Value
- ------------------------------------------------------------------
Multi-Utilities -- 0.3%
12,100 Dynegy Inc., Class A Shares (b)............ $ 47,916
15,000 NiSource Inc............................... 318,750
3,200 Questar Corp............................... 116,608
10,850 The Williams Cos., Inc..................... 103,835
------------
587,109
------------
Office Electronics -- 0.2%
21,900 IKON Office Solutions, Inc................. 280,320
10,425 Xerox Corp. (b)............................ 151,892
------------
432,212
------------
Oil and Gas -- 2.8%
600 Amerada Hess Corp.......................... 39,168
13,640 Anadarko Petroleum Corp.................... 707,370
3,200 Burlington Resources Inc................... 203,616
38,700 Chesapeake Energy Corp..................... 518,580
3,100 ChevronTexaco Corp......................... 272,118
5,895 ConocoPhillips............................. 411,530
1,400 Devon Energy Corp.......................... 81,410
2,400 Exxon Mobil Corp........................... 99,816
2,900 Frontline Ltd.............................. 83,665
5,600 Kerr-McGee Corp............................ 288,400
11,375 Magnum Hunter Resources, Inc. (b).......... 115,343
20,400 Marathon Oil Corp.......................... 686,868
3,925 Newfield Exploration Co. (b)............... 188,125
6,490 Occidental Petroleum Corp.................. 298,865
8,800 Patina Oil & Gas Corp...................... 231,000
3,260 Pioneer Natural Resources Co............... 105,298
5,475 Pogo Producing Co.......................... 251,138
4,750 Spinnaker Exploration Co. (b).............. 170,620
1,500 Sunoco, Inc................................ 93,570
1,600 Valero Energy Corp......................... 95,936
------------
4,942,436
------------
Paper and Forest Products -- 0.8%
7,200 Boise Cascade Corp......................... 249,480
7,900 Georgia-Pacific Corp....................... 266,151
19,000 Louisiana-Pacific Corp..................... 490,200
4,200 MeadWestvaco Corp.......................... 118,818
1,992 Rayonier Inc............................... 87,070
2,100 Weyerhaeuser Co............................ 137,550
------------
1,349,269
------------
Personal Products -- 0.1%
5,045 The Estee Lauder Cos., Inc., Class A
Shares ......................................... 223,695
1,500 Nu Skin Enterprises, Inc., Class A Shares.. 30,225
------------
253,920
------------
Pharmaceuticals -- 1.4%
8,725 Abbott Laboratories........................ 358,598
2,100 Andrx Corp. (b)............................ 57,120
19,400 Bristol-Myers Squibb Co.................... 470,062
3,800 Endo Pharmaceuticals Holdings Inc. (b)..... 92,796
2,700 IVAX Corp. (b)............................. 61,479
See Notes to Financial Statements.
13
Schedule of Investments
(continued)
Shares Security Value
- ---------------------------------------------------------------
Pharmaceuticals -- 1.4% (continued)
5,675 Johnson & Johnson....................... $ 287,836
8,600 Medco Health Solutions, Inc. (b)........ 292,400
1,000 MGI Pharma, Inc. (b).................... 61,260
2,700 Mylan Laboratories Inc.................. 61,371
16,700 Perrigo Co.............................. 334,835
9,125 Valeant Pharmaceuticals International... 217,814
5,400 Watson Pharmaceuticals, Inc. (b)........ 231,066
------------
2,526,637
------------
Real Estate -- 0.8%
11,380 American Financial Realty Trust......... 192,891
3,700 Annaly Mortgage Management Inc.......... 72,335
2,100 Boston Properties, Inc.................. 114,051
1,400 CBL & Associates Properties, Inc........ 85,876
1,600 Cousins Properties, Inc................. 52,464
5,255 General Growth Properties, Inc.......... 184,713
1,400 Hospitality Properties Trust............ 64,960
2,000 iStar Financial Inc..................... 84,600
2,200 The Rouse Co............................ 117,920
6,225 Taubman Centers, Inc.................... 156,683
2,500 Thornburg Mortgage, Inc................. 77,750
3,700 Trizec Properties, Inc.................. 63,455
2,900 Ventas, Inc............................. 79,692
------------
1,347,390
------------
Road and Rail -- 0.4%
2,400 Burlington Northern Santa Fe Corp....... 75,600
9,950 J.B. Hunt Transport Services, Inc. (b).. 280,292
4,300 Norfolk Southern Corp................... 94,987
2,900 Swift Transportation Co., Inc. (b)...... 49,793
4,080 Yellow Roadway Corp. (b)................ 137,374
------------
638,046
------------
Semiconductor Equipment and Products -- 1.5%
7,125 Altera Corp. (b)........................ 145,706
3,500 Amkor Technology, Inc. (b).............. 51,205
11,100 Applied Materials, Inc. (b)............. 237,318
9,900 Atmel Corp. (b)......................... 64,350
9,700 Conexant Systems, Inc. (b).............. 59,752
11,600 Cypress Semiconductor Corp. (b)......... 237,452
5,600 Intel Corp.............................. 152,320
9,700 Maxim Integrated Products, Inc.......... 456,773
10,400 MEMC Electronic Materials, Inc. (b)..... 95,160
12,650 National Semiconductor Corp. (b)........ 562,040
7,900 ON Semiconductor Corp. (b).............. 59,566
4,200 QLogic Corp. (b)........................ 138,642
18,800 RF Micro Devices, Inc. (b).............. 159,048
6,450 Texas Instruments Inc................... 188,469
------------
2,607,801
------------
Software -- 0.6%
18,000 Activision, Inc. (b).................... 284,760
9,700 Citrix Systems, Inc. (b)................ 209,714
3,900 Electronic Arts Inc. (b)................ 210,444
See Notes to Financial Statements.
14
Schedule of Investments
(continued)
Shares Security Value
- ------------------------------------------------------------------------------------
Software -- 0.6% (continued)
1,100 Jack Henry & Associates, Inc................................ $ 21,186
5,100 SAP AG, Sponsored ADR....................................... 200,481
1,500 Take-Two Interactive Software, Inc. (b)..................... 55,170
6,800 Transaction Systems Architects, Inc., Class A Shares (b).... 157,352
-------------
1,139,107
-------------
Specialty Retail -- 2.9%
2,500 Advance Auto Parts, Inc. (b)................................ 101,675
5,195 Aeropostale, Inc. (b)....................................... 188,371
2,700 AnnTaylor Stores Corp. (b).................................. 115,560
21,100 AutoNation, Inc. (b)........................................ 359,755
2,150 AutoZone, Inc. (b).......................................... 184,835
8,000 Barnes & Noble, Inc. (b).................................... 260,800
5,170 Best Buy Co., Inc........................................... 267,392
3,600 Blockbuster Inc., Class A Shares............................ 63,000
3,400 Borders Group, Inc.......................................... 80,716
11,025 Claire's Stores, Inc........................................ 229,761
14,800 Foot Locker, Inc............................................ 381,840
8,725 The Gap, Inc................................................ 191,252
12,300 The Home Depot, Inc......................................... 459,528
4,030 Hughes Supply, Inc.......................................... 211,172
12,300 Limited Brands.............................................. 246,000
3,160 Michaels Stores, Inc........................................ 153,639
8,807 Pacific Sunwear of California, Inc. (b)..................... 216,124
5,700 PETCO Animal Supplies, Inc. (b)............................. 160,626
2,700 Pier 1 Imports, Inc......................................... 63,990
6,090 Regis Corp.................................................. 270,640
10,400 Rent-A-Center, Inc. (b)..................................... 343,096
15,000 The Sherwin-Williams Co..................................... 576,450
5,500 Toys "R" Us, Inc. (b)....................................... 92,400
2,600 United Rentals, Inc. (b).................................... 46,202
-------------
5,264,824
-------------
Textiles and Apparel -- 0.5%
4,250 Liz Claiborne, Inc.......................................... 155,932
8,475 Maxwell Shoe Co. Inc., Class A Shares (b)................... 190,772
9,000 Reebok International Ltd.................................... 372,150
1,000 The Timberland Co., Class A Shares (b)...................... 59,450
7,555 Tommy Hilfiger Corp. (b).................................... 128,435
-------------
906,739
-------------
Tobacco -- 0.1%
2,600 Altria Group, Inc........................................... 141,570
-------------
Wireless Telecommunication Services -- 1.3%
77,170 AT&T Wireless Services Inc. (b)............................. 1,050,284
29,775 Nextel Communications, Inc., Class A Shares (b)............. 736,336
2,700 NII Holdings Inc., Class B Shares (b)....................... 94,581
16,300 PanAmSat Corp. (b).......................................... 399,024
-------------
2,280,225
-------------
TOTAL COMMON STOCK (Cost -- $77,261,257).................... 87,748,151
-------------
See Notes to Financial Statements.
15
Schedule of Investments
(continued)
Shares Security Value
- ----------------------------------------------------------------------------------------
ESCROW SHARES (b) -- 0.0%
8,283 Seagate Technology, Inc. (Cost -- $0)........................... $ 0
------------
PREFERRED STOCK (a) -- 8.0%
Aerospace/Defense -- 0.9%
12,400 Northrop Grumman Corp., 7.000% Exchangeable 4/4/21.............. 1,602,700
------------
Auto Manufacturers -- 2.7%
42,800 Ford Motor Co., Capital Trust II, 6.500% Exchangeable 1/15/32... 2,270,540
82,000 General Motors Corp., 6.250% Exchangeable 7/15/33............... 2,510,020
------------
4,780,560
------------
Banks -- 1.3%
58,300 National Australia Bank Ltd., 7.875% Exchangeable 12/31/49...... 2,291,190
------------
Healthcare Products -- 0.7%
24,000 Baxter International Inc., 7.000% Exchangeable 2/16/06.......... 1,296,000
------------
Home Builders -- 0.3%
25,000 Fleetwood Capital Trust II, 9.500% Exchangeable 2/15/13......... 600,000
------------
Insurance -- 0.4%
19,500 Phoenix Cos., Inc., 7.000% Exchangeable 11/13/05................ 737,353
------------
Internet -- 0.2%
4,700 Indymac Capital Trust I, 6.000% Exchangeable 11/14/31........... 296,429
------------
Machinery -- Diversified -- 0.5%
13,200 Cummins Capital Trust I, 7.000% Exchangeable 6/15/31............ 919,050
------------
Office/Business Equipment -- 0.9%
20,000 Xerox Corp., 7.500% Exchangeable 11/27/21 (d)................... 1,667,500
------------
Oil and Gas -- 0.1%
1,700 Chesapeake Energy Corp., 5.000% Exchangeable 12/31/49........... 188,063
------------
TOTAL PREFERRED STOCK
(Cost -- $12,560,698)........................................... 14,378,845
------------
Face
Amount
- -----------
CORPORATE CONVERTIBLE BONDS AND NOTES (a) -- 31.0%
Advertising -- 2.2%
$1,000,000 Interpublic Group of Cos., Inc., Sr. Notes, 4.500% due 3/15/23.. 1,518,750
1,200,000 Lamar Advertising Co., Sr. Notes, 2.875% due 12/31/10........... 1,305,000
Omnicom Group, Sr. Notes:
500,000 Zero coupon due 6/15/33....................................... 511,875
500,000 Zero coupon due 6/15/33 (d)................................... 511,875
------------
3,847,500
------------
Aerospace/Defense -- 1.0%
400,000 Alliant Techsystems Inc., Sr. Sub. Notes, 2.750% due 2/15/24 (d) 408,000
1,200,000 Edo Corp., Sub. Notes, 5.250% due 4/15/07....................... 1,302,000
------------
1,710,000
------------
Airlines -- 1.3%
400,000 American Airlines Inc., Sr. Notes, 4.250% due 9/23/23 (d)....... 398,000
800,000 AMR Corp., Notes, 4.500% due 2/15/24............................ 712,000
See Notes to Financial Statements.
16
Schedule of Investments
(continued)
Face
Amount Security Value
- -----------------------------------------------------------------------------------------------
Airlines -- 1.3% (continued)
$ 460,000 Atlantic Coast Airlines Holdings Inc., Bonds, 6.000% due 2/15/34 (d) $ 444,475
700,000 ExpressJet Holdings Inc., 4.250% due 8/1/23.......................... 727,125
------------
2,281,600
------------
Apparel -- 0.3%
550,000 Reebok International Ltd., Debentures, 4.250% due 3/1/21............. 587,125
------------
Biotechnology -- 3.5%
900,000 Affymetrix Inc., Sr. Notes, 0.750% due 12/15/33 (d).................. 1,158,750
900,000 Celgene Corp., Sr. Notes, 1.750% due 6/1/08.......................... 1,087,875
1,250,000 ICOS Corp., Sub. Notes, 2.000% due 7/1/23............................ 1,184,375
Invitrogen Corp., Sr. Notes:
500,000 2.000% due 8/1/23.................................................. 642,500
500,000 2.000% due 8/1/23 (d).............................................. 642,500
850,000 1.500% due 2/15/24 (d)............................................. 831,937
450,000 Protein Design Labs Inc., Sub. Notes, 2.750% due 8/16/23 (d)......... 637,875
------------
6,185,812
------------
Commercial Services -- 0.5%
800,000 Kroll Inc., Sub. Notes, 1.750% due 1/15/14 (d)....................... 847,000
------------
Computers -- 3.1%
1,000,000 Cadence Design Systems Inc., Sr. Notes, zero coupon due 8/15/23 (d).. 1,137,500
1,180,000 Ciber Inc., Sr. Sub. Debentures, 2.875% due 12/15/23 (d)............. 1,318,650
1,000,000 DST Systems Inc., Debentures, 4.125% due 8/15/23 (d)................. 1,263,750
770,000 Electronics for Imaging, Sr. Notes, 1.500% due 6/1/23 (d)............ 871,063
900,000 Radisys Corp., Sub. Notes, 1.375% due 11/15/23 (d)................... 1,017,000
------------
5,607,963
------------
Electric -- 0.6%
1,000,000 Duke Energy Corp., Bonds, 1.750% due 5/15/23......................... 1,081,250
------------
Electronics -- 2.1%
1,200,000 Agilent Technologies Inc., Debentures, 3.000% due 12/1/21............ 1,362,000
1,150,000 Flextronics International Ltd., Notes, 1.000% due 8/1/10............. 1,543,875
700,000 Flir Systems Inc., Sr. Notes, 3.000% due 6/1/23...................... 825,125
------------
3,731,000
------------
Healthcare-Products -- 0.4%
450,000 Advanced Medical Optics Inc., 3.500% due 4/15/23..................... 633,375
------------
Insurance -- 1.3%
1,500,000 AmerUs Group Co., Bonds, 2.000% due 3/6/32........................... 1,828,125
Odyssey Re Holdings Corp., Debentures:
100,000 4.375% due 6/15/22................................................. 134,250
300,000 4.375% due 6/15/22 (d)............................................. 402,750
------------
2,365,125
------------
Internet -- 0.6%
350,000 Equinix Inc., Sub. Notes, 2.500% due 2/15/24 (d)..................... 403,813
500,000 Yahoo! Inc., Sr. Notes, zero coupon due 4/1/08....................... 676,875
------------
1,080,688
------------
Leisure Time -- 0.5%
720,000 Navigant International Inc., Sub. Notes, 4.875% due 11/1/23 (d)...... 958,500
------------
See Notes to Financial Statements.
17
Schedule of Investments
(continued)
Face
Amount Security Value
- --------------------------------------------------------------------------------------------------
Lodging -- 1.0%
$ 1,690,000 Hilton Hotels Corp., Sr. Notes, 3.375% due 4/15/23...................... $ 1,820,975
-------------
Media -- 1.3%
2,000,000 Liberty Media Corp., Debentures, 0.750% due 3/30/23 (d)................. 2,280,000
-------------
Mining -- 0.5%
500,000 Freeport-McMoRan Copper & Gold Inc., Sr. Notes, 7.000% due 2/11/11...... 808,750
-------------
Miscellaneous Manufacturers -- 1.1%
900,000 Actuant Corp., Sr. Sub. Notes, 2.000% due 11/15/23 (d).................. 1,107,000
2,025,000 Roper Industries Inc., Bonds, 1.481% due 1/15/34........................ 885,937
-------------
1,992,937
-------------
Oil and Gas Services -- 0.5%
750,000 Halliburton Co., Sr. Notes, 3.125% due 7/15/23.......................... 845,625
-------------
Pharmaceuticals -- 0.5%
820,000 Corixa Corp., Debentures, 4.250% due 7/1/08............................. 826,150
-------------
Real Estate -- 0.8%
1,500,000 Host Marriott L.P., Debentures, 3.250% due 4/15/24 (d).................. 1,515,000
-------------
Retail -- 1.5%
360,000 Dick's Sporting Goods Inc., Sr. Notes, 1.606% due 2/18/24 (d)........... 262,350
650,000 Gap Inc., Sr. Notes, 5.750% due 3/15/09................................. 943,313
1,150,000 Genesco Inc., Sub. Notes, 4.125% due 6/15/23............................ 1,528,063
-------------
2,733,726
-------------
Software -- 2.2%
1,375,000 Computer Associates International Inc., Sr. Notes, 1.625% due 12/15/09.. 2,083,125
1,000,000 Concord Communications Inc., Bonds, 3.000% due 12/15/23 (d)............. 942,500
800,000 Red Hat Inc., Sub. Debentures, 0.500% due 1/15/24 (d)................... 943,000
-------------
3,968,625
-------------
Telecommunications -- 3.3%
700,000 Adaptec Inc., Sr. Sub. Notes, 0.750% due 12/22/23 (d)................... 734,125
900,000 American Tower Corp., Sr. Notes, 3.250% due 8/1/10...................... 1,121,625
900,000 Commonwealth Telephone Enterprises Inc., Bonds, 3.250% due 7/15/23 (d).. 939,375
1,025,000 Finisar Corp., Sub. Notes, 2.500% due 10/15/10 (d)...................... 975,031
750,000 Lucent Technologies Inc., Debentures, 2.750% due 6/15/25................ 1,180,312
820,000 Tekelec, Sr. Sub. Notes, 2.250% due 6/15/08 (d)......................... 951,200
-------------
5,901,668
-------------
Toys/Games/Hobbies -- 0.9%
500,000 Hasbro Inc., Debentures, 2.750% due 12/1/21............................. 597,500
900,000 Jakks Pacific Inc., Sr. Notes, 4.625% due 6/15/23....................... 973,125
-------------
1,570,625
-------------
TOTAL CORPORATE CONVERTIBLE BONDS AND NOTES
(Cost -- $51,573,645)................................................... 55,181,019
-------------
SUB-TOTAL INVESTMENTS
(Cost -- $141,395,600).................................................. 157,308,015
-------------
See Notes to Financial Statements.
18
Schedule of Investments
(continued)
Face
Amount Security Value
- ----------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 11.7%
$18,361,000 State Street Bank and Trust Co. dated 3/31/04, 0.900% due 4/1/04; Proceeds
at maturity -- $18,361,459; (Fully collateralized by U.S. Treasury Bonds,
6.875% due 8/15/25; Market value -- $18,742,750).......................... $ 18,361,000
2,500,000 UBS Warburg Securities Inc. dated 3/31/04, 1.000% due 4/1/04; Proceeds at
maturity -- $2,500,069; (Fully collateralized by U.S. Treasury Bills due
5/13/04 to 9/23/04; Market value -- $2,550,000)........................... 2,500,000
------------
TOTAL REPURCHASE AGREEMENTS (Cost -- $20,861,000).......................... 20,861,000
------------
TOTAL INVESTMENTS -- 100.0% (Cost -- $162,256,600**)....................... $178,169,015
============
- --------
(a) Securities have been segregated for short sale transactions and option
contracts (Notes 4 and 6).
(b) Non-income producing security.
(c) Subsequent to the reporting period, the company was acquired by Bank of
America Corp.
(d) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers. These securities
have been deemed liquid pursuant to guidelines approved by the Board of
Trustees.
** Aggregate cost for Federal income tax purposes is $163,567,163.
Abbreviations used in this schedule:
ADR -- American Depositary Receipt
See Notes to Financial Statements.
19
Options Written
March 31, 2004
Contracts Security Expiration Strike Price Value
- -----------------------------------------------------------------------------------------------------------
41 Esperion Therapeutics, Inc. Call (Premiums received -- $19,967) 7/04 $30.0 $(20,500)
========
See Notes to Financial Statements.
20
Schedule of Securities Sold Short
March 31, 2004
Shares Security Value
- ----------------------------------------------------------------------------
COMMON STOCK
3,900 21st Century Insurance Group........................... $ 56,160
8,800 3Com Corp.*............................................ 62,128
26,940 99 Cents Only Stores*.................................. 657,875
6,325 Able Laboratories, Inc.*............................... 123,527
1,500 Accredo Health, Inc.*.................................. 57,150
16,200 Actuant Corp., Class A Shares*......................... 635,526
28,000 Adaptec, Inc.*......................................... 245,280
13,200 Advanced Medical Optics, Inc.*......................... 322,080
10,400 Advanced Micro Devices, Inc.*.......................... 168,792
22,200 Affymetrix, Inc.*...................................... 749,250
1,800 AFLAC INC.............................................. 72,252
18,800 AGCO Corp.*............................................ 389,348
24,200 Agilent Technologies, Inc.*............................ 765,446
2,020 Air Products and Chemicals, Inc........................ 101,242
3,245 Albany International Corp., Class A Shares............. 87,258
7,650 Albemarle Corp......................................... 221,850
6,025 Albertson's, Inc....................................... 133,454
4,000 Alcan Inc.............................................. 179,160
3,800 Alcoa Inc.............................................. 131,822
6,100 Allergan, Inc.......................................... 513,376
2,400 Alliant Techsystems Inc.*.............................. 130,560
1,800 Allied Capital Corp.................................... 54,522
800 Allmerica Financial Corp.*............................. 27,640
1,700 AMB Property Corp...................................... 63,189
7,300 Amerada Hess Corp...................................... 476,544
11,625 Ameren Corp............................................ 535,796
3,800 American Eagle Outfitters, Inc.*....................... 102,448
3,950 American Electric Power Co., Inc....................... 130,034
5,250 American Express Co.................................... 272,212
6,650 American Greetings Corp., Class A Shares*.............. 151,420
3,950 American International Group, Inc...................... 281,833
600 American National Insurance Co......................... 53,694
45,400 American Tower Corp., Class A Shares*.................. 515,290
6,300 AmeriCredit Corp.*..................................... 107,289
36,700 AmerUs Group Co........................................ 1,480,845
17,260 AMETEK, Inc............................................ 442,546
1,200 Amgen Inc.*............................................ 69,804
38,400 AMR Corp.*............................................. 488,832
10,100 Amylin Pharmaceuticals, Inc.*.......................... 239,269
21,900 Andrew Corp.*.......................................... 383,250
7,500 Andrx Corp.*........................................... 204,000
8,220 Annaly Mortgage Management Inc......................... 160,701
860 Anthem, Inc.*.......................................... 77,950
10,150 Apache Corp............................................ 438,175
1,800 Apartment Investment & Management Co., Class A Shares.. 55,962
200 Apollo Group, Inc., Class A Shares*.................... 17,222
12,405 Apple Computer, Inc.*.................................. 335,555
7,670 Applera Corp. -- Applied Biosystems Group.............. 151,713
5,900 Applied Materials, Inc.*............................... 126,142
9,600 Aqua America Inc....................................... 208,128
4,275 Arch Coal, Inc......................................... 134,192
5,525 Archstone-Smith Trust.................................. 163,043
3,900 ArthroCare Corp.*...................................... 90,129
8,225 Arthur J. Gallagher & Co............................... 267,888
7,925 Artisan Components, Inc.*.............................. 176,648
See Notes to Financial Statements.
21
Schedule of Securities Sold Short
(continued)
Shares Security Value
- ----------------------------------------------------------------------------
2,400 Ashland Inc.......................................... $ 111,576
11,605 AT&T Corp............................................ 227,110
9,900 AT&T Wireless Services Inc.*......................... 134,739
16,030 Atlantic Coast Airlines Holdings, Inc.*.............. 116,538
5,125 Avalonbay Communities, Inc........................... 274,598
2,310 Avery Dennison Corp.................................. 143,705
15,900 AVX Corp............................................. 262,191
5,900 Aztar Corp.*......................................... 144,609
8,010 Baldor Electric Co................................... 184,070
12,480 Bank of America Corp................................. 1,010,630
8,300 Bank of Hawaii Corp.................................. 384,539
5,425 The Bank of New York Co., Inc........................ 170,888
303 Banknorth Group, Inc................................. 10,314
3,900 Barr Pharmaceuticals Inc.*........................... 179,010
44,600 Baxter International Inc............................. 1,377,694
3,465 BB&T Corp............................................ 122,315
4,100 BEA Systems, Inc.*................................... 52,316
1,075 Beazer Homes USA, Inc................................ 113,853
1,200 Bed Bath & Beyond Inc.*.............................. 50,112
76 Berkshire Hathaway Inc., Class B Shares*............. 236,437
1,100 Biogen Idec Inc.*.................................... 61,160
3,900 The BISYS Group, Inc.*............................... 65,364
1,200 BlackRock, Inc., Class A Shares...................... 73,404
12,445 The Boeing Co........................................ 511,116
1,600 BorgWarner, Inc...................................... 135,728
9,000 Boston Scientific Corp.*............................. 381,420
5,140 Bowater Inc.......................................... 224,258
10,700 Boyd Gaming Corp..................................... 244,923
5,100 Brinker International, Inc.*......................... 193,443
1,200 Broadcom Corp., Class A Shares*...................... 47,004
38,625 Brocade Communications Systems, Inc.*................ 257,242
9,675 Brookline Bancorp, Inc............................... 154,316
1,900 Brown & Brown, Inc................................... 73,644
7,125 Burlington Northern Santa Fe Corp.................... 224,438
1,400 C.H. Robinson Worldwide, Inc......................... 58,100
2,200 Cablevision Systems New York Group, Class A Shares*.. 50,336
900 Cabot Microelectronics Corp.*........................ 38,016
57,398 Cadence Design Systems, Inc.*........................ 846,047
8,025 Callaway Golf Co..................................... 152,315
2,440 Cal-Maine Foods, Inc................................. 86,864
1,200 Camden Property Trust................................ 53,940
3,000 CapitalSource Inc.*.................................. 67,350
8,200 Capitol Federal Financial............................ 294,380
3,175 Cardinal Health, Inc................................. 218,757
10,100 CarMax, Inc.*........................................ 294,920
3,000 Carnival Corp........................................ 134,730
4,650 Caterpillar Inc...................................... 367,676
1,100 CDW Corp............................................. 74,371
11,069 Celgene Corp.*....................................... 527,438
700 CenterPoint Properties Trust......................... 57,750
1,700 Certegy Inc.......................................... 59,534
5,700 The Charles Schwab Corp.............................. 66,177
12,200 The Cheesecake Factory Inc.*......................... 562,786
6,200 Chesapeake Energy Corp............................... 83,080
1,500 Chico's FAS, Inc.*................................... 69,600
1,000 Chiron Corp.*........................................ 44,010
See Notes to Financial Statements.
22
Schedule of Securities Sold Short
(continued)
Shares Security Value
- --------------------------------------------------------------------
8,475 ChoicePoint Inc.*............................ $ 322,304
44,250 CIBER, Inc.*................................. 486,750
10,200 CIENA Corp.*................................. 50,694
5,480 Cincinnati Financial Corp.................... 238,106
800 Cinergy Corp................................. 32,712
1,300 Cintas Corp.................................. 56,537
10,100 CIT Group Inc................................ 384,305
4,200 Citizens Communications Co.*................. 54,348
4,400 Cleco Corp................................... 83,732
14,300 CNA Financial Corp.*......................... 394,108
1,200 Coach, Inc.*................................. 49,188
374 Cole National Corp., Class A Shares*......... 8,254
2,900 Comcast Corp., Class A Shares*............... 83,346
6,300 Commonwealth Telephone Enterprises, Inc.*.... 258,363
54,900 Computer Associates International, Inc....... 1,474,614
10,725 Computer Network Technology Corp.*........... 85,800
3,280 Computer Sciences Corp.*..................... 132,282
2,900 Comverse Technology, Inc.*................... 52,606
7,475 ConAgra Foods, Inc........................... 201,377
20,900 Concord Communications, Inc.*................ 301,169
6,975 Consolidated Edison, Inc..................... 307,598
5,500 Constellation Brands, Inc., Class A Shares*.. 176,550
8,995 Convergys Corp.*............................. 136,724
1,300 Cooper Cameron Corp.*........................ 57,265
41,000 Corixa Corp.*................................ 262,515
4,700 Corning Inc.*................................ 52,546
5,875 Costco Wholesale Corp.*...................... 220,665
2,100 Covance Inc.*................................ 72,324
4,200 Crown Castle International Corp.*............ 53,046
1,700 CSX Corp..................................... 51,493
9,750 Cummins Inc.................................. 569,888
6,100 CyberGuard Corp.*............................ 60,085
1,400 Cymer, Inc.*................................. 54,054
4,395 DaimlerChrysler AG........................... 183,447
5,400 Dana Corp.................................... 107,244
4,200 Darden Restaurants, Inc...................... 104,118
7,145 Dean Foods Co.*.............................. 238,643
1,700 Dell Inc.*................................... 57,154
5,100 Delphi Corp.................................. 50,796
8,850 Devon Energy Corp............................ 514,628
6,800 DeVry, Inc.*................................. 205,020
9,550 Diamond Offshore Drilling, Inc............... 231,014
1,300 Dick's Sporting Goods, Inc.*................. 75,582
7,100 Diebold, Inc................................. 341,652
8,335 Dillard's, Inc., Class A Shares.............. 159,699
11,375 Dominion Resources, Inc...................... 731,412
5,725 Dover Corp................................... 221,958
5,800 The Dow Chemical Co.......................... 233,624
700 Dreyer's Grand Ice Cream Holdings, Inc....... 55,391
15,265 DST Systems, Inc.*........................... 692,268
4,600 DTE Energy Co................................ 189,290
666 Duane Reade Inc.*............................ 11,282
29,700 Duke Energy Corp............................. 671,220
1,500 Duke Realty Corp............................. 52,080
12,400 E. I. du Pont de Nemours and Co.............. 523,528
500 The E.W. Scripps Co., Class A Shares......... 50,555
See Notes to Financial Statements.
23
Schedule of Securities Sold Short
(continued)
Shares Security Value
- -----------------------------------------------------------------------------
9,300 Eastman Chemical Co................................... $ 396,924
17,200 Eastman Kodak Co...................................... 450,124
1,200 Eaton Corp............................................ 67,428
1,400 Eaton Vance Corp...................................... 53,368
4,725 eBay Inc.*............................................ 327,584
4,900 EchoStar Communications Corp., Class A Shares*........ 160,475
6,900 Eclipsys Corp.*....................................... 93,012
13,500 EDO Corp.............................................. 325,080
8,000 El Paso Corp.......................................... 56,880
25,050 Electronics for Imaging, Inc.*........................ 615,478
3,190 Eli Lilly and Co...................................... 213,411
12,900 EMC Corp.*............................................ 175,569
1,700 Emulex Corp.*......................................... 36,193
700 Enbridge Energy Partners, L.P......................... 35,798
3,200 Engineered Support Systems, Inc....................... 156,128
11,600 ENSCO International Inc............................... 326,772
2,200 Enterprise Products Partners L.P...................... 51,634
5,000 Entravision Communications Corp., Class A Shares*..... 44,850
3,000 EOG Resources, Inc.................................... 137,670
5,000 Equinix, Inc.*........................................ 181,055
1,400 Equitable Resources, Inc.............................. 62,188
7,800 Equity Office Properties Trust........................ 225,342
9,310 Equity Residential.................................... 277,903
9,900 Erie Indemnity Co., Class A Shares.................... 477,774
4,165 Esterline Technologies Corp.*......................... 103,500
6,095 Ethan Allen Interiors Inc............................. 251,480
8,260 Expeditors International of Washington, Inc........... 326,187
900 Express Scripts, Inc.*................................ 67,131
20,300 ExpressJet Holdings, Inc.*............................ 252,532
2,900 Extended Stay America, Inc............................ 56,173
9,200 Exxon Mobil Corp...................................... 382,628
14,100 F.N.B. Corp........................................... 311,610
4,600 Family Dollar Stores, Inc............................. 165,370
1,250 Fannie Mae............................................ 92,938
8,425 Fastenal Co........................................... 452,338
4,200 Federal Signal Corp................................... 83,370
8,985 Federated Investors, Inc., Class B Shares............. 282,399
2,300 Fifth Third Bancorp................................... 127,351
186,500 Finisar Corp.*........................................ 406,570
2,000 The First Marblehead Corp.*........................... 58,921
15,900 First National Bankshares of Florida.................. 279,363
13,200 FirstEnergy Corp...................................... 515,856
338 Fisher Scientific International Inc.*................. 18,604
133,775 Fleetwood Enterprises, Inc.*.......................... 1,642,757
63,050 Flextronics International Ltd.*....................... 1,085,721
9,250 FLIR Systems, Inc.*................................... 352,610
1,500 Fluor Corp............................................ 58,035
66,500 Ford Motor Co......................................... 902,405
1,400 Forest City Enterprises, Inc., Class A Shares......... 75,390
1,800 Forest Laboratories, Inc.*............................ 128,916
7,250 Forest Oil Corp.*..................................... 183,062
2,950 FPL Group, Inc........................................ 197,208
900 Franklin Resources, Inc............................... 50,112
3,500 Freddie Mac........................................... 206,710
12,100 Freeport-McMoRan Copper & Gold, Inc., Class B Shares.. 472,989
See Notes to Financial Statements.
24
Schedule of Securities Sold Short
(continued)
Shares Security Value
- ---------------------------------------------------------------------------
18,443 Fulton Financial Corp............................... $ 410,726
4,875 Gannett Co., Inc.................................... 429,683
20,800 The Gap, Inc........................................ 455,936
3,550 Garmin Ltd.......................................... 151,620
10,400 Gateway, Inc.*...................................... 54,912
1,950 General Dynamics Corp............................... 174,194
10,900 General Electric Co................................. 332,668
36,200 General Motors Corp................................. 1,705,020
31,200 Genesco Inc.*....................................... 723,216
6,350 Gentex Corp......................................... 275,463
8,010 Genuine Parts Co.................................... 262,087
1,700 Genzyme Corp.*...................................... 79,968
4,305 Goodrich Corp....................................... 120,841
1,875 Granite Construction Inc............................ 44,569
12,900 Grant Prideco, Inc.*................................ 199,950
7,710 Great Lakes Chemical Corp........................... 183,884
6,000 Halliburton Co...................................... 182,340
12,295 Hanover Compressor Co.*............................. 148,647
1,300 Harley-Davidson, Inc................................ 69,342
7,200 The Hartford Financial Services Group, Inc.......... 458,640
11,550 Hasbro, Inc......................................... 251,213
8,500 Hawaiian Electric Industries, Inc................... 440,640
17,450 HCA Inc............................................. 708,819
8,900 Health Management Associates, Inc., Class A Shares.. 206,569
4,900 Herman Miller, Inc.................................. 130,487
15,600 Hilb, Rogal and Hamilton Co......................... 594,360
43,330 Hilton Hotels Corp.................................. 704,113
16,300 Honeywell International Inc......................... 551,755
48,900 Host Marriott Corp.*................................ 624,942
12,500 Hudson City Bancorp, Inc............................ 473,000
13,142 ICOS Corp.*......................................... 486,911
4,010 IDACORP, Inc........................................ 119,899
3,200 IDT Corp.*.......................................... 63,584
3,600 IMC Global Inc...................................... 51,480
8,200 Independence Community Bank Corp.................... 334,150
11,860 IndyMac Bancorp, Inc................................ 430,399
6,040 Insituform Technologies, Inc., Class A Shares*...... 94,405
9,300 Instinet Group Inc.*................................ 65,565
9,525 Integrated Circuit Systems, Inc.*................... 238,411
1,263 InterActiveCorp*.................................... 39,906
17,200 InterDigital Communications Corp.*.................. 300,656
5,205 International Business Machines Corp................ 478,027
11,275 International Paper Co.............................. 476,482
1,300 International Speedway Corp., Class A Shares........ 61,100
96,300 The Interpublic Group of Cos., Inc.*................ 1,481,094
900 Intuit Inc.*........................................ 40,392
6,700 Investment Technology Group, Inc.*.................. 102,510
1,300 Investors Financial Services Corp................... 53,716
17,043 Invitrogen Corp.*................................... 1,221,813
9,890 iPass Inc.*......................................... 108,098
1,400 Iron Mountain Inc.*................................. 62,482
8,625 IVAX Corp.*......................................... 196,391
1,400 J.C. Penney Co., Inc................................ 48,692
1,300 Jacobs Engineering Group Inc.*...................... 57,980
27,900 JAKKS Pacific, Inc.*................................ 418,500
22,400 Janus Capital Group Inc............................. 366,912
See Notes to Financial Statements.
25
Schedule of Securities Sold Short
(continued)
Shares Security Value
- --------------------------------------------------------------------------------
6,930 Johnson Controls, Inc.................................... $ 409,910
1,400 Jones Apparel Group, Inc................................. 50,610
3,700 Jos. A. Bank Clothiers, Inc.*............................ 133,200
3,039 Juniper Networks, Inc.*.................................. 79,044
8,810 K2 Inc.*................................................. 141,224
1,225 Kennametal Inc........................................... 50,556
15,550 KeyCorp.................................................. 471,010
6,635 KeySpan Corp............................................. 253,590
1,804 Kinder Morgan Management, LLC*........................... 76,309
7,400 King Pharmaceuticals, Inc.*.............................. 124,616
4,300 KLA-Tencor Corp.*........................................ 216,505
1,400 Kohl's Corp.*............................................ 67,662
1,400 Krispy Kreme Doughnuts, Inc.*............................ 48,076
14,500 Kroll Inc.*.............................................. 389,325
3,800 L-3 Communications Holdings, Inc......................... 226,024
1,300 Lafarge North America Inc................................ 52,845
21,825 Lamar Advertising Co.*................................... 877,801
4,865 Landstar System, Inc.*................................... 199,173
1,600 Leapfrog Enterprises, Inc.*.............................. 30,960
9,400 Lee Enterprises, Inc..................................... 424,692
805 Lehman Brothers Holdings Inc............................. 66,710
11,900 Lexar Media, Inc.*....................................... 197,064
10,600 Liberty Media Corp., Class A Shares*..................... 116,070
5,510 LifePoint Hospitals, Inc.*............................... 178,193
1,200 Linear Technology Corp................................... 44,424
6,325 Linens 'n Things, Inc.*.................................. 223,968
9,000 LNR Property Corp........................................ 481,770
800 Loews Corp............................................... 47,248
211,225 Lucent Technologies Inc.*................................ 868,135
18,500 Lyondell Chemical Co..................................... 274,540
4,100 The Macerich Co.......................................... 220,990
2,300 Mandalay Resort Group.................................... 131,698
2,430 The Manitowoc Co., Inc................................... 71,879
1,708 Manulife Financial Corp.................................. 63,452
200 Markel Corp.*............................................ 57,580
1,000 Marriott International, Inc., Class A Shares............. 42,550
2,100 Marsh & McLennan Cos., Inc............................... 97,230
900 Martek Biosciences Corp.*................................ 51,300
13,905 Martha Stewart Living Omnimedia, Inc., Class A Shares*... 152,955
6,020 Masco Corp............................................... 183,249
2,375 Massey Energy Co......................................... 52,416
1,100 Maxim Integrated Products, Inc........................... 51,799
9,175 McCormick & Co., Inc..................................... 307,546
2,900 McKesson Corp............................................ 87,261
2,200 MeadWestvaco Corp........................................ 62,238
11,700 Medicis Pharmaceutical Corp., Class A Shares............. 468,000
20,600 Mentor Graphics Corp.*................................... 367,092
13,875 Mercury Interactive Corp.*............................... 621,600
4,600 Metro-Goldwyn-Mayer Inc.*................................ 80,040
3,145 Mettler-Toledo International Inc.*....................... 139,638
600 Micron Technology, Inc.*................................. 10,026
1,975 Minerals Technologies Inc................................ 112,773
8,425 Molex Inc................................................ 256,036
2,300 Monster Worldwide Inc.*.................................. 60,260
2,000 The MONY Group Inc.*..................................... 62,880
3,000 Morgan Stanley........................................... 171,900
See Notes to Financial Statements.
26
Schedule of Securities Sold Short
(continued)
Shares Security Value
- ------------------------------------------------------------------
16,600 National Australia Bank Ltd., Sponsored ADR $ 1,965,606
1,800 National Commerce Financial Corp........... 51,498
3,450 National Instruments Corp.................. 108,537
30,200 Navigant International, Inc.*.............. 543,600
9,500 Navistar International Corp.*.............. 435,575
8,500 NCO Group, Inc.*........................... 198,645
3,200 Network Associates, Inc.*.................. 57,600
1,000 Neurocrine Biosciences, Inc.*.............. 59,100
1,300 The New York Times Co., Class A Shares..... 57,460
5,500 Newell Rubbermaid Inc...................... 127,600
8,500 Newport Corp.*............................. 142,120
2,675 Noble Energy, Inc.......................... 125,993
2,123 North Fork BanCorp......................... 89,845
1,400 Northern Border Partners, L.P.............. 58,940
4,926 Northern Trust Corp........................ 229,502
6,400 Northrop Grumman Corp...................... 629,888
13,200 Novellus Systems, Inc.*.................... 419,628
9,876 NPTest Holding Corp.*...................... 149,523
7 NTL Inc.*.................................. 394
800 Nucor Corp................................. 49,184
10,675 NVIDIA Corp.*.............................. 282,781
11,275 Odyssey Re Holdings Corp................... 304,425
12,360 Office Depot, Inc.*........................ 232,615
3,644 Omnicom Group Inc.......................... 292,431
12,035 Oracle Corp.*.............................. 144,540
500 Oshkosh Truck Corp......................... 27,850
6,800 Owens-Illinois, Inc.*...................... 89,174
8,750 Packaging Corp. of America................. 197,400
3,660 Palm Harbor Homes, Inc.*................... 76,714
6,100 Parker Hannifin Corp....................... 344,650
2,400 Patina Oil & Gas Corp...................... 63,000
3,050 Patterson Dental Co.*...................... 209,260
5,500 Patterson-UTI Energy, Inc.*................ 194,755
1,300 Paychex, Inc............................... 46,280
18,675 Payless ShoeSource, Inc.*.................. 260,703
3,000 Peabody Energy Corp........................ 139,530
8,700 People's Bank.............................. 404,463
6,900 The Pep Boys -- Manny, Moe & Jack.......... 191,475
15,300 Pepco Holdings, Inc........................ 312,732
1,800 PepsiCo, Inc............................... 96,930
6,800 Perot Systems Corp., Class A Shares*....... 90,440
10,275 Pfizer Inc................................. 360,139
8,100 PG&E Corp.*................................ 234,657
6,700 Pharmaceutical Product Development, Inc.*.. 199,593
6,460 Pier 1 Imports, Inc........................ 153,102
800 Pixar*..................................... 51,568
2,414 Plains Exploration & Production Co.*....... 44,997
3,700 Praxair, Inc............................... 137,344
4,075 Premcor Inc.*.............................. 126,203
3,100 Pride International, Inc.*................. 52,886
10,925 Progress Energy, Inc....................... 514,349
1,600 ProLogis................................... 57,392
28,250 Protein Design Labs, Inc.*................. 672,915
7,234 Provident Bankshares Corp.................. 227,003
1,900 Prudential Financial, Inc.................. 85,082
3,300 Public Service Enterprise Group Inc........ 155,034
See Notes to Financial Statements.
27
Schedule of Securities Sold Short
(continued)
Shares Security Value
- ------------------------------------------------------------------------
6,325 QIAGEN N.V.*..................................... $ 83,300
1,300 QLogic Corp.*.................................... 42,913
2,800 Quest Diagnostics Inc............................ 231,924
900 R.J. Reynolds Tobacco Holdings, Inc.............. 54,450
23,000 RadiSys Corp.*................................... 480,700
6,300 Rambus Inc.*..................................... 176,589
18,700 Red Hat, Inc.*................................... 427,482
7,100 Reebok International Ltd......................... 293,585
500 Regency Centers Corp............................. 23,365
5,143 Regions Financial Corp........................... 187,822
500 RF Micro Devices, Inc.*.......................... 4,230
20,300 Robert Half International Inc.*.................. 479,486
11,260 Roper Industries, Inc............................ 543,295
8,775 Ross Stores, Inc................................. 268,603
6,800 Rowan Cos., Inc.*................................ 143,412
5,625 Royal Dutch Petroleum Co., NY Registered Shares.. 267,637
5,875 Ruby Tuesday, Inc................................ 188,881
2,825 Ryder System, Inc................................ 109,412
1,200 SAFECO Corp...................................... 51,804
21,200 Safeway Inc.*.................................... 436,296
647 Sanofi-Synthelabo S.A., ADR...................... 21,137
11,875 Sara Lee Corp.................................... 259,588
400 SCANA Corp....................................... 14,140
22,150 Schering-Plough Corp............................. 359,273
3,925 Scottish Re Group Ltd............................ 94,946
1,300 The Scotts Co., Class A Shares*.................. 83,395
4,255 SEACOR Holdings Inc.*............................ 174,795
6,300 Sears, Roebuck and Co............................ 270,648
1,700 SEI Investments Co............................... 56,100
7,770 Sensient Technologies Corp....................... 145,066
5,100 The ServiceMaster Co............................. 61,251
4,600 Siebel Systems, Inc.*............................ 52,946
3,125 Sigma-Aldrich Corp............................... 172,938
2,300 Sirva Inc.*...................................... 55,476
5,300 Skyworks Solutions, Inc.*........................ 61,798
5,075 SLM Corp......................................... 212,389
20,000 Smithfield Foods, Inc.*.......................... 542,400
22,400 Smurfit-Stone Container Corp.*................... 394,016
8,425 Sonic Automotive, Inc............................ 211,046
17,375 Sotheby's Holdings, Inc., Class A Shares*........ 223,269
6,954 The South Financial Group, Inc................... 205,769
8,950 The Southern Co.................................. 272,975
6,550 Southern Union Co.*.............................. 124,122
8,200 Southwest Airlines Co............................ 116,522
5,370 Speedway Motorsports, Inc........................ 162,765
1,925 The Sports Authority, Inc.*...................... 77,154
1,800 The St. Joe Co................................... 73,242
1,400 Starbucks Corp.*................................. 52,850
37,900 Steelcase Inc., Class A Shares................... 492,700
1,100 Stericycle, Inc.*................................ 52,646
4,300 STERIS Corp.*.................................... 110,940
9,625 Stillwater Mining Co.*........................... 151,112
800 Stryker Corp..................................... 70,824
600 Sun Microsystems, Inc.*.......................... 2,496
6,135 Superior Industries International, Inc........... 217,424
3,810 Swift Transportation Co., Inc.*.................. 65,418
See Notes to Financial Statements.
28
Schedule of Securities Sold Short
(continued)
Shares Security Value
- -----------------------------------------------------------------------
1,600 Sycamore Networks, Inc.*........................ $ 6,528
6,100 Synopsys, Inc.*................................. 176,656
6,450 Target Corp..................................... 290,508
1,100 TCF Financial Corp.............................. 56,177
8,500 TECO Energy, Inc................................ 124,355
31,500 Tekelec*........................................ 522,585
700 Telephone and Data Systems, Inc................. 49,609
4,800 Tenet Healthcare Corp.*......................... 53,568
7,452 Therasense, Inc.*............................... 200,906
2,000 Thor Industries, Inc............................ 53,720
9,600 THQ Inc.*....................................... 194,208
6,275 Tidewater Inc................................... 176,516
6,625 Tiffany & Co.................................... 252,876
80,423 Time Warner Inc.*............................... 1,355,932
8,700 The Timken Co................................... 202,101
5,000 The TJX Cos., Inc............................... 122,800
2,500 Toll Brothers, Inc.*............................ 113,575
1,500 Tom Brown, Inc.*................................ 56,400
500 Tootsie Roll Industries, Inc.................... 18,280
600 Transatlantic Holdings, Inc..................... 52,326
1,700 Transocean Inc.*................................ 47,413
1,330 Trex Co., Inc.*................................. 45,366
3,000 Trimble Navigation Ltd.*........................ 68,790
16,105 Trinity Industries, Inc......................... 447,719
2,325 Union Planters Corp............................. 69,401
13,725 United Dominion Realty Trust, Inc............... 269,285
800 United Parcel Service, Inc., Class B Shares..... 55,872
13,800 United States Cellular Corp.*................... 533,370
600 University of Phoenix Online*................... 52,212
8,600 Univision Communications Inc., Class A Shares*.. 283,886
4,025 Unocal Corp..................................... 150,052
15,300 UnumProvident Corp.............................. 223,839
2,600 USF Corp........................................ 88,972
4,900 UST Inc......................................... 176,890
4,200 UTStarcom, Inc.*................................ 120,792
7,220 Valassis Communications, Inc.*.................. 219,488
2,575 Valero Energy Corp.............................. 154,397
1,000 Valley National Bancorp......................... 27,970
3,765 The Valspar Corp................................ 185,351
10,350 Verizon Communications Inc...................... 378,189
13,575 Visteon Corp.................................... 129,913
2,575 Vornado Realty Trust............................ 155,736
1,100 Vulcan Materials Co............................. 52,184
6,515 W.W. Grainger, Inc.............................. 312,720
2,700 Waddell & Reed Financial, Inc., Class A Shares.. 66,204
9,375 Walgreen Co..................................... 308,906
6,275 Wal-Mart Stores, Inc............................ 374,555
7,832 Washington Federal, Inc......................... 199,951
100 The Washington Post Co., Class B Shares......... 88,441
4,030 Waste Connections, Inc.*........................ 160,394
8,375 Waste Management, Inc........................... 252,757
2,200 Waters Corp.*................................... 89,848
4,200 Watson Pharmaceuticals, Inc.*................... 179,718
6,600 WebMD Corp.*.................................... 58,674
1,500 Weight Watchers International, Inc.*............ 63,405
2,300 Wells Fargo & Co................................ 130,341
See Notes to Financial Statements.
29
Schedule of Securities Sold Short
(continued)
Shares Security Value
- --------------------------------------------------------------------------------------------------
200 Wesco Financial Corp...................................................... $ 77,400
7,600 Westport Resources Corp.*................................................. 250,724
100 White Mountains Insurance Group Ltd....................................... 52,450
1,000 Whole Foods Market, Inc................................................... 74,950
4,375 Wilmington Trust Corp..................................................... 163,494
8,675 Winn-Dixie Stores, Inc.................................................... 65,930
5,450 Wm. Wrigley Jr. Co........................................................ 322,204
2,300 Wynn Resorts, Ltd.*....................................................... 80,500
98,600 Xerox Corp.*.............................................................. 1,436,602
1,500 XL Capital Ltd., Class A Shares........................................... 114,060
2,500 XTO Energy, Inc........................................................... 63,100
16,400 Yahoo! Inc.*.............................................................. 796,876
1,050 Zebra Technologies Corp., Class A Shares*................................. 72,838
3,850 Zimmer Holdings, Inc.*.................................................... 284,053
------------
TOTAL COMMON STOCK
(Proceeds -- $108,715,742)................................................ 119,814,172
------------
Face
Amount
- ----------
CORPORATE CONVERTIBLE BONDS AND NOTES
$1,000,000 Duke Energy Corp., Sr. Notes, 4.200% due 10/1/08.......................... 1,025,454
1,000,000 First Data Corp., Notes, 4.700% due 11/1/06............................... 1,063,323
General Motors Corp.:
1,000,000 Notes, 7.200% due 1/15/11............................................... 1,097,417
600,000 Sr. Notes, 7.125% due 7/15/13........................................... 656,576
1,000,000 Host Marriott L.P., 9.500% due 1/15/07.................................... 1,125,000
500,000 Liberty Media Corp., Bonds, 7.875% due 7/15/09............................ 591,031
------------
TOTAL CORPORATE CONVERTIBLE BONDS AND NOTES
(Proceeds -- $5,377,602).................................................. 5,558,801
------------
U.S. TREASURY OBLIGATIONS
3,125,000 United States Treasury Note, 2.625% due 5/15/08 (Proceeds -- $3,085,152).. 3,145,022
------------
TOTAL OPEN SHORT SALES
(Proceeds -- $117,178,496)................................................ $128,517,995
============
- --------
* Non-income producing security.
See Notes to Financial Statements.
30
Statement of Assets and Liabilities
March 31, 2004
ASSETS:
Investments, at value (Cost -- $141,395,600)............... $157,308,015
Repurchase agreements, at value (Cost -- $20,861,000)...... 20,861,000
Cash....................................................... 13,195,775
Deposits with brokers for short sales (Note 6)............. 117,178,496
Receivable for securities sold............................. 13,538,326
Receivable for Fund shares sold............................ 1,181,354
Dividends and interest receivable.......................... 484,217
------------
Total Assets............................................... 323,747,183
------------
LIABILITIES:
Short sales, at value (Proceeds -- $117,178,496) (Note 6).. 128,517,995
Payable for securities purchased........................... 2,508,981
Payable for Fund shares reacquired......................... 1,304,242
Dividends payable for short sales.......................... 225,985
Management fee payable..................................... 193,543
Administration fee payable................................. 32,472
Options written (Premium received -- $19,967) (Note 4)..... 20,500
Accrued expenses........................................... 93,245
------------
Total Liabilities.......................................... 132,896,963
------------
Total Net Assets............................................ $190,850,220
============
NET ASSETS:
Par value of shares of beneficial interest................. $ 22,038
Capital paid in excess of par value........................ 186,095,641
Overdistributed net investment income...................... (58,474)
Accumulated net realized gain from investment
transactions, options, short sales and foreign currencies 218,632
Net unrealized appreciation of investments, options
written and short sales.................................. 4,572,383
------------
Total Net Assets............................................ $190,850,220
============
Shares Outstanding (Par value of $0.001 per share, Note 9).. 22,037,574
============
Net Asset Value, per share.................................. $8.66
============
See Notes to Financial Statements.
31
Statement of Operations
For the Year Ended March 31, 2004
INVESTMENT INCOME:
Dividends...................................................................... $ 3,267,077
Interest....................................................................... 2,172,300
Less: Foreign withholding tax.................................................. (5,393)
------------
Total Investment Income........................................................ 5,433,984
------------
EXPENSES:
Management fee (Note 2)........................................................ 2,881,951
Dividends on short sales....................................................... 2,144,467
Administration fee (Note 2).................................................... 430,737
Custody........................................................................ 128,411
Transfer agency services....................................................... 67,970
Shareholder communications..................................................... 53,136
Registration fees.............................................................. 44,108
Audit and legal................................................................ 27,073
Trustees fees.................................................................. 9,026
Other.......................................................................... 6,017
------------
Total Expenses................................................................. 5,792,896
Less: Management fee waiver (Note 2)........................................... (157,422)
------------
Net Expenses................................................................... 5,635,474
------------
Net Investment Loss.............................................................. (201,490)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, OPTIONS, SHORT SALES
AND FOREIGN CURRENCIES (NOTES 3, 4, 6 AND 8):
Realized Gain (Loss) From:
Investment transactions....................................................... 43,540,551
Options written............................................................... (58,071)
Options purchased............................................................. (70,181)
Short sales................................................................... (41,219,851)
Foreign currency transactions................................................. 217
------------
Net Realized Gain.............................................................. 2,192,665
------------
Change in Net Unrealized Appreciation of Investments, Options and Short Sales:
Beginning of year............................................................. 1,756,786
End of year................................................................... 4,572,383
------------
Increase in Net Unrealized Appreciation........................................ 2,815,597
------------
Net Gain on Investments, Options, Short Sales and Foreign Currencies............. 5,008,262
------------
Increase in Net Assets From Operations........................................... $ 4,806,772
============
See Notes to Financial Statements.
32
Statements of Changes in Net Assets
For the Years Ended March 31,
2004 2003
- -------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss)...................................... $ (201,490) $ 504,980
Net realized gain................................................. 2,192,665 1,004,185
Increase in net unrealized appreciation........................... 2,815,597 1,921,800
------------- ------------
Increase in Net Assets From Operations............................ 4,806,772 3,430,965
------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................. (43,825) (571,668)
Net realized gains................................................ (865,634) (3,164,456)
------------- ------------
Decrease in Net Assets From Distributions to Shareholders......... (909,459) (3,736,124)
------------- ------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares.................................. 97,621,647 186,596,638
Net asset value of shares issued for reinvestment of dividends.... 859,412 3,673,666
Cost of shares reacquired......................................... (131,516,873) (65,404,394)
------------- ------------
Increase (Decrease) in Net Assets From Fund Share Transactions.... (33,035,814) 124,865,910
------------- ------------
Increase (Decrease) in Net Assets................................... (29,138,501) 124,560,751
NET ASSETS:
Beginning of year................................................. 219,988,721 95,427,970
------------- ------------
End of year*...................................................... $ 190,850,220 $219,988,721
============= ============
* Includes undistributed (overdistributed) net investment income of: $(58,474) $11,723
============= ============
See Notes to Financial Statements.
33
Notes to Financial Statements
1. Significant Accounting Policies
Multi-Strategy Market Neutral Investments ("Fund"), a separate investment fund
of Consulting Group Capital Markets Funds ("Trust"), a Massachusetts business
trust, is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Trust consists of the
Fund and fourteen separate investment funds: Government Money Investments, High
Yield Investments, Intermediate Fixed Income Investments, Long-Term Bond
Investments, Municipal Bond Investments, Mortgage Backed Investments, Large
Capitalization Value Equity Investments, Large Capitalization Growth
Investments, Small Capitalization Value Equity Investments, Small
Capitalization Growth Investments, International Equity Investments,
International Fixed Income Investments, Emerging Markets Equity Investments and
Multi-Sector Fixed Income Investments. The financial statements and financial
highlights for the other funds are presented in separate shareholder reports.
The following are significant accounting policies consistently followed by the
Fund and are in conformity with generally accepted accounting principles
("GAAP"): (a) security transactions are accounted for on trade date; (b)
securities traded on national securities markets are valued at the closing
prices on such markets or, if there were no sales during the day, at the mean
between the current bid and ask price; securities primarily traded on foreign
exchanges are generally valued at the preceding closing values of such
securities on their respective exchanges, except that when a significant
occurrence subsequent to the time a value was so established is likely to have
significantly changed the value then the fair value of those securities will be
determined by consideration of other factors by or under the direction of the
Board of Trustees; securities traded in the over-the-counter market are valued
on the basis of the bid price at the close of business on each day; certain
debt securities of U.S. issuers (other than U.S. government securities and
short-term investments) are valued at the mean between the quoted bid and asked
prices; U.S. government agencies and obligations are valued at the mean between
the bid and asked prices; securities listed on the NASDAQ National Market
System for which market quotations are available are valued at the official
closing price or, if there is no official closing price on that day, at the
last sale price; (c) securities for which market quotations are not available
will be valued in good faith at fair value by or under the direction of the
Board of Trustees; (d) securities maturing within 60 days are valued at cost
plus accreted discount, or minus amortized premium, which approximates value;
(e) dividend income earned on investments and dividend expense incurred on
short sales is recorded on the ex-dividend date except that foreign dividends
are recorded on the ex-dividend date or as soon as practical after the Fund
determines the existence of a dividend declaration after exercising reasonable
due diligence; and interest income is recorded on an accrual basis; (f) gains
or losses on the sale of securities are calculated by using the specific
identification method; (g) dividends and distributions to shareholders are
recorded on the ex-dividend date; the Fund distributes dividends and capital
gains, if any, at least annually; (h) the accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of securities and income and expenses are translated at the rate of
exchange quoted on the respective date that such transactions are recorded.
Differences between income or expense amounts recorded and collected or paid
are adjusted when reported by the custodian bank; (i) the Fund intends to
comply with the requirements of the Internal Revenue Code of 1986, as amended,
pertaining to regulated investment companies and to make distributions of
taxable income sufficient to relieve it from substantially all Federal income
and excise taxes; (j) the character of income and gains to be distributed is
determined in accordance with income tax regulations which may differ from
accounting principles generally accepted in the United States of America. At
March 31, 2004, reclassifications were made to the capital accounts of the Fund
to reflect permanent book/tax differences and income and gains available for
distributions under income tax regulations. Accordingly, a portion of net
investment loss and accumulated net realized gain amounting to $114,753 and
$78,852 was reclassified to paid-in capital, respectively. Net investment loss,
net realized gain and net assets were not affected by this change; and (k)
estimates and assumptions are required to be made regarding assets, liabilities
and changes in net assets resulting from operations when financial statements
are prepared. Changes in the economic environment, financial markets and any
other parameters used in determining these estimates could cause actual results
to differ.
34
Notes to Financial Statements
(continued)
In addition, the Fund may enter into forward exchange contracts in order to
hedge against foreign currency risk. These contracts are marked to market
daily, by recognizing the difference between the contract exchange rate and the
current market rate as an unrealized gain or loss. Realized gains or losses are
recognized when contracts are settled or offset by entering into another
forward exchange contract. The Fund may from time to time enter into options
and/or futures contracts in order to hedge market or currency risk.
2. Investment Management Agreement, Administration Agreement and Other
Transactions
The Trust has entered into an investment management agreement ("Management
Agreement") with Smith Barney Fund Management LLC ("SBFM"), an indirect
wholly-owned subsidiary of Citigroup Inc. ("Citigroup"). The Consulting Group,
a division of SBFM, provides investment evaluation services with respect to the
investment advisers of the Fund. SBFM has entered into an investment advisory
agreement with each adviser selected for the Fund (collectively, "Advisers").
Under the Management Agreement, the Fund pays SBFM a fee, calculated daily and
paid monthly, based on the rates applied to the value of the Fund's average
daily net assets. In addition, SBFM pays each Adviser, based on the rates
applied to the Fund's average daily net assets on a monthly basis. The
applicable management fee and advisory fee paid by SBFM to each Adviser are
indicated below:
Maximum
Actual Allowable
Management Fee Annual
Advisers Advisory Fee Incurred Management Fee
- -------------------------------------------------------------------------------------------------
Multi-Strategy Market Neutral Investments............ 1.34% 1.80%
Calamos Asset Management.......................... 1.00%
Camden Asset Management, L.P...................... 1.20
Franklin Portfolio Associates LLC................. 1.00
Freeman Associates Investment Management LLC...... 0.90
Pegasus Investments, Inc.......................... 1.20
SSI Investment Management Inc..................... 1.00
Effective March 26, 2004, Pegasus Investments, Inc. was terminated as an
Adviser.
SBFM also acts as the Trust's administrator for which the Fund pays a fee
calculated at an annual rate of 0.20% of the average daily net assets of the
Fund. This fee is calculated daily and paid monthly.
During the period October 1, 2003 to March 31, 2004, the manager voluntarily
agreed to waive a portion of its management fees amounting to $157,422. This
fee waiver can be terminated at any time by SBFM and was terminated on March
31, 2004.
Citicorp Trust Bank, fsb. ("CTB"), another indirect wholly-owned subsidiary of
Citigroup, acts as the Fund's transfer agent. PFPC Inc. ("PFPC") acts as the
Fund's sub-transfer agent. CTB receives account fees and asset-based fees that
vary according to the size and type of account. PFPC is responsible for
shareholder recordkeeping and financial processing for all shareholder accounts
and is paid by CTB. For the year ended March 31, 2004, the Fund paid transfer
agent fees of $68,647 to CTB.
For the year ended March 31, 2004, Citigroup Global Markets Inc., another
indirect wholly-owned subsidiary of Citigroup, did not receive any brokerage
commissions.
All officers and one Trustee of the Trust are employees of Citigroup or its
affiliates.
35
Notes to Financial Statements
(continued)
3. Investments
During the year ended March 31, 2004, the aggregate cost of purchases and
proceeds from sales of investments (including maturities of long-term
investments, but excluding short-term investments) were as follows:
Purchases...... $465,380,360
============
Sales.......... $510,469,753
============
At March 31, 2004, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were as follows:
Gross unrealized appreciation..... $17,671,449
Gross unrealized depreciation..... (3,069,597)
-----------
Net unrealized appreciation....... $14,601,852
===========
4. Option Contracts
Premiums paid when put or call options are purchased by the Fund represent
investments which are marked-to-market daily. When a purchased option expires,
the Fund will realize a loss in the amount of the premium paid. When the Fund
enters into a closing sales transaction, the Fund will realize a gain or loss
depending on whether the proceeds from the closing sales transaction are
greater or less than the premium paid for the option. When the Fund exercises a
put option, it will realize a gain or loss from the sale of the underlying
security and the proceeds from such sale will be decreased by the premium
originally paid. When the Fund exercises a call option, the cost of the
security which the Fund purchases upon exercise will be increased by the
premium originally paid.
At March 31, 2004, the Fund did not hold any purchased call options.
When a Fund writes a call or put option, an amount equal to the premium
received by the Fund is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Fund realizes a gain
equal to the amount of the premium received. When the Fund enters into a
closing purchase transaction, the Fund realizes a gain or loss depending upon
whether the cost of the closing transaction is greater or less than the premium
originally received, without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is eliminated.
When a written call option is exercised the proceeds of the security sold will
be increased by the premium originally received. When a written put option is
exercised, the amount of the premium originally received will reduce the cost
of the security which the Fund purchased upon exercise. When written index
options are exercised, settlement is made in cash.
The risk associated with purchasing options is limited to the premium
originally paid. The Fund enters into options for hedging purposes. The risk in
writing a covered call option is that the Fund gives up the opportunity to
participate in any increase in the price of the underlying security beyond the
exercise price. The risk in writing a put option is that the Fund is exposed to
the risk of loss if the market price of the underlying security declines. The
risk in writing a call option is that the Fund is exposed to the risk of loss
if the market price of the underlying security increases.
36
Notes to Financial Statements
(continued)
The following written call option transactions occurred during the year ended
March 31, 2004:
Number of
Contracts Premiums
-------------------------------------------------------------------------
Options written, outstanding at March 31, 2003.... 452 $ 187,574
Options written................................... 5,180 1,653,289
Options closed.................................... (2,750) (841,145)
Options exercised................................. (2,710) (978,703)
Options expired................................... (131) (1,048)
------ ----------
Options written, outstanding at March 31, 2004.... 41 $ 19,967
====== ==========
5. Repurchase Agreements
When entering into repurchase agreements, it is the Fund's policy that a
custodian takes possession of the underlying collateral securities, the value
of which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market to
ensure the adequacy of the collateral. If the seller defaults and the value of
the collateral declines or if bankruptcy proceedings are commenced with respect
to the seller of the security, realization of the collateral by the fund may be
delayed or limited.
6. Short Sales of Securities
A short sale is a transaction in which the Fund sells securities it does not
own (but has borrowed) in anticipation of a decline in the market price of the
securities. To complete a short sale, the Fund may arrange through a broker to
borrow the securities to be delivered to the buyer. The proceeds received by
the Fund for the short sale are retained by the broker until the Fund replaces
the borrowed securities. In borrowing the securities to be delivered to the
buyer, the Fund becomes obligated to replace the securities borrowed at their
market price at the time of replacement, whatever that price may be.
7. Foreign Securities
Funds that invest in foreign securities may involve risks not present in
domestic investments. Since securities may be denominated in a foreign currency
and may require settlement in foreign currencies and pay interest and/or a
dividend in foreign currencies, changes in the relationship of these foreign
currencies to the U.S. dollar can significantly affect the value of the
investments and earnings of the Funds. Foreign investments may also subject the
Funds to foreign government exchange restrictions, expropriation, taxation or
other political, social or economic developments, all of which could affect the
market and/or credit risk of the investments.
8. Forward Foreign Currency Contracts
A forward foreign currency contract is an agreement between two parties to buy
and sell a currency at a set price on a future date. The contract is
marked-to-market daily and the change in value is recorded by the Fund as an
unrealized gain or loss. When a forward foreign currency contract is
extinguished, through either delivery or offset by entering into another
forward foreign currency contract, the Fund records a realized gain or loss
equal to the difference between the value of the contract at the time it was
opened and the value of the contract at the time it was extinguished or offset.
The Fund bears the market risk that arises from changes in foreign currency
exchange rates and the credit risk should a counterparty fail to meet the terms
of such contracts.
At March 31, 2004, the Fund did not have any open forward foreign currency
contracts outstanding.
37
Notes to Financial Statements
(continued)
9. Shares of Beneficial Interest
At March 31, 2004, the Trust had an unlimited number of shares of beneficial
interest authorized with a par value of $0.001 per share. Transactions in
shares were as follows:
Year Ended Year Ended
March 31, 2004 March 31, 2003
-------------- --------------
Shares sold............................. 11,411,428 21,766,768
Shares issued on reinvestment........... 100,048 431,688
Shares reacquired....................... (15,358,058) (7,625,094)
----------- ----------
Net Increase (Decrease)................. (3,846,582) 14,573,362
=========== ==========
10. Income Tax Information and Distributions to Shareholders
The tax basis components of distributable earnings at March 31, 2004 were:
Accumulated capital gains...... $1,470,721
==========
Unrealized appreciation........ $3,261,820
==========
At March 31, 2004, the difference between book basis and tax basis unrealized
appreciation and depreciation is attributable primarily to wash sale loss
deferrals, constructive sales, and the treatment of accretion of discounts and
amortization of premiums.
The tax character of distributions paid during the year ended March 31 was:
2004 2003
-------- ----------
Ordinary income.............. $772,528 $3,702,931
Long-term capital gains...... 136,931 33,193
-------- ----------
Total........................ $909,459 $3,736,124
======== ==========
11. Additional Information
The Fund has received the following information from Citigroup Asset Management
("CAM"), the Citigroup business unit which includes the Fund's Investment
Manager and other investment advisory companies, all of which are indirect,
wholly-owned subsidiaries of Citigroup. CAM is reviewing its entry, through an
affiliate, into the transfer agent business in the period 1997-1999. As CAM
currently understands the facts, at the time CAM decided to enter the transfer
agent business, CAM sub-contracted for a period of five years certain of the
transfer agency services to a third party and also concluded a revenue
guarantee agreement with this sub-contractor providing that the sub-contractor
would guarantee certain benefits to CAM or its affiliates (the "Revenue
Guarantee Agreement"). In connection with the subsequent purchase of the
sub-contractor's business by an affiliate of the current sub-transfer agent
(PFPC Inc.) used by CAM on many of the funds it manages, this Revenue Guarantee
Agreement was amended eliminating those benefits in exchange for arrangements
that included a one-time payment from the sub-contractor.
The Boards of CAM-managed funds (the "Boards") were not informed of the Revenue
Guarantee Agreement with the sub-contractor at the time the Boards considered
and approved the transfer agent arrangements. Nor were the Boards informed of
the subsequent amendment to the Revenue Guarantee Agreement when that occurred.
38
Notes to Financial Statements
(continued)
CAM has begun to take corrective actions. CAM will pay to the applicable funds
approximately $17 million (plus interest) that CAM and its affiliates received
from the Revenue Guarantee Agreement and its amendment. CAM also plans an
independent review to verify that the transfer agency fees charged by CAM were
fairly priced as compared to competitive alternatives. CAM is instituting new
procedures and making changes designed to ensure no similar arrangements are
entered into in the future.
CAM has briefed the SEC, the New York State Attorney General and other
regulators with respect to this matter, as well as the U.S. Attorney who is
investigating the matter. CAM is cooperating with governmental authorities on
this matter, the ultimate outcome of which is not yet determinable.
12. Subsequent Event
Camden Asset Management, L.P. will resign as an Adviser to the Fund effective
June 30, 2004.
39
Financial Highlights
For a share of beneficial interest outstanding throughout each year ended March
31, unless otherwise noted:
2004(1) 2003(1) 2002(1) 2001(1) 2000(1)(2)
-------- -------- ------- ------- ----------
Net Asset Value, Beginning of Year.................................. $8.50 $8.44 $8.14 $8.36 $8.00
-------- -------- ------- ------- -------
Income From Operations:
Net investment income (loss)(3)(4)................................ (0.01) 0.03 0.10 0.32 0.19
Net realized and unrealized gain(4)............................... 0.21 0.23 0.32 0.23 0.44
-------- -------- ------- ------- -------
Total Income From Operations........................................ 0.20 0.26 0.42 0.55 0.63
-------- -------- ------- ------- -------
Less Distributions From:
Net investment income............................................. (0.00)* (0.03) (0.12) (0.35) (0.02)
Net realized gains................................................ (0.04) (0.17) (0.00)* (0.42) (0.25)
-------- -------- ------- ------- -------
Total Distributions................................................. (0.04) (0.20) (0.12) (0.77) (0.27)
-------- -------- ------- ------- -------
Net Asset Value, End of Year........................................ $8.66 $8.50 $8.44 $8.14 $8.36
======== ======== ======= ======= =======
Total Return(5)..................................................... 2.33% 3.11% 5.20% 6.68% 7.98%++
Net Assets, End of Year (000s)...................................... $190,850 $219,989 $95,428 $45,122 $32,583
Ratios to Average Net Assets:
Total expenses before dividend expense on short sales(3)(6)....... 1.63% 1.70% 1.88% 1.90% 1.90%+
Dividend expense from short sales................................. 1.00 0.94 0.59 0.61 0.80+
Total expenses.................................................... 2.63 2.64 2.47 2.51 2.70+
Net investment income (loss)(4)................................... (0.09) 0.35 1.23 3.71 2.65+
Portfolio Turnover Rate............................................. 253% 229% 324% 317% 249%
- --------
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) For the period from May 10, 1999 (commencement of operations) to March 31,
2000.
(3) The manager has agreed to waive a portion of its management fee for the
years ended March 31, 2004, March 31, 2001 and the period ended March 31,
2000. If such fees were not waived or dividend expense not included, the
per share decrease to net investment income and the actual expense ratios
would have been as follows:
Expense Ratio Without
Per Share Decrease to Fee Waiver and Dividend
Net Investment Income Expense from Short Sales
--------------------- ------------------------
2004........................ $0.01 1.70%
2001........................ 0.01 2.05
2000........................ 0.05 2.64+
(4) Effective April 1, 2001, the Fund adopted a change in the accounting method
that requires the Fund to amortize premiums and accrete all discounts.
Without the adoption of this change, for the year ended March 31, 2002, the
net investment income, net realized and unrealized gain and the ratio of
net investment income to average net assets would have been $0.11, $0.31
and 1.31%, respectively. Per share information, ratios and supplemental
data for the periods prior to April 1, 2001 have not been restated to
reflect this change in presentation.
(5) Performance figures may reflect fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of fee
waivers and/or expense reimbursements, the total return would be reduced.
(6)As a result of a voluntary expense limitation, expense ratios will not
exceed 1.90%.
* Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
40
Independent Auditors' Report
The Shareholders and Board of Trustees of
Consulting Group Capital Markets Funds:
We have audited the accompanying statement of assets and liabilities, including
the schedules of investments and securities sold short, of Multi-Strategy
Market Neutral Investments ("Fund") of Consulting Group Capital Markets Funds
as of March 31, 2004, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period then ended and the financial highlights for each of the years
in the four-year period then ended and for the period May 10, 1999
(commencement of operations) to March 31, 2000. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned and sold short as of March 31, 2004,
by correspondence with the custodian and brokers. As to securities purchased or
sold but not yet received or delivered, we performed other appropriate auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Fund as of March 31, 2004, and the results of its operations for the year then
ended, the changes in its net assets for each of the years in the two-year
period then ended and the financial highlights for each of the years in the
four-year period then ended and for the period May 10, 1999 to March 31, 2000,
in conformity with accounting principles generally accepted in the United
States of America.
/s/ KPMG LLP
New York, New York
May 12, 2004
41
Additional Information
(unaudited)
Information about Trustees and Officers
The business and affairs of the Consulting Group Capital Markets Funds
("Trust") are managed under the direction of the Trust's Board of Trustees.
Information pertaining to the Trustees and Officers of the Trust is set forth
below. The Statement of Additional Information includes additional information
about Trustees and is available without charge, upon request by calling the
Trust's transfer agent (Citicorp Trust Bank, fsb. at 1-800-451-2010).
Term of Number of
Office* Portfolios
and in Fund
Length Complex
Position(s) of Time Principal Occupation(s) During Overseen Other Board Memberships
Name, Address and Age Held with Fund Served Past Five Years by Trustee Held by Trustee
- --------------------- -------------- ------- ------------------------------ ---------- -----------------------
Non-Interested Trustees:
H. John Ellis Trustee Since Retired 28 None
858 E. Crystal Downs Drive 1999
Frankfort, MI 49635
Age 77
Armon E. Kamesar Trustee Since Chairman, TEC 28 Inter Ocean Systems
7328 Country Club Drive 1994 International (organization Inc.
La Jolla, CA 92037 of chief executives);
Age 76 Trustee, U.S. Bankruptcy
Court
Stephen E. Kaufman Trustee Since Attorney 55 None
Stephen E. Kaufman, PC 1991
277 Park Avenue, 47th Floor
New York, NY 10172
Age 72
John J. Murphy Trustee Since President, Murphy Capital 28 Barclays International
123 Prospect Street 2002 Management Funds Group Ltd. and
Ridgewood, NJ 07450 affiliated companies
Age 60
Interested Trustee:
R. Jay Gerken, CFA** Chairman, Since Managing Director of 221 None
Citigroup Asset Management President and 2002 Citigroup Global Markets
("CAM") Chief Inc. ("CGM"); Chairman,
399 Park Avenue Executive President and Chief
4th Floor Officer Executive Officer of Smith
New York, NY 10022 Barney Fund Management
Age 52 LLC ("SBFM"), Travelers
Investment Adviser, Inc.
("TIA") and Citi Fund
Management Inc. ("CFM");
President and Chief
Executive Officer of certain
mutual funds associated
with Citigroup Inc.
("Citigroup"); Formerly,
Portfolio Manager of Smith
Barney Allocation Series
Inc. (from 1996 to 2001)
and Smith Barney Growth
and Income Fund (from
1996 to 2000)
42
Additional Information
(unaudited) (continued)
Term of Number of
Office* Portfolios
and in Fund
Length Complex
Position(s) of Time Principal Occupation(s) During Overseen Other Board Memberships
Name, Address and Age Held with Fund Served Past Five Years by Trustee Held by Trustee
- --------------------- -------------- ------- ------------------------------ ---------- -----------------------
Officers:
Andrew B. Shoup Senior Vice Since Director of CAM; Senior N/A N/A
CAM President, 2003 Vice President and Chief
125 Broad Street Chief Administrative Officer of
11th Floor Administrative mutual funds associated
New York, NY 10004 Officer and with Citigroup; Treasurer
Age 47 Treasurer of certain mutual funds
associated with Citigroup;
Head of International
Funds Administration of
CAM (from 2001 to 2003);
Director of Global Funds
Administration of CAM
(from 2000 to 2001); Head
of U.S. Citibank Funds
Administration of CAM
(from 1998 to 2000)
Paul Hatch Investment Since Director of Managed N/A N/A
The Consulting Group Officer 2001 Accounts, Smith Barney
388 Greenwich Street
New York, NY 10013
Age 46
Stephen M. Hagan Investment Since First Vice President of The N/A N/A
The Consulting Group Officer 1997 Consulting Group
222 Delaware Avenue
Wilmington, DE 19801
Age 35
LeRoy T. Pease Investment Since First Vice President of The N/A N/A
The Consulting Group Officer 1996 Consulting Group
222 Delaware Avenue
Wilmington, DE 19801
Age 43
43
Additional Information
(unaudited) (continued)
Term of Number of
Office* Portfolios
and in Fund
Length Complex
Position(s) of Time Principal Occupation(s) During Overseen Other Board Memberships
Name, Address and Age Held with Fund Served Past Five Years by Trustee Held by Trustee
- --------------------- -------------- ------- ------------------------------ ---------- -----------------------
Andrew Beagley Chief Anti- Since Director of CGM (since N/A N/A
CAM Money 2002 2000); Director of
399 Park Avenue, 4th Floor Laundering Compliance, North
New York, NY 10022 Compliance America, CAM (since
Age 40 Officer 2000); Chief Anti-Money
Laundering Compliance
Officer and Vice President
of certain mutual funds
associated with Citigroup;
Director of Compliance,
Europe, the Middle East
and Africa, Citigroup Asset
Management (from 1999
to 2000); Compliance
Officer, Salomon Brothers
Asset Management
Limited, Smith Barney
Global Capital
Management Inc.,
Salomon Brothers Asset
Management Asia Pacific
Limited (from 1997 to
1999)
Frances M. Guggino Controller Since Vice President of CGM; N/A N/A
CAM 2003 Controller of certain
125 Broad Street mutual funds associated
10th Floor with Citigroup
New York, NY 10004
Age 45
Robert I. Frenkel Secretary and Since Managing Director and N/A N/A
CAM Chief Legal 2003 General Counsel of Global
300 First Stamford Place Officer Mutual Funds for CAM
4th Floor and its predecessor (since
Stamford, CT 06902 1994); Secretary of CFM
Age 49 (from 2001 to 2004);
Secretary and Chief Legal
Officer of mutual funds
associated with Citigroup
- --------
* Each Trustee and Officer serves until his or her successors has been duly
elected and qualified.
**Mr. Gerken is an "interested person" of the fund as defined in the Investment
Company Act of 1940, as amended, because Mr. Gerken is an officer of SBFM and
certain of its affiliates.
44
Tax Information
(unaudited)
For Federal tax purposes the Fund hereby designates for the fiscal year ended
March 31, 2004:
. Corporate dividends received deduction of 53.06%.
. Long-term capital gain distributions of $136,931.
. For taxable non-corporate shareholders, the maximum amount allowable of
qualifying dividends for the reduced tax rate under The Jobs and Growth
Tax Relief Reconciliation Act of 2003. The amount of qualified dividend
income distributed by the Fund is provided to shareholders on their Form
1099-Div annually.
45
WWW.SMITHBARNEY.COM
[LOGO]
SMITHBARNEY
citigroup
(C)2004 Citigroup Global Markets Inc. Member NASD, SIPC. Smith Barney
and Consulting Group are divisions of Citigroup Global Markets Inc.
Smith Barney is a service mark of Citigroup Global Markets Inc. and its
affiliates and is used and registered throughout the world. CITIGROUP
and the Umbrella Device are trademarks and service marks of Citicorp or
its affiliates and are used and registered throughout the world.
This report is submitted for the general information of the
shareholders of Consulting Group Capital Markets Funds. It is not
authorized for distribution to prospective investors unless accompanied
or preceded by a current Prospectus for the Trust which contains
information concerning the Trust's Investment policies, charges
and expenses as well as other pertinent information.
A description of the policies and procedures that the Trust uses to
determine how to vote proxies relating to portfolio securities is
available without charge, upon request, by telephoning the Trust
(toll-free) at 1-800-451-2010 and by visiting the SEC's web site at
www.sec.gov.
TK 2122 5/04 Consulting Group Capital Markets Funds . 222 Delaware
Avenue . Wilmington, Delaware . 19801
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees of the registrant has determined that Armon E.
Kamesar, the Chairman of the Board's Audit Committee, possesses the
technical attributes identified in Instruction 2(b) of Item 3 to Form
N-CSR to qualify as an "audit committee financial expert," and has
designated Mr. Kamesar as the Audit Committee's financial expert. Mr.
Kamesar is an "independent" Trustee pursuant to paragraph (a)(2) of
Item 3 to Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees for Consulting Group Capital Markets Funds were $18,000
and $13,000 for the years ended 3/31/04 and 3/31/03.
(b) Audit-Related Fees for Consulting Group Capital Markets Funds were
$0 and $0 for the years ended 3/31/04 and 3/31/03.
(c) Tax Fees for Consulting Group Capital Markets Funds were $2,000
and $2,000 for the years ended 3/31/04 and 3/31/03. These amounts
represent aggregate fees paid for tax compliance, tax advice and
tax planning services, which include (the filing and amendment of
federal, state and local income tax returns, timely RIC
qualification review and tax distribution and analysis planning)
rendered by the Accountant to Consulting Group Capital Markets
Funds
(d) There were no all other fees for Consulting Group Capital Markets
Funds for the years ended 3/31/04 and 3/31/03.
(e) (1) Audit Committee's pre-approval policies and procedures
described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.
The Charter for the Audit Committee (the "Committee") of the Board
of each registered investment company (the "Fund") advised by
Smith Barney Fund Management LLC or Salomon Brothers Asset
Management Inc or one of their affiliates (each, an "Adviser")
requires that the Committee shall approve (a) all audit and
permissible non-audit services to be provided to the Fund and (b)
all permissible non-audit services to be provided by the Fund's
independent auditors to the Adviser and any Covered Service
Providers if the engagement relates directly to the operations and
financial reporting of the Fund. The Committee may implement
policies and procedures by which such services are approved other
than by the full Committee.
The Committee shall not approve non-audit services that the
Committee believes may impair the independence of the auditors. As
of the date of the approval of this Audit
Committee Charter, permissible non-audit services include any
professional services (including tax services), that are not
prohibited services as described below, provided to the Fund by
the independent auditors, other than those provided to the Fund in
connection with an audit or a review of the financial statements
of the Fund. Permissible non-audit services may not include: (i)
bookkeeping or other services related to the accounting records or
financial statements of the Fund; (ii) financial information
systems design and implementation; (iii) appraisal or valuation
services, fairness opinions or contribution-in-kind reports; (iv)
actuarial services; (v) internal audit outsourcing services; (vi)
management functions or human resources; (vii) broker or dealer,
investment adviser or investment banking services; (viii) legal
services and expert services unrelated to the audit; and (ix) any
other service the Public Company Accounting Oversight Board
determines, by regulation, is impermissible.
Pre-approval by the Committee of any permissible non-audit
services is not required so long as: (i) the aggregate amount of
all such permissible non-audit services provided to the Fund, the
Adviser and any service providers controlling, controlled by or
under common control with the Adviser that provide ongoing
services to the Fund ("Covered Service Providers") constitutes not
more than 5% of the total amount of revenues paid to the
independent auditors during the fiscal year in which the
permissible non-audit services are provided to (a) the Fund, (b)
the Adviser and (c) any entity controlling, controlled by or under
common control with the Adviser that provides ongoing services to
the Fund during the fiscal year in which the services are provided
that would have to be approved by the Committee; (ii) the
permissible non-audit services were not recognized by the Fund at
the time of the engagement to be non-audit services; and (iii)
such services are promptly brought to the attention of the
Committee and approved by the Committee (or its delegate(s)) prior
to the completion of the audit.
(f) N/A
(g) Non-audit fees billed - $100,000 and $1.2 million for the years
ended 12/31/2003 and 12/31/2002.
(h) Yes. The Consulting Group Capital Markets Funds' Audit Committee
has considered whether the provision of non-audit services that
were rendered to Service Affiliates which were not pre-approved
(not requiring pre-approval) is compatible with maintaining the
Accountant's independence. All services provided by the Accountant
to the Consulting Group Capital Markets Funds or to Service
Affiliates which were required to be pre-approved were
pre-approved as required.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal
financial officer have concluded that the registrant's disclosure
controls and procedures (as defined in Rule 30a- 3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act")) are
effective as of a date within 90 days of the filing date of this
report that includes the disclosure required by this paragraph,
based on their evaluation of the disclosure controls and
procedures required by Rule 30a-3(b) under the 1940 Act and
15d-15(b) under the Securities Exchange Act of 1934.
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940
Act) that occurred during the registrant's last fiscal half-year
(the registrant's second fiscal half-year in the case of an annual
report) that have materially affected, or are likely to materially
affect the registrant's internal control over financial reporting.
ITEM 10. EXHIBITS.
(a) Code of Ethics attached hereto.
Exhibit 99.CODE ETH
(b) Attached hereto.
Exhibit 99.CERT Certifications pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 99.906CERT Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this Report to be
signed on its behalf by the undersigned, there unto duly authorized.
Consulting Group Capital Markets Funds
By: /s/ R. Jay Gerken
R. Jay Gerken
Chief Executive Officer of
Consulting Group Capital Markets Funds
Date: June 7, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ R. Jay Gerken
R. Jay Gerken
Chief Executive Officer of
Consulting Group Capital Markets Funds
Date: June 7, 2004
By: /s/ Andrew B. Shoup
Andrew B. Shoup
Chief Financial Officer of
Consulting Group Capital Markets Funds
Date: June 7, 2004