Consulting Group Capital Markets Funds TRAK
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Consulting Group Capital Markets Funds TRAK Annual Report » August 31, 2012 • Large Capitalization Growth Investments • Large Capitalization Value Equity Investments • Small Capitalization Growth Investments • Small Capitalization Value Equity Investments • International Equity Investments • Emerging Markets Equity Investments • Core Fixed Income Investments • High Yield Investments • International Fixed Income Investments • Municipal Bond Investments • Money Market Investments INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE Table of Contents SHAREHOLDER LETTER .............................................................................. 1 CONSULTING GROUP CAPITAL MARKETS FUNDS PERFORMANCE SUMMARY LARGE CAPITALIZATION GROWTH INVESTMENTS ................................................... 1 LARGE CAPITALIZATION VALUE EQUITY INVESTMENTS............................................... 4 SMALL CAPITALIZATION GROWTH INVESTMENTS ................................................... 7 SMALL CAPITALIZATION VALUE EQUITY INVESTMENTS............................................... 9 INTERNATIONAL EQUITY INVESTMENTS ............................................................ 11 EMERGING MARKETS EQUITY INVESTMENTS........................................................ 13 CORE FIXED INCOME INVESTMENTS............................................................... 15 HIGH YIELD INVESTMENTS ....................................................................... 18 INTERNATIONAL FIXED INCOME INVESTMENTS ..................................................... 20 MUNICIPAL BOND INVESTMENTS.................................................................. 22 MONEY MARKET INVESTMENTS................................................................... 24 FUND EXPENSES .................................................................................... 29 SCHEDULES OF INVESTMENTS ........................................................................ 31 STATEMENTS OF ASSETS AND LIABILITIES .............................................................. 142 STATEMENTS OF OPERATIONS ........................................................................ 144 STATEMENTS OF CHANGES IN NET ASSETS............................................................. 146 FINANCIAL HIGHLIGHTS ............................................................................. 150 NOTES TO FINANCIAL STATEMENTS ................................................................... 156 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ....................................... 194 BOARD APPROVAL OF MANAGEMENT AGREEMENT AND INVESTMENT ADVISORY AGREEMENTS ................. 195 ADDITIONAL INFORMATION .......................................................................... 197 IMPORTANT TAX INFORMATION ....................................................................... 201 Consulting Group Capital Markets Funds DEAR SHAREHOLDER, Political elections and global economic growth, as well as the monetary union and debt crisis in the Eurozone, were among the dominant topics that persistently confronted the financial markets during the fiscal annual reporting period ended August 31, 2012. Increased volatility in the equity and fixed income markets, encompassing ebbs and flows reflecting “risk-on” or “risk-off” investor shifts in global sentiments, defined the one-year period as investors continued to deal with uncertainties related to the global environment. Despite a tumultuous year,domestic U.S. equities delivered strong performance results during the period. Better-than-expected economic data in the United States (“U.S.”), combined with accommodative Federal Reserve policies, created a general tone of cautious optimism throughout the year. Given that backdrop, it was not surprising to see large market capitalization stocks in the U.S. among the performance leaders from a market capitalization perspective, as investors sought and rewarded companies perceived to have greater relative stability in their earnings. U.S. investors in overseas stocks were not as fortunate. Developed international and emerging markets equities generally ended the annual period in negative territory. Although foreign equities appeared to have been invigorated at times during the year, boosted in large part by a belief that Europe had made some progress toward containing its sovereign debt woes, a European recession and signs of a slowdown in global economic growth diminished investor enthusiasm. Notably, developed equities in the Pacific region and in Japan came under pressure, while emerging markets stocks in countries such as China and Russia typically lost value. At the same time, currency effects generally had a negative impact on performance, as the U.S. dollar strengthened relative to foreign currencies, hurting unhedged U.S.-based investors venturing into international and emerging markets. Fueled by falling yields and rising prices, domestic taxable and tax-exempt bonds generated solid advances over the fiscal year. Investors in long-term maturing Treasury bonds were especially rewarded during the year, as negative headline news generally prompted intermittent “flight-to-safety” trades that sparked rallies in the Treasury market. Yields in other bond market segments also contracted to lower levels in the period, benefiting investments in municipal bonds, corporate issues, mortgage-backed securities, and high yield debt. Returns on money market funds continued to remain depressed, reflecting the Federal Reserve Board’s 0% to 0.25% target range for short-term interest rates. The positive and negative confidence disposition expressed by investors, as they appeared to embrace risk or gravitate toward risk aversion over the fiscal year, draws attention to the challenges clearly faced by the Consulting Group Capital Markets (“CGCM”) Funds and active investment advisers managing portfolios through periods of uncertainty and characterized by rapidly rotating risk environments. Consulting Group Capital Markets Funds CGCM Large Capitalization Growth Investments gained +15.7% in the annual period, exceeding the average +14.1% total return of mutual funds included in the Lipper Large-Cap Growth Funds Average investment category i, but lower than the +17.4% increase in the Russell 1000® Growth Index ii. An overweight exposure to the Information Technology sector, combined with positive stock selections in the Information Technology (IT services) and Telecommunication Services (wireless) sectors, contributed to returns, while investments in the Consumer Discretionary (specialty retail, hotels restaurants & leisure) and Health Care (biotechnology) sectors unfavorably affected performance in the yearly period. I Large Capitalization Value Equity Investments registered a total return of +12.5% in the fiscal year, trailing the average +14.6% rise in the performance of mutual funds included in the Lipper Large-Cap Value Funds Average investment iii category and the +17.3% advance in the Russell 1000® Value Index iv. An overweight allocation to the Energy sector and an underweight exposure to the Consumer Discretionary sector, in addition to stock selections in the Information Technology(semiconductors & semiconductor equipment), Health Care (pharmaceuticals), Energy (equipment & services), Telecommunication Services (wireless), and Industrials (commercial services & supplies) sectors, negatively impacted relative returns in the annual fiscal period. Small Capitalization Growth Investments generated an +11.5% return in the twelve-month fiscal period ending August 31, 2012, as compared to the average +11.9% increase in mutual funds included in the Lipper Small-Cap Growth Funds Average investment category v and the +12.7% gain in the Russell 2000® Growth Index vi. An underweight exposure to the Health Care sector, combined with underperforming security selections in the Health Care (biotechnology), Energy (equipment & services), and Consumer Discretionary (specialty retail) sectors, adversely affected one-year relative performance. Small Capitalization Value Equity Investments experienced an increase of +16.9% in the fiscal year, exceeding the average +11.7% rise in mutual fund included in the Lipper Small-Cap Value Funds Average investment category vii and the +14.1% gain in the Russell 2000® Value Index viii. Favorable contributions from holdings in the Materials (chemicals), Information Technology(semiconductors & semiconductor equipment), Industrials (electrical equipment, marine), Energy (equipment & services), and Consumer Discretionary (leisure equipment & products) sectors helped relative performance over the period. International Equity Investments fell slightly on an absolute basis, posting a decline of -0.1% in the fiscal period. Relative performance was marginally lower than the negligible -0.0% retreat in the MSCI EAFE® Index ix (Net), as well as the average +0.1% rise in mutual funds included in the Lipper International Large-Cap Core Average investment categoryx. Stock selections in the Information Technology (semiconductors & semiconductor equipment) sector, in addition to selective country exposures, contributed to one-year returns in the fiscal period. In particular, overweight allocations to China and South Korea, respectively, combined with an underweight position in Japan and Spain, added value. However, a concurrent overweight exposure to Brazil, combined with investments in Australia, China, and Hong Kong, as well as in various sectors including Energy (oil gas