ASSET ALLOCATION PORTFOLIOS, POS AMI, 1999-03-01

ASSET ALLOCATION PORTFOLIOS
POS AMI, 1999-03-01

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As filed with the Securities and Exchange Commission on March 1, 1999

File No. 811-7459

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549

FORM N-1A

REGISTRATION STATEMENT

UNDER

THE INVESTMENT COMPANY ACT OF 1940

AMENDMENT NO. 5

ASSET ALLOCATION PORTFOLIOS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

ELIZABETHAN SQUARE, GEORGE TOWN, GRAND CAYMAN, CAYMAN ISLANDS, BWI
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:

(345) 945-1824

SUSAN JAKUBOSKI, ELIZABETHAN SQUARE, GEORGE TOWN,
GRAND CAYMAN, CAYMAN ISLANDS, BWI
(NAME AND ADDRESS OF AGENT FOR SERVICE)

COPY TO:
ROGER P. JOSEPH, BINGHAM DANA LLP,
150 FEDERAL STREET, BOSTON, MA 02110

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EXPLANATORY NOTE

Asset Allocation Portfolios has filed this Registration Statement pursuant
to Section 8(b) of the Investment Company Act of 1940. However, beneficial
interests in the Portfolios are not being registered under the Securities Act
of 1933, since such interests will be issued solely in private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of the 1933 Act. Only investment companies, insurance company
separate accounts, common or commingled trust funds or similar organizations or
entities that are "accredited investors" within the meaning of Regulation D
under the 1933 Act may make investments in the Portfolios. This Registration
Statement is not an offer to sell, or the solicitation of an offer to buy, any
beneficial interests in the Portfolios.

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PART A

Responses to Items 1, 2, 3, 5 and 9 have been omitted pursuant to General
Instruction B.2(b) of Form N-1A.

Item 4. Investment Objectives, Principal Investment Strategies, and Related
Risks.

PORTFOLIO GOALS

The goal of SHORT-TERM PORTFOLIO is liquidity and as high a level of current
income as is consistent with the preservation of capital.

The goal of INTERMEDIATE INCOME PORTFOLIO is current income and preservation of
capital.

The goal of LARGE CAP VALUE PORTFOLIO is above average total return consistent
with reasonable risk.

The goal of SMALL CAP VALUE PORTFOLIO is long-term capital growth. Dividend
income, if any, is incidental to this goal.

The goal of INTERNATIONAL PORTFOLIO is current income and long-term growth of
income accompanied by growth of capital.

The goal of FOREIGN BOND PORTFOLIO is maximum total return consistent with
preservation of capital. Effective April 1, 1999, Foreign Bond Portfolio's goal
will be to generate a high level of current income; total return and
preservation of capital will be secondary objectives.

The goal of each Portfolio may be changed without approval by that Portfolio's
investors but not without written notice thereof to the Portfolio's investors
at least 30 days prior to implementing the change. Of course, there can be no
assurance that any Portfolio will achieve its goal.

MAIN INVESTMENT STRATEGIES

Each Portfolio's principal investment strategies are the strategies that, in
the opinion of Citibank, N.A., the investment manager for each Portfolio, are
most likely to achieve the Portfolio's investment goal. Of course, there can be
no assurance that any Portfolio will achieve its goal. Please note that each
Portfolio may also use strategies and invest in securities that are not
described below but that are described in Part B to this Registration
Statement. Of course, Citibank may decide, as a matter of investment strategy,
not to use the investments and investment techniques described below and in
Part B at any particular time. Each Portfolio's strategies may be changed
without investor approval.

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SHORT-TERM PORTFOLIO invests primarily in cash and high quality, short-term
MONEY MARKET INSTRUMENTS denominated in U.S. dollars. These include:

o short-term obligations of the U.S. government and its agencies and
instrumentalities, and repurchase agreements for these obligations;

o obligations of U.S. and non-U.S. banks;

o obligations issued or guaranteed by the governments of Western
Europe, Australia, Japan and Canada; and

o commercial paper and asset backed securities.

To be high quality, a security (or its issuer) must be rated in one of the two
highest short-term rating categories by nationally recognized rating agencies,
such as Moody's Investors Service or Standard & Poor's, or, in Citibank's
opinion, be of comparable quality. Investors should note that within these two
rating categories there may be sub-categories or gradations indicating relative
quality. If the credit quality of a security deteriorates after the Portfolio
buys it, Citibank will decide whether the security should be held or sold.

The Portfolio invests at least 25%, and may invest up to 100%, of its assets in
bank obligations, such as certificates of deposit, fixed time deposits and
bankers' acceptances.

The Portfolio's investments generally will mature in less than 13 months. These
investments provide opportunities for income with low credit risk, but may
result in a lower yield (the income on your investment) than investing in lower
quality or longer-term instruments.

A MONEY MARKET INSTRUMENT is a short-term IOU issued by a bank or other
corporation, or the U.S. or a foreign government, or a state or local
government. Money market instruments may include CERTIFICATES OF DEPOSIT,
BANKERS' ACCEPTANCES, VARIABLE or FLOATING RATE DEMAND NOTES (where the
interest rate is reset periodically and the holder may demand payment from the
issuer at any time), FIXED-TERM OBLIGATIONS, COMMERCIAL PAPER (short-term
unsecured debt of corporations), ASSET BACKED SECURITIES (which are backed by
pools of accounts receivable such as car installment loans or credit card
receivables) and REPURCHASE AGREEMENTS. In a repurchase agreement, the seller
sells a security and agrees to buy it back at a later date (usually within
seven days) and at a higher price, which reflects an agreed upon interest rate.

Management Style. Managers of mutual funds use different styles when selecting
securities to purchase. Citibank's portfolio managers use a "top-down" approach
when selecting securities for Short-Term Portfolio. When using a "top-down"
approach, the portfolio manager looks first at broad economic factors and
market conditions, such as prevailing and anticipated interest rates. On the

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basis of those factors and conditions, the manager selects optimal interest
rates and maturities and chooses certain sectors or industries within the
overall market. The manager then looks at individual companies within those
sectors or industries to select securities for the investment portfolio.

Many of Short-Term Portfolio's investments are held until maturity. The manager
may sell a security before maturity when it is necessary to do so to meet
redemption requests. The manager may also sell a security if it believes the
issuer is no longer as creditworthy, or in order to adjust the average weighted
maturity of the Portfolio's investment portfolio (for example, to reflect
changes in the manager's expectations concerning interest rates), or when the
manager believes there is superior value in other market sectors or industries.

Under normal circumstances, INTERMEDIATE INCOME PORTFOLIO invests at least 65%
of its total assets in a broad range of FIXED INCOME SECURITIES.

FIXED INCOME SECURITIES generally represent a debt obligation of an issuer, and
include BONDS, SHORT-TERM OBLIGATIONS and MORTGAGE-BACKED and ASSET-BACKED
SECURITIES. Fixed income securities, in general, offer a fixed stream of cash
flow. Most bond investments focus on generating income. The potential for
capital appreciation is a secondary objective. The value of fixed income
securities generally goes up when interest rates go down, and down when rates
go up. The value of these securities also fluctuates based on other market and
credit factors.

Fixed income securities may bear fixed, fixed and contingent, or variable rates
of interest and may involve equity features, such as conversion or exchange
rights or warrants for the acquisition of stock of the same or a different
issuer or participations based on revenues, sales or profits. Changes in
interest rates will generally cause bigger changes in prices of longer-term
securities than in the prices of shorter-term securities.

The Portfolio's fixed income securities include:

o debt securities of U.S. and foreign companies, such as bonds,
short-term notes, mortgage-backed and asset-backed securities
(including collateralized mortgage obligations or CMOs), equipment
lease or trust certificates, conditional sales contracts and
commercial paper;

o U.S. government securities, such as U.S. Treasury bills, notes and
bonds, and obligations issued or guaranteed by U.S. government
agencies or instrumentalities;

o debt securities of foreign governments; and

o preferred stock of U.S. and foreign companies.

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The Portfolio currently intends to invest primarily in securities of U.S.
issuers, but may also invest in securities of foreign issuers.

Corporate Debt Securities. Corporate bonds are used by U.S. and foreign
corporate issuers to borrow money from investors, and may have varying
maturities. Bonds also have varying degrees of quality and varying degrees of
sensitivity to changes in interest rates. For example, the values of lower
quality bonds generally fluctuate more than higher quality bonds. Investment in
bonds of U.S. and foreign corporate issuers may provide higher levels of
current income than government securities.

The Portfolio's debt securities issued by U.S. companies must be investment
grade when the Portfolio purchases them. Investment grade securities are those
rated Baa or better by Moody's, BBB or better by Standard & Poor's or which
Citibank believes to be of comparable quality. Securities rated Baa or BBB and
securities of comparable quality may have speculative characteristics. Also,
changes in economic or market conditions or the issuers' circumstances are more
likely to adversely affect the issuers' ability to make payments on the
securities than is the case for higher rated securities. If the credit quality
of a security deteriorates after the Portfolio buys it, Citibank will decide
whether the security should be held or sold.

Mortgage and Asset Backed Securities. Home mortgage loans are typically grouped
together into "pools" by banks and other lending institutions, and interests in
these pools are then sold to investors, allowing the bank or other lending
institution to have more money available to loan to home buyers. When
homeowners make interest and principal payments, these payments are passed on
to the investors in the pool. Certain types of mortgage-backed securities are
called collateralized mortgage obligations, or CMOs.

The Portfolio's mortgage-backed securities may be issued or guaranteed as to
payment of principal and interest by the U.S. government or one of its
agencies, such as GNMA and backed by the full faith and credit of the U.S.
government. Even if the U.S. government or one of its agencies guarantees
principal and interest payments of a mortgage-backed security, the market price
of the security is not insured and may be volatile.

The Portfolio also may invest in asset-backed securities that are not backed by
the U.S. government. These securities are backed by pools of assets such as
automobile loans or credit card receivables. It may be difficult to enforce
rights against the assets backing these securities.

The Portfolio may enter into "dollar rolls" where it sells mortgage-backed
securities and simultaneously agrees to repurchase substantially similar
securities on a specified future date. The Portfolio's dollar rolls are
"covered," meaning that the Portfolio establishes a segregated account with
liquid high grade debt securities equal in value to the securities it will
repurchase.

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Government Securities. U.S. government securities are high quality instruments
issued or guaranteed as to principal and interest by the U.S. government or by
an agency or instrumentality of the U.S. government. U.S. government securities
have minimal credit risk. Securities issued or guaranteed as to principal and
interest by foreign governments or agencies or instrumentalities of foreign
governments (which include securities of supranational agencies) also may
provide opportunities for income with minimal credit risk. Even though
government securities have minimal credit risk, they still fluctuate in value
when interest rates change. The Portfolio may invest in obligations, such as
repurchase agreements, secured by U.S. and foreign government securities.

Other Investments. The fixed income securities in which the Portfolio may
invest also include zero coupon bonds, deferred interest bonds and bonds on
which the interest is payable in kind. The Portfolio may also invest in
collateralized mortgage obligations, multiclass pass-through securities,
stripped mortgage-backed securities and corporate asset-backed securities.

The Portfolio may hold cash pending investment, and may invest in money market
instruments, repurchase agreements and reverse repurchase agreements for cash
management purposes.

Derivatives. Intermediate Income Portfolio may use derivatives in order to
protect (or "hedge") against declines in the value of securities held by the
Portfolio or increases in the cost of securities to be purchased in the future,
or to hedge against changes in interest rates. The Portfolio may also use
derivatives for non-hedging purposes, to generate income or enhance potential
gains. In addition, the Portfolio may use derivatives to manage the effective
maturity or duration of fixed income securities. These derivatives include
interest rate futures, stock index futures, foreign currency futures, forwards
and exchange contracts, options on securities and foreign currencies, options
on interest rate futures and swaps. In some cases, the derivatives purchased by
the Portfolio are standardized contracts traded on commodities exchanges or
boards of trade. This means that the exchange or board of trade guarantees
counterparty performance. In other cases, the derivatives may be illiquid, and
the Portfolio may bear more counterparty risk. Derivatives may not be available
on terms that make economic sense (they may be too costly). The Portfolio's
ability to use derivatives may also be limited by tax considerations.

Defensive Strategies. The Portfolio may, from time to time, take temporary
defensive positions that are inconsistent with the Portfolio's principal
investment strategies in attempting to respond to adverse market, political or
other conditions. When doing so, the Portfolio may invest without limit in high
quality money market and other short-term instruments, and may not be pursuing
its investment goals.

Management Style. Managers of mutual funds use different styles when managing
portfolios. Portfolio managers for Citibank generally use a "top-down" approach

<PAGE>

when establishing duration and sector allocation and a "bottom-up" approach
when selecting securities to purchase or sell for the Portfolio. When using a
"top-down" approach the portfolio manager looks first at broad economic factors
and market conditions. Security selection combines fundamental credit analysis
with relative value decisions. Portfolio managers, working from an approved
list of issuers, compare the yield advantage of an issue to other issues in its
peer group.

The Portfolio is actively managed. Although the portfolio managers attempt to
minimize portfolio turnover, from time to time the Portfolio's annual portfolio
turnover rate may exceed 100%. The sale of securities may produce capital
gains, which, when distributed, are taxable to investors. Active trading may
also increase the amount of commissions or mark-ups the Portfolio pays to
broker or dealers when it buys and sells securities. For the period from
November 1, 1997 (commencement of operations) to October 31, 1998, Intermediate
Income Portfolio's portfolio turnover rate was 98%.

LARGE CAP VALUE PORTFOLIO invests primarily in equity securities of issuers
that have large market capitalizations (that is, market capitalizations within
the top 1,000 stocks of the equity market). The Portfolio emphasizes securities
issued by established companies with stable operating histories. Under normal
circumstances, at least 65% of the Portfolio's total assets is invested in
equity securities of these issuers.

SMALL CAP VALUE PORTFOLIO invests primarily in equity securities of U.S. small
cap issuers that, at the time the securities are purchased, have small market
capitalizations below the top 1,000 stocks of the equity market. These stocks
may include the stocks in the Russell 2000 Index, which is an index of small
capitalization stocks. Under normal circumstances, at least 65% of the
Portfolio's total assets is invested in equity securities of these issuers.

Small cap companies are generally rapidly growing, with negligible dividend
yields and extremely high levels of volatility. They may offer more profit
opportunity during certain economic conditions than large and medium sized
companies, but they also involve special risks.

EQUITY SECURITIES generally represent an ownership interest (or a right to
acquire an ownership interest) in an issuer, and include COMMON STOCKS,
SECURITIES CONVERTIBLE INTO COMMON STOCKS, PREFERRED STOCKS and warrants for
the purchase of stock. While equity securities historically have been more
volatile than fixed income securities, they historically have produced higher
levels of total return.

Large Cap Value Portfolio and Small Cap Value Portfolio may also invest in debt
securities. The Portfolios' debt securities must be investment grade when a
Portfolio purchases them. Investment grade securities are those rated Baa or
better by Moody's, BBB or better by Standard & Poor's, or which Citibank

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believes to be of comparable quality. Generally, less than 5% of Small Cap
Value Portfolio's assets consist of debt securities rated Baa by Moody's or BBB
by Standard & Poor's.

Large Cap Value Portfolio may invest in foreign equity and debt securities,
including depositary receipts. Foreign securities may be issued by issuers in
developing countries.

Large Cap Value Portfolio's and Small Cap Value Portfolio's portfolio managers
use a value oriented approach in managing each Portfolio. This means that they
look for securities that they believe are currently undervalued, or priced
below their true worth, but whose issuers have good longer term business
prospects. An issuer may be undervalued relative to the stock market in
general, relative to the underlying value of its assets or relative to what a
sophisticated private investor would pay for the entire company. The
Portfolios' portfolio managers analyze a variety of factors in order to
determine that an issuer is undervalued. These factors include:

o low price to earnings ratio relative to the market, industry group or
earnings growth;

o low price relative to book value or cash flow;

o valuable franchises, patents, trademarks, trade names, distribution
channels or market share for particular products or services, tax
loss carryforwards, or other intangibles that may not be reflected in
stock prices;

o ownership of understated or underutilized tangible assets such as
land, timber or minerals;

o underutilized cash or investment assets; and

o unusually high current income.

Issuers selected by the portfolio managers may exhibit one or more of these
factors, and may include companies in cyclical businesses, turnarounds and
companies emerging from bankruptcy.

The most common reasons for undervaluation are that a particular industry is
out of favor, whether because of problems with specific issuers or because the
economic environment is unfavorable, an issuer's management team has made
mistakes, and issuers are hard to understand or value because they include many
different businesses. Citibank believes that securities of companies which are
temporarily underpriced may provide a higher total return over time than
securities' of companies whose positive attributes are reflected in the
securities' current price.

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Large Cap Value Portfolio and Small Cap Value Portfolio may each hold cash
pending investment, and may invest in money market instruments, repurchase
agreements and reverse repurchase agreements for cash management purposes.

Derivatives. Large Cap Value Portfolio and Small Cap Value Portfolio may each
use derivatives in order to protect (or "hedge") against declines in the value
of securities held by the Portfolio or increases in the cost of securities to
be purchased in the future. Each Portfolio may also use derivatives for
non-hedging purposes, to enhance potential gains. These derivatives include
stock index futures and options for Small Cap Value Portfolio and stock index
futures, interest rate futures, foreign currency futures, forwards and exchange
contracts, options on securities and foreign currencies, options on interest
rate and stock index futures and swaps for Large Cap Value Portfolio. In some
cases, the derivatives purchased by a Portfolio are standardized contracts
traded on commodities exchanges or boards of trade. This means that the
exchange or board of trade guarantees counterparty performance. In some cases,
the derivatives may be illiquid, and a Portfolio may bear more counterparty
risk. Derivatives may not be available on terms that make economic sense (for
example, they may be too costly). A Portfolio's ability to use derivatives may
also be limited by tax considerations.

Defensive Strategies. Large Cap Value Portfolio and Small Cap Value Portfolio
may each, from time to time, take temporary defensive positions that are
inconsistent with the Portfolio's principal investment strategies in attempting
to respond to adverse market, political or other conditions. When doing so, a
Portfolio may invest without limit in high quality money market and other
short-term instruments, and may not be pursuing its investment goal.

Management Style. Managers of mutual funds use different styles when selecting
securities to purchase. Portfolio managers for Citibank generally use a
"bottom-up" approach when selecting securities for purchase by Large Cap Value
Portfolio and Small Cap Value Portfolio. This means that they look primarily at
individual companies against the context of broader market forces. The
portfolio managers use this same approach when deciding which securities to
sell. Securities are sold when a Portfolio needs cash to meet redemptions, or
when the managers believe that better opportunities exist or that the security
no longer fits within the manager's overall strategies for achieving the
Portfolio's goals. However, a Portfolio may continue to hold securities of
issuers that become mid cap or large cap issuers, in the case of Small Cap
Value Portfolio, or small or mid cap issuers, in the case of Large Cap Value
Portfolio, if, in the managers' judgment, these securities remain good
investments for the Portfolio.

Large Cap Value Portfolio and Small Cap Value Portfolio are each actively
managed. Although the portfolio managers attempt to minimize portfolio
turnover, from time to time a Portfolio's annual portfolio turnover rate may
exceed 100%. The sale of securities may produce capital gains, which, when
distributed, are taxable to investors. Active trading may also increase the

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amount of commissions or mark-ups a Portfolio pays to brokers or dealers when
it buys and sells securities. For the period from November 1, 1997
(commencement of operations) to October 31, 1998, Large Cap Value Portfolio's
portfolio turnover rate was 61%. For the period from November 1, 1997
(commencement of operations) to October 31, 1998, Small Cap Value Portfolio's
portfolio turnover rate was 47%.

Under normal circumstances, INTERNATIONAL PORTFOLIO invests at least 65% of its
total assets in stocks in at least three foreign markets. In selecting
securities, the Portfolio's portfolio managers emphasize issuers in developed
international equity markets, including Europe, Australia, New Zealand, Japan,
Hong Kong, Singapore, Canada and South Korea. The Portfolio may also purchase
securities of issuers in developing countries. Normally the Portfolio invests
at least 80% of its total assets in stocks that pay dividends. It also may
invest in stocks that don't pay dividends or interest, but have growth
potential unrecognized by the market or changes in business or management that
indicate growth potential.

The Portfolio invests in equity securities, including common stocks and other
securities with common stock characteristics, like convertible preferred
stocks, convertible bonds or warrants. It may also buy bonds. Convertible
securities and bonds will be rated at least A by a nationally recognized
statistical rating organization (like Moody's or Standard & Poor's) or, if
unrated, be of comparable quality in the portfolio manager's opinion. The
Portfolio's foreign debt securities are short term, with maturities of one year
or less.

After International Portfolio buys a bond or convertible security, it may be
given a lower rating or stop being rated. This would not require the Portfolio
to sell the security, but the portfolio managers will consider the change in
rating in deciding whether to keep the security.

International Portfolio may hold cash pending investment, and may invest in
money market instruments, repurchase agreements and reverse repurchase
agreements for cash management purposes.

Derivatives. International Portfolio may use derivatives in order to protect
(or "hedge") against declines in the value of securities held by the Portfolio
or increases in cost of securities to be purchased in the future. The Portfolio
may also use derivatives for non-hedging purposes, to generate income or
enhance potential gains. These derivatives include financial futures, stock
index futures, foreign currency futures, forwards and exchange contracts,
options on securities and foreign currencies, options on interest rate and
stock index futures and swap agreements and related transactions such as caps,
floors and collars. In some cases, the derivatives purchased by the Portfolio
are standardized contracts traded on commodities exchanges or boards of trade.
This means that the exchange or board of trade guarantees counterparty risk. In
some cases, the derivatives may be illiquid, and the Portfolio may bear more
counterparty risk. Derivatives may not be available on terms that make economic
sense (they may be too costly). The Portfolio's ability to use derivatives may
also be limited by tax considerations.

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Defensive Strategies. International Portfolio may, from time to time, take
temporary defensive positions that are inconsistent with the Portfolio's
principal investment strategies in attempting to respond to adverse market,
political or other conditions. When doing so, the Portfolio may invest without
limit in high quality money market and other short-term instruments, and may
not be pursuing its investment goal.

Management Style. In purchasing and selling securities for International
Portfolio, the Portfolio's portfolio managers follow a value style. Stocks may
be "undervalued" because they are part of an industry that is out of favor with
investors generally. Even in those industries, though, individual companies may
have high rates of growth of earnings and be financially sound. At the same
time, the price of their common stock may be depressed because investors
associate the companies with their industries. Typical value factors are:

o earnings yield at least 3% greater than the yield on long-term bonds;

o dividend yield that exceeds the yield on a benchmark index;

o the company's overall financial strength; and

o low price-to-earnings ratio relative to the company's expected growth
rate.

The portfolio managers consider these same factors when deciding which
securities to sell. Securities are sold when the Portfolio needs cash to meet
redemptions, or when the manager believes that the security no longer fits
within the managers' overall strategies for achieving the Portfolio's goals.

International Portfolio is actively managed. Although the portfolio managers
attempt to minimize portfolio turnover, from time to time the Portfolio's
annual portfolio turnover rate may exceed 100%. The sale of securities may
produce capital gains, which, when distributed, are taxable to investors.
Active trading may also increase the amount of commissions or mark-ups the
Portfolio pays to brokers or dealers when it buys and sells securities. For
period from November 1, 1997 (commencement of operations) to October 31, 1998,
International Portfolio's portfolio turnover rate was 43%.

FOREIGN BOND PORTFOLIO invests in fixed income securities of issuers in at
least three non-U.S. markets. The Portfolio expects that under normal
circumstances at least 85% of its assets will be so invested (for purposes of
this measurement, issuers and countries may be represented by future contracts
(including related options) with respect to underlying securities and options
on such securities). The Portfolio's fixed income securities are primarily
denominated in major foreign currencies and baskets of foreign currencies (such
as the euro).

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The Portfolio's fixed income securities include:

o corporate debt securities, including convertible securities and
corporate commercial paper;

o mortgage-backed and other asset-backed securities;

o inflation-indexed bonds issued by both governments and corporations;

o structured notes and loan participations;

o bank certificates of deposit, fixed time deposits and bankers'
acceptances;

o repurchase agreements and reverse repurchase agreements;

o obligations of the U.S. government and of foreign governments or
their agencies and instrumentalities; and

o obligations of international agencies or supranational entities.

Fixed income securities may have fixed, variable, or floating rates of
interest, including rates of interest that vary inversely at a multiple of a
designated or floating rate, or that vary according to changes in relative
values of currencies.

Foreign Bond Portfolio may hold cash pending investment, and may invest in
money market instruments, repurchase agreements and reverse repurchase
agreements for cash management purposes.

Derivatives. Foreign Bond Portfolio may use derivatives in order to protect (or
"hedge") against changes in interest rates, currency fluctuations or the prices
of securities held or to be bought. The Portfolio may also use a wide variety
of derivatives for non-hedging purposes, to enhance potential gains or generate
income. In addition, the Portfolio may use derivatives to manage the maturity
or duration of fixed income securities. Derivatives that Foreign Bond Portfolio
may use include futures (including bond, interest rate and stock index
futures), options on securities and on futures (including options on interest
rate and stock index futures), interest rate swaps, equity swaps, and other
types of available swap agreements, including caps, collars and floors. Foreign
Bond Portfolio may also enter into foreign currency exchange contracts,
purchase foreign currency futures, or purchase or write options on foreign
currencies, or enter into currency swaps and other similar transactions.
Derivatives may be used alone or in combination with other derivatives. In some
cases, the derivatives purchased by the Portfolio are standardized contracts
traded on commodities exchanges or boards of trade. This means that the
exchange or board of trade guarantees counterparty performance. In other cases,
the derivatives may be illiquid, and the Portfolio may bear more counterparty
risk. Derivatives may not be available on terms that make economic sense (they

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may be too costly). The Portfolio's ability to use derivatives may also be
limited by tax considerations.

Foreign Bond Portfolio's use of derivatives, particularly for non-hedging
purposes, may be risky. This practice could result in losses that are not
offset by gains on other portfolio assets, causing the Portfolio's net asset
value to go down. The Portfolio's ability to use derivatives successfully
depends on the ability of the Portfolio's portfolio managers to accurately
predict movements in stock prices, interest rates, currency exchange rates or
other economic factors. If these predictions are wrong, the Portfolio could
suffer greater losses than if the Portfolio had not used derivatives.

Foreign Bond Portfolio's use of derivatives may involve leveraging. Under
leveraging, a relatively small investment may produce substantial losses or
gains for the Portfolio, well beyond the Portfolio's initial investment.

Short Sales. Foreign Bond Portfolio may engage in short sales of securities and
foreign currencies.

When the Portfolio's portfolio manager anticipates that the price of a security
will decline, the manager may enter into a short sale, or an agreement to sell
the security, even though the Portfolio does not own it. The Portfolio will
then borrow the same security from a broker or other institution in order to
complete the sale. The Portfolio must later purchase the security in order to
return the security borrowed. If the portfolio manager has predicted
accurately, the price at which the Portfolio buys the security will be less
than the price at which the Portfolio earlier sold the security, creating a
profit for the Portfolio. However, if the price of the security goes up during
this period, the Portfolio will be forced to buy the security for more than its
sale price, causing a loss to the Portfolio. Non-U.S. currencies may also be
sold short.

Losses from short sales may be unlimited. As with derivatives, the Portfolio's
use of short sales may entail leveraging and its related risks, as described
above.

Management Style. Managers of mutual funds use different styles when managing
portfolios. Portfolio managers for Citibank generally use a "top-down" approach
when establishing duration and sector allocation and a "bottom-up" approach
when selecting securities to purchase or sell for the Portfolio. When using a
"top-down" approach the portfolio manager looks first at broad economic factors
and market conditions. Security selection combines fundamental credit analysis

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with relative value decisions. Portfolio managers, working from an approved
list of issuers, compare the yield advantage of an issue to other issues in its
peer group.

The Portfolio is actively managed. Although the portfolio managers attempt to
minimize portfolio turnover, from time to time the Portfolio's annual portfolio
turnover rate may exceed 100%. The sale of securities may produce capital
gains, which, when distributed, are taxable to investors. Active trading may
also increase the amount of commissions or mark-ups the Portfolio pays to
broker or dealers when it buys and sells securities. For the period from
November 1, 1997 (commencement of operations) to October 31, 1998, Foreign Bond
Portfolio's portfolio turnover rate was 693%.

BROKERAGE. Citibank may use brokers or dealers for Portfolio transactions who
also provide brokerage and research services to a Portfolio or other accounts
over which Citibank exercises investment discretion. Each Portfolio may "pay
up" for brokerage services, meaning that it is authorized to pay a broker or
dealer who provides these brokerage and research services a commission for
executing a portfolio transaction which is higher than the commission another
broker or dealer would have charged. However, a Portfolio will "pay up" only if
Citibank determines in good faith that the higher commission is reasonable in
relation to the brokerage and research services provided, viewed in terms of
either the particular transaction or all of the accounts over which Citibank
exercises investment discretion.

MAIN RISKS

The principal risks of investing in SHORT-TERM PORTFOLIO, INTERMEDIATE INCOME
PORTFOLIO and FOREIGN BOND PORTFOLIO are described below:

o Market Risk. This is the risk that the prices of securities will rise
or fall due to changing economic, political or market conditions, or
due to a company's individual situation. A Portfolio's net asset
value will change daily as the value of its underlying securities
change. This means that an interest in a Portfolio may be worth more
or less when it is sold than when it was bought.

o Interest Rate Risk. In general, the prices of debt securities rise
when interest rates fall, and fall when interest rates rise. Longer
term obligations are usually more sensitive to interest rate changes.
A change in interest rates could cause a Portfolio's net asset value
to go down.

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in the price of the security and in interests in a Portfolio. A
change in the quality rating of a bond or other security can also
affect the security's liquidity and make it more difficult for a
Portfolio to sell. The lower quality debt securities in which a
Portfolio (other than Short-Term Portfolio) may invest are more
susceptible to these problems than higher quality obligations.

o Bank Obligations. Short-Term Portfolio invests at least 25%, and
possibly up to 100% of its assets in bank obligations. Bank
obligations are susceptible to adverse events affecting the banking
industry. Banks are sensitive to changes in money market and general
economic conditions, as well as decisions by regulators that can
affect their profitability.

o Foreign Securities. Investments in foreign securities involve risks
relating to political, social and economic developments abroad, as
well as risks resulting from the differences between the regulations
to which U.S. and foreign issuers and markets are subject.

o These risks may include expropriation of assets, confiscatory
taxation, withholding taxes on dividends and interest paid on
fund investments, fluctuations in currency exchange rates,
currency exchange controls and other limitations on the use or
transfer of assets by a Portfolio or issuers of securities, and
political or social instability.

o Foreign companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies, and there
may be less public information about their operations.

o Foreign markets may be less liquid and more volatile than U.S.
markets. Rapid increases in money supply may result in
speculative investing, contributing to volatility. Also, equity
securities may trade at price-earnings multiples that are higher
than those of comparable U.S. companies, and that may not be
sustainable. As a result, there may be rapid changes in the
value of foreign securities.

o Foreign markets may offer less protection to investors.
Enforcing legal rights may be difficult, costly and slow. There
may be special problems enforcing claims against foreign
governments.

<PAGE>

In addition, some foreign currency values may be volatile and
there is the possibility of governmental controls on currency
exchanges or governmental intervention in currency markets.
Controls or intervention could limit or prevent a Portfolio from
realizing value in U.S. dollars from its investment in foreign
securities. A Portfolio may also be adversely affected by the
introduction of the euro.

o The Portfolios may invest in issuers located in emerging, or
developing, markets.

o Emerging or developing countries are generally defined as
countries in the initial stages of their industrialization
cycles with low per capita income.

o All of the risks of investing in foreign securities are
heightened by investing in developing countries.

o The markets of developing countries have been more volatile
than the markets of developed countries with more mature
economies. These markets often have provided higher rates
of return, and greater risks, to investors, but they also
may provide lower rates of return or negative returns, for
extended periods.

o Special Characteristics of Convertible Securities. Convertible
securities, which are debt securities that may be converted into
stock, are subject to the market risk of stocks, and, like other debt
securities, are also subject to interest rate risk and the credit
risk of their issuers. Call provisions may allow the issuer to repay
the debt before it matures. Short-Term Portfolio generally does not
invest in convertible securities.

o Derivatives. The Portfolios' use of derivatives (such as futures
contracts and options, and swap agreements and related transactions
such as caps, floors and collars, and forward foreign currency
exchange contracts), particularly when used for non-hedging purposes,
may be risky. This practice could result in losses that are not
offset by gains on other portfolio assets. Losses would cause a
Portfolio's net asset value to go down. There is also the risk that
the counterparty may fail to honor contract terms. This risk becomes
more acute when a Portfolio invests in derivatives that are not
traded on commodities exchanges or boards of trade. A Portfolio's
ability to use derivatives successfully depends on its portfolio
managers' ability to accurately predict movements in stock prices,
interest rates, currency exchange rates or other economic factors. If
a Portfolio's portfolio managers' predictions are wrong, the
Portfolio could suffer greater losses than if the Portfolio had not
used derivatives.

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In some instances, a Portfolio's use of derivatives may have the
effect of leveraging the Portfolio. Leveraging adds increased risks
to a Portfolio, because the Portfolio's losses may be out of
proportion to the amount invested in the instrument - a relatively
small investment may lead to much greater losses.

o Short Sales. Foreign Bond Portfolio may engage in short sales. Losses
from short sales may be unlimited.

o Euro Conversion. The Portfolios may invest in securities of issuers
in European countries. Certain European countries have joined the
European Economic and Monetary Union (EMU). Each EMU participant's
currency began a conversion into a single European currency, called
the euro, on January 1, 1999, to be completed by July 1, 2002. The
consequences of the euro conversion for foreign exchange rates,
interest rates and the value of European securities held by a
Portfolio are presently unclear. European financial markets, and
therefore, a Portfolio, could be adversely affected if the euro
conversion does not continue as planned or if a participating country
chooses to withdraw from the EMU. A Portfolio could also be adversely
affected if the computing, accounting and trading systems used by its
service providers are not capable of processing transactions related
to the euro. These issues may negatively affect the operations of the
companies in which a Portfolio invests as well.

o Prepayment Risk. The issuers of debt securities held by the
Portfolios may be able to prepay principal due on the securities,
particularly during periods of declining interest rates. The
Portfolios may not be able to reinvest that principal at attractive
rates, reducing income to a Portfolio, and the Portfolio may lose any
premium paid. On the other hand, rising interest rates may cause
prepayments to occur at slower than expected rates. This effectively
lengthens the maturities of the affected securities, making them more
sensitive to interest rate changes and a Portfolio's net asset value
more volatile. Mortgage-backed securities, including CMOs are
particularly susceptible to prepayment risk and their prices may be
very volatile.

o Zero Coupon and Payment-In-Kind Obligations. Zero coupon obligations
pay no current interest. Although payment-in-kind obligations may pay
interest in cash, they are similar to zero coupon obligations because
the issuer has the option to make interest payments in additional
debt obligations rather than cash. As a result, the prices of zero
coupon and payment-in-kind obligations tend to be more volatile than
those of securities that offer regular payments of interest. This
makes a Portfolio's net asset value more volatile. In order to pay
cash distributions representing income on zero coupon and
payment-in-kind obligations, a Portfolio may have to sell other

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securities on unfavorable terms. These sales may generate taxable
gains for Portfolio investors.

o Year 2000. A Portfolio could be adversely affected if the computer
systems used by the Portfolio or its service providers are not
programmed to accurately process information on or after January 1,
2000. Each Portfolio, and its service providers, are making efforts
to resolve any potential Year 2000 problems. While it is likely these
efforts will be successful, the failure to implement any necessary
modifications could have an adverse impact on a Portfolio. Each
Portfolio also could be adversely affected if the issuers of
securities held by the Portfolio do not solve their Year 2000
problems, or if it costs them large amounts of money to solve these
problems.

The principal risks of investing in LARGE CAP VALUE PORTFOLIO, SMALL CAP VALUE
PORTFOLIO and INTERNATIONAL PORTFOLIO are described below:

o Credit Risk. It is possible that some issuers will not make payments
on debt securities held by a Portfolio, causing a loss.
Or, an issuer may suffer adverse changes in its financial condition
that could lower the credit quality of a security, leading to greater
volatility in the price of the security and in interests in a
Portfolio. A change in the quality rating of a bond or other security
can also affect the security's liquidity and make it more difficult
for a Portfolio to sell. The lower quality debt securities in which a
Portfolio may invest are more susceptible to these problems than
higher quality obligations.

<PAGE>

o These risks may include expropriation of assets, confiscatory
taxation, withholding taxes on dividends and interest paid on fund
investments, fluctuations in currency exchange rates, currency
exchange controls and other limitations on the use or transfer of
assets by a Portfolio or issuers of securities, and political or
social instability.

o Foreign companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies, and there may
be less public information about their operations.

o Foreign markets may be less liquid and more volatile than U.S.
markets. Rapid increases in money supply may result in speculative
investing, contributing to volatility. Also, equity securities may
trade at price-earnings multiples that are higher than those of
comparable U.S. companies, and that may not be sustainable. As a
result, there may be rapid changes in the value of foreign
securities.

o Foreign markets may offer less protection to investors. Enforcing
legal rights may be difficult, costly and slow. There may be special
problems enforcing claims against foreign governments.

o Since foreign securities often trade in currencies other than the
U.S. dollar, changes in currency exchange rates will affect a
Portfolio's net asset value, the value of dividends and interest
earned, and gains and losses realized on the sale of securities. An
increase in the U.S. dollar relative to these other currencies will
adversely affect the value of a Portfolio. In addition, some foreign
currency values may be volatile and there is the possibility of
governmental controls on currency exchanges or governmental
intervention in currency markets. Controls or intervention could
limit or prevent a Portfolio from realizing value in U.S. dollars
from its investment in foreign securities. A Portfolio may also be
adversely affected by the introduction of the euro.

o The Portfolios may invest in issuers located in emerging, or
developing, markets.

o Emerging or developing countries are generally defined as
countries in the initial stages of their industrialization
cycles with low per capita income.

o All of the risks of investing in foreign securities are
heightened by investing in developing countries.

<PAGE>

o The markets of developing countries have been more volatile than
the markets of developed countries with more mature economies.
These markets often have provided higher rates of return, and
greater risks, to investors, but they also may provide lower
rates of return or negative returns, for extended periods.

o Derivatives. The Portfolios' use of derivatives (such as futures
contracts and options, and, for all Portfolios other than Small Cap
Value Portfolio, swap agreements and related transactions such as
caps, floors and collars, and forward foreign currency exchange
contracts), particularly when used for non-hedging purposes, may be
risky. This practice could result in losses that are not offset by
gains on other portfolio assets. Losses would cause a Portfolio's net
asset value to go down. There is also the risk that the counterparty
may fail to honor contract terms. This risk becomes more acute when a
Portfolio invests in derivatives that are not traded on commodities
exchanges or boards of trade. A Portfolio's ability to use
derivatives successfully depends on its portfolio managers' ability
to accurately predict movements in stock prices, interest rates,
currency exchange rates or other economic factors. If a Portfolio's
portfolio managers' predictions are wrong, the Portfolio could suffer
greater losses than if the Portfolio had not used derivatives.

o Value Investing. The success of a Portfolio's investment strategy
depends largely on the skill of the Portfolio's portfolio manager in
identifying securities of companies that are in fact undervalued, but
have good longer term business prospects. A security may not achieve
its expected value because the circumstances causing it to be
underpriced worsen (causing the security's price to decline further)
or do not change or because the portfolio managers are incorrect in
their determinations. In addition, a Portfolio may underperform
certain other stock funds (those emphasizing growth stocks, for
example) during periods when value stocks are out of favor.

o Euro Conversion. The Portfolios (other than Small Cap Value
Portfolio) may invest in securities of issuers in European
countries. Certain European countries have joined the

<PAGE>

European Economic and Monetary Union (EMU). Each EMU participant's
currency began a conversion into a single European currency, called
the euro, on January 1, 1999, to be completed by July 1, 2002. The
consequences of the euro conversion for foreign exchange rates,
interest rates and the value of European securities held by a
Portfolio are presently unclear. European financial markets, and
therefore, a Portfolio, could be adversely affected if the euro
conversion does not continue as planned or if a participating country
chooses to withdraw from the EMU. A Portfolio could also be adversely
affected if the computing, accounting and trading systems used by its
service providers are not capable of processing transactions related
to the euro. These issues may negatively affect the operations of the
companies in which a Portfolio invests as well.

o Smaller Companies. The securities of smaller capitalization companies
may have more risks than those of larger, more seasoned companies.
They may be particularly susceptible to market downturns because of
limited product lines, markets, distribution channels or financial
and management resources. Also, there may be less publicly available
information about small cap companies. Investments in small cap
companies may be in anticipation of future products or services to be
provided by such companies. If those products or services are
delayed, the prices of the securities of such companies may drop. In
addition, sometimes the prices of the securities of smaller
capitalized companies rise and fall based on investor perception
rather than economics. Securities of small cap companies may be
thinly traded, making their disposition more difficult. For all of
these reasons, the prices of the securities of small cap companies
may be more volatile, causing a Portfolio's net asset value to be
volatile. Portfolios that invest a higher percentage of their assets
in small cap stocks are generally more volatile than funds investing
a higher percentage of their assets in larger, more established
companies. An investment in Small Cap Value Portfolio is particularly
susceptible to the risks described in this paragraph.

<PAGE>

Please note that an investment in the Portfolios is not a deposit of Citibank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency.

Item 6. Management, Organization and Capital Structure.

INVESTMENT MANAGERS

Each Portfolio draws on the strength and experience of Citibank. Citibank is
the investment manager of each Portfolio, and subject to policies set by the
Portfolio's Trustees, Citibank makes investment decisions. Citibank, with its
headquarters at 153 East 53rd Street, New York, New York, has been managing
money since 1822. With its affiliates, it currently manages more than $290
billion in assets worldwide. Citibank is a wholly-owned subsidiary of Citicorp,
which is, in turn, a wholly-owned subsidiary of Citigroup Inc. Citigroup Inc.
was formed as a result of the merger of Citicorp and Travelers Group, Inc.,
which was completed on October 8, 1998.

Citibank and its affiliates may have banking and investment banking
relationships with the issuers of securities that are held in the Portfolios.
However, in making investment decisions for each Portfolio Citibank does not
obtain or use material inside information acquired by any division, department
or affiliate of Citibank in the course of those relationships. Citibank and its
affiliates may have loans outstanding that are repaid with proceeds of
securities purchased by a Portfolio.

Richard Goldman, a Vice President of Citibank, has been the overall portfolio
manager of the Portfolios since January 1999 and is responsible for determining
asset allocations, supervising and monitoring the performance of the Citibank
personnel described below who are responsible for the Portfolios' securities,
and supervising and monitoring the performance of the subadvisers. Mr. Goldman
is a Senior Investment Officer and lead portfolio manager for the Focused
Growth Large Cap Portfolios. He joined Citibank in 1985 as an assistant
portfolio manager, working on quantitative portfolio strategies. Within the
investment unit, he has had responsibilities in both product development and
portfolio management, and he spent several years working for the firm's senior
management where his responsibilities included Citicorp's relationships with
its investors and rating agencies. He currently manages, or co-manages,
approximately $6 billion of total assets at Citibank.

SHORT-TERM PORTFOLIO: Kevin Kennedy, Vice President, has been responsible for
the daily management of Short-Term Portfolio since the Portfolio's inception.
Mr. Kennedy has managed the Liquidity Management Unit of the U.S. Fixed Income
Department of Citibank Global Asset Management since joining Citibank in 1993.
Prior to joining Citibank, Mr. Kennedy was with the Metropolitan Life Insurance
Company as the Managing Trader of the Treasurer's Division. He was responsible
for the management of more than $9 billion in short duration fixed income

<PAGE>

assets. Mr. Kennedy has more than 15 years of fixed income management
experience.

INTERMEDIATE INCOME PORTFOLIO: Mark Lindbloom, Vice President, has been
responsible for the daily management of Intermediate Income Portfolio since the
Portfolio's inception, and has been a portfolio manager for fixed income
securities since joining Citibank in 1986. Mr. Lindbloom has more than 19 years
of investment management experience. Prior to joining Citibank, Mr. Lindbloom
was a Fixed Income Portfolio Manager with Brown Brothers Harriman & Co., where
he managed fixed income assets for discretionary corporate portfolios.

The following subadvisers currently manage the following Portfolios:

LARGE CAP VALUE PORTFOLIO: Mutual Management Corp. (MMC), 388 Greenwich Street,
New York, New York 10013. MMC is a wholly-owned subsidiary of Salomon Smith
Barney Holdings Inc., which in turn is a wholly owned subsidiary of Citigroup
Inc. Frances A. Root, an Investment Officer of MMC and a Senior Portfolio
Manager, has been the portfolio manager of Large Cap Value Portfolio since MMC
assumed responsibility on January 22, 1999. She joined Smith Barney Capital
Management in 1992. Formerly, she was with Shearson Lehman Advisors as a Vice
President and Portfolio Manager for seven years; and prior to that, with E.F.
Hutton & Company, Inc.

SMALL CAP VALUE PORTFOLIO: Franklin Advisory Services, Inc., One Parker Plaza,
19th Floor, Fort Lee, New Jersey 07024. Franklin Advisory Services, a
wholly-owned subsidiary of Franklin Resources, Inc., is a registered investment
adviser. William J. Lippman, President of Franklin Advisory Services or its
predecessor since 1988, has been responsible for the daily management of U.S.
small capitalization value securities since the Portfolio's inception. Mr.
Lippman holds a masters of business administration degree from New York
University and a bachelor of business administration degree from City College
of New York. Mr. Lippman also serves as Senior Vice President of Franklin
Resources, Inc. and Franklin Advisers, Inc. He has been in the securities
industry for over 30 years and with Franklin since 1988. Citibank manages that
portion of the Portfolio's assets allocated to cash and invested in U.S.
dollar-denominated high quality and short-term money market instruments.

INTERNATIONAL PORTFOLIO: Hotchkis and Wiley, 725 South Figueroa Street, Suite
4000, Los Angeles, California 90017-5400. Hotchkis and Wiley is a division of
Merrill Lynch Asset Management, L.P., a registered investment adviser. Harry W.
Hartford and Sarah H. Ketterer have been responsible for the daily management
of international equity securities since the Portfolio's inception. Mr.
Hartford joined Hotchkis and Wiley in 1994, where he is responsible for
international investment and research in the U.K. and Europe, and where he
serves on the Investment Policy Committee. Prior to joining Hotchkis and Wiley,
Mr. Hartford was with The Investment Bank of Ireland (now Bank of Ireland Asset

<PAGE>

Management), as a Senior Manager, where he gained 10 years of experience in
both international and global equity management. Ms. Ketterer, a Managing
Director and Portfolio Manager, joined Hotchkis and Wiley in 1990, where she is
responsible for international investment research in the Asia-Pacific, Japan
and Canadian regions, and where she serves on the Investment Policy Committee.
Prior to joining Hotchkis and Wiley in 1990, Ms. Ketterer was an associate with
Bankers Trust and an analyst at Dean Witter.

FOREIGN BOND PORTFOLIO: Salomon Brothers Asset Management Limited (SBAM),
Victoria Plaza, 111 Buckingham Palace Road, London SW1S OSB, U.K. SBAM, an
affiliate of Citibank, is a U.K. registered investment adviser that took over
responsibility for the daily management of the Portfolio's foreign government
securities on March 1, 1999. SBAM is a wholly-owned indirect subsidiary of
Citigroup Inc. David Scott is the portfolio manager. Mr. Scott joined SBAM in
April 1990 as Director and Head of Global Fixed Income of SBAM, and has been
responsible for the management of foreign government securities. Prior to that,
Mr. Scott worked for four years at JP Morgan Investment Management where he had
responsibility for global and non-dollar portfolios; and prior to that, for
Mercury Asset Management.

Citibank is responsible for recommending the hiring, termination or replacement
of any subadviser and for supervising and monitoring the subadviser's
performance. Certain CitiFunds have applied for exemptive relief from the
Securities and Exchange Commission which would permit them to employ other or
additional subadvisers without investor approval. The requested exemptive
relief also would permit the terms of sub-advisory agreements to be changed and
the employment of subadvisers to be continued after events that would otherwise
cause an automatic termination of a sub-advisory agreement, in each case
without investor approval if those changes or continuation are approved by the
appropriate portfolio's Board of Trustees. There is no assurance that the SEC
will grant the requested relief. If the requested relief is granted, each
Portfolio would be permitted to employ subadvisers without investor approval,
subject to compliance with certain conditions.

MANAGEMENT FEES

For the services Citibank and the subadvisers provided under management
agreements for the Portfolios for their fiscal years ended October 31, 1998,
Citibank and the subadvisers received the following percentages of each
Portfolio's average daily net assets: 0.25% for Short-Term Portfolio;
0.45% for Intermediate Income Portfolio; 0.60% for Large Cap Value Portfolio;
0.75% for Small Cap Value Portfolio; 0.80% for International Portfolio; and
0.55% for Foreign Bond Portfolio.

CAPITAL STOCK

Investments in the Portfolios have no preference, pre-emptive or conversion
rights and are fully paid and non-assessable, except as set forth below. The
Portfolios are not required and have no current intention to hold annual
meetings of investors, but the Portfolios hold special meetings of investors
when in the judgment of the Trustees it is necessary or desirable to submit

<PAGE>

matters for an investor vote. Investors have under certain circumstances (e.g.,
upon application and submission of certain specified documents to the Trustees
by a specified number of investors) the right to communicate with other
investors in connection with requesting a meeting of investors for the purpose
of removing one or more Trustees. Investors also have the right to remove one
or more Trustees without a meeting by a declaration in writing by a specified
number of investors. Upon liquidation or dissolution of a Portfolio, investors
in that Portfolio would be entitled to share pro rata in the net assets of the
Portfolio available for distribution to investors.

The Portfolios are series of Asset Allocation Portfolios (known as the
"Trust"), which is organized as a trust under the laws of the State of New
York. Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in each Portfolio. Each investor is entitled to a vote in
proportion to the value of its investment in a Portfolio. Investments in a
Portfolio may not be transferred, but an investor may withdraw all or any
portion of its investment at any time at net asset value. Investors in a
Portfolio (e.g., investment companies, insurance company separate accounts and
common and commingled trust funds) are each liable for all obligations of that
Portfolio. However, it is not expected that the liabilities of any Portfolio
would ever exceed its assets.

Item 7. Investor Information.

HOW NET INCOME IS CALCULATED

Each Portfolio calculates its net asset value (NAV) every day the New York
Stock Exchange is open for trading (Business Day). This calculation is made at
the close of regular trading on the New York Stock Exchange, normally 4:00 p.m.
Eastern time. On days when the financial markets in which the Portfolio invests
close early, NAV will be calculated as of the close of those markets.

Portfolio securities and other assets are valued primarily on the basis of
market quotations, or if quotations are not available, by a method believed to
accurately reflect fair value. For foreign securities the values are translated
from the local currency into U.S. dollars using current exchange rates. If
trading in the currency is restricted, a Portfolio uses a rate believed to
reflect the currency's fair value in U.S. dollars. Trading may take place in
foreign securities held by a Portfolio on days when the Portfolio is not open
for business. As a result, a Portfolio's NAV may change on days on which it is
not possible to purchase or sell interests in the Portfolio.

It is intended that a Portfolio's assets, income and distributions will be
managed in such a way that an investor in the Portfolio will be able to satisfy
the requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended, assuming that the investor invested all of its investable assets in
the Portfolio.

<PAGE>

THE PURCHASE AND REDEMPTION OF BENEFICIAL INTERESTS IN THE PORTFOLIOS

Beneficial interests in the Portfolios are issued solely in private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of the Securities Act of 1933. Only investment companies,
insurance company separate accounts, common or commingled trust funds or
similar organizations or entities that are "accredited investors" within the
meaning of Regulation D under the 1933 Act may invest in the Portfolios. This
Registration Statement is not an offer to sell, or the solicitation of an offer
to buy, any "security" within the meaning of the 1933 Act.

An investment in each Portfolio is made without a sales load. All investments
are made at net asset value next determined after an order is received by a
Portfolio. There is no minimum initial or subsequent investment in a Portfolio.
However, since each Portfolio intends to be as fully invested at all times as
is reasonably practicable in order to enhance the yield on its assets,
investments must be made in federal funds (i.e., moneys credited to the account
of a Portfolio's custodian bank by a U.S. Federal Reserve Bank).

Each Portfolio reserves the right to cease accepting investments at any time or
to reject any investment order.

An investor in a Portfolio may withdraw all or any portion of its investment at
any time after a withdrawal request in proper form is received by the Portfolio
from the investor. The proceeds of a withdrawal will be paid by the Portfolio
in federal funds normally on the Business Day the withdrawal is effected, but
in any event within seven days. Investments in a Portfolio may not be
transferred.

Subject to compliance with applicable regulations, the Portfolio may pay the
redemption price of beneficial interests in a Portfolio, either totally or
partially, by a distribution in kind of readily marketable securities (instead
of cash). The securities so distributed would be valued at the same amount as
that assigned to them in calculating the net asset value for the beneficial
interests being redeemed. If a holder of beneficial interests received a
distribution in kind, such holder could incur brokerage or other charges in
converting the securities to cash.

The right of any investor to receive payment with respect to any withdrawal may
be suspended or the payment of the withdrawal proceeds postponed during any
period in which the New York Stock Exchange is closed (other than weekends or
holidays) or trading on the Exchange is restricted, or, to the extent otherwise
permitted by the 1940 Act, if an emergency exists.

TAX MATTERS

Each Portfolio expects to be treated as a partnership for U.S. federal income
tax purposes. As a result, the Portfolios do not expect to pay any federal

<PAGE>

income taxes and, generally, investors in a Portfolio should not have to pay
federal income taxes when they receive distributions or make withdrawals from a
Portfolio. However, each investor in a Portfolio must take into account its
share of that Portfolio's ordinary income, expenses, capital gains and losses,
credits and other items whether or not distributed in determining its income
tax liability.

The Trust also expects that investors in a Portfolio which seek to qualify as
regulated investment companies under the Internal Revenue Code will be able to
look to their proportionate share of the assets and gross income of the
Portfolio for purposes of determining their compliance with the requirements
applicable to such companies.

The Trust intends to conduct its activities and those of the Portfolios so that
they will not be deemed to be engaged in the conduct of a U.S. trade or
business for U.S. federal income tax purposes. Therefore, it is not anticipated
that an investor in a Portfolio, other than an investor which would be deemed a
"U.S. person" for U.S. federal income tax purposes, will be subject to U.S.
federal income taxation (other than a 30% withholding tax on dividends and
certain interest income) solely by reason of its investment in a Portfolio.
There can be no assurance that the U.S. Internal Revenue Service may not
challenge the above conclusions or take other positions that, if successful,
might result in the payment of U.S. federal income taxes by investors in a
Portfolio.

The foregoing tax discussion is only for an investor's general information, and
does not take account of the special rules applicable to certain investors
(such as tax-exempt investors) or a number of special circumstances. Each
investor should consult its own tax advisers regarding the tax consequences in
its circumstances of an investment in a Portfolio, as well as any state, local
or foreign tax consequences to them of investing in a Portfolio.

Item 8. Distribution Arrangements.

The exclusive placement agent for each Portfolio is CFBDS, Inc. CFBDS receives
no compensation for serving as the Portfolios' exclusive placement agent.

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PART B

Item 10. Cover Page and Table of Contents.

This Part B sets forth information with respect to Short-Term Portfolio,
Intermediate Income Portfolio, Large Cap Value Portfolio, Small Cap Value
Portfolio, International Portfolio and Foreign Bond Portfolio, each a series of
Asset Allocation Portfolios, an investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"). The date of this
Part B and Part A to the Registration Statement for each Portfolio is March 1,
1999.

TABLE OF CONTENTS Page

Portfolio History.......................................................B-2
Description of each Portfolio and Its Investments and Risks.............B-2
Management of each Portfolio............................................B-35
Control Persons and Principal Holders
of Securities.........................................................B-38
Investment Advisory and Other Services..................................B-40
Brokerage Allocation and Other Practices................................B-45
Capital Stock and Other Securities......................................B-47
Purchase, Redemption and Pricing of
Securities............................................................B-48
Taxation of each Portfolio..............................................B-50
Underwriters............................................................B-53
Calculations of Performance Data........................................B-53
Financial Statements....................................................B-53

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Item 11. Portfolio History.

Asset Allocation Portfolios (the "Trust") was organized as a trust under
the laws of the State of New York on December 14, 1995. Short-Term Portfolio,
Intermediate Income Portfolio, Large Cap Value Portfolio, Small Cap Value
Portfolio, International Portfolio and Foreign Bond Portfolio (each, a
"Portfolio" and collectively, the "Portfolios") were each designated as series
of the Trust on August 8, 1997.

Item 12. Description of each Portfolio and Its Investments and Risks.

The investment objective of SHORT-TERM PORTFOLIO is liquidity and as high
a level of current income as is consistent with the preservation of capital.

The investment objective of INTERMEDIATE INCOME PORTFOLIO is current
income and preservation of capital.

The investment objective of LARGE CAP VALUE PORTFOLIO is above average
total return consistent with reasonable risk.

The investment objective of SMALL CAP VALUE PORTFOLIO is long-term capital
growth. Dividend income, if any, is incidental to this investment objective.

The investment objective of INTERNATIONAL PORTFOLIO is current income and
long-term growth of income, accompanied by growth of capital.

The investment objective of FOREIGN BOND PORTFOLIO is maximum total return
consistent with preservation of capital. Commencing April 1, 1999 Foreign Bond
Portfolio's goal will be to generate a high level of current income; total
return and preservation of capital are secondary objectives.

The policies described above and those described below are not fundamental
and may be changed without investor approval.

Each Portfolio may, but need not, invest in any or all of the investments
and utilize any or all of the investment techniques described in Part A to this
Registration Statement and herein. The selection of investments and the
utilization of investment techniques depend on, among other things, the
investment strategies of Citibank, N.A., each Portfolio's investment manager
("Citibank" or the "Manager"), or of any subadviser for a Portfolio, conditions
and trends in the economy and financial markets, and investments being
available on terms that, in the Citibank's or a subadviser's opinion, make
economic sense.

BANK OBLIGATIONS
Each of the Portfolios may invest in bank obligations, i.e., certificates
of deposit, time deposits (including, with respect to the Portfolios other than
Small Cap Value Portfolio, Eurodollar time deposits) and bankers' acceptances

<PAGE>

and other short-term debt obligations issued by domestic banks, foreign
subsidiaries or foreign branches of domestic banks, domestic and foreign
branches of foreign banks, domestic savings and loan associations and other
banking institutions. A bankers' acceptance is a bill of exchange or time draft
drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less. A certificate of deposit is a
negotiable interest-bearing instrument with a specific maturity. Certificates
of deposit are issued by banks and savings and loan institutions in exchange
for the deposit of funds and normally can be traded in the secondary market
prior to maturity. A time deposit is a non-negotiable receipt issued by a bank
in exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot
be traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities.

MORTGAGE-BACKED SECURITIES
Each of the Portfolios (other than Small Cap Value Portfolio and
International Portfolio) may invest in mortgage-backed securities, which are
securities representing interests in pools of mortgage loans. Interests in
pools of mortgage-related securities differ from other forms of debt securities
which normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by prepayments of principal resulting from the sale,
refinancing or foreclosure of the underlying property, net of fees or costs
which may be incurred. The market value and interest yield of these instruments
can vary due to market interest rate fluctuations and early prepayments of
underlying mortgages.

The principal governmental issuers or guarantors of mortgage-backed
securities are the Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA"), and Federal Home Loan Mortgage
Corporation ("FHLMC"). Obligations of GNMA are backed by the full faith and
credit of the United States Government while obligations of FNMA and FHLMC are
supported by the respective agency only. Although GNMA certificates may offer
yields higher than those available from other types of U.S. government
securities, GNMA certificates may be less effective than other types of
securities as a means of "locking in" attractive long-term rates because of the
prepayment feature. For instance, when interest rates decline, the value of a
GNMA certificate likely will not rise as much as comparable debt securities due
to the prepayment feature. In addition, these prepayments can cause the price
of a GNMA certificate originally purchased at a premium to decline in price to
its par value, which may result in a loss.

<PAGE>

Each Portfolio (other than Small Cap Value Portfolio and International
Portfolio) may also invest in collateralized mortgage obligations or "CMOs," a
type of mortgage-backed security. CMOs are securities collateralized by
mortgages, mortgage pass-through certificates, mortgage pay-through bonds
(bonds representing an interest in a pool of mortgages where the cash flow
generated from the mortgage collateral pool is dedicated to bond repayment),
and mortgage-backed bonds (general obligations of the issuers payable out of
the issuers' general funds and additionally secured by a first lien on a pool
of single family detached properties). Many CMOs are issued with a number of
classes or series which have different maturities and are retired in sequence.

Investors purchasing such CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligations is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-through certificates to be prepaid prior
to their stated maturity. Although some of the mortgages underlying CMOs may be
supported by various types of insurance, and some CMOs may be backed by GNMA
certificates or other mortgage pass-through certificates issued or guaranteed
by U.S. government agencies or instrumentalities, the CMOs themselves are not
generally guaranteed.

Even if the U.S. government or one of its agencies guarantees principal
and interest payments of a mortgage-backed security, the market price of a
mortgage-backed security is not insured and may be subject to market
volatility. When interest rates decline, mortgage-backed securities experience
higher rates of prepayment because the underlying mortgages are refinanced to
take advantage of the lower rates. The prices of mortgage-backed securities may
not increase as much as prices of other debt obligations when interest rates
decline, and mortgage-backed securities may not be an effective means of
locking in a particular interest rate. In addition, any premium paid for a
mortgage-backed security may be lost when it is prepaid. When interest rates go
up, mortgage-backed securities experience lower rates of prepayment. This has
the effect of lengthening the expected maturity of a mortgage-backed security.
This particular risk, referred to as "maturity extension risk," may effectively
convert a security that was considered short or intermediate-term at the time
of purchase into a long-term security. Long-term securities generally fluctuate
more widely in response to changes in interest rates than short or
intermediate-term securities. Thus, rising interest rates would not only likely
decrease the value of a Portfolio's fixed income securities, but would also
increase the inherent volatility of the Portfolio by effectively converting
short-term debt instruments into long-term debt instruments. As a result,
prices of mortgage-backed securities may decrease more than prices of other
debt obligations when interest rates go up.

<PAGE>

MORTGAGE "DOLLAR ROLL" TRANSACTIONS
Each of the Portfolios (other than Small Cap Value Portfolio and
International Portfolio) may enter into mortgage "dollar roll" transactions
pursuant to which they sell mortgage-backed securities for delivery in the
future and simultaneously contract to repurchase substantially similar
securities on a specified future date. During the roll period, a Portfolio
foregoes principal and interest paid on the mortgage-backed securities. The
Portfolio is compensated for the lost principal and interest by the difference
between the current sales price and the lower price for the future purchase
(often referred to as the "drop") as well as by the interest earned on the cash
proceeds of the initial sale. The Portfolio may also be compensated by receipt
of a commitment fee. However, the Portfolios take the risk that the market
price of the mortgage-backed security will drop below the future purchase
price. When the Portfolios use a mortgage dollar roll, they are also subject to
the risk that the other party to the agreement will not be able to perform. A
"covered roll" is a specific type of dollar roll for which a Portfolio
establishes a segregated account with liquid securities equal in value to the
securities subject to repurchase by the Portfolio. The Portfolios will invest
only in covered rolls.

CORPORATE ASSET-BACKED SECURITIES
Each of the Portfolios (other than Small Cap Value Portfolio and
International Portfolio) may invest in corporate assetbacked securities. These
securities, issued by trusts and special purpose corporations, are backed by a
pool of assets, such as credit card and automobile loan receivables,
representing the obligations of a number of different parties.

Corporate assetbacked securities present certain risks. For instance, in
the case of credit card receivables, these securities may not have the benefit
of any security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the servicers to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there
is the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities. The underlying
assets (e.g., loans) are also subject to prepayments which shorten the
securities' weighted average life and may lower their return.

Corporate assetbacked securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, the
securities may contain elements of credit support which fall into two

<PAGE>

categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures payment through insurance policies or
letters of credit obtained by the issuer or sponsor from third parties. The
degree of credit support provided for each issue is generally based on
historical information respecting the level of credit risk associated with the
underlying assets. Delinquency or loss in excess of that anticipated or failure
of the credit support could adversely affect the return on an investment in
such a security.

RULE 144A SECURITIES
Consistent with applicable investment restrictions, each of the Portfolios
may purchase securities that are not registered ("restricted securities") under
the Securities Act of 1933 (the "Securities Act"), but can be offered and sold
to "qualified institutional buyers" under Rule 144A under the Securities Act.
However, none of the Portfolios invests more than 15% of its net assets (taken
at market value) in illiquid investments, which include securities for which
there is no readily available market, securities subject to contractual
restrictions on resale and restricted securities, unless, in the case of
restricted securities, the Board of Trustees of the Trust determines, based on
the trading markets for the specific restricted security, that it is liquid.
The Trustees have adopted guidelines and, subject to oversight by the Trustees,
have delegated to the Manager and to each Subadviser the daily function of
determining and monitoring liquidity of restricted securities.

PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS
Each Portfolio may invest up to 15% of its net assets in securities for
which there is no readily available market. These illiquid securities may
include privately placed restricted securities for which no institutional
market exists. The absence of a trading market can make it difficult to
ascertain a market value for illiquid investments. Disposing of illiquid
investments may involve time-consuming negotiation and legal expenses, and it
may be difficult or impossible for a Portfolio to sell them promptly at an
acceptable price.

SECURITIES OF NON-U.S. ISSUERS
Each of the Portfolios (other than Small Cap Value Portfolio) may invest
in securities of non-U.S. issuers. Investing in securities of foreign issuers
may involve significant risks not present in domestic investments. For example,
the value of such securities fluctuates based on the relative strength on the
U.S. dollar. In addition, there is generally less publicly available
information about foreign issuers, particularly those not subject to the
disclosure and reporting requirements of the U.S. securities laws. Non-U.S.
issuers are generally not bound by uniform accounting, auditing and financial
reporting requirements comparable to those applicable to domestic issuers.
Investments in securities of non-U.S. issuers also involve the risk of possible
adverse changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitation on the removal of funds or other assets of a
Portfolio, political or financial instability or diplomatic and other

<PAGE>

developments which would affect such investments. Further, economies of other
countries or areas of the world may differ favorably or unfavorably from the
economy of the U.S.

It is anticipated that in most cases the best available market for
securities of non-U.S. issuers would be on exchanges or in over-the-counter
markets located outside the U.S. Non-U.S. stock markets, while growing in
volume and sophistication, are generally not as developed as those in the U.S.,
and securities of some non-U.S. issuers (particularly those located in
developing countries) may be less liquid and more volatile than securities of
comparable U.S. companies. Non-U.S. security trading practices, including those
involving securities settlement where a Portfolio's assets may be released
prior to receipt of payments, may expose a Portfolio to increased risk in the
event of a failed trade or the insolvency of a non-U.S. broker-dealer. In
addition, foreign brokerage commissions are generally higher than commissions
on securities traded in the U.S. and may be non-negotiable. In general, there
is less overall governmental supervision and regulation of non-U.S. securities
exchanges, brokers and listed companies than in the U.S.

Investments in closed-end investment companies which primarily hold
securities of non-U.S. issuers may entail the risk that the market value of
such investments may be substantially less than their net asset value and that
there would be duplication of investment management and other fees and
expenses.

American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), Global Depositary Receipts ("GDRs") and other forms of depositary
receipts for securities of non-U.S. issuers provide an alternative method for
the Portfolios (other than Small Cap Value Portfolio) to make non-U.S.
investments. These securities are not usually denominated in the same currency
as the securities into which they may be converted. Generally, ADRs, in
registered form, are designed for use in U.S. securities markets and EDRs and
GDRs, in bearer form, are designed for use in European and global securities
markets. ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities. EDRs and GDRs are European
and global receipts, respectively, evidencing a similar arrangement.

ADRs, EDRs, and GDRs may be issued pursuant to sponsored or unsponsored
programs. In sponsored programs, an issuer has made arrangements to have its
securities traded in the form of depositary receipts. In unsponsored programs,
the issuer may not be directly involved in the creation of the program.
Although regulatory requirements with respect to sponsored and unsponsored
programs are generally similar, in some cases it may be easier to obtain
financial information from an issuer that has participated in the creation of a
sponsored program. Accordingly, there may be less information available
regarding issuers of securities underlying unsponsored programs, and there may
not be a correlation between such information and the market value of the
depositary receipts.

<PAGE>

The Portfolios may invest in securities of non-U.S. issuers that impose
restrictions on transfer within the United States or to United States persons.
Although securities subject to such transfer restrictions may be marketable
abroad, they may be less liquid than securities of non-U.S. issuers of the same
class that are not subject to such restrictions.

The risks described above, including the risks of nationalization or
expropriation of assets, are typically increased to the extent that a Portfolio
invests in issuers located in less developed and developing nations, whose
securities markets are sometimes referred to as "emerging securities markets."
Investments in securities located in such countries are speculative and subject
to certain special risks. Political and economic structures in many of these
countries may be in their infancy and developing rapidly, and such countries
may lack the social, political and economic stability characteristic of more
developed countries. Certain of these countries have in the past failed to
recognize private property rights and have at times nationalized and
expropriated the assets of private companies.

In addition, unanticipated political or social developments may affect the
value of a Portfolio's investments in these countries and the availability to
the Portfolio of additional investments in these countries. The small size,
limited trading volume and relative inexperience of the securities markets in
these countries may make a Portfolio's investment in such countries illiquid
and more volatile than investments in more developed countries, and the
Portfolio may be required to establish special custodial or other arrangements
before making investments in these countries. There may be little financial or
accounting information available with respect to issuers located in these
countries, and it may be difficult as a result to assess the value or prospects
of an investment in such issuers.

REPURCHASE AGREEMENTS
Each of the Portfolios may invest in repurchase agreements collateralized
by securities in which that Portfolio may otherwise invest. Repurchase
agreements are agreements by which a Portfolio purchases a security and
simultaneously commits to resell that security to the seller (which is usually
a member bank of the U.S. Federal Reserve System or a member firm of the New
York Stock Exchange (or a subsidiary thereof)) at an agreed upon date within a
number of days (usually not more than seven) from the date of purchase. The
resale price reflects the purchase price plus an agreed upon market rate of
interest which is unrelated to the coupon rate or maturity of the purchased
security. A repurchase agreement involves the obligation of the seller to pay
the agreed upon price, which obligation is in effect secured by the value of
the underlying security, usually U.S. government or government agency issues.
Under the 1940 Act repurchase agreements may be considered to be loans by the
buyer. A Portfolio's risk is limited to the ability of the seller to pay the
agreed-upon amount on the delivery date. If the seller defaults, the underlying
security constitutes collateral for the seller's obligation to pay although
that Portfolio may incur certain costs in liquidating this collateral and in
certain cases may not be permitted to liquidate this collateral. All repurchase
agreements entered into by the Portfolios are fully collateralized, with such
collateral being marked to market daily. In the event of the bankruptcy of the

<PAGE>

other party to a repurchase agreement, a Portfolio could experience delays in
recovering either the securities or cash. To the extent that, in the meantime,
the value of the securities purchased has decreased, the Portfolio could
experience a loss.

REVERSE REPURCHASE AGREEMENTS
Each Portfolio may enter into reverse repurchase agreements. Reverse
repurchase agreements involve the sale of securities held by the Portfolio and
the agreement by the Portfolio to repurchase the securities at an agreed-upon
price, date and interest payment. When a Portfolio enters into reverse
repurchase transactions, securities of a dollar amount equal in value to the
securities subject to the agreement will be segregated. The segregation of
assets could impair the Portfolio's ability to meet its current obligations or
impede investment management if a large portion of the Portfolio's assets are
involved. Reverse repurchase agreements are considered to be a form of
borrowing. In the event of the bankruptcy of the other party to a reverse
repurchase agreement, a Portfolio could experience delays in recovering the
securities sold. To the extent that, in the meantime, the value of the
securities sold has increased, the Portfolio could experience a loss.

LENDING OF SECURITIES
Consistent with applicable regulatory requirements and in order to
generate income, each of the Portfolios may lend its securities to
broker-dealers and other institutional borrowers. Loans of securities would be
secured continuously by collateral in cash, cash equivalents, or U.S. Treasury
obligations maintained on a current basis at an amount at least equal to the
market value of the securities loaned. The cash collateral would be invested in
high quality short-term instruments. Either party has the right to terminate a
loan at any time on customary industry settlement notice (which will not
usually exceed three business days). During the existence of a loan, a
Portfolio would continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned and with respect to cash
collateral, would also receive compensation based on investment of cash
collateral (subject to a rebate payable to the borrower) or a fee from the
borrower in the event the collateral consists of securities. Where the borrower
provides the Portfolio with collateral consisting of U.S. Treasury obligations,
the borrower is also obligated to pay the Portfolio a fee for use of the
borrowed securities. The Portfolio, would not, however, have the right to vote
any securities having voting rights during the existence of the loan, but would
call the loan in anticipation of an important vote to be taken among holders of
the securities or of the giving or withholding of their consent on a material
matter affecting the investment. As with other extensions of credit, there are
risks of delay in recovery or even loss of rights in the collateral should the
borrower fail financially. However, the loans would be made only to entities
deemed by the Manager or a Subadviser to be of good standing, and when, in the
judgment of the Manager or a Subadviser, the consideration which can be earned
currently from loans of this type justifies the attendant risk. In addition,
the Portfolio could suffer loss if the borrower terminates the loan and the
Portfolio is forced to liquidate investments in order to return the cash
collateral to the buyer. If the Manager or a Subadviser determines to make

<PAGE>

loans, it is not intended that the value of the securities loaned would exceed
30% of the market value of the respective Portfolio's total assets.

WHEN-ISSUED SECURITIES
Each of the Portfolios may purchase securities on a "when-issued" or on a
"forward delivery" basis, which means that the securities would be delivered to
the Portfolio at a future date beyond customary settlement time. It is expected
that, under normal circumstances, the applicable Portfolio would take delivery
of such securities. In general, a Portfolio does not pay for the securities
until received and does not start earning interest until the contractual
settlement date. When a Portfolio commits to purchase a security on a
"when-issued" or on a "forward delivery" basis, it sets up procedures
consistent with Securities and Exchange Commission ("SEC") policies. Since
those policies currently require that an amount of a Portfolio's assets equal
to the amount of the purchase be held aside or segregated to be used to pay for
the commitment, the Portfolio expects always to have cash or liquid securities
sufficient to cover any commitments or to limit any potential risk. However,
even though the Portfolios intend to adhere to the provisions of SEC policies,
purchases of securities on such bases may involve more risk than other types of
purchases. For example, a Portfolio may have to sell assets which have been set
aside in order to meet redemptions. Also, if the Manager or a Subadviser
determines it is advisable as a matter of investment strategy to sell the
"when-issued" or "forward delivery" securities, the Portfolio would be required
to meet its obligations from the then available cash flow or the sale of
securities, or, although it would not normally expect to do so, from the sale
of the "when-issued" or "forward delivery" securities themselves (which may
have a value greater or less than the Portfolio's payment obligation). An
increase in the percentage of a Portfolio's assets committed to the purchase of
securities on a "when-issued" basis may increase the volatility of its net
asset value.

SHORT SALES
Foreign Bond Portfolio may seek to hedge investments or realize additional
gains through short sales. Short sales are transactions in which the Portfolio
sells a security it does not own in anticipation of a decline in the market
value of that security. To complete such a transaction, the Portfolio must
borrow the security to make delivery to the buyer. The Portfolio then is
obligated to replace the security borrowed by purchasing it at the market price
at or prior to the time of replacement. The price at such time may be more or
less than the price at which the security was sold by the Portfolio. Until the
security is replaced, the Portfolio is required to repay the lender any
dividends or interest that accrue during the period of the loan. To borrow the
security, the Portfolio also may be required to pay a premium, which would
increase the cost of the security sold. A portion of the net proceeds of the
short sale may be retained by the broker (or by the Portfolio's custodian in a
special custody account), to the extent necessary to meet margin requirements,
until the short position is closed out. The Portfolio will also incur
transaction costs in effecting short sales.

Foreign Bond Portfolio will incur a loss as a result of the short sale if
the price of the security increases between the date of the short sale and the

<PAGE>

date on which the Portfolio replaces the borrowed security. The Portfolio will
realize a gain if the security declines in price between those dates. The
amount of any gain will be decreased, and the amount of any loss increased, by
the amount of the premiums, dividends, interest or expenses the Portfolio may
be required to pay in connection with a short sale. An increase in the value of
a security sold short by the Portfolio over the price at which it was sold
short will result in a loss to the Portfolio, and there can be no assurance
that the Portfolio will be able to close out the position at any particular
time or at an acceptable price. Thus the Portfolio's losses on short sales are
potentially unlimited.

Foreign Bond Portfolio may also engage in short sales of non-U.S.
currencies. See "Foreign Currency Exchange Transactions" below.

FOREIGN CURRENCY EXcHANGE TRANSACTIONS
The Portfolios (other than Small Cap Value Portfolio) may engage in
foreign currency exchange transactions as an attempt to protect against
uncertainty in the level of future foreign currency exchange rates or as an
attempt to enhance performance.

The Portfolios may enter into foreign currency exchange transactions to
convert United States currency to foreign currency and foreign currency to
United States currency, as well as convert foreign currency to other foreign
currencies. A Portfolio either enters into these transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange
market, or uses forward contracts to purchase or sell foreign currencies.

The Portfolios may convert currency on a spot basis from time to time, and
investors should be aware of the costs of currency conversion. Although
currency exchange dealers do not charge a fee for conversion, they do realize a
profit based on the difference (the "spread") between the prices at which they
are buying and selling various currencies. Thus, a dealer may offer to sell a
currency at one rate, while offering a lesser rate of exchange should the
Portfolio desire to resell that currency to the dealer.

A forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract, agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers.
A forward contract generally has no deposit requirement, and no fees or
commissions are charged at any stage for trades. A Portfolio may enter into
forward contracts for hedging and non-hedging purposes, including transactions
entered into for the purposes of profiting from anticipated changes in foreign
currency exchange rates.

Forward contracts are traded over-the-counter and not on organized
commodities or securities exchanges. As a result, such contracts operate in a

<PAGE>

manner distinct from exchange-traded instruments, and their use involves
certain risks beyond those associated with transactions in the futures and
options contracts described herein. A forward contract entered into by a
Portfolio may involve the purchase or sale, for a fixed amount of U.S.
currency, of another currency. Each of the Portfolios (other than Small Cap
Value Portfolio) may also enter into forward contracts for the purchase or
sale, for a fixed amount of a non-U.S. currency, of another non-U.S. currency.

When a Portfolio enters into a contract for the purchase or sale of a
security denominated in a non-U.S. currency, it may desire to "lock in" the
U.S. dollar price of the security. By entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars, of the amount of non-U.S.
currency involved in the underlying security transaction, the Portfolio may be
able to protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the non-U.S. currency during the
period between the date the security is purchased or sold and the date on which
payment is made or received.

When the Manager or a Subadviser believes that the currency of a
particular country may suffer a substantial decline against the U.S. dollar, a
Portfolio may enter into a forward contract to sell the non-U.S. currency, for
a fixed amount of U.S. dollars. If a Portfolio owns securities in that
currency, the Manager or Subadviser may enter into a contract to sell the
non-U.S. currency in an amount approximating the value of some or all of the
Portfolio's securities denominated in such non-U.S. currency. The precise
matching of the forward contract amounts and the value of the securities
involved is not generally possible since the future value of such securities in
non-U.S. currencies changes as a consequence of market movements in the value
of those securities between the date the forward contract is entered into and
the date it matures.

At the maturity of a forward contract, a Portfolio will either deliver the
non-U.S. currency or terminate its contractual obligation to deliver the
non-U.S. currency by purchasing an "offsetting" contract with the same currency
trader obligating it to purchase, on the same maturity date, the same amount of
the non-U.S. currency. If a Portfolio engages in an offsetting transaction, the
Portfolio will incur a gain or a loss (as described below) to the extent that
there has been movement in forward contract prices. If a Portfolio engages in
an offsetting transaction, it may subsequently enter into a new forward
contract to sell the non-U.S. currency. Should forward prices decline during
the period between the date a Portfolio enters into a forward contract for the
sale of the non-U.S. currency and the date it enters into an offsetting
contract for the purchase of such currency, the Portfolio will realize a gain
to the extent the selling price of the currency exceeds the purchase price of
the currency. Should forward prices increase, the Portfolio will suffer a loss
to the extent that the purchase price of the currency exceeds the selling price
of the currency.

Where a Portfolio enters into a forward contract with respect to
securities it holds denominated in the non-U.S. currency, it is impossible to

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forecast with precision the market value of Portfolio securities at the
expiration of the contract. Accordingly, it may be necessary for a Portfolio to
purchase additional non-U.S. currency on the spot market if the market value of
the security is less than the amount of non-U.S. currency the Portfolio is
obligated to deliver and if a decision is made to sell the security and make
delivery of such currency. Conversely, it may be necessary to sell on the spot
market some of the non-U.S. currency received upon the sale of the security if
its market value exceeds the amount of such currency the Portfolio is obligated
to deliver.

When a Portfolio enters into a forward contract for non-hedging purposes,
there is a greater potential for profit but also a greater potential for loss.
For example, a Portfolio may purchase a given foreign currency through a
forward contract if the value of such currency is expected to rise relative to
the U.S. dollar or another foreign currency. Conversely, a Portfolio may sell
the currency through a forward contract if the value of the currency is
expected to decline against the dollar or another foreign currency. The
Portfolio will profit if the anticipated movements in foreign currency exchange
rates occur, which will increase gross income. Where exchange rates do not move
in the direction or the extent anticipated, however, the Portfolio may sustain
losses which will reduce its gross income. Such transactions should be
considered speculative and could involve significant risk of loss.

Foreign Bond Portfolio may also engage in short sales of non-U.S.
currencies in which the Portfolio would sell a currency that it did not own in
anticipation of a fall in the value of that currency relative to U.S. dollars
or another foreign currency. The Portfolio may do this even if it does not hold
any securities or other assets denominated in the non-U.S. currency being sold
short. In order for the Portfolio to deliver the currency sold short, it would
be required to purchase the currency. If the expected decline occurs, the
Portfolio would gain the difference between the price at which it sold the
currency, and the price it paid for the currency. However, if the price of the
currency increases, the Portfolio would suffer a loss to the extent that the
purchase price of the currency exceeds the price of the currency it sold short.
Foreign Bond Portfolio's losses on such short sales are potentially unlimited.

Each Portfolio (other than Small Cap Value Portfolio) has established
procedures consistent with policies of the SEC concerning forward contracts
and, in the case of Foreign Bond Portfolio, short sales. Those policies
currently require that an amount of a Portfolio's assets equal to the amount of
the purchase be held aside or segregated to be used to pay for the commitment
or that the Portfolio otherwise covers its position in accordance with
applicable regulations and policies.

Each of the Portfolios (other than Small Cap Value Portfolio) may purchase
put options on a currency in an attempt to protect against currency rate
fluctuations or to seek to enhance gains. When a Portfolio purchases a put
option on a currency, the Portfolio will have the right to sell the currency
for a fixed amount in U.S. dollars, or other currency. Conversely, where a rise
in the value of one currency is projected against another, the Portfolio may
purchase call options on the currency, giving it the right to purchase the
currency for a fixed amount of U.S. dollars or another currency. Each Portfolio

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(other than Small Cap Value Portfolio) may purchase put or call options on
currencies, even if the Portfolio does not currently hold or intend to purchase
securities denominated in such currencies.

The benefit to the Portfolio from purchases of currency options will be
reduced by the amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the direction or to the
extent anticipated, the Portfolio could sustain losses on transactions in
foreign currency option.

The Portfolios may write options on currencies for hedging purposes or
otherwise in an attempt to achieve their investment objectives. For example,
where a Portfolio anticipates a decline in the value of the U.S. dollar value
of a foreign security due to adverse fluctuations in exchange rates it could,
instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most likely not be
exercised, and the diminution in value of the security held by the Portfolio
may be offset by the amount of the premium received. If the expected decline
does not occur, the Portfolio may be required to sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. A Portfolio could
also write call options on a currency, even if it does not own any securities
denominated in that currency, in an attempt to enhance gains. In that case, if
the expected decline does not occur, the Portfolio would be required to
purchase the currency and sell it at a loss, which may not be offset by the
premium received. As with a short sale of a security or a currency, the losses
in this case could be unlimited.

Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the cost of a foreign security to be acquired because
of an increase in the U.S. dollar value of the currency in which the underlying
security is primarily traded, a Portfolio could write a put option on the
relevant currency which, if rates move in the manner projected, will expire
unexercised and allow the Portfolio to hedge such increased cost up to the
amount of the premium. However, the writing of a currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may be
exercised and the Portfolio would be required to purchase or sell the
underlying currency at a loss which may not be offset by the amount of the
premium. Through the writing of options on currencies, a Portfolio also may be
required to forgo all or a portion of the benefits which might otherwise have
been obtained from favorable movements in exchange rates. A Portfolio could
also write put options on a currency, even if it does not own, or intend to
purchase, any securities denominated in that currency. In that case, if the
expected increase does not occur, the Portfolio would be required to purchase
the currency at a price that is greater than the current exchange rate for the
currency, and the losses in this case could exceed the amount of premium
received for writing the options, and could be unlimited.

<PAGE>

Options on foreign currencies are traded on U.S. or foreign exchanges or
in the over-the-counter market. Each of the Portfolios (other than Small Cap
Value Portfolio) may enter into transactions in options on foreign currencies
that are traded in the over-the-counter market. These transactions are not
afforded the protections provided to traders on organized exchanges or those
regulated by the CFTC. In particular, over-the-counter options are not cleared
and guaranteed by a clearing corporation, thereby increasing the risk of
counterparty default. In addition, there may not be a liquid market on these
options, which may prevent a Portfolio from liquidating open positions at a
profit prior to exercise or expiration, or to limit losses in the event of
adverse market conditions.

The purchase and sale of foreign currency options are subject to the risks
of the availability of a liquid secondary market and counterparty risk, as
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible interventions by governmental authorities and the effects of other
political and economic events. In addition, the value of a Portfolio's
positions in foreign currency options could be adversely affected by (1) other
complex foreign political and economic factors, (2) lesser availability of data
on which to make trading decisions than in the United States, (3) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during non-business hours in the United States or at the applicable
Subadviser's place of business, and (4) imposition of different exercise and
settlement terms and procedures and margin requirements than in the United
States.

In addition, because foreign currency transactions occurring in the
interbank market generally involve substantially larger amounts than those that
may be involved in the use of foreign currency options, the Portfolios may be
disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.

There is no systematic reporting of last-sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (less than $1 million) where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock
market. To the extent that the U.S. options markets, or other markets used by
the Manager or a Subadviser are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that may not be reflected in the U.S. or other markets
used by the Portfolios.

Put and call options on non-U.S. currencies written by a Portfolio will be
covered by segregation of cash and liquid securities in an amount sufficient to
discharge the Portfolio's obligations with respect to the option, by

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acquisition of the non-U.S. currency or of a right to acquire such currency (in
the case of a call option) or the acquisition of a right to dispose of the
currency (in the case of a put option), or in such other manner as may be in
accordance with the requirements of any exchange on which, or the counterparty
with which, the option is traded and applicable laws and regulations.

The Portfolios (other than Small Cap Value Portfolio) may engage in proxy
hedges and cross hedges. For example, in a proxy hedge, a Portfolio, having
purchased a security, would sell a currency whose value is believed to be
closely linked to the currency in which the security is denominated. Interest
rates prevailing in the country whose currency was sold might be expected to be
closer to those in the U.S. and lower than those of securities denominated in
the currency of the original holding. This type of hedging entails greater risk
than a direct hedge because it is dependent on a stable relationship between
the two currencies paired as proxies and the relationships can be very unstable
at times. A Portfolio may enter into a cross hedge if a particular currency is
expected to decrease against another currency. For example, the Portfolio would
sell the currency expected to decrease and purchase a currency which is
expected to increase against the currency sold in an attempt to protect against
declines in value of the Portfolio's holdings denominated in the currency sold.

Investing in ADRs and other depositary receipts presents many of the same
risks regarding currency exchange rates as investing directly in securities
traded in currencies other than the U.S. dollar. Because the securities
underlying ADRs are traded primarily in non-U.S. currencies, changes in
currency exchange rates will affect the value of these receipts. For example, a
decline in the U.S. dollar value of another currency in which securities are
primarily traded will reduce the U.S. dollar value of such securities, even if
their value in the other non-U.S. currency remains constant, and thus will
reduce the value of the receipts covering such securities. A Portfolio may
employ any of the above described foreign currency hedging techniques to
protect the value of its assets invested in depositary receipts.

Of course, a Portfolio is not required to enter into the transactions
described above and does not do so unless deemed appropriate by the Manager or
a Subadviser. It should be realized that under certain circumstances, the
Portfolios may not be able to hedge against a decline in the value of a
currency, even if the Manager or a Subadviser deems it appropriate to try to do
so, because doing so would be too costly. It should also be realized that
transactions entered into to protect the value of a Portfolio's securities
against a decline in the value of a currency (even when successful) do not
eliminate fluctuations in the underlying prices of the securities.
Additionally, although hedging transactions may tend to minimize the risk of
loss due to a decline in the value of the hedged currency, they also tend to
limit any potential gain which might result should the value of such currency
increase.

Investors should also be aware of the increased risk to a Portfolio and
its investors when it enters into foreign currency exchange transactions for

<PAGE>

non-hedging purposes. Non-hedging transactions in such instruments involve
greater risks and may result in losses which are not offset by increases in the
value of a Portfolio's other assets. Although a Portfolio is required to
segregate assets or otherwise cover certain types of transactions, this does
not protect the Portfolio against risk of loss. Furthermore, the Portfolios'
use of foreign currency exchange transactions may involve leveraging.
Leveraging adds increased risks to a Portfolio, because the Portfolio's losses
may be out of proportion to the amount invested in the instrument--a relatively
small investment may lead to much greater losses.

OPTIONS
Each of the Portfolios may write call and put options and purchase call
and put options on securities for hedging and non-hedging purposes. Call and
put options written by a Portfolio will be covered in the manner set forth
below, or the Portfolio will segregate cash or liquid securities equal to the
value of the securities underlying the option.

A call option written by a Portfolio is "covered" if the Portfolio owns
the security underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or for additional
cash consideration held in a segregated account) upon conversion or exchange of
other securities held in its portfolio. A call option is also covered if a
Portfolio holds a call on the same security and in the same principal amount as
the call written where the exercise price of the call held (a) is equal to or
less than the exercise price of the call written or (b) is greater than the
exercise price of the call written if the difference is maintained by a
Portfolio in cash or liquid securities in a segregated account. A put option
written by a Portfolio is "covered" if the Portfolio maintains cash or liquid
securities with a value equal to the exercise price in a segregated account, or
else holds a put on the same security and in the same principal amount as the
put written where the exercise price of the put held is equal to or greater
than the exercise price of the put written or where the exercise price of the
put held is less than the exercise price of the put written if the difference
is maintained by the Portfolio in cash or liquid securities in a segregated
account. Put and call options written by a Portfolio may also be covered in
such other manner as may be in accordance with the requirements of the exchange
on which, or the counterparty with which, the option is traded, and applicable
laws and regulations. Even if the Portfolio's obligation is covered, it is
subject to the risk of the full change in value of the underlying security from
the time the option is written until exercise. Covering an option does not
protect the Portfolio from risk of loss.

When a Portfolio writes a call option, the Portfolio, in return for a fee,
or "premium", agrees to sell a security at the exercise price, if the holder
exercises the right to purchase prior to the expiration date of the call
option. If the Portfolio holds the security in question, the Portfolio gives up
some or all of the opportunity to profit from the increase in the market price
of the security during the life of the option. The Portfolio retains the risk
of loss should the price of the security decline. If the option expires
unexercised, the Portfolio realizes a gain equal to the premium, which may be
offset by a decline in price of the underlying security. If the option is

<PAGE>

exercised, the Portfolio realizes a gain or loss equal to the difference
between the fund's cost for the underlying security and the proceeds of sale
(exercise price minus commissions) plus the amount of the premium.

A Portfolio may terminate a call option it has written before it expires
by entering into a closing purchase transaction. A Portfolio may enter into
closing purchase transactions in order to free itself to sell the underlying
security or to write another call on the security, realize a profit on a
previously written call option, or protect a security from being called in an
unexpected market rise. Any profits from closing a purchase transaction may be
offset by a decline in the value of the underlying security. Conversely,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, if the Portfolio
holds the underlying security any loss resulting from a closing purchase
transaction is likely to be offset in whole or in part by unrealized
appreciation of the underlying security. If the Portfolio does not hold the
underlying security, the Portfolio's loss could be unlimited.

A Portfolio may write put options in an attempt to enhance its current
return. Such option transactions may also be used as a limited form of hedging
against an increase in the price of securities that a Portfolio plans to
purchase. A put option written by the Portfolio gives the holder the right to
sell, and, in return for a premium, obligates the Portfolio to buy, a security
at the exercise price at any time before the expiration date.

In addition to the receipt of premiums and the potential gains from
terminating such options in closing purchase transactions, a Portfolio may also
receive a return on the cash and debt securities maintained to cover the
exercise price of the option. By writing a put option, the Portfolio assumes
the risk that it may be required to purchase the underlying security for an
exercise price higher than its then current market value, resulting in a loss
to the Portfolio, unless the security later appreciates in value. A Portfolio
may terminate a put option it has written before it expires by a closing
purchase transaction. Any loss from this transactions may be partially or
entirely offset by the premium received on the terminated option.

Each of the Portfolios may purchase options for hedging purposes or to
increase the Portfolio's return. When put options are purchased as a hedge
against a decline in the value of portfolio securities, the put options may be
purchased at or about the same time that the Portfolio purchases the underlying
security or at a later time. If such decline occurs, the put options will
permit a Portfolio to sell the securities at the exercise price, or to close
out the options at a profit. By using put options in this way, the Portfolio
will reduce any profit it might otherwise have realized in the underlying
security by the amount of the premium paid for the put option and by
transaction costs. Similarly, when put options are used for non-hedging
purposes, the Portfolio may make a profit when the price of the underlying
security or instrument falls below the strike price. If the price of the
underlying security or instrument does not fall sufficiently, the options may
expire unexercised and the Portfolio would lose the premiums it paid for the

<PAGE>

option. If the price of the underlying security or instrument falls
sufficiently and the option is exercised, the amount of any resulting profit
will be offset by the amount of premium paid.

Each of the Portfolios may purchase call options to hedge against an
increase in the price of securities that the Portfolio anticipates purchasing
in the future. If such increase occurs, the call option will permit the
Portfolio to purchase the securities at the exercise price, or to close out the
options at a profit. The premium paid for the call option plus any transaction
costs will reduce the benefit, if any, realized by the Portfolio upon exercise
of the option, and, unless the price of the underlying security rises
sufficiently, the option may expire worthless to the Portfolio and the premium
would be lost.

Call options may also be purchased in order to increase a Portfolio's
return at a time when the call is expected to increase in value due to
anticipated appreciation of the underlying security. Prior to its expiration, a
call option may be sold by a Portfolio in closing sale transactions, which are
sales by the Portfolio, prior to the exercise of options that it has purchased,
of options of the same series. Profit or loss from the sale will depend upon
whether the amount received is more or less than the premium paid for the
option plus the related transaction costs. The purchase of call options on
securities that a Portfolio owns, when a Portfolio is substantially fully
invested, is a form of leverage, up to the amount of the premium and related
transaction costs, and involves risks of loss and of increased volatility.

Each of the Portfolios may write (sell) call and put options and purchase
call and put options on securities indices. The delivery requirements of
options on securities indices differ from options on securities. Unlike a
securities option, which contemplates the right to take or make delivery of
securities at a specified price, an option on a securities index gives the
holder the right to receive a cash "exercise settlement amount" equal to (1)
the amount, if any, by which the fixed exercise price of the option exceeds (in
the case of a put) or is less than (in the case of a call) the closing value of
the underlying index on the date of exercise, multiplied by (2) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the securities index upon which the option is based being greater than, in the
case of a call, or less than, in the case of a put, the exercise price of the
option. The writer of the option is obligated, in return for the premium
received, to make delivery of this amount. The writer may offset its position
in securities index options prior to expiration by entering into a closing
transaction on an exchange or it may allow the option to expire unexercised.

Each of the Portfolios may cover call options on securities indices by
owning securities whose price changes, in the opinion of the Manager or a
Subadviser, are expected to be similar to those of the underlying index, or by
having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities in its portfolio. Where a Portfolio covers a call option on a

<PAGE>

securities index through ownership of securities, such securities may not match
the composition of the index and, in that event, the Portfolio will not be
fully covered and could be subject to risk of loss in the event of adverse
changes in the value of the index. A Portfolio may also cover call options on
securities indices by holding a call on the same index and in the same
principal amount as the call written where the exercise price of the call held
(a) is equal to or less than the exercise price of the call written or (b) is
greater than the exercise price of the call written if the difference is
maintained by the Portfolio in cash or liquid securities in a segregated
account. A Portfolio may cover put options on securities indices by maintaining
cash or liquid securities with a value equal to the exercise price in a
segregated account or by holding a put on the same securities index and in the
same principal amount as the put written where the exercise price of the put
held is equal to or greater than the exercise price of the put written or where
the exercise price of the put held is less than the exercise price of the put
written if the difference is maintained by the Portfolio in cash or liquid
securities in a segregated account. Put and call options on securities indices
may also be covered in such other manner as may be in accordance with the rules
of the exchange on which, or the counterparty with which, the option is traded,
and applicable laws and regulations. Investors should be aware that although a
Portfolio will only write call or put options on securities indices that are
covered, covering an option does not protect the Portfolio from risk of loss.

A Portfolio will receive a premium from writing a put or call option,
which increases the Portfolio's gross income in the event the option expires
unexercised or is closed out at a profit. If the value of an index on which a
Portfolio has written a call option falls or remains the same, the Portfolio
will realize a profit in the form of the premium received (less transaction
costs) that could offset all or a portion of any decline in the value of the
securities it owns. If the value of the index rises, however, the Portfolio
will realize a loss in its call option position, which will reduce the benefit
of any unrealized appreciation in the Portfolio's stock investments. By writing
a put option, a Portfolio assumes the risk of a decline in the index. To the
extent that the price changes of securities owned by a Portfolio correlate with
changes in the value of the index, writing covered put options on indices will
increase the Portfolio's losses in the event of a market decline, although such
losses will be offset in part by the premium received for writing the option.

Each of the Portfolios may purchase put options on securities indices when
the Manager or Subadviser believes that there may be a decline in the prices of
the securities covered by the index. The Portfolio will realize a gain if the
put option appreciates in excess of the premium paid for the option. If the
option does not increase in value, the Portfolio's loss will be limited to the
premium paid for the option plus related transaction costs.

A Portfolio may purchase call options on securities indices to take
advantage of an anticipated broad market advance, or an advance in an industry
or market segment. A Portfolio will bear the risk of losing all or a portion of
the premium paid if the value of the index does not rise. The purchase of call
options on securities indices when a Portfolio is substantially fully invested

<PAGE>

is a form of leverage, up to the amount of the premium and related transaction
costs, and involves risks of loss and of increased volatility.

Securities index options are subject to position and exercise limits and
other regulations imposed by the exchange on which they are traded. The ability
of a Portfolio to engage in closing purchase transactions with respect to
securities index options depends on the existence of a liquid secondary market.
However, no such secondary market may exist, or the market may cease to exist
at some future date, for some options. No assurance can be given that a closing
purchase transaction can be effected when the Manager or a Subadviser desires
that a Portfolio engage in such a transaction.

Because the value of an index option depends upon movements in the level
of the index rather than the price of a particular security, whether a
Portfolio realizes a gain or loss from purchasing or writing of options on an
index depends upon movements in the level of prices in the market generally or,
in the case of certain indices, in an industry or market segment, rather than
movements in the price of a particular security. As a result, successful use by
a Portfolio of options on securities indices is subject to the Manager's or a
Subadviser's ability to predict correctly movements in the direction of the
market generally or of a particular industry. This ability contemplates
different skills and techniques from those used in predicting changes in the
price of individual securities. When a Portfolio purchases or writes securities
index options as a hedging technique, the Portfolio's success will depend upon
the extent to which price movements in the portion of a securities portfolio
being hedged correlate with price movements of the securities index selected.

A Portfolio's purchase or sale of securities index options in an attempt
to enhance performance involves speculation and may be very risky and cause
losses, which, in the case of call options written, are potentially unlimited.

The Portfolios may purchase over-the-counter ("OTC") or dealer options or
sell covered OTC options. Unlike exchange-listed options where an intermediary
or clearing corporation assures that all transactions are properly executed,
the responsibility for performing all transactions with respect to OTC options
rests solely with the writer and the holder of those options. A listed call
option writer, for example, is obligated to deliver the underlying stock to the
clearing organization if the option is exercised, and the clearing organization
is then obligated to pay the writer the exercise price of the option. If a
Portfolio were to purchase a dealer option, however, it would rely on the
dealer from whom it purchased the option to perform if the option were
exercised. If the dealer fails to honor the exercise of the option by the
Portfolio, the Portfolio would lose the premium it paid for the option and the
expected benefit of the transaction.

Listed options may have a liquid market while dealer options have none.
Consequently, a Portfolio will generally be able to realize the value of a
dealer option it has purchased only by exercising it or reselling it to the
dealer who issued it. Similarly, when a Portfolio writes a dealer option, it

<PAGE>

generally will be able to close out the option prior to the expiration only by
entering into a closing purchase transaction with the dealer to which the
Portfolio originally sold the option. Although the Portfolios will seek to
enter into dealer options only with dealers who will agree to and that are
expected to be capable of entering into closing transactions with the
Portfolios, there can be no assurance that a Portfolio will be able to
liquidate a dealer option at a favorable price at any time prior to expiration.
The inability to enter into a closing transaction may result in material losses
to a Portfolio. Until a Portfolio, as an OTC call option writer, is able to
effect a closing purchase transaction, it will not be able to liquidate
securities (or other assets) used to cover the written option until the option
expires or is exercised. This requirement may impair a Portfolio's ability to
sell portfolio securities or, with respect to currency options, currencies at a
time when such sale might be advantageous. In the event of insolvency of the
other party, the Portfolio may be unable to liquidate a dealer option.

To the extent permitted under rules and interpretations of the CFTC, each
of the Portfolios may also purchase or write put and call options on securities
index futures contracts that are traded on a U.S. exchange or board of trade or
a foreign exchange, as a hedge against changes in market conditions and
interest rates, for duration management, or in an attempt to enhance
performance, and may enter into closing transactions with respect to those
options to terminate existing positions.

Each of the Portfolios (other than Small Cap Value Portfolio) may purchase
and write options on foreign currencies as more fully described in "Foreign
Currency Exchange Transactions" above.

The Portfolios' use of options may involve leveraging. Leveraging adds
increased risks to a Portfolio, because the Portfolio's losses may be out of
proportion to the amount invested in the instrument--a relatively small
investment may lead to much greater losses.

FUTURES CONTRACTS
Each of the Portfolios (other than Small Cap Value Portfolio) may enter
into interest rate futures contracts and/or foreign currency futures contracts.
Each of the Portfolios (including Small Cap Value Portfolio) may enter into
stock index futures contracts. Such investment strategies may be used for
hedging purposes and for non-hedging purposes, subject to applicable law.

A futures contract is an agreement between two parties for the purchase or
sale for future delivery of securities or for the payment or acceptance of a
cash settlement based upon changes in the value of the securities or of an
index of securities. A "sale" of a futures contract means the acquisition of a
contractual obligation to deliver the securities called for by the contract at
a specified price, or to make or accept the cash settlement called for by the
contract, on a specified date. A "purchase" of a futures contract means the
acquisition of a contractual obligation to acquire the securities called for by
the contract at a specified price, or to make or accept the cash settlement

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called for by the contract, on a specified date. Futures contracts in the
United States have been designed by exchanges which have been designated
"contract markets" by the Commodity Futures Trading Commission ("CFTC") and
must be executed through a futures commission merchant, or brokerage firm,
which is a member of the relevant contract market. Futures contracts trade on
these markets, and the exchanges, through their clearing organizations,
guarantee that the contracts will be performed as between the clearing members
of the exchange. Futures contracts may also be traded on markets outside the
U.S.

Futures contracts based on debt securities provide for the delivery and
acceptance of securities, although such deliveries and acceptances are very
seldom made. Generally, a futures contract is terminated by entering into an
offsetting transaction. Brokerage fees will be incurred when a Portfolio
purchases or sells a futures contract. At the same time such a purchase or sale
is made, the Portfolio must provide cash or securities as a deposit ("initial
deposit") known as "margin." The initial deposit required will vary, but may be
as low as 1% or less of a contract's face value. Daily thereafter, the futures
contract is valued through a process known as "marking to market," and the
Portfolio may receive or be required to pay additional "variation margin" as
the futures contract becomes more or less valuable. At the time of delivery of
securities pursuant to such a contract, adjustments are made to recognize
differences in value arising from the delivery of securities with a different
interest rate than the specific security that provides the standard for the
contract. In some (but not many) cases, securities called for by a futures
contract may not have been issued when the contract was entered into. Interest
rate futures, which are typically based on shorter-term interest rates, such as
overnight to six-month time periods, settle in cash only rather than by
delivery of the underlying instrument.

A Portfolio may purchase or sell interest rate futures contracts or bond
futures contracts to attempt to protect the Portfolio from fluctuations in
interest rates, to manage the effective maturity or duration of the Portfolio's
portfolio in an effort to reduce potential losses, or in an effort to enhance
potential gain, without actually buying or selling debt securities. For
example, if the Portfolio owned long-term bonds and interest rates were
expected to increase, the Portfolio might enter into interest rate futures
contracts for the sale of debt securities. Such a sale would have much the same
effect as if the Portfolio sold bonds that it owned, or as if the Portfolio
sold longer-term bonds and purchased shorter-term bonds. If interest rates did
increase, the value of the Portfolio's debt securities would decline, but the
value of the futures contracts would increase, thereby keeping the net asset
value of the Portfolio from declining as much as it otherwise would have.
Similar results could be accomplished by selling bonds, or by selling bonds
with longer maturities and investing in bonds with shorter maturities. However,
by using futures contracts, the Portfolio avoids having to sell its securities.

Bond futures may be used for non-hedging purposes. For example, even if
the Portfolio were not trying to protect the value of any bonds held by it, if
the Manger or a Subadviser anticipates that interest rates are about to rise,

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depressing future prices of bonds, the Manager or Subadviser may sell bond
futures short, closing out the position later at a lower price, if the future
prices had fallen, as expected. If the prices had not fallen, the Portfolio
would experience a loss and such loss may be unlimited.

Similarly, when it is expected that interest rates may decline, a
Portfolio might enter into futures contracts for the purchase of debt
securities. Such a purchase would be intended to have much the same effect as
if the Portfolio purchased bonds, or as if the Portfolio sold shorter-term
bonds and purchased longer-term bonds. If interest rates did decline, the value
of the futures contracts would increase.

Although futures on individual equity securities are not available in
United States markets, futures contracts on individual equity securities may be
available in foreign markets, and may be purchased or sold by the Portfolios.

Each of the Portfolios may buy and sell stock index futures contracts to
attempt to increase investment return, to gain stock market exposure while
holding cash available for investments and redemptions, or to protect against a
decline in the stock market.

A stock index futures contract is a contract to buy or sell units of a
stock index at a specified future date at the price agree upon when the
contract is made. A unit is the current value of the stock index.

The following example illustrates generally the manner in which index
futures contracts operate. The Standard & Poor's 100 Stock Index (the "S&P 100
Index") is composed of 100 selected common stocks, most of which are listed on
the New York Stock Exchange. The S&P 100 Index assigns relative weightings to
the common stocks included in the Index, and the Index fluctuates with changes
in the market values of those common stocks. In the case of the S&P 100 Index,
contracts are to buy or sell 100 units. Thus, if the value of the S&P 100 Index
were $180, one contract would be worth $18,000 (100 units x $180). The stock
index futures contract specifies that no delivery of the actual stocks making
up the index will take place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the difference between
the contract price and the actual level of the stock index at the expiration of
the contract. For example, if a Portfolio enters into a futures contract to buy
100 units of the S&P 100 Index at a specified future date at a contract price
of $180 and the S&P 100 Index is at $184 on that future date, the Portfolio
will gain $400 (100 units x gain of $4) reduced by transaction costs. If the
Portfolio enters into a futures contract to sell 100 units of the stock index
at a specified future date at a contract price of $180 and the S&P 100 Index is
at $182 on that future date, the Portfolio will lose $200 (100 units x loss of
$2) increased by transaction costs.

Positions in index futures may be closed out only on an exchange or board
of trade which provides a secondary market for such futures.

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Each of the Portfolios (other than Small Cap Value Portfolio) may purchase
and sell foreign currency futures contracts to attempt to protect its current
or intended investments from fluctuations in currency exchange rates, or for
non-hedging purposes, in an attempt to benefit from such fluctuations. Such
fluctuations could reduce the dollar value of portfolio securities denominated
in foreign currencies, or increase the cost of foreign-denominated securities
to be acquired, even if the value of such securities in the currencies in which
they are denominated remains constant. A Portfolio may sell futures contracts
on a foreign currency, for example, where it holds securities denominated in
such currency and it anticipates a decline in the value of such currency
relative to the dollar. In the event such decline occurs, the resulting adverse
effect on the value of foreign-denominated securities may be offset, in whole
or in part, by gains on the futures contracts. A Portfolio may also sell
futures contracts in a foreign currency even if it does not hold securities
denominated in such currency, if it anticipates a decline in the value of such
currency.

Conversely, the Portfolio could protect against a rise in the dollar cost
of foreign-denominated securities to be acquired by purchasing futures
contracts on the relevant currency, which could offset, in whole or in part,
the increased cost of such securities resulting from a rise in the dollar value
of the underlying currencies. Where the Portfolio purchases futures contracts
under such circumstances, however, and the prices of securities to be acquired
instead decline, the Portfolio will sustain losses on its futures position
which could reduce or eliminate the benefits of the reduced cost of portfolio
securities to be acquired. The Portfolio could also purchase futures contracts
on a currency if it expected the currency to rise in value, even if the
Portfolio did not anticipate purchasing securities denominated in that
currency.

Although the use of futures for hedging should tend to minimize the risk
of loss due to a decline in the value of the hedged position (e.g., if a
Portfolio sells a futures contract to protect against losses in the debt
securities held by the Portfolio), at the same time the futures contract limits
any potential gain which might result from an increase in value of a hedged
position.

In addition, the ability effectively to hedge all or a portion of a
Portfolio's investments through transactions in futures contracts depends on
the degree to which movements in the value of the debt securities underlying
such contracts correlate with movements in the value of the Portfolio's
securities. If the security underlying a futures contract is different than the
security being hedged, they may not move to the same extent or in the same
direction. In that event, the Portfolio's hedging strategy might not be
successful and the Portfolio could sustain losses on these hedging transactions
which would not be offset by gains on the Portfolio's other investments or,
alternatively, the gains on the hedging transaction might not be sufficient to
offset losses on the Portfolio's other investments. It is also possible that
there may be a negative correlation between the security underlying a futures
contract and the securities being hedged, which could result in losses both on
the hedging transaction and the securities. In these and other instances, the
Portfolio's overall return could be less than if the hedging transactions had

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not been undertaken. Similarly, even where a Portfolio enters into futures
transactions other than for hedging purposes, the effectiveness of its strategy
may be affected by lack of correlation between changes in the value of the
futures contracts and changes in value of the underlying securities, currencies
or indices.

The ordinary spreads between prices in the cash and futures markets, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit
and variation margin requirements. Rather than meeting additional variation
margin requirements, investors may close out futures contracts through
offsetting transactions which could distort the normal relationship between the
cash and futures markets. Second, there is the potential that the liquidity of
the futures market may be lacking. Prior to expiration, a futures contract may
be terminated only by entering into a closing purchase or sale transaction,
which requires a secondary market on the contract market on which the futures
contract was originally entered into. There can be no assurance that a liquid
secondary market will exist for any particular futures contract at any specific
time. In that event, it may not be possible to close out a position held by the
Portfolio, which could require the Portfolio to purchase or sell the instrument
underlying the futures contract or to meet ongoing variation margin
requirements. The inability to close out futures positions also could have an
adverse impact on the ability effectively to use futures transactions for
hedging or other purposes.

The liquidity of a secondary market in a futures contract may be adversely
affected by "daily price fluctuation limits" established by the exchanges,
which limit the amount of fluctuation in the price of a futures contract during
a single trading day and prohibit trading beyond such limits once they have
been reached. Each contract market on which futures contracts are traded has
established a number of limitations governing the maximum number of positions
which may be held by a trader, whether acting alone or in concert with others.
The trading of futures contracts also is subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal trading activity, which could at times make it difficult
or impossible to liquidate existing positions or to recover excess variation
margin payments.

Investments in futures contracts also entail the risk that if the
Manager's or a Subadviser's investment judgment about the general direction of
interest rates, equity markets, or other economic factors is incorrect, the
Portfolio's overall performance may be poorer than if any such contract had not
been entered into. For example, if a Portfolio entered into a futures contract
in the belief that interest rates would increase, and interest rates decrease
instead, the Portfolio will have offsetting losses in its futures positions.
Similarly, if a Portfolio purchases futures contracts expecting a decrease in
interest rates and interest rates instead increased, the Portfolio will have
losses in its futures positions which will increase the amount of the losses on
the securities in its portfolio which will also decline in value because of the

<PAGE>

increase in interest rates. In addition, in such situations, if the Portfolio
has insufficient cash, the Portfolio may have to sell bonds from its
investments to meet daily variation margin requirements, possibly at a time
when it may be disadvantageous to do so.

CFTC regulations require compliance with certain limitations in order to
assure that a Portfolio is not deemed to be a "commodity pool" under such
regulations. Generally speaking, CFTC regulations prohibit a Portfolio from
purchasing or selling futures contracts (other than for bona fide hedging
transactions) if, immediately thereafter, the sum of the amount of initial
margin required to establish that Portfolio's non-hedging futures positions and
the premiums required to establish positions in options on futures, would
exceed 5% of that Portfolio's net assets. These limitations apply only to
instruments regulated by the CFTC, and may not apply to all of the Portfolios'
transactions in futures contracts.

Each Portfolio will comply with this CFTC requirement if applicable. In
addition, an amount of cash or liquid securities will be maintained by each
Portfolio in a segregated account so that the amount so segregated, plus the
applicable margin held on deposit, will be approximately equal to the amount
necessary to satisfy the Portfolio's obligations under the futures contract, or
a Portfolio will otherwise "cover" its positions in accordance with applicable
policies and regulations.

The use of futures contracts may expose a Portfolio to the effects of
"leveraging," which occurs when futures are used so that the Portfolio's
exposure to the market is greater than it would have been if the Portfolio had
invested directly in the underlying securities. "Leveraging" increases a
Portfolio's potential for both gain and loss.

OPTIONS ON FUTURES CONTRACTS
Each of the Portfolios may purchase and write options to buy or sell
futures contracts in which the Portfolio may invest. Such investment strategies
may be used for hedging purposes and for non-hedging purposes, subject to
applicable law.

An option on a futures contract provides the holder with the right to
enter into a "long" position in the underlying futures contract, in the case of
a call option, or a "short" position in the underlying futures contract, in the
case of a put option, at a fixed exercise price up to a stated expiration date
or, in the case of certain options, on such date. Upon exercise of the option
by the holder, the contract market clearinghouse establishes a corresponding
short position for the writer of the option, in the case of a call option, or a
corresponding long position in the case of a put option. In the event that an
option is exercised, the parties will be subject to all the risks associated
with the trading of futures contracts, such as payment of initial and variation
margin deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.

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A position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date), as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's
profits or loss on the transaction.

Options on futures contracts that are written or purchased by a Portfolio
on U.S. exchanges are traded on the same contract market as the underlying
futures contract, and, like futures contracts, are subject to regulation by the
CFTC and the performance guarantee of the exchange clearinghouse. In addition,
options on futures contracts may be traded on foreign exchanges.

Each of the Portfolios may cover the writing of call options on futures
contracts (a) through purchases of the underlying futures contract, (b) through
ownership of the instrument, or instruments included in the index underlying
the futures contract, or (c) through the holding of a call on the same futures
contract and in the same principal amount as the call written where the
exercise price of the call held (i) is equal to or less than the exercise price
of the call written or (ii) is greater than the exercise price of the call
written if the difference is maintained by the Portfolio in cash or securities
in a segregated account. A Portfolio may cover the writing of put options on
futures contracts (a) through sales of the underlying futures contract, (b)
through segregation of cash or liquid securities in an amount equal to the
value of the security or index underlying the futures contract, (c) through the
holding of a put on the same futures contract and in the same principal amount
as the put written where the exercise price of the put held is equal to or
greater than the exercise price of the put written or where the exercise price
of the put held is less than the exercise price of the put written if the
difference is maintained by a Portfolio in cash or liquid securities in a
segregated account. Put and call options on futures contracts may also be
covered in such other manner as may be in accordance with the rules of the
exchange on which the option is traded and applicable laws and regulations.
Upon the exercise of a call option on a futures contract written by a
Portfolio, the Portfolio will be required to sell the underlying futures
contract which, if the Portfolio has covered its obligation through the
purchase of such contract, will serve to liquidate its futures position.
Similarly, where a put option on a futures contract written by a Portfolio is
exercised, the Portfolio will be required to purchase the underlying futures
contract which, if the Portfolio has covered its obligation through the sale of
such contract, will close out its futures position.

The writing of a call option on a futures contract may be used as a
partial hedge against declining prices of the securities deliverable on
exercise of the futures contract. A Portfolio will receive an option premium
when it writes the call, and, if the price of the futures contract at
expiration of the option is below the option exercise price, the Portfolio will
retain the full amount of this option premium, which provides a partial hedge

<PAGE>

against any decline that may have occurred in the Portfolio's security
holdings. Similarly, the writing of a put option on a futures contract may be
used as a partial hedge against increasing prices of the securities deliverable
upon exercise of the futures contract. If a Portfolio writes an option on a
futures contract and that option is exercised, the Portfolio may incur a loss,
which loss will be reduced by the amount of the option premium received, less
related transaction costs. A Portfolio's ability to hedge effectively through
transactions in options on futures contracts depends on, among other factors,
the degree of correlation between changes in the value of securities held by
the Portfolio and changes in the value of its futures positions. This
correlation cannot be expected to be exact, and the Portfolio bears a risk that
the value of the futures contract being hedged will not move in the same
amount, or even in the same direction, as the hedging instrument. Thus it may
be possible for a Portfolio to incur a loss on both the hedging instrument and
the futures contract being hedged.

Each of the Portfolios may purchase options on futures contracts for
hedging purposes instead of purchasing or selling the underlying futures
contracts. For example, where a decrease in the value of portfolio securities
is anticipated as a result of a projected market-wide decline or changes in
interest or exchange rates, a Portfolio could, in lieu of selling futures
contracts, purchase put options thereon. In the event that such decrease
occurs, it may be offset, in whole or part, by a profit on the option.
Conversely, where it is projected that the value of securities to be acquired
by a Portfolio will increase prior to acquisition, due to a market advance or
changes in interest or exchange rates, the Portfolio could purchase call
options on futures contracts, rather than purchasing the underlying futures
contracts.

Each of the Portfolios may also purchase options on futures contracts for
non-hedging purposes, in order to take advantage of projected market advances
or declines or changes in interest rates or exchange rates. For example, a
Portfolio can buy a call option on a bond futures contract when the Manager or
Subadviser believes that the underlying futures contract will rise. If prices
do rise, the Portfolio could exercise the option and acquire the underlying
futures contract at the strike price or the Portfolio could offset the long
call position with a sale and realize a profit. Or, a Portfolio can sell a call
option if the Manager or Subadviser believes that futures prices will decline.
If prices decline, the call will likely not be exercised and the Portfolio
would profit. However, if the underlying futures contract should rise, the
buyer of the option would likely exercise the call against the Portfolio and
acquire the underlying futures position at the strike price; the Portfolio's
loss in this case could be unlimited.

The Portfolios' use of options on futures contracts may involve
leveraging. Leveraging adds increased risks to a Portfolio, because the
Portfolio's losses may be out of proportion to the amount invested in the
instrument -- a relatively small investment may lead to much greater losses.

CONVERTIBLE SECURITIES
Each Portfolio may invest in convertible securities. A convertible
security is a fixed-income security (a bond or preferred stock) which may be

<PAGE>

converted at a stated price within a specified period of time into a certain
quantity of common stock or other equity securities of the same or a different
issuer. Convertible securities rank senior to common stock in a corporation's
capital structure but are usually subordinated to similar non-convertible
securities. While providing a fixed-income stream (generally higher in yield
than the income derivable from common stock but lower than that afforded by a
similar non-convertible security), a convertible security also affords an
investor the opportunity, through its conversion feature, to participate in the
capital appreciation attendant upon a market price advance in the convertible
security's underlying common stock. Convertible securities purchased are not
subject to the ratings requirements applicable to a Portfolio's purchase of
fixed income investments. For International Portfolio, however, convertible
securities will be rated at least A by a nationally recognized statistical
rating organization (like Moody's Investors Service or Standard & Poor's) or,
if unrated, be of comparable quality in the portfolio manager's opinion.

In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed-income security)
or its "conversion value" (i.e., its value upon conversion into its underlying
stock). As a fixed-income security, a convertible security tends to increase in
market value when interest rates decline and tends to decrease in value when
interest rates rise. However, the price of a convertible security is also
influenced by the market value of the security's underlying common stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of the
underlying stock declines. While no securities investment is without some risk,
investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.

SWAPS AND RELATED TRANSACTIONS
Each Portfolio (other than Small Cap Value Portfolio) may enter into
interest rate swaps, currency swaps, equity swaps and other types of available
swap agreements, such as caps, collars and floors, for the purpose of
attempting to obtain a particular desired return at a lower cost to the
Portfolio than if the Portfolio had invested directly in an instrument that
yielded that desired return. Interest rate swaps involve the exchange by the
Portfolio with another party of their respective commitments to pay or receive
interest. An equity swap is an agreement to exchange cash flows on a principal
amount based on changes in the values of the reference index. A currency swap
is an agreement to exchange cash flows on a principal amount based on changes
in the values of the currency exchange rates. In a typical cap or floor
agreement, one party agrees to make payments only under specified
circumstances, usually in return for payment of a fee by the counterparty. For
example, the purchase of an interest rate cap entitles the buyer, to the extent
that a specified index exceeds a predetermined interest rate, to receive
payments of interest on a contractually-based principal amount from the
counterparty selling such interest rate cap. The sale of an interest rate floor
obligates the seller to make payments to the extent that a specified interest

<PAGE>

rate falls below an agreed-upon level. A collar arrangement combines elements
of buying a cap and selling a floor.

A Portfolio will maintain liquid assets with its custodian or otherwise
cover its current obligations under swap transactions in accordance with
current regulations and policies applicable to the Portfolio.

The most significant factor in the performance of swaps, caps, floors and
collars is the change in the specific interest rate, equity, currency or other
factor that determines the amount of payments to be made under the arrangement.
If the Manager or a Subadviser is incorrect in its forecasts of such factors,
the investment performance of the Portfolio would be less than what it would
have been if these investment techniques had not been used. If a swap agreement
calls for payments by the Portfolio, the Portfolio must be prepared to make
such payments when due. No Portfolio will enter into any swap unless the
Manager or a Subadviser deems the counterparty to be creditworthy. If the
counterparty's creditworthiness declined, the value of the swap agreement would
be likely to decline, potentially resulting in losses. If the counterparty
defaults, the Portfolio's risk of loss consists of the net amount of payments
that the Portfolio is contractually entitled to receive. Each Portfolio
anticipates that it will be able to eliminate or reduce its exposure under
these arrangements by assignment or other disposition or by entering into an
offsetting agreement with the same or another counterparty.

Swap agreements are subject to each Portfolio's overall limit that not
more than 15% of its net assets may be invested in illiquid securities.

Engaging in swap and related transactions may involve leveraging.
Leveraging adds increased risks to a Portfolio, because the Portfolio's losses
may be out of proportion to the amount invested in the instrument -- a
relatively small investment may lead to much greater losses.

ADDITIONAL DISCLOSURE REGARDING DERIVATIVES
Transactions in options may be entered into on U.S. exchanges regulated by
the SEC, in the over-the-counter market and on foreign exchanges, while forward
contracts may be entered into only in the over-the-counter market. Futures
contracts and options on futures contracts may be entered into on U.S.
exchanges regulated by the CFTC and on foreign exchanges. The securities
underlying options and futures contracts traded by a Portfolio may include
domestic as well as foreign securities (except in the case of Small Cap Value
Portfolio, which does not invest in foreign securities). Investors should
recognize that transactions involving foreign securities or foreign currencies,
and transactions entered into in foreign countries, may involve considerations
and risks not typically associated with investing in U.S. markets.

Transactions in options, futures contracts, options on futures contracts
and forward contracts entered into for non-hedging purposes involve greater
risk and could result in losses which are not offset by gains on other

<PAGE>

portfolio assets. For example, a Portfolio may sell futures contracts on an
index of securities in order to profit from any anticipated decline in the
value of the securities comprising the underlying index. In such instances, any
losses on the futures transactions will not be offset by gains on any portfolio
securities comprising such index, as might occur in connection with a hedging
transaction.

The use of certain derivatives, such as futures, forward contracts, and
written options may involve leverage for the Portfolios because they create an
obligation, or indebtedness, to someone other than the Portfolios' investors
and enable a Portfolio to participate in gains and losses on an amount that
exceeds its initial investment. If a Portfolio writes a stock put option, for
example, it makes no initial investment, but instead receives a premium in an
amount equal to a fraction of the price of the underlying stock. In return, the
Portfolio is obligated to purchase the underlying stock at a fixed price,
thereby being subject to losses on the full stock price.

Likewise, if a Portfolio purchases a futures contract, it makes an initial
margin payment that is typically a small percentage of the contract's price.
However, because of the purchase, the Portfolio will participate in gains or
losses on the full contract price.

Other types of derivatives provide the economic equivalent of leverage
because they display heightened price sensitivity to market fluctuations, such
as changes in stock prices or interest rates. These derivatives magnify a
Portfolio's gain or loss from an investment in much the same way that incurring
indebtedness does. For example, if a Portfolio purchases a stock call option,
the Portfolio pays a premium in an amount equal to a fraction of the stock
price, and in return, the Portfolio participates in gains on the full stock
price. If there were no gains, the Portfolio generally would lose the entire
initial premium.

Options, futures contracts, options on futures contracts, forward
contracts and swaps may be used alone or in combinations in order to create
synthetic exposure to securities in which a Portfolio otherwise invests, such
as non-U.S. government securities.

The use of derivatives may increase the amount of taxable income of a
Portfolio and may affect the amount, timing and character of a Portfolio's
income for tax purposes, as more fully discussed herein in the section entitled
"Tax Status."

COMMERCIAL PAPER
Each Portfolio may invest in commercial paper, which is unsecured debt of
corporations usually maturing in 270 days or less from its date of issuance.

OTHER INVESTMENT COMPANIES
Subject to applicable statutory and regulatory limitations, assets of each
Portfolio may be invested in shares of other investment companies. Each
Portfolio (other than Small Cap Value Portfolio) may invest its assets in
closed-end investment companies as permitted by applicable law.

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SECURITIES RATED BAA OR BBB
Each Portfolio may purchase securities rated Baa by Moody's or BBB by
Standard & Poor's and securities of comparable quality, which may have poor
protection of payment of principal and interest. These securities are often
considered to be speculative and involve greater risk of default or price
changes than securities assigned a higher quality rating due to changes in the
issuer's creditworthiness. The market prices of these securities may fluctuate
more than higher-rated securities and may decline significantly in periods of
general economic difficulty which may follow periods of rising interest rates.

DEFENSIVE STRATEGIES
The Portfolios may, from time to time, take temporary defensive positions
that are inconsistent with the Portfolios' principal investment strategies in
attempting to respond to adverse market, political or other conditions. When
doing so, the Portfolios may invest without limit in high quality money market
and other short-term instruments, and may not be pursuing their investment
goals.

INVESTMENT RESTRICTIONS

FUNDAMENTAL RESTRICTIONS

The Trust, on behalf of the Portfolios, has adopted the following policies
which may not be changed with respect to any Portfolio without approval by
holders of a majority of the outstanding voting securities of that Portfolio,
which as used in this Part B means the vote of the lesser of (i) 67% or more of
the outstanding voting securities of the Portfolio present at a meeting at
which the holders of more than 50% of the outstanding voting securities of the
Portfolio are present or represented by proxy, or (ii) more than 50% of the
outstanding voting securities of the Portfolio. The term "voting securities" as
used in this paragraph has the same meaning as in the 1940 Act.

None of the Portfolios may:

(1) Borrow money, except that as a temporary measure for extraordinary or
emergency purposes it may borrow in an amount not to exceed 1/3 of the current
value of its net assets, including the amount borrowed, or purchase any
securities at any time at which borrowings exceed 5% of the total assets of the
Portfolio, taken at market value. It is intended that a Portfolio would borrow
money only from banks and only to accommodate requests for the repurchase of
beneficial interests in the Portfolio while effecting an orderly liquidation of
portfolio securities.

(2) Make loans to other persons except (a) through the lending of its
portfolio securities and provided that any such loans not exceed 30% of the
Portfolio's total assets (taken at market value), (b) through the use of
repurchase agreements, fixed time deposits or the purchase of short-term
obligations or (c) by purchasing all or a portion of an issue of debt
securities of types commonly distributed privately to financial institutions.

<PAGE>

The purchase of short-term commercial paper or a portion of an issue of debt
securities which is part of an issue to the public shall not be considered the
making of a loan.

(3) Purchase securities of any issuer if such purchase at the time thereof
would cause with respect to 75% of the total assets of the Portfolio more than
10% of the voting securities of such issuer to be held by the Portfolio,
provided that, for purposes of this restriction, the issuer of an option or
futures contract shall not be deemed to be the issuer of the security or
securities underlying such contract; and provided further that each Portfolio
may invest all or any portion of its assets in one or more investment
companies, to the extent not prohibited by the 1940 Act, the rules and
regulations thereunder, and exemptive orders granted under such Act.

(4) Purchase securities of any issuer if such purchase at the time thereof
would cause as to 75% of the Portfolio's total assets more than 5% of the
Portfolio's assets (taken at market value) to be invested in the securities of
such issuer (other than securities or obligations issued or guaranteed by the
United States, any state or political subdivision thereof, or any political
subdivision of any such state, or any agency or instrumentality of the United
States or of any state or of any political subdivision of any state), provided
that, for purposes of this restriction, the issuer of an option or futures
contract shall not be deemed to be the issuer of the security or securities
underlying such contract; and provided further that each Portfolio may invest
all or any portion of its assets in one or more investment companies, to the
extent not prohibited by the 1940 Act, the rules and regulations thereunder,
and exemptive orders granted under such Act.

(5) Concentrate its investments in any particular industry, but if it is
deemed appropriate for the achievement of the Portfolio's investment objective,
up to 25% of its assets, at market value at the time of each investment, may be
invested in any one industry, except that positions in futures contracts shall
not be subject to this restriction.

(6) Underwrite securities issued by other persons, except that each
Portfolio may invest all or any portion of its assets in one or more investment
companies, to the extent not prohibited by the 1940 Act, the rules and
regulations thereunder, and exemptive orders granted under such Act, and except
in so far as the Portfolio may technically be deemed an underwriter under the
Securities Act in selling a security.

(7) Purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts in
the ordinary course of business (the foregoing shall not be deemed to preclude
a Portfolio from purchasing or selling futures contracts or options thereon,
and the Portfolio reserves the freedom of action to hold and to sell real
estate acquired as a result of the ownership of securities by the Portfolio).

<PAGE>

(8) Issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder.

For purposes of restriction (1) above, covered mortgage dollar rolls and
arrangements with respect to securities lending are not treated as borrowing.

NON-FUNDAMENTAL RESTRICTIONS

Each Portfolio does not as a matter of operating policy:

(i) purchase any securities for the Portfolio at any time at which
borrowings exceed 5% of the total assets of the Portfolio (taken at market
value), or

(ii) purchase securities issued by any registered investment company in
reliance on the provisions of Sections 12(d)(1)(F) or 12(d)(1)(G) of the 1940
Act and the rules and regulations thereunder except to the extent not
prohibited by the 1940 Act, rules and regulations thereunder and exemptive
orders granted thereunder.

These policies are not fundamental and may be changed by each Portfolio
without the approval of its holders of beneficial interests.

PERCENTAGE AND RATING RESTRICTIONS

If a percentage or rating restriction on investment or utilization of
assets set forth above or referred to in this Registration Statement is adhered
to at the time an investment is made or assets are so utilized, a later change
in percentage resulting from changes in the value of the securities or a later
change in the rating of the securities held for the Portfolio will not be
considered a violation of policy.

Item 13. Management of each Portfolio.

The Trustees and officers of each Portfolio and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. Asterisks indicate that those Trustees and
officers are "interested persons" (as defined in the 1940 Act) of the
Portfolio. Unless otherwise indicated below, the address of each Trustee and
officer is 21 Milk Street, Boston, Massachusetts 02109. The address of each
Portfolio is Elizabethan Square, George Town, Grand Cayman, Cayman Islands,
British West Indies.

TRUSTEES

ELLIOTT J. BERV; 55 -- Chairman and Director, Catalyst, Inc. (Management
Consultants) (since June 1992); President, Chief Operating Officer and
Director, Deven International, Inc. (International Consultants) (June 1991 to
June 1992); President and Director, Elliott J. Berv & Associates (Management

<PAGE>

Consultants) (since May 1984). His address is 24 Atlantic Drive, Scarborough,
Maine.

PHILIP W. COOLIDGE*; 47 -- President of the Portfolios; Chief Executive Officer
and President, Signature Financial Group, Inc. and CFBDS, Inc.

MARK T. FINN; 55 -- President and Director, Delta Financial, Inc. (since June
1983); Chairman of the Board and Chief Executive Officer, FX 500 Ltd.
(Commodity Trading Advisory Firm) (since April 1990); General Partner and
Shareholder, Greenwich Ventures LLC (Investment Partnership) (since January
1996); President and Secretary, Phoenix Trading Co. (Commodity Trading Advisory
Firm) (since March 1997); Director, Vantage Consulting Group, Inc. (since
October 1988). His address is 3500 Pacific Avenue, P.O. Box 539, Virginia
Beach, Virginia.

C. OSCAR MORONG, JR.; 63 -- Chairman of the Board of Trustees of the
Portfolios; Managing Director, Morong Capital Management (since February 1993);
Senior Vice President and Investment Manager, CREF Investments, Teachers
Insurance & Annuity Association (retired, January 1993); Director, Indonesia
Portfolio; Trustee, MAS Portfolios (since 1993). His address is 1385 Outlook
Drive, West, Mountainside, New Jersey.

WALTER E. ROBB, III; 72 -- President, Benchmark Consulting Group, Inc. (since
1991); Principal, Robb Associates (Corporate Financial Advisors) (since 1978);
President, Benchmark Advisors, Inc. (Corporate Financial Advisors) (since
1989); Trustee of certain registered investment companies in the MFS Family of
Portfolios. His address is 35 Farm Road, Sherborn, Massachusetts.

E. KIRBY WARREN; 64 -- Professor of Management, Graduate School of Business,
Columbia University (since 1987; Samuel Bronfman Professor of Democratic
Business Enterprise (1978 to 1987). His address is Columbia University,
Graduate School of Business, 725 Uris Hall, New York, New York.

OFFICERS

PHILIP W. COOLIDGE*; 47 -- President of the Portfolios; Chief Executive Officer
and President, Signature Financial Group, Inc. and CFBDS, Inc.

CHRISTINE A. DRAPEAU*; 28 -- Assistant Secretary and Assistant Treasurer of the
Portfolios; Vice President, Signature Financial Group, Inc. (since January
1996); Paralegal and Compliance Officer, various financial companies (July 1992
to January 1996).

TAMIE EBANKS-CUNNINGHAM*; 26 -- Assistant Secretary of the Portfolios; Office
Manager, Signature Financial Group (Cayman) Ltd. (since April 1995);
Administrator, Cayman Islands Primary School (prior to April 1995). Her address

<PAGE>

is P.O. Box 2494, Elizabethan Square, George Town, Grand Cayman, Cayman
Islands, B.W.I.

JOHN R. ELDER*; 50 -- Treasurer of the Portfolios; Vice President, Signature
Financial Group, Inc. (since April, 1995); Assistant Treasurer, CFBDS, Inc.
(since April 1995); Treasurer of the Phoenix Family of Mutual Portfolios,
Phoenix Home Life Mutual Insurance Company (1983 to March 1995).

LINDA T. GIBSON*; 33 -- Secretary of the Portfolios; Senior Vice President,
Signature Financial Group, Inc.; Secretary, CFBDS, Inc.

JAMES E. HOOLAHAN*; 52 -- Vice President, Assistant Secretary and Assistant
Treasurer of the Portfolios; Senior Vice President, Signature Financial Group,
Inc.

SUSAN JAKUBOSKI*; 34 -- Vice President, Assistant Treasurer and Assistant
Secretary of the Portfolios; Vice President, Signature Financial Group (Cayman)
Ltd. (since August 1994); Portfolio Compliance Administrator, Concord Financial
Group (November 1990 to August 1994).

MOLLY S. MUGLER*; 47 -- Assistant Secretary and Assistant Treasurer of the
Portfolios; Vice President, Signature Financial Group, Inc.; Assistant
Secretary, CFBDS, Inc.

CLAIR TOMALIN*; 30 -- Assistant Secretary of the Portfolios; Office Manager,
Signature Financial Group (Europe) Limited. Her address is 117 Charterhouse
Street, London ECIM 6AA.

SHARON M. WHITSON*; 50 -- Assistant Secretary and Assistant Treasurer of the
Portfolios; Assistant Vice President, Signature Financial Group, Inc.

JULIE J. WYETZNER*; 39 -- Vice President, Assistant Secretary and Assistant
Treasurer of the Portfolios; Vice President, Signature Financial Group, Inc.

The Trustees and officers of the Portfolios also hold comparable positions
with certain other funds for which Signature Financial Group (Cayman) Ltd.
("SFG" or the "Sub-Administrator"), each Portfolio's sub-administrator and a
wholly-owned subsidiary of Signature Financial Group, Inc., or an affiliate
serves as the distributor or administrator. Mr. Coolidge is also a Trustee of
CitiFunds Trust I, CitiFunds Trust II and CitiFunds International Trust,
open-end investment companies, series of each of which are investors in one or
more Portfolios, and each officer of the Portfolios holds the same position
with those investment companies.

The Trustees of the Portfolios received the following remuneration from
the Portfolios during their fiscal years ended October 31, 1998:

<PAGE>

TRUSTEE COMPENSATION TABLE
<TABLE>
<CAPTION>

Aggregate
Aggregate Compen- Aggregate Aggregate Aggregate Aggregate
Compen- sation Compen- Compen- Compen- Compen- Total
from from sation sation sation sation Compen-
sation from Intermediate from Large from Small from from Foreign sation from
Short-Term Income Cap Value Cap Value International Bond Trust and
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Complex
Trustee (1)(2) 1)(2) (1)(2) (1)(2) (1)(2) (1)(2) (1)(2)

Elliott J.
Berv $1,447 $1,579 $1,491 $1,578 $1,638 $1,646 $53,750

Philip W.
Coolidge $0 $0 $0 $0 $0 $0 $0

Mark T.
Finn $1,421 $1,525 $1,456 $1,523 $1,567 $1,575 $52,000

C. Oscar
Morong, Jr. $970 $970 $970 $970 $970 $970 $71,000

Walter E.
Robb, III $1,428 $1,540 $1,464 $1,536 $1,585 $1,594 $50,000

E. Kirby
Warren $640 $640 $640 $640 $640 $640 $49,000

</TABLE>

(1) Information relates to the fiscal year ended October 31, 1998.
(2) Messrs. Berv, Coolidge, Finn, Morong, Robb and Warren are trustees of 27,
49, 26, 40, 30 and 40, funds, respectively, in the family of open-end
registered investment companies advised or managed by Citibank.

The Portfolios' Declaration of Trust provides that each Portfolio will
indemnify its Trustees and officers against liabilities and expenses incurred
in connection with litigation in which they may be involved because of their
offices with the Portfolios, unless, as to liability to a Portfolio or its
investors, it is finally adjudicated that they engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
their offices, or unless with respect to any other matter it is finally
adjudicated that they did not act in good faith in the reasonable belief that
their actions were in the best interests of the Portfolio. In the case of
settlement, such indemnification will not be provided unless it has been
determined by a court or other body approving the settlement or other
disposition, or by a reasonable determination, based upon a review of readily
available facts, by vote of a majority of disinterested Trustees or in a
written opinion of independent counsel, that such officers or Trustees have not
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of their duties.

Item 14. Control Persons and Principal Holders of Securities.

As of February 22, 1999, beneficial interests in the Portfolios were held
as follows:

<PAGE>

<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Large Small
Short- Intermediate Cap Cap Foreign
Term Income Value Value International Bond
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
- ---------------------- ----------- ------------- ---------- ---------- -------------- ----------
CitiFundsSM Small
Cap Value Portfolio N/A N/A N/A 17.40% N/A N/A
- ---------------------- ----------- ------------- ---------- ---------- -------------- ----------
CitiFundsSM
International
Growth & Income
Portfolio N/A N/A N/A N/A 7.76% N/A
- ---------------------- ----------- ------------- ---------- ---------- -------------- ----------
CitiSelect(R) Folio
200 43.19% 25.99% 11.82% 7.64% 5.28% 17.05%
- ---------------------- ----------- ------------- ---------- ---------- -------------- ----------
CitiSelect(R) Folio
300 15.11% 42.43% 28.59% 16.30% 16.80% 27.93%
- ---------------------- ----------- ------------- ---------- ---------- -------------- ----------
CitiSelect(R) Folio
400 14.13% 9.82% 31.25% 31.84% 36.41% 31.53%
- ---------------------- ----------- ------------- ---------- ---------- -------------- ----------
CitiSelect(R) Folio
500 4.69% N/A 12.29% 14.74% 22.17% 6.14%
- ---------------------- ----------- ------------- ---------- ---------- -------------- ----------
CitiSelect Ltd Folio
200 18.14% 10.95% 5.43% 3.18% 2.26% 7.17%
- ---------------------- ----------- ------------- ---------- ---------- -------------- ----------
CitiSelect Ltd Folio
300 2.96% 9.83% 6.47% 4.50% 3.92% 6.58%
- ---------------------- ----------- ------------- ---------- ---------- -------------- ----------
CitiSelect Ltd Folio
400 1.35% 0.98% 3.07% 3.09% 3.52% 3.04%
- ---------------------- ----------- ------------- ---------- ---------- -------------- ----------
CitiSelect Ltd Folio
500 0.43% N/A 1.08% 1.31% 1.88% 0.56%
- ------------------------------------------------------------------------------------------------
</TABLE>

The address of each of CitiSelect Ltd Folios 200-500 is c/o Maples and
Calder, P.O. Box 309, Ugland House, George Town, Grand Cayman, Cayman Islands,
British West Indies.

The address of each of CitiFunds Small Cap Value Portfolio, CitiFunds
International Growth & Income Portfolio and CitiSelect Folios 200-500 (the
"Funds") is 21 Milk Street, Boston, Massachusetts 02109. CitiFunds Small Cap
Value Portfolio is a series of CitiFunds Trust II; CitiFunds International
Growth & Income Portfolio is a series of CitiFunds International Trust; and
CitiSelect Folios 200-500 are series of CitiFunds Trust I. CitiFunds Trust I,

<PAGE>

CitiFunds Trust II and CitiFunds International Trust are each Massachusetts
business trusts and are registered under the 1940 Act as investment companies.

The Funds have informed the appropriate Portfolios that whenever requested
to vote on matters pertaining to the Portfolios (other than a vote to continue
the Portfolios following the withdrawal of an investor) each will hold a
meeting of shareholders and will cast its vote as instructed by its
shareholders, or otherwise act in accordance with applicable law.
Notwithstanding the foregoing, at any meeting of shareholders of a Fund, a
service agent may vote any shares of which it is the holder of record and for
which it does not receive voting instructions proportionately in accordance
with instructions it received for all other shares of which that service agent
is the holder of record.

Item 15. Investment Advisory and Other Services.

Citibank manages the assets of each Portfolio pursuant to separate
management agreements relating to each Portfolio ("Management Agreements").
Subject to such policies as the Board of Trustees may determine, Citibank
manages the securities of each Portfolio and makes investment decisions for
each Portfolio. Citibank furnishes at its own expense all services, facilities
and personnel necessary in connection with managing each Portfolio's
investments and effecting securities transactions for each Portfolio. Each
Management Agreement with the Trust provides that Citibank may delegate the
daily management of the securities of each Portfolio to one or more
subadvisers. The Management Agreement for each of the Portfolios continues in
effect for an initial two-year period and thereafter from year to year as long
as such continuance is specifically approved at least annually by the Board of
Trustees of the Trust or by a vote of a majority of the outstanding voting
securities of the applicable Portfolio, and, in either case, by a majority of
the Trustees of the Portfolios who are not parties to a Management Agreement or
interested persons of any such party, at a meeting called for the purpose of
voting on a Management Agreement.

Citibank provides the Trust with general office facilities and supervises
the overall administration of the Trust, including, among other
responsibilities, the negotiation of contracts and fees with, and the
monitoring of performance and billings of, the Trust's independent contractors
and agents; the preparation and filing of all documents required for compliance
by the Trust with applicable laws and regulations; and arranging for the
maintenance of books and records of the Trust. Trustees, officers, and
investors in the Trust are or may be or may become interested in Citibank, as
directors, officers, employees, or otherwise and directors, officers and
employees of Citibank are or may become similarly interested in the Trust.

Each Management Agreement provides that Citibank may render services to
others. Each Management Agreement is terminable without penalty on not more
than 60 days' nor less than 30 days' written notice by the Trust when
authorized either by a vote of a majority of the outstanding voting securities
of the applicable Portfolio or by a vote of a majority of the Board of Trustees

<PAGE>

of the Trust, or by Citibank on not more than 60 days' nor less than 30 days'
written notice, and will automatically terminate in the event of its
assignment. Each Management Agreement with the Trust provides that neither
Citibank nor its personnel shall be liable for any error of judgment or mistake
of law or for any loss arising out of any investment or for any act or omission
in the execution of security transactions for the applicable Portfolio, except
for willful misfeasance, bad faith or gross negligence or reckless disregard of
its or their obligations and duties under a Management Agreement.

For its services under the Management Agreements, Citibank receives a fee,
which is accrued daily and paid monthly, at the annual rate specified below
with respect to each Portfolio of the average daily net assets on an annualized
basis of that Portfolio for that Portfolio's then-current fiscal year, less the
aggregate amount (if any) payable by that Portfolio to one or more Subadvisers
pursuant to investment advisory or submanagement agreements between the
Portfolio and such Subadvisers.

Short-Term Portfolio 0.25%
Intermediate Income Portfolio 0.45%
Large Cap Value Portfolio 0.60%
Small Cap Value Portfolio 0.75%
International Portfolio 0.80%
Foreign Bond Portfolio 0.55%

If the aggregate investment advisory or subadvisory fee payable by any of
the Portfolios listed above to the Subadviser or Subadvisers of that Portfolio
exceeds the percentage for that Portfolio in the chart above, Citibank will pay
that amount to the applicable Subadviser or Subadvisers on the Portfolio's
behalf.

Citibank may voluntarily agree to waive a portion of its management fee
from any Portfolio.

For the period from November 1, 1997 (commencement of operations) to
October 31, 1998, the fees paid to Citibank under the Management Agreements
with respect to Portfolios listed below were as follows:

Short-Term Portfolio $232,872

Intermediate Income Portfolio $930,567

Large Cap Value Portfolio $266,423

Small Cap Value Portfolio $396,874

International Portfolio $922,580

<PAGE>

Foreign Bond Portfolio $566,750

The Trust has entered into separate Submanagement Agreements with the
Subadvisers listed below for the Portfolios. Each Subadviser's compensation is
payable by the applicable Portfolio (with a corresponding reduction in
Citibank's management fee).

Large Cap Value Portfolio Mutual Management Corp. (MMC)

Small cap value securities of the Franklin Advisory Services, Inc.
Small Cap Value Portfolio

International Portfolio Hotchkis and Wiley

Foreign Bond Portfolio Salomon Brothers Asset Management Limited
(SBAM)

For their services to the Portfolios listed below, the Subadvisers listed
below receive a fee, which is accrued daily and paid monthly, at the annual
rate specified below with respect to each Portfolio of the average daily net
assets on an annualized basis of that Portfolio allocated to the Subadviser for
that Portfolio's then-current fiscal year. These fees reduce the fee payable to
Citibank by the Portfolios as described above.

Large Cap Value Portfolio
Mutual Management Corp. 0.65% on the first $10 million;
0.50% on the next $10 million;
0.40% on the next $10 million; and
0.30% on remaining assets

Small Cap Value Portfolio
Franklin Advisory Services, Inc. 0.55% on first $250 million;
0.50% on remaining assets

International Portfolio
Hotchkis and Wiley 0.60% on first $10 million;
0.55% on next $40 million;
0.45% on next $100 million;
0.35% on next $150 million;
0.30% on remaining assets

Salomon Brothers Asset Management 0.30% on the first $200 million;
Limited 0.25% on assets over $200 million

It is the responsibility of the Subadviser to make the day-to-day
investment decisions for their allocated assets of the Portfolios, and to place

<PAGE>

the purchase and sales orders for securities transactions concerning those
assets, subject in all cases to the general supervision of Citibank. Each
Subadviser furnishes at its own expense all services, facilities and personnel
necessary in connection with managing the assets of the Portfolios allocated to
it and effecting securities transactions concerning those assets.

Except as provided below with respect to the Submanagement Agreements with
MMC and SBAM, each Submanagement Agreement will continue in effect as to each
applicable Portfolio until May 9, 1999 and thereafter as long as such
continuance is specifically approved at least annually by the Board of Trustees
of the Trust as to that Portfolio or by a vote of a majority of the outstanding
voting securities of that Portfolio, and, in either case, by a majority of the
Trustees of the Trust who are not parties to the Submanagement Agreement or
interested persons of any such party, at a meeting called for the purpose of
voting on the Submanagement Agreement. MMC is acting as subadviser on an
interim basis. Investor approval is being sought for the Sub-Management
Agreement with MMC. If investor approval is not obtained, the Sub-Management
Agreement will be terminated no later than 120 days after MMC commenced acting
as subadviser to Large Cap Value Portfolio. SBAM is acting as subadviser on an
interim basis. Investor approval is being sought for the Sub-Management
Agreement with SBAM. If investor approval is not obtained, the Sub-Management
Agreement will be terminated no later than 120 days after SBAM commenced acting
as subadviser to Foreign Bond Portfolio.

Each Submanagement Agreement provides that the applicable Subadviser may
render services to others. Each Submanagement Agreement is terminable as to any
Portfolio without penalty on not more than 60 days' nor less than 30 days'
written notice by the Trust, when authorized either by a vote of a majority of
the outstanding voting securities of the applicable Portfolio or by a vote of a
majority of the Board of Trustees of the Trust, or by Citibank on not more than
60 days' nor less than 30 days' written notice, and will automatically
terminate in the event of its assignment. Each Submanagement Agreement may be
terminated by the applicable Subadviser on not less than 90 days' written
notice. Each Submanagement Agreement provides that neither the Subadviser nor
its personnel shall be liable for any error of judgment or mistake of law or
for any loss arising out of any investment or for any act or omission in the
execution of security transactions for any Portfolio, except for willful
misfeasance, bad faith or gross negligence or reckless disregard of its or
their obligations and duties under the Submanagement Agreement.

The aggregate fees paid to each of the Subadvisers under the Submanagement
Agreements during the period from November 1, 1997 to October 31, 1998 were as
follows:

Franklin Advisory Services, Inc. $1,091,403
Hotchkis and Wiley $1,082,007

Miller Anderson & Sherrerd, LLP, former Subadviser to Large Cap Value
Portfolio, received aggregate fees in the amount of $511,730 under a

<PAGE>

submanagement agreement with respect to Large Cap Value Portfolio for the
period from November 1, 1997 to October 31, 1998. Pacific Investment Management
Company, former Subadviser to Foreign Bond Portfolio, received aggregate fees
in the amount of $900,009 under a submanagement agreement with respect to
Foreign Bond Portfolio for the period from November 1, 1997 to October 31,
1998. MMC and SBAM did not serve as subadvisers during this period.

The Glass-Steagall Act prohibits certain financial institutions, such as
Citibank, from underwriting securities of openend investment companies, such as
the Trust. Citibank believes that its services under the Management Agreements
and the activities performed by it or by its affiliates as Service Agents
(which are securities dealers or other industry professionals that have entered
into service agreements with CFBDS, Inc.) are not underwriting and are
consistent with the Glass-Steagall Act and other relevant federal and state
laws. However, there is no controlling precedent regarding the performance of
the combination of investment advisory, shareholder servicing and
administrative activities by banks. State laws on this issue may differ from
applicable federal law, and banks and financial institutions may be required to
register as dealers pursuant to state securities laws. Changes in either
federal or state statutes or regulations, or in their interpretations, could
prevent Citibank from continuing to perform these services. If Citibank were to
be prevented from acting as the Manager or a Service Agent, the Trust would
seek alternative means for obtaining these services. The Trust does not expect
that investors would suffer any adverse financial consequences as a result of
any such occurrence.

In addition to amounts payable under the Management Agreements, each
Portfolio is responsible for its own expenses, including, among other things,
the costs of securities transactions, the compensation of Trustees that are not
affiliated with Citibank or SFG, government fees, taxes, accounting and legal
fees, expenses of communicating with investors, interest expense, and insurance
premiums. For the period from November 1, 1997 (commencement of operations) to
October 31, 1998, the Portfolios' total expenses, expressed as a percentage of
each Portfolio's average daily net assets, were as follows: Short-Term
Portfolio: 0.49%; Intermediate Income Portfolio: 0.60%; Large Cap Value
Portfolio: 0.78%; Small Cap Value Portfolio: 0.89%; International Portfolio:
0.97%; and Foreign Bond Portfolio: 0.74%.

Pursuant to a sub-administrative services agreement with Citibank, SFG
performs such sub-administrative duties for the Trust as from time to time are
agreed upon by Citibank and SFG. For performing such sub-administrative
services, SFG receives compensation as from time to time is agreed upon by
Citibank, not in excess of the amount paid to Citibank for its services under
the Management Agreements with the Trust. All such compensation is paid by
Citibank.

The Trust, on behalf of the Portfolios, has entered into a Custodian
Agreement with State Street Bank and Trust Company ("State Street") pursuant to

<PAGE>

which State Street acts as custodian for each Portfolio. The Trust, on behalf
of the Portfolios, also has entered into a Portfolio Accounting Agreement with
State Street Cayman Trust Company, Ltd. ("State Street Cayman") pursuant to
which State Street Cayman provides fund accounting services for each Portfolio.
State Street Cayman also provides transfer agency services to each Portfolio.

The principal business address of State Street is 225 Franklin Street,
Boston, Massachusetts 02110. The principal business address of State Street
Cayman is P.O. Box 2508 GT, Grand Cayman, British West Indies.

PricewaterhouseCoopers LLP are the chartered accountants for the Trust,
providing audit services, and assistance and consultation with respect to the
preparation of filings with the SEC. The address of PricewaterhouseCoopers LLP
is Suite 3000, Box 82, Royal Trust Towers, Toronto Dominion Center, Toronto,
Ontario, Canada M5K 1G8.

Bingham Dana LLP, 150 Federal Street, Boston, MA 02110, acts as counsel to
the Trust.

Item 16. Brokerage Allocation and Other Practices.

The Trust trades securities for a Portfolio if it believes that a
transaction net of costs (including custodian charges) will help achieve the
Portfolio's investment objectives. Changes in the Portfolio's investments are
made without regard to the length of time a security has been held, or whether
a sale would result in the recognition of a profit or loss. Therefore, the rate
of turnover is not a limiting factor when changes are appropriate. Specific
decisions to purchase or sell securities for each Portfolio are made by a
portfolio manager who is an employee of Citibank or a Subadviser and who is
appointed and supervised by senior officers of Citibank or by a Subadviser. The
portfolio manager or Subadviser may serve other clients in a similar capacity.

In connection with the selection of brokers or dealers and the placing of
portfolio securities transactions, brokers or dealers may be selected who also
provide brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) to the Portfolio and/or the other
accounts over which Citibank, the Subadvisers or their affiliates exercise
investment discretion. The Manager and the Subadvisers are authorized to pay a
broker or dealer who provides such brokerage and research services a commission
for executing a portfolio transaction for the Portfolio which is in excess of
the amount of commission another broker or dealer would have charged for
effecting that transaction if Citibank or a Subadviser determines in good faith
that such amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer. This
determination may be viewed in terms of either that particular transaction or
the overall responsibilities which Citibank, the Subadvisers, or their
affiliates have with respect to accounts over which they exercise investment
discretion.

<PAGE>

The management fee that each Portfolio pays to Citibank or a Subadviser
will not be reduced as a consequence of Citibank's or the Subadviser's receipt
of brokerage and research services. While such services are not expected to
reduce the expenses of Citibank or a Subadviser, Citibank or a Subadviser
would, through the use of the services, avoid the additional expenses which
would be incurred if it should attempt to develop comparable information
through its own staff or obtain such services independently.

In certain instances there may be securities that are suitable as an
investment for a Portfolio as well as for one or more of Citibank's or the
Subadvisers' other clients. Investment decisions for each Portfolio and for
Citibank's and the Subadvisers' other clients are made with a view to achieving
their respective investment objectives. It may develop that a particular
security is bought or sold for only one client even though it might be held by,
or bought or sold for, other clients. Likewise, a particular security may be
bought for one or more clients when one or more clients are selling the same
security. Some simultaneous transactions are inevitable when several clients
receive investment advice from the same investment adviser, particularly when
the same security is suitable for the investment objectives of more than one
client. When two or more clients are simultaneously engaged in the purchase or
sale of the same security, the securities are allocated among clients in a
manner believed to be equitable to each. It is recognized that in some cases
this system could adversely affect the price of or the size of the position
obtainable for the security for a Portfolio. When purchases or sales of the
same security for a Portfolio and for other portfolios managed by Citibank or a
Subadviser occur contemporaneously, the purchase or sale orders may be
aggregated in order to obtain any price advantages available to large volume
purchases or sales.

For the period from November 1, 1997 (commencement of operations) to
October 31, 1998, the Portfolios paid the following brokerage commissions:

Short-Term Portfolio $0

Intermediate Income Portfolio $0

Large Cap Value Portfolio $259,903

Small Cap Value Portfolio $464,357

International Portfolio $575,320

Foreign Bond Portfolio $0

<PAGE>

Item 17. Capital Stock and Other Securities.

Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Trust and to establish series, each of which shall
be a subtrust, the beneficial interests in which shall be separate and distinct
from the beneficial interests in any other series. Each Portfolio is a series
of the Trust. Investors in each Portfolio are entitled to participate pro rata
in distributions of taxable income, loss, gain and credit of that Portfolio.
Upon liquidation or dissolution of a Portfolio, investors in that Portfolio are
entitled to share pro rata in the Portfolio's net assets available for
distribution to its investors. Interests in a Portfolio have no preference,
pre-emptive, conversion or similar rights and are fully paid and
non-assessable, except as set forth below. Interests in a Portfolio may not be
transferred.

Each investor is entitled to a vote in proportion to its percentage of the
aggregate beneficial interests in a Portfolio. Investors in a Portfolio do not
have cumulative voting rights, and investors holding more than 50% of the
aggregate beneficial interests in the Trust may elect all of the Trustees if
they choose to do so and in such event the other investors in the Trust would
not be able to elect any Trustee. The Trust is not required to hold, and has no
current intention of holding, annual meetings of investors but the Trust will
hold special meetings of investors when it is required to do so by law, or in
the judgment of the Trustees it is necessary or desirable to submit matters for
an investor vote.

The Trust may enter into a merger or consolidation, or sell all or
substantially all of its assets, if approved by a vote of a majority, as
defined in the 1940 Act, of the holders of the Trust's outstanding voting
securities voting as a single class, or of the affected series of the Trust, as
the case may be, or if authorized by an instrument in writing without a
meeting, consented to by holders of not less than a majority of the interests
of the affected series. However, if the Trust or the affected series is the
surviving entity of the merger, consolidation or sale of assets, no vote of
interest holders is required. Any series of the Trust may be dissolved (i) by
the affirmative vote of not less than two-thirds of the outstanding beneficial
interests in such series at any meeting of holders of beneficial interests or
by an instrument in writing signed by a majority of the Trustees and consented
to by not less than two-thirds of the outstanding beneficial interests, (ii) by
the Trustees by written notice to holders of the beneficial interests in the
series or (iii) upon the bankruptcy or expulsion of a holder of a beneficial
interest in the series, unless the remaining holders of beneficial interests,
by majority vote, agree to continue the series. The Trust may be dissolved by
action of the Trustees upon the dissolution of the last remaining series.

Each Portfolio is a series of the Trust, organized as a trust under the
laws of the State of New York. Investors in a Portfolio are personally liable
for its obligations and liabilities, subject, however, to indemnification by
the Portfolio in the event that there is imposed upon an investor a greater
portion of the liabilities and obligations of the Portfolio than its

<PAGE>

proportionate beneficial interest in the Portfolio. The Declaration of Trust
also provides that each Portfolio shall maintain appropriate insurance (e.g.,
fidelity bonding and errors and omissions insurance) for the protection of the
Portfolio, its investors, Trustees, officers, employees and agents covering
possible tort and other liabilities. Thus, the risk of an investor incurring
financial loss on account of investor liability is limited to circumstances in
which both inadequate insurance existed and a Portfolio itself was unable to
meet its obligations. It is not expected that the liabilities of any Portfolio
would ever exceed its assets.

The Declaration of Trust provides that obligations of the Trust are not
binding upon the Trustees individually and that the Trustees will not be liable
for any action or failure to act, but nothing in the Declaration of Trust
protects a Trustee against any liability to which he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his or her office.

Each investor in a Portfolio may add to or reduce its investment in that
Portfolio on each business day. As of the close of regular trading on the New
York Stock Exchange, on days during which the Exchange is open for trading, the
value of each investor's beneficial interest in a Portfolio is determined by
multiplying the net asset value of the Portfolio by the percentage, effective
for that day, which represents that investor's share of the aggregate
beneficial interests in the Portfolio. Any additions or withdrawals, which are
to be effected on that day, are then effected. Thereafter, the investor's
percentage of the aggregate beneficial interests in the Portfolio is
re-computed as the percentage equal to the fraction (i) the numerator of which
is the value of such investor's investment in the Portfolio as of the close of
regular trading on such day plus or minus, as the case may be, the amount of
any additions to or withdrawals from the investor's investment in the Portfolio
effected on such day, and (ii) the denominator of which is the aggregate net
asset value of the Portfolio as of the same time on such day plus or minus, as
the case may be, the amount of the net additions to or withdrawals from the
aggregate investments in the Portfolio by all investors in the Portfolio. The
percentage so determined is then applied to determine the value of the
investor's interest in the Portfolio as of the close of regular trading on the
following business day of the Portfolio.

Item 18. Purchase, Redemption and Pricing of Securities.

Beneficial interests in each Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the Securities Act. Investments in each Portfolio
may only be made by investment companies, common or commingled trust funds or
similar organizations or entities which are "accredited investors" within the
meaning of Regulation D under the Securities Act. This Registration Statement
does not constitute an offer to sell, or the solicitation of an offer to buy,
any "security" within the meaning of the Securities Act.

<PAGE>

The net asset value of each Portfolio (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or accrued)
is determined each day during which the New York Stock Exchange is open for
trading ("Business Day"). As of the date of this Registration Statement, the
Exchange is open for trading every weekday except for the following holidays
(or the days on which they are observed): New Year's Day, Martin Luther King
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. This determination of net asset value
of each Portfolio is made once each day as of the close of regular trading on
the Exchange (normally 4:00 p.m. Eastern time). As set forth in more detail
below, purchases and withdrawals will be effected at the time of determination
of net asset value next following the receipt of any purchase or withdrawal
order.

For the purpose of calculating a Portfolio's net asset value, all assets
and liabilities initially expressed in non-U.S. currencies will be converted
into U.S. dollars at the prevailing market rates at the time of valuation.
Equity securities are valued at the last sale price on the exchange on which
they are primarily traded or on the NASDAQ system for unlisted national market
issues, or at the last quoted bid price for securities in which there were no
sales during the day or for unlisted securities not reported on the NASDAQ
system. Securities listed on a foreign exchange are valued at the last quoted
sale price available before the time when net assets are valued. Bonds and
other fixed income securities (other than short-term obligations) are valued on
the basis of valuations furnished by a pricing service, use of which has been
approved by the Board of Trustees of the Trust. In making such valuations, the
pricing service utilizes both dealer-supplied valuations and electronic data
processing techniques that take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon quoted prices or exchange or
over-the-counter prices, since such valuations are believed to reflect more
accurately the fair value of such securities. Short-term obligations (maturing
in 60 days or less) are valued at amortized cost, which constitutes fair value
as determined by the Board of Trustees. Futures contracts are normally valued
at the settlement price on the exchange on which they are traded. Securities
for which there are no such valuations are valued at fair value as determined
in good faith by or at the direction of the Board of Trustees.

Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of regular trading on the
Exchange and may also take place on days on which the Exchange is closed. If
events materially affecting the value of foreign securities occur between the
time when the exchange on which they are traded closes and the time when a
Portfolio's net asset value is calculated, such securities may be valued at
fair value in accordance with procedures established by and under the general
supervision of the Board of Trustees.

<PAGE>

Interest income on long-term obligations held for a Portfolio is
determined on the basis of interest accrued plus amortization of "original
issue discount" (generally, the difference between issue price and stated
redemption price at maturity) and premiums (generally, the excess of purchase
price over stated redemption price at maturity). Interest income on short-term
obligations is determined on the basis of interest accrued less amortization of
premium.

Subject to compliance with applicable regulations, the Trust has reserved
the right to pay the redemption price of beneficial interests in a Portfolio,
either totally or partially, by a distribution in kind of readily marketable
securities (instead of cash). The securities so distributed would be valued at
the same amount as that assigned to them in calculating the net asset value for
the beneficial interests being sold. If a holder of beneficial interests
received a distribution in kind, such holder could incur brokerage or other
charges in converting the securities to cash.

The Trust may suspend the right of redemption or postpone the date of
payment for beneficial interests in a Portfolio more than seven days during any
period when (a) trading in the markets the Portfolio normally utilizes is
restricted, or an emergency, as defined by the rules and regulations of the
SEC, exists making disposal of the Portfolio's investments or determination of
its net asset value not reasonably practicable; (b) the New York Stock Exchange
is closed (other than customary weekend and holiday closings); or (c) the SEC
has by order permitted such suspension.

Item 19. Taxation of each Portfolio.

The Trust is organized as a trust under New York law. The Trust has
determined that each Portfolio is properly treated as a separate partnership
for U.S. federal and New York State income tax purposes. Accordingly, under
those tax laws, the Portfolios are not subject to any income tax. The
Portfolios' taxable years end October 31. Although the Portfolios are not
subject to U.S. federal income tax, they file appropriate U.S. federal income
tax returns. A Portfolio may be subject to foreign withholding and other taxes
with respect to income on certain securities of non-U.S. issuers. These taxes
may be reduced or eliminated under the terms of an applicable U.S. income tax
treaty. It is not possible to determine a Portfolio's effective rate of foreign
tax in advance, since the amount of the Portfolio's assets to be invested
within various countries is not known. The Trust does not anticipate that
investors qualifying as RICs and investing substantially all of their assets in
a Portfolio (with the possible exception of International Portfolio) will be
able to passthrough to their shareholders any foreign tax credit or deduction
with respect to the foreign withholding taxes paid by the Portfolio, if any.

Each investor in a Portfolio must take into account its share of that
Portfolio's ordinary income, expenses, capital gains and losses, credits and
other items in determining its income tax liability. The determination of such
share is made in accordance with the governing instruments of the Trust and the
U.S. Internal Revenue Code of 1986, as amended (the "Code"), and regulations

<PAGE>

promulgated thereunder. Distributions to and withdrawals by an investor are
generally not taxable. However, to the extent the cash proceeds of any
withdrawal or distribution exceed an investor's adjusted tax basis in its
partnership interest in a Portfolio, the investor in that Portfolio will
generally realize gain for U.S. federal income tax purposes. If, upon a
complete withdrawal (i.e., a redemption of its entire interest in the
Portfolio), the investor's adjusted tax basis in its partnership interest in
the Portfolio exceeds the proceeds of the withdrawal, the investor will
generally realize a loss for federal income tax purposes. An investor's
adjusted tax basis in its partnership interest in the Portfolio will generally
be the aggregate price paid therefor, increased by the amounts of its
distributive shares of items of realized net income and gain (including income,
if any, exempt from U.S. Federal income tax), and reduced, but not below zero,
by the amounts of its distributive shares of items of net loss and the amounts
of any distributions received by the investor. This discussion does not address
any distributions by the Portfolios in kind (i.e., any distributions of readily
marketable securities or other non-cash property), which will be subject to
special tax rules and may have consequences different from those described in
this paragraph.

The Trust believes that, in the case of an investor in a Portfolio that
seeks to qualify as a regulated investment company ("RIC") under the Code, the
investor should be treated for U.S. federal income tax purposes as an owner of
an undivided interest in the assets and operations of the Portfolio, and
accordingly should be deemed to own a proportionate share of each of the assets
of the Portfolio and be entitled to treat as earned by it the portion of the
Portfolio's gross income attributable to that share. Each investor should
consult its tax advisers regarding whether, in light of its particular tax
status and any special tax rules applicable to it, this approach applies to its
investment in a Portfolio, or whether the Portfolio should be treated, as to
it, as a separate entity as to which the investor has no direct interest in
Portfolio assets or operations.

In order to enable an investor in a Portfolio that is otherwise eligible
to qualify as a RIC under the Code to so qualify, the Trust intends that each
Portfolio will satisfy the requirements of Subchapter M of the Code relating to
the nature of each Portfolio's gross income and the composition
(diversification) of a Portfolio's assets as if those requirements were
directly applicable to such Portfolio and to allocate and permit withdrawals of
its net investment income and any net realized capital gains in a manner that
will enable an investor that is a RIC to comply with the qualification
requirements imposed by Subchapter M of the Code.

Foreign exchange gains and losses realized by a Portfolio will generally
be treated as ordinary income and losses for federal income tax purposes.
Certain uses of foreign currency and foreign currency forward contracts and
investment by a Portfolio in certain "passive foreign investment companies" may
be limited in order to enable an investor that is a RIC to avoid imposition of
a tax. A Portfolio may elect to mark to market any investments in "passive
foreign investment companies" on the last day of each year. This election may
cause the Portfolio to recognize income prior to the receipt of cash payments

<PAGE>

with respect to those investments; in order to distribute this income and avoid
a tax on any RICs investing in the Portfolio, the Portfolio may be required to
liquidate portfolio securities that it might otherwise have continued to hold.

A Portfolio's transactions in options, foreign currency forward contracts,
futures contracts, short sales and swaps and related transactions, if any, will
be subject to special tax rules that may affect the amount, timing, and
character of Portfolio income. For example, certain positions held for a
Portfolio on the last business day of each taxable year will be marked to
market (i.e., treated as if sold) on that day, and any gain or loss associated
with the positions will be treated as 60% long-term and 40% short-term capital
gain or loss. Certain positions held for a Portfolio that substantially
diminish its risk of loss with respect to other positions in its portfolio may
constitute "straddles," and may be subject to special tax rules that would
cause deferral of Portfolio losses and adjustments in the holding periods of
Portfolio securities. Certain tax elections exist for straddles that may alter
the effects of these rules. Each Portfolio intends to limit its activities in
options, foreign currency forward contracts, futures contracts, short sales and
swaps and related transactions to the extent necessary to enable any investor
that is a RIC to meet the requirements of Subchapter M of the Code.

There are certain tax issues which will be relevant to only certain
investors, specifically, investors which are segregated asset accounts and
investors who contribute assets other than cash to a Portfolio. It is intended
that such segregated asset accounts will be able to satisfy diversification
requirements applicable to them and that such contributions of assets will not
be taxable provided certain requirements are met. Such investors are advised to
consult their own tax advisers as to the tax consequences of an investment in a
Portfolio.

The Trust intends to conduct its activities and those of the Portfolios so
that they will not be deemed to be engaged in the conduct of a U.S. trade or
business for U.S. federal income tax purposes. Therefore, it is not anticipated
that an investor in a Portfolio, other than an investor which would be deemed a
"U.S. person" for U.S. federal income tax purposes, will be subject to U.S.
federal income taxation (other than a 30% withholding tax on dividends and
certain interest income) solely by reason of its investment in a Portfolio.
There can be no assurance that the U.S. Internal Revenue Service may not
challenge the above conclusions or take other positions that, if successful,
might result in the payment of U.S. federal income taxes by investors in a
Portfolio.

The above discussion does not address the special tax rules applicable to
certain classes of investors, such as tax-exempt entities, insurance companies,
and financial institutions, or the state, local, or foreign tax laws that may
be applicable to certain investors. Investors should consult their own tax
advisers with respect to the special tax rules that may apply in their
particular situations, as well as the state, local, or foreign tax consequences
to them of investing in a Portfolio.

<PAGE>

Item 20. Underwriters.

The exclusive placement agent for each Portfolio is CFBDS, Inc., which
receives no compensation for serving in this capacity. Investment companies,
insurance company separate accounts, common and commingled trust funds and
similar organizations and entities may continuously invest in each Portfolio.

Item 21. Calculation of Performance Data.

Not applicable.

Item 22. Financial Statements.

The financial statements contained in the Annual Report of the Portfolios,
as filed with the Securities and Exchange Commission on January 8, 1999
(Accession Number 0000930413-99-000025), for the fiscal years ended October 31,
1998 are incorporated by reference into this Part B.

A copy of the Annual Report of the Portfolios accompanies this Part B.

<PAGE>

PART C

Item 23. Exhibits.

* a(1) Declaration of Trust of the Trust
**** a(2) Amendment to Declaration of Trust of the Trust
**,***, a(3) Amended and Restated Designation of Series of
****, ***** Beneficial Interests of the Trust
** b By-laws of the Trust
**** d(1) Management Agreements between the Registrant
and Citibank, N.A., as investment adviser
***** d(2) Sub-Management Agreements
d(3) Sub-Management Agreement between the
Registrant on behalf of Large Cap Value
Portfolio and Mutual Management Corp.
d(4) Form of Sub-Management Agreement between
the Registrant on behalf of Foreign Bond
Portfolio and Salomon Brothers Asset
Management Limited
**** e(1) Placement Agency Agreement between the
Registrant and CFBDS, Inc., as exclusive
placement agent
***** e(2) Letter Agreement adding Large Cap Value
Portfolio, Small Cap Value Portfolio,
Intermediate Income Portfolio, International
Portfolio, Foreign Bond Portfolio and Short-
Term Portfolio (collectively, the "Portfolios") to
the Placement Agency Agreement
*** g(1) Custodian Contract between the Registrant and
State Street Bank and Trust Company ("State
Street"), as custodian
***** g(2) Letter Agreement adding the Portfolios to the
Custodian Contract between the Registrant and
State Street, as custodian
*** h(1) Accounting Services Agreement between The
Premium Portfolios and State Street Cayman
Trust Company, Ltd. ("State Street Cayman")
***** h(2) Letter Agreement adding the Portfolios to the
Accounting Services Agreement between the
Registrant and State Street Cayman
h(3) Services Agreement between Citibank, N.A. and
CFBDS, Inc.
<PAGE>

n Financial Data Schedules

______________________

* Incorporated herein by reference to Registrant's Registration
Statement on Form N-1A (File No. 811-7459) as filed with the
Securities and Exchange Commission on December 20, 1995.

** Incorporated herein by reference to Amendment No. 1 to Registrant's
Registration Statement on Form N-1A (File No. 811-7459) as filed with
the Securities and Exchange Commission on February 28, 1996.

*** Incorporated herein by reference to Amendment No. 2 to Registrant's
Registration Statement on Form N-1A (File No. 811-7459) as filed with
the Securities and Exchange Commission on May 1, 1997.

**** Incorporated herein by reference to Amendment No. 3 to Registrant's
Registration Statement on Form N-1A (File No. 811-7459) as filed with
the Securities and Exchange Commission on October 31, 1997.

***** Incorporated herein by reference to Amendment No. 4 to Registrant's
Registration Statement on Form N-1A (File No. 811-7459) as filed with
the Securities and Exchange Commission on March 2, 1998.

Item 24. Persons Controlled by or under Common Control with Registrant.

Not applicable.

Item 25. Indemnification.

Reference is hereby made to Article V of the Declaration of Trust of the
Registrant, as filed as an exhibit to its initial Registration Statement on
Form N-1A.

The Trustees and officers of the Trust are insured under an errors and
omissions liability insurance policy. The Registrant and its officers are also
insured under the fidelity bond required by Rule 17g-1 under the Investment
Company Act of 1940, as amended.

Item 26. Business and Other Connections of Investment Adviser.

Citibank, N.A. ("Citibank") is a commercial bank offering a wide range of
banking and investment services to customers across the United States and

<PAGE>

around the world. Citibank is a wholly-owned subsidiary of Citicorp, which is,
in turn, a wholly owned subsidiary of Citigroup, Inc. Citibank also serves as
investment adviser to the following registered investment companies (or series
thereof): The Premium Portfolios (U.S. Fixed Income Portfolio, High Yield
Portfolio, Growth & Income Portfolio, Balanced Portfolio, Large Cap Growth
Portfolio, International Equity Portfolio, Government Income Portfolio and
Small Cap Growth Portfolio), Tax Free Reserves Portfolio, U.S. Treasury
Reserves Portfolio, Cash Reserves Portfolio, CitiFundsSM Multi-State Tax Free
Trust (CitiFundsSM New York Tax Free Reserves, CitiFundsSM Connecticut Tax Free
Reserves and CitiFundsSM California Tax Free Reserves), CitiFundsSM Tax Free
Income Trust (CitiFundsSM National Tax Free Income Portfolio, CitiFundsSM New
York Tax Free Income Portfolio and CitiFundsSM California Tax Free Income
Portfolio), CitiFundsSM Institutional Trust (CitiFundsSM Institutional Cash
Reserves) and Variable Annuity Portfolios (CitiSelect VIP Folio 200, CitiSelect
VIP Folio 300, CitiSelect VIP Folio 400, CitiSelect VIP Folio 500 and
CitiFundsSM Small Cap Growth VIP Portfolio). Citibank and its affiliates manage
assets in excess of $290 billion worldwide. The principal place of business of
Citibank is located at 399 Park Avenue, New York, New York 10043.

John S. Reed is the Chairman of the Board and a Director of Citibank.
Victor J. Menezes is the President and a Director of Citibank. William R.
Rhodes and H. Onno Ruding are Vice Chairmen and Directors of Citibank. The
other Directors of Citibank are Paul J. Collins, Vice Chairman of Citigroup,
Inc. and Robert I. Lipp, Chairman and Chief Executive Officer of Travelers
Insurance Group and of Travelers Property Casualty Corp.

Each of the individuals named above is also a Director of Citigroup Inc.
In addition, the following persons have the affiliations indicated:

Paul J. Collins Director, Kimberly-Clark Corporation

Robert I. Lipp Chairman, Chief Executive Officer and President,
Travelers Property Casualty Corp.

John S. Reed Director, Monsanto Company
Director, Philip Morris Companies
Incorporated
Stockholder, Tampa Tank & Welding, Inc.

William R. Rhodes Director, Private Export Funding
Corporation

<PAGE>

H. Onno Ruding Supervisory Director, Amsterdamsch
Trustees Cantoor B.V.
Director, Pechiney S.A.
Advisory Director, Unilever NV and Unilever PLC
Director, Corning Incorporated

Franklin Advisory Services, Inc. ("Franklin"), a sub-adviser of the
Registrant, maintains its principal office at One Parker Plaza, 16th Floor,
Fort Lee, New Jersey 07024. Franklin, a Delaware corporation incorporated in
1996, is a registered investment adviser under the Investment Advisers Act of
1940 and is a wholly-owned subsidiary of Franklin Resources, Inc., a publicly
owned holding company. Franklin is an investment adviser to various open-end
and closed-end investment companies.

William J. Lippman is the President and Director of Franklin Advisory
Services, Inc. Mr. Lippman holds a master of business administration degree
from New York University and a bachelor of business administration degree from
City College of New York. Mr. Lippman also serves as Senior Vice President of
Franklin Resources, Inc. and Franklin Management, Inc. and has been with the
Franklin Templeton Group since 1988. Prior to joining Franklin Advisers Inc.,
Mr. Lippman was president of L.F. Rothschild Fund Management, Inc. and has been
in the securities industry for over 30 years.

Each of the individuals named below is an officer and/or Director of
Franklin and has the affiliations indicated:

<S> <C>
Name: Affiliations:

William J. Lippman Senior Vice President, Franklin Resources, Inc.
President and Director Senior Vice President, Franklin Advisers, Inc.
Senior Vice President, Franklin Templeton
Distributors, Inc.
Senior Vice President, Franklin Management, Inc.

Mr. Lippman also serves as officer and/or director or
trustee of eight of the investment companies in the
Franklin Group of Funds.

<PAGE>

Charles B. Johnson President, Chief Executive Officer and Director,
Chairman of the Board and Franklin Resources, Inc.
Director Chairman of the Board and Director, Franklin
Advisers, Inc.
Chairman of the Board and Director, Franklin
Investment Advisory Services, Inc.
Chairman of the Board and Director, Franklin
Templeton Distributors, Inc.
Director, Franklin/Templeton Investor Services, Inc.
Director, Franklin Templeton Services, Inc.
Director, General Host Corporation

Mr. Johnson also serves as officer and/or director
or trustee, as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and of 54
of the investment companies in the Franklin
Templeton Group of Funds.

Rupert H. Johnson, Jr. Executive Vice President and Director, Franklin
Senior Vice President and Resources, Inc.
Director Executive Vice President and Director, Franklin
Templeton Distributors, Inc.
President and Director, Franklin Advisers, Inc.
Senior Vice President and Director, Franklin
Investment Advisory Services, Inc.
Director, Franklin/Templeton Investor Services, Inc.

Mr. Johnson also serves as officer and/or director,
trustee or managing general partner, as the case may
be, of most other subsidiaries of Franklin Resources,
Inc. and of 60 of the investment companies in the
Franklin Templeton Group of Funds.

Deborah R. Gatzek Senior Vice President and General Counsel, Franklin
Vice President and Assistant Resources, Inc.
Secretary Senior Vice President, Franklin Templeton
Distributors, Inc.
Vice President, Franklin Advisers, Inc.
Vice President, Franklin Investment Advisory
Services, Inc.

Ms. Gatzek also serves as officer of 60 of the
investment companies in the Franklin Templeton
Group of Funds.

<PAGE>

Martin L. Flanagan Senior Vice President, Chief Financial Officer and
Treasurer Treasurer, Franklin Resources, Inc.
Executive Vice President, Templeton Worldwide, Inc.
Senior Vice President and Treasurer, Franklin
Advisers, Inc.
Senior Vice President and Treasurer, Franklin
Templeton Distributors, Inc.
Senior Vice President, Franklin/Templeton Investor
Services, Inc.
Treasurer, Franklin Investment Advisory Services,
Inc.

Mr. Flanagan also serves as officer of most other
subsidiaries of Franklin Resources, Inc. and officer,
director and/or trustee of 60 of the investment
companies in the Franklin Templeton Group of
Funds.

Leslie M. Kratter Vice President, Franklin Resources, Inc.
Secretary Vice President, Franklin Institutional Services
Corporation
President and Director, Franklin/Templeton Travel,
Inc.

</TABLE>

Hotchkis and Wiley, a division of the Capital Management Group of Merrill
Lynch Asset Management, L.P. ("Hotchkis"), a sub-adviser of the Registrant,
maintains its principal office at 725 South Figuera Street, Suite 4000, Los
Angeles, California 90017-5400. Harry Hartford and Sarah Ketterer manage
international equity accounts and are also responsible for international
investment research. Each serves on the Investment Policy Committee at
Hotchkis. Prior to joining Hotchkis, Mr. Hartford was with the Investment Bank
of Ireland, where he gained 10 years of experience in both international and
global equity management. Prior to joining Hotchkis, Ms. Ketterer was an
associate with Bankers Trust and an analyst at Dean Witter.

Hotchkis became a division of the Capital Management Group of Merrill
Lynch Asset Management, L.P. upon the completion of the sale by Hotchkis and
Wiley, a Delaware Limited Liability Company and the general partner of Hotchkis
& Wiley, a California limited partnership, of all of the partnership interests
in Hotchkis & Wiley to Merrill Lynch & Co., Inc., a Delaware corporation, in
November of 1996.

<PAGE>

Following are the managing personnel of Hotchkis:

Name and Position: Other Affiliations:

John F. Hotchkis Trustee, Hotchkis and Wiley Funds
Portfolio Manager Board of Governors, The Music Center
Chairman Director, The Music Center Foundation
Director, Los Angeles Philharmonic Orchestra
Director, Big Brothers of Greater Los Angeles
Director, Executive Service Corps of Southern
California
Director, KCET
Director, Teach for America
Trustee, The Lawrenceville School
Trustee, Robert Louis Stevenson School
Director, Fountainhead Water Company, Inc.

Michael L. Quinn Head of Merrill Lynch Capital Management Group
Chief Executive Officer

For information as to the business, profession, vocation or employment of
a substantial nature of each of the officers and directors of Mutual Management
Corp. ("MMC"), a subadviser of Large Cap Value Portfolio, a series of the
Registrant, reference is made to MMC's current Form ADV (File No. 801-8314)
filed under the Advisers Act, incorporated herein by reference.

For information as to the business, profession, vocation or employment of
a substantial nature of each of the officers and directors of Salomon Brothers
Asset Management Limited ("SBAML"), a subadviser (commencing March 1, 1999) of
Foreign Bond Portfolio, a series of the Registrant, reference is made to
SBAML's current Form ADV (File No. 801-43335) filed under the Advisers Act,
incorporated herein by reference.

Item 27. Principal Underwriters.

(a) CFBDS, the Registrant's Distributor, is also the distributor for
CitiFundsSM International Growth & Income Portfolio, CitiFundsSM International
Growth Portfolio, CitiFundsSM U.S. Treasury Reserves, CitiFundsSM Cash
Reserves, CitiFundsSM Premium U.S. Treasury Reserves, CitiFundsSM Premium
Liquid Reserves, CitiFundsSM Institutional U.S. Treasury Reserves, CitiFundsSM
Institutional Liquid Reserves, CitiFundsSM Institutional Cash Reserves,
CitiFundsSM Tax Free Reserves, CitiFundsSM Institutional Tax Free Reserves,
CitiFundsSM California Tax Free Reserves, CitiFundsSM Connecticut Tax Free

<PAGE>

Reserves, CitiFundsSM New York Tax Free Reserves, CitiFundsSM Intermediate
Income Portfolio, CitiFundsSM Short-Term U.S. Government Income Portfolio,
CitiFundsSM New York Tax Free Income Portfolio, CitiFundsSM National Tax Free
Income Portfolio, CitiFundsSM California Tax Free Income Portfolio, CitiFundsSM
Small Cap Value Portfolio, CitiFundsSM Growth & Income Portfolio, CitiFundsSM
Large Cap Growth Portfolio, CitiFundsSM Small Cap Growth Portfolio, CitiFundsSM
Balanced Portfolio, CitiSelect(R) Folio 200, CitiSelect(R) Folio 300,
CitiSelect(R) Folio 400, CitiSelect(R) Folio 500, CitiSelect(R) VIP Folio 200,
CitiSelect(R) VIP Folio 300, CitiSelect(R) VIP Folio 400, CitiSelect(R) VIP
Folio 500 and CitiFundsSM Small Cap Growth VIP Portfolio. CFBDS is also the
placement agent for Growth & Income Portfolio, U.S. Fixed Income Portfolio,
Large Cap Growth Portfolio, Small Cap Growth Portfolio, International Equity
Portfolio, High Yield Portfolio, Balanced Portfolio, Government Income
Portfolio, Tax Free Reserves Portfolio, Cash Reserves Portfolio and U.S.
Treasury Reserves Portfolio. CFBDS also serves as the distributor for the
following funds: The Travelers Fund U for Variable Annuities, The Travelers
Fund VA for Variable Annuities, The Travelers Fund BD for Variable Annuities,
The Travelers Fund BD II for Variable Annuities, The Travelers Fund BD III for
Variable Annuities, The Travelers Fund BD IV for Variable Annuities, The
Travelers Fund ABD for Variable Annuities, The Travelers Fund ABD II for
Variable Annuities, The Travelers Separate Account PF for Variable Annuities,
The Travelers Separate Account PF II for Variable Annuities, The Travelers
Separate Account QP for Variable Annuities, The Travelers Separate Account TM
for Variable Annuities, The Travelers Separate Account TM II for Variable
Annuities, The Travelers Separate Account Five for Variable Annuities, The
Travelers Separate Account Six for Variable Annuities, The Travelers Separate
Account Seven for Variable Annuities, The Travelers Separate Account Eight for
Variable Annuities, The Travelers Fund UL for Variable Annuities, The Travelers
Fund UL II for Variable Annuities, The Travelers Variable Life Insurance
Separate Account One, The Travelers Variable Life Insurance Separate Account
Two, The Travelers Variable Life Insurance Separate Account Three, The
Travelers Variable Life Insurance Separate Account Four, The Travelers Separate
Account MGA, The Travelers Separate Account MGA II, The Travelers Growth and
Income Stock Account for Variable Annuities, The Travelers Quality Bond Account
for Variable Annuities, The Travelers Money Market Account for Variable
Annuities, The Travelers Timed Growth and Income Stock Account for Variable
Annuities, The Travelers Timed Short-Term Bond Account for Variable Annuities,
The Travelers Timed Aggressive Stock Account for Variable Annuities, The
Travelers Timed Bond Account for Variable Annuities, Emerging Growth Fund,
Government Fund, Growth and Income Fund, International Equity Fund, Municipal
Fund, Balanced Investments, Emerging Markets Equity Investments, Government
Money Investments, High Yield Investments, Intermediate Fixed Income
Investments, International Equity Investments, International Fixed Income
Investments, Large Capitalization Growth Investments, Large Capitalization
Value Equity Investments, Long-Term Bond Investments, Mortgage Backed
Investments, Municipal Bond Investments, Small Capitalization Growth
Investments, Small Capitalization Value Equity Investments, Appreciation
Portfolio, Diversified Strategic Income Portfolio, Emerging Growth Portfolio,
Equity Income Portfolio, Equity Index Portfolio, Growth & Income Portfolio,
Intermediate High Grade Portfolio, International Equity Portfolio, Money Market

<PAGE>

Portfolio, Total Return Portfolio, Smith Barney Adjustable Rate Government
Income Fund, Smith Barney Aggressive Growth Fund Inc., Smith Barney
Appreciation Fund, Smith Barney Arizona Municipals Fund Inc., Smith Barney
California Municipals Fund Inc., Balanced Portfolio, Conservative Portfolio,
Growth Portfolio, High Growth Portfolio, Income Portfolio, Global Portfolio,
Select Balanced Portfolio, Select Conservative Portfolio, Select Growth
Portfolio, Select High Growth Portfolio, Select Income Portfolio, Concert
Social Awareness Fund, Smith Barney Large Cap Blend Fund, Smith Barney
Fundamental Value Fund Inc., Large Cap Value Fund, Short-Term High Grade Bond
Fund, U.S. Government Securities Fund, Smith Barney Balanced Fund, Smith Barney
Convertible Fund, Smith Barney Diversified Strategic Income Fund, Smith Barney
Exchange Reserve Fund, Smith Barney High Income Fund, Smith Barney Municipal
High Income Fund, Smith Barney Premium Total Return Fund, Smith Barney Total
Return Bond Fund, Cash Portfolio, Government Portfolio, Municipal Portfolio,
Concert Peachtree Growth Fund, Smith Barney Contrarian Fund, Smith Barney
Government Securities Fund, Smith Barney Hansberger Global Small Cap Value
Fund, Smith Barney Hansberger Global Value Fund, Smith Barney Investment Grade
Bond Fund, Smith Barney Special Equities Fund, Smith Barney Intermediate
Maturity California Municipals Fund, Smith Barney Intermediate Maturity New
York Municipals Fund, Smith Barney Large Capitalization Growth Fund, Smith
Barney S&P 500 Index Fund, Smith Barney Mid Cap Blend Fund, Smith Barney
Managed Governments Fund Inc., Smith Barney Managed Municipals Fund Inc., Smith
Barney Massachusetts Municipals Fund, Cash Portfolio, Government Portfolio,
Retirement Portfolio, California Money Market Portfolio, Florida Portfolio,
Georgia Portfolio, Limited Term Portfolio, New York Money Market Portfolio, New
York Portfolio, Pennsylvania Portfolio, Smith Barney Municipal Money Market
Fund, Inc., Smith Barney Natural Resources Fund Inc., Smith Barney New Jersey
Municipals Fund Inc., Smith Barney Oregon Municipals Fund, Zeros Plus Emerging
Growth Series 2000, Smith Barney Security and Growth Fund, Smith Barney Small
Cap Blend Fund, Inc., Smith Barney Telecommunications Income Fund, Income and
Growth Portfolio, Reserve Account Portfolio, U.S. Government/High Quality
Securities Portfolio, Emerging Markets Portfolio, European Portfolio, Global
Government Bond Portfolio, International Balanced Portfolio, International
Equity Portfolio, Pacific Portfolio, AIM Capital Appreciation Portfolio,
Alliance Growth Portfolio, GT Global Strategic Income Portfolio, MFS Total
Return Portfolio, Putnam Diversified Income Portfolio, Smith Barney High Income
Portfolio, Smith Barney Large Cap Value Portfolio, Smith Barney International
Equity Portfolio, Smith Barney Large Capitalization Growth Portfolio, Smith
Barney Money Market Portfolio, Smith Barney Pacific Basin Portfolio, TBC
Managed Income Portfolio, Van Kampen American Capital Enterprise Portfolio,
Centurion Tax-Managed U.S. Equity Fund, Centurion Tax-Managed International
Equity Fund, Centurion U.S. Protection Fund, Centurion International Protection
Fund, Global High-Yield Bond Fund, International Equity Fund, Emerging
Opportunities Fund, Core Equity Fund, Long-Term Bond Fund, Global Dimensions
Fund L.P., Citicorp Private Equity L.P., AIM V.I. Capital Appreciation Fund,
AIM V.I. Government Series Fund, AIM V.I. Growth Fund, AIM V.I. International
Equity Fund, AIM V.I. Value Fund, Fidelity VIP Growth Portfolio, Fidelity VIP
High Income Portfolio, Fidelity VIP Equity Income Portfolio, Fidelity VIP
Overseas Portfolio, Fidelity VIP II Contrafund Portfolio, Fidelity VIP II Index
500 Portfolio, MFS World Government Series, MFS Money Market Series, MFS Bond

<PAGE>

Series, MFS Total Return Series, MFS Research Series, MFS Emerging Growth
Series, Salomon Brothers Institutional Money Market Fund, Salomon Brothers Cash
Management Fund, Salomon Brothers New York Municipal Money Market Fund, Salomon
Brothers National Intermediate Municipal Fund, Salomon Brothers U.S. Government
Income Fund, Salomon Brothers High Yield Bond Fund, Salomon Brothers Strategic
Bond Fund, Salomon Brothers Total Return Fund, Salomon Brothers Asia Growth
Fund, Salomon Brothers Capital Fund Inc, Salomon Brothers Investors Fund Inc,
Salomon Brothers Opportunity Fund Inc, Salomon Brothers Institutional High
Yield Bond Fund, Salomon Brothers Institutional Emerging Markets Debt Fund,
Salomon Brothers Variable Investors Fund, Salomon Brothers Variable Capital
Fund, Salomon Brothers Variable Total Return Fund, Salomon Brothers Variable
High Yield Bond Fund, Salomon Brothers Variable Strategic Bond Fund, Salomon
Brothers Variable U.S. Government Income Fund, and Salomon Brothers Variable
Asia Growth Fund.

(b) The information required by this Item 27 with respect to each director
and officer of CFBDS, Inc. is incorporated by reference to Schedule A of Form
BD filed by CFBDS, Inc. pursuant to the Securities and Exchange Act of 1934
(File No. 8-32417).

Item 28. Location of Accounts and Records.

The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:

Name Address

State Street Bank and Trust Company 225 Franklin Street
(custodian) Boston, MA 02110

State Street Cayman Trust Company, Ltd. P.O. Box 2508 GT
(accounting services agent) Grand Cayman, Cayman Islands

Citibank, N.A. 153 East 53rd Street
(investment manager and administrator) New York, NY 10043

CFBDS, Inc. c/o Signature Financial Group
(placement agent) (Cayman) Ltd.
Elizabethan Square
George Town, Grand Cayman
Cayman Islands BWI

<PAGE>

Item 29. Management Services.

Not applicable.

Item 30. Undertakings.

Not applicable.

<PAGE>

SIGNATURE

Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this Amendment to its Registration Statement on Form
N-1A to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Boston, the Commonwealth of Massachusetts, on the 25th day of
February, 1999.

ASSET ALLOCATION PORTFOLIOS

By: /s/ Philip W. Coolidge
------------------------------
Philip W. Coolidge
President of
Asset Allocation Portfolios

<PAGE>

EXHIBIT INDEX

Exhibit
No.: Description:

d(3) Sub-Management Agreement between the
Registrant on behalf of Large Cap Value
Portfolio and Mutual Management Corp.
d(4) Form of Sub-Management Agreement between
the Registrant on behalf of Foreign Bond
Portfolio and Salomon Brothers Asset
Management Limited
h(3) Services Agreement between Citibank N.A. and
CFBDS, Inc.
n Financial Data Schedules

EXHIBIT D(3)

SUB-MANAGEMENT AGREEMENT

ASSET ALLOCATION PORTFOLIOS

Large Cap Value Portfolio

SUB-MANAGEMENT AGREEMENT, dated January 22, 1999, by and between Asset
Allocation Portfolios (the "Trust"), and Mutual Management Corp., a Delaware
corporation (the "Subadviser").

W I T N E S S E T H:

WHEREAS, Citibank, N.A. (the "Adviser") has been retained by the Trust to
act as investment adviser to the Trust with respect to the series of the Trust
designated as Large Cap Value Portfolio (the "Portfolio"), and

WHEREAS, the Trust engages in business as an open-end management
investment company and is registered as such under the Investment Company Act
of 1940, as amended (collectively with the rules and regulations promulgated
thereunder, the "1940 Act"), and

WHEREAS, the Adviser has requested that the Trust engage the Subadviser to
provide certain investment advisory services for the Portfolio, and the
Subadviser is willing to provide such investment advisory services for the
Portfolio on the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:

1. Appointment of the Subadviser. In accordance with and subject to the
Management Agreement between the Trust and the Adviser (the "Management
Agreement"), the Trust hereby appoints the Subadviser to act as subadviser with
respect to the Portfolio for the period and on the terms set forth in this
Agreement. The Subadviser accepts such appointment and agrees to provide an
investment program with respect to the Portfolio for the compensation provided
by this Agreement.

2. Duties of the Subadviser. The Subadviser shall provide the Portfolio
and the Adviser with such investment advice and supervision as the Adviser may
from time to time consider necessary for the proper management of such portion
of the Portfolio's investment assets as the Adviser may designate from time to
time. Notwithstanding any provision of this Agreement, the Adviser shall retain

<PAGE>

all rights and ultimate responsibilities to supervise and, in its discretion,
conduct investment advisory activities relating to the Trust. The Subadviser
shall furnish continuously an investment program and shall determine from time
to time what securities shall be purchased, sold or exchanged and what portion
of the assets of the Portfolio allocated by the Adviser to the Subadviser shall
be held uninvested, subject always to the restrictions of the Trust's
Declaration of Trust, dated as of December 14, 1995, and By-laws, as each may
be amended from time to time (respectively, the "Declaration" and the
"By-Laws"), the provisions of the 1940 Act, and the then-current Registration
Statement of the Trust with respect to the Portfolio, and subject, further, to
the Subadviser notifying the Adviser in advance of the Subadviser's intention
to purchase any securities except insofar as the requirement for such
notification may be waived or limited by the Adviser, it being understood that
the Subadviser shall be responsible for compliance with any restrictions
imposed in writing by the Adviser from time to time in order to facilitate
compliance with the above-mentioned restrictions and such other restrictions as
the Adviser may determine. Further, the Adviser or the Trustees of the Trust
may at any time, upon written notice to the Subadviser, suspend or restrict the
right of the Subadviser to determine what securities shall be purchased or sold
on behalf of the Portfolio and what portion, if any, of the assets of the
Portfolio allocated by the Adviser to the Subadviser shall be held uninvested.
The Subadviser shall also, as requested, make recommendations to the Adviser as
to the manner in which proxies, voting rights, rights to consent to corporate
action and any other rights pertaining to the Portfolio's portfolio securities
shall be exercised. Should the Board of Trustees of the Trust or the Adviser at
any time, however, make any definite determination as to investment policy
applicable to the Portfolio and notify the Subadviser thereof in writing, the
Subadviser shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination
has been revoked.

The Subadviser shall take, on behalf of the Portfolio, all actions which
it deems necessary to implement the investment policies determined as provided
above, and in particular to place all orders for the purchase or sale of
securities for the Portfolio's account with the brokers or dealers selected by
it, and to that end the Subadviser is authorized as the agent of the Trust to
give instructions to the custodian and any subcustodian of the Portfolio as to
deliveries of securities and payments of cash for the account of the Portfolio.
The Subadviser will advise the Adviser on the same day it gives any such
instructions. In connection with the selection of such brokers or dealers and
the placing of such orders, brokers or dealers may be selected who also provide
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934) to the Portfolio and/or the other accounts
over which the Subadviser or its affiliates exercise investment discretion. The
Subadviser is authorized to pay a broker or dealer who provides such brokerage
and research services a commission for executing a portfolio transaction for
the Portfolio which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if the Subadviser
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such

<PAGE>

broker or dealer. This determination may be viewed in terms of either that
particular transaction or the overall responsibilities which the Subadviser and
its affiliates have with respect to accounts over which they exercise
investment discretion. In making purchases or sales of securities or other
property for the account of the Portfolio, the Subadviser may deal with itself
or with the Trustees of the Trust or the Trust's underwriter or distributor to
the extent such actions are permitted by the 1940 Act. The Board of Trustees of
the Trust, in its discretion, may instruct the Subadviser to effect all or a
portion of its securities transactions with one or more brokers and/or dealers
selected by the Board of Trustees, if it determines that the use of such
brokers and/or dealers is in the best interest of the Trust.

3. Allocation of Charges and Expenses. The Subadviser shall furnish at its
own expense all necessary services, facilities and personnel in connection with
its responsibilities under Section 2 above. Except as provided in the foregoing
sentence, it is understood that the Trust will pay from the assets of the
Portfolio all of its own expenses allocable to the Portfolio including, without
limitation, organization costs of the Portfolio; compensation of Trustees who
are not "interested persons" of the Trust; governmental fees; interest charges;
loan commitment fees; taxes; membership dues in industry associations allocable
to the Trust; fees and expenses of independent auditors, legal counsel and any
transfer agent, distributor, registrar or dividend disbursing agent of the
Trust; expenses of issuing and redeeming beneficial interests and servicing
investor accounts; expenses of preparing, typesetting, printing and mailing
investor reports, notices, proxy statements and reports to governmental
officers and commissions and to investors in the Portfolio; expenses connected
with the execution, recording and settlement of security transactions;
insurance premiums; fees and expenses of the custodian for all services to the
Portfolio, including safekeeping of funds and securities and maintaining
required books and accounts; expenses of calculating the net asset value of the
Portfolio (including but not limited to the fees of independent pricing
services); expenses of meetings of the Portfolio's investors; expenses relating
to the issuance of beneficial interests in the Portfolio; and such
non-recurring or extraordinary expenses as may arise, including those relating
to actions, suits or proceedings to which the Trust on behalf of the Portfolio
may be a party and the legal obligation which the Trust may have to indemnify
its Trustees and officers with respect thereto.

4. Compensation of the Subadviser. For the services to be rendered by the
Subadviser hereunder, the Trust shall pay to the Subadviser from the assets of
the Portfolio an investment subadvisory fee, accrued daily and paid monthly, at
an annual rate equal to the percentages specified below of the aggregate assets
of the Portfolio allocated to the Subadviser:

0.65% on the first $10 million;
0.50% on the next $10 million;
0.40% on the next $10 million; and
0.30% on remaining assets.

<PAGE>

If the Subadviser serves as investment subadviser for less than the whole
of any period specified in this Section 4, the compensation to the Subadviser
shall be prorated.

5. Covenants of the Subadviser. The Subadviser agrees that it will not
deal with itself, or with the Trustees of the Trust or the Trust's principal
underwriter or distributor, if any, as principals in making purchases or sales
of securities or other property for the account of the Portfolio, except as
permitted by the 1940 Act, will not take a long or short position in beneficial
interests of the Portfolio except as permitted by the Declaration, and will
comply with all other provisions of the Declaration and By-Laws and the
then-current Registration Statement applicable to the Portfolio relative to the
Subadviser and its directors and officers.

6. Limitation of Liability of the Subadviser. The Subadviser shall not be
liable for any error of judgment or mistake of law or for any loss arising out
of any investment or for any act or omission in the execution of securities
transactions for the Portfolio, except for willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties hereunder. As used in this Section 6,
the term "Subadviser" shall include directors, officers, partners and employees
of the Subadviser as well as the Subadviser itself. The Adviser is expressly
made a third party beneficiary of this Agreement, and may enforce any
obligations of the Subadviser under this Agreement and recover directly from
the Subadviser for any liability the Subadviser may have hereunder.

7. Activities of the Subadviser. The services of the Subadviser to the
Portfolio are not to be deemed to be exclusive, the Subadviser being free to
render investment advisory and/or other services to others, including accounts
or investment management companies with similar or identical investment
objectives to the Portfolio. It is understood that Trustees, officers, and
investors of the Trust or the Adviser are or may be or may become interested in
the Subadviser, as directors, officers, partners, employees, or otherwise and
that directors, officers, partners and employees of the Subadviser are or may
become similarly interested in the Trust or the Adviser and that the Subadviser
may be or may become interested in the Trust as an investor or otherwise.

8. Duration, Termination and Amendments of this Agreement. This Agreement
shall become effective as of the day and year first above written, and shall
govern the relations between the parties hereto thereafter and shall remain in
force until January 22, 2001, on which date it will terminate unless its
continuance after January 22, 2001 is "specifically approved at least annually"
(a) by the vote of a majority of the Trustees of the Trust who are not
"interested persons" of the Trust or of the Adviser or of the Subadviser at a
meeting specifically called for the purpose of voting on such approval, and (b)
by the Board of Trustees of the Trust or by "vote of a majority of the
outstanding voting securities" of the Portfolio.

<PAGE>

This Agreement may be terminated at any time without the payment of any
penalty by (i) the Trustees, (ii) the "vote of a majority of the outstanding
voting securities" of the Portfolio, or (iii) the Adviser, in each case on not
more than 60 days' nor less than 30 days' written notice to the other party.
This Agreement may be terminated at any time without the payment of any penalty
by the Subadviser on not less than 90 days' written notice to the Adviser. This
Agreement shall automatically terminate in the event of its "assignment."

This Agreement constitutes the entire agreement between the parties and
may be amended only if such amendment is approved by the Subadviser and the
"vote of a majority of the outstanding voting securities" of the Portfolio
(except for any such amendment as may be effected in the absence of such
approval without violating the 1940 Act).

The terms "specifically approved at least annually," "vote of a majority
of the outstanding voting securities," "assignment," "affiliated person," and
"interested persons," when used in this Agreement, shall have the respective
meanings specified in, and shall be construed in a manner consistent with, the
1940 Act, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.

Each party acknowledges and agrees that all obligations of the Trust under
this Agreement are binding only with respect to the Portfolio; that any
liability of the Trust under this Agreement, or in connection with the
transactions contemplated herein, shall be discharged only out of the assets of
the Portfolio; and that no other series of the Trust shall be liable with
respect to this Agreement or in connection with the transactions contemplated
herein.

The undersigned officer of the Trust has executed this Agreement not
individually but in his capacity as an officer of the Trust under the
Declaration, and the obligations of this Agreement are not binding upon any of
the Trustees, officers or holders of beneficial interests in the Trust
individually.

9. Governing Law. This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth
of Massachusetts provided, however, that nothing herein will be construed in a
manner inconsistent with the 1940 Act or any rules or regulations of the
Securities and Exchange Commission thereunder.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.

ASSET ALLOCATION PORTFOLIOS MUTUAL MANAGEMENT
on behalf of Large Cap Value Portfolio CORP.

By: /s/ Philip Coolidge By: /s/ Heath B. McLendon

Title: President Title: President

The foregoing is acknowledged:

Citibank, N.A.

By: /s/ Lawrene Keblusek

Title: U.S. C.I.O.

EXHIBIT D(4)

FORM OF
SUB-MANAGEMENT AGREEMENT

ASSET ALLOCATION PORTFOLIOS

Foreign Bond Portfolio

SUB-MANAGEMENT AGREEMENT, dated March 1, 1999, by and between Asset
Allocation Portfolios (the "Trust"), and Salomon Brothers Asset Management
Limited, a British limited liability private corporation (the "Subadviser").

W I T N E S S E T H:

WHEREAS, Citibank, N.A. (the "Adviser") has been retained by the Trust to
act as investment adviser to the Trust with respect to the series of the Trust
designated as Foreign Bond Portfolio (the "Portfolio"), and

NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:

<PAGE>

conduct investment advisory activities relating to the Trust. The Subadviser
shall furnish continuously an investment program and shall determine from time
to time what securities shall be purchased, sold or exchanged and what portion
of the assets of the Portfolio allocated by the Adviser to the Subadviser shall
be held uninvested, subject always to the restrictions of the Trust's
Declaration of Trust, dated as of December 14, 1995, and By-laws, as each may
be amended from time to time (respectively, the "Declaration" and the
"By-Laws"), the provisions of the 1940 Act, and the then-current Registration
Statement of the Trust with respect to the Portfolio, and subject, further, to
the Subadviser notifying the Adviser in advance of the Subadviser's intention
to purchase any securities except insofar as the requirement for such
notification may be waived or limited by the Adviser, it being understood that
the Subadviser shall be responsible for compliance with any restrictions
imposed in writing by the Adviser from time to time in order to facilitate
compliance with the above-mentioned restrictions and such other restrictions as
the Adviser may determine. Further, the Adviser or the Trustees of the Trust
may at any time, upon written notice to the Subadviser, suspend or restrict the
right of the Subadviser to determine what securities shall be purchased or sold
on behalf of the Portfolio and what portion, if any, of the assets of the
Portfolio allocated by the Adviser to the Subadviser shall be held uninvested.
The Subadviser shall also, as requested, make recommendations to the Adviser as
to the manner in which proxies, voting rights, rights to consent to corporate
action and any other rights pertaining to the Portfolio's portfolio securities
shall be exercised. Should the Board of Trustees of the Trust or the Adviser at
any time, however, make any definite determination as to investment policy
applicable to the Portfolio and notify the Subadviser thereof in writing, the
Subadviser shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination
has been revoked.

<PAGE>

particular transaction or the overall responsibilities which the Subadviser and
its affiliates have with respect to accounts over which they exercise
investment discretion. In making purchases or sales of securities or other
property for the account of the Portfolio, the Subadviser may deal with itself
or with the Trustees of the Trust or the Trust's underwriter or distributor to
the extent such actions are permitted by the 1940 Act. The Board of Trustees of
the Trust, in its discretion, may instruct the Subadviser to effect all or a
portion of its securities transactions with one or more brokers and/or dealers
selected by the Board of Trustees, if it determines that the use of such
brokers and/or dealers is in the best interest of the Trust.

0.30% on the first $200 million;
0.25% on assets over $200 million

If the Subadviser serves as investment subadviser for less than the whole
of any period specified in this Section 4, the compensation to the Subadviser
shall be prorated.

<PAGE>

8. Duration, Termination and Amendments of this Agreement. This Agreement
shall become effective as of the day and year first above written, and shall
govern the relations between the parties hereto thereafter and shall remain in
force until March 1, 2001, on which date it will terminate unless its
continuance after March 1, 2001 is "specifically approved at least annually"
(a) by the vote of a majority of the Trustees of the Trust who are not
"interested persons" of the Trust or of the Adviser or of the Subadviser at a
meeting specifically called for the purpose of voting on such approval, and (b)
by the Board of Trustees of the Trust or by "vote of a majority of the
outstanding voting securities" of the Portfolio.

<PAGE>

by the Subadviser on not less than 90 days' written notice to the Adviser. This
Agreement shall automatically terminate in the event of its "assignment."

<PAGE>

ASSET ALLOCATION PORTFOLIOS SALOMON BROTHERS ASSET
on behalf of Foreign Bond Portfolio MANAGEMENT LIMITED

By:______________________________ By:______________________________

Title:___________________________ Title:___________________________

The foregoing is acknowledged:

Citibank, N.A.

By:______________________________

Title:___________________________

EXHIBIT H(3)

SERVICES AGREEMENT

SERVICES AGREEMENT, dated as of January 4, 1999, by and between CFBDS,
INC., a Massachusetts corporation ("CFBDS") and CITIBANK, N.A., a national
banking association ("Citibank").

W I T N E S S E T H :

WHEREAS, Citibank has been retained by certain registered open-end
management investment companies under the Investment Company Act of 1940, as
amended (the "1940 Act"), as listed on Schedule A hereto (each individually a
"Trust" and collectively the "Trusts"), to provide administrative services to
its investment portfolios, as listed on Schedule A hereto (each individually a
"Fund" and collectively the "Funds"), pursuant to separate Management
Agreements (each a "Management Agreement"), and

WHEREAS, as permitted by Section 1 of each Management Agreement, Citibank
desires to subcontract some or all of the performance of its obligations
thereunder to CFBDS, and CFBDS desires to accept such obligations; and

WHEREAS, Citibank wishes to engage CFBDS to provide certain administrative
services on the terms and conditions hereinafter set forth, so long as Citibank
shall have found CFBDS to be qualified to perform the obligations sought to be
subcontracted; and

WHEREAS, CFBDS desires to retain Citibank to perform certain services on
the terms and conditions hereinafter set forth, and Citibank is willing to
render such services.

NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:

1. Duties as CFBDS. Subject to the supervision and direction of Citibank,
CFBDS will assist in supervising various aspects of each Trust's administrative
operations and undertakes to perform the following specific services, from and
after the effective date of this Agreement:

(a) To the extent requested by Citibank, furnish Trust secretarial
services;

<PAGE>

(b) To the extent requested by Citibank, furnish Trust treasury services,
including the review of financial data, tax and other regulatory
filings and audit requests;

(c) To the extent requested by Citibank, provide the services of certain
persons who may be appointed as officers or Trustees of the Trust by
the Trust's Board;

(d) To the extent requested by Citibank, participate in the preparation
of documents required for compliance by the Trust with applicable
laws and regulations, including registration statements,
prospectuses, semi-annual and annual reports to shareholders and
proxy statements;

(e) To the extent requested by Citibank, prepare agendas and supporting
documents for and minutes of meetings of the Trustees, Committees of
Trustees and shareholders;

(f) Maintain books and records of the Trust;

(g) To the extent requested by Citibank, provide advice and counsel to
the Trust with respect to regulatory matters, including monitoring
regulatory and legislative developments which may affect the Trust
and assisting the Trust in routine regulatory examinations or
investigations of the Trust, and working closely with outside counsel
to the Trust in connection with litigation in which the Trust is
involved;

(h) To the extent requested by Citibank, generally assist in all aspects
of Trust's operations and provide general consulting services on a
day to day, as needed basis;

(i) In connection with the foregoing activities, maintain office
facilities (which may be in the offices of CFBDS or its corporate
affiliate); and

(j) In connection with the foregoing activities, furnishing clerical
services, and internal executive and administrative services,
stationery and office supplies.

Notwithstanding the foregoing, CFBDS under this Agreement shall not be
deemed to have assumed any duties with respect to, and shall not be responsible
for, the management of a Trust, or the distribution of beneficial interests in

<PAGE>

a Trust, nor shall CFBDS be deemed to have assumed or have any responsibility
with respect to functions specifically assumed by any transfer agent or
custodian of a Trust.

In performing all services under this Agreement, CFBDS shall (a) act in
conformity with the Trust's charter documents and bylaws, the 1940 Act and
other applicable laws, as the same may be amended from time to time, (b)
consult and coordinate with legal counsel for the Trust, as necessary or
appropriate, and (c) advise and report to the Trust and its legal counsel, as
necessary or appropriate, with respect to any material compliance or other
matters that come to its attention.

In performing its services under this Agreement, CFBDS shall cooperate and
coordinate with Citibank as necessary and appropriate and shall provide such
information as is reasonably necessary or appropriate for Citibank to perform
its obligations to the Trust. CFBDS shall perform its obligations under this
Agreement in a conscientious and diligent manner consistent with prevailing
industry standards.

2. Compensation of CFBDS. For the services to be rendered and the
facilities to be provided by CFBDS hereunder, CFBDS shall be paid an
administrative fee as may from time to time be agreed to between Citibank and
CFBDS.

3 Duties of Citibank. CFBDS hereby retains Citibank to perform the
following services, and Citibank hereby agrees to render such services for the
compensation and on the terms herein provided, from and after the effective
date of this Agreement:

(a) From time to time, Citibank will prepare marketing materials and
advertising materials for the Funds, will review such material for
compliance with applicable legal standards, submit such materials to
CFBDS for final review (unless such material is submitted to another
NASD member for review), assist CFBDS in connection with discussions
with NASD Regulation and others who review such materials submitted
by CFBDS, make responsive changes and obtain final approval for use
in a timely fashion, and arrange and pay for the production and
dissemination of such material. Citibank shall coordinate its
activities in this regard with brokers selling shares of the Funds
and may delegate its duties under this provision to others as
appropriate.

<PAGE>

(b) Citibank will provide liaison between CFBDS and the Funds, other
brokers selling shares of the Funds, and other parties related to the
operations of the Funds, and Citibank shall provide information and
assistance in this regard, as requested by CFBDS.

In performing its services under this Agreement, Citibank shall (a) act in
conformity with the Trust's charter documents, bylaws, prospectus, state of
additional information, the 1940 Act and other applicable laws, as the same may
be amended from time to time, and (b) cooperate and coordinate with CFBDS as
necessary and appropriate.

4. Compensation of Citibank. In consideration for the services to be
rendered by Citibank under this Agreement, CFBDS hereby assigns to Citibank for
the term of this Agreement all revenues payable to CFBDS pursuant to its
Distribution Agreements with the Trusts (as relate to the Funds) and/or any
related Distribution Plans or Service Plans of the Trusts (as relate to the
Funds) (the "Distribution Revenues"). Citibank will be solely responsible for
computing and collecting any and all Distribution Revenues to CFBDS and
assigned to Citibank hereby and it shall do so at its own expense. CFBDS shall
have no obligation to provide any accounting or other computation of the
Distribution Revenues to Citibank or to otherwise assist in the collection of
the Distribution Revenues, provided that CFBDS agrees to execute any
instruments or take any other actions reasonably necessary to effect or perfect
the assignment of the Distribution Revenues to Citibank, and the further
assignment by Citibank, at its discretion, of any part of the Distribution
Revenues to any other entity.

5. Limitation of Liability.

(a) CFBDS shall not be liable to Citibank for any error or judgment or
mistake of law or for any loss, liability, expense, or damage
(collectively a "Loss") suffered by Citibank in connection with the
performance of CFBDS' obligations and duties under this Agreement,
except a Loss resulting from CFBDS' willful misfeasance, bad faith,
or negligence in the performance of such obligations and duties.

(b) Citibank will indemnify CFBDS, its affiliated companies and its
officers, employees, and agents, and hold each of them harmless from
any and all losses, claims, damages, liabilities, or expenses
(including reasonable counsel fees and expenses) resulting from any
claim, demand, action, or suit relating to this Agreement, and not

<PAGE>

resulting from the willful misfeasance, bad faith or negligence of
CFBDS in the performance of its obligations under such agreements,
but only to the extent such losses, claims, damages, liabilities, or
expenses are not covered by an applicable insurance policy maintained
by CFBDS and/or its affiliates (other than by virtue of being part of
a deductible under any such policy). Citibank's indemnification
obligations under this Section (b) are expressly conditioned on
satisfaction of all the following requirements:

(i) CFBDS shall notify Citibank in writing of any claim, demand, or
other occurrence in respect of which CFBDS may seek
indemnification, promptly after CFBDS becomes aware of it;

(ii) Subject to the terms of any applicable insurance policies
maintained by CFBDS and/or its affiliates, Citibank shall have
the right to assume sole control of the defense of any
resulting action or suit; and

(iii) CFBDS shall not confess any claim or settle or make any
compromise relating thereto, except with Citibank's prior
written consent.

(c) CFBDS will indemnify Citibank, its affiliated companies, and their
officers, employees, and agents, and hold each of them harmless from
any and all losses, claims, damages, liabilities, or expenses
(including reasonable counsel fees and expenses) resulting from any
claim, demand, action, or suit relating to CFBDS' performance of its
obligations under this Agreement, not resulting from the willful
misfeasance, bad faith or negligence of Citibank or any of its
affiliated companies, but only to the extent such losses, claims,
damages, liabilities, or expenses are not covered by an applicable
insurance policy maintained by Citibank or any of its affiliates
(other than by virtue of being part of a deductible under any such
policy). CFBDS' indemnification obligations under this Section 5(c)
are expressly conditioned on satisfaction of all the following
requirements:

(i) Citibank shall notify CFBDS in writing of any claim, demand, or
other occurrence which relates to or in respect of which

<PAGE>

Citibank or any of its affiliates may seek indemnification,
promptly after Citibank becomes aware of it;

(ii) Subject to the terms of any applicable insurance policies
maintained by Citibank and/or its affiliates, CFBDS shall have
the right to assume sole control of the defense of any
resulting action or suit; and

(iii) Citibank and/or its affiliates shall not confess any claim or
settle or make any compromise relating thereto, except with
CFBDS' prior written consent.

6. Confidentiality.

(a) All books, records, information and data pertaining to the business
of Citibank, any of its affiliates, each Fund, each Fund's prior,
present, or potential shareholders, and the customers of Citibank or
any of its affiliates that are exchanged or received by CFBDS
pursuant to the performance of CFBDS' duties under this Agreement
shall remain confidential and shall not be disclosed to any other
person, except as specifically authorized in writing by the
applicable affiliate, Citibank, or Fund or as may be required by law,
and shall not be used for any purposes other than the performance of
CFBDS' responsibilities and duties hereunder. The provisions of this
Section 6(a) shall survive this Agreement's termination.

(b) All books, records, information and data that are the property of
CFBDS, which are not included in Section 6(a) above, and which were
received by Citibank or any of its affiliates pursuant to CFBDS'
performance of this Agreement, shall be treated as confidential and
shall not be disclosed to any other person, except as specifically
authorized in writing by CFBDS, as may be required by law or as may
be reasonably necessary in connection with the conversion to a
different party upon termination of this Agreement. The provisions of
this Section 6(b) shall survive termination of this Agreement.

7. Service to Other Companies or Accounts: Limitation on Other Activities.
During the term of this Agreement, CFBDS shall not conduct any business
activities other than as contemplated by (i) this Agreement; (ii) any
Distribution Agreement between CFBDS and a Trust; (iii) any distribution
contract between CFBDS and any other investment company advised or administered

<PAGE>

by a subsidiary of Citigroup Inc.; or (iv) any agreement between CFBDS and a
subsidiary of Citigroup Inc. Citibank acknowledges that the persons employed by
CFBDS to assist in the performance of CFBDS' duties under this Agreement may
not devote their full time to such service and nothing contained in this
Agreement shall be deemed to limit or restrict the right of any employee or
affiliate of CFBDS to engage in and devote time and attention to other business
or to render services of whatever kind or nature, provided such other
activities do not adversely affect CFBDS' performance hereunder, and that in
conducting such business or rending such services CFBDS' employees and
affiliates would take reasonable steps to assure that the other parties
involved are put on notice as to the legal entity with which they are dealing.

8. Books and Records; Audits; Reports. Citibank shall have the right at
any time to have representatives of its auditors and/or legal counsel, and/or
auditors and legal counsel of any of the Funds, and/or employees of any
affiliate to: (a) obtain full and complete access to any of CFBDS' books and
records relating to its services and duties required under this Agreement,
including, but not limited to, correspondence, contracts, agreements, bank
transaction documents and records of any type, receipts, ledgers, and any other
books of account ("Books and Records") and obtain a reasonable number of copies
of any such Books and Records; and (b) perform on-site audits at any of CFBDS'
system of internal controls with respect to its services and duties required
under this Agreement.

9. Change in Control. To the extent possible, CFBDS shall promptly provide
Citibank prior written notice of any change in "control" (as such term is
defined in the 1940 Act) of CFBDS.

10. Use of Name. Except as required by law, CFBDS shall not use the name
Citibank or Citicorp or Citigroup in any manner without Citibank's prior
written consent in any marketing or promotional materials for CFBDS. This
section 10 shall survive termination of this Agreement.

11. Insurance. CFBDS shall, during the term of this Agreement, maintain
directors/officers errors and omissions insurance coverage in the amount of $5
million.

12. Miscellaneous.

(a) Any notice or other written instrument authorized or required by this
Agreement to be given in writing to Citibank or CFBDS shall be
sufficiently given if addressed to the party and received by it at

<PAGE>

its office set forth below or at such other place as it may from time
to time designate in writing.

To Citibank:

Citibank, N.A.
425 Park Avenue
22nd Floor
New York, NY 10022
Attn: Andrew Shoup

To CFBDS:

CFBDS, Inc.
21 Milk Street
Boston, MA 02109
Attn: Philip Coolidge

(b) This Agreement shall extend to and shall be binding upon the parties
hereto and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable without the
written consent of the other party.

(c) This Agreement shall be construed in accordance with the laws of the
State of New York, without giving effect to its conflict of laws
principles.

(d) This Agreement may be executed in counterparts, each of which shall
be an original and which collectively shall be deemed to constitute
only one instrument.

(e) The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.

(f) The parties hereto acknowledge that in performing its services and
duties under this Agreement, each of Citibank and CFBDS shall do so
in the capacity of an independent contractor.

<PAGE>

13.Termination. This Agreement may be terminated by Citibank at any time,
in its entirety or as to one or more Funds, with or without cause. This
Agreement may be terminated by CFBDS, in its entirety or as to one or more
Funds, with or without cause, provided that CFBDS has notified Citibank of such
termination in writing at least 90 days prior to the effective date thereof.

CFBDS, INC. CITIBANK, N.A.

By: Philip Coolidge By: Andrew B. Shoup

Title: C.E.O. Title: Vice President

<PAGE>

SCHEDULE A

CitiFunds Trust I
CitiSelect(R) Folio 200
CitiSelect(R) Folio 300
CitiSelect(R) Folio 400
CitiSelect(R) Folio 500

CitiFunds Trust II
CitiFunds Large Cap Growth Portfolio
CitiFunds Small Cap Growth Portfolio
CitiFunds Small Cap Value Portfolio
CitiFunds Growth & Income Portfolio

CitiFunds Fixed Income Trust
CitiFunds Intermediate Income Portfolio

CitiFunds Tax Free Income Trust
CitiFunds New York Tax Free Income Portfolio
CitiFunds National Tax Free Income Portfolio
CitiFunds California Tax Free Income Portfolio

The Premium Portfolios
Large Cap Growth Portfolio
Small Cap Growth Portfolio
Growth & Income Portfolio
U.S. Fixed Income Portfolio
High Yield Portfolio

Asset Allocation Portfolios
International Portfolio
Large Cap Value Portfolio
Intermediate Income Portfolio
Foreign Bond Portfolio
Short-Term Portfolio
Small Cap Value Portfolio

Variable Annuity Portfolios
CitiSelect(R) VIP Folio 200
CitiSelect(R) VIP Folio 300
CitiSelect(R) VIP Folio 400
CitiSelect(R) VIP Folio 500
CitiFunds Small Cap Growth VIP Portfolio

<ARTICLE> 6
<CIK> 0001005109
<NAME> LARGE CAP VALUE PORTFOLIO
<SERIES>
<NUMBER> 1
<NAME> ASSET ALLOCATION PORTFOLIOS

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 135,403,084
<INVESTMENTS-AT-VALUE> 128,221,708
<RECEIVABLES> 1,209,068
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 238
<TOTAL-ASSETS> 129,431,014
<PAYABLE-FOR-SECURITIES> 60,751
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 60,751
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 129,260,227
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 129,260,227
<DIVIDEND-INCOME> 2,418,722
<INTEREST-INCOME> 144,546
<OTHER-INCOME> 0
<EXPENSES-NET> 1,011,413
<NET-INVESTMENT-INCOME> 1,551,855
<REALIZED-GAINS-CURRENT> 8,655,223
<APPREC-INCREASE-CURRENT> (18,203,522)
<NET-CHANGE-FROM-OPS> (7,996,444)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 279,612,949
<NUMBER-OF-SHARES-REDEEMED> (142,356,278)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 129,260,227
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 778,153
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,011,413
<AVERAGE-NET-ASSETS> 129,692,176
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 0.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0001005109
<NAME> FOREIGN BOND PORTFOLIO
<SERIES>
<NUMBER> 3
<NAME> ASSET ALLOCATION PORTFOLIOS

<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 382,693,947
<INVESTMENTS-AT-VALUE> 391,754,886
<RECEIVABLES> 136,985,781
<ASSETS-OTHER> 6,557
<OTHER-ITEMS-ASSETS> 1,183,800
<TOTAL-ASSETS> 529,931,024
<PAYABLE-FOR-SECURITIES> 238,239,470
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 238,239,470
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 282,265,478
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 282,265,478
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,101,320
<OTHER-INCOME> 0
<EXPENSES-NET> 1,973,507
<NET-INVESTMENT-INCOME> 12,127,813
<REALIZED-GAINS-CURRENT> 319,290
<APPREC-INCREASE-CURRENT> 17,490,716
<NET-CHANGE-FROM-OPS> 29,937,819
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 355,866,842
<NUMBER-OF-SHARES-REDEEMED> (103,539,183)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 282,265,478
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,466,849
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,973,507
<AVERAGE-NET-ASSETS> 266,699,784
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 0.74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0001005109
<NAME> SHORT TERM PORTFOLIO
<SERIES>
<NUMBER> 5
<NAME> ASSET ALLOCATION PORTFOLIOS

<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 81,841,534
<INVESTMENTS-AT-VALUE> 81,941,475
<RECEIVABLES> 565,556
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 229
<TOTAL-ASSETS> 82,507,260
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 82,349,195
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 82,349,195
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,288,201
<OTHER-INCOME> 0
<EXPENSES-NET> 456,367
<NET-INVESTMENT-INCOME> 4,831,834
<REALIZED-GAINS-CURRENT> 40,471
<APPREC-INCREASE-CURRENT> 92,687
<NET-CHANGE-FROM-OPS> 4,964,992
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 476,612,362
<NUMBER-OF-SHARES-REDEEMED> (399,228,159)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 82,349,195
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 232,872
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 456,367
<AVERAGE-NET-ASSETS> 93,148,800
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 0.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0001005109
<NAME> INTERNATIONAL PORTFOLIO
<SERIES>
<NUMBER> 4
<NAME> ASSET ALLOCATION PORTFOLIOS

<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 236,796,167
<INVESTMENTS-AT-VALUE> 228,997,921
<RECEIVABLES> 2,168,077
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 598,943
<TOTAL-ASSETS> 231,764,941
<PAYABLE-FOR-SECURITIES> 217,060
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 217,060
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 230,946,306
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 230,946,306
<DIVIDEND-INCOME> 6,427,710
<INTEREST-INCOME> 313,385
<OTHER-INCOME> 0
<EXPENSES-NET> 2,430,281
<NET-INVESTMENT-INCOME> 4,310,814
<REALIZED-GAINS-CURRENT> 4,002,173
<APPREC-INCREASE-CURRENT> (20,091,760)
<NET-CHANGE-FROM-OPS> (11,778,773)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 593,863,296
<NUMBER-OF-SHARES-REDEEMED> (351,138,217)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 230,946,306
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
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</TABLE>

<ARTICLE> 6
<CIK> 0001005109
<NAME> INTERMEDIATE INCOME PORTFOLIO
<SERIES>
<NUMBER> 6
<NAME> ASSET ALLOCATION PORTFOLIOS

<S> <C>
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<FISCAL-YEAR-END> OCT-31-1998
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</TABLE>

<ARTICLE> 6
<CIK> 0001005109
<NAME> SMALL CAP VALUE PORTFOLIO
<SERIES>
<NUMBER> 2
<NAME> ASSET ALLOCATION PORTFOLIOS

<S> <C>
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<FISCAL-YEAR-END> OCT-31-1998
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</TABLE>